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Failure to Proceed Diligently with Arbitration Relevant in Assessment of Damages

Mon, 2020-01-27 19:00

Foo Joon Liang and Raina Lee Pay Wen

The dilatory tactics of some claimant parties in conducting arbitration proceedings can often be frustrating and can result in unnecessary costs and expenses. In the judgment of Jaks Island Circle Sdn Bhd (“Jaks Island”) v. Star Media Group Bhd (“Star Media”) and AmBank (M) Berhad (“AmBank”) [Originating Summons No.: WA-24C(ARB)-11-02/2018] issued in 2019, the Malaysian High Court considered a party’s failure to proceed diligently with the arbitration to be relevant in assessing damages arising out of an undertaking given to the Court pursuant to an ad-interim injunction.

 

Case summary

The original dispute arose between Jaks Island and Star Media in relation to a breach of a sale and purchase agreement. Star Media issued notices to AmBank and UOB to call on the unconditional on-demand performance bond furnished by Jaks Island.

On 23 February 2018, Jaks Island filed two separate originating summonses, seeking an injunction to restrain Star Media from receiving the bank guarantees in the sum of RM25 million each from AmBank and UOB.

These originating summonses were filed pursuant to Section 11(1)(h) of the Malaysian Arbitration Act 2005 (“Act”) which states that:

 

11.    Arbitration Agreement and Interim Measures by High Court

 1)       A party may, before or during arbitral proceedings, apply to a High Court for any interim measure and the High Court may make the following orders for: … h) an interim injunction or any other interim measure.

In obtaining the ad-interim injunction pending the hearing proper of the injunction, Jaks Island gave an undertaking as to damages to preserve the status quo of the matter. However, the Malaysian High Court dismissed the injunction.

Aggrieved by the High Court’s decision, Jaks Island appealed but its appeals in the Court of Appeal and the Federal Court were dismissed with costs. Consequently, Star Media applied to the High Court for an inquiry of damages pursuant to the undertaking given by Jaks Island at the High Court.

In considering whether to enforce the undertaking, Justice Lee Swee Seng (as his lordship then was) relied on the principles enunciated from the Federal Court’s decision of GS Gill Sdn Bhd v Descente Ltd [2010] 4 MLJ 609, that:

i. If an interlocutory injunction is wrongly granted, the trial judge should make an order for inquiry of damages on the undertaking given by the plaintiff applying for the interlocutory injunction;

ii. The plaintiff has to provide reasons as to why the undertaking given should not be enforced; and

iii. Special circumstances exist that justify such an order.

Based on the above principles, the High Court held that:

i. Jaks Island failed to provide a cogent reason as to why the undertaking should not be enforced; and

ii. it was not a special circumstance to refuse enforcement of an undertaking even if the arbitration award “may very well be in favour of” Jaks Island and Star Media has to refund the money it received under the bank guarantees. The Court considered that if this was otherwise, it will discourage businesses from using bank guarantees to allocate risk.

In the circumstances, the enforcement of undertaking should not be prolonged until the disposal of the arbitration.

What was noteworthy was that the High Court took into consideration the delay in the arbitration proceeding. The Notice of Arbitration was issued by Jaks Island to Star Media on 6 March 2018 and as at the date of the decision (i.e. 19 June 2019), an arbitration tribunal had not been constituted.

Jaks Island’s counsel argued that the delay in progress was due to the lack of response from Star Media on its proposed arbitrators. However, the High Court rejected the argument. The court held that default provisions in most arbitration rules would have dealt with this situation and such lack of response was not a cogent reason for not proceeding with the arbitration, unless the arbitration agreement did not incorporate any arbitration rules.

 

Default provisions under the Arbitration Act 2005 should have applied

It was argued by Jaks Island that the arbitration could not proceed further because Star Media did not respond to its list of proposed arbitrators. However, we submit that if parties could not agree on the appointment of arbitrator, parties should rely on Section 13 of the Act as a recourse, namely, when parties failed to agree on the procedure, application can be made to the Director of the Asian International Arbitration Centre (“AIAC”) to appoint an arbitrator1)Section 13(5)(b) of Arbitration Act 2005. jQuery("#footnote_plugin_tooltip_3331_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3331_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

If the parties have agreed on the procedure for appointment of arbitrator, but a party failed to act as required under such procedure; or parties are unable to reach an agreement under such procedure; or a third party, including an institution failed to appoint an arbitrator, any party may request the Director of AIAC to take the necessary measures2)Section 13(6) of Arbitration Act 2005. jQuery("#footnote_plugin_tooltip_3331_2").tooltip({ tip: "#footnote_plugin_tooltip_text_3331_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In the event the Director of AIAC fails to act within 30 days from the request, any party may apply to the High Court to appoint an arbitrator3)Section 13(7) of Arbitration Act 2005. jQuery("#footnote_plugin_tooltip_3331_3").tooltip({ tip: "#footnote_plugin_tooltip_text_3331_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Therefore, Jaks Island could have proceeded diligently with the arbitration even if Star Media failed to respond to its proposals on the arbitrator.

 

Would Jaks Island have a better chance under the Arbitration (Amendment) Act 2018?

Jaks Island’s originating summonses were filed before the coming into force of the Arbitration (Amendment) Act 2018 on 8 May 2018. Section 11(1)(h) has now been removed from the Act.

With the Arbitration (Amendment) Act 2018, a party can now apply to the arbitrator4)Section 19(2)(a) of Arbitration (Amendment) Act 2018. jQuery("#footnote_plugin_tooltip_3331_4").tooltip({ tip: "#footnote_plugin_tooltip_text_3331_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and/or the High Court5)Section 11(1)(a) of Arbitration (Amendment) Act 2018. jQuery("#footnote_plugin_tooltip_3331_5").tooltip({ tip: "#footnote_plugin_tooltip_text_3331_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); for an interim measure to “maintain or restore the status quo pending the determination of the dispute”. Although there is an overlap between Section 11(a) and 19(2)(a) of Arbitration (Amendment) Act 2018, Section 11(2) in both the Act and Arbitration (Amendment) Act 2018 allows party to apply to the High Court for the same interim measure in the event that the arbitrator dismisses the application.

However, the High Court is bound by the finding of facts by the arbitrator and is not empowered to reconsider the finding of facts by the arbitrator. This is confirmed by the High Court in IJM Construction Sdn Bhd v Lingkaran Luar Butterworth [2018] 7 MLJ 341 that:

 

…part of the arbitrator’s ruling or decision on interim measure other than the findings of fact are open to reconsideration and fresh decision by the High Court under a s.11(1) application.”

In this regard, reference can be made to a recent Court of Appeal’s decision in Obnet Sdn Bhd v Telekom Malaysia Bhd [2019] 6 MLJ 707 where the Court of Appeal set aside a High Court’s order that allowed Telekom Malaysia Bhd’s (“TM”) application for discovery of a settlement agreement (“Discovery Application”).

The High Court allowed the Discovery Application notwithstanding that the arbitrator had dismissed TM’s discovery application and that it is bound by the finding of facts by the arbitrator. The Court of Appeal held that the High Court has no jurisdiction to interfere with the arbitrator’s finding of facts.

The Court of Appeal further found that the relief sought under Section 11 of the Act must be interim in nature. Where the relief sought under the Discovery Application is permanent in nature, this would have exceeded the court’s jurisdiction under Section 11 of the Act. In these circumstances, the learned judge in the High Court ought to have dismissed the Discovery Application.

The Court of Appeal also held that Section 11 of the Act 2005 is “designed to support and facilitate the arbitral process and not to displace it. The approach, in the context of s.11, must be not to encroach on the procedural powers of the arbitrators but to reinforce them.”

Hence if an application was instead made to the tribunal pursuant to Section 19(2)(a) of the Arbitration (Amendment) Act 2018, assuming an undertaking as to damages had been given, Jaks Island may have a better chance of delaying the inquiry of damages to the conclusion of the arbitration. Jaks Island’s exposure to damages, if any, would also have been delayed accordingly.

 

For further information on arbitration in Malaysia, see here

 

References   [ + ]

1. ↑ Section 13(5)(b) of Arbitration Act 2005. 2. ↑ Section 13(6) of Arbitration Act 2005. 3. ↑ Section 13(7) of Arbitration Act 2005. 4. ↑ Section 19(2)(a) of Arbitration (Amendment) Act 2018. 5. ↑ Section 11(1)(a) of Arbitration (Amendment) Act 2018. 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: The Decision-Making Process of Investor-State Arbitration Tribunals
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2019 in Review: Noteworthy Developments in East and Central Asia

Sun, 2020-01-26 19:00

Theresa Tseung (Assistant Editor for East and Central Asia) and Arie C. Eernisse (Assistant Editor for East and Central Asia)

Gong Xi Fa Cai! The Year of the Earth Pig has drawn to a close. In what was certainly an auspicious and lucky year for arbitration developments in East and Central Asia, we take a closer look at five key developments:

 

1. Initiatives in PR China to boost arbitration

In southern coastal China, the Outline Development Plan for the Guangdong – Hong Kong – Macao Greater Bay Area was announced on 18 February 2019, with the aim to develop cities of the Pearl Delta Region in the Southern coast of China into a megapolitan focusing on innovation, technological advancement and economic development. Increased needs for dispute resolution services arising from the region are anticipated as the Greater Bay Area foresees growth in foreign investment, maritime-related transactions, infrastructure and construction projects, and demand for intellectual property development in support of its development strategy.

Formerly, there were no provisions in the PR Chinese legal framework that expressly permit foreign arbitral institutions to administer cases seated in mainland China. On 6 August 2019, the Framework Plan for the New Lingang Area of the China (Shanghai) Pilot Free Trade Zone was published which paved the way for foreign arbitration and dispute resolution institutions to set up operations in that area. Specifically, registered institutions will be permitted to administer arbitrations involving civil and commercial disputes, and to implement rules to allow interim measures such as preservation of assets and evidence in favour of both PR China and foreign parties (see further discussion in previous post).

Progress was also made with regard to online dispute resolution (“ODR”) in PR China. As explored in the post on ODR, China has made strides towards utilisation of artificial intelligence tools for online courts, arbitration and mediation for cross-border small value disputes in particular. In this regard, our previous post has discussed the launch of online platforms by arbitral institutions such as the Guangzhou Arbitration Commission which aim at improving flexibility, efficiency and time-effectiveness of arbitral proceedings in response to the exponential growth of e-commerce in mainland China. As technology rapidly advances, the use of AI-arbitrator may no longer be a myth but a real possibility in the foreseeable future.

 

2. Resolving trade tensions in Northeast Asia

Trade tensions between Korea and Japan increased significantly during the summer of 2019 and, at the height of these tensions, the Blog explored avenues for resolving the dispute in a two-part series of articles (Part I and Part II). Our contributors first explained the nature of the dispute, which arose when Japan introduced measures affecting exports to Korea of three chemicals used by Korean companies to make semiconductors, memory chips and displays for consumer electronics. They then analyzed the various dispute resolution possibilities that the two countries and their affected corporations may resort to, including inter-state arbitration, WTO dispute settlement, investor-state dispute settlement or mediation.

 

3. Central Asian jurisdictions continued to enhance arbitration infrastructure

Kazakhstan internationalised its international arbitration law in January 2019 (see rough translation in English of the Law) to align it with international conventions and practice. The more important 2019 amendments relax the requirements for the arbitration agreement, enable foreign law to be chosen to govern the dispute, allow the tribunal to use foreign law to determine the governing law, reduce the grounds for annulment of an award, internationalise the grounds for refusing to recognise an award, and restrict a state party’s revocation of consent to arbitration.

The Astana International Financial Centre (“AIFC”) in Kazakhstan came into existence in 2018, and the efforts to reform Kazakhstan’s international arbitration law (described above) were also aimed at bolstering the AIFC’s International Arbitration Centre. Similarly the Tashkent International Arbitration Centre in Uzbekistan, which was established in November 2018, began administering disputes.

In Kyrgyzstan, the government proposed institutionalizing arbitration as a mechanism for improving access to justice and addressing pervasive corruption. The government has proposed developing a system of dispute settlement between entrepreneurs and administrative state bodies in the International Arbitration Court of Kyrgyzstan.

In Georgia the Supreme Court upheld a permissive ICC arbitration clause, sending a clear pro-enforcement message.

Further several notable conferences, fora and events touched on issues of importance to arbitration Central Asia.

In April 2019, at the American Bar Association’s Section of International Law Annual Conference arbitration practitioners and others shared insights on challenges to Central Asia arising from China’s Belt and Road Initiative, including through the investor-state dispute settlement mechanism. Also in April 2019, arbitration practitioners and others took part in the inaugural Tashkent Law Spring Legal Forum, which featured several panels that focused on international arbitration. On a related note, one of our contributors detailed damages considerations that are especially pertinent to Central Asian investment disputes.

At the Paris Arbitration Week’s second edition of Jeantet “Arbitrating in CEE and CIS” roundtable, practitioners discussed issues of transparency, accountability and choice of arbitrators. In May 2019, a Young ICCA Workshop was held in Bishkek, Kyrgyzstan, prompting reflection on the state of arbitration law and practice in Kyrgyzstan. In November 2019, leading arbitral institutions in the region participated in the Belt and Road Arbitration Institutions Roundtable Forum in Beijing.

 

4. Significant challenges to growth of arbitration in Central Asia

Obstacles hindering the growth of arbitration in Central Asian jurisdictions continued to exist.

In Armenia, the Civil Appeals Court found that arbitral tribunals do not have competence over the issue of contract invalidity. In 2014, Armenia’s highest court found that only state courts may exercise jurisdiction over the issue of contract invalidity. Thereafter, the Parliament amended the Civil Code in 2015 to provide that civil rights may be protected by a court or arbitral tribunal. Notwithstanding that, our contributor opined that the latest court decision in April 2019 indicates the court practice of rejecting the jurisdiction of arbitral tribunals over the contract invalidity issue appears to remain intact.

In Uzbekistan, the Supreme Court and lower courts refused to accept a UK-based company’s claim for recognition and enforcement of an arbitral award based on dubious jurisdictional grounds. The courts referred to Article III of the New York Convention, quoting that “each contracting state shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon….”  The court rejected jurisdiction under Article 249 of Economic Procedural Code and refused to conduct a hearing.

In Azerbaijan, analysis of the legal framework and recent developments suggests that, while the state has liberal and pro-arbitration legislation concerning recognition and enforcement of foreign arbitral awards, the actual application of the laws may not reflect that.

 

5. Relentless drive to improve Hong Kong’s arbitration framework

As reported in our Blog, following the publication of the Code of Practice for Third Party Funding of Arbitration in December 2018, the amendments to Arbitration Ordinance (Cap. 609) came fully into force on 1 February 2019 (save for provisions which relate to third party funding of mediation), thereby expressly permitting parties the use of third party funding for arbitrations in Hong Kong.

Previously, international commercial parties had no choice but to arbitrate in mainland China if they wish to ensure the availability of interim measures in the PR China (see posts here and here). Since the Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong Special Administrative Region was brought into force on 1 October 2019, the courts of each jurisdiction may now award interim measures in support of arbitrations seated in the other territory (see also commentary from the Mainland China perspective: Part I and Part II). Parties have swiftly begun utilising this instrument by filing with the Hong Kong international Arbitration Centre (“HKIAC”), five applications for interim measures to be ordered by courts in mainland China, with the first of such orders granted by the Shanghai Maritime Court on 8 October 2019.

These widely welcomed developments to Hong Kong’s arbitration framework stand to bolster its reputation as a key arbitral seat for international disputes, despite recent public unrest in the territory as discussed in our previous post.

Our live coverage of Hong Kong Arbitration Week also continued for the second year. We kicked off our coverage with a vivid conversation with Joe Liu of HKIAC and concluded it with a heartfelt interview with Winnie Tam, Senior Counsel. We also invited three next-generation arbitration practitioners in Hong Kong to provide their views on the future of arbitration in Hong Kong. Topics covered by our other contributors included the suitability of arbitration for resolving private equity, financial services and insurance disputes, proliferation of institutional rules, as well as sustainability of arbitration.

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Hungary: Setting Aside Arbitral Awards in the Last 25 Years – A Pro-Arbitration Approach with Minor Derailments

Sun, 2020-01-26 00:57

Richard Schmidt

Two and a half decades have passed since Hungary harmonised its arbitration law with UNCITRAL Model Law (‘Model Law’) in 1994. This marked a giant leap forward, especially as the adopted provisions were made applicable not only in international, but in purely domestic arbitrations as well. This post analyses the Hungarian case law on setting aside procedures that has been produced since the country adhered to the Model Law.

As will be shown by examining the standard of review and the selected grounds of annulment set forth by Article 34 of the Model Law (adopted verbatim in Hungary), apart from some judicial decisions that were rather exceptions than the rule, the Hungarian courts have usually adopted a pro-arbitration approach in the last 25 years.

 

Background

With the fall of communism in 1989-90 in Hungary, the country started its European integration process in the early 1990s. The termination of the Moscow Treaty of 1972 governing arbitration in Comecon1)The Council for Mutual Economic Assistance (Comecon) was an international organisation under the leadership of the Soviet Union. jQuery("#footnote_plugin_tooltip_2622_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2622_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); countries on 14 October 1994 and the entry into force of the Hungarian Arbitration Act2)Hungarian Act LXXI of 1994 on Arbitration. jQuery("#footnote_plugin_tooltip_2622_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2622_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); (‘Arbitration Act’) two months later, on 13 December 1994, were two major symbolic steps on this road.

Hungary was not only the first country from the so-called Eastern Bloc to import the Model Law into its legal system, but also a pioneer among the Model Law jurisdictions by making it applicable to both international and purely domestic arbitral proceedings.

 

Jurisdiction

In an early case (BH 1998.11.550), in which the arbitration proceedings took place in Germany, and the award-debtor tried to get the award annulled in Hungary, the Supreme Court established that Hungarian courts do not have jurisdiction to set aside awards rendered in proceedings where the place of arbitration was abroad, save where the tribunal applied the Hungarian law.

Even if this exception left open the door to the extraterritorial application of the Arbitration Act, there have not been any domestic decisions diverging from the mainstream direction of the Model Law.

 

Exhaustive List, No Review of the Merits

In another annulment case (BH 1996. 159), the plaintiff failed to indicate the precise grounds of challenge. The Hungarian Supreme Court decided that the eventual unfavourable outcome of arbitration or a general reference to an unfounded decision of the tribunal shall not be a ground for setting aside, since the exhaustive list of grounds of annulment may not be modified.

In another case (EH 2008.1705), a legal dispute arose as a result of the project delay between the employer and the main-contractor of a works contract for the realisation of an industrial plant. The Supreme Court again noted that there is no place to review of the merits of the arbitral award by reconsidering in the annulment procedure whether the actual take-over of the plant, excluding the delay and liquidated damages, occurred or not.

Overall, these decisions are a telling illustration that the guiding principles of setting aside procedures in Hungary were laid down in conformity with the spirit of the Model Law.

 

Invalidity of Arbitration Agreement – Article 34(2)(a)i)

In the mid-2000s, the Internet Providers’ Council’s (‘IPC’) set up an ‘ad-hoc’ arbitration tribunal, effectively absorbing all domain-related disputes under its jurisdiction. In a setting aside procedure against one of its awards, the Supreme Court (BH 2004.73) qualified this tribunal as a de facto arbitral institution created without proper legal basis and declared the underlying arbitration clause invalid.

Unlike in some other jurisdictions (e.g., Austria) where setting aside of an award denying jurisdiction despite the existence of a valid arbitration agreement is possible3)UNCITRAL 2012 Digest of Case Law in the Model Law on International Commercial Arbitration, p.138. jQuery("#footnote_plugin_tooltip_2622_3").tooltip({ tip: "#footnote_plugin_tooltip_text_2622_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, the Supreme Court (BH 2009.10.299) ruled that an alleged erroneous denial of jurisdiction by the arbitral tribunal may not lead to the setting aside of the award, even if the state court had already terminated the litigation in respect of the same claim.

While preventing the fragmentation of arbitral institutions was a wise decision in the IPC case because the knowledge-concentration is crucial in small jurisdictions such as Hungary, when it comes to erroneous denial of jurisdiction, it would have been more appropriate for the Supreme Court to take the Austrian approach. Even if Austria is in minority amongst the Model Law jurisdictions, the review of negative jurisdictional decisions better serves the parties’ right to access to justice, which, all things considered, is a fundamental right.

 

Denial of Opportunity to Present the Case – Article 34(2)(a)ii)

In the period examined, numerous award-debtors were successful in arguing that they were unable to present [their] case.

For example, the award was set aside (BH 2016.122) based on this ground in a case where the request for arbitration had not been sent directly to the defendant, despite what the rules of procedure of the institution had set out. In another case, the same result was reached (EH 2010.2150) as the request for arbitration was sent to the service agent of the shareholder and not directly to the foreign defendant.

Another wave of judgments annulled the arbitral awards on the same ground. Examples of these are cases where the tribunal reclassified factual or legal issues like the invalidity of a commercial contract (EH 2011.2421), or the method of calculation of purchase price in a post-merger dispute (EH 2008.1794), failing to inform the parties of such developments.

