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Ticking Bomb of ICSID Awards’ Enforcement in Ukraine: Successful but Incorrect

11 hours 2 min ago

There have been six Ukrainian proceedings concerning the enforcement of ICSID awards to date. All have been successful, but Ukrainian courts have erroneously applied the New York Convention’s regime for this purpose. In this post, the authors analyze the inconsistency of such an approach with the ICSID Convention regime and related implications, suggesting options to stimulate Ukrainian courts’ compliance with the Convention. On a separate note, potential alternatives to resist enforcement of ICSID awards under Ukrainian law are also considered.

 

Ukrainian Jurisprudence and Legal Framework for Enforcing ICSID Awards

In all of the Ukrainian court proceedings concerning ICSID awards that have been resolved to date, the courts have ignored the ICSID Convention’s provisions on the enforcement of the awards. They have instead examined the grounds for the refusal of enforcement of arbitral awards set forth either in Article V of the New York Convention and/or in Article 478 of the Civil Procedure Code of Ukraine (“CPCU“) and Article 36 of the Law of Ukraine “On International Commercial Arbitration (“Law on ICA“). These latter two instruments mirror the grounds specified in the New York Convention, with the only difference being that Article 478 of the CCU, unlike the New York Convention’s discretionary “may”, frames these grounds as mandatory for the courts to apply.

In fact, only two court rulings concerning the enforcement of ICSID awards in Ukraine have contained a direct reference to the ICSID Convention’s provisions. In particular, both the Kyiv Court of Appeal in its ruling on enforcement of the award in City-State N.V. and others v Ukraine and the Solomianskyi District Court in its ruling on enforcement of the award in Bosh International, Inc and others v Ukraine referred to Article 53 of the ICSID Convention in concluding that “an award shall be final and binding on the parties“. However, in neither case did the court take an opportunity to elaborate any further on the peculiarities of the enforcement of ICSID awards, instead immediately accompanying the above reference with an ordinary analysis under the New York Convention and Ukrainian procedural law.

In our opinion, there are at least two potential facts which explains such attitude of Ukrainian courts.

First, the moving parties often themselves rely on the New York Convention and Ukrainian ordinary procedural law to enforce ICSID Awards. For example, Сity-State N.V. in substantiating its application to the Kyiv Court of Appeal directly referred to the absence of any grounds for refusal of enforcement provided in the New York Convention.

Second, the Ukrainian procedural framework does not differentiate between ICSID and non-ICSID awards. Instead, the enforcement of all foreign awards is conducted under the CPCU, Law on ICA and the New York Convention.

 

Consistency with the ICSID’s Self-Contained Regime

The self-contained regime established by the ICSID Convention is considered to be the most conspicuous feature of the ICSID Convention, often making it a preferable pick for foreign investors. Unlike in the non-ICSID setting, for ICSID awards national courts of the seat of arbitration do not have set aside powers over the awards. Instead, an autonomous procedure for the review and enforcement of the awards applies. Article 53 of the Convention famously says that an ICSID award “shall not be subject to any appeal or to any other remedy except those provided for in this Convention“. This means that, at the stage of enforcement, the grounds for rejecting recognition and enforcement set forth in the New York Convention and like instruments are not available for ICSID awards. Instead, the ICSID Convention by Article 54(1) mandates the Contracting States to enforce the pecuniary obligations imposed by an ICSID award as if it was a final judgment of a court in the respective State.

Moreover, Ukrainian law itself mandates Ukrainian courts to apply the ICSID Convention regime to ICSID awards, instead of the ordinary enforcement procedure. Namely, both Article 9 of the Constitution of Ukraine and Article 3(2) of the CPCU provide that international treaties duly ratified by the Ukrainian Parliament, including the ICSID Convention, have a higher legal force than the legislation (albeit not higher than the Constitution of Ukraine). Consequently, the ICSID Convention’s provisions on the recognition and enforcement of ICSID awards trump procedural rules set forth in the CPCU in case of a conflict. As such, under Ukrainian law, Ukrainian courts faced with an ICSID award should treat it as a final judgment of Ukrainian courts, as required by Article 54 of the ICSID Convention, and so should avoid applying the New York Convention and CPCU’s ground for the non-enforcement.

Unfortunately, Ukrainian courts have not reflected the ICSID self-contained regime in their case law so far.

Although this deficiency has never resulted in a non-enforcement decision to date, the status quo carries risks that it will happen in the future. This problem may be especially sensitive for foreign investors in cases in which there may be arguable grounds to reject enforcement under the New York Convention like, for example, public policy violations.

 

Alternatives to Bring Ukrainian Jurisprudence in Line with the ICSID Regime

To redress the developing situation in Ukrainian case law, the best option would be for the legislator to direct courts toward compliance with the ICSID Convention. It could do this, first, by clearly stating in the CPCU that ICSID Awards are not subject to Article 478 of the CPC of Ukraine and should instead be treated as final court judgments for enforcement purposes.

It could, otherwise, at least provide that Article 478 with its mandatory wording is subject to exceptions that may exist in treaties ratified by Ukraine, including the ICSID Convention. In this way, Ukrainian courts will not be tied with mandatory wording of Article 478 of the CCU, which currently encourages the courts to apply the New York Convention-like grounds for not enforcing arbitral awards. Instead, Article 478 will explicitly mandate Ukrainian courts to directly rely on the ICSID Convention in this regard.

 

Potential Proper Recourse against ICSID Awards under Ukrainian law

When Ukrainian courts shift their jurisprudence in compliance with the ISCID Convention, counsel at the place of enforcement may still potentially rely on certain extremely narrow remedies to resist the enforcement of ICSID awards. This includes potential remedies under municipal rules applicable to final court judgments, or under constitutional law, public international law, and sovereign immunity rules1)Edward Baldwin, Mark A. Kantor, et al., “Limits to Enforcement of ICSID Awards”, Journal of International Arbitration, 2006, Volume 23, Issue 1. jQuery("#footnote_plugin_tooltip_8966_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8966_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });.

First, as mentioned above, the Constitution of Ukraine still has a higher legal force than the international treaties of Ukraine. Consequently, if an ICSID Award or the process of its issuance contradicts the constitutional rules one way or another, this may be a ground for the Ukrainian court to deny enforcement. However, this should be something rather extraordinary to trigger the violation of the Constitution. Considering the supremacy of the Constitution, the mentioned logic is equally applicable in the context of the New York Convention, where the constitutional violations would be likely to be characterized as public policy violations under Article V of the New York Convention.

Second, Article 55 of the ICSID Convention directly says that it does not shield ICSID awards from the rules on immunities of states from execution. Consequently, Article 79 of the Law of Ukraine on Private International Law providing immunities to foreign state’s property would still apply. Sovereign immunities and relevant exceptions under Ukrainian law are analyzed in more detail in this post by Oleksii Maslov.

Third, the ICSID Convention requires municipal courts to treat ICSID awards as final judgments in the respective jurisdictions, and so it is sometimes suggested that the national recourse against final judgments might be available against ICSID awards.2)Ibid. jQuery("#footnote_plugin_tooltip_8966_2").tooltip({ tip: "#footnote_plugin_tooltip_text_8966_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In Ukraine, as per Article 423 of the CPCU, a final judgment can be reconsidered due to newly-discovered or exceptional circumstances, inter alia, when the court did not establish material circumstances of the case and the moving party was not aware and could not have been aware about them . This, if applied by Ukrainian courts to ICSID awards, potentially leaves room for the reconsideration of awards on the merits, which is not available under the New York Convention. Although it would operate only in rare cases, the mere opportunity of such a challenge likely goes against the ICSID Convention’s spirit. The conventional provisions providing that remedies against ICSID awards are limited by the four corners of the ICSID Convention should preclude Ukrainian courts from applying the mentioned grounds for reconsideration.

 

Concluding Remarks

Although all attempts to enforce ICSID awards in Ukraine have been successful to date, the current erroneous approach of Ukrainian courts creates risks for negative developments in the future. The primacy of international treaties over the CPCU’s provisions suggests that Ukrainian law as it now stands allows Ukrainian courts to fully comply with the ICSID Convention and in fact mandates them to do so. Yet, given the practice of the courts to date, more direct wording in the CPCU saying that the grounds for non-enforcement in Article 478 of the CPCU do not apply when the applicable international treaty such as the ICSID Convention says otherwise would be welcome. The question arises, then, who will initiate a change: the Parliament by calibrating Article 478 of the CPCU or Ukrainian courts by turning their jurisprudence in compliance with the ICSID Convention? In our view, the author of the change makes little difference as long as the change occurs prior to the first investor being hurt.

References   [ + ]

1. ↑ Edward Baldwin, Mark A. Kantor, et al., “Limits to Enforcement of ICSID Awards”, Journal of International Arbitration, 2006, Volume 23, Issue 1. 2. ↑ Ibid. 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Varig Case and Implied Consent: Is the Signing of an Amendment Sufficient?

Sat, 2020-09-26 01:00

On August 11th, 2020, the Cayman Islands Court of Appeals overturned the decision that denied the enforcement of the arbitral award that ordered the MatlinPatterson Global Opportunities Partners private investment fund (“MP Funds”) to pay approximately USD 55 million to Gol Airlines. The amount refers to the purchase of the airline Varig by Gol.

 

The Underlying Dispute

After Varig’s purchase operation was completed, it came to Gol’s attention that the balance sheet that served as parameter for establishing the final price had been tampered with. The matter was discussed in the International Chamber of Commerce arbitration No. 15372, leading to the MP Funds’ condemnation.

The procedural issue addressed by the Arbitral Tribunal and that is now once again discussed in the Cayman Islands’ courts regards the extension of the arbitration agreement and implied consent, a recurring subject in arbitrations.

 

The Issue of Implied Consent

It is common knowledge that arbitration agreements bind only the ones who consent to them. Be that as it may, there are some occasions when parties seek to extend this consent, to reach so-called third parties. This is usual, for example, in groups of companies, when a party seeks to extend the arbitration agreement to bind companies of the same group as one of the signatories.

In the matter at hand, the airline initiated the proceedings not only against the sellers, but also against MP Funds. MP Funds was not a signatory to the share purchase agreement that contained the arbitration clause and therefore could not be part to the proceedings. Nonetheless, it had signed one of the Contract Amendments. The Amendment did not mention arbitration. Its objective was to provide a non-compete obligation for the signatories and thus integrate it into the Contract, which is supported by the expression “including amending the terms of the Contract”.

As a result, the Claimant requested the Arbitral Tribunal to declare that it had jurisdiction to hear the case against MP Funds on the grounds that it became a signatory to the arbitration agreement when it signed the Amendment even though it was not a direct signatory to the Contract.

But would the signature of an Amendment suffice to constitute implied consent to the arbitration clause?

Well, the guiding principle of arbitration is consent. Yet it will not always be expressed. It may be that the parties’ behavior demonstrates a genuine intention to participate in the arbitration procedure.1) FOUCHARD, Philippe; GAILLARD, Emmanuel; GOLDMAN, Berthold. Fouchard, Gaillard, Goldman on International Commercial Arbitration. The Hague: Kluwer Law International, 1999, p. 281. jQuery("#footnote_plugin_tooltip_8310_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8310_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); It is the so-called implied consent.

 

The Arbitral Tribunal’s Ruling on the Procedural Issues

When analyzing the issue in 2007, the Arbitral Tribunal recognized that the subjective limits of the arbitrator’s jurisdiction did not impose any obstacle. In this sense, the arbitrators ruled that they had jurisdiction over MP Funds in its partial award.

The reasoning behind the decision was that the Amendment constitutes part of the main Contract. For this reason, the arbitration agreement provided for in the Contract is binding on all signatory parties, whether in the main Contract or in the Amendment. In view of that, all disputes between the parties of the contractual relationship had to be resolved through arbitration.

 

MP Funds’ Attempts to Annul the Award before the Brazilian Courts

After the final award on the merits, which ordered MP Funds to pay USD 55 million to Gol, the latter filed an annulment action of the arbitration award, on the grounds that it had not signed the Contract containing the arbitration clause and therefore the Arbitral Tribunal would have no jurisdiction over it. Although it had already brought these arguments before the Arbitral Tribunal in the beginning of the arbitration proceedings, once again the arbitrators’ consent and jurisdiction were brought to discussion.

Notwithstanding, the trial judge recognized that MP Funds consented to the arbitration clause for having signed the Amendment, which rendered the award valid. The case was also subsequently analyzed by the São Paulo Court of Appeals and by the Brazilian Superior Court of Justice and, likewise, the award remained unchanged. Nevertheless, there still was a pending appeal before the Brazilian Supreme Court.

 

Gol’s Attempts to Enforce the Award

However, the obstacles did not stop there. Gol still needed to enforce the award. The company’s first attempt in the United States was unsuccessful. The United States Court of Appeals for the Second Circuit ruled that the Amendment was only an annex to the Contract and thus did not link MP Funds to the arbitration clause.

The second attempt was in the Cayman Islands. The enforcement of the arbitration award was challenged on four grounds: (i) MP Funds was not party to the arbitration agreement relied on; (ii) if they were, the claims were outside the scope of the arbitration agreement; (iii) the Arbitral Tribunal decided the case on a legal argument not raised by the Claimant, which was contrary to Cayman Islands public policy; and (iv) the legal basis relied on by the Arbitral Tribunal was not within the Terms of Reference of the arbitration procedure and so had never been submitted to the Arbitral Tribunal for decision.

On the other hand, Gol’s argument was based mainly on estoppel due to the Brazilian Courts’ decisions. However, the Grand Court rejected Gol’s claims for estoppel. It agreed with MP Funds’ reasoning on all four grounds and refused to enforce the award.

 

The Cayman Islands Court of Appeals Ruling

The Court of Appeals accepted Gol’s submissions, entirely reversing the decision of the Grand Court, and allowing the enforcement of the arbitration award. The Court of Appeals’ decision addressed all the arguments brought up by MP Funds. As to those related to implied consent, which is the focus of this article, it ruled that “once it is decided that the Brazilian judgments in this case are decisions on the same issues as lie before this court, plainly within this appeal, it is impossible to go behind them as a matter of Brazilian law”. Thus, it held that MP Funds are estopped from challenging the Brazilian law decisions regarding the validity of the arbitrators’ jurisdiction.

Ultimately, the Court of Appeals decision represented a “light at the end of the tunnel” in the Varig Case. Ten years after the proceedings were concluded, it allowed the arbitral award to be enforced.

However, since it was possible that MP Funds succeeded in their remaining outstanding appeal before the Brazilian Federal Supreme Court, the Court of Appeals granted a stay of execution pending the outcome of the Brazilian proceedings. It considered that, in this scenario, it would be difficult to conceive that the award should still be enforced in the Cayman Islands. Therefore, it established that if the appeal were to be successful, MP Funds would be entitled to return to the Cayman Islands’ courts and have the stay made permanent.

Nonetheless, after the Cayman Islands Court of Appeals decision, the Brazilian Federal Supreme Court judged the remaining appeal. It upheld the decisions of the Brazilian lower courts. On 29th August the Supreme Court’s decision became res judicata. Thus, given that the stay of execution was associated with the judgement of this appeal, Gol should now be allowed to enforce the arbitral award.

 

Conclusion

The analysis of this case demonstrates how controversial the issue of implied consent is on international arbitration. Although the Arbitral Tribunal’s understanding was that MP Funds demonstrated its intent to submit to arbitration when signing the Amendment, the perception of the United States Court of Appeals and of the Cayman Islands Grand Court was different. Conversely, the interpretation of the Brazilian courts was consistent: the signing of the Amendment is sufficient to characterize implied consent.

The Amendment contained a specific provision establishing that it intended to modify the Contract. In this sense, it is part of the contractual relationship and thereby binds all its signatories to the arbitration agreement.

After all, a company that, in the exercise of its autonomy, signs one of the amendments to a share purchase agreement is clearly aware of the context of the operation, of the main contract’s provisions and of the legal consequences of its signature. Thus, it cannot later argue that it did not intend to participate of the arbitration procedure. In another words, the signing of the Amendment can and should be considered as implied consent. 

References   [ + ]

1. ↑ FOUCHARD, Philippe; GAILLARD, Emmanuel; GOLDMAN, Berthold. Fouchard, Gaillard, Goldman on International Commercial Arbitration. The Hague: Kluwer Law International, 1999, p. 281. 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Future of AI in Arbitration: The Fine Line Between Fiction and Reality

Fri, 2020-09-25 21:21

Artificial Intelligence (“AI”) follows the logic that if all attributes of learning and intelligence is accurately traced in-depth, it can be simulated through a computer program. In other words, ‘what holds good for [Human Intelligence], also applies to AI’.1)See H.J. Snijders, Arbitrage en AI: Van arbitrage naar robotrage en van menselijke arbiter naar robotarbiter?, Tijdschrift voor Arbitrage 3 (2019). jQuery("#footnote_plugin_tooltip_7418_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7418_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); AI is increasingly being used for in the legal industry for various tasks, including practice management (e.g., Smokeball and Clio), conflicts management (e.g., Conflicts Manager), contract review and due diligence (e.g., ThoughtRiver and Leverton), legal assistance (e.g., Blue J L&E, KNOMOS, and Voicea), e-discovery review (e.g., EDR), and outcome prediction (e.g., Motions). At the outset, AI tools can be categorized into four based on their functional complexity.2)See also Cecilia Carrara, Chapter IV: Science and Arbitration, The Impact of Cognitive Science and Artificial Intelligence on Arbitral Proceedings Ethical issues, in Austrian Yearbook on International Arbitration 520 (K. Christian et al. (eds.), 2020). jQuery("#footnote_plugin_tooltip_7418_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7418_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

First, simple AI tools used for accurate and efficient legal research (e.g., LexisNexis, DoNotPay, ExaMatch, and Ross Intelligence). Second, AI tools used for selecting suitable experts, counsels, and arbitrators (e.g., Arbitrator Intelligence and BillyBot). Third, AI tools used for facilitating procedural automation by translating, transcribing, summarizing evidence, and even drafting compilatory parts of legal documents and arbitral awards (e.g., Opus2, NDA, and Property Contract Tools). Fourth, AI tools used for their use in the adjudication process (including the ‘tools of predictive justice’). The scope and limitations of AI in the first three levels are well-defined. In fact, it is said that ‘80% of Top 10 firms have already established or begun piloting artificial intelligence solutions’.3)Joanna Goodman, Interview: Meet the in-law, The Resolver (CIArb, Vol. 2018, Issue 1), at 14. jQuery("#footnote_plugin_tooltip_7418_3").tooltip({ tip: "#footnote_plugin_tooltip_text_7418_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

This blog discusses the use of AI in arbitration (and, legalities thereof), and fear of this so-called ‘disruptive technology’ vis-à-vis resilience of arbitration as against AI.

 

 1. Understanding the Basics of AI

The difference between AI and other tools for automation and legal tech is their ability to learn and evolve each time they are deployed. There are primarily two types of AI mechanisms: rule-based learning and machine learning. Instead of the former, which is ideal for static and slowly-changing scenarios, most AI tools today use machine learning, wherein the AI identifies patterns and varies its algorithm based on already-existing data and user feedback. A subset of machine learning is deep learning models (or, artificial neural networks), which are inspired by the structure of a human brain. It identifies features without human intervention by learning from heavy volumes of pre-existing data. It is the most effective for unstructured data. AI tools today often make use of deep learning and natural language processing to perform tasks that require human intelligence and present them in comprehensible form.4)Temitayo Bello, Online Dispute Resolution Algorithm: The Artificial Intelligence Model as a Pinnacle, 84(2) Int’l J. of Arb. Med. & Disp. Man. 159, 161 (2018). jQuery("#footnote_plugin_tooltip_7418_4").tooltip({ tip: "#footnote_plugin_tooltip_text_7418_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Figure A: How machine learning works?

 

Another subset is the classical machine learning models, which make use of probabilities to make predictions, wherein statistical methods are used to obtain the output. The expression ‘tools of predictive justice’ comes from predictive analytics, wherein historic and current facts are used to predict unknown future values or provide actionable insights. Amongst the most commonly used models of predictive analytics is the decision tree model, which determines a course of action, derives possible outcomes of a decision, and consequences thereof (e.g., TreeAge).

Figure B: Overview of AI

 

Regardless of the model employed, there are two universal assumptions in regard to the use of AI: first, the model performance will improve only with the increase in available data for training and testing, and second, there will always be a trade-off between computational efficiency and interpretability, i.e., automation will require more reliance on data analytics, which would inevitably imply lesser human intervention and domain knowledge that experts contribute. Thus, AI developers will have to strike the right balance between the two, particularly in law. These assumptions are crucial in determining the resilience of arbitration as against AI.

 

2. Using AI in International Arbitration

The first- and second-level AI tools are very beneficial to arbitration. For example, Arbitrator Intelligence produces AI Reports, which are generated by analysing the data from awards and Arbitrator Intelligence Questionnaires, to accurately assess the arbitrator’s inclinations from its decision-making at different stages of arbitrations in the past. This, coupled with tracing the relevant experience of the arbitrators on various types of issues and disputes, provides for a reliable resource for arbitrator selection. In fact, pre-selecting potential arbitrators based on subject-matter, required expertise, and other defined criteria can lead to better arbitrator selection and efficient resolution of the dispute. The procedural autonomy accorded to parties in arbitration also allows for the use of third-level AI tools (See UNCITRAL Model Law, arts. 19(1), 19(2)). Translation and transcribing programs are widely used in arbitrations, drastically augmenting the efficiency of arbitration processes. Further, text-mining is used during document production to scan and process documents to assess their contents.5)Falco Kreis & Markus Kaulartz, Smart Contracts and Dispute Resolution – A Chance to Raise Efficiency?, 37(2) ASA Bulletin 337, 350 (2019). jQuery("#footnote_plugin_tooltip_7418_5").tooltip({ tip: "#footnote_plugin_tooltip_text_7418_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This way, heavy volumes of evidence can be summarized by simple classification and clustering models. Similarly, the relevant excerpts of facts, common and disputed positions of the parties, and procedural history can be inserted to assist in drafting the award with the help of AI tools.6)Kreis & Kaulartz jQuery("#footnote_plugin_tooltip_7418_6").tooltip({ tip: "#footnote_plugin_tooltip_text_7418_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The use of AI tools in this manner can, perhaps, go a long way in resolving the problem of ‘user disappointment’ caused due to lengthy and costly proceedings, judicialisation of arbitration, and inflexible formalities.7)See George Bermann, International Arbitration: Out of the Shadows, 21(2) Asia Dispute Review 49, 51 (2019). jQuery("#footnote_plugin_tooltip_7418_7").tooltip({ tip: "#footnote_plugin_tooltip_text_7418_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); However, as Prof. Dr Scherer puts it – ‘[t]ech-savvy arbitrators are as rare as vegan butchers’.

The use of AI tools in the decision-making process can become problematic when technology is allowed to ‘interfere excessively with the adjudication process’.8)Carrara, at 526. jQuery("#footnote_plugin_tooltip_7418_8").tooltip({ tip: "#footnote_plugin_tooltip_text_7418_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The US courts have even used AI tools in criminal proceedings – predictive analytics has been used to determine bail and parole cases.9)See Richard M. Re & Alicia Solow-Niederman, Developing Artificially Intelligent Justice, 22(2) Stan. Tech. L. Rev. 242, 244 (2019). In Wisconsin v. Loomis, the sentencing court relied on COMPAS – AI-powered case management and decision support tool – to deny the possibility of parole and sentenced the defendant to six years in prison based on recidivism. jQuery("#footnote_plugin_tooltip_7418_9").tooltip({ tip: "#footnote_plugin_tooltip_text_7418_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); While arbitration only concerns private rights, there are still certain mandatory requirements in place – both procedural and formal – to protect the interest of parties and integrity of arbitration. Using AI tools in adjudication risks violation of due process rights and public policy of the seat. Thus, AI’s use in adjudication process should be very limited. It can be used to research and summarise law, process and analyse parties’ submissions, and cross-check tribunal’s decision against that of the AI.10)Carrara, at 527. jQuery("#footnote_plugin_tooltip_7418_10").tooltip({ tip: "#footnote_plugin_tooltip_text_7418_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); AI tools must only be deployed with both parties’ consent and appropriate protocols in place, and without causing any disadvantage (resulting in unequal treatment) to either of the parties in the arbitration.

One of the areas where AI has made a huge impact is e-discovery, wherein AI tools based on predictive coding are employed for efficient document production and review. In Pyrrho Investments Ltd. v. MWB Property Ltd.,11)See also Brown v. BCA Trading Ltd. [2016] EWHC 1464 (Ch). jQuery("#footnote_plugin_tooltip_7418_11").tooltip({ tip: "#footnote_plugin_tooltip_text_7418_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); predictive coding for e-discovery was allowed for the first time in the U.K. This involved sorting documents according to their relevance determined on set parameters and criteria in the protocol agreed by the parties (e.g., TeCSA/SCL/TECBAR eDisclosure Protocol and CIArb’s eDisclosure Protocol), and narrowing down from millions of documents. It was observed that the cost of technology must be proportionate and the final determination must be done on a case-by-case basis.12)Pyrrho Investments Ltd. v. MWB Property Ltd. [2016] EWHC 256 (Ch), ¶¶ 33, 34; See also Dorchester Group Ltd v. Kier Construction Ltd. [2015] EWHC 3051 (TCC) ¶ 27; See, for e.g., Triumph Controls UK Ltd. v. Primus International Holding Co. [2018] EWHC 176 (TCC) ¶¶ 20, 27, 36, 42 (Predictive coding for e-discovery was disallowed as it was undertaken without consulting the defendants and in an unreliable manner. Further, it was not proportionate, as manual review of the documents in question would take only three weeks). jQuery("#footnote_plugin_tooltip_7418_12").tooltip({ tip: "#footnote_plugin_tooltip_text_7418_12", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

3. AI as ‘Most Disruptive Technology’: Myth or Reality?

Despite its benefits, it is notoriously known as the ‘most disruptive technology’ in the sector, effects whereof will be seen over the next decade. This is a result of the resistance that has its roots in the lingering fear that AI will give us a run for our jobs. It is speculated that in the coming years, AI will be performing the tasks of paralegals and associates.13)E.M. Zorrilla, Towards a Credible Future: Uses of Technology in International Commercial Arbitration, 16(2) SchiedsVZ German Arbitration Journal 107 (2018). jQuery("#footnote_plugin_tooltip_7418_13").tooltip({ tip: "#footnote_plugin_tooltip_text_7418_13", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The credibility of this assertion cannot be ascertained, as it is not ruled out in toto. However, as J. Goodman puts it – ‘[y]ou may or may not like your mother-in-law, but she’s going to have an influence on your relationship one way or another’.14)Goodman, at 14. jQuery("#footnote_plugin_tooltip_7418_14").tooltip({ tip: "#footnote_plugin_tooltip_text_7418_14", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The case of AI in arbitration is no different.

In order to address this fear, we must note that AI necessarily requires a large data set and user feedback (as discussed earlier). This is particularly relevant in the context of arbitration, as most of the documents are confidential, and exist in much smaller data sets in comparison to other practices. The multiplicity of laws and diverse practice areas further limits the scope of training and testing. Further, there is no system of precedents in arbitration, and cases are decided on individual circumstances of the case. Another relevant consideration is that the practical understanding and domain knowledge of experts in specialised fields cannot be fully substituted, as AI tools will process information in a manner which is closer to inductive reasoning, rather than deductive reasoning.15)Zorrilla, at 113. jQuery("#footnote_plugin_tooltip_7418_15").tooltip({ tip: "#footnote_plugin_tooltip_text_7418_15", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); All of the aforesaid factors make it extremely difficult for AI to mimic many aspects of arbitration.

Thus, we can safely conclude that arbitration has proven to be particularly resilient as against AI. While it has automated many processes to the benefit of the practitioners, it is not enough to replace junior associates. As Hugh Carlson puts it, the disruption would arrive when one could say: ‘Alexa, prepare for me three to four paragraphs explaining why cash flow is an inappropriate valuation methodology in this case and send me highlighted PDFs of the authorities upon which you rely’, and the AI would reliably complete such a task.16)Technology as Facilitation: Transcript of the Session, in 20 Evolution and Adaptation: The Future of International Arbitration 814, 831–832 (J. Kalicki & M. Raouf (eds), 2019). jQuery("#footnote_plugin_tooltip_7418_16").tooltip({ tip: "#footnote_plugin_tooltip_text_7418_16", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In recent times, the possibility of AI-arbitrators (or, machine arbitrators) replacing human arbitrations is also widely discussed. In brief, legal decision-making requires cognitive and emotional capabilities that AI does not possess (and, perhaps, never will). Nevertheless, assuming such a possibility for the sake of argument, current laws across the globe are centred towards natural persons and do not allow for such a possibility.17)See James Hope, Chapter 7: Can a Robot Be an Arbitrator?, in Stockholm Arbitration Yearbook 104, 104–111 (2019). jQuery("#footnote_plugin_tooltip_7418_17").tooltip({ tip: "#footnote_plugin_tooltip_text_7418_17", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Additionally, parties prefer understanding the reason why arbitrators arrived at a decision, which is rarely done away with. AI cannot satisfy this requirement of giving reasons for the award, as it’s better suited to provide a binary response based on probabilistic inference, which would lack legitimacy.18)Maxi Scherer, Artificial Intelligence and Legal Decision-Making: The Wide Open?, 36(5) J. Int. Arb. 540, 556 et seq. (2019). jQuery("#footnote_plugin_tooltip_7418_18").tooltip({ tip: "#footnote_plugin_tooltip_text_7418_18", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); As a result, it may obscure many controversies under the guise of objective analysis.19)Zorrilla, at 113. jQuery("#footnote_plugin_tooltip_7418_19").tooltip({ tip: "#footnote_plugin_tooltip_text_7418_19", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Thus, reasoning will always be inherently and uniquely a human task.20)Carrara, at 528. jQuery("#footnote_plugin_tooltip_7418_20").tooltip({ tip: "#footnote_plugin_tooltip_text_7418_20", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Further, the limits of AI dictate that the datasets would often include selective information only; algorithms could be based on discriminatory assumptions; and AI tools, though well-designed, can be used in a dysfunctional manner.21)Carrara, at 528. jQuery("#footnote_plugin_tooltip_7418_21").tooltip({ tip: "#footnote_plugin_tooltip_text_7418_21", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Some commentators believe that AI can result in absolute independence and impartiality. However, data bias would prove to be a far greater problem than arbitrator bias, as the latter can be inferred and the arbitrator challenged. For example, if most arbitrators inherently favour the investors in investor-state arbitrations, so will the AI. Similarly, data bias may even result in racist or gender-biased machine arbitrators.

 

4. Concluding Remarks

We must keep in mind that AI is not magic, just glorified statistics. The attempt to automate law (particularly, the time-consuming and labour-intensive processes) has been ongoing for decades. So far, it has only been successful in performing bespoke legal tasks and aiding the practitioners. AI has revolutionised many processes like e-discovery, and greatly improved procedural efficacy. Thus, practitioners and law firms should adapt to the changes to increase their efficiency. At the same time, technological interference in adjudication should be very limited, as otherwise would do more harm than good. This makes it pertinent for one to be apprised of the many limitations of AI. AI cannot substitute human practitioners and arbitrators. The much-discussed concept of machine arbitrator, following from a contrary belief, is merely fiction. The day technology would allow decision-making by machine arbitrators, we can safely assume it to be the opening of the seventh seal. 

 

The author of this blog post is the joint first prize winner of the inaugural Arbitrator Intelligence Ambassadors’ Essay Competition. Many congratulations! Arbitrator Intelligence recently collaborated with the Kluwer Arbitration Blog on our summer quiz, the results of which provide data-driven insights about international arbitration across the globe.

References   [ + ]

1. ↑ See H.J. Snijders, Arbitrage en AI: Van arbitrage naar robotrage en van menselijke arbiter naar robotarbiter?, Tijdschrift voor Arbitrage 3 (2019). 2. ↑ See also Cecilia Carrara, Chapter IV: Science and Arbitration, The Impact of Cognitive Science and Artificial Intelligence on Arbitral Proceedings Ethical issues, in Austrian Yearbook on International Arbitration 520 (K. Christian et al. (eds.), 2020). 3. ↑ Joanna Goodman, Interview: Meet the in-law, The Resolver (CIArb, Vol. 2018, Issue 1), at 14. 4. ↑ Temitayo Bello, Online Dispute Resolution Algorithm: The Artificial Intelligence Model as a Pinnacle, 84(2) Int’l J. of Arb. Med. & Disp. Man. 159, 161 (2018). 5. ↑ Falco Kreis & Markus Kaulartz, Smart Contracts and Dispute Resolution – A Chance to Raise Efficiency?, 37(2) ASA Bulletin 337, 350 (2019). 6. ↑ Kreis & Kaulartz 7. ↑ See George Bermann, International Arbitration: Out of the Shadows, 21(2) Asia Dispute Review 49, 51 (2019). 8. ↑ Carrara, at 526. 9. ↑ See Richard M. Re & Alicia Solow-Niederman, Developing Artificially Intelligent Justice, 22(2) Stan. Tech. L. Rev. 242, 244 (2019). In Wisconsin v. Loomis, the sentencing court relied on COMPAS – AI-powered case management and decision support tool – to deny the possibility of parole and sentenced the defendant to six years in prison based on recidivism. 10. ↑ Carrara, at 527. 11. ↑ See also Brown v. BCA Trading Ltd. [2016] EWHC 1464 (Ch). 12. ↑ Pyrrho Investments Ltd. v. MWB Property Ltd. [2016] EWHC 256 (Ch), ¶¶ 33, 34; See also Dorchester Group Ltd v. Kier Construction Ltd. [2015] EWHC 3051 (TCC) ¶ 27; See, for e.g., Triumph Controls UK Ltd. v. Primus International Holding Co. [2018] EWHC 176 (TCC) ¶¶ 20, 27, 36, 42 (Predictive coding for e-discovery was disallowed as it was undertaken without consulting the defendants and in an unreliable manner. Further, it was not proportionate, as manual review of the documents in question would take only three weeks). 13. ↑ E.M. Zorrilla, Towards a Credible Future: Uses of Technology in International Commercial Arbitration, 16(2) SchiedsVZ German Arbitration Journal 107 (2018). 14. ↑ Goodman, at 14. 15, 19. ↑ Zorrilla, at 113. 16. ↑ Technology as Facilitation: Transcript of the Session, in 20 Evolution and Adaptation: The Future of International Arbitration 814, 831–832 (J. Kalicki & M. Raouf (eds), 2019). 17. ↑ See James Hope, Chapter 7: Can a Robot Be an Arbitrator?, in Stockholm Arbitration Yearbook 104, 104–111 (2019). 18. ↑ Maxi Scherer, Artificial Intelligence and Legal Decision-Making: The Wide Open?, 36(5) J. Int. Arb. 540, 556 et seq. (2019). 20, 21. ↑ Carrara, at 528. 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Standardising Technology’s Contractual Relationships and Alternative Dispute Resolution – The Construction Industry as a Model

Fri, 2020-09-25 01:00

Over the past decade, technology has been seeping into our everyday life at an exponential rate. Accordingly, much like any other industry with rapid growth, contractual agreements are required to form the framework in which lasting relationships can be maintained and provide for mutually beneficial dispute resolution mechanisms (“DRMs”). As we introduce technology into almost every sector, including legal practice, the requirement for a standardised form of contract for the tech industry grows.