While annulling awards because of postal service issues may seem to be too formalistic, the approach of the Supreme Court to set aside arbitral decisions because of reclassifying issues should be welcomed since these awards were made by breaching the parties’ most fundamental procedural rights in arbitration.

By forbidding the reclassification of factual or legal issues, the Supreme Court successfully prevented the emergence of ‘surprise awards’ which could have a detrimental effect on domestic arbitration, undermining any reasonable expectation regarding foreseeability.

 

Scope of Submission and Incorrect Procedure – Article 34(2)(a)iii)-iv)

The wrong delimitation of the scope of the submission to arbitration caused rarely any problem in practice. However, there is an abundance of cases within the last 25 years where the award was annulled by reason of incorrect procedure.

From the 2000s, the Supreme Court started to elaborate its jurisprudence in relation to the arbitration clauses in standard terms. In B2B relations these clauses could be invoked only if they were individually negotiated by the parties (EH 2007.1624) while in B2C relations there was a presumption that individual negotiation had not happened (BH 2012.296).

This resulted in the setting aside of more arbitral awards based on incorrect procedure, and eventually, in the unfortunate step of the lawmaker to render consumer disputes generally non-arbitrable in the New Hungarian Arbitration Act, with effect from 1 January 2018.4)Hungarian Act LX of 2017 on Arbitration. jQuery("#footnote_plugin_tooltip_2622_4").tooltip({ tip: "#footnote_plugin_tooltip_text_2622_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Sometimes, the Supreme Court took perhaps a too conservative approach, for example, when it annulled the award made by two arbitrators (BH 2010.96), after the third withdrew from office during the deliberation, reproaching to the truncated tribunal that it failed to wait for a new arbitrator appointment.

Some years later the Supreme Court went even further (BH 2017.126) by annulling an award because of the non-respect of the deliberation in a ‘closed session’ rule set forth by the rules of procedure of an arbitral institution.

The above decisions, especially the last one, indicates too strong formalism which is irreconcilable with the mode of operation of modern arbitration. In the contemporary world, the sessions of arbitral tribunals are mostly ‘virtual’, organised with the aid of modern telecommunications technologies. Thus, it goes without saying that a Supreme Court decision, by reproaching the lack of personal presence of arbitrators at deliberation, is hardly reconcilable not only with the spirit of the Model Law, but also with the realities of modern-day arbitration.

 

Violation of Public Policy – Article 34(2)(b)

It was laid down in the mid-1990s that the violation of public policy can lead to the setting aside of the award only in case of a manifest and serious infringement of the basis of the social-economic order. In addition, to annul an arbitral award on this ground, the violation of public policy shall go beyond the bilateral relationship of the parties to infringe the public interest of the whole society (BH 1997.489).

In a decision from the early 2000s (BH 2003.3.127), which was subsequently strongly criticised by the academics and practitioners because of its too extensive interpretation of public policy, the award was annulled because the arbitral tribunal awarded unusually high attorney’s fees in a high-volume arbitration. This, according to the Supreme Court, was “unacceptable for the social common sense”.

Fortunately, in the following years, Hungarian courts took a more pro-arbitration approach, and they were reluctant to set aside arbitral awards on the basis of public policy in case of a minor breach of procedural or substantive law (BH+ 2006.84), or when the award failed to clarify the contradictions of the expert opinion (BH 2006.257).

Similarly, the request for annulment was dismissed in a case in which the arbitral tribunal disregarded the motions for evidence submitted by one of the parties (BH+ 2015.220). The same result was reached when the arbitral award suffered from an error in calculation (BH+ 2006.460), and also when the limitation period of a claim was wrongly calculated (BH 2017.411).

 

Conclusion

The examination of the Hungarian case law on setting aside of arbitral awards in the last 25 years shows that, after setting a strong foundation in respect of the guiding principles (e.g., no review of the merits and an exhaustive list of annulment), sometimes minor derailments took place. The excessive conservatism in relation to arbitration clauses in standard terms, the reluctance to accept modern telecommunication technologies, or the broad interpretation of the public policy to cover high attorney’s fees are illustrative examples for this.

Fortunately, due to the Supreme Court’s intervention, the institutional landscape has not become too fragmented, the era of ‘surprise awards’ did not materialise, and in the vast majority of cases, the Hungarian courts were able to apply the pro-arbitration philosophy in practice, thus making Hungary an arbitration-friendly Model Law jurisdiction.

References   [ + ]

1. ↑ The Council for Mutual Economic Assistance (Comecon) was an international organisation under the leadership of the Soviet Union. 2. ↑ Hungarian Act LXXI of 1994 on Arbitration. 3. ↑ UNCITRAL 2012 Digest of Case Law in the Model Law on International Commercial Arbitration, p.138. 4. ↑ Hungarian Act LX of 2017 on Arbitration. 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: The Decision-Making Process of Investor-State Arbitration Tribunals
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A Comparative Analysis of Content-of-Laws Inquiry and Its Importance for International Commercial Arbitration

Sat, 2020-01-25 00:59

Pelin Baysal and Muzaffer Atar

How is the content of laws determined, and by whom, in international commercial arbitration?

This topic mainly concerns an old legal assumption: iura novit curia, the Latin legal maxim for “the court knows the law”. While somewhat reasonable and predictable on the face of it since anyone can reasonably expect the court to know the law, the assumption paves the way for some serious practical consequences: If the court knows the law, parties are mostly expected to furnish the facts alone and leave the establishment of the law to the courts who are not bound by the legal arguments advanced by parties. At extremes, a court can also apply the law which has never been argued by any party who may be inevitably deprived of their right to be heard.

The maxim “iura novit curia” allows courts an investigative approach to the determination of the law and is mostly known as a reflection of investigative (inquisitorial) legal tradition as followed by civil law countries. On the contrary, common law tradition is generally thought to place importance on the adversarial setting where parties are expected to ascertain and even prove the law as if it is a factual matter. As an extension of the civil law approach, Turkish Law dictates that a judge determines the content of foreign law and applies the same to the dispute on its own motion.1)See the Law No. 5718, Article 2/1 which reads as follows “judge applies the conflict of laws rules and the applicable foreign law as per such rules on his own motion”. jQuery("#footnote_plugin_tooltip_1458_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1458_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Common Law approach, on the other hand, applies a completely different treatment when it comes to the application of foreign law. For example, in England, the judge resolves the dispute according to English Law unless the contents of the applicable foreign law are sufficiently proven by the concerned party.2)In the same direction see Bumper Development Corporation v Commissioner of Police of Metropolis [1991] 1 WLR 1362, 1368. jQuery("#footnote_plugin_tooltip_1458_2").tooltip({ tip: "#footnote_plugin_tooltip_text_1458_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In arbitration, “iura novit curia” translates as “iura novit arbiter” for the same purposes. And the distinction between common and civil law approaches plays a vital role. If not perceived correctly by arbitrators or counsels, the shortcomings could lead to the annulment of an award.

 

Points to Consider: How Major Legal Orders Responded to the Content-Of-Laws Inquiry for International Commercial Arbitration Purposes?

In Sweden, the Svea Court of Appeal ruled in 2004 that arbitrators are not bound by the parties’ actions regarding legal provisions and arguments,3)See the case T 7866-02 dated 27 August 2004. jQuery("#footnote_plugin_tooltip_1458_3").tooltip({ tip: "#footnote_plugin_tooltip_text_1458_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); meaning that arbitrators can apply legal norms without having been previously referenced by either party. This is the same for Switzerland with a slight difference. Unlike the Svea Court of Appeal, Swiss courts made clear that arbitrators are only free to ascertain the content of law as long as this does not come as a surprise to the parties.4)See Federal Tribunal Decision of 30 September 2003, 4P.100/2003. jQuery("#footnote_plugin_tooltip_1458_4").tooltip({ tip: "#footnote_plugin_tooltip_text_1458_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); For Switzerland seated arbitrations, arbitrators can rely on any norm of the law notwithstanding this being raised by the parties. However, if parties cannot be expected to anticipate the application of this norm, they should be given an opportunity by the arbitrators to address their arguments. French courts follow the same lines with strict deference to principe de la contradiction.5)See Revue de l’arbitrage, 2010 p. 112, 3 Dec 2009, Cour d’appel de Paris (Pôle 1 – Ch. 1). jQuery("#footnote_plugin_tooltip_1458_5").tooltip({ tip: "#footnote_plugin_tooltip_text_1458_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Moving on to common law countries, we see that the adversarial approach is applied in contrast with civil law countries. In other words, it is expected to see that arbitrators are under no obligation to ascertain the content of the applicable law. While this is the case, it is very interesting that the Arbitration Act of England under Art. 34 allows the tribunal to choose freely which approach is to be followed. That is to say, arbitrators can follow the inquisitorial approach in an arbitration seated in England. However, this comes with a caveat: Generally applicable norms must be observed. For example, parties must be given the opportunity to present their case and be heard. This means that arbitrators should solicit further submissions from the counsels on the legal grounds that were not invoked by the parties. The Hong Kong Arbitration Ordinance also provides a similar legal treatment.6)See § 56(7) of the Hong Kong Arbitration Ordinance. jQuery("#footnote_plugin_tooltip_1458_6").tooltip({ tip: "#footnote_plugin_tooltip_text_1458_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); That is to say, arbitral tribunals are also granted the right to ascertain the content of the law without confining themselves to parties’ submissions. Nevertheless, Hong Kong courts also opined that if arbitrators are to ascertain the content of the applicable law on their motion, they need to consult the parties and grant them the opportunity to make further submissions.

 

How Should Arbitrators and Party Counsels React to the Content-Of-Laws Matter?

No harmonised set of rules has been achieved globally so far in terms of how the sources of law are found and applied. But seeing how this relates to international commercial arbitration is a mysterious task. In fact, international commercial arbitration settings mostly witness the interplay between different legal regimes and traditions. This is especially so when the seat is different from the law applicable to the merits and arbitrators come from completely different legal systems. At the meeting point of all different legal references, arbitrators must decide which method to adhere to: Should they apply the inquisitorial or the adversarial approach in terms of determination of substantive law applicable to the merits? And more importantly – on what basis is this determination to be made?

The ICC Dispute Resolution 2018 Statistics (See here) shows that 842 new cases are registered in 2018 with the laws of 114 different nations, states, provinces and territories are chosen as the law applicable to parties’ contracts while these arbitration proceedings are seated in over 60 countries. The statistics indicate a possible clash between the substantive law applicable to the contract and the lex arbitri. Different laws mean different resolutions to the content-of-laws inquiry. In other words, the following questions arise: Should arbitrators follow the method employed by the courts of substantive law? Or should they follow the method employed by the courts of lex arbitri?

It goes without saying that parties hold the ultimate control over establishing the content of the applicable law according to the principle of procedural autonomy. They can opt for limiting the arbitrators’ authority to rely on only the legal sources pleaded by the parties or for the opposite. In other words, parties would be wise to determine how the law will be ascertained and by whom, i.e. solely by parties, arbitrators or by both. This selection can be made by striking the right balance between two extremes: adversarial or inquisitor approach. In the absence of such agreement, the most practical approach would be to fall back on lex arbitri as was also suggested by Christian Collantes in this blog post, while the writer sees the application of iura novit arbiter as the duty of arbitrators with some certain limits.

This practical approach follows a very basic requirement: Not to have the award set aside. As the courts of the seat will hear any potential annulment action, it is wise to follow its principles. But the enforceability of an arbitral award does not end with not being set aside by the seat. It only begins there and is followed by further scrutiny from the enforcement courts. In other words, the arbitral award, which is based on a legal norm that has never been advanced by parties, could escape judicial scrutiny of the seat which follows iura novit curia. However, the same arbitral award may be denied enforcement by the courts where enforcement is sought due to violation of due process, i.e. not providing an opportunity to parties to mount their arguments against such legal norm. While it is practically impossible to ascertain if iura novit arbiter is adhered to in each and every possible enforcement venue, it is advised to be precautious by acting as if it does not exist and by providing ample opportunity to parties in order for them to exercise their right to be heard.

 

Conclusion

Drifting across all different approaches, one can realise a very clear pattern common to all possible options despite the clear divergence in the nature of adversarial and inquisitorial methods: Arbitrators should consider not only the lex arbitri but also all possible laws of states where enforcement may be sought when determining its mandate as to the content-of-laws inquiry. Particular focus must be invested in the process for the arguments that may come as a surprise to parties who should be given a fair opportunity to mount their arguments on legal norms first introduced by arbitrators. The most vigilant practice would be to permit parties to opine on all new legal norms brought by arbitrators. Counsels, on the other hand, must be cautious that they play a significant role in the determination of law and should invest equally in the process even when this seems to be the duty of arbitrators.

References   [ + ]

1. ↑ See the Law No. 5718, Article 2/1 which reads as follows “judge applies the conflict of laws rules and the applicable foreign law as per such rules on his own motion”. 2. ↑ In the same direction see Bumper Development Corporation v Commissioner of Police of Metropolis [1991] 1 WLR 1362, 1368. 3. ↑ See the case T 7866-02 dated 27 August 2004. 4. ↑ See Federal Tribunal Decision of 30 September 2003, 4P.100/2003. 5. ↑ See Revue de l’arbitrage, 2010 p. 112, 3 Dec 2009, Cour d’appel de Paris (Pôle 1 – Ch. 1). 6. ↑ See § 56(7) of the Hong Kong Arbitration Ordinance. 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: The Decision-Making Process of Investor-State Arbitration Tribunals
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The Philippine Arbitration Day: A Barometer of the State of Philippine Arbitration

Fri, 2020-01-24 01:00

Jay Patrick Santiago and Sarah Sison

The year 2019 was a milestone year for alternative dispute resolution (“ADR“) in the Philippines. It saw the inaugural Philippine Arbitration Convention organized by the Philippine Institute of Arbitrators (“PIArb“) on 25 November 2019 (the “Arbitration Day“), the signing of the Convention on International Settlement Agreements Resulting from Mediation (the “Singapore Convention“), the implementation of domestic statutes promoting arbitration, and the launch of a new arbitral institution.

 

Panel discussions

The panel topics at the Arbitration Day were as follows:

  1. Arbitration as an Effective Mode of Resolving Commercial Disputes“, with panelists representing both the business community and the arbitration community;
  2. How Do I Start a Career in Arbitration?“, with young and senior arbitration practitioners sharing their insights and experiences; and
  3. Developments in International Arbitration“, wherein speakers from China, Hong Kong, Malaysia, and Singapore shared updates and developments.

In particular, the final panel discussion highlighted the need for the Philippines to keep up with other arbitration-friendly jurisdictions.

The Philippines already possesses the basic requirements of a reliable arbitration jurisdiction. It is a “Model Law” jurisdiction, a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, boasts reliable local arbitral institutions, possesses a pool of competent arbitration practitioners (via PIArb and the panels of local arbitral institutions), has a business community that is open to exploring alternatives to litigation, and a supportive judiciary.

However, there is still room for the Philippines to do much better as a choice jurisdiction for ADR.

First, the Philippines has unfortunately yet to adopt the 2006 revisions to the 1985 UNCITRAL Model Law on International Commercial Arbitration. Like many jurisdictions, its ADR laws are silent on third-party funding and recognition of emergency arbitrator decisions. The proposed amendments to the 16-year-old ADR law, Republic Act No. 9285 (the “ADR Act“), has been with the Office for Alternative Dispute Resolution (“OADR“) since 2017. The OADR is an agency under the Department of Justice that is tasked to propose amendments to the ADR Act to the Philippine Congress.

Second, despite the promulgation of the Special Rules of Court on Alternative Dispute Resolution (the “Special ADR Rules“) in 2009, some judges are still unfamiliar with the courts’ role in relation to arbitral proceedings. Improvements are expected with the Supreme Court’s pronouncements in Fruehauf and Mabuhay (discussed below).

Third, with the Philippines’ signing of the Singapore Mediation Convention, there now appears to be ambiguity as to the application of what was arguably the most innovative feature of the ADR Act, i.e. an enforcement mechanism for mediated settlement agreements.1)See ADR Act, Sec. 17(c); Special ADR Rules, Rule 15. jQuery("#footnote_plugin_tooltip_8244_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8244_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Guidance from the legislature or the courts will be required on this.

Separately, the Arbitration Day also covered another hot topic, “West Philippine Sea Arbitral Award- What’s Next?“, which was addressed by the keynote speaker Supreme Court Senior Associate Justice Antonio T. Carpio and a reaction panel. This topic relates to PCA Case No. 2013-19 (The Republic of the Philippines v. The People’s Republic of China) where a tribunal, in 2016, affirmed the Philippines’ entitlements over parts of the South China Sea. To date, China, which refused to participate in the arbitration and disputed the arbitral tribunal’s jurisdiction, has not complied with the arbitral award. The panel discussed the Philippines’ post-award remedies, bearing in mind the absence of an enforcement mechanism under the United Nations Convention on the Law of the Sea, and proposed courses of action that range from pragmatic to patriotic, in light of the present diplomatic relations between the Philippines and China.

 

The Philippines: a fertile ground for ADR

The Philippines has been consistently moving towards a more arbitration-friendly regime, which has bolstered confidence and interest in arbitration. In particular, there has been a significant shift in the courts’ attitude towards arbitration.

In 2016, the Supreme Court ruled in Fruehauf Electronics Philippine Corporation v. Technology Electronics Assembly and Management Pacific Corporation2)G.R. No. 204197, 23 November 2016. jQuery("#footnote_plugin_tooltip_8244_2").tooltip({ tip: "#footnote_plugin_tooltip_text_8244_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); that simple errors of fact, law, or fact and law committed by the arbitral tribunal are not justiciable errors. In that same case, the Supreme Court declared the need to uphold the autonomy of arbitral awards as an overriding public policy. Accordingly, courts are precluded from revising an arbitral award in a particular way, revisiting the tribunal’s findings of fact or conclusions of law, or otherwise encroaching upon the independence of an arbitral tribunal.

In late 2018, the Supreme Court ruled in Mabuhay Holdings Corporation v. Sembcorp Logistics Limited3)G.R. No. 212734, 5 December 2018. jQuery("#footnote_plugin_tooltip_8244_3").tooltip({ tip: "#footnote_plugin_tooltip_text_8244_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); that mere errors in the interpretation of law or factual findings do not suffice to warrant refusal of enforcement on public policy grounds. To rely on public policy grounds, the illegality or immorality of the award must reach a level where enforcement of the same would be against the State’s fundamental tenets of justice and morality, or would blatantly be injurious to the public or the interests of the society.

In 2019, the Philippines took a leap in promoting arbitration through its domestic legislation. The Revised Corporation Code,4)Republic Act No. 11232. jQuery("#footnote_plugin_tooltip_8244_4").tooltip({ tip: "#footnote_plugin_tooltip_text_8244_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); which came into effect in February 2019, expressly states that the articles of incorporation or by-laws of a corporation may contain an arbitration clause. Intra-corporate disputes are therefore now expressly arbitrable under Philippine law.

In addition to the foregoing developments, the relatively slow pace of Philippine court litigation has also encouraged the business community to turn to ADR. The judiciary has made efforts to speed up court litigation, but only time will tell whether these efforts translate into greater efficiency in practice. In the meantime, the business community increasingly recognizes the advantages of ADR, particularly its certainty and speed.

The significant turnout and the panel topics at the Arbitration Day reflect the increased interest in ADR from the Philippines’ business and professional communities. The business community’s growing awareness of arbitration was evident at the Arbitration Day’s panel discussion on “Arbitration as an Effective Mode of Resolving Commercial Disputes“, where all panelists endorsed the use of arbitration in resolving business disputes. The panel discussion on “How Do I Start a Career in Arbitration?” was aimed at addressing the professional community’s interest in ADR in response to clients’ needs.

However, the authors believe that more intensive information campaigns on the benefits of arbitration remain necessary to achieve more widespread awareness of arbitration within the business community. Local professionals must also be exposed more to arbitration and receive more training, so that they will be able to recommend arbitration to their clients and competently advise and/or represent parties in domestic and international arbitrations.

It should also be noted that recent “negative publicity” relating to the government’s compliance with arbitral awards could dampen the business community’s confidence in arbitration. In late 2019, the Philippine government, in particular the Office of the President, refused to comply with an arbitral award finding the Philippine government liable to one of Metro Manila’s water utility concessionaires. While it appears that the water concessionaire no longer intends to pursue enforcement proceedings against the Philippine government, it would have been interesting to see how the courts resolve an enforcement petition against the Philippine government, considering the Supreme Court’s pronouncements in Fruehauf and Mabuhay.

 

New arbitral institution: a double-edged sword?

The Arbitration Day also provided a platform for the introduction of the newest arbitral institution in the Philippines – the Philippine International Center for Conflict Resolution (“PICCR“).

Formally established in early 2019, the PICCR was formed with the support of the Integrated Bar of the Philippines (“IBP“) and could prove to be a welcomed competitor to the Philippine Dispute Resolution Center, Inc. As the mandatory law society for Philippine-qualified lawyers, the IBP has chapters all over the Philippines. With the IBP’s vast network, the PICCR has the potential to more effectively promote ADR across the Philippines.