It is essential first to understand the existing types of technology and contractual relationships. Technology refers to both the hard (physical) machinery and equipment, such as computers and semiconductors, as well as soft tools, such as software, created using specialised and scientific knowledge. Physical technology has been prevalent in various industries for quite some time; however, soft technology’s inclusion is more recent. Accordingly, the contracts relating to technology in already developed sectors, such as the construction industry, are far more advanced than those of soft technology.

Given the large increase in companies requiring online tools in their everyday operation, the need for various contracts – whether it be teaming agreements, sale and purchase agreements, cloud contracting, licensing agreements, support and maintenance agreements, open-source software agreements, or non-disclosure agreements – will also be on the rise. Therefore, this article explains how the use of standard form contracts (“SFCs”) within the construction industry can act as an example for the tech industry. Such SFCs not only assist in providing a framework for contractual relationships that are inclusive of dispute resolution procedures but also encourage a more cohesive working environment in the industry by building lasting relationships between stakeholders.

 

Construction SFCs

As early as 1945, the construction industry has used SFCs for varying types of projects, including plant, design-build, turnkey, dredging and reclamation works, minor works, and electrical and mechanical works, as well as subcontract, consultancy, and joint venture agreements. Typically, these SFCs have been used by either the parties filling out or amending where necessary, and then executing the contract or incorporating such into the letter of award.

Providing the stakeholders with the options to use the SFCs not only helps ensure that there is a template inclusive of the relevant provisions for software development contracts; it also means that when a dispute arises, there is a reduced chance that the parties will disagree on the meaning of a particular clause. In using the same contracts, the global construction industry has become familiar with the terms and conditions, thereby lessening the chance of confusion between the parties, which can easily result in disputes.

Additionally, the SFCs have been created by industry experts such as the International Federation of Consulting Engineers (“FIDIC”), Joint Contracts Tribunal, or Association of Consultant Architects. The involvement of industry experts in the creation of the contracts ensures that the contacts contain less legalese – which reduces the chance of confusion by those using the SFCs – and the information vital to the project is included and indicated. Moreover, these SFCs can assist in balancing the risk, obligations, and liabilities of the various stakeholders.

 

Importance of SFCs in DRMs

A benefit of SFCs is the creation of standard DRMs. One example of such is the FIDIC’s inclusion of a Dispute Adjudication Board, to which parties to the contract can refer disputes throughout the contract period. Other contracts will appoint a third-party neutral to determine all disputes throughout the duration of the contract. In contrast, some contracts will designate the architect, employer, or contract administrator, i.e., the Asian International Arbitration Centre’s (AIAC) Standard Form of Building Contracts 2018, as the stakeholder tasked with determining disputes. These mechanisms aim to ensure the project is completed without causing undue delays.

However, some argue that the creation of layered DRMs can lead to more problems than solutions. For example, in layered DRMs, also known as waterfall clauses, there may be mandatory pre-conditions to commencing arbitration. Therefore, parties who are not aware of the specific pre-conditions of the SFC may expend additional monies and time by failing to meet the pre-conditions. Further, the process of mandatory pre-conditions may delay the resolution process rather than promote negotiation or mediation as forms of DRMs.

While having mandatory pre-conditions may create hurdles for those not familiar with the process, when used correctly or made optional, it can help promote a less adversarial process for resolving disputes. To cater to the needs of the relevant stakeholders, some contracts include the use of expert determination or contractual adjudication in their DRMs. These processes allow for a third-party neutral to decide on an issue related to extensions of time/delays, payments, etc. in an expedited manner compared to litigation, mediation, and arbitration, while at the same time allowing the parties to continue with the projects. Additionally, in small-value or Minor Works contracts, the use of expedited procedures such as the AIAC’s Fast Track Arbitration Rules can be included for the resolution of disputes.

 

Implementation of SFCs in the Tech Industry

The creation of SFCs for the tech industry would not only assist stakeholders when contracting with one another, but it would also assist in standardising the DRMs within the industry. Currently, for building, civil, electrical, mechanical, and chemical engineers, various SFCs such as the New Engineering Contract, Joint Institute of Electrical Engineers and Institution of Mechanical Engineers Model Forms of General Conditions of Contract, and Institute of Chemical Engineers contracts already exist. However, these SFCs are heavily intertwined with the construction industry. As for other types of technology, such as software development, while templates are available, there is no standardised form akin to those in the construction industry.

As explained above, by having DRMs that are industry-specific, it can allow for the use of specialised methods such as adjudication, expert determination, and expedited procedures, amongst others, to resolve disputes while the project is ongoing or after the termination/completion of the project. Disputes related to software development are similar to those encountered in construction, the primary difference being that the project in the former is created online or virtually rather than physically. Common disputes which arise in both fields, throughout the project, include those relating to late payments, extensions of time, or delays, all of which could be resolved by having DRMs that allow for the making of interim decisions by either appointing a neutral for the term of the contract or creating a panel like the DABs in FIDIC. Additionally, like in construction contracts, stakeholders in the tech industry are likely to have ongoing relationships, and sometimes multiple projects take place at the same time. Therefore, the creation of holistic DRMs can assist in ensuring those relationships are maintained and not strained through drawn-out disputes which may lead to an incomplete project.

Another feature of having a standardised DRM through SFCs is that stakeholders can ensure that those determining the dispute have industry knowledge. In the 2016 Queen Mary International Dispute Resolution Survey: Unveiling Technology, Media and Telecoms (TMT) Disputes (2016 QMUL Survey), IT and Telecoms suppliers preferred litigation and expert determination, respectively, over arbitration. However, arbitration was overall the preferred method with 92% believing international arbitration was well suited for TMT disputes and would continue to grow. The Silicon Valley Arbitration & Mediation Center’s Technology Dispute Resolution Survey also echoed these results. To make international arbitration more appealing, one of the top three changes suggested was appointing more industry experts. One method of ensuring that those appointed as experts have industry knowledge would be to require the same in the arbitration clause that is included in SFCs.

 

Conclusion

Given the success of the SFCs in the construction industry and the use of SFCs for tech-related construction projects, other areas of the tech industry are well suited for the use of similar SFCs. Specifically, the tech industry could benefit from a standardised DRM that would provide not only for interim decisions to be made while the project is ongoing, but also to ensure that the neutrals appointed in arbitration (or other ADR mechanisms) have industry knowledge. Premised upon this, the AIAC has launched its Tech Expert Committee (AIAC TEC) to spearhead initiatives related to ADR and the tech industry. The AIAC TEC aims to create a community in which lawyers and key players within the tech industry can discuss recent developments and brainstorm solutions, project collaborations, and knowledge transfer initiatives for the advancement of ADR within the tech industry. The AIAC TEC activities will include publications of articles and white papers, creation of standard form contracts, promotional roadshows, opportunities to pitch new technology to end-users, and seminars and workshops. The first initiative of the AIAC TEC is to create a SFC for software development – a survey is on foot to gain insight from industry players in this regard, and input is welcome from industry players. As the world becomes more digitised, disputes surrounding software and other various technology will also rise, thereby creating a need for the standardisation of the contracts used and DRMs implemented.

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Online Dispute Resolution Platforms: Cybersecurity Champions in the COVID-19 Era? Time for Arbitral Institutions to Embrace ODRs

Fri, 2020-09-25 00:00

The COVID-19 pandemic has led to an increase in the interest in alternative dispute resolution, especially arbitrations conducted online. The greater utilization of online platforms and digitization has coincided with the growing frequency and sophistication of cyber-attacks. Reportedly, by 2021 a business will fall victim to cyber-attacks every 11 seconds. Therefore, it is critical for these platforms to provide secure digital environments where the exchange of communications, storage of evidence and files, and virtual hearings can be conducted remotely and securely. The necessity of providing easily accessible platforms apt to handle complex disputes has brought to light the importance of online dispute resolution (ODR) platforms. Some of these platforms have taken the initiative to encompass robust security measures through which they implement standards consistent with the existing protocol on cybersecurity (2020 Protocol). Such measures may shift the arbitration landscape, in which these platforms may play an important role in institutional and ad hoc arbitration globally.

This note highlights some of the good practices of security measures, which mirror standards enshrined in the 2020 Protocol. In doing so, we make references to notable ODRs that embody these features. We then underscore the role of arbitral institutions in giving greater recognition to cybersecurity needs as they embark on the digitization of their services.

 

A. Online dispute resolution platforms: a viable alternative to ensure cybersecurity?

There has been a surge in the number of ODRs in the recent years. There platforms leverage sophisticated software that allows them to handle several simultaneous uploads and downloads of files in real time, and the technological advances of ODRs render these platforms suitable to addressing the emerging needs of security in the face of many cyber threats. Platforms have taken practical measures to apply and embody some of the distinctive features proposed by various cybersecurity instruments, including 2020 Protocol and international standards (ISO).

The following will outline some of the features that increase the security of online platforms by inhibiting potential hackers from deciphering and accessing sensitive information, and ultimately damaging the confidentiality, integrity, or availability (i.e., “CIA triad”) of different arbitration phases.

Multi-factor authentication

Two-step verification is a salient feature of many ODRs that limits the potential for data exposure. This feature provides an additional layer of security so that only authorized individuals are accessing sensitive information. Principle 7 (b) of the 2020 Protocol recognizes “access controls” as one of the important considerations in an arbitration. This principle states that in considering the specific information security measures to be applied in arbitration, consideration should be given to issues such as “asset management” “access controls” “encryption”, and “information security incident management”.   This is of substantive importance, as most ODRs run on browsers that leave some form of digital footprint, thereby rendering them prone to hackers who can access vulnerable browser details. Thus, it is important to control access on a “need to know” basis, which has an advantage over self-made passwords. For instance, eArbitration, an ODR platform, has established two-factor authentication in which each participant obtains a unique ID associated with their user profile called a “token”, which has to be validated by a second factor/device upon login – e.g., on a phone or via e-mail. This allows them to access only the information they are privy to and is important given that some platforms like Zoom, which are currently being employed by some virtual hearings, had episodes of susceptibilities, with unauthorized users accessing meetings for the purpose of disrupting their security. Due to  by a New York Attorney General’s recent investigation, Zoom has committed, among other things,  to implement various security measures including penetration-testing, which aims to identify and solve vulnerabilities in cyber security. In doing so Zoom also included features like default passwords, pre-entry waiting rooms and enhanced encryption to keep malicious users at bay.

Encryption of data

Encryption is a cybersecurity measure that protects information by using extremely complex and unique codes that mix up data and prevents unauthorized users from deciphering sensitive information. “Encryption” is also a standard enshrined in principle 7 (c) of the 2020 Protocol. It helps to prevent the discovery of confidential information, including trade secrets, financial information, and personal identifiable information. In the absence of this feature, such sensitive data may be prone to attack, and, as a result, will amount to the breach of confidentiality, which is an important pillar of arbitration. Encryption requires routine audits during which the platform is tested to face potential security vulnerabilities. For instance, both eArbitration and Immediation ODRs conduct routine verifications to determine and ensure the encryption of sensitive data.

Collecting and storing of information

“Asset management” is another important standard in the process of collecting and storing all sorts of information during the case management of arbitral proceedings, which is encapsulated in principle 7 (a) of the 2020 Protocol. Under this standard, information disseminated should be identified, classified, and controlled. In this regard, retention and destruction is an important component of this principle, in which data is initially stored securely, and after the conclusion of arbitral proceedings, is destroyed in compliance of applicable privacy rules. Another integral part of asset management is providing a platform that allows the secure exchange of information. For instance, Immediation and eArbitration embedded an integrated “live” chat box similar to the platform Slack  uses, in which all parties who are privy to the arbitration proceeding, including the arbitrators, counsels and secretary can use to communicate with respect to the case. Such a feature captures the standards of “communications security” stipulated in principle 7(d) of the 2020 Protocol.

Managing breach incidents

Despite robust security measures, sometimes the breach of information might be inevitable, and has been especially notable during the COVID-19 era, where many online businesses have observed spike in fishing attacks, malspams, and, ransomware attacks.  In these occasions, these platforms ought to act promptly to mitigate a data breach and recover lost or stolen information. This standard has also been captured in principle 7 (h) of the 2020 Protocol as “Information Security Incident Management”. This can be achieved through routine platform audits to perform a studied plan of actions in order to respond to an incident. Both Immediation and eArbitration have devised periodic audits in order to detect new security vulnerabilities or potential threats.

 

B. Heralding institutional involvement in cybersecurity

Many arbitral institutions have pivoted towards digitizing their services in light of the demands emerging from the COVID-19 era to resolve their disputes expeditiously and efficiently, both of which are duties many arbitral institutions strive to uphold. However, these institutions have not adequately addressed essential security measures needed for virtual hearing.  For instance, the ICC, SIAC, and LCIA have introduced comprehensive rules regarding how virtual hearings ought to be conducted. According to these rules, parties are entitled to incorporate measures they deem necessary to safeguard the proceedings. For instance, under 22.3 of the ICC Rules, a party can invoke confidentiality in order to protect sensitive and confidential information. Similarly, the HKIAC under Article 3.1 (e) recognizes and the AAA-ICDR Article 37.2 primarily grant parties the discretion to select the necessary measures or a secured online repository to protect sensitive and confidential information. However, the above institutions’ rules are silent regarding issues including case management, exchange of communications, and virtual hearings. No hard guidance has been provided regarding what cybersecurity measures entail.

The lack of hard guidance may bear significant consequences. A breach of the security of sensitive data may amount to the violation of confidentiality. This may undermine the integrity and viability of international arbitration, and the whole proceedings by inflicting reputational damage to arbitral institutions, arbitrators, and counsels, as well as to the system of international arbitration overall. It is now becoming increasingly important for arbitral institutions to embrace ODRs or other platforms that incorporate necessary security measures.

 

Concluding remarks:

In this new era of COVID-19, as more arbitration proceedings move into digitized platforms, the need to identify instances of security breaches is becoming clear. In particular, for the users of international arbitration whose primary concerns are protecting their trade secrets and confidential information while having their disputes resolved in an expeditious and cost-effective manner.  Thus, most stakeholders in arbitration, in particular, arbitral institutions have the onus to acknowledge the threat and explore the nature of cybersecurity because a cyber-threat may undermine the integrity of arbitration. In doing so, stakeholders shall take proactive steps in adopting tailored automatized safeguard tools that encompasses essential security measures.  Effectively, instituting an ODR platform that would embody the necessary features, such as multi-tiered authentication, encryption, secured collection and storage, as well as managing breach incidents in order to minimize the risk of a security breach during online proceedings.

Without a doubt, COVID-19 crisis will serve as a catalyst for improvement, as it will underline the aptitude of ODRs in navigating the obstacles presented by this new circumstances and will perhaps garner more significance to address cybersecurity concerns.

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The New Landmark African Investment Protocol: A Quantum Leap for African Investment Policy Making?

Thu, 2020-09-24 01:00

Negotiations on the Investment Protocol of the African Continental Free Trade Area (AfCFTA) are set to start later this year. An AfCFTA Investment Protocol would provide significant opportunities for African countries. However, the negotiations will be complex, taking place amidst a backdrop of existing African international investment agreements (IIAs) already negotiated at the bilateral and regional level. Since 1961, African countries have signed 861 bilateral investment treaties (BITs), of which 171 are intra-African. These agreements are in addition to regional agreements dealing with investment such as the Southern African Development Community Protocol on Finance and Investment and the Economic Community of West African States Supplementary Act on Investments. All of these international and regional investment commitments build on existing national laws and regulations on investment in force in most African countries. Indeed, the bulk of the network of IIAs signed over 30 years ago include provisions drafted in a broad and unspecified manner with an eye to maximizing investor protection while inadvertently constraining the ability of governments to put in place national safeguards, notably in relation to the regulation and implementation of public policy measures. This is of special concern today in the wake of the global COVID-19 pandemic, which has required bold and rapid action on the part of governments to mitigate the pandemic’s impact on national economies and on public health.

The global COVID-19 pandemic has highlighted how commitments found in IIAs may come into play in relation to policy responses taken by governments in times of crisis. Broadly drafted investor protection clauses in existing agreements can lead to perceived violation of commitments in these existing treaties which may result in expensive investor-State dispute settlement (ISDS) proceedings. To date, African countries have responded to some 121 (ISDS) claims. This issue is particularly important in the African context, where many governments lack the necessary financial, technological, and human resources to deal with crises of such magnitude. There is a real risk that measures adopted by African countries to address the health and economic impact of the COVID-19 pandemic may be challenged by foreign investors through arbitration proceedings under IIAs.

But it isn’t all bad news. Over the past 5 years a number of African countries and regional economic organizations have been working hard to reform their IIA regimes in order to make them more conducive to sustainable development, and less prone to ISDS. This trend is evident in the increasing number of countries reviewing their stance on BITs, new methods of drafting BIT models, and the adopting of alternative approaches, notably through regional investment initiatives. However, these developments have created a new challenge – African countries are reforming their existing investment treaties unilaterally, without conferring amongst themselves. While some countries have opted for BIT termination or a moratorium on the conclusion of new treaties, others are engaging in the renegotiation of existing treaties or favoring regional approaches to investment treatymaking. In terms of substantive content, there is little or no consultation among African countries as to how best to approach individual IIA provisions. While these initiatives all seek to make the IIA framework more balanced and oriented towards sustainable development, the lack of coordination risks creating a fragmented approach to IIA reform, with each country favoring a different approach.

It is against this challenging backdrop that the new Investment Protocol of the AfCFTA presents an exceptional opportunity for Africa. In the best-case scenario, the Investment Protocol could result in a “quantum leap” for Africa by effectively modernizing, consolidating, and harmonizing the international legal framework of investment in Africa. Below is a brief overview of such a best-case scenario.

 

A modern continental investment framework  

The AfCFTA Investment Protocol has the potential to include clear and precise provisions ensuring a balance between investment protection and the right of African states to regulate their public interests. This includes options to refine and narrow down the definition of investment to only cover assests that contribute directly to the economic development of African countries; to clarify or circumscribe key protection standards (e.g. most-favoured nation (MFN) treatment and indirect expropriation); to balance State commitments with investor obligations and promoting responsible investment; and to strengthen the right to regulate (e.g. exceptions for public policies). In doing so, the protocol would move away from the traditional “investment protection only” model prevalent in the 1980s and the 1990s in favor of a more modern approach that places sustainable development at the core of investment policies. The COVID-19 pandemic could also influence negotiators to include stronger general exceptions provisions, especially those relating to the protection of public health.

 

A consolidated and less fragmentated framework

The AfCFTA Investment Protocol has the potential to streamline the complex framework of intra-African investment by replacing the existing 171 intra-African BITs with a single treaty that would regulate all intra-African investments. Recent EU agreements with third parties have included a provision noting that upon entry into force of the new agreement, the BITs between the parties, including the rights and obligations derived therefrom will cease to have effect, and shall be replaced and superseded by the new agreement. See for example Article 4.2 of the EU – Viet Nam Investment Protection Agreement (2019). A similar approach would create a more manageable network of commitments between African countries and encourage intra-African FDI flows and broader continental economic integration. It remains to be seen how the Investment Protocol would interact with existing African regional IIAs. The inclusion of clear relationship clauses would be important to avoid possible contradictions and to establish a hierarchy of obligations arising from regional African IIAs.

 

A harmonized and coordinated approach to investment policymaking

Once concluded, African countries could use the AfCFTA Investment Protocol as a basis for future IIA negotiations, including for agreements with non-African countries. In this way, the Investment Protocol would be an important benchmark agreement that could be used to formulate and facilitate a common African approach to international investment policymaking. Such a framework would also allow for more regular and structured consultations among African countries on issues related to IIAs. To do so in an effective manner, the negotiators should consider the establishment of an institutional framework or a committee to ensure that the agreement operates properly; to supervise and facilitate the implementation and application of this Agreement, and to create a regular dialogue among African countries on investment policy issues.

Landmark international treaties are negotiated and concluded in exceptional times. The global COVID-19 pandemic has highlighted the incongruity of the current international investment system with measures needed to respond quickly and effectively to crises of a global magnitude. The ongoing legitimacy crisis of the system will deepen if ISDS claims begin to emerge as a result of measures taken for the protection of public health. Furthermore, other global challenges relating to climate change and the stability of the global financial system are also creating a sense of urgency for a comprehensive and holistic reform of the IIA regime. African countries can and should seize this opportunity to negotiate a landmark continental Investment Protocol that places sustainable development and the right to regulate in the public interest on an equal footing with investment protection.

 

The views are those of the author and do not necessarily represent those of UNCTAD.

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Opening of Mainland China Arbitration Market to Foreign Institutions: Is It Happening, Really?

Wed, 2020-09-23 21:00

Since the enactment of the People’s Republic of China (“PRC”) Arbitration Law (1994), Chinese arbitration commissions have had exclusive access to the mainland China arbitration market. This is primarily because the establishment and operation of arbitration institutions are subject to the prior approval of the “administrative department of justice of the relevant province, autonomous region or municipality directly under the central government”, creating a legal obstacle for foreign arbitration institutions administering cases within mainland China.

On 7 September 2020, the PRC State Council issued a reply approving a joint application by the Beijing Municipal Government and the PRC Ministry of Commerce (“MOFCOM”) concerning several reforms to promote the Beijing business environment and the further opening-up of the PRC market. The following section of the State Council’s reply is particularly interesting to the arbitration community: “Allowing well-known foreign arbitration and dispute resolution institutions to set up, after registering with the administrative department of justice of the Beijing Municipality and filing with MOFCOM, operational entities in designated areas of Beijing, to provide arbitration services for civil and commercial disputes in international business and investment sectors” (“Beijing Policy”).

This wording seems to affirm a trend beginning in Shanghai in 2019 (“Shanghai Policy”, discussed in a previous blog) and revive the question of whether the mainland China arbitration market is opening up to foreign arbitration institutions. In addition, the 6 August 2020 decision from the Guangzhou Intermediate People’s Court (“Guangzhou IPC”) for the first time expressly deals with how to enforce awards issued based on an arbitration clause providing for a place of arbitration in mainland China by a foreign institution (“Mixed Clause”) and seems to further point towards an opening up of the Chinese arbitration market.

 

Place of Arbitration in Mainland China and a Foreign Arbitration Institution Used to Be “No-Go”

As a starting point, Article 10(3) of the PRC Arbitration Law (1994) provides that an arbitration institution only qualifies as such if it is duly registered with the relevant administrative department of justice. However, no law or regulation explicitly deals with the registration process for foreign arbitration institutions. It seemed that only Chinese arbitration commissions are entitled to administer arbitrations with a place of arbitration in mainland China. Therefore, for many years, Chinese courts have considered that Mixed Clauses are invalid since a foreign institution could not abide by Article 16 of the PRC Arbitration Law (1994). Article 16 provides that a valid arbitration agreement must designate an “arbitration commission”.

That said, as early as 2013, the PRC Supreme People’s Court (“SPC”) issued ground breaking “Replies” through the Prior Reporting System (see this post on the Prior Reporting ) in Ningbo Oil v. Formal Venture (2013) and Longlide Printing v. BP Agnati (2013), confirming the validity of arbitration clauses opting for ICC Rules with a place of arbitration in mainland China. However, whilst the SPC found the choice of the ICC Rules was an indirect selection of the ICC as arbitration institution and thus fulfilled the third requirement of Article 16(2) (the choosing of an “arbitration commission”), the SPC carefully refrained from discussing whether the ICC as a foreign institution was eligible to be considered an “arbitration commission” within the meaning of Article 10(3).

Although the SPC seems to be upholding the validity of Mixed Clauses, it has not provided any guidance on how to implement the resulting awards. In particular, it has not specified whether such an arbitral award would be considered a “Chinese award” (based on a place of arbitration in the PRC), a “foreign award” (relying on the choice of a foreign arbitration institution), or a “non-domestic award” (based on a PRC place of arbitration and a foreign arbitration institution). This distinction is important because it determines the framework for challenging and/or enforcing the award, namely, a Chinese award is subject to the PRC Arbitration Law (1994) and the PRC Civil Procedure Law (2017), and a foreign or non-domestic award is subject to the New York Convention and/or other treaties.

In view of the uncertainty arising from Article 10(3) of the PRC Arbitration Law (1994), it has been extremely difficult to persuade Chinese courts to treat any award issued under such a Mixed Clause as a “Chinese award”. The authors are not aware of any case in which a PRC court has adopted such an approach. In contrast, there are cases where the parties have successfully persuaded the lower courts to enforce the award by treating it as “non-domestic” (see Züblin International v. Woke Rubber (2006) and Duferco S.A. v. Ningbo Imp. & Exp. (2009)).

Yet, these decisions were based on a misunderstanding of the “non-domestic award” concept, which is not found in Chinese law and instead derived from Article I(1) of the New York Convention (1958). Under the New York Convention, “non-domestic awards” are awards issued within a State which involve foreign elements. To apply the New York Convention to these awards, contracting States must not have invoked the reciprocity reservation. However, China has made a reciprocity reservation under Article I(3) of the New York Convention (1958) and declared that “it will apply the Convention to the recognition and enforcement of awards made only in the territory of another Contracting State”. The concept of a “non-domestic award” arguably has no place under Chinese law.

 

New Developments

In this context, the 6 August 2020 ruling by the Guangzhou IPC in Brentwood Industries v. Faanlong Complete Engineering (2020) appears groundbreaking. In 2011, the Guangzhou IPC confirmed the validity of the arbitration clause in this case, which was a Mixed Clause providing for “arbitration by the International Chambers of Commerce’s Arbitration Commission in accordance with international customs at the place where the project is located” (which is Guangzhou, China). In 2020, the Guangzhou IPC now had to decide on the enforcement of the arbitral award arising from an arbitration pursuant to that clause. The Guangzhou IPC ruled that the ICC award could be enforced as a “foreign-related Chinese award”. At this stage, it is unknown whether the case was subject to the Prior Reporting System and thus approved by the SPC. However, it would appear that the Guangzhou IPC would likely have issued this ruling after having, at least informally, consulted the higher courts and in particular the SPC.

The next step to open up mainland China arbitration market fully would logically be to allow foreign arbitration institutions to also physically administer cases in mainland China.

In this regard, the above-mentioned Shanghai Policy was the pioneering attempt to move in such direction by allowing foreign arbitration institutions to “carry out arbitration activities” in a specific Pilot Free Trade Zone (“FTZ”). In contrast, though most of the wording is identical, the Beijing Policy does not require the “operational entity” (of the foreign arbitration institution) to be inside an FTZ.

The Beijing Policy could be interpreted as allowing foreign arbitration institutions to register an entity with no such geographical restriction. In other words, the Beijing Policy could be understood as providing the Beijing municipal government with the authority to allow a foreign arbitration institution to set up an “arbitration commission” (under Article 10(3) of the PRC Arbitration Law (1994)) in Beijing. After all, according to Article 10(2) of the PRC Arbitration Law (1994), it is precisely the municipal government’s role to coordinate with local chambers of commerce to set up arbitration commissions. Parties would no longer have to worry about the lack of compliance with Article 10(3) of the PRC Arbitration Law (1994), as local branches of foreign arbitration institutions would qualify as arbitration commissions in the meaning of Article 16 of the PRC Arbitration Law (1994).

 

Concluding Remarks

These new developments clearly demonstrate political will to bring the dispute resolution environment in the PRC to the next level by gradually opening the market to foreign arbitration institutions. A key question is whether this opening up will come through piecemeal approaches such as local policies and court decisions, or whether the Chinese central government will revise the PRC Arbitration Law (1994) at some point soon.

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For Whom The Bell Tolls: Is The Red-Flags Standard’s Application Enough To Prove Corruption In International Arbitration?

Wed, 2020-09-23 01:00

The Rutas de Lima v. Metropolitan Municipality of Lima case shows how arbitral tribunals deal with corruption allegations in disputes related to government contracts. The tribunal, chaired by current ICC International Court of Arbitration President, Alexis Mourre, issued its Award this May, which came to light when the Metropolitan Municipality of Lima (the “Municipality”) requested and sustained an annulment application before the US District Court for the District of Columbia this August.

The dispute revolves around a commercial case where the claimant requested compensation for uncollected tolls under a toll concession agreement, which provided for compensation mechanisms that the respondent allegedly failed to apply. The Municipality argued that the concession agreement was null and void due to the presence of corruption, among other grounds. Ultimately the Tribunal held that there were insufficient red flags directly related to the concession agreement and rejected the corruption allegations. This award demonstrates that the presence of red flags is not enough to prove corruption. The proponent must prove a causal link between those flags and the event under analysis.

 

Navigating through the case

The concession agreement resulted from an unsolicited proposal submitted on April 16, 2010 by the Lineas Viales de Lima Consortium for the “Vias Nuevas de Lima” Project, which contemplated the design, construction, operation, and maintenance of certain highways in Lima, Peru (the “Project”). On September 18, 2012, the Project was awarded to the Consortium. On January 9, 2013, the Municipality and Rutas de Lima S.A.C. (“RdL”) (a company incorporated by the members of the Consortium) concluded a Concession Agreement (the Concession Agreement) under which the Municipality was obliged to grant possession to RdL of the land in the area, the toll booths, and the right of way under concession.

The parties agreed that within 30 days of completion of the required works, the Municipality had to install a new toll in the Chillon district (the “Chillon Toll”). Clause 10.4 of the Concession Agreement provides that if RdL was prevented from collecting tolls due to social unrest, the Municipality must compensate RdL for uncollected tolls.

In June 2016, after certain interferences with RdL’s possession, the parties signed an agreement to implement the Chillon Toll by December 2016 (the “June 2016 Agreement”). On December 29, 2016, the Municipality implemented the Chillon Toll and RdL began collecting the toll. However, toll collection was suspended almost immediately due to unrest that led the Municipality to remove the toll permanently.

During 2017, the Municipality and RdL unsuccessfully sought alternatives to restore the economic equilibrium of the Project. RdL notified the Municipality of its intention to trigger the compensation mechanism under Clause 10.4 of the Concession Agreement and eventually submitted the controversy to arbitration claiming damages due to the interference with its right to collect the Chillon Toll.  Among other things, the Municipality argued that the Concession Agreement and the June 2016 Agreement were null and void.

 

Corruption allegations and the standard of proof

The Municipality submitted that RdL received the Project and the Concession Agreement through corrupt means and obtained illegal benefits during performance of the Concession Agreement. The Municipality did not, however, request the Tribunal to declare the nullity of the Concession Agreement based on these allegations.

The first issue the Tribunal analyzed was whether it had the duty and power to decide on the legality of the Concession Agreement and related documents based on corruption allegations, even when this had not been requested by either party. Based on Mr. Lagergren’s famous award on the ICC Case No. 1110 (which stated that a case such as this, involving such gross violations of good morals and international public policy, can have no countenance in … any arbitral tribunal”), the Tribunal argued that under both Peruvian legislation and international public policy, it has the duty to make an assessment of the incidences of corruption that could affect the object of the arbitration and decide on the civil consequences of these incidences with respect to the validity of the Concession Agreement.

The Tribunal undertook this not as a criminal judge, but rather as the ‘judge of the contract.’ Therefore, the declaration of nullity required not only sufficient indications of corruption, but also a showing of a corrupt conduct related to the contract. It was not enough that one of the parties made illegal payments to public officials. The Tribunal must find a causal link between these payments and the contract.

Further, the tribunal decided that in accordance with the current trend in international arbitration it was bound to apply a preponderance of evidence standard. Based on the alleged circumstances and existing indications of corruption, the Tribunal had to decide whether it was more likely than not that the Concession Agreement and/or the June 2016 agreement were obtained through corrupt means.

While not described in the Award, for the sake of this post it is important to briefly delve on how the standard of proof applicable to corruption allegations in commercial and in investment arbitration has evolved over time. In EDF v. Romania, the tribunal considered that there was a “general consensus among international tribunals and commentators regarding the need for a high standard of proof of corruption,” requiring “clear and convincing” evidence. The same reasoning is found in Belokon v. Kyrgyz Republic, where the tribunal required “concrete and decisive evidence.”

Throughout the years, these criteria evolved to reflect the complexity of proving corruption. In Oostergetel v. Slovak Republic, the tribunal acknowledged that “for obvious reasons, it is generally difficult to bring positive proof of corruption. Yet, corruption can also be proven by circumstantial evidence.” This argument was then taken by the Metal-Tech v. Uzbekistan tribunal (discussed in here) noting “that corruption … can be shown through circumstantial evidence.”

Further, the Churchill v. Indonesia tribunal decided to apply a “standard of balance of probabilities or intime conviction,” taking into account that more persuasive evidence is required for implausible facts and weighing the available evidence as part of relevant circumstances. The Libananco v. Turkey tribunal expressed that “[allegations of fraud] may simply require more persuasive evidence, in the case of a fact that is inherently improbable, in order for the [T]ribunal to be satisfied that the burden of proof has been discharged.”