Carefully choosing an arbitral institution that one would support is crucial. If not managed properly, arbitral institutions could be used to promote a particular group’s business or personal agenda. Inexperienced leadership and case management teams could also cause delays in arbitral proceedings. This could erode ADR users’ confidence in arbitration.

As for the PICCR, the experienced leadership of Mr. Donemark Calimon, PICCR Secretary-General and immediate past president of PIArb, can hopefully allay any such concerns.

 

From 2020 and beyond

The Arbitration Day is intended to be an annual event. PIArb is already planning the next one, which is scheduled to be held in the fourth quarter of 2020. It promises to be a bigger event, alongside two arbitration conferences in the Philippines – the Regional Arbitral Institutes Forum and the CIArb Young Members Group (East Asia Branch) Annual Conference.

The Arbitration Day will continue to be a litmus test for the Philippines’ appetite for ADR. More importantly, the Arbitration Day provides a much-needed platform for arbitration stakeholders to meet and exchange ideas, network with one another, and show the world that the Philippines continues to be an arbitration-friendly jurisdiction.

References   [ + ]

1. ↑ See ADR Act, Sec. 17(c); Special ADR Rules, Rule 15. 2. ↑ G.R. No. 204197, 23 November 2016. 3. ↑ G.R. No. 212734, 5 December 2018. 4. ↑ Republic Act No. 11232. 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: The Decision-Making Process of Investor-State Arbitration Tribunals
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China’s Top Court Says No to Arbitrability of Private Antitrust Actions

Thu, 2020-01-23 01:00

Kai-chieh Chan

Private antitrust actions were long thought to be non-arbitrable due to the public law character of antitrust law, though the scope of non-arbitrability has been reduced to varying extents in different jurisdictions.

For instance, US courts had long adhered to the so-called “American Safety doctrine”, which limited the arbitrability of domestic antirust disputes.1)American Safety Equipment v J.P. Maguire & Co., 391 F. 2d 821 (2nd Cir., 1968). jQuery("#footnote_plugin_tooltip_1106_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1106_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The scope of this doctrine was subsequently undermined by the US Supreme Court in Mitsubishi Motors v Soler, 473 US 614 (1985) (for a previous analysis on the Kluwer Arbitration Blog, see here and here).

In China, arbitrability of antitrust actions was largely un-elucidated by the courts. This blog post reports and analyzes the Supreme People’s Court’s first-ever take on the matter. In it, the Court effectively said no to arbitrability of antitrust actions, at least for those arising out of vertical restraints in the domestic context.

 

Arbitrability of Antitrust Claims before the Supreme People’s Court’s Decision: A Tale of Two Cities

The general issue of arbitrability of disputes in China is governed by Articles 2 and 3 of the Arbitration Law of the People’s Republic of China (“Arbitration Law”). Article 2 states that “equal subjects of law” may arbitrate “contractual disputes and other disputes”; Article 3, in turn, expressly excludes the arbitrability of family law and administrative disputes. The Anti-Monopoly Law of China (“Anti-Monopoly Law”) contains no mention of arbitration.

The first significant decision concerning the arbitrability of antitrust claims in China was Nanjing Songxu Technology Co., Ltd. v Samsung China Investment Co., Ltd., issued by the High Court of Jiangsu on August 29, 2016 ([2015] Su Zhi Min Xia Zhong No. 00072) (“Songxu Case). The case concerned a contract to distribute Samsung’s products in Jiangsu province. During the performance of the contract, the distributor, Songxu Technology, filed a tort claim against Samsung China, on the basis that the latter abused its dominant market position by tied selling, price fixing and implementing market allocation schemes. Samsung China, on the other hand, raised a jurisdictional objection based on the arbitration clause contained in the agreement.

Referring to Article 2 of the Arbitration Law, the court of first instance ruled that the matter is arbitrable since the parties are “equal subjects of law”. However, on appeal, the High Court of Jiangsu overturned the lower court’s ruling on three grounds: firstly, the Anti-Monopoly Law and other related rules do not mention the possibility of arbitration as a way of settling antitrust claims; secondly, there was no judicial precedent accepting arbitrability of antitrust claims in China; and thirdly, antitrust claims cannot be arbitrated since antitrust laws aim to protect interests of the public and third parties.

The High Court of Jiangsu’s decision has been criticized (see here for one available in English). These criticisms were largely based on the trend that an increasing number of jurisdictions permit antitrust claims to be arbitrated. It was also pointed out that, although China’s antitrust laws do not explicitly allow these claims to be arbitrated, they do not exclude such possibility either.

The next significant decision was issued in June 2019. In Shell China Co. Ltd. v Shanxi Changlin Co., Ltd ([2019] Jing Min Xia Zhong No. 44), dated June 28, 2019 (“Changlin Case”), the High Court of Beijing held that an antitrust claim was arbitrable. Shanxi Changlin, a distributor of Shell’s engine oil in northern Shanxi province, brought a tort claim against Shell China based on the alleged vertical restraints imposed by the latter. The court of first instance supported the view of the High Court of Jiangsu, finding that it has exclusive jurisdiction over the antitrust claims.

But the decision was reversed on appeal. The High Court of Beijing, pointing to a valid arbitration clause that covers “any disputes relating to the contract”, held that Shanxi Changlin, whose claims are “closely associated with the rights and duties stipulated in the distribution contract”, must be compelled to arbitrate. The court did not address the reasoning invoked by its counterpart in Jiangsu.

 

The Supreme People’s Court’s Decision in Huili Case

Shell China was involved in a third and unrelated case on appeal before the Supreme People’s Court.

On August 21, 2019, the Supreme People’s Court ruled that antitrust claims were non-arbitrable in the case of Shell China Co. Ltd. v Huili Hohhot Co., Ltd. ([2019] Zhi Min Xia Zhong No. 47) (“Huili Case”).  (While the decision is yet to be officially published online, a copy of it has been disclosed by Huili Hohhot’s legal team here.) The court of first instance held the antitrust claim to be non-arbitrable on the same ground as that of Jiangsu High Court.

On appeal, the Supreme People’s Court agreed with the High Court of Jiangsu’s reasoning and added that private antitrust actions are distinct from claims based on contract. The court’s reasoning resembles that of the American Safety case decided by the US Second Circuit Court of Appeals half a century ago. It seems that the absence of a clear mention of arbitration in the relevant agreements played a crucial role in the court’s decision.

The court also seemed to suggest that, unless explicitly provided otherwise, claims concerning “public interest” are non-arbitrable under Article 2 of the Arbitration Law.2)See e.g. the case of Hemofarm DD et al. v Jinan Yongning Pharmaceutical Co. Ltd. ([2008] Min Si Ta Zi No. 11), where Article 2 was applied to decide on issues of arbitrability (per Article V(2) of the New York Convention) concerning an ICC award seated in Paris. jQuery("#footnote_plugin_tooltip_1106_2").tooltip({ tip: "#footnote_plugin_tooltip_text_1106_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This entails significant enforcement risks not only to tribunals seated in China, but also for those seated internationally.

 

Beyond Huili Case: One Step Forward, Two Steps Back?

As the first and only decision of the Supreme People’s Court on the matter, the Huili Case is arguably the leading authority on the arbitrability of antitrust claims in China. It is submitted, nevertheless, that the jurisprudential value of the case must be taken with a grain of salt.

Firstly, both decisions of the Supreme Court and High Court of Jiangsu invoke the absence of previous domestic precedent admitting the arbitrability of antitrust claims. However, it is regrettable that the Supreme Court could not take the High Court of Beijing’s decision into account, since its hearings were held one month prior to the publication of the latter.

Secondly, the common law doctrine of stare decisis arguably does not exist in China stricto sensu. Under the current “case guidance” system established since 2010, the Supreme People’s Court publishes dozens of cases that it regards as constituting jurisprudence constante, which possess “factual binding effect”. (This is the view held by Judge Zheng Liu of the Supreme People’s Court (see here).) As such, nothing will be settled unless Huili Case is officially listed as one of them. Considering the criticisms surrounding the Supreme People’s Court’s approach and the increasingly pro-arbitration stance of the Chinese judiciary (as previously reported on the Blog here), one may wonder if this will ever happen.

Lastly, the jurisprudence on this is likely to evolve with the anticipated amendment of the Arbitration Law and the future judicial interpretations of private antitrust actions.

One way to get around the current jurisprudential chaos is to adopt a principles-based method rather than a rules-based one. Instead of categorically choosing between different approaches, the tribunal may refer to the Supreme People’s Court’s decision that, while antitrust claims may be non-arbitrable, the Supreme People’s Court also leaves room for distinguishing between contract claims and antitrust claims. The tribunal may then decide, on a case-by-case basis, on the proximity between the claim at hand and purely antitrust claims. The more the claim is related to contractual performance, the more it is arbitrable.

The Supreme People’s Court’s decision can also be distinguished on the basis that it only concerns vertical restraints. In such cases, public authorities may be more willing to step in to protect domestic distributors with less bargaining power against local subsidiaries of multinational corporations. By contrast, antitrust disputes between more “equal” bodies may still be arbitrable: this possibility would include other forms of monopolistic activities ranging from horizontal agreements to the concentration between undertakings.

With the dominance of international trade and commerce involving China, future developments on the arbitrability of antitrust related claims in China will be followed closely.

References   [ + ]

1. ↑ American Safety Equipment v J.P. Maguire & Co., 391 F. 2d 821 (2nd Cir., 1968). 2. ↑ See e.g. the case of Hemofarm DD et al. v Jinan Yongning Pharmaceutical Co. Ltd. ([2008] Min Si Ta Zi No. 11), where Article 2 was applied to decide on issues of arbitrability (per Article V(2) of the New York Convention) concerning an ICC award seated in Paris. 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: The Decision-Making Process of Investor-State Arbitration Tribunals
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Highlights from the 2019 Rules of the Milan Chamber of Arbitration

Wed, 2020-01-22 23:15

Gustavo Minervini

On 1 March 2019 the Milan Chamber of Arbitration issued its amended Arbitration Rules (the “2019 Rules’”) with the aim of improving “the efficiency and the rapidity of arbitral proceedings [while] ensuring the necessary guarantees.”  This objective follows the current international trend.  Indeed, in the last decade, several arbitral institutions have revised their rules in order to guarantee that arbitrations are conducted in an expeditious and cost-effective manner, without sacrificing fairness and reliability.  Pursuant to Article 45 of the 2019 Rules, these apply to arbitration proceedings instituted after 1 March 2019 unless otherwise agreed by the parties in accordance with Article 832 of the Italian Code of Civil Procedure (“ICCP”), or in specific instances as set forth by the 2019 Rules themselves.  Although the revisions introduced several changes to the CAM Arbitration Rules, only the most significant ones are analysed below.

 

Third Party Funding (“TPF”)

TPF is a method of financing an arbitration where all or some of the funds required to cover the expenses of the proceedings are provided by an entity that is not a party to the dispute (the funder), to one or more of the arbitration parties (the funded).  A very important issue related to TPF concerns the disclosure of a TPF agreement to verify the arbitrators’ impartiality and independence, which could be compromised by a conflict of interest between one of the arbitrators and the third-party funder.  On this issue, the international legal framework is diversified.  While some arbitral institutions require the parties to mandatorily disclose the existence of a TPF agreement and the identity of the funder (e.g., 2018 HKIAC Administered Arbitration Rules and 2017 CIETAC International Investment Arbitration Rules), most of them only recommend that the parties disclose this information (e.g., 2016 CAM-CCBC Arbitration Rules), or recognize that arbitral tribunals have discretion to order such disclosures (e.g., 2017 SIAC Investment Rules).  Overall, it can be argued that there is an international trend towards greater disclosure of TPF agreements.  The 2019 Rules join such a trend by requiring in Article 43(1) that a party “funded by a third party in relation to the proceedings and its outcome shall disclose the existence of the funding and the identity of the funder.” (Emphasis added.) This development is more than welcome.  Indeed, the disclosure of a TPF agreement is a fundamental step in verifying the arbitrators’ impartiality and independence, which are deemed to guarantee the fairness and integrity of the arbitral procedure.  Such disclosure must also be considered from the perspective of transparency.  Indeed, as highlighted by the ‘ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration’ in its 2018 Report, the disclosure of TPF agreements allows all parties to an arbitration to precisely identify all the players and interests involved in the proceedings.

 

Interim or Provisional Measures

A second important development of the 2019 Rules relates to the power of arbitral tribunals to order interim or provisional measures.  Article 26 of the 2019 Rules reads as follows:

  1. (…) the Arbitral Tribunal may issue all urgent and provisional measures (…) that are not barred by mandatory provisions applicable to the proceedings. 2. In any case, unless otherwise agreed by the parties, the Arbitral Tribunal (…) has the power to adopt any determination of provisional nature with binding contractual effect upon the parties.

While Article 26(1) was already included in the 2010 Rules (Article 22), Article 26(2) represents a significant innovation.  In order to understand such amendment, it is fundamental to examine Article 818 of the ICCP, which provides that “arbitrators are not entitled to grant attachments, or any other form of interim relief, unless the law provides otherwise.”  According to most authors and case law, this provision is a mandatory rule of the Italian lex arbitri whose ratio legis is found in the private nature of arbitration, and in the lack of coercive powers of arbitrators.  Due to this outdated and criticisable provision, arbitrators are not allowed to order any provisional relief unless strictly provided by law.  The only statutory exception to Article 818 is Article 35(5) of the Legislative Decree 5/2003 on Corporate Arbitration, which “empowers arbitral tribunals to suspend the effects of shareholders’ meeting resolutions when their validity is challenged in arbitration.” (L. Radicati di Brozolo and M. Sabatini, Arbitration Guide on Italy, available here). Therefore, under Italian lex arbitri, the parties seeking interim relief must necessarily involve national courts, which have the exclusive power to grant it, even after the constitution of the arbitral tribunal.

In light of the foregoing, Article 26(2) could play an important role in arbitral proceedings seated in Italy.  According to this provision, arbitral tribunals could order provisional determinations binding the parties as if these were contractual obligations.  Therefore, if one of the parties fails to comply with the ordered measures, the other party – although it cannot seek enforcement before national courts – could eventually seek damages for breach of contract.  From this perspective, the ability of the 2019 Rules to improve the efficiency and expeditiousness of proceedings administered by the CAM will likely be tested soon.

 

Emergency Arbitrators (“EA”)

Following the practice of several arbitral institutions such as the ICC and LCIA, Article 44 of the 2019 Rules introduced the figure of EA – namely, an arbitrator appointed by the arbitral institution to issue interim measures which cannot await the constitution of the arbitral tribunal. The 2019 Rules empower parties to an arbitration proceeding where a tribunal is not yet in place, to request the CAM to appoint an arbitrator empowered to adopt measures as provided by Article 26.  Specifically, in conjunction with Article 26, Article 44 allows the EA to adopt, even inaudita altera parte (i.e., without the other party involved), binding interim or provisional measures.  However, the EA provision under Article 44, by derogation from Article 45, only applies to proceedings where the arbitration agreement was concluded after the entry into force of the 2019 Rules, i.e., after 1 March 2019.  This derogation is more than justified given the innovative nature of Article 44.

The CAM’s determination to establish an efficient and expeditious procedure is apparent from Articles 44(2)-(4), which dictate that EA decisions should be issued within 20 days from the date of application.  Furthermore, under Article 44(4), the EA can order measures inaudita altera parte if there are “prior disclosure risks causing serious harm to the applying part.”  However, in this case, the EA has to schedule a hearing within 10 days of ordering the interim relief in order to grant due process rights to the parties.  During this hearing, the EA will confirm, amend or revoke the measures previously granted.

In this regard, the CAM followed the international trend towards empowering EAs to take all necessary measures to ensure that delays in the constitution of the arbitral tribunal does not seriously affect the parties’ positions.

However, not all that glitters is gold!  There are at least two problematic questions concerning EAs that deserve more attention:

  1. First, it is not clear whether the EA is vested with the power to issue provisional determinations that have binding contractual effects between the parties. One could maintain that the lack of any specific provision to this effect precludes such a power. However, it is argued that, by way of reference to the ‘measures and determinations provided by Article 26’, Article 44 authorizes the EA to issue such interim relief.  Moreover, it would not make much sense to introduce the figure of EA without vesting him with the power to issue interim any interim or provisional relief under the Italian lex arbitri.
  2. Second, Article 44(8) provides that an EA’s order can be “challenged, amended or revoked before the Arbitral Tribunal once constituted.”  There are several possible interpretations of the difference between a challenge and a revocation, but the 2019 Rules provide no clue.  In this sense, it is not clear which kind of instruments/procedures are available to the party contesting an EA’s order once the Arbitral Tribunals has been constituted.

Greater clarity in the 2019 Rules would have resolved both of these important questions.

 

Final Remarks

In conclusion, the amendments to the CAM Rules deserve to be endorsed.  Indeed, it seems clear that the revisions have taken into account some of the most relevant developments and latest trends in international arbitration with the aim of enhancing their legitimacy and promoting Italy as a venue for international arbitration.  The three innovations examined above should all contribute to further the integrity and transparency of CAM proceedings, as well as their efficiency and expeditiousness.  This process could arguably increase awareness of the CAM as a suitable and efficient option to settle international disputes.  However, an important controversial issue concerning interim and provisional measures must be pointed out.  Under the 2019 Rules, it is unclear if the possibility to seek damages for breach of contract under Article 26(2) will increase the spontaneous compliance by the parties with the ordered measures.  If this is not the case, then the arguable need to involve an Italian court to obtain the damages arising from such breach of contract could defeat the purpose of Article 26(2), since it would be more convenient for the parties to seek interim relief directly from Italian courts.

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2019 In Review: A View From North Africa

Tue, 2020-01-21 18:00

Mohamed H. Negm (Assistant Editor for the MENA Region) and Zahra Rose Khawaja (Assistant Editor for the MENA Region)

Here at Kluwer Arbitration Blog, we are pleased to reflect on a number of significant and exciting developments in international arbitration, with impact on the North African region. In this post, we recap these developments and their implications; and, of course, also thank our esteemed authors who have enabled us to bring coverage of events in this emerging region to the wider international arbitration community.

 

1. Developments in Investment Arbitration: Framework and Experience

This past decade has been important for regional developments in investment arbitration. Not only have Arab states gained more experience with the resolution of investment disputes during the 2010’s, but they have also actively worked toward revising the available framework through the Organisation of Islamic Cooperation (OIC).

 

A. Impact of Arab Spring on International Investment Arbitration

The uprisings of the Arab Spring and political changes resulting therefrom have had a quantifiable and significant impact on the international investment arbitration landscape, with a surge of new investment cases against Arab states. The number of newly filed ICSID cases from the Arab World indeed rose sharply in the period from 2011 to 2019.

While Arab respondent states have become increasingly diverse, Egypt has remained the most frequent respondent state with 22 new cases filed against it between 2011 and 2019. Behind Egypt, Algeria was confronted with 5 new cases in the 2011-2019 period. Morocco was confronted with 4 cases and Tunisia was confronted with 2 cases.

Despite the increasing number of new cases filed against Arab respondent states, the outcomes have not always been favorable for investors. A number of cases brought by investors have been dismissed on jurisdictional grounds (e.g. National Gas) or resulted in liability decisions in favor of the respondent state (e.g. Veolia). An even larger number of cases have settled (at least 12 since 2011, e.g. Bawabet Al Kuwait, Sajwani, Indorama, and LP Egypt), which leads one to question whether investment arbitration may have been increasingly employed during this period as a tactical mechanism for obtaining amicable settlement. In the years to come, it will be interesting to see how the legacy of these experiences will influence the approach taken by Arab respondent states in future investment arbitrations.

 

B. Organisation of Islamic Cooperation (OIC) Developments

Egypt, Libya, Tunisia and Morocco are the North African countries that have ratified the OIC Agreement, which provides for investment protections such as prohibition of unlawful expropriation and most favored nation treatment. It also includes an ad hoc investor-state arbitration provision (Article 17), which will operate “[u]ntil an Organ for the settlement of disputes arising under the Agreement is established.”

As explained by our contributors in 2019, the OIC Agreement provides that if a party to the dispute does not appoint an arbitrator, the OIC Secretary General will make the appointment on the party’s behalf. However, the Secretary General has refused to make such appointments due to political pressure from some OIC member States. In a recent case, the Secretary-General of the Permanent Court of Arbitration (PCA) designated an appointing authority in an OIC arbitration by applying the UNCITRAL Arbitration Rules. This was despite the absence of any reference to these Rules in the OIC Agreement, and the fact that placing the constitution of tribunals in the hands of the PCA is contrary to the spirit and the objectives of the OIC.

This led to the question as to whether the OIC would establish a permanent “organ” for the settlement of disputes to resolve the issue of potential interventions in OIC arbitrations. In a recent post, our contributors reported on developments shared by Dr. Mouhamadou Kane, Project Lead and Manager for the OIC at a program hosted by Columbia Law School. During the program, Dr. Kane confirmed that a draft (which is not yet publicly available) investment protocol for the OIC Investment Dispute Settlement Organ is likely to be adopted by ministers of OIC member States in March 2020. This development has importance regionally and globally, and it will be interesting to see if the final protocol adopted by the OIC draws on the current global reform efforts concerning investor-state dispute settlement, including topics addressed through the ICSID rule revision process and the work of UNCITRAL Working Group III.