As has been stated, circumstantial evidence is nothing other than a list of red flags that provides the tribunal with “a valuable tool to analyze whether or not the direct evidence available was sufficient to establish a reasonable inference that the elements of an act of corruption were more likely than not present.”

 

Ruling and Importance of the Award

In the case under analysis, the Tribunal used the red flags method to reach a decision based on the preponderance of evidence, stating that the flexibility allowed by this standard does not entail a failure to require sufficient evidence of particular incidences of corruption to reasonably establish that corrupt payments were made and their connection to the Concession Agreement or the June 2016 agreement.

The Tribunal began its analysis stating that considering the ongoing international investigations, the fact that companies investigated for corruption were members of the Consortium and that they continue to have interest in the Project is evidence of the possibility of corruption in the Project. However, the Tribunal did not conclude that the sole presence of such companies in a contract necessarily entails corruption. The mere presence of general red flags should not make a tribunal lean towards finding corruption. If a specific party is known for being more tolerant to corruption, it should be considered a general red flag. Nevertheless, in order to tip the scale towards the existence of corruption in a particular case, red flags must be found with regards to a specific fact under the contract, and the tribunal should give each red flag a proportional weight, depending on the inference it provides.

The Tribunal concluded that no allegation or evidence proved that the investment in this case was obtained through corrupt means, considering that the Consortium was the only bidder, RdL submitted 5 versions of the proposal reflecting comments made by the Municipality before it was approved, and the execution of the Concession Agreement is the natural result of the declaration of public interest with respect to the proposal and its subsequent award. Applying the same standards, the Tribunal concluded that the allegations of corruption made by the Municipality with respect to political contributions made to mayor Susana Villaran’s campaign against her removal were not a red flag, given that the campaign began two months after the Project was awarded. While the Contract was awarded in September 2012, the events that gave rise to Villaran’s removal request only began in November 2012. In that context, the Tribunal found no reasons for RdL to need to pay bribes in November 2012 for a contract that it had already obtained in September that year.

The Tribunal also analyzed general corruption allegations made by the Municipality, including with respect to statements made by the Ad Hoc Prosecutor, which the Tribunal found not to provide material information allowing it to presume that corruption existed before and during the Concession Agreement, especially given the Tribunal’s lack of access to complete records of the criminal investigations surrounding the case. In sum, the Tribunal was not provided with sufficient evidence to identify red flags directly related to the Project.

Finally, the Tribunal considered that even though there were certain elements that could allow a suspicion of corruption with respect to the Concession Agreement, the fact that the Municipality did not request a declaration of nullity of said agreement reflected the absence of sufficient evidence of the allegations made.

In a nutshell, to the authors’ opinion, the importance of this Award is twofold. First, it confirms the trend that since corruption is hard to prove, a preponderance of evidence standard based on red flags should apply. Second, apparent red flags are not enough. The party submitting the presence of red flags has the duty to also show a causal link between such flags and the event under analysis, otherwise those flags will just fly away with the wind.

 

Set aside request before the DC Courts

Based on the above, the Tribunal went to the merits of the case and awarded approximately US$ 68 million to RdL. Consequently, the Municipality requested the Courts of the District of Columbia to set aside the award based on the Tribunal’s alleged incorrect application of Peruvian law and allegedly new evidence of corruption.

A recent IBA Report on annulment of arbitral awards indicates that annulment decisions for procedural reasons heard by national courts of jurisdictions that attract the majority of international arbitration proceedings are not common. US courts are no exception. Let’s stay tuned for the outcome of the Municipality’s application.

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Lithuania’s Aspirations to Become a Preferred Seat of Arbitration: Is It Ready Yet?

Tue, 2020-09-22 23:00

Global arbitration centers such as Paris or London are well known and need no introduction. In contrast, there are many other arbitration sites around the world that seek a larger role on the international stage of dispute settlement. Lithuania and its capital Vilnius in particular is no exception.

In 2014 the Vilnius Court of Commercial Arbitration organized an international conference on “Lithuania as a Place for Arbitration” where well-accomplished arbitration practitioners such as Emmanuel Gaillard and Kaj Hober presented an optimistic outlook for the country. Since then six years have passed, making it only right to check whether Vilnius’ ambition of becoming an internationally renowned place of arbitration is getting any closer to reality.

Below we discuss few recent case law of Lithuanian Courts, placing them in the context of the local arbitration law, both of which one might consider before choosing Lithuania as a seat of arbitration.

 

Legal Regulation: A Long Way in a Short Time

Before Lithuania regained its independence in 1990, arbitration was essentially non-existent. However, significant progress was made in 1992 when Lithuania ratified the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, and in 1995, when the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) was ratified as well. Finally, the Lithuanian Law on Commercial Arbitration (“Law on Commercial Arbitration“), based on the 1985 UNCITRAL Model Law, was adopted in 1996.

The 1996 Law on Commercial Arbitration was replaced in 2012 with the current Law on Commercial Arbitration which generally mirrors the UNCITRAL Model Law as adopted in 2006. Article 4(5) of the updated Law on Commercial Arbitration explicitly provides that the law and definitions contained therein must be interpreted in light of the UNCITRAL Model Law including all its amendments and supplements. Thus, it was ensured that not only the current law would be in conformity with the UNCITRAL Model Law, but that future interpretation of the Law on Commercial Arbitration would stand in accordance with international standards and would reflect modern practices in international arbitration.

Even though the Law on Commercial Arbitration is based on the UNCITRAL Model Law, it does not avoid provisions that do not originate from such, which makes Lithuania’s arbitration regulation distinct from other countries.

The main particularity is the fact that Lithuania’s law puts heavy emphasis on confidentiality. Article 8(3) of the Law on Commercial Arbitration provides that arbitration proceedings are confidential, which means that neither parties nor arbitrators can reveal anything about arbitration proceedings to a third party. In 2016 this provision was extended even further by providing that these confidentiality protections also apply to court assistance for arbitration, such as default arbitrator appointments. This means that national courts’ decisions on matters related to assistance to the arbitral tribunal are not publicly available. However, these new confidentiality provisions do not cover court proceedings for the annulment or recognition of arbitral awards, which remain public.

Another particularity relates to arbitrability. According to Article 12 of the Law on Commercial Arbitration, a public body cannot be referred to arbitration without the prior consent of the founder (usually the relevant ministry under which supervision the state’s company operates) of said enterprise, institution, or organisation. This means that public bodies have to receive the founder’s consent in order to conclude a valid arbitration agreement. According to case law, such consent may be verbal, written, or expressed by conduct (Ruling of the Appeal Court of Lithuania in civil case No. 2A-57-241/2016 dated January 26, 2016).

 

Recent Case Law of the Supreme Court: Does One Bad Apple Spoil the Bunch?

Although Lithuanian courts often made procedural and judicial errors as arbitration first took hold in the newly independent nation, in general those courts later developed a history of pro-arbitration case-law. When interpreting the Law on Commercial Arbitration, Lithuanian courts often explicitly rely on foreign doctrine and case-law.1)MIKELĖNAS, Valentinas. Twenty years of Lithuanian Law on Commercial Arbitration: origins, experience of application and perspectives. Arbitražas. Teorija ir praktika, vol. 2, 2016, p. 10. jQuery("#footnote_plugin_tooltip_5913_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5913_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Lithuanian courts do not avoid difficult and modern interpretations of arbitration provisions. Few recent examples are discussed below.

The Supreme Court has formed a clear case-law that the arbitration agreement has a compulsory effect upon the relevant parties (civil case No. 3K-3-545/2009 dated 1 December 2009) and that the principle of favorem contractus prevails (civil case No. 3K-3-431/2013 dated 2 October 2013). However, the Supreme Court also recognizes that when both parties agree to have their dispute examined before national courts, they implicitly terminate that arbitration agreement. This may happen when the claimant initiates court proceedings and the respondent does not object to the court’s jurisdiction. Should one of the parties later claim that the dispute had to be examined before an arbitral tribunal, such a claim normally would not be satisfied (civil case No. e3K-3-255-1075/2019 dated 17 July 2019).

Another interesting and unusual question that the Supreme Court recently dealt with was related to the request for recognition of a foreign court’s ruling refusing the annulment of an arbitral award. After a privatisation agency in Serbia won a dispute in arbitration with a seat in Serbia against three Lithuanian companies, Lithuanian courts refused to enforce the arbitral award in Lithuania. Soon after, the privatisation agency submitted a request to recognize and enforce in Lithuania the ruling of Belgrade Commercial Court refusing to annul said arbitral award. The Supreme Court of Lithuania held that foreign courts’ rulings on the annulment of arbitral awards are not subject to the recognition and enforcement. In the Supreme Court’s opinion, recognition of such a ruling would not mean that Lithuanian courts agree that there are no grounds not to recognize the award (civil case No. e3K-3-173-469/2020, dated 27 May 2020). Conversely, recognition of such a ruling would only mean that Lithuanian courts agree that Serbian courts did not find ground for annulment under Serbian law.

However, as another recent case law shows, even the Supreme Court occasionally adopts controversial decisions in terms of well-established arbitration doctrine (civil case No. e3K-3-343-916-2019, dated 14 November 2019). Recently the Supreme Court ruled that it has jurisdiction to rule on its own jurisdiction to hear a case when the matter includes an arbitration clause. In this example, an Austrian company approached the Lithuanian court in order to recover the debt for the shipment of goods from a Lithuanian company. The defendant’s standard terms of the order contained arbitration clauses and it therefore contested that the dispute could be brought before a national court. The claimant meanwhile denied having accepted the arbitration clause. The Court of First Instance and the Court of Appeal entertained the claim and concluded that the claimant had not accepted the defendant’s standard contract text without any reservations; namely, it disagreed with the arbitration. In the cassation appeal to the Supreme Court, the defendant raised the issue of application of the doctrine of competence-competence and denied the possibility for the court to decide on the competence of the arbitral tribunal. The defendant relied on the right of the arbitral tribunal under Article 19 (1) of the Law on Commercial Arbitration to decide on its own jurisdiction to hear a dispute, including in cases where there are doubts about the existence or validity of an arbitration agreement. However, the Supreme Court in the ruling found that Article 19 of the Law on Commercial Arbitration does not preclude the national court to rule on the validity of an arbitration agreement when (i) the validity of the agreement to arbitrate is being challenged at court, and (ii) arbitration proceedings have not yet commenced. Thus, the Supreme Court’s decision presumably opened a window for any party acting in bad faith to initiate proceedings at a national court in order to avoid resolution by an arbitral tribunal. This decision is arguably inconsistent with the supportive attitude displayed towards arbitration by the Lithuanian Supreme Court.

 

Conclusion

Examples of recent cases examined before Lithuanian courts suggest on the one hand a pro-arbitration approach, yet reveal controversial decision related to the competence-competence principle, which remains the cornerstone of arbitral tribunals’ activities. However, considering the pro-arbitration legal regulation and generally arbitration-friendly case law, there is no certainty that this rule of national courts’ jurisdictional competence will be followed by Lithuanian courts in future cases.

References   [ + ]

1. ↑ MIKELĖNAS, Valentinas. Twenty years of Lithuanian Law on Commercial Arbitration: origins, experience of application and perspectives. Arbitražas. Teorija ir praktika, vol. 2, 2016, p. 10. 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Women’s Voices Matter: the Case for the Extinction of Manels

Tue, 2020-09-22 01:30

Like many other industries, the field of international arbitration has adjusted to the Covid-19 pandemic. Hearings have gone virtual; arbitrators, counsel and experts have adapted to working from home; and conferences have become webinars.

The transition from in-person conferences to online webinars has brought great opportunities. Rather than being limited to candidates that would be available in a particular jurisdiction at any one time, conference organisers now have a global pool of candidates to draw from as potential speakers, constrained only by time zone considerations. One would therefore expect to see greater diversity than ever in the speaker line-ups for arbitration webinars over the past few months. Unfortunately, that has not been the case.

To take the webinar schedule of one arbitration institution from 14 April 2020 to 20 July 2020 as an example, excluding events aimed at young practitioners, and taking into account all external speakers, 28% of panels were comprised of all male speakers (“manels”), and 79% of all external speakers were male. In the line-up announced for the landmark biannual conference of the same institution, the numbers were even more disappointing: just 15% of external speakers were women.

Looking at data more widely. Lucy Greenwood1)With assistance from Olga Sedetska, Freshfields Bruckhaus Deringer LLP. jQuery("#footnote_plugin_tooltip_1123_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1123_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); analysed 231 international arbitration conferences which took place globally in 2019. In general, the level of female participation was disappointing. Less than 40% of the conference speakers, panelists and moderators were women. Only around one third of the keynote speakers were women. There were 82 manels. Turning to the 2020 figures (which are still being compiled), of the 109 conferences in 2020 which have been analysed so far, 89% of keynote speakers were men and 27% of speakers, panelists and moderators were women. Only 12 of the 109 conference took place in person but at those 12 conferences, 11 of the conference sessions included manels.

There may be many reasons for this. For example, sponsors with speaking slots in return for their sponsorship will usually be responsible for choosing which speaker they put forward, not the event organiser. Further, and crucially, it can take more effort and extra research to find female candidates as speakers, partly because there are fewer women at a senior level, but also because women who may be well qualified may not have the network or visibility of their male counterparts. A further concerning reason is that there is increasing evidence that women have been disproportionately affected by obligations in the home during the pandemic which has curtailed their ability to accept speaking engagements.

Whatever the excuses or reasons may be, in 2020 it can no longer be acceptable to continue the imbalance of speakers at international arbitration conferences. We set out below our views on why balanced representation at international arbitration conferences is important, and what conference organisers and others can do to promote diversity.

All institutions involved in the field of arbitration, including arbitral institutions, appear to acknowledge the importance of diversity in arbitrator appointments, at least outwardly. Diversity of speakers is intrinsically connected to the diversity of appointments, because speaking appointments provide women with a platform to showcase their strengths, skills, experience, commitment and preparation, and to increase their visibility.

As found in the recent report of the Cross-Institutional Task Force on Gender Diversity in Arbitral Appointments and Proceedings (the “ICCA Report”, which was reported on this blog here), the most frequent source of information about arbitrator candidates is through word of mouth. Speaking opportunities provide the audience with an opportunity to “get to know” the speaker and assess their knowledge and credentials, as well as for panel members to network with each other and the delegates. The report recognises that providing opportunities for qualified women to promote and market their credentials is an important tool to redress the imbalance on  arbitral tribunals.

This is also recognised by the “Equal Representation in Arbitration Pledge” which seeks to ensure that women are appointed as arbitrators on an equal opportunity basis. One of the ways identified by the Pledge to achieve this is that conference panels include a fair representation of women.

The ICCA Report acknowledged that “[s]tanding out is particularly important for female candidates.” One key reason to ensure gender diversity at arbitration conferences is because “you can’t be what you can’t see” –  it is unarguable that junior practitioners need to see diversity on panels. 

Arbitral institutions also have an important role to play, and initiatives to encourage diversity can be even more valuable when implemented by institutions comprehensively, encompassing both arbitral appointments and speaking opportunities. Providing a platform for women to increase their visibility through speaking engagements is one important way to change perception and to grow the pool of potential candidates for appointment. Some institutions have embraced this challenge with enthusiasm, for example, one Asian arbitral institution has adopted a policy of not organising panels with only male speakers. Others have a long way to go and can do better.

We all need to make conscious and thoughtful decisions regarding the diversity of panels at arbitration conferences, and to realise that this is just as important as the diversity of appointments. One way to do this is to give feedback to event organisers where the gender representation of speakers at an event is just not good enough, for example because there are one or more manels.

Some practitioners we know have adopted the position of refusing to accept a speaking engagement if it is on a manel. If more practitioners adopted this stance, and if more of us expressed our views that such a lack of diverse representation is no longer acceptable, then manels could soon become a relic of the past – which, in the authors’ view, is exactly where they belong.

References   [ + ]

1. ↑ With assistance from Olga Sedetska, Freshfields Bruckhaus Deringer LLP. 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Back to Basics: The Law Applicable to an Arbitration Agreement under Swedish Law

Tue, 2020-09-22 00:30

In a recent judgement in the proceedings for setting aside an arbitral award, the Swedish Court of Appeal addressed issues concerning the law applicable to an arbitration agreement, the validity of an arbitration agreement, the due process standard applicable in cross-examination, and the procedural error of rendering an award without considering all the arguments raised by a party. The court declined to set aside the award, and this blog post will deal with the arguments and decision made concerning the jurisdiction of the arbitral tribunal.

 

International Stances Regarding the Applicable Law to an Arbitration Agreement

The question of the law governing the arbitration agreement, even though it is so often invoked and discussed in practice and scholarly work, does not seem to lose on its importance and it is often scrutinized over and over again by national courts. Interestingly, both the UNCITRAL Model Law on International Commercial Arbitration (“UNCITRAL Model Law”) and the New York Convention (“NYC”) resolve this question in the same manner by referring to the law to which the parties have subjected the arbitration agreement or, failing any indication thereon, to the law of the seat of arbitration (Article 34 2a(i) of the UNCITRAL Model Law and Article V1(a) of the NYC). This, however, is not a uniformly accepted stance in all jurisdictions that are signatories to the NYC and jurisdictions adopting the UNCITRAL Model Law.

The parties’ agreement as a connector when determining the law governing the arbitration agreement is generally accepted as the starting point in Model Law and non-Model Law – as well as in civil law and common law – jurisdictions (this probably being the least disputed matter!). Still, the discussion continues at several different levels.

Firstly, there is no uniform international stance as to which connector is to be applied if there is no (either implicit or explicit) parties’ agreement. In those cases, national approaches are divided based on whether one is to rely on the choice of law provisions contained in the NYC and the UNCITRAL Model Law (if such a provision is adopted in the respective jurisdiction) or to apply a test independent from those provisions. The widely recognized test on this matter was set in the Sulamerica case, which provided for a three-pronged test under which in the absence of an explicit and implicit choice of law governing the arbitration agreement, the law that has the closest and most real connection to the arbitration agreement is the governing law. The Sulamerica case became the leading case on the issue of applicable law to the arbitration agreement in common law countries for years to come (until very recently, as discussed in a previous blog post).

This, however, does not mean that national courts will not conclude that the law of the seat is the law applicable to the arbitration agreement, but that they will follow a different connector when making such a decision; and that is precisely the second issue that is widely discussed – should courts follow the NYC connector which directly assigns the law of the seat as the law applicable to the arbitration agreement, or should they use the prescribed test and determine the law with the closest connection (an interesting discussion on these and other issues can be found here, here, and here). Civil law jurisdictions are not immune to a similar discussion, even if they are not applying the Sulamerica test. National courts in both legal families will have to deal with the importance of the choice of law clause for the underlying agreement when considering an implicit choice of law governing the arbitration agreement and, in general, the applicability of the validation principle (e.g., see here, here and here).

This post delivers the Swedish perspective on the matter presented in a recent Court of Appeal judgement and highlights the importance of opting for an explicit agreement of the parties on the law which they wish to govern their arbitration agreement.

 

The Issue of the Law Applicable to the Arbitration Agreement under Swedish Law

The dispute arose between a Cypriot company Coraline Limited (“Coraline Ltd.”) and Walter Höft concerning the repayment of a loan under the Loan Agreement concluded between the parties (“Loan Agreement”). The arbitral award was rendered on 13 June 2017 and mandated Coraline Ltd. to pay EUR9.2 million to Walter Höft. Coraline Ltd. challenged the award on several grounds, one of them being a claim that the arbitral tribunal did not have jurisdiction. The Court of Appeal rendered the judgement on 19 December 2019 in which it rejected the challenge on all grounds (Judgment in the Svea Court of Appeal, 19 December 2019. Case No. T 7929-17; hereinafter: “Judgement”). As a consequence of oversight in drafting, as concluded by the Court of Appeal, the Loan Agreement contained two inconsistent dispute resolution clauses:

  • Article 6 of the Loan Agreement subjected all disputes and differences which are not amicably settled between the parties to the “international arbitration court in Stockholm”, whereas
  • Article 9 of the Loan Agreement provided for the jurisdiction of a competent court in Nicosia, Cyprus (Judgement, p. 3).

Coraline Ltd. objected to the validity of the arbitration agreement arguing that the inconsistency of the two mentioned dispute resolution clauses shows that there was no will to unequivocally contractually remove the right to a court proceeding, i.e. that the parties have not ousted the courts of their jurisdiction. Coraline Ltd. based its arguments on Cypriot law, which was prescribed by Article 9 as the law governing the (underlying) agreement. Article 6 provided for no explicit choice of the law applicable to the arbitration agreement, and Coraline Ltd. argued that there is no strong connection with Sweden that would warrant the application of Swedish law, but in case the court decided the opposite, it claimed that the application of Swedish law would lead to the same finding regarding the validity of the arbitration agreement. Coraline Ltd. emphasized also that the fact that neither of the parties was Swedish in the case at hand presents the international connections and speaks in favour of the application of Cypriot law to the arbitration agreement.

Walter Höft, on the other hand, argued for the application of the Swedish choice of law rules for determination of the applicable law and Swedish law as the law applicable to the arbitration agreement, under which the agreement to arbitrate would stand the test of validity as it shows the joint will of the parties to resolve the dispute through arbitration.

The Court of Appeal called for the application of Swedish law to the arbitration agreement under Section 48 of the Swedish Arbitration Act (“SAA”) which states that

“Where an arbitration agreement has an international connection, the agreement shall be governed by the law agreed upon by the parties. Where the parties have not reached such an agreement, the arbitration agreement shall be governed by the law of the country in which, by virtue of the agreement, the proceedings have taken place or shall take place.” (emphasis added)

The Court of Appeal ascertained that under this provision the agreement on the applicable law needs to be explicitly stated in the agreement, and that “[a] regulation on applicable law for the main agreement accordingly does not concern the arbitration agreement” (Judgement, p. 38). Interestingly, the court was not concerned with the existence of an implicit agreement on this matter. This approach sheds some light on what is expected from the parties to exercise their right to choose under Swedish law and eliminates legal uncertainty and possible argumentation beyond those requirements. This is a welcomed, although comparably strict, approach.

The only identification of applicable law was present in Article 9 of the Loan Agreement, which provided that the “agreement shall be governed by and interpreted in accordance with the laws of Cyprus” and that the disputes are to be brought to a Cypriot court (Judgement, p. 3). The Court of Appeal concluded that the “the formulation of the provision appears to most closely regulate a choice of law for the main agreement” (Judgement, p. 38), meaning that there is no specific and explicit choice of law provision that would indicate the law governing the arbitration agreement. The Court of Appeal finally found Swedish law, as the law of the arbitration forum, to be the law applicable to the arbitration agreement.

The drafting of dispute resolution clauses, in this case, was far from perfect. Not only that the parties oversaw that they have eventually included both an arbitration clause and the choice of court clause in the agreement, but the wording of the arbitration clause was also unclear to an extent. Namely, the arbitration clause in its relevant part read as follows:

Should the parties fail to reach an agreement a case shall be submitted, without recourse to courts of law, to the International arbitration court in Stockholm in accordance with the rules for procedure of the said court.” (Judgement, p. 3)

Whereas the Court of Appeal easily (perhaps too easily) discerned that the parties meant to submit their dispute to the SCC and that the seat was Stockholm, it used the principle of reading the contract as a whole and giving effect to all of its clauses when it was deciding on the relation of the inconsistent clauses in Article 6 (arbitration) and Article 9 (choice of court). Having in mind that the arbitration clause was introduced per specific request of one of the parties and that the parties testified that the choice of court clause remained due to an oversight, the Court of Appeal concluded that there was a joint party intention that the disputes would be resolved through arbitration. Consequently, the court found no reason to set the arbitral award aside on this ground.

 

What is the Lesson to be Learnt?

It is a never-ending tradition to treat dispute resolution clauses as “midnight” clause, i.e. clauses that are negotiated and drafted last or, even if they are drafted earlier in the negotiation process, they do not enjoy the same amount of due diligence. It seems that this tradition costs the parties later in time more than they would expect. Legal issues such as the lack of the determination of applicable law and/or seat of arbitration, as well as the lack of the use of a model clause provided by the designated arbitral institution probably seems to be easy to circumvent, however, the case commented in this post showcases a different reality. These were not the only grounds invoked by the party challenging the award, but they were the ones that could have been resolved at the drafting and negotiating stage. Hence, reminding ourselves of the basics in drafting can be rather rewarding in the future when a dispute arises.

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Right of Clarification by the Arbitral Tribunal: the Approach in PR China

Mon, 2020-09-21 00:00

The “right of clarification” (in German: Aufklarungsrecht) is a product of the inquisitorial method of hearing. It refers to a judge’s right to ask, suggest to or require the parties to clarify or supplement their ambiguous, insufficient or improper claims, submissions or evidence. In international arbitration, which is strongly influenced by the adversarial system, arbitral tribunals are usually cautious and reluctant to exercise the right of clarification. In comparison, for arbitrations seated in PR China, due to the influence of the inquisitorial system on Chinese courts, it appears common for arbitral tribunals to provide clarification to the parties at hearings.

 

The right of clarification under Chinese law

Chinese law does not address the right of clarification in litigation or arbitration seated in PR China. Guidance may be taken from judicial interpretations of the Supreme People’s Court. In PR China, although judicial interpretations of the Supreme People’s Court are not formal sources of law, they carry the same legal weight as laws and regulations in the adjudication of cases by courts. These judicial interpretations set out several scenarios where a judge is obligated, entitled or encouraged to exercise the right of clarification, and these have also been widely applied and referred to in arbitration in China Some of the main judicial interpretations include:

To be clear, in applying the right of clarification, an arbitral tribunal should not ignore the fundamental question of whether the tribunal even has jurisdiction. For example, if two related contracts contain different arbitration clauses and refer to different arbitration institutions, the tribunal does not need to exercise the right of clarification because the tribunal does not have jurisdiction over the other contract. In such case, the arbitral tribunal should simply refuse jurisdiction.

 

Principles for clarification by the arbitral tribunal

Except for situations within the scope of the judicial interpretations, the decision of whether to exercise the right of clarification is largely at the discretion of the judge or arbitrator. Clarification by an arbitral tribunal might concern both procedural and substantive issues including legal and factual components. In exercising the right of clarification, the arbitral tribunal should observe two main principles.

First, the purpose for the arbitral tribunal in exercising the right of clarification is to balance the rights of the parties to present evidence and engage in argument with each other. In exercising this authority, the arbitral tribunal should keep in mind principles of impartiality and due process and avoid showing favoritism toward a party or making a decision in place of a party.

For example, in a dispute over a sales contract, where the claimant Seller terminates the contract and requests that the respondent Buyer return the goods but the goods have been destroyed and cannot be returned, even if the tribunal were to uphold the claimant’s request for the return of goods, it would not be enforceable. In such case, the claimant would have to file a separate claim for damages, which would not be efficient. In such a situation, the arbitral tribunal could suggest to the claimant that it modify the original return claim to a damage claim. However, if the claimant insists on its original claim, the arbitral tribunal should respect the claimant’s choice and should not render an award beyond the scope of the claimant’s request. In addition, this clarification by the tribunal should be limited to the nature of the claim and should not be extended to the amount of damages sought by the claimant.

Second, when deciding whether to exercise the right of clarification, if there are no directly applicable laws or regulations, the arbitral tribunal can refer to basic legal principles. For example, in a dispute over a subcontract, the general contractor and the subcontractor have agreed that the project payment shall be made only when the general contractor has passed the final completion acceptance test and the subcontractor has already passed the completion acceptance test for the subcontracted project but is unable to prove whether the conditions for payment of the overall project have been satisfied, nor can it calculate the interest on late payment due to lack of information. As the subcontractor is not a party to the general contract, it cannot be reasonably expected to provide evidence about the completion date of the general project. Based on the principle of privity of contracts, the tribunal should allocate the burden of proof to the general contractor to prove that the general project has not passed the overall completion acceptance test.

 

Remedies for improper clarification by the arbitral tribunal

If the arbitral tribunal violates the law or regulations or unreasonably exercises its authority of clarification and causes imbalance of interests of the parties, would this be a ground to set aside the arbitral award in courts in PR China? There is no clear answer from the courts in PR China and the question continues to be debated.

On the one hand, Articles 58 and 70 of the PR China’s Arbitration Law set out an exhaustive list of grounds for setting aside a domestic arbitral award and a foreign-related arbitral award, respectively. That is to say, the people’s court can only set aside an arbitral award if one of these grounds is met. The arbitral tribunal’s improper exercise of a right of clarification is not expressly covered in those grounds. Court judgments issued by Chinese courts also show that improper clarification by the arbitral tribunal does not constitute a ground for setting aside the award per se.

For example, in the case of Chongqing Jiangdu Co., Ltd v. Cheng Jinhong, the arbitral tribunal held that the relevant facts of the partnership contract needed further clarification and that the issues concerning the nature and validity of the contract should be clarified. Therefore, the arbitral tribunal indicated to the parties that the partnership contract in dispute was “in name a partnership contract, but in reality a lending contract.” The arbitral tribunal granted the claimant a period of time to modify its request and supplement evidence. After the award was rendered, the respondent applied to the Chongqing First Intermediate People’s Court to set aside the award on the basis that, inter alia, clarification by the arbitral tribunal violated the law and common practice.

Chongqing First Intermediate People’s Court held that both the Arbitration Law of PRC and the arbitration rules were silent on the requirements and procedures for clarification. According to the court, whether and when to use clarification falls entirely within the scope of discretion of the arbitral tribunal and is not subject to judicial review by the court.

On the other hand, the award may be set aside if the court finds that the tribunal used clarification improperly and that this has amounted to a ground in Article 58 or 70 of the PR China’s Arbitration Law, such as violation of due process; the award rendered is outside the scope of the parties’ submission to arbitration; the arbitrator committed embezzlement, accepted bribes or conducted malpractice for personal benefits; or the arbitrator perverted the law.

For example, in the hypothetical sales contract case mentioned above, if the claimant insisted on its original claim but the tribunal nevertheless awarded damages, the award is very likely to be set aside for being outside the scope of the parties’ submission to arbitration.

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UNCITRAL Working Group II: Procedural Tradeoffs to Reach Efficiency in Expedited Arbitration and Why Financial Threshold Should Not Be the Only Triggering Factor

Sat, 2020-09-19 23:00

Expedited arbitration is often associated with smaller value disputes. For example, the International Chamber of Commerce suggests expedited arbitration for disputes of $2 million or less, while the Hong Kong International Arbitration Centre has a $3 million threshold for expedited arbitration. Expedited arbitration makes procedural tradeoffs that are deemed warranted because there isn’t that much money at stake or the issues are not considered particularly complex. In general, an expedited arbitration offers a timetable with a streamlined written case, truncated document disclosure, and an option (maybe even a preference) for deciding the dispute without a hearing. Tighter deadlines are also imposed on the parties as well as the arbitrators.

Associating expedited arbitration with simpler, smaller disputes should not be viewed as a concession that efficiency can only be had if the stakes are low enough or the matter is uncomplex.

Indeed, even if under the draft provisions on expedited arbitration under consideration by the UNCITRAL Working Group II (“WG II”) the express consent of the parties is the only triggering factor (draft provision 1), the WG II discusses if and where guidance could be offered to parties on when to refer a dispute to expedited arbitration, such guidance to be potentially offered by the administering institution, the arbitral tribunal or the appointing authority (see A/CN.9/969, para. 94, A/CN.9/1003, paras. 26-31).

The criteria currently put forward for consideration by the WG II is: (i) the complexity of the transactions and the number of parties involved; (ii) the need to hold hearings; (iii) the possibility of joinder or consolidation; and (iv) the likelihood of an award being rendered within the time frames provided in the expedited arbitration provisions, with the anticipated amount in dispute being just one of few other factors in draft provision 3(3). During the discussions at previous sessions, the WG II refrained from recommending a threshold value beneath which arbitration should be expedited. Under the current draft provisions, the amount in dispute is merely one factor to consider when guiding parties whether to expedite (or for the tribunal to analyze a request by a party to no longer expedite, as per draft provision 3).

WG II appears to be taking a broad view as to the number of situations to which expedited arbitration may apply if the parties agree with the guidance offered to this end. This reflects the reality that the promise of arbitration is tied to its ability to overcome the knock that it is neither faster nor less expensive than court proceedings.

This post is intended to build on the concept that even complex and high value arbitrations can be more efficiently conducted. It looks at some of the procedural tradeoffs posed by expedited arbitration and whether they may be more widely incorporated to deliver better value to arbitration users without sacrificing the strategic benefits of a more traditional arbitration.

 

The written record can be streamlined

The written submissions in international arbitration are at times unconstrained by good judgment. Pleadings and witness statements can sprawl for hundreds of pages and the exhibit volumes are at times better characterized by what you didn’t include in the record as opposed to what you did include. The dual prongs of due process paranoia and advocate insecurity may be conspiring here but the reality is that you damage your case if the arbitrators are incapable of finding it through the din of over argument and manic exhibit designation.

Arbitrators also have a responsibility to do a better job of limiting the scope of written pleadings and narrowing the issues for determination. Tighter controls over the presentation of duplicative evidence and reasonable limitations on the length of pleadings and the number of witness statements could go a long way toward building in more efficiency.

 

Consolidate the written pleadings

The draft provisions on expedited arbitration that the WG II will discuss at the next session starting on 21 September, provide that that the notice of arbitration is to be accompanied by the statement of claim. On the other hand, the statement of defense is not filed at the same time as the answer under the draft provisions. Rather, a response to the notice of arbitration is filed first, addressing procedural issues, with a statement of defense coming later, 15 days after the constitution of the arbitration tribunal.

The draft provisions under discussion at the WG II have a loosely similar structure to the SCC Rules of the Stockholm Chamber of Commerce that has a feature in its expedited procedures that could be broadly adopted in all cases – namely the consolidation of the request for arbitration and the answer and counterclaim with the statement of claim and statement of defense/statement of counterclaim.

In many arbitrations, the initial filings add little to the overall case and the request for arbitration/answer phase become superfluous after the filing of the statement of claim and the statement of defense. By consolidating or eliminating a first written phase, 60-90 days could be eliminated from the schedule with little to no impact on the strategic considerations for the case other than causing claimant to accelerate the preparation of its case.