 

2. North African Arbitral Institutions

One of the highlights of our coverage of the North African region on the Kluwer Arbitration Blog in 2019 was our interview with Dr Ismail Selim, Director at the Cairo Regional Centre for International Commercial Arbitration (CRCICA). In his interview, Dr Ismail kindly gave our readers a guided tour of the institution he describes as the “Godfather” of arbitration in the MENA region and Africa. In explaining the advantages to users of administering an arbitration via CRCICA, Dr Ismail pointed to the Centre’s highly experienced counsels, cost effectiveness and neutrality vis a vis the host state in investment arbitrations, and through guaranteeing party autonomy in appointing tribunals.

Our 2019 coverage of North Africa shone a spotlight on a number of up and coming arbitral institutions, which are developing as regional alternatives to some of the more well-established global players. Two such institutions, both of which are located in Morocco, are:

  • The Casablanca International Mediation and Arbitration Center (CIMAC), which was instituted in late 2014. With an internationally composed, diverse panel of arbitrators, facility with proximity to major economic hubs, clear flexible rules, cooperation Agreement with the Vienna International Arbitration Center (meaning that cases can be managed by either center), it is well placed to serve North Africa and beyond.
  • The International Court of Maritime and Air Arbitration (CIAMA), established in September 2016 as a specialist maritime and air arbitration centre for the MENA region. CIAMA was designed to be a reliable and secure choice for parties engaged in maritime, shipping and aviation disputes in the MENA region.

We also analysed the Rules of the Egyptian Sports Arbitration Center, which envisage that arbitral awards should be subject to (a) an appeal; and (b) an annulment action (internally within the same arbitral institution itself). The Rules further provide that the internal annulment regime applies to any arbitral award whether seated in Egypt or abroad. In other words, the Rules have an extraterritorial reach beyond the borders of Egypt whereby they apply to domestic and foreign arbitral awards alike. Egyptian courts’ perspective on these provisions will be discussed in further detail later in this post.

 

3. National Level Developments

A. Morocco as a New Hub

We have witnessed a number of developments in Morocco in 2019, as it seeks to draw on its position as a cardinal point between the Middle East and North Africa. We explored the potential for Morocco to develop into a hub for international arbitration in the region, owing to its lead as a diplomatic power in Africa and its experience in investment and commercial arbitration. Morocco has been an Observer to the Economic Community of West African States (ECOWAS) since 2005, and recently filed an application to join the organization as a member. It is also in the process of joining OHADA and is an existing member of the OIC. Morocco is also one of the oldest players in the investment and commercial arbitration scene. It was the very first state to be part of an ICSID arbitration under the Washington Convention of 1965, as well as one of the early signatories of the ICSID Convention. The definition of an investment under the ICSID Convention (known as the “Salini test”) was formulated in a prominent case to which Morocco was a party (Salini v. Morocco).

We will keep a watching eye on Morocco as it seeks to fulfill its potential as an emerging hub for international arbitration in the region.

 

B. Egyptian Courts’ Perspectives on Contemporary Arbitration Controversies

There have been various contemporary controversies concerning arbitration that have triggered heated debates before the Egyptian courts:

  • Arbitrators’ Conflict of Interest: On 11 June 2019, the Egyptian Court of Cassation clarified that the presumption of knowledge of the challenging party of any arguably suspicious facts arises only when the arbitrator in question discloses such facts at the time of officially accepting his appointment. Accordingly, if the challenged arbitrator fails to prove that the challenging party already knows these suspicious facts, then it cannot be said that the challenging party has waived its right concerning this ground. The Egyptian Court of Cassation has aligned its views with international arbitration practices as it defined the standard of arbitrators’ independence and impartiality as the one constituting “a real danger of bias”, or raising “justifiable doubts”.
  • Enforceability of Arbitral Anti-Suit Injunctions: The Egyptian Court of Cassation is currently reviewing the Cairo Court of Appeal’s judgment concerning the enforcement of an arbitral interim measure ordering one party to arbitration to refrain from suing a third-party guarantor bank regarding the liquidation of a letter of guarantee issued in favor of the said party. The Cairo Court of Appeal held explicitly that interim orders are covered by the New York Convention, provided that (1) the interim order is final; (2) the interim order is issued based on a valid arbitration agreement; (3) both parties were offered the opportunity to present their case in the arbitration; and (4) the interim order does not violate the Egyptian public policy. Upon applying these criteria, the Cairo Court of Appeal determined that the order satisfied all of these requirements.
  • Judicial Nature of Arbitration: Although the nature of arbitration is still a matter of debate in the Egyptian legal system, the arbitration-friendly jurisprudence of Egyptian courts now supports the idea that the arbitration process is indeed of a judicial nature. As discussed by our contributors, recently the Cairo Court of Appeal held that arbitration is a technical means with a judicial nature that aims to settle a dispute. To that effect, if arbitration is to be considered of judicial nature, the Egyptian Supreme Constitutional Court would have the final word in cases where the same dispute is filed before an arbitral tribunal and the other side files the same dispute before a domestic court. In this scenario, the Supreme Constitutional Court would have the final word on which proceedings would continue and which would be terminated.
  • Annulment of Sports Arbitration Awards: In December 2018, the Cairo Court of Appeal ruled that annulment actions concerning arbitral awards issued by the Egyptian Sports Arbitration Center (as discussed earlier in this post) are inadmissible. The Court explained its position by stating that the annulment procedures under the Egyptian Arbitration Law No. 27 of 1994 do not apply to sports arbitration awards as the latter follow a special regime for annulment as provided for under the new amendments to the rules of the Egyptian Sports Arbitration Center. Nonetheless, on 24 December 2019, the Egyptian Court of Cassation decided to refer relevant provisions of the Rules of the Egyptian Sports Arbitration Center to the Supreme Constitutional Court to decide whether they conform with Egypt’s Constitution. In its recitals, the Court of Cassation held that the Rules of the Egyptian Sports Arbitration Center contravene the Egyptian Constitution while excluding the review of its arbitral awards through annulment actions by any domestic courts, whether Egyptian or foreign-based.

Based on these recent developments, it is evident that the Egyptian courts are aligned with best international arbitration practices, seeking to drive legal developments in this direction.

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Macau Ups Its Game: A Discussion on the New Arbitration Law 2019

Mon, 2020-01-20 22:00

Chiraag Shah, Pietro Grassi and Ziqi Qi

The Macau Special Administrative Region of the People’s Republic of China (“Macau”) has seen a dramatic decrease of foreign direct investment in the last few years. According to data from the Macau Statistics and Census Service, foreign direct investment dropped 79.9% in 2017 compared to 2016.

In order to attract more investment, Macau needs to strengthen its competitiveness and appeal to overseas investors, particularly amongst Lusophones. Legislative reform needed includes promulgation of investor-friendly legislation that incorporates best international practices, as well as modern and effective dispute resolution techniques for investment disputes. In this vein, Macau published a new arbitration law, Law no. 19/2019 (the “New Arbitration Law”) on 5 November 2019, which will come into force on 4 May 2020.

The New Arbitration Law unifies the laws governing domestic and international arbitrations seated in Macau by replacing Decree-Law 29/96/M (for domestic arbitrations) and Decree-Law 55/98/M (for international commercial arbitrations). It also implements practices and standards in accordance with the UNCITRAL Model Law. A number of noteworthy developments are highlighted below.

 

Ability to opt into emergency arbitrator mechanism

The emergency arbitrator mechanism did not exist in the previous legislative regime. The New Arbitration Law allows parties to appoint an emergency arbitrator in their arbitration agreement or in any other subsequent agreement (Chapter 3 of the New Arbitration Law). The emergency arbitrator can deal with applications for urgent interim relief before constitution of the arbitral tribunal. Once constituted, the arbitral tribunal will take over from the emergency arbitrator.

 

Procedure for court’s assistance in taking of evidence

Article 61 of the New Arbitration Law makes it clear that an arbitral tribunal, or any of the parties with the approval of the arbitral tribunal, may apply to the local courts for assistance with obtaining evidence from another party or even a non-party to the arbitration. The application shall identify the facts that would justify such request, the issues to be covered by the evidence, as well as the documents to be presented and/or the persons to be questioned. The actual process of collecting the evidence will be run by the Macanese courts, which will then submit all information gathered to the arbitral tribunal. Previously, although Article 27 of the Decree-Law 55/98/M provided that an arbitral tribunal or any of the parties with the approval of the arbitral tribunal, could apply to the local courts for assistance with obtaining evidence, it did not explicitly provide for the taking of evidence with the courts’ assistance in relation to a non-party.

 

Possibility to appeal an award before another arbitral tribunal

The previous arbitration regime allowed parties to a Macau-seated arbitration to appeal an award before a local court (Article 34(2) of the Decree Law 29/96/M). The New Arbitration Law has abolished that possibility and provided, as a pro-arbitration move, that arbitral awards are no longer subject to appeal before a local court (Article 67(1) of the New Arbitration Law). The only exception is where there is an agreement between the parties before the award is rendered that such award may be appealed to another arbitral tribunal (the “Appeal Agreement”). The New Arbitration Law does not determine the scope of the Appeal Agreement, for example, whether the scope of appeal would be limited to points of law or would extend to finding of facts. The parties must set out the scope and limits of such appeal in the Appeal Agreement, since failure to do so would render the Appeal Agreement null and void. The requirement that any appeal process must be agreed upon on specific terms will safeguard the finality of the arbitration process while preserving parties’ autonomy.

The New Arbitration Law is not the only existing instrument that allow parties to appeal an award before a newly constituted arbitral tribunal. The Optional Appellate Arbitration Rules of the American Arbitration Association (“AAA”) allow parties to agree on the possibility to appeal an award before a newly constituted AAA arbitral tribunal, which may then review decisions on the ground of “an error of law that is material and prejudicial”, or  “determinations of fact that are clearly erroneous” (Rule A-10). However, it is observed that parties in practice rarely agree to such appeal possibility before another arbitral tribunal. The effect of this feature of the New Arbitration Law in practice is uncertain.

 

Recognition and enforcement of interim measures issued outside Macau

The New Arbitration Law also provides that, the procedure for the recognition and enforcement by the local courts of interim measures issued by a foreign-seated tribunal, shall be the same as for interim measures issued by a Macau-seated arbitral tribunal (Article 44 of the New Arbitration Law). The additional requirements applicable to such procedure relate to the presentation of the original order for interim measures, or a certified copy of such order, to be accompanied by a translation into Chinese or Portuguese (i.e., the two official languages of Macau) (Article 44 combined with Article 72 of the New Arbitration Law). This was not explicitly stated in the previous legislation.

 

Recognition and enforcement of arbitral awards issued outside Macau

The New Arbitration Law echoes the Chinese declaration of 19 July 2005 that the New York Convention shall apply to Macau. Consistent with such declaration, the New Arbitration Law allows for the recognition and enforcement of foreign arbitral awards and lists specific limited grounds for refusing recognition and enforcement (Chapter 8 of the New Arbitration Law), which are the same grounds as those set out in the New York Convention. Once an arbitral award is recognized, the courts can enforce it pursuant to regular civil procedural laws.

The mutual recognition and enforcement of arbitral awards between Mainland China and Macau remains unchanged under the New Arbitration Law. Pursuant to the Supreme People’s Court Arrangement between the Mainland and the Macau Special Administrative Region on Reciprocal Recognition and Enforcement of Arbitration Awards, Mainland Chinese awards are enforceable in Macau and vice versa.

 

Obligation to publicize arbitral awards involving public administration

In line with international practice, the New Arbitration Law does not preclude arbitrability of disputes involving public administration. Whilst the previous statutory regime did provide for the arbitrability of disputes involving the public/government sector, Article 77 of the New Arbitration Law provides greater transparency by requiring the Government of Macau, through the Directorate of Justice Affairs, to publish online all arbitral awards related to (i) an administrative contract, (ii) liabilities of government authorities or its officials arising from acts of public management, or (iii) property rights or legally-protected interests.

 

Comments

The enactment of the New Arbitration Law is an important step for Macau’s development into a viable and preferred seat of arbitration between Chinese- and Portuguese-speaking parties. From the perspective of the Lusophone business community, the fact that Portuguese is one of its official languages may gain Macau an advantage over nearby jurisdictions such as Hong Kong. Although the New Arbitration Law has made significant progress in promoting Macau as a pro-arbitration venue, it arguably still falls short in a number of respects.

Firstly, in comparison with the Hong Kong Arbitration Ordinance (Cap. 609) which expressly adopts UNCITRAL Model Law provisions (although with modifications and supplements), Article 7(2) of the New Arbitration Law simply provides that UNCITRAL Model Law can be used in support of interpretation of the New Arbitration Law. Whilst the distinction may not be obvious at first glance, it offers arbitral tribunals and Macanese courts a wider discretion when interpreting the New Arbitration Law which may potentially lead to inconsistent decisions.

Secondly, the New Arbitration Law has not incorporated some of the recent arbitral developments such as provisions addressing third-party funding. Third party funding was made possible in Hong Kong in February 2019 (see discussion in an earlier post).

Thirdly, the New Arbitration Law does not expressly deal with several practical issues that may arise during the course of an arbitration. These include the general and specific powers of an arbitral tribunal, the death of an arbitrator, provisions relating to the award of costs and interest, and provisions governing the liability of an arbitral tribunal.

Lastly, as discussed earlier on the Blog, the Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong Special Administrative Region enables Chinese courts to grant interim measures in respect of Hong Kong-seated arbitrations that are administered by qualifying institutions. Under such Arrangement, a party to an eligible arbitration against a Chinese counterparty would have in its toolkit the possibility of attaching assets, requesting injunctions, and preserving evidence in Mainland China through the Chinese national courts.  However, the same possibilities are currently not available with regard to Macau-seated arbitrations.

For the time being, whilst the New Arbitration Law is undoubtedly a significant step forward for Macau, there remain gaps in its legislative setting that are yet to be closed.

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The Passports’ Game: Chronicle Of A Foretold Death For Dual Nationals’ Claims

Mon, 2020-01-20 01:00

Pablo Mori Bregante

In a previous post, which discussed the Ballantines award, the author concluded that doors for dual nationals’ claims are being closed, including for non-ICSID cases where the relevant treaty does not have a provision dealing with the issue. The recent Heemsen v. Venezuela jurisdictional award confirms this approach. Unanimously, a PCA tribunal declined jurisdiction over the claims brought by Messrs. Enrique and Jorge Heemsen against Venezuela, not only because of lack of jurisdiction ratione voluntatis, since Venezuela did not consent the arbitration to be settled by an UNCITRAL tribunal, but most important – for the sake of this post – because of lack of jurisdiction ratione personae, since the Treaty between the Republic of Venezuela and the Federal Republic of Germany for the promotion and reciprocal protection of investments (the “Treaty”) does not allow claims brought by nationals of both states.

The award makes clear that the lack of an express prohibition of dual nationals’ claims in the relevant treaty is not enough to sustain that such types of claims were consented by the parties. Despite a treaty’s silence on this issue, what matters are the principles of international law, including the dominant and effective nationality as the one that governs the issue. Showing their German passports and nationality certificates was not enough for the Heemsens. Their dominant and effective nationality was the Venezuelan one; therefore, they were not allowed to bring claims against their home state, Venezuela. Thus, it seems that the passports’ game is reaching its end.

 

Understanding the Heemsen award

According to the jurisdictional award dated October 29, 2019 (PCA Case No. 2017-18), the company Sucesión Heemsen, C.A. (“SHCA”) owned a land called “La Salina,” in Carabobo, Venezuela. SHCA was ultimately controlled by Messrs. Enrique and Jorge Heemsen Sucre (¶¶ 63-71), both born in Venezuela but allegedly also German nationals due to ius sanguinis. Their father, Mr. Enrique Heemsen Velazco, was recognized and treated as a German national by the German authorities, despite also having been born in Venezuela (¶ 172).

In May 2011, after the Venezuelan port state-owned company “Bolivariana de Puertos S.A.” informed Messrs. Heemsen of its intention to expand the state port, both parties began negotiations to transfer to the state a part of La Salina. Ultimately the parties could not agree on the price and on March 13, 2012, Venezuela issued the Expropriation Decree No. 8.838. The Decree ordered an expropriation proceeding against La Salina due to public and social reasons (¶¶ 72-78). In December 2016, the Heemsens submitted the dispute to an ad-hoc arbitration proceeding under the UNCITRAL Rules alleging that the Decree violated its rights under the Treaty.

On the one hand, article 10.2 of the Treaty provides that any dispute under the Treaty shall be submitted to ICSID arbitration. Further, the Treaty’s Protocol ad-article 10(a) states that “while the Republic of Venezuela does not become party to the ICSID Convention,” the dispute shall be submitted to the ICSID Arbitration Additional Facility Rules before ICSID. Ad-article 10(b) points that “in case it is not possible to recourse to the arbitration proceeding according to the ICSID Arbitration Additional Facility Rules,” the dispute shall be submitted to an ad-hoc proceeding under the UNCITRAL Rules. Based on these provisions, Venezuela submitted a ratione voluntatis jurisdictional objection arguing that it had not consented to an ad-hoc proceeding, which was available only during the time previous to Venezuela’s becoming a party to the ICSID Convention. In any event, given that the ICSID Additional Facility Rules were still available, the Heemsens would not have been authorized to initiate a UNCITRAL proceeding (¶¶ 89-108).

On the other hand, the Heemsens are dual nationals, which is the base for Venezuela’s ratione personae jurisdictional objection. Although the claimants hold German passports and nationality certificates, they are also Venezuelan citizens. According to Venezuela, the Treaty does not allow dual nationals’ claims. Even if that were not the case, it argues that international principles of law should apply when interpreting the relevant treaty; thus, the principle of dominant and effective nationality controls the issue at hand. Therefore, since the Heemsens have stronger ties with Venezuela than with Germany, their dominant and effective nationality is the Venezuelan one, and therefore, they are not entitled to sue Venezuela (¶¶ 238-245).

Upholding the ratione voluntatis objection, the tribunal first concluded that the forums contemplated in ad-articles 10(a) and 10(b) of the Treaty’s Protocol and in article 10.2 were not intended to be optional among each other. This is, any forum different from an ICSID arbitration, including an UNCITRAL proceeding, was available only while Venezuela had not become a party to the ICSID Convention; this is the so-called “pre-ICSID period,” thus not extendible to the time after which Venezuela denounced such convention (¶¶ 352-388).

Nevertheless, even if the additional forums were extendible to that time, the Heemsens would not have been allowed to bring their claims to an UNCITRAL tribunal. They tried to initiate an arbitration under the ICSID Additional Facility Rules but the ICSID Secretary General rejected it in-limine since Messrs. Heemsens do not fit in the definition of “national of another state” set forth in article 1(6) of such Additional Facility Rules. The tribunal concluded by stating that a motivated rejection is not the same as the impossibility to apply the Additional Facility Rules mentioned in ad-article 10(b) (¶¶ 389-399).

Although the tribunal could have stopped there, “ex abundati cautela,” it went further and stated its position on the feasibility of dual nationals bringing claims against one of their own states (¶ 411). First, the tribunal concluded that the lack of an explicit prohibition in the relevant treaty is not an authorization for such kind of claims. While the treaty does not exclude protection to dual nationals, it does not include them explicitly either (¶ 414).

Moreover, it found that article 10.2 states that had the dispute not been amicably settled, it shall be submitted, at the “national” request, to an arbitration proceeding under the ICSID Convention. Since the latter does not allow dual nationals’ claims (article 25(2)(a) of the ICSID Convention) the concept of “national” in the treaty must be interpreted as a national holding the nationality of one state but without having at the same time the nationality of the other one. Arguing otherwise would mean that the treaty protects dual nationals, but they cannot use the dispute resolution clause. The fact that theoretically the investor and the state could apply rules different from those of ICSID is not a compelling excuse to change the conclusion above (¶¶ 417-419).

Finally, the tribunal concluded that regardless of the treaty’s silence on the issue, principles of international law apply, and therefore – applying by analogy the international law of diplomatic protection (¶ 433) – the principle of dominant and effective nationality is to govern the matter (¶ 440). Applying the Nottebohm case, the tribunal concluded that the Heemsens’ dominant and effective nationality was the Venezuelan one as they were born and have their domicile in Venezuela, their children were also born in Venezuela, they incorporated companies and behaved on them as Venezuelan citizens, and finally they did not register their shares in La Salina or themselves as an international investment or as foreign investors respectively before the Superintendence of Foreign Investments.

Given those findings, the tribunal rejected jurisdiction ordering the Heemsens to pay Venezuela’s counsel reasonable fees.

 

There is no such a thing as an affirmative silence for dual nationals’ claims

The importance of the Heemsen award is even bigger than that of the Ballatines decision. Unlike the Ballantines decision, which dealt with a treaty that had a specific provision about dual nationals’ standing, the Heemsen decision deals with the same issue but where the applicable treaty keeps silent on the matter. This issue had been previously dealt with by other tribunals in a totally opposite direction. Particularly the PCA, Serafin García Armas tribunal (discussed here) allowed claims brought by dual Spanish-Venezuelan nationals against Venezuela mostly due to a lack of an express prohibition for such claims in the Spain-Venezuela BIT (Serafin García Armas award, ¶ 200). The Heemsen award has shifted such an interpretation, concluding that an affirmative silence for dual nationals’ claims does not exist in investment arbitration.