Replacing the request for arbitration phase with a more substantive start to the arbitration may also help the arbitrators manage the case better. If arbitrators are holding their case management conferences after a first round of full written submissions are lodged, the arbitrators will also have more information about a case from which to base their future scheduling decisions. In short, the arbitrators may have learned enough about the case to ferret out extraneous issues and to guide the parties on what the arbitrators deem important issues to focus on for the rest of the proceedings.

 

Impose/Enforce Deadlines on the Timing for Issuance of the Award

We have all seen the ubiquitous letters from arbitral organizations noting that the timeline for issuing the arbitral award shall be extended. No deadline has become more meaningless in dispute resolution than the deadline for issuing an arbitral award. But why in a scenario where the parties fund the entire infrastructure of a dispute, is there still little accountability or effort to make such deadlines meaningful? A system with consequences for non-compliance is sorely needed here.

The draft provisions for expedited arbitration being considered by WG II include the concept that the arbitration proceedings must retain flexibility with respect to timeframes (draft provision 10) but also propose a six or nine-month timeframe for the issuance of an award after the constitution of the tribunal (draft provision 16). This would be aggressive in complex disputes but setting some outer boundaries that have consequences if ignored is warranted.

However, the Secretariat’s note for the upcoming session of the WG II outlines that the current draft provisions do not address the consequences of non-compliance by the arbitral tribunal of the time frame and for failing to meet award deadlines and that the WG may wish to confirm that such consequences need not be addressed in the draft provisions on expedited arbitration (A/CN.9/WG.II/WP.214, para. 128). It was previously discussed in the WG II that, in institutional arbitration, institutions would typically limit the reappointment of the arbitrator who was late in issuing an award. Other sanctions were also mentioned including the reduction of fees of the arbitrator and impact on the reputation of the arbitrator. (A/CN.9/969, para 55). In adhoc such measures might be difficult to put in place. Replacing the arbitrator was generally considered to go against efficiency (A/CN.9/969, para. 55, A/CN.9/1003, para. 108, A/CN.9/WG.II/WP.214, para. 128).

 

Err on the side of live testimony

Expedited arbitration rules often state a preference for resolving a case on the written evidence, absent a hearing. Oral hearings are, in this common law practitioner’s view, the most effective way of testing and weighing the credibility of the evidence. If, in principle, matters are to be resolved without an oral hearing, much of the credibility testing function will be lost. This is important because parties may feel more inclined to stretch certain positions made only in writing if they don’t need to defend those positions during live hearing testimony, subject to cross examination. There is probably a bigger risk of making a matter overly complex and placing more matters in dispute if there is no in-person credibility to stress test the evidence.

Efforts at reforming arbitration, such as the Prague Rules, look at the adversarial system and the presentation of live testimony and cross-examination as an efficiency drag. The Secretariat’s note for the upcoming WG II discussions expresses some agreement with the idea that not holding hearings should be a desired feature of expedited arbitration. The WG II draft provisions only require a hearing to be held if one party so requests. As outlined above, this is not a view I would endorse. If done correctly, presenting and testing evidence through live testimony is not incompatible with efficiency.

 

Strictly Apply the IBA Rules on the Taking of Evidence

With the advent of the Prague Rules, there has been a lot of debate about the role of document disclosure and arbitral efficiency. However, if properly applied, the IBA Rules on the Taking of Evidence should already limit document disclosure/discovery. A specific document may be requested that is shown to be relevant and material to the outcome of the dispute, that is not public, and is within the possession, custody or control of the party to whom the request is directed.

In many instances arbitrators order document disclosure based merely on relevancy or even potential relevancy, with no regard to materiality or a showing that the requested documents exist at all. They also order the production of categories of documents, which is inconsistent on its face with the IBA Rules. If arbitrators more stringently apply the IBA Rules, document disclosure should already be efficient.

On the same token, the draft provision 15 para. 2 of the expedited arbitration provisions to be discussed by the WG II alerts the parties that extensive production of documents and other evidence would not be possible as the arbitral tribunal may limit requests for the production of documents, exhibits or other evidence.

 

Conclusion

In sum, there are numerous opportunities to make arbitration more efficient. While some institutions have created a relationship between expedited arbitration and the amount in dispute, efforts at making international arbitration more efficient should not be so limited. The WG II has so far taken a wide view of the situations to which expedited arbitration might apply if parties so agree. This is consistent with feedback from users of arbitration that consistently seek faster and more cost-effective dispute resolution solutions. Efficiency comes at some costs, as various procedural tradeoffs are sometimes required, as briefly discussed above.

 

The see our full series of posts on the UNCITRAL WG II process, click here.

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UNCITRAL Working Group II: Early Dismissal and Preliminary Determination in Expedited Arbitration?

Fri, 2020-09-18 23:00

Introducing a regulation of early determination in the context of expedited proceedings, highlights a series conflicting interests. Therefore, the UNCITRAL Working Group II on dispute resolution has not yet taken a final position on whether such a regulation should be inserted in the context of expedited arbitration, or whether it should rather be considered as a tool applicable to arbitration in general. In my opinion, an explicit regulation of early determination in expedited arbitration is not desirable.

 

Background

At its fifty-first session, the United Nations Commission on International Trade Law (UNCITRAL) gave to the Working Group II the mandate to develop proposals that can enhance the efficiency of arbitration, while at the same time ensuring the quality of the proceedings.

This mandate reflects the development that arbitration is undergoing: after having been acclaimed, for decades, as the preferred method of settling international commercial disputes, arbitration is increasingly criticised for, among other things, being too lengthy, time consuming and overregulated; moreover, the legitimacy of arbitration is more and more frequently questioned. The UNCITRAL’s decision to work on efficiency and quality of arbitration is meant to respond to this criticism – enabling quicker and simpler proceedings, without compromising the principle of due process.

To start with, the Commission directed the Working Group II to take up issues relating to expedited arbitration. Work on efficiency in arbitration in general may follow.

Expedited arbitration is generally considered to be particularly appropriate for small disputes. It is certainly true that small disputes benefit from being solved through a mechanism with relatively low costs. The fees in expedited arbitration are lower than in ordinary arbitration, and the counsels’ fees are probably lower if the number of submissions and the length of hearings are reduced. However, even small disputes may be complicated, and therefore not ideal to be solved through a simplified proceedings. Also, the opposite may be true: disputes involving large values may be relatively simple, and could therefore benefit of simplified proceedings.

Expedited arbitration is a simplified form of proceedings, already introduced by a number of arbitral institutions. It is meant to permit rendering the award within a shorter time frame than ordinary arbitration, and thus to be less costly. A variety of features permit to expedite the proceedings – for example, providing for a sole arbitrator instead of a panel of three, reducing the time limits for the various actions related to the proceedings (appointments, submissions, etc.), reducing the number of submissions, etc. Some of these measures can arguably be decided by the arbitral tribunal in the framework of its discretion to manage the case, even if they are not expressly permitted in the rules. However, it is generally felt that it can be useful to spell out the power to streamline the proceedings. Otherwise, it is feared that some arbitral tribunals, to avoid being accused of breaching due process (the infamous “due process paranoia”), may not dare taking case management measures such as rejecting requests by the parties or imposing restrictions to submissions.

Early dismissal is a procedure permitting the arbitral tribunal to dismiss claims and defences at the outset, without considering them in detail, if they manifestly lack merits. Early dismissal is regulated, for example, in the ICSID Rules (article 41(5)) and in the SIAC Arbitration Rules (rule 29).

Preliminary determination is a procedure permitting the arbitral tribunal to decide an issue of law or of fact without going through all usual procedural steps. Preliminary determination is regulated, for example, in the SCC Rules for Expedited Arbitrations (article 40) and in the HKIAC Administered Arbitration Rules (article 43).

As a matter of fact, not all arbitration rules regulate early determinations. For example, the ICC Rules do not have a specific regulation of the tribunal’s power to make early determinations, as this power is deemed to be well within the tribunal’s broad discretion in conducting the case.

 

Analysis of WG II process on early dismissal and preliminary determination: good intentions do not always lead to good outcomes

The Working Group initially discussed early dismissal and preliminary determination as separate issues. However, because there is a certain overlap, the latest draft provisions on expedited arbitration (A/CN.9/WG.II/WP.214) have merged these two measures into one provision, called “Pleas as to the merits and preliminary rulings” (article 18). The draft (without taking final position on whether this will be inserted in the final document) gives a party the possibility to request an early determination in case a claim or an issue manifestly has no merits or is irrelevant, or evidence is inadmissible.

Depending on the complexity of the dispute, early determination can be a very useful tool, permitting to deal at an early stage with preliminary issues, to sort out irrelevant matters, etc. This is useful especially if the dispute is complex. If the dispute is simple, however, as disputes subject to expedited arbitration are supposed to be, it is questionable whether early determination permits to enhance efficiency or even is useful.

Admittedly, it is in any case part of the arbitral tribunal’s inherent powers to determine issues whenever the tribunal considers it appropriate. Furthermore, the already mentioned general consideration that spelling out the content of inherent powers may encourage arbitral tribunals to make use of them without succumbing to due process paranoia, is valid also in this context.

However, it can be questioned whether the cure of due process paranoia exposes to risks that are worse than the disease.

By spelling out the power to make early determinations, the draft also creates a duty for the arbitral tribunal to invite the other party to comment on the requests for such early determinations, and a duty for the arbitral tribunal to consider these submissions. In proceedings where the timetable is trimmed to the utmost, and the award is expected to be rendered within six (or nine) months from the date of constitution of the tribunal, adding a procedure for early determination can easily have the effect of distracting the other party and the tribunal from the main issues, or of forcing to extend the time limit for the award. A procedure within the procedure necessarily disturbs the balance when proceedings are expected to be finalised within a short timeframe, because resources cannot be employed on the main proceedings. If the early determination leads to a clear simplification of the case, or even to a final award, this procedure within the procedure will have succeeded in enhancing efficiency of the proceedings. However, if the early determination does not lead to clarification or exclusion of certain issues, this procedure within the procedure has not contributed to simplifying the proceedings; to the contrary, it has complicated them. This can be subject to abuse by parties whose interest is to avoid an efficient process.

To meet this concern, the new draft requires the requesting party to specify as precisely as possible the grounds justifying the request for early determination (article 18 (3)). The intention is to address the concerns about the possible abuse of the tool by the parties resulting in delays. However, this requirement could have precisely the opposite effect. While the intention is to discourage frivolous requests, a party may consider this as a basis to submit lengthy and complicated justifications for its request. This in turn will force the other party to respond to all issues raised, irrespective of how solid they are. In turn, this will force the tribunal to consider lengthy submissions.

In the latest draft provisions on expedited arbitration, to be discussed starting with 21 September at the seventy-second session of the WG II, the request for early determination is regulated in two phases: first the tribunal decides whether to admit the plea, and then the tribunal decides the merits of the plea. In each of these phases, the tribunal has to invite the other party to comment. Resources are thus deviated from the main proceedings twice, causing two exchanges of submissions (assuming that the tribunal admits the request). In its Note accompanying the latest draft provisions, the Secretariat suggests that the Working Group consider whether the two stages could be combined into one. This would reduce the impact of the request on the process, but it does not eliminate the effects of having a procedure within the procedure.

A possible way to reduce these effects is to give the tribunal the power to admit a request for early determination without hearing the other party. While permitting to be more expeditious, this solution may raise issues of due process. Considering the Working Group’s mandate to balance efficiency and due process, this alternative does not seem appropriate. Of the arbitration rules mentioned above, only the SIAC Rules give the tribunal the discretion to admit a request, without expressly providing that the other party shall be heard.

The intention to discourage frivolous claims is commendable, and the tribunal’s power to make early determination is, generally, an appropriate tool to achieve this aim. In the context of expedited arbitration, however, due to the very short timeframe within which the proceedings are supposed to be finalised, this tool seems to be less appropriate. As the power to determine issues throughout the proceedings is inherent to the arbitral tribunal, it does not seem necessary to spell it out, thus avoiding to invite possible abuse.

 

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UNCITRAL Working Group II: Does Expedited Equal Efficient?

Thu, 2020-09-17 23:00

UNCITRAL’s Working Group II (“WGII”) resumes next week its work on drafting expedited arbitration provisions (“EAPs”) for use with the UNCITRAL Arbitration Rules (“UARs”).  One of the key “aims” underlying development of these procedures is “to improve the efficiency and quality of arbitral proceedings.”  This post examines why efficiency matters, how the EAPs encourage efficiency, and whether those tools will be effective.

 

Why Efficiency Matters

A perceived loss of efficiency—and the increased time and costs that come with it—has been a major concern of international arbitration users for years.  Although there has been extensive discussion regarding how to improve efficiency, the concern remains.  For example, a 2006 survey reported that “[e]xpense and the length of time to resolve disputes are the two most commonly cited disadvantages of international arbitration”.  Yet, nearly a decade later, that survey was still reporting the same user concerns, identifying costs and lack of speed as some of the worst attributes of international arbitration.

In response, many major arbitration rules, such as those of the ICDR, ICC, and SCC, have been amended in recent years to include new or revised expedited procedures.  Although the procedures have different nuances, they have a common goal:  to directly address efficiency concerns by offering mechanisms that reduce the time and costs of an arbitration.  These mechanisms take various forms but typically include features such as provision for a sole arbitrator (versus three), shortened times for exchange of written submissions and for rendering the final award, limited or no document disclosure, and options to eliminate the hearing.

The expedited procedures, when they apply, appear to work.  For example, the SCC reported that 95% of its expedited cases in 2019 concluded in less than six months from referral to the tribunal (with 50% reaching conclusion in less than three months).  This is compared to the up to twenty-four months required for 95% of cases to reach conclusion under the “regular” rules.  Similarly, the ICDR reports that its expedited procedures can result in a final award in as little as 135 days from initiation of the arbitration. Likewise, the ICC reports that 37 of its first 50 expedited arbitrations reached a final award within six months from the case management conference.  This is a significant reduction from the ICC’s non-expedited cases, which in 2019 averaged 26 months until final award.

 

How the EAPs Encourage Efficiency

The draft EAPs make clear that efficiency is at the heart of the new procedures.  We refer below to the latest draft EAPs prepared by the Secretariat for discussions scheduled to start on 21 September at the seventy-second session of the WG II.  For example, draft provision 2 expressly obligates the parties to “act in an expeditious and effective manner so as to achieve a fair and efficient resolution of the dispute.”  Likewise, the arbitral tribunal is instructed to “conduct the proceedings in an expeditious and effective manner further taking into account the parties’ expectations.

In addition to this broad obligation on the parties and tribunal, the EAPs include specific provisions for a more streamlined and less time-consuming and costly process.  The following summarizes the key tools aimed at reducing time and costs.

  1. Sole arbitrator (draft provision 7)

The EAPs presume that there will be a sole arbitrator absent agreement by the parties to appoint three.  This contrasts with the UARs, which default to three arbitrators.

  1. Streamlined written submissions (draft provisions 4, 5, 13 & 14)

The EAPs provide for streamlined written submissions under shortened deadlines.  The Statement of Claim is due at the same time as the Notice of Arbitration.  Respondent has 15 days from receipt of the Notice of Arbitration to submit its Response to the Notice of Arbitration and 15 days from the constitution of the tribunal to submit the Statement of Defense, which must also include any counterclaims or claims for set-off.  Draft provision 13 allows for amendments or supplements to a claim or defense within 30 days of the Statement of Defense.  Following this window, the parties may not amend or supplement their claims unless the tribunal considers it appropriate.  Further, draft provision 14 empowers the tribunal to limit the number of rounds of written submissions.  Under this schedule, limited party submissions could be complete in two to three months (depending on the tribunal’s constitution).

  1. Time frame to render the award (draft provision 16)

Draft provision 16 introduces a timeframe for making the award and a mechanism for extending that deadline.  While the ultimate deadline is still being discussed, it appears likely that the EAPs will require the award to be rendered within six or nine months from the date of the tribunal’s constitution, absent extension.  The draft provision allows parties to agree to modify this deadline and permits the tribunal to extend it “in exceptional circumstances,” which is currently undefined.

  1. Possibility of no hearing (draft provision 11)

The expedited rules issued by many arbitral institutions presume that an expedited arbitration will be decided on documents only, without an oral hearing.  The EAPs take a different approach.  As currently drafted, the tribunal has discretion to decide a case on written submissions, but only where neither party objects to doing so.  Should a party request a hearing or affirmatively object to decision only on written submissions, the tribunal must hold a hearing.  As to the conduct of the hearing, UAR article 28 applies to expedited arbitrations and the tribunal has flexibility to conduct the hearing in an efficient manner.

  1. Arbitrator discretion in managing proceedings (draft provisions 9, 10, 14, 15, 18)

The EAPs explicitly provide the arbitral tribunal with broad discretion to manage the proceedings consistent with its provision 2 efficiency obligations.  For example, the tribunal can modify the prescribed deadlines, limit written submissions and evidentiary exchanges, hold conferences remotely, and consider arguments for early dismissal or preliminary determination where claims are manifestly without merit, which can improve efficiency and discourage frivolous claims.  The EAPs also permit the arbitral tribunal to consider a party’s conduct in its allocation of costs.