Most recently, a new PCA tribunal confirmed this trend, dealing what could be seen as the final blow to the passports’ game. Analyzing the Spain-Venezuela BIT, the Manuel García Armas v. Venezuela jurisdiction award dated December 13, 2019 (PCA Case No. 2016-08), found that silence in a treaty about dual nationals’ standing cannot amount to a consent. The tribunal looked at the context of the BIT’s conclusion. During the negotiations of the ICSID Convention both Spain and Venezuela explicitly opposed dual nationals’ claims. Particularly, Spain’s representative stated that “with regard to the problem of dual nationality, he felt that, where one of the two nationalities involved was that of the host State, that State would not agree to being brought before an international forum by a person whom it claimed as its national.” Further, the same representative added that “on the question of dual nationality he could not agree that a State would under any circumstance consider foreign an investment made by one of its nationals even if they had concurrently the nationality of another State.” (¶ 667). The tribunal concluded that this revealed what both states considered as the international law applicable not only to the ICSID Convention negotiation, but also to their negotiated investment treaties, including the BIT (¶ 669).

Contrary to the Serafin García Armas award, which stated that the international law of diplomatic protection was not applicable to the interpretation of investment treaties (¶¶ 172-173), both the Heemsen and the Manuel García Armas awards state that diplomatic protection principles are indeed important in this field, including therefore the principle of dominant and effective nationality. As a consequence, from now on, if tribunals follow the Heemsen and the Manuel García Armas approaches, any dual national will have to show that their dominant and effective nationality is the one of the non-host country state; otherwise, their claims will be dismissed based on lack of ratione personae jurisdiction.

 

The back door is not an option anymore either

Of same – or maybe even more – importance than the application of international law principles is the fact that the alternative to submit a dispute to a non-ICSID arbitration, like an UNCITRAL one, is no longer an option. Same as Serafin García Armas, the Heemsens, and Manuel García Armas, other investors have tried to use the back door of an UNCITRAL arbitration, instead of an ICSID one, in order to secure jurisdiction. Since the ICSID Convention clearly forbids dual nationals to sue either of their own states, investors have argued that because the treaty also allows them to initiate an UNCITRAL proceeding, this would also create standing for dual nationals. Both the Heemsen and the Manuel García Armas awards seem to put an end to that possibility, too. If parties agreed to ICSID arbitration, the parties also agreed on the prohibition of dual nationals suing any of their own states. What cannot be obtained through the main door (ICSID) cannot be obtained through the back door (UNCITRAL) either.

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Unpacking the Singapore Court of Appeal’s Determination of Proper Law of Arbitration Agreement in BNA v BNB

Sat, 2020-01-18 19:00

Samuel Koh

In BNA v BNB and another [2019] SGCA 84 (“BNA”), the Singapore Court of Appeal overturned the High Court’s ruling and provided authoritative guidance on the applicable principles in determining the proper law of an arbitration agreement.

I discussed the High Court’s decision and the factual background in an earlier post. This post unpacks the significance and ramifications of the findings that the Court of Appeal made in BNA, as well as those that the Court arguably could have made, but ultimately refrained from making.

 

Court of Appeal’s decision

The Court of Appeal allowed the appeal, finding that Shanghai was the arbitral seat, and that PRC law should be the implied proper law of the arbitration agreement (at [4] and [103]). In reaching this outcome, the court applied a three-stage analysis:

  • the parties had not made an express choice of law for the arbitration agreement, as an express choice of the proper law of the underlying contract does not, in and of itself, also constitute a choice of the proper law of the arbitration agreement (at [56]–[61]);
  • in the absence of an express choice of the proper law of the arbitration agreement, the implied choice of the proper law should presumptively be the proper law of the underlying contract, which is PRC law in the present case (at [47], [62] and [63]);
  • the High Court erred in finding that the implied choice of PRC law was the law of the seat, being Singapore law, because: (i) the arbitration agreement, in providing for “arbitration in Shanghai”, should naturally be read to be a choice of Shanghai as the seat (and not merely the venue) of the arbitration (at [65]–[69] and [91]–[93]); (ii) there having been a choice of the seat, Rule 18.1 of the SIAC Rules 2013, which provides that in the absence of the parties’ agreement, the default seat of the arbitration shall be Singapore, does not come into play (at [64]); and (iii) there was nothing to displace the natural reading of the phrase “arbitration in Shanghai” (at [70]–[90]); and
  • as the implied choice of the proper law has been found to be PRC law, there was no need to consider the third stage of the three-stage analysis, which considers the system of law with which the arbitration agreement has the “closest and most real connection” (at [94]).

 

Analysis

I discuss three significant issues raised by the Court of Appeal.

 

Endorsing the proper law of the underlying contract as presumptive implied choice

First, in applying the three-stage analysis, the Court of Appeal expressly endorsed the approach taken in Sulamerica Cia Nacional de Seguros S.A. v. Enesa Engenharia S.A. [2012] EWCA Civ 638 (“Sulamérica”) that in the absence of an express choice of the proper law of the arbitration agreement, the implied choice of law should presumptively be the proper law of the underlying contract (the “Sulamérica Presumption”).

Previously, there had been a divergence in Singapore authorities in this regard. Whereas the Assistant Registrar in FirstLink Investments Corp Ltd v GT Payment Pte Ltd and others favoured the law of the seat as the presumed implied choice of the proper law of the arbitration agreement (at [13]–[15]), the High Court in BCY v BCZ preferred the proper law of the underlying contract (at [49]–[65]). While recent High Court authorities appeared to have coalesced in support of the Sulamérica Presumption (see Dyna-Jet Pte Ltd v Wilson Taylor Asia Pacific Pte Ltd at [31] and BMO v BMP at [38] and [39]), this technically remained an open question in Singapore law, given that Singapore’s apex court had thus far not expressly opined on which approach should apply.

Notwithstanding that it was common ground in BNA that the Sulamérica Presumption should apply (BNA at [47] and [62]), the fact remains that the Court of Appeal finally ruled conclusively in favour of the Sulamérica Presumption.

 

Clarifying proper interpretation of the reference to a city

Second, in holding that the natural meaning of the phrase “arbitration in Shanghai” should be that Shanghai is the seat (and not the venue) of the arbitration, the Court of Appeal introduced welcome clarity to the manner in which arbitration clauses containing such wording should be interpreted.

This interpretation accords with common sense. As the Court rightly pointed out, given the legal significance of a seat of an arbitration (which determines, among other things, the system of law that governs the arbitral process, the court having supervisory jurisdiction over the arbitration, and the jurisdiction where an award is considered to have been made), as compared to its venue (where the tribunal merely holds its hearings and meetings), it makes eminent sense for an arbitration clause to be read as having selected a seat instead of a venue where the clause specifies only a single geographical location.

This interpretation also reflects the more commercially sensible approach. This is clear from the sheer prevalence of commercial parties specifying cities (and not countries) in arbitration agreements, as seen from the case authorities (at [66]–[68]) and the model clauses of arbitral institutions (at [92]) referred to by the Court in its analysis.

 

Declining to consider effect of PRC law on the arbitration agreement

The Court of Appeal found that the invalidating effect of PRC law on the arbitration agreement was not a relevant consideration in determining the proper law of the arbitration agreement, given that there was no evidence that the parties were at least aware of the impact that the choice of PRC law could have on the validity of the arbitration agreement (at [90]). This holding warrants scrutiny for two reasons.

First, this approach appears contrary to the approach adopted in English law. In Sulamérica, the English Court of Appeal held that the Sulamérica Presumption may be displaced by two factors: first, the choice of a seat of arbitration that points away from the main contract’s choice of law (at [29]); and second, the consequences that follow from the main contract’s choice of law – specifically, where the proper law of the underlying contract would undermine the parties’ clear intention to arbitrate, the Sulamérica Presumption will be rebutted (at [30]). This approach has been endorsed by the Singapore High Court in BCY (at [74]).

While the Court of Appeal suggests that if there had been evidence of the parties’ awareness of the effect of PRC law on the arbitration agreement, then it would have been possible for the Court to take into account the potential invalidating effect of PRC law, this still appears to be a departure from the approach in Sulamérica and BCY. The courts in both of these decisions did not appear to require such evidence when opining on the effect of the consequences flowing from the main contract’s choice of law on the parties’ implied choice of proper law of the arbitration agreement.

Second, the Court of Appeal’s approach appears problematic as a matter of principle. The requirement that parties must be shown to have considered, or at least be aware, of the invalidating effect of a particular choice of law on the arbitration agreement appears to be inconsistent with the fundamental consideration underlying the finding that the potential invalidating effect of a main contract’s choice of law can displace the Sulamérica Presumption. This consideration is that in a situation where parties have clearly evinced an intention to refer disputes to arbitration, parties should not be taken to have impliedly chosen for the arbitration agreement to be governed by a system of law that invalidates the arbitration agreement and nullifies their intention to arbitrate. Hence, when parties have evinced a clear intention to arbitrate in the form of an operative arbitration agreement that is capable of being performed, specific evidence of the parties’ contemplation of the potential invalidating effect of the main contract’s choice of law is arguably unnecessary.

As such, assuming that PRC law will invalidate the present arbitration agreement, the Court of Appeal arguably should not have concluded that PRC law was the implied proper law of the arbitration agreement, given that the Sulamérica Presumption has been rebutted. The Court ought to have gone on to consider the third stage of the three-stage analysis. While this stage would likely yield the same substantive outcome (i.e., that PRC law is the proper law of the arbitration agreement), the Court should have embarked on this inquiry to preserve analytical clarity between the second and third stages of the three-stage analysis.

 

Conclusion

The Court of Appeal’s decision in BNA is a landmark judgment in many ways, with the apex court settling conflicting strands of authorities regarding the application of the three-stage analysis, and clarifiying a key point of interpretation that might have otherwise continued to promote uncertainty in the Singapore arbitration scene. However, as regards the other findings that the Court of Appeal declined to make, it remains to be seen if future corams of the apex court would reconsider the approach taken in BNA, if such an opportunity so arises.

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The Role of Precedent in ISDS: Can Decisional Law Contribute to the Creation of Customary Norms?

Sat, 2020-01-18 02:00

Rebecca Meyer

ISDS is a fragmented field, consisting of a few thousand bilateral investment treaties (“BITs”) and treaties with investment chapters – such as the Energy Charter Treaty (“ECT”) or the North American Free Trade Agreement (“NAFTA”). These instruments that regulate foreign investment are often similar but are not the same. Yet, even where different bilateral relationships are governed by technically distinct obligations, there is often a level of consistency among ISDS decisions. This coherence results from the precedent-like reliance on earlier ISDS decisions.

Even though ISDS decisions are non-binding on investment tribunals, reliance on other awards to substantiate a ruling is logical practice. If a dispute is well-reasoned and concerns similar factual or legal issues, it makes sense to reference it. After all, justified reliance on precedent can further the goals of arbitration, such as fostering judicial economy. Additionally, it is useful when arbitrators tout approval for the rationale behind a particular treaty interpretation or for the application of treaty language to the facts of a given dispute. This is helpful to both states and investors, considering regulatory and investment decisions, respectively.

Although the above-mentioned practice is sound, the rationale for reliance on other arbitral awards has been distorted in certain circumstances. Some practitioners and scholars who support the use of precedent have stated that precedent is a primary source of law in ISDS.1)See e.g., Andreas F. Lowenfeld, Investment Agreements and International Law, 42 COLUM. J TRANSNAT’L L. 123, 129 (2003); E. Alvarez, A BIT On Custom, 42 J. OF INT. L. & POL. 17, 54 (2011). jQuery("#footnote_plugin_tooltip_7339_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7339_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Specifically, certain authors argue that traditional sources of public international law – particularly custom – are overly formalistic and not workable as applied to ISDS.2)See id. jQuery("#footnote_plugin_tooltip_7339_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7339_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Hence, the argument often proceeds that decisions of ISDS tribunals are of heightened importance in the field in comparison to customary international law. In fact, some advocates of this view advance that ISDS decisions not only contribute to, but generate the best statement of, customary law in the field.

 

ICJ Statute – Hierarchy of Sources in International Law

According to the Statute of the International Court of Justice (the “ICJ Statute”), courts and tribunals “shall apply” three primary, co-equal sources in deciding international disputes: treaties, customary international law and general principles of law. In addition to these three sources, Article 38(d) of the ICJ Statute indicates that judicial decisions and opinions rendered by the most preeminent scholars may be used as a “subsidiary means for the determination of rules of law.”  (Emphasis added.) It is possible to argue that ISDS decisions qualify as judicial decisions under Article 38(d). If that is the case, then ISDS decisions would appear to be a mere subsidiary means for the determination of rules of law in ISDS. The primary sources continue to be the principal means for determination.

 

ISDS Decisions’ Relationship to Custom

Customary international law is evidenced by “general practice accepted as law,” and therefore, it has two constituent elements: state practice and opinio juris. (Statute of the International Court of Justice, art. 38, ¶ 1.) Both of these elements must be assessed independently, and evidenced affirmatively, in order to indicate that a customary norm exists. Evidence of the constituent elements is gleaned from state action.

 

Possible Contribution to the Elements of Custom

As noted, one argument sometimes advanced is that ISDS decisions contribute to custom. Simply put, ISDS decisions do not supply evidence of either state practice or opinio juris. Importantly, tribunals’ decisions are not made by or on behalf of a state actor, so there can be no question as to whether state practice or opinio juris can be gleaned from the decisions themselves. However, this does not render ISDS decisions completely irrelevant regarding the identification (as opposed to formation) of customary international law.

There are at least two circumstances where ISDS decisions can have an impact on the creation of customary norms. First, ISDS decisions can stimulate state practice. For instance, if an ISDS ruling causes a state actor to reform its domestic legislation in order to comply with its international obligations, then the ruling has stimulated some state practice.

Second, it is possible to argue that a state’s submission to an ISDS tribunal contributes to the identification of customary international law because it supplies evidence of opinio juris. However, this argument must be viewed more critically. In recent years, the International Law Commission (the “ILC”) considered the identification of customary international law and prepared its draft conclusions. (UN/GA/res/A/73/10.) The ILC’s draft conclusions indicate that statements made in pleadings, on behalf of a state, can contain evidence of opinio juris. However, the same draft conclusions emphasize that “extralegal” motives for an action must be carefully assessed and distinguished from opinio juris. Thus, it is necessary to consider how much weight can be given to ISDS submissions, which are made by private law firms on behalf of a government. This is significant for a number of reasons, one being that law firms that have an ISDS practice can often represent both investors and states. Hence, for the purpose of identifying customary international law, a case-by-case analysis needs to be undertaken to determine the weight that can be given to statements in ISDS submissions. This analysis should focus on the motives of both the government and its legal representatives in making various submissions.

 

Possible Superior Role

Some posit that ISDS decisions generate the best statement of what is customary in the field. Thus, the argument proceeds that the decisions effectively do, and should, replace the need for identifying custom through the more difficult practice of finding evidence of state practice and opinion juris.

Despite arguments to the contrary, ISDS decisions neither replace nor occupy a more important position than customary international law. It is worth recalling that the ICJ Statute creates a hierarchy between the sources of international law: (1) primary sources, including custom and (2) subsidiary sources, including judicial decisions and scholarship. Judicial decisions may include ISDS decisions, making them an inferior means for determination as compared to custom. Although beyond the scope of this piece, it is worth considering in the first instance whether ISDS decisions are the type of judicial decisions envisioned by Article 38(d) of the ICJ Statute.

In any case, even if ISDS decisions qualify as judicial decisions under Article 38(d) of the ICJ Statute, it cannot be stated that they have special force vis-à-vis the primary sources – especially custom – in ISDS. In practice, ISDS tribunals are typically careful to note that other decisions are not binding on them. This alone is seemingly enough to refute the idea that decisional law contributes to the creation of custom. Yet even more important is the consideration of state consent, since the identification of a new custom obliges states to act in compliance with it. Accepting the argument that ISDS tribunals create custom through decisional law completely negates the essential element of custom: state consent (as evidenced by the constituent elements). This is because ISDS decisions are imposed on states, not agreed to by states. Moreover, such decisions are binding, and yet a state will invariably disagree with a ruling against it in ISDS. Hence, it is not possible to say that a state consents to the unfavorable award, let alone to its contribution to customary law.

 

Conclusion

Reliance on previously rendered ISDS decisions benefits players in the field. However, the function of precedent in ISDS should not be overstated. The difference between, on the one hand, creating customary international law and/or providing direct evidence of the elements of custom and, on the other hand, providing a forum where evidence of custom is likely to be gleaned, is a technical one. Nonetheless, it is an important difference with potentially significant consequences for states, and investors. Thus, it is important to adhere to traditional sources of law, and to respect the hierarchy between those sources, as espoused in the ICJ Statute. This is especially true today, where the continued vitality of the ISDS system is being called into question.

References   [ + ]

1. ↑ See e.g., Andreas F. Lowenfeld, Investment Agreements and International Law, 42 COLUM. J TRANSNAT’L L. 123, 129 (2003); E. Alvarez, A BIT On Custom, 42 J. OF INT. L. & POL. 17, 54 (2011). 2. ↑ See id. 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: The Decision-Making Process of Investor-State Arbitration Tribunals
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The Contents of the Brazilian Arbitration Journal, Volume XVI, Issue 64 (December 2019)

Sat, 2020-01-18 01:00

João Bosco Lee

In October 2019, Brazilian legal community lost two of its most prominent authorities in private international law: Professors Jacob Dolinger and Luiz Olavo Baptista. Besides having built the basis of modern Brazilian private international law, Professors Dolinger and Baptista were essential in the development of Brazilian arbitration. In this edition, Brazilian Journal honors these unique and exceptional jurists with tributes of José Emilio Nunes Pinto, Esq. to Prof. Baptista and of Min. Luis Barroso to Prof. Dolinger.

In this 64th edition of Brazilian Journal Arbitration, Pedro Teixeira Mendes Parizotto opens the National Doctrine section with a study on the validity of hybrid jurisdictional clauses under Brazilian legal system. Thereafter, Maysa Abrahão Tavares Verzola and Kamile Medeiros do Valle present an article about the arbitrability of pecuniary administrative penalties as disposable rights. Finally, Ana Olivia Antunes Haddad, Julia Martins Gomes, and Louise Maia de Oliveira’s work aims at identifying tendencies concerning arbitrators’ profile in Brazil through an analysis of the members of the lists of the leading Brazilian arbitral institutions.

In the International Doctrine section, Thomas Granier examines the recent understanding of Paris Court of Appeals on the compatibility of international arbitral awards with international public policy, counting on an in-depth review of the facts to determine whether a breach of international public policy had arisen.

In the National Judicial Case Law section, Caio de Sá Dal’Col and Lívia Dalla Bernardina Abreu comment the Superior Court of Justice (STJ) decision in the judgment of Special Appeal No. 1.550.260/RS on  the jurisdiction of State courts to process and judge a lawsuit on forgery of a document, even when there is an arbitration clause in the subject matter documents of the lawsuit. On his turn, Ricardo Ramalho Almeida comments on a first instance decision delivered by the 1st Court of Business Restructuring and Insolvency of São Paulo in the Continental v. Quirós case, which handled the bankruptcy effects on pending arbitral proceeding and passive standing ad causam of the part that had not been included as debtor in the enforceable instrument for the enforcement of the award.

Turning to not-commented International Judicial Case Law section, it is presented a decision rendered by Grand Court of the Cayman Islands Financial Services Division regarding the enforcement of a foreign arbitral award filed by VRG Airlines against Matlin Patterson.

In the General Information section, Renata Auler Monteiro reports the highlights of the IV International CBMA Arbitration Congress; Bruno Guandalini comments the XVIII International Arbitration Congress of Brazilian Arbitration Committee, which took place from August 22 to August 24, 2019, in Brasília; and Thais D’Angelo da Silva Hanesaka presents the transcription of the speech of Ambassador Roberto Azevêdo in the ceremony of granting of the Title of Patron of CIArb Brazil Branch, held on September 27, 2019.

In the Arbitration Classics section, Clarie Debourg presents her comments on the emblematic Cour de Cassation’s decision in the Mardelé v. Muller case, which has consolidated, in French law, the dualist system centered in the economic criterion to differentiate the domestic arbitration and the international arbitration.

Finally, this editon includes the Arthur Gonzalez Cronemberger Parente book review on “Arbitragem e Conexão – Poderes para Decidir sobre Questões de Conexão”, by Paulo Macedo Garcia Neto.

I wish you an excellent arbitral reading!

João Bosco Lee, Director

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2019 in Review: Latin America and Investment Arbitration

Thu, 2020-01-16 20:00

Enrique Jaramillo (Assistant Editor for Latin America)

Introduction

In 2019, we witnessed a number of interesting developments in the field of investment arbitration in Latin America. While some of them were in line with expectations, some jurisdictions did deviate from their usual or expected approach to ISDS and surprised us in positive, but also in negative ways. Our authors did a tremendous work covering and sharing their insights on the most important developments affecting our industry. In this post, we aim at giving you a quick look back to some of our most impactful publications in 2019.

 

USMCA will not enter into force before May 2020

Although USMCA was originally signed in November 2018, 2019 went by without its provisions coming into force. According to its text, the treaty takes effect three months after ratification by all three signatories. By the end of 2019, however, neither the United States Congress nor the Canadian Parliament has been able to pass such ratification. This delay was caused mainly by U.S. House Democrats who insisted on modifying the first version of the treaty on a number of issues related – mainly – to including stronger enforcement of labor provisions, and stricter environmental protections.

In December 2019, all three parties signed a Protocol amending the original text of USMCA. Chapter 14 – the section of the treaty dealing with ISDS, which we covered extensively in 2019 (see here, here and here) – is not modified by the Protocol. On the other hand, Chapter 31 – applicable to disputes between signatories – did suffer some minor modifications oriented to eliminate signatories’ ability to delay or to block the establishment of a dispute panel. It does so by 1) modifying certain language to ensure the automatic establishment of panels at the parties’ request; 2) requiring parties to establish a roster of dispute settlement panelists; and, 3) allowing the roster to be established even if consensus is not reached on the appointments made by each party.

As of today, the updated version of USMCA was already ratified by both the Mexican Senate, the U.S. House of Representatives and the Senate; ratification pending only by the Canadian Parliament. The latter might be the last to ratify the treaty, since it is in recess until January 27, 2020. This being the case, USMCA would not enter into force at least until May 2020 – three months after the potential ratification by all three parties. Under this state of affairs, the North American Free Trade Agreement (NAFTA) – along with all its substantive and procedural protections – remains in effect.

 

Investment Arbitration and claims by dual nationals

In October 2019, we reported on a PCA Tribunal’s award on jurisdiction dealing with a treaty provision allowing dual nationals to bring claims against one of their home states (Lisa Ballantine and Michael Ballantine v. The Dominican Republic). The case is the first publicly known investment arbitration that deals with a provision like this and will most likely be taken as a precedent for similar cases.

The claim was submitted by the Ballantines, citizens of both the U.S. and the Dominican Republic, against the latter, under the Dominican Republic – Central America – United States Free Trade Agreement (the “DR-CAFTA”). DR-CAFTA allows claims by dual nationals, as long as the claimant’s “dominant and effective nationality” is that of the non-host country. The Tribunal concluded it did not have jurisdiction to hear the claim, deciding that the claimants did not meet the dominant and effective nationality test. The tribunal reached its conclusion by addressing two substantive issues.

First, the Tribunal concluded that according to both the terms of the specific treaty and the UNCITRAL Rules, the nationality requirement must be fulfilled, first, at the moment the notice of arbitration is received by the respondent and, second, at the date in which knowledge of the breach is or should have been acquired, which is when the alleged breach was committed. Second, the Tribunal decided that – given DR-CAFTA’s silence on the matter – analyzing the legal standard for the dominant and effective nationality test required resorting to the customary rules of international law for which “customary international law cases are instructive.” Consequently, the Tribunal identified four elements to determine effective and dominant nationality: (i) the state of habitual residence; (ii) the circumstances in which the second nationality was acquired; (iii) the individual’s personal attachment to a particular country; and (iv) the center of the person’s economic, social and family life.

On account of Article 25(2)(a) of the ICSID Convention, the Ballentines decision will have no effect on ICSID cases. It is, however, relevant precedent for cases arising under treaties allowing dual-national claims, and – potentially – those silent on the matter. According to our author, Pablo Mori Bregante, this is so because the Ballantines award reinforced the concept that in absence of a provision in a treaty, customary international law cases are instructive, and because in at least one ongoing case without a similar provision (Serafin García Armas v. Venezuela), French courts have upheld the need to determine the effective nationality.

 

Colombia’s Constitutional Court conditions FTA ratification to issuance of joint interpretative notes by signatories

Colombia’s reputation as an investor-friendly country is irrefutable. In 2019, however, the nation’s Constitutional Court (the “Court”) issued a number of decisions in hinderance of both commercial and investment arbitration. In regard to the latter – for the very first time – the Court conditioned the ratification of investment agreements – with France (France BIT) and Israel (Israel FTA) – to the issuance of joint interpretative notes for certain provisions, including those regarding fair and equitable treatment (“FET”), national treatment, most favored nation (“MFN”), and expropriation. The Court’s decisions basically required the signatories to define terms such as “international law,” “legitimate/reasonable expectations,” “similar circumstances,” and others, in line with the Court’s own understanding of what those terms encompass.

As reported here and here, the relevance of these cases does not rest so much on the terms the Court required the parties to interpret but on the nature of the rulings itself. Specifically, on whether the Court exceeded its powers, first, by imposing its own views on the content of international investment agreements (“IIAs”) on Colombia’s Executive Branch; and, second, by asserting jurisdiction over foreign nations by requesting them to issue interpretative notes.

These decisions have dramatically changed the Court’s longstanding position regarding IIAs and may have several effects. First, if the Parties wish to pursue the ratification of the treaties, the representatives of Colombia, France, and Israel – respectively – will have to negotiate again either a joint interpretative declaration or the language of the agreements. Second, the interpretations of the Court may become evidence of state practice on how Colombia interprets provisions such as “international law,” “legitimate expectations,” or “similar circumstances”. This may have an impact on on-going and future investment arbitrations against Colombia.

 

After a decade-long arbitration, an international tribunal issued award on quantum in Perenco v. Ecuador saga

As reported by Daniela Páez-Salgado and Natalia Zuleta, after more than a decade, last year saw the end of the Perenco v. Ecuador saga. This dispute arose years ago from (i) Ecuador’s amendment of its Hydrocarbons Law in order to increase windfall profit tax rate for oil and gas operations up to 99%; and (ii) from Petroecuador’s decision to unilaterally terminate (declare caducidad) Perenco’s exploration and production contracts (PSAs). In response to Ecuador’s action, in 2008, Perenco brought a claim before ICSID arguing that the South American nation had breached FET standard under the France-Ecuador BIT and that it had unlawfully expropriated its investment. On the other hand, Ecuador also brought counterclaims, under Rule 40 of the ICSID Arbitration Rules, for environmental damages arising out of Perenco’s operations.

In 2014, the Tribunal found that (i) Ecuador had breached its contractual obligations to Perenco; (ii) Ecuador had acted in violation of FET, and (iii) that Ecuador’s decision to terminate the contract by declaring Caducidad amounted to an expropriation. In 2015, the Tribunal also found that Perenco was liable to Ecuador for environmental damage.

Finally, in 2019 the Tribunal issued an award on quantum. This award addressed the damages claimed by both parties; specifically, US$ 1.5 billion for the principal claim, and US$ 2.5 billion for the counterclaims. In the end, the Tribunal awarded Perenco US$ 449 million as compensation for Ecuador’s violation of the PSAs and the BIT; and awarded Ecuador US$ 54 million for its environmental counterclaim. Interestingly, the Tribunal appointed an independent expert to award the damages for the environmental counterclaim. Tribunal-appointed experts are not a novelty in international arbitration. However, it has not been very common for investor-state tribunals to appoint independent experts. From 2005 onward, tribunal-appointed damages experts have been engaged in only eight publicly available cases.

 

Modernized Canada-Chile FTA entered into force

In July 2019, Chip Rosenberg and Eduardo Bruera reported the coming into force of the Amending Agreements to the Canada-Chile Free Trade Agreement (“CCFTA”). The amendment updates several key provisions of the CCFTA, for example, it added a section on corporate social responsibility (“CSR”) reaffirming the parties’ commitment to globally endorsed CSR standards. It also includes procedural enhancements to the investor-state dispute settlement mechanism with respect to a number of modern considerations, including preliminary objections, awarding of costs, ethical considerations, third-partying funding, and transparency.

The amendment of the CCFTA was in line with Chile’s IIA agenda in recent years, i.e. to concentrate on comprehensive free trade agreements (FTAs) with investment chapters, instead of on BITs.

 

Conclusion

The intervention of Colombia’s Constitutional Court aside, 2019 was arguably a good year for investment arbitration in Latin America. The Perenco-Ecuador arbitration seems to be finally coming to an end, and Chile continues to move forward with the modernization of its IIA program. Granted, the year went by without the USMCA coming into effect, but the AMLO administration has dispelled investors’ concerns and, instead of reneging of treaty terms negotiated by the previous administration, it reasserted Mexico’s commitment to ISDS and international trade.

We expect to see as many interesting developments in 2020 as we did in 2019, e.g., the ratification of USMCA and the resulting termination of NAFTA; the development of annulment proceedings initiated by Ecuador following issuance of the Perenco quantum award; and, hopefully, news on the ratification of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in Chile and Perú. We look forward to receiving our readers and contributors’ insights on these and other matters.

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The BIT Footprints of Emerging Market Economies in Africa: What Do They Portend for ISDS?

Thu, 2020-01-16 00:00

Uche Ewelukwa Ofodile

Introduction

 

In a 2015 publication Investment Policies and Bilateral Investment Treaties in Africa: Implications for Regional Integration, the United Nations Economic Commission for Africa opined that for countries in Africa:

“[o]pportunities for signing BITs with non-African partners have largely been exhausted because new southern partners such as China and India prefer other modalities for engaging with Africa.”

However, a careful review of all publicly available bilateral investment treaties (BITs) concluded since 2014 suggests that when it comes to the BIT footprint of emerging market economies in Africa, the landscape is a bit more complicated. Although countries like India and South Africa are rethinking their approach to investment treaty making, others appear to be moving in the opposite direction. Indeed, a survey of recent BIT practice of countries like Turkey, the United Arab Emirates (UAE), and Brazil reveals a decidedly African orientation.

What about China? Although the pace of the conclusion of China-Africa BITs has slowed down, China has concluded more BITs with countries in Africa than most of Africa’s traditional partners.1)Uche Ewelukwa Ofodile, China-Africa Bilateral Investment Treaties: A Critique, 35(1) Michigan Journal of International Law 131 (2013). jQuery("#footnote_plugin_tooltip_6658_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6658_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The growing number of BITs between countries in Africa and emerging market economies raise questions about the role of emerging markets economies in international investment law rule-making and about future trends in investment treaty arbitration.

 

BITs Between African States and New Southern Partners: The Emerging Landscape

A review of the BITs that countries in Africa have concluded since 2014 suggests that countries like Turkey, Brazil, and the UAE are concluding BITs with countries in Africa at a significant rate. Overall, the record shows that:

 

Chart 1: Turkey-Africa BITs Since 2014

No. Short Title Date of Signature Date of Entry into Force ISDS (?) 1. Zambia-Turkey BIT 28/07/2018 — Yes 2. Mali-Turkey BIT 02/03/2018 — Yes 3. Mauritania-Turkey BIT 28/02/2018 — Yes 4. Turkey-Tunisia BIT 27/12/2017 — Yes 5. Turkey-Chad BIT 26/12/2017 — Yes 6. Burundi-Turkey BIT 14/06/2017 — Yes 7. Turkey-Mozambique BIT 24/01/2017 — Yes 8. Rwanda-Turkey BIT 03/11/2016 — Yes 9. Somalia-Turkey BIT 01/06/2016 — Yes 10. Ghana-Turkey BIT 01/03/2016 — Yes 11. Cote d’Ivoire – Turkey BIT 29/02/2016 — Yes 12. Sudan-Turkey BIT 03/04/2014 — Yes 13. Kenya-Turkey BIT 08/04/2014 — Yes

Source: Source: UNCTAD Investment Policy Hubhttps://investmentpolicy.unctad.org/

 

Chart 2: UAE-Africa BITs Since 2014

No. Short Title Date of Signature Date of Entry into Force ISDS (?) 1. Gambia-UAE BIT 15/07/2019 — Yes 2. UAE-Zimbabwe BIT 16/06/2018 — Yes 3. Mali-UAE BIT 06/03/2018 — Yes 4. Rwanda-UAE BIT 01/11/2017 — Yes 5. Uganda-UAE BIT 01/11/2017 — Yes 6. Angola-UAE BIT 05/04/2017 — Yes 7. Burundi-UAE BIT 06/02/2017 — Yes 8. Ethiopia-UAE BIT 03/12/2016 — Yes 9. Equatorial Guinea-UAE BIT 19/10/2016 — Yes 10. Nigeria-UAE BIT 18/01/2016 — Yes 11. Mauritania-UAE BIT 2015 12/04/2016 Yes 12. Senegal-UAE BIT 22/10/2015 — Yes 13. Mauritius-UAE BIT 20/09/2015 28/12/2017 Yes 14. Comoros-UAE BIT 26/03/2015 29/11/2017 Yes 15. Kenya – UAE BIT 23/11/2014 05/06/2017 Yes

Source: UNCTAD Investment Policy Hub  –https://investmentpolicy.unctad.org/

 

Chart 3: Brazil-Africa BIT Since 2014

No. Short Title Date of Signature Date of Ratification ISDS (?) 1. Brazil-Morocco BIT 13/06/2019 — No 2. Brazil-Ethiopia BIT 11/04/2018 — No 3. Brazil-Malawi BIT 25/06/2015 — No 4. Brazil-Angola BIT 11/04/2015 11/10/2017 No 5. Brazil-Mozambique BIT 30/03/2015 — No

Source: UNCTAD Investment Policy Hub  –https://investmentpolicy.unctad.org/

 

Emerging Market Economies, African States and ISDS: Key Questions

BITs between countries in Africa and emerging market economies outside the continent raise questions about the role of emerging economies in the development of international investment law and in investor-State dispute settlement (ISDS) in particular. For example:

  • In their BITs, are emerging market economies merely conforming to the norms and standards established by developed countries or are they changing these norms in fundamental ways?
  • In their recent BITs, are emerging market economies adopting a monolithic approach or are they carving their own respective paths?
  • Given the reported crisis in ISDS, are emerging market economies omitting ISDS from their recent BITs and if so, what are they replacing it with?
  • In their foray into Africa’s FDI space, what role might ISDS play in managing the activities of emerging market economies in the continent?

 

Emerging Market Economies, African States and ISDS: Emerging Trends

A review of the BIT footprint of some emerging market economies in Africa reveals that regarding ISDS, although ISDS is still very popular, emerging market economies are not adopting a monolithic approach, but are carving their own respective paths. Overall, several conclusions can be drawn.

First, all recent BITs between Turkey, UAE, China and countries in Africa provide for ISDS.2)Uche Ewelukwa Ofodile, Emerging Market Economies and International Investment Law: Turkey-Africa Bilateral Investment Treaties, 52(4) Vanderbilt Journal of Transnational Law 949 – 1060 (2019). jQuery("#footnote_plugin_tooltip_6658_2").tooltip({ tip: "#footnote_plugin_tooltip_text_6658_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Second, regarding Brazil, none of the five recent BITs between Brazil and countries in Africa provide for ISDS. For example, the Brazil-Malawi BIT does not provide for ISDS but rather creates a Joint Committee that is responsible for the administration of the agreement. One of the tasks of the Joint Committee is to:

‘[r]esolve any issues or disputes concerning Parties’ investments in an amicable manner’.

Third, emerging market investors appear to welcome ISDS and are not shying away from utilizing ISDS. In their dealings with States in Africa, ISDS has been triggered by numerous investors including investors from South Africa (e.g. AngloGold Ashanti (Ghana) Limited v. Republic of Ghana), UAE (e.g. DP World v. Djibouti) and Mauritius (e.g. LTME Mauritius Limited and Madamobil Holdings Mauritius Limited v. Republic of Madagascar.

Fourth, competition between emerging market economies for influence in Africa will intensify in the coming years and resort to dispute settlement mechanisms will likely increase as well. Already emerging market multinationals (EMNCs) are beginning to compete amongst themselves for lucrative contracts in Africa, as demonstrated by ongoing legal battles over who gets to control port terminals in Djibouti. The case of D.P. World v. Djibouti discussed here, pits Middle East port giant, DP World, against the government of Djibouti and a Chinese conglomerate, China Merchants Port Holdings Company. When Djibouti terminated a concession agreement with DP World to operate a port terminal, DP World filed claims with the London Court of International Arbitration. The same case is also playing out in Hong Kong’s high court (discussed here and here).

 

Conclusion

The global corporate landscape is going through a fundamental transformation thanks to emerging market multinational companies (“EMNCs). According to a 2015 report Playing to win: The new global competition for corporate profits (“Playing to Win”), since 1990, emerging economies have launched more than 17,000 large companies. Moreover, by 2025, EMNCs will account for more than 45 percent of the Fortune 500. Significantly, EMNCs are not content with operating in their home markets but are going overseas.

According to Playing to win:

“[i]n the past decade, the 50 largest firms from emerging economies have doubled their share of revenue from overseas activity from 19 percent to 40 percent.”

In the Asian Development Outlook 2011: South-South Economic Links, the Asian Development Bank declared that:

“prospects are bright for the South to promote growth and productivity by improving market-oriented links that facilitate the exchange of goods and services as well as capital investment flows and transfers of technology.”

The increased role of emerging market partners in Africa was noted in the African Economic Outlook 2011: Africa and Its Emerging Partners.

The role of emerging market economies in the global economic system is shifting from that of capital-importers to that of both capital-importers and capital-exporters, and their interests (both defensive and offensive) are changing as well. The shifting and changing role of emerging market economies in the global economy raises important questions about the continued relevance of the fundamental principles that underpin the South-South Cooperation discourse such as the principles of respect for national sovereignty, independence, equality and equity, mutuality of benefit, mutual respect, and partnership.

These principles can be found in instruments such as the Joint Declaration of the Seventy-Seven Developing Countries (1964), the Buenos Aires Plan of Action for Promoting and Implementing Technical Cooperation among Developing Countries (1978); the Havana Declaration and the Programme of Action of the First South Summit (2000); and the Marrakech Framework for the Implementation of South-South Cooperation (2003).

Despite debates about crisis in investment treaty arbitration, most emerging market economies are concluding BITs that provide for ISDS and EMNCs appear to welcome ISDS. Significantly, recent BITs between emerging market economies and other developing countries tend to be modelled on traditional BITs and do not generally reflect core principles that underpin the South-South Cooperation agenda.

With the changing role of emerging market economies in the global economy and pressures from their own domestic constituencies, commitment to South-South cooperation is clearly waning. In the future, we are likely to see challenges to the notion of South-South cooperation, attempts to redefine and reimagine South-South cooperation principles, a gradual erosion of South-South cooperation agenda, as well as a weakening of the mechanisms for promoting South-South cooperation.

References   [ + ]

1. ↑ Uche Ewelukwa Ofodile, China-Africa Bilateral Investment Treaties: A Critique, 35(1) Michigan Journal of International Law 131 (2013). 2. ↑ Uche Ewelukwa Ofodile, Emerging Market Economies and International Investment Law: Turkey-Africa Bilateral Investment Treaties, 52(4) Vanderbilt Journal of Transnational Law 949 – 1060 (2019). function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
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New Year’s Quiz Answers, Winner…

Wed, 2020-01-15 00:00

Michael McIlwrath

Nkiri Agbu is the winner of the 2020 Kluwer Arbitration Quiz. Nkiri spent New Year’s Day researching the Quiz in order to be the first to submit the correct answers. Now that’s passion for international arbitration!

Nkiri won a very special prize for her correct answers for which she will be contacted. In addition to Nkiri, KAB also congratulates runner up Mihaela Apostol, for her submission of correct answers.

This particular quiz was not easy, since its focus was domestic arbitration around the world, ranging from quirky localisms to counterintuitive and utterly strange practices. And our readers sent in some additional reasons to prefer international practice over domestic dispute resolution practices filled with landmines. For example:

Brazil: Diogo Araujo pointed out that the jurisdiction now permits consumer arbitration, but only if certain, specific formalities are met, i.e., that either the consumer is the one that initiates the arbitration or has agreed to arbitrate in a separate document or has signed a contract containing an arbitration clause written in bold letters. Diogo pointed out a recent decision that invalidated such a clause because the clause with bold letters appeared on the same page as the contract signature, and the consumer signed the page only once.

India: In addition to the unusual practices mentioned in the quiz, Aman Mir noted some 2019 changes in Indian law that will undoubtedly reinforce perceptions of hostility towards international arbitration. One was the official designation of eight categories of persons who may act arbitrators, none which include foreign-qualified lawyers.1)The Amendment Act, Sections 43D(2)(c) and 43J. jQuery("#footnote_plugin_tooltip_7944_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7944_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Another is the introduction of a government body that will “grade” the performance of all arbitration institutions, and the government’s grading will be used by the courts when appointing or designating institutions.2)Id., Sections 43A to 43M. jQuery("#footnote_plugin_tooltip_7944_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7944_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Answers to the Quiz

 

  1. Arbitrators. Match the arbitrator and the country whose courts decided the issues in 2019:

a. Arbitrators imprisoned for accepting compensation based on ICC fee scales in ad hoc arbitration proceedings. 4. Peru: On 4 November 2019, a Peruvian court ordered the “preventative detention” (imprisonment) of 14 arbitrators who had sat in cases between the Peruvian construction company, Odebrecht, and the Peruvian government. Several are charged with bribery for having accepted compensation based on the ICC fee scales instead of the lower arbitrator fees published by the Lima Chamber of Commerce. As discussed on the Kluwer Arbitration Blog on 10 December 2019, the court ignored widely-accepted international practice and also Peru’s own domestic arbitration law, which permits arbitrators to increase their fees based on the complexity of a dispute or the amount of work. On 28 November 2019, the Peruvian court had released some of the arbitrators from temporary detention, although the charges remain pending and they are prohibited from leaving Peru.

b. Arbitrator’s failure to disclose an ownership stake in the institution that administered the arbitration held to be grounds for annulment of award. 1. USA. MonsterEnergy Company, v. City Beverage, LLC (doing business as Olympic Eagle Distributing) (9th Cir. Nos. 17-55813, 17-55082, October 22, 2019). Failure by a sole arbitrator to disclose he was an “owner-shareholder” of JAMS, the institution administering the arbitration, was grounds to vacate award in a U.S. domestic commercial arbitration administered by JAMS on grounds of “evident partiality”. The court also faulted the failure to disclose what it called the “non-trivial business dealings” of prior arbitrations JAMS had administered with one of the disputing parties.

c. Arbitrator allowed to remain on tribunal despite being a former employee of one of the parties to the dispute. 3. India. Specifically, The Government of Haryana PWD Department Vs G.F.Toll Road Private Limited 2019(1) SCALE 134, decided by the Supreme Court of India on 03.01.2019.

d. Court granted a professional body access to the arbitration hearing transcript and witness statements so it could determine whether an arbitrator should be disciplined for failure to disclose circumstances of possible bias. 2. England. The Chartered Institute of Arbitrators v B & Ors, (2019) EWHC 460. In reaching this conclusion, the High Court held that maintaining the quality and standards of arbitrators outweighs preserving the confidentiality of the arbitration itself.

 

  1. Skeletons in the domestic closet. Match the practices with the domestic jurisdictions with which they are most associated.

a. Pre-hearing written skeletons. 3 – UK. They are a requirement of English litigation procedure. See CPR 52. And let’s be honest, there’s often little that is skeletal about them. Practitioners reveal their distinct English influence when they request or insist on the opportunity to provide this additional exchange of submissions after all the other memoranda have been submitted.

b. Pre-hearing oral examination of opposing witnesses with a written transcript that can be used later during the oral examination of the same witnesses at the arbitration hearing. 2 – USA. Just as insisting on “skeletons” will type cast a practitioner as being influenced by England, “depositions” will define someone as American. This staple of legal practice across all 50 of the US states is virtually absent from legal systems outside of North America.

c. Iura novit curiae. 4 – Prague Rules. An arbitrator who insists on the tribunal’s right to inject its own legal arguments, even if not raised by the parties, is likely revealing a strong civil-law origin or influence. Loosely translated from Latin, iura novit curiae means “the arbitrators now wish to demonstrate their superior knowledge of the law versus the counsel retained by the parties”. The Prague Rules on the Efficient Conduct of Arbitration, which draw heavily from certain domestic practices of civil-law jurisdictions, expressly incorporate iura novit at Article 7, providing at least the guaranty of a framework by which a tribunal may “rely on legal authorities even if not submitted by the parties”.

d. “Sittings” as term for calculating arbitrator fees for hearing time (usually a half day). 1 – India. If the arbitrators have scheduled a “sitting”, to be followed by other, future, sittings, then most likely you are in India. Unlike international practice, domestic Indian arbitral hearings are typically scheduled via a series of non-consecutive days. And arbitrator fees are assessed on a per-sitting basis. Even where an ad valorem fee scale is used, for example under the rules of the Indian Institute of Arbitration & Mediation (IIAM), the arbitrators’ expenses are still be reimbursed on a “per sitting basis”.

 

  1. Swearing! Match the oath with the place or rules.

a. Witnesses must swear an oath to tell the truth. 2 – UAE. Failure to properly swear witnesses may have unfortunate consequences for the enforceability of an award rendered in the UAE. Article 33(7) of UAE Federal Law No. 6 of 2018 concerning Arbitration provides that “unless otherwise agreed by the parties, hearing the statements of the witnesses, including the experts, shall be carried out as per the effective laws of the State”. The effect of an arbitral tribunal’s failure to administer an oath to witnesses was recently addressed by the Dubai Court of Cassation in Commercial Cassation No. 364 of 2019 (hearing of 19 May 2019).

b. Arbitrators must swear an oath to decide based on the truth. 3 – New York law makes this a requirement.

c. Arbitrators are expressly authorized to administer an oath to witnesses but are not required to do so. 1 – LCIA. The institution’s rules contemplate that arbitrators may occasionally have to contend with swearing requirements at the seat, and authorize arbitrators to administer “any appropriate oath to any witness” before they give testimony.

 

  1. Champerty. Third-party funding of arbitration is prohibited under the common law doctrine of champerty in which of the following Asian countries?
  •  5 – None of the above. While champerty may still be recognized in some corners of the common law world, these major common law fora in Asia do not treat it as an impediment to third party funding. See “Champerty Is Dead: Long Live Champerty”.

 

  1. Foreign lawyers. Match the rule with the jurisdiction

a. Foreign lawyers are expressly authorized to appear in international arbitration and mediation proceedings. 1 – Singapore. In 2004, Singapore amended its Legal Profession Act to expressly permit foreign lawyers to represent parties to international arbitrations seated in Singapore, in order to make the jurisdiction more attractive.3)Alvin Yeo, Lim Lim Wei Lee, Arbitration Guide of the IBA Arbitration Committee: Singapore (Updated January 2018), at 4. jQuery("#footnote_plugin_tooltip_7944_3").tooltip({ tip: "#footnote_plugin_tooltip_text_7944_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Before that, Singapore allowed foreign counsel to represent parties only so long as they appeared together with Singaporean co-counsel.

b. Foreign lawyers may appear in international arbitrations but only as co-counsel with an attorney qualified to practice at this seat. 3 – California, USA. In order to make California more attractive to international arbitration, the state loosened its prohibition against foreign counsel beginning January 2019 if certain, specified conditions are met. Those conditions require a relationship between the dispute or client relationship and the law where the foreign attorney is licensed to practice or “private international law”. The revised statute appears to still require co-counsel licensed in California for arbitrations that do not fall within these exceptions, such as cases in which counsel have no qualification in the law governing the dispute or the place where the dispute arises, and are not based in the same country as the client.

c. Foreign lawyers may reside and work at this seat, subject to regulation by a statutory body. 2 – England and Wales. The Solicitors Regulation Authority permits foreign lawyers to practice in England and Wales and provides rules that regulate their conduct, and not just with respect to international arbitration.

 

  1. Enforcement. Match the requirement with the jurisdiction (hint: one jurisdiction matches two propositions)

a. A party must pay a tax of 3% of the amount awarded in order to enforce an arbitration award. 1 – Italy. The requirement is “only” applicable to enforcement of amounts awarded. Italian Decree No. 131/1986 (Tariff A, Part I, article 8). Instead, awards that only declare rights to be null or void are subject to a Euro 200 registration tax.

b. The arbitrators must read the entire text of their award out loud to the parties in order for it to become officially enforceable. 2 – Ecuador. Arbitral tribunals sitting in Ecuador can still issue supercalifragilisticexpialidocious awards. Under Article 29 of the country’s arbitration act, however, they just may not want to use that or other difficult-to-pronounce terms. The same requirement is imposed by Article 33 of Columbia’s Arbitration Act.

c. Arbitrators do not have authority to issue provisional/interim measures. 1 – Italy. But Italy does not prohibit arbitrators from issuing orders that the parties may spontaneously comply with. In 2019, the Milan Chamber of Arbitration, Italy’s leading arbitration institution, issued a new Article 26 of its rules providing for a tribunal’s order of provisional measures to have a contractual effect over the parties, substantially side-stepping what has long been a criticism of Italy’s arbitration law.

 

  1. Employment arbitration not allowed in?
  • c – Saudi Arabia.

The use of arbitration to resolve employment disputes is very likely an exception around the world rather than the rule. Even where some employment arbitration is permitted, it is often limited to certain, specified types of employment relationships. Therefore, we did not deduct or penalize any wrong answers to this question. (Almost none of the submitted answers agreed with ours.)

a. USA. Employment arbitration is a substantial practice in the USA. The US Supreme Court held in Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001) that employers can require employees to arbitrate work-related disputes.

b. China. See “Law of The People’s Republic of China on Labor-Dispute Mediation and Arbitration Order of the President of the People’s Republic of China” No. 80. (PRC Labor Law).

c. Saudi Arabia. The entity responsible for adjudicating employment disputes in Saudi Arabia is the Commission for the Settlement of Labour Disputes, a body of the Ministry of Justice. But all cases must be first submitted to mediation under the auspices of the Ministry, and can proceed to adjudication only if the employee or employer rejects the mediator’s proposed resolution.

d. The Vatican. Under procedures of the Labour Office of the Apostolic See, employment disputes in the Vatican may be resolved by mediation or arbitration. See, Statute of the Labour Offices of the Apostolic See (ULSA), Article 3(f).

e. Brazil. Chapter II, Paragraph 4 of the Brazilian Arbitration Act. In 2017, Brazil revised its labor laws to permit disputes of executive-level employees to be resolved by arbitration.

 

  1. Grounds for challenging an award: Which of the following statements is true about Singapore?

 

  1. Procedure. Which jurisdiction has enacted legislation to empower arbitrators to impose exemplary costs on parties seeking adjournments?
  • c – India.

a. Myanmar

b. Vietnam

c. India. Article 24(1) of the Indian Arbitration Act provides that, with respect to hearings, “the arbitral tribunal….may impose costs including exemplary costs on the party seeking adjournment without any sufficient cause.”

d. South Africa

 

  1. “Which was established first?”
  • a – The Finland Arbitration Institute.

a. The Finland Arbitration Institute (FAI). Founded 1911. The FAI initially relied on a unique mechanism of “transparency” to ensure enforcement of arbitral awards. During its initial years of operation, parties that failed to voluntarily comply with an award would be fined 300 Finnish marks and have their name posted conspicuously on the bulletin board of the Helsinki Stock Exchange.

b. The Singapore International Arbitration Centre (SIAC). Founded 1991.

c. The Vienna International Arbitration Centre (VIAC). Founded 1975.

d. The Court of Arbitration of the International Chamber of Commerce (ICC). Founded 1923.

e. The American Arbitration Association (AAA). Founded 1926.

References   [ + ]

1. ↑ The Amendment Act, Sections 43D(2)(c) and 43J. 2. ↑ Id., Sections 43A to 43M. 3. ↑ Alvin Yeo, Lim Lim Wei Lee, Arbitration Guide of the IBA Arbitration Committee: Singapore (Updated January 2018), at 4. 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: The Decision-Making Process of Investor-State Arbitration Tribunals
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The Dawn of a New Era for Arbitration in Pakistan? Highlights from the Inaugural Conference of CIICA’s Young Arbitration Group

Mon, 2020-01-13 23:49

Dimitrios Katsikis

On 15 and 16 November 2019, the Centre for International Investment and Commercial Arbitration (CIICA), organised a conference in Islamabad, Pakistan celebrating the inauguration of its Young Arbitration Group (YAG). The conference, titled “International Arbitration in Pakistan: Opportunities for the Next Generation” was, in many respects, a first-of-its-kind in Pakistan. CIICA, based in Lahore, is Pakistan’s first centre for international arbitration, and the conference was the first time that over 30 practitioners from all over the world came to Pakistan to discuss topical issues in international arbitration. It also marked the first time that an event supported by Arbitral Women was hosted in Pakistan. This post touches on some of the most interesting points discussed at the conference.

 

Keynote address of Mr Makhdoom Ali Khan

Mr Makhdoom Ali Khan, Senior Advocate of the Supreme Court of Pakistan who is highly regarded for his experience in international arbitration, delivered the keynote address in which he explored the, often difficult, relationship between arbitration and the courts in Pakistan. Mr Khan deplored how courts in Pakistan had on occasion held that contracts were void ab initio as a result of corruption, and that arbitration agreements concluded in those contracts could not be enforced. In Mr Khan’s view, part of the problem lay with Pakistan’s arbitration act, enacted in 1940. Urging that the 1940 Act be updated, he gave the pertinent example that, under this Act, an arbitral tribunal must issue an award within four months from the time the dispute is referred to it, otherwise an extension of time has to be granted by the courts.  According to Mr Khan, this provision gives courts an opportunity to interfere – and sometimes significantly delay – the arbitral process.

Despite these problems, Mr Khan asked Pakistan’s younger lawyers to not give up on their pursuit of a career in international arbitration, even if they were to “start small”, recalling how he was thrown in the deep waters of SGS v Pakistan, when he was Pakistan’s Attorney General, and how he learned about ICSID arbitration through his exchanges with Professor Emmanuel Gaillard (then counsel for SGS). Mr Khan concluded by sharing with the younger lawyers in the audience an old Spanish proverb: “Traveller, roads are made by travelling”.

 

Pakistan’s experience in investment arbitration: how to revisit the approach and rise to challenges

Coming only days after Pakistan’s settlement of the Karkey Karadeniz investment arbitration (see here), this panel of the conference was particularly topical. Ms Mahnaz Malik, of Twenty Essex, helped frame the debate by tracing the history of BITs, and Pakistan’s role in that history. She noted that the first ever BIT to be signed was the Germany-Pakistan BIT, in 1959, and concluded that BITs are “here to stay”.

This was a view that, Mr Feisal Naqvi, of Bhandari Naqvi Riaz, disagreed with.  He argued that BITs do not work for Pakistan because the Pakistan government often does not attribute appropriate importance to commitments under BITs, recounting the Karkey Karadeniz and Tethyan Copper Company cases, as recent, prominent examples. This view is attractive, and all the more so for its simplicity. Yet many multinational corporations have specifically referenced the provision of international protection of their investments as a reason to invest, so it may be difficult for Pakistan to attract the investment it needs if it were to deprive foreign investors of that protection altogether. It is also important to keep in mind that, whatever the benefits of this approach may be, they would only accrue in the long run: in light of the sunset clauses prevalent in many BITs, foreign investors would continue to benefit from protection for years after the BITs’ termination. A prominent example is the Pakistan-Turkey BIT, that gave birth to the Bayindir v Pakistan and Karkey Karadeniz v Pakistan investment arbitrations, and which provides for a sunset clause of 20 years (see Article IX(4) of the Pakistan-Turkey BIT).

It may therefore be more effective to try and resolve disputes before the stage where they get to international investment arbitration, rather than depriving foreign investors of international protection altogether. This was the view put forward by Ms Sarah Vasani, of Addleshaw Goddard. Drawing on recent examples, Ms Vasani argued that States should pay more attention to how BITs are drafted, as this would greatly help reduce disputes. But even when disputes do arise, Ms Vasani argued that Pakistan could resolve these disputes by managing them proactively when they are still at the “cooling off” phase, rather than tossing the cooling off letter aside as unimportant.

Ms Vasani is not the only voice calling for a pre-arbitration identification and resolution of disputes in Pakistan. In a recent article published on the Kluwer Arbitration Blog, Professor Ahmad Ghouri, a member of CIICA’s Global Advisory Board, emphasised the importance of the Government of Pakistan taking an active role in screening foreign investments before they are made, but also in supporting and monitoring foreign investments once established. This approach could enable the Government of Pakistan to coordinate its treatment of foreign investments and, therefore, avoid situations where disgruntled foreign investors initiate arbitration. The panel was completed by Ms Ruba Ghandour, of the PCA, who took a step back from Pakistan’s experience with investment arbitration, and focussed on various techniques that the PCA uses to resolve investment arbitrations in an efficient manner.

 

Arbitrating power disputes: recurring issues and how to resolve them

In a separate panel, the discussion focused on commercial arbitration and, in particular, arbitration of power disputes. Most of these arbitrations are commercial in nature, and therefore not public, but no less significant: in fact, Pakistan’s state-owned entities have faced a slew of such arbitrations recently.

Speaking on this panel, the author of this post illustrated how a typical dispute arises in Pakistan’s power sector, as many of these disputes concern unpaid dues under Power Purchase Agreements between the (often privately held) power producers, and the (always State-owned) power purchaser. Once these disputes arise, parties to the arbitration agreement have a menu of dispute resolution options typically available to them: negotiations, expert determination, and arbitration. Although many of the disputes arising in relation to Pakistan’s power sector are submitted to expert determination due to its perceived efficiency, the author suggested that expert determination may not be the best forum to submit disputes raising complex contractual construction issues, since, as expert determination is only a creature of contract, a dispute will likely end up in arbitration in any event.

Mr Mian Sami-ud-Din, of Bhandari Naqvi Riaz, then explored the submission of power disputes to court litigation, such as public-interest litigation before Pakistan’s Supreme Court, or regulatory proceedings before NEPRA, the regulator setting the electricity tariff in Pakistan. In his view, some of the matters that have been referred to such dispute resolution fora ought to have been referred to arbitral tribunals instead, in light of the pre-existing agreements to arbitrate. This raises interesting questions of the material scope of the agreement to arbitrate.  For example, if the agreement to arbitrate is found in a Power Purchase Agreement, which addresses the sale and purchase of electricity from power producers to the State, should that agreement be construed to also encompass public interest litigation concerning the power industry in Pakistan? What if proceedings initiated by the power producers were regulatory proceedings for the determination of the electricity tariff? These are difficult questions to answer in abstract terms, and any answer requires recourse to the law governing the arbitration agreement. As they have arisen in practice, and will continue to do so, one expects that an arbitral tribunal will have to pronounce on them in due course.

Taking a practical perspective, Mr Samar Abbas, of 39 Essex Chambers, focused on how expert evidence can play a key role in resolving complex power disputes. Mr Abbas suggested that one can divide power disputes as arising in one of three phases in a power plants’ life: (i) the development phase, where issues of financing and guarantees are likely to arise; (ii) the construction phase; and (iii) the operation phase, i.e.,disputes arising in relation to the sale of power. Mr Abbas suggested that expert determination can be a useful dispute-resolution method for power disputes in any of those phases, and emphasised the importance of parties getting experts involved at an early stage of the dispute. The last speaker on the panel was Mr Usman Piracha of the Attorney General’s office, who took a different perspective than the previous speakers, discussing how the Government of Pakistan, as well as private parties, can improve in the drafting of contracts, so as to avoid disputes arising in the future.

 

The effect and relevance of corruption in international arbitration

The subject of the third panel, corruption, was equally current: allegations of corruption had weighed heavily in both the Karkey Karadeniz and the Tethyan Copper Company arbitrations (see above), which had culminated in substantial damages orders against Pakistan.

Ms Emilie Gonin, of Doughty Street Chambers, led the discussion by identifying the key situations in which corruption may arise as an allegation in an arbitration: as a defence by a State or State-owned entity against the validity of a contract, or, alternatively, as a claim by an investor that a corrupt government has confiscated its investment. The discussion was further advanced by Mr Mark McNeill, of Quinn Emanuel Urquhart & Sullivan, who noted that arbitral tribunals in commercial arbitration typically deal with the question of corruption by employing the doctrine of separability, which can be very useful at preserving the arbitral agreement, as it isolates the arbitral agreement from the effect that corruption may have on the contract as a whole. As for investment arbitration, however, Mr McNeill noted that corruption can potentially have a much more significant effect, depriving the tribunal of jurisdiction altogether. Mr Imad Khan, of Winston & Strawn, agreed with this assessment, noting also that because investment arbitrations were largely in the public domain, this may put extra pressure on States in deciding whether to launch a claim for corruption, as it could implicate past misconduct of a State official. Mr Khurram Khan, of Addleshaw Goddard, concluded the discussion by touching upon the burden and standard of proof, and suggested that calls for shifting the burden of proof and raising the standard of proof in relation to corruption allegations may need to be further considered.

 

Disputes in the China-Pakistan Economic Corridor and effective methods for their resolution

A further panel focussed on the resolution of disputes arising in the China-Pakistan Economic Corridor (“CPEC”), which forms part of China’s Belt-and-Road Initiative. The CPEC is likely to become key in the new future, in light of the increasing Chinese investment in Pakistan.

Ms Samantha Lord-Hill, of Freshfields Bruckhaus Deringer, set out the fundamental aspects of CPEC. Listing the dispute resolution options available to parties involved in CPEC disputes, Ms Lord-Hill suggested that, although on occasion very useful, mediation and expert determination may be abused by recalcitrant parties in an attempt to delay the resolution of a dispute.

Mr Emmanuel Jacomy, of Shearman & Sterling LLP, agreed with this assessment, also noting the many practical issues that one may face with enforcing a foreign arbitral award in China.  Mr Jacomy then observed that, although choosing a neutral seat in an independent country is a crucial consideration, neither the arbitration law of China, nor that of Pakistan, refer to the concept of “seat”. This could raise significant difficulties with enforcing a foreign arbitral award, which Mr Jacomy illustrated with the example of Chinese courts holding that an ICC award by a tribunal with its seat in England would actually be a French award, because the ICC is headquartered in France. Practically, parties engaged in CPEC projects would be well-advised to select a seat in the same country as that of the headquarters of the arbitral institution, pursuant to the rules of which the arbitration will be conducted.

Ms Kiran Sanghera, of the HKIAC, seized of the opportunity to suggest Hong Kong as a neutral seat that is well-positioned to resolve Belt-and-Road Initiative (“BRI”) disputes. Ms Sanghera also referred to a ground-breaking development in Hong Kong, pursuant to which parties to arbitrations seated in Hong Kong may obtain interim relief in mainland China if that arbitration is under the auspices of one of a certain number of arbitral institutions, one of which is HKIAC (for a discussion of the development on this blog, see here).

Ms Olga Boltenko, of Fangda Partners, concluded the panel on CPEC disputes on a positive note, observing that the statistics of enforcing foreign awards in mainland China are particularly good, as compared to other jurisdictions, at approximately 70% of publicly available cases (for a publication on this point, see here). Ms Boltenko also contemplated the usefulness of having an arbitration centre which focusses exclusively on the resolution of BRI disputes

 

Concluding thoughts

In the wake of the Karkey Karadeniz and Tethyan Copper Company arbitrations, international arbitration is front-page news in Pakistan, and globally. In some quarters this has led to an angry reaction, with commentators labelling international arbitration as “flawed”, “capricious” and “corrupt” (see here).

Such sweeping criticisms are seldom of much help. They do little to help Pakistan, which is party to a number of BITs, and whose State entities strike up contracts with arbitration agreements for virtually every major foreign and domestic investment. They also fail to recognise that international – but also domestic – investors regard access to arbitration as a valuable right, and will insist on its inclusion. The power industry serves as useful reminder, where virtually all of the major domestic players have concluded contracts for the sale of power which provide for arbitration in Singapore, London, or elsewhere. Indeed, it is difficult to argue otherwise, when only a few years ago, in 2017, a State-owned entity of Pakistan was able to convince Lahore’s Civil Court to pass an interim order setting aside an award in an arbitration that was seated in London, England (the interim order was later suspended through an order of the High Court).

Greater promise lies in preventing disputes from arising, rather than precluding them from being arbitrated. For this to take place, the first step is for Pakistan’s legal community, as well as its judiciary and Government, to become even more acquainted with international arbitration, and how they can use it to their advantage.

In this endeavour, conferences such as the CIICA YAG Inaugural Conference have an important role to play. Many of the most important arbitration issues pertinent to Pakistan were discussed at the conference, which can serve as fertile ground for an exchange between international and local practitioners, and especially young practitioners of the “next generation”. What is more, by creating a Young Arbitration Group, the CIICA permits this dialogue to continue beyond the confines of a one- or two-day conference, educating international lawyers about court process and culture in Pakistan, and local practitioners about the latest developments internationally. In the author’s view, it is this “next generation” that presents the greatest promise in helping Pakistan overcome some of the most difficult international arbitrations that it may have to face.

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Change of Clean Energy Rules in Mexico: Potential Impact for Investors

Mon, 2020-01-13 01:21

Fernando Pérez-Lozada

In 2013 Mexico embarked on a major energy reform by amending its Constitution, thereby allowing the participation of private investors in the exploration and extraction of oil & gas and the generation of electricity, particularly from clean and low-cost energy sources.

Subsequently, Certificates of Clean Energy (“CELs“) were introduced on 31 October 2014 to promote new “private” investments for the generation and use of clean energy in accordance with Mexico’s national development plan 2013-2018. CELs are granted to companies generating electricity only from renewable sources,1)Receiving 1 CEL for each MW/h generated. jQuery("#footnote_plugin_tooltip_6332_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6332_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); which can be sold to suppliers, qualified users and other obliged participants to meet their consumption requirements. Furthermore, pursuant to Mexico’s international commitments (i.e. Paris Agreement ratified on 21 September 2016) and the national strategy adopted as a result, Mexico committed to generate 30% of its energy from clean sources by 2021 (from a base of 20.3% in 2015), to reach 35% by 2024 (as established in its Climate Change Law), 37.7% by 2030 and 50% by 2050. Mexico’s national strategy of clean energy was inspired by model economies such as Germany (Energiewende), France (Act on energy transition for green growth) and the State of California in the U.S. (Senate’s Bill No. 350).

Under the 2014 original regime, CELs could only be granted for a period of 20 years to “Clean Power Plants” (Centrales Eléctricas Límpias) established after 11 August 2014, to be sold in the free market under certain criteria established by SENER. Notably, the plants owned by the State (under the Federal Electricity Commission “CFE“) built before August 2014 –known as “Legacy Power Plants” (Centrales Eléctricas Legadas)– were not eligible to acquire CELs, unless they invested capital to increase their production of clean energy (i.e. by replacing power plants with new ones) and only to the extent of the additional clean energy generated.

This policy was intended to promote new investments on clean energy plants through a series of public auctions. As a result, private investors have committed US $8.6 billion in clean energy projects in the last 5 years under the 2014 CELs regime. There are 44 companies registered as “Clean Generators” (as of 7 November 2019), involving local and foreign investors from, inter alia, North America, Europe and Asia. In 2017 Mexico was ranked the 9th most attractive country to invest in renewable energy (out of the top 40 economies) and the 2nd in Latin America (behind Chile) according to the Renewable Energy Country Attractiveness Index (RECAI 2017). In the same year, 36% of the total investment in clean energy in Latin America was placed in Mexico. However, in November 2019 Mexico lost 15 positions in the attractiveness index, and ranked in the 24th position (RECAI 2019).

However, on 28 October 2019 the Secretariat of Energy of Mexico (“SENER“) published an accord modifying the previous 2014 Guidelines that established the criterion for the issuance of Clean Energy Certificates (the “New Guidelines“). Under the New Guidelines, the state-owned Legacy Power Plants can now acquire CELs –without the previous condition of making an investment to increase their clean energy generation. Furthermore, the State can acquire CELs with respect to all the clean energy generated. Notably, the CFE generated 65.7% of the clean energy in Mexico in 2018.

The left-wing administration currently in power does not consider that this change will have a negative impact on the market of CELs, as it will not reduce the number of clean generators, but considers the favorable outcomes to be the following: (i) favor competition between public and private generators of clean energy; (ii) increase productivity; and (iii) favor better prices for the final consumer, thus avoiding the speculation and the increase of prices. This was indicated in the New Guidelines.

However, this view is not shared by business and energy associations who have expressed their concern on the adverse impact of the regulatory change. One business association in Mexico (Consejo Coordinador Empresarial) has claimed that this modification “alters the equitable treatment between participants in the electricity sector, generates uncertainty and violates the execution of investments.” Furthermore, SENER modified the guidelines without carrying out a Regulatory Impact Analysis –employed in OECD countries to assess the positive and negative effects of a regulatory change– which includes public consultations.

It has been reported that power generators and companies have filed legal injunctions and Amparos (constitutional appeals) to contest the constitutionality (legality and due process) of the modification, which may involve investors from the UK, France and Italy. In a joint communication the wind and solar associations in Mexico (AMDEE and ASOLMEX) reported the main arguments put forward before Amparo courts, namely: (i) violation of environmental rights; (ii) destruction of the value of power plants in operation; and (iii) reduction of the investors’ confidence in Mexico. As a result, on 12 December 2019 the District Judge(s) hearing the case granted the “definitive suspension” (yet provisional in nature) of the application of the New Guidelines, while the merits of the Amparos in question are resolved. Although the suspension maintains the status quo pending the analysis of the merits, it is uncertain what the outcome and duration of the Amparos would be. Foreign investors have other mechanisms of negotiation and Investor-State arbitration under the various Bilateral Investment Treaties signed by Mexico (29 in force) and other treaties with investment provisions (i.e. NAFTA, CPTPP), under which a number of arbitration proceedings can be triggered against Mexico, given the high stakes at hand.

 

Potential impacts of the regulatory change

It has been suggested that this change may have a potential effect in the prices of CELs, which under specific circumstances may affect the investor’s economic interests and/or the value of their investments. On the other hand, Mexico’s ability to achieve its clean energy goals seems uncertain and therefore it is unclear how Mexico will deal with its commitments in the near future.

The following potential impacts have been indicated by experts, local media and renewable energy associations, as a result of the change of the rules governing CELs in Mexico:

  1. Saturation of CELs in the market;
  2. Decrease of the price of clean energy (i.e. CELs);
  3. Devaluation of clean energy plants in operation after August 2014;
  4. Uncertainty on the viability of current and/or new clean energy projects; and
  5. Discouragement of foreign investment in the clean energy sector.

 

Potential violation of foreign investor’s rights

The most common protections afforded under the investment treaties signed by Mexico are related to, inter alia, expropriation, national treatment, fair and equitable treatment and full protection and security. In some cases, the legitimate expectations standard has been analyzed by investment tribunals considering both the investors’ economic interest and the State’s right to regulate. In the case at hand, arbitral tribunals would have to decide those issues depending on the particular circumstances of the case and their interpretative approach of the BIT’s language.

At this point, it is uncertain for how long foreign investors would continue to litigate in Mexican courts before resorting to treaty-based arbitration against Mexico, if necessary. This would depend on many factors, including the likelihood of success of domestic proceedings on the one hand, and on the other, on the exhaustion of local remedies requirements, cooling periods and/or statute of limitation periods set out in the applicable BIT.

References   [ + ]

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Investment Arbitrations Ready to Land at Florence Airport?

Sun, 2020-01-12 01:00

Danilo Ruggero Di Bella and Josep Gálvez

It is our tentative prediction that a recent ruling from the Regional Administrative Court of Tuscany (TAR), which blocked the project to expand Florence Airport’s runaway – and hence, its passenger flow and corollary revenue – may “prepare the ground” for an investment arbitration dispute between Argentinian and Emirati investors and Italy.

 

Background

In 2009, the then Mayor of Florence, Matteo Renzi (future Italian PM), proposed the idea of building a runaway of 2,400 meters and a new terminal for the Florence Airport (“Amerigo Vespucci”) with the view of increasing its passenger flow. That idea met the support of the Region of Tuscany and the Argentinian tycoon, Mr. Eduardo Eurnekian, the majority shareholder of Corporación América Airports (CAAP), the world leading company in owning and operating airports. In 2014 CAAP acquired the majority ownership of Florence airport in order to present the “2014-2029 Masterplan” to expand the airport. The Masterplan is estimated to cost approximately € 334,500,000 and aims at doubling up passenger flow of the airport. Of this 334.5 million, the State committed to put 150 million, while the remainder 184.5 million would be put by the private investors managing the company that operates the airport.

The authorization process for the works started in 2015. On 28 December 2017, the Decree-Law containing a favorable Environmental Impact Assessment (EIA) for the project was issued by the Ministry of Environment (MoE). On 21 March 2018, seven municipalities adjacent to the city of Florence challenged the EIA Decree-Law before the TAR in order to block the project.

In the meantime, on 25 July 2018, CAAP sold 25% of its participation in Toscana Aeroporti S.p.A. (hereafter TA, the local company set up to run both Florence airport and Pisa airport) to Mataar Holdings 2 B.V., a company indirectly controlled by the Investment Corporation of Dubai (ICD), the sovereign wealth fund of the Emirate of Dubai.

On 6 February 2019, the decision-making body of the Conference of Services acknowledged that all the competent Administrations – including the Ministry for the Cultural Heritage – had given their favorable opinions for the Masterplan, despite the minority opposition of the seven municipalities. Accordingly, on 16 April 2019, the Minister of Infrastructure and Transport (MIT) ratified the outcome of the Conference of Services by issuing the Decree-Law that gave the green light to start the works.

However, the whole project has suffered a setback because on  27 May 2019 the TAR rendered its ruling n. 793/2019 upholding the challenge submitted by the seven municipalities, and thus annulled the EIA Decree-Law. The TAR found that the environmental assessment conducted by the MoE was not sufficiently exhaustive. Consequently, the MIT had to suspend its Decree-Law approving the Masterplan, while the Region of Tuscany, the municipality of Florence and TA have appealed the ruling to the Council of State (CS), the highest Administrative Court. The MIT’s Decree-Law will remain suspended until the resolution of the administrative dispute and so will the Masterplan for Florence airport. The CS is expected to rule on the matter in January 2020.

 

Reactions   

Bewildered by the TAR’s ruling that quashed the EIA Decree-Law, TA issued a press release criticizing its contents. To the company’s surprise, the administrative Judge:

“completely overturned the assessment given by the national ministerial commission of experts, supported and endorsed by the competent Ministers of three different national governments (Renzi, Gentiloni and Conte), regarding the suitability of the technical documentation to demonstrate the lack of negative impacts on the environment.”

According to the TAR, the Administration should have requested further details about the project before issuing the relevant EIA Decree-Law. The competent Administration instead concluded – wrongly, according to the TAR – that the assessment had been thorough and complete. However, Article 5 letter g of Legislative-Decree No. 152 of 2006 does allow the MoE to issue the EIA Decree-Law for a project having a level of details that are at least equivalent to that of the feasibility plan (as defined in the Legislative-Decree No. 50 of April 18, 2016), and in any event a sufficient level of details to permit a thorough assessment of the environmental impacts. And, indeed, the Department of Environmental Assessment of the MoE informed the Italian Civil Aviation Authority that it reached the following conclusion: “The planning documentation in the procedure’s archives may be regarded as adequate for the purposes of Environmental Impact Assessment rules.”

Moreover, the company has emphasized that it was not TA that came to the conclusion that the details of the project were sufficiently adequate for obtaining a favorable EIA; it was the competent technical departments of the Ministry that came to that conclusion. TA has affirmed that it did everything it was asked to in the course of the administrative procedure. Further, the company complained about the arbitrariness of the judgement, which does not address legal points; rather, it assesses technical matters of the project. Apparently, the TAR — without any court-appointed expert — discarded a complex two-and-a-half-year study conducted by qualified ministerial technical experts on the same day as the hearing, which is when the judgement was rendered. In that judgment, the TAR also suggests that that the ministerial Environmental Observatory (tasked with verifying compliance with the requirements) should have been more inclusive towards the municipalities opposed to the project, even if the Observatory was not mandated by the law to do so.

 

Potential Arbitrations

TA’s largest shareholders are indirectly Argentinean and Emirati investors. To be precise, CAAP is incorporated in Luxemburg, however, its main shareholder is the Argentinean mogul, Mr. Eurnekian; while Mataar Holdings 2 B.V is a Dutch registered company controlled by the Emirati ICD.

Both Argentina and the United Arabs Emirates have a BIT in force with the Italy. Both shareholders meet the definition of qualified investors under the legal instruments in question: Mr. Eurnekian as an Argentinean citizen pursuant to Article 1(2)(a) of the Argentina-Italy BIT, whereas the UAE-Italy BIT specifically protects also State-owned entities, such the sovereign wealth fund of Dubai at Article 1(2).

Mr. Eurnekian’s and ICD’s indirectly owned shares in TA meet the definition of a qualified investment as per Article 1(b) of both BITs. Accordingly, both foreign shareholders could avail themselves of the protection under the corresponding BITs made effective through the investor-State arbitration contemplated in both Treaties.

Article 2 of both BITs provides for a fair and equitable treatment (FET) that shall be accorded to the foreign investors of the other Contracting Party.

Admittedly, TAR’s ruling has frustrated Mr. Eurnekian’s and ICD’s’ legitimate expectations of doubling up the passenger flow and, accordingly, the revenue of their asset. Arguably, those frustrated legitimate expectations have been built up on various approvals by the local and central Administration. Three different ministers over a period of three years and three successive governments have endorsed investors’ project to increase the airport’s capacity. Consequently, the Italian State has fully backed-up investors’ legitimate expectations with respect to their qualified investment.

Finally, either the TAR arbitrarily came to the wrong conclusion (because the Administration had sufficient details about the project to issue the EIA) or the TAR was correct (because the Administration negligently did not request further details about the project before issuing the EIA). In either scenario, the Italian State first encouraged and then let down investors’ legitimate expectations by failing to ensure a favorable, stable and predictable legal framework for the investment at hand. Therefore, Italy could be held liable for breaching its FET obligation before the arbitral tribunals constituted under the Italy-Argentina/UAE BITs.

Additionally, an umbrella clause claim could be available by combining the Most-favored Nation (MFN) clause of the Italy-Argentina/UAE BITs with the Italy-Panama BIT. Arguably, Italy breached also that clause by rolling back the fair value over the construction services that would have been provided by the private investors in TA corresponding to the adequate margin over 184.5 million euros worth of construction services.

From investors’ perspective, a double investment arbitration would be more appealing than just appealing to the CS in terms of claimable damages. A favorable decision to the investors by the CS is not going to compensate the loss of profits that has already materialized due to the postponement of the works. Legitimate interests do not receive the same level of protection under national law as they do under investment law. In this sense, an international arbitration is more attractive as the applicable law to the dispute takes into account such future loss of profits. Therefore, an hypothetical award quantifying the damages may realistically range from several dozen million euros (in case the Masterplan is simply delayed) to several hundred million euros (in case the execution of the Masterplan is rejected once and for all by the CS).

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The Contents of the Asian International Arbitration Journal, Volume 15, Issue 2

Sun, 2020-01-12 00:00

Lawrence Boo and Gary Born

The contents of this issue of the journal is now available and includes the following contributions:

 

Nobumichi Teramura, The Strengths and Weaknesses of Arguments Pertaining to Ex Aequo et Bono

Ex aequo et bono is a means of resolving disputes in light of fairness and good conscience. The principle has been known to jurists since the classical period of Roman Law, but commentators and practitioners have avoided using it for fear of its potential unpredictability. Being controlled by the perception that ex aequo et bono brings irreconcilable uncertainties and undue exercise of authority by arbitrators, arbitration lawyers have not extensively investigated whether their negative understanding of ex aequo et bono can still be maintained in the current arbitration environment under the United Nations Commission on International Trade Law (UNCITRAL) Model Law regime. The main objective of this article is to suggest that arbitration lawyers’ negative understanding of ex aequo et bono is not supported by adequate legal research. This article analyses the literature on ex aequo et bono and identifies the gaps in the research.

 

Weiyi Tan, Allowing the Exclusion of Set-Aside Proceedings: An Innovative Means of Enhancing Singapore’s Position as an Arbitration Hub

In some jurisdictions, parties who choose arbitration as a means of resolving their disputes can contractually waive the set-aside mechanism, thereby limiting the extent of judicial review that will be available after the award is issued. In recent years, parties and institutions have also shown an increasing interest in such contractual waivers because it is thought that reducing post-award challenges will increase the efficiency and finality of arbitration. However, the validity of contractual exclusions of set-aside proceedings remains a controversial issue. While some jurisdictions uphold the validity of such clauses, others have held that set-aside proceedings cannot be waived in advance, citing fundamental policy reasons. This paper analyses the reasons for each regime and explores whether laws that allow contractual exclusions of set-aside proceedings would be beneficial in the context of Singapore, particularly in enhancing its position as a choice seat for arbitration.

 

Sarah Alshahrani, Ousting Choice of Law in International Contracts: Lessons from the Aramco Case

This article examines the landmark Aramco case from a different perspective. It is not focusing on the outcome of the award, as the Saudi government lost this case and consequently prevents any arbitration against the government. Alternatively, this article focuses on ousting Islamic law as the choice of law clause. It thoroughly examines the argument favouring the “internationalisation” of contracts to prevent the application of the host state’s law of developing states. The tribunal decision bears many lessons worth nothing.

 

Russell Thirgood & Erika Williams, Arbitrating Down Under: Highlights and Lessons Learned from 2018 to 2019

Australia is rapidly gaining ground as an attractive seat for international arbitration, particularly within the Asia-Pacific region. The last financial year saw Australia’s Courts taking steps towards further supporting the use of arbitration within Australia’s wider legal framework for dispute resolution. This article considers some of the highlights from the 2018 to 2019 financial year case law involving arbitration.

From a review of the diverse range of decisions handed down in the 2018–2019 year, we have identified the key points in relation to arbitration agreements on the one hand and arbitral awards on the other, which we consider in detail in this article. In relation to arbitration agreements, we note that the High Court has adopted an orthodox approach to contractual interpretation by stating that arbitral agreements should be construed ‘by reference to the language used by the parties, the surrounding circumstances, and the purposes and objects to be secured by the contract’. Further judgments make it clear that, in interpreting arbitration clauses, Courts are hesitant to refer disputes to arbitration where the dispute is not within the scope of the arbitration agreement. In relation to arbitral awards, we consider a number of decisions which highlight that there is a high threshold for parties seeking to set aside an arbitral award by virtue of alleged misconduct on the part of the arbitrator and that Courts may not enforce an arbitral award if an application to set aside that same award has been filed in the jurisdiction in which the award was made.

 

Abhishek Shivpuri, Zenith Drugs v. Nicholas Piramal: Turning Back the Clock?

The Supreme Court of India in the recent case of Zenith Drugs & Allied Agencies Pvt. Ltd. v. M/s Nicholas Piramal India Ltd. had to decide the issue as to whether the disputes raised by the appellant in a suit for recovery were covered by the arbitration clause and whether the parties, could be referred to arbitration. The primary issue with which the paper is concerned with is the manner in which the Supreme Court has dealt with the issue of fraud.

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