 

Will the EAPs Promote Efficiency?

The tools outlined above unquestionably can lead to quicker and less expensive arbitrations.  For example, a sole arbitrator’s fees are generally less than those of three arbitrators.  Moreover, a sole arbitrator offers time savings from fewer scheduling conflicts and potentially quicker deliberations.  Likewise, compressed schedules for written submissions and filing certain submissions together (such as the Statement of Claim with Notice of Arbitration) cut down on the time and costs often expected with briefing schedules that span many months if not years in a “regular” arbitration.

Nonetheless, whether the draft EAPs will result in more efficient arbitrations remains to be seen.  One issue that WGII has grappled with is that many of the EAPs’ efficiency tools, such as the tribunal’s authority to limit written submissions, are already available in “regular” arbitration proceedings.  WGII considered, however, that the more explicit provisions in the EAPs “underline” and “reinforce” “the discretionary power of the arbitral tribunal” and “make it easier for the arbitral tribunal to impose limitations” (A/CN.9/WG.II/WP.214, at ¶¶ 95, 115, 118).  The hope is that expressly empowering the tribunal to impose stricter time limits and condensed procedural benchmarks will reduce the risk of challenge and give the arbitrators more confidence to expedite the proceedings.  As explained above, a number of institutions have reported that similar expedited procedures have worked to reduce time and costs, so there is reason to believe that the EAPs will also lead to more efficient arbitrations.

The current draft of the EAPs differs from other expedited rules in several ways, however, each of which could undermine the EAPs’ efficiency goals.  For example, the EAPs are silent as to the consequence for non-compliance with the deadlines provided therein.  This contrasts to the ICC’s and SCC’s expedited procedures, which provide that arbitrators can be penalized for non-compliance with deadlines.  Further differences that could affect efficiency include the availability of an oral hearing upon party request, even despite an order by the tribunal that no hearing is necessary, and application of the EAPs only where the parties expressly “opt in.” (A/CN.9/WG.II/WP.214/Add.1, Draft provision 11).1)This differs from other expedited procedures that apply by default based on the amount in dispute.  See, e.g., ICDR Rules, Art. 1(4); ICC Rules, App’x VI Art. 1. jQuery("#footnote_plugin_tooltip_5508_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5508_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });  Another underlying key difference is that the EAPs will often apply in non-administered arbitrations, which can present unique efficiency challenges (for example, in resolving applicability of the rules or arbitrator challenges).  These differences will likely be points of discussion at the upcoming WGII session.

Ultimately, however, many of these differences may not matter because, critically, the EAPs empower arbitrators with broad flexibility to manage the proceedings.  No one approach ensures an “efficient” arbitration; rather, efficiency will depend on a number of factors, including the facts of the case, the parties’ conduct, and the tribunal’s decisions.  The draft EAPs’ approach preserves procedural flexibility to confront a myriad of circumstances (some unique to non-administered arbitration) that impact efficiency.  But making sure that such flexibility is properly balanced against other efficiency tools will be a key discussion for WGII in finalizing the EAPs.

 

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References   [ + ]

1. ↑ This differs from other expedited procedures that apply by default based on the amount in dispute.  See, e.g., ICDR Rules, Art. 1(4); ICC Rules, App’x VI Art. 1. 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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UNCITRAL Working Group II: Testing Durability: Due Process, Expedited Procedures, and UNCITRAL’s Best Fit Model

Wed, 2020-09-16 23:00

60 member states and several more non-governmental organizations (NGOs) will soon gather (in person in Vienna and virtually) to commence the 72nd Session of UNCITRAL Working Group II (WGII).  The topic and issues of Expedited Arbitration Procedures (EAPs) was primed at the 69th Session of the WGII in New York, including how best to improve the efficiency and quality of proceedings through an expedited timeline – striking the right “balance between fast resolution of the dispute and respect for due process” (A/CN.9/WG.II/WP.207, para. 2; A/CN.9/969, para. 23).  Procedural complications can emerge when a matter shifts from regular to expedited schedule, underscoring the need for a fair and equitable process for all parties to present their case (A/CN.9/WG.II/WP.214, para. 7).  Due process concerns swirl around expedited arbitration in a similar fashion to, e.g., emergency arbitration, adjudication, and early dismissal, but expedited arbitration is the choice offering for a quicker avenue to comprehensive merits determinations, often tethered by the complexity and amount in controversy.

Taking pen to paper, the WGII was able to pull from a dearth of existing expedited procedures submitted by the NGOs to create their EAPs.  Recent sessions have zeroed in on efficiency in the current methodology, streamlining for time and cost balanced against (and not at the expense of) due process and fairness.  In recent years, due process and its paranoia have taken a central stage, of particular curiosity when combined with expedited anything (A/CN.9/WG.II/WP.214, para. 93).  Most arbitral institutional rules give the tribunal broad procedural discretion to run the case in chief as deemed best (referred by one scholar as the Procedural Judgment Rule).

In spite of this, tribunals often take great care, extending deadlines and other courtesies to protect the award from issues of set-aside and non-enforcement, resulting in, e.g., A Bid for Strong Arbitrators, and a desire for the EAPs to provide tribunals “with a robust mandate to act decisively without fearing that the award would be challenged” (A/CN.9/WG.II/WP.214, para. 93; A/CN.9/1010, para. 95).

In truth, it is infrequent for awards to be stymied by claims of due process violations.  This piece looks to the jointed elements of an expedited arbitral process where procedural fairness becomes critical – access and consent, arbitrator selection, and overall structure.

 

Access and Consent to the EAPs

A threshold issue for delegate consideration was the type of consent needed to access the EAPs.  Surveying the landscape of arbitral institutions, in many instances there is a sliding scale amount in controversy that tips a case from regular to expedited proceedings with implied consent.  Notwithstanding, the institutional rules offer variety with implied and express consent options, adding layers to party autonomy.

Where UNCITRAL deemed it unsuitable to define small claims (A/CN.9/WG.II/WP.207, para. 24), delegates anchored access to the EAPs squarely on express party consent. To this end, the WGII considered how access and monetary value varies across the global jurisdictions represented by member states, and the manner in which national legislation can subsume UNCITRAL Rules.

Thus, the equitable option across all boundaries, acknowledging expedited arbitration necessarily affords less due process, is express consent by the parties to the EAPs at any time as the sole criterion, without reference to temporal scope and with final determination by the tribunal (Draft Provision 1, A/CN.9/WG.II/WP.214, paras. 9-11; A/CN.9/969, para. 27; A/CN.9/1003, paras. 21-22).

Unilateral withdrawal was also considered in cases with “justifiable” or “exceptional” circumstances, to maintain due process while underscoring the need for finality and certainty, and, in turn, to prevent abuse of process by the parties (A/CN.9/WG.II/WP.214, para. 25; A.CN.9/1010, paras. 36, 43).  The Secretariat considered grounds for a party to make such an application and to which body, especially where the tribunal had not been constituted (A.CN.9/1010, paras. 46-50).  Of note, the EAPs also reflect the parties’ option to waive in advance the right to request withdrawal (A/CN.9/WG.II/WP.214, para. 31; A/CN.9/1010, para. 38) as a measure of streamlining and towards a tighter process.  Where the tribunal is constituted, the EAPs enable the tribunal to determine whether the EAPs shall no longer apply in their “entirety,” expanding optionality for some provisions to continue to apply, and overall, that the EAPs continue to apply until contrary determination by the tribunal (A/CN.9/WG.II/WP.214, paras. 23, 26).

To assure equal bargaining power, mere reference to the UNCITRAL Arbitration Rules is insufficient to apply the EAPs (A/CN.9/WG.II/WP.214, para. 9), with delegates ever-cautious to protect “micro-, small- and medium-sized enterprises from inadvertently being subject to expedited arbitration” (A.CN.9/1010, para. 21).

 

Arbitrator Selection

In expedited arbitration under several arbitral institutional rules, the default is a sole arbitrator (consider, e.g., Article 30 read with Appendix VI of the ICC Rules of Arbitration; Article 17 of the 2017 SCC Rules for Expedited Arbitrations; Article E-6 of the 2014 ICDR Expedited Procedures; and Rule 5 of the 2016 SIAC Rules), highlighting another example where party autonomy to each select an arbitrator gives way to economic and procedural efficiency.  To safeguard against concerns of fair treatment, while the default under the EAPs is a sole arbitrator (Draft Provision 7, A/CN.9/WG.II/WP.214, para. 70), delegates can consider whether such be qualified by “unless otherwise agreed by the parties,” opening the door to additional UNCITRAL guidance on how best to implement.  The EAPs do consider the impact, where parties have agreed to the EAPs, of a party requesting a tribunal of more than one arbitrator as ultimately a request for non-application of the EAPs (A/CN.9/WG.II/WP.214, para. 71).  To this end, delegates are invited to further consider whether disagreement on the number of arbitrators under the EAPs defaults to agreement of a sole arbitrator.  Rest assured, affirming party autonomy, the appointing authority has no role in choosing the number of arbitrators (A/CN.9/WG.II/WP.212, paras. 39-40; consider also Expedited Procedure Vis-à-Vis Party Autonomy, Enforceable?).

The EAPs underscore the importance of the parties agreeing on an appointing authority (A/CN.9/WG.II/WP.214, para 68; A/CN.9/1003, para. 68; A/CN.9/1010, para. 79).  Absent party agreement within 15 days and underscoring efficiency, the EAPs confirm the role of the PCA to designate or serve as appointing authority similar to the UNCITRAL Arbitration Rules (Draft Provision 6, A/CN.9/WG.II/WP.214, paras. 62-64).  Of note, in past sessions, there was some discussion whether UNCITRAL should contemplate alternate appointing authorities in addition to the PCA – as a means to offer a more localized experience, especially where regional arbitral institutions have grown considerably in recent years (A/CN.9/WG.II/WP.212, paras. 54-58)).

 

Procedural Structure

The EAPs memorialize the robust delegate discussions on procedural tools, efficiency, and party engagement to address the shortened procedural calendar, underscoring the need for party consultation (perhaps via “case management conference,” although the nomenclature was met with rebuffs) within 15 days after tribunal constitution to discuss timelines for the submission of pleadings, hearings, and award issuance (Draft Provision 9, A/CN.9/WG.II/WP.214, paras. 83-85; A/CN.9/WG.II/WP.212, paras. 62, 64; consider also UNCITRAL Notes Organizing Arbitral Proceedings).

Broad discretion is afforded the tribunal to set timelines, with further discussion left for enforcement of these timelines and late submissions (Draft Provision 10, A/CN.9/WG.II/WP.214, paras. 90-93, 95-96).  Of note, the Notice of Arbitration serves as the Statement of Claim, with provision at filing of documents and other evidence to the extent possible (Draft Provision 4, A/CN.9/WG.II/WP.214, paras. 50-54; A/CN.9/WG.II/WP.212, para. 34).  Similarly, the Statement of Defense includes Counterclaims, submitted within 15 days after tribunal constitution (Draft Provision 13, A/CN.9/WG.II/WP.214, paras. 108-111).  (In past sessions, delegates discussed whether a response alone on the issue of (non)applicability of the expedited procedures was sufficient, or in the alternative, extending the timeline for the responsive pleadings (A/CN.9/WG.II/WP.212, para. 35)).  As the consent to the EAPs is possible at any stage, there was also discussion how parties that did not consent in advance to use of the EAPs could adopt them by joint proposal in the submissions (A/CN.9/WG.II/WP.212, para. 36).

Taking note of how some institutional rules permit a documents-only process, the EAPs capture the tribunal’s discretion not to hold hearings – absent party request, exceptional circumstances, or party objection to lack of hearing within 15 days after tribunal determination – as well as the conduct of any such hearing (Draft Provision 11, A/CN.9/WG.II/WP.214, paras. 98-106; A/CN.9/WG.II/WP.212, paras. 92-94).  It will be interesting to see how new studies – like the ICCA study evaluating “Does a Right To a Physical Hearing Exist in International Arbitration?” – can influence evaluation and evolution of processes, even in expedited form.  Said another way, does a reasonable opportunity to present one’s case warrant an in-person hearing (even if on request of one party) in furtherance of due process?

Turning next to the issue of award issuance, there was consensus amongst the delegates that, similar to arbitral institutional rules, it was prudent to emphasize the timely (and even rapid) issuance of an award within a fixed time frame after constitution of the arbitral tribunal.  An discussion item remains as to a 6 or 9 month timeline – “unless otherwise agreed by the parties” (Draft Provision 16, A/CN.9/WG.II/WP.214, paras. 121-124; A/CN.9/WG.II/WP.212, para. 101).  Noting the special nature of ad hoc proceedings, the expedited procedures emphasize tribunal discretion and flexibility against the delegates’ preference for reasoned awards (i.e. more compatible with domestic legislations) –emblematic of creating a due process record (A/CN.9/WG.II/WP.214, paras. 130-131; A/CN.9/WG.II/WP.212, paras. 107-108).  There is no mention of non-compliance by the arbitral tribunal of the award deadline (and any consequences flowing therewith), also open for further delegate discussion (A/CN.9/WG.II/WP.214, para. 128).

 

Closing

UNCITRAL’s EAPs take the form of rules (or more aptly provisions) rather than guidelines, applied via express party consent.  Absent an administering body and in ad hoc, guaranteeing procedural fairness remains a top priority.  Key stakeholders at UNCITRAL’s upcoming 72nd session will continue to evaluate access and advocacy to expedited procedures, taking into consideration dilatory tactics against the backdrop of the due process paranoia.  The EAPs symbiotically can give way to the UNCITRAL Arbitration Rules when priorities shift – towards more structure and less focus on speed/cost/efficiency.  The provisional agenda is available here.  Stay tuned for more from the front lines.

 

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UNCITRAL Working Group II: Expedited Arbitration Provisions as Stand-Alone Rules, or Appendix and When Should They Apply?

Wed, 2020-09-16 00:00

The UNCITRAL Working Group II (“WG II”) will continue its work on drafting expedited arbitration provisions (EAPs) at its next session in Vienna on September 21 – 25, 2020. This post briefly considers some of the key points that will be addressed at the session relating to the form and scope of the EAPs. This discussion is primarily based on the Secretariat’s Note prepared for the session and made available on July 23, 2020.

Expedited arbitration procedures have become commonplace in arbitration institutional rules, offering parties an opportunity to resolve less complicated and lower-value disputes with a “fast-track” procedure. This provides greater efficiency and lower costs, while ensuring due process, fairness and effectiveness. Introducing expedited provisions to parties who chose to arbitrate under the UNCITRAL Arbitration Rules (UARs) would offer the option of a streamlined process. However, the ad hoc nature of the UNCITRAL Rules poses a challenge to introducing expedited provisions. Unless the parties have agreed to have their UNCITRAL case administered by an institution, there is no administrative body empowered to decide gateway issues, such as the applicability of the EAPs in a case.

 

Form of the EAPs

Expedited provisions in institutional rules are either a set of separate, “stand alone” rules, or are integrated into the regular arbitration rules, typically as an appendix. Of the 59 institutions surveyed by ICCA at the request of the Secretariat, a majority offer expedited procedures integrated into the regular rules.1)Of 59 arbitral institutions surveyed, 23 indicated they had “stand alone” expedited rules, while 36 have “integrated” expedited provisions in the regular rules. For example, the ICC has an integrated approach, while the SCC has a “stand alone” approach. jQuery("#footnote_plugin_tooltip_4690_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4690_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); There are currently diverging views in the WG II as to whether the EAPs should be “stand alone” rules (self-contained or with cross references to the UARs) or integrated into the UARs. While this issue remains open, the current working draft presents the EAPs as an appendix to the UARs, but without prejudice to the final form.

The WG II identified advantages and disadvantages to both approaches, although the need for user-friendliness was highlighted (e.g. A/CN.9/WG.II/WP.214, ¶6). The EAPs need to be user-friendly as the users will include micro, small and medium companies, as well as individuals, who may have limited experience with arbitration and may engage less specialized counsel. Stand-alone rules may be more user-friendly by providing a comprehensive set of rules easy to refer to, as well as easier to promote. However, many of the UARs provisions would need to be duplicated in the EAPs. Integrating the EAPs into the UARs, would avoid this repetition, while needed linkage to the UARs would be easy to address. Some considered that it would be easy to design a mechanism to allow parties to use both the UARs and EAPs, depending on the dispute, putting them on equal footing and that integrated rules allow parties to identify the rules that are specific to the EAPs. However, to use integrated rules, the user needs to study both the EAPs and the UARs to identify the modifications and linkage between the two. This could be confusing for less sophisticated users.

 

Scope of application of the EAPs

Concerns were raised that the EAPs should not apply retroactively, as Article 1(2) of the UARs contains a presumption to apply the Rules in effect at the date of the commencement of the arbitration. This issue has been addressed by the requirement of “express consent” of the parties to subject their dispute to the EAPs. This requirement can be compared to some institutional rules, (such as the ICC Rules), which provide for an “opt-out” approach if a dispute meets certain criteria, typically based on the value of the dispute. Draft provision 1 of the EAPs provides that the sole criterion for the application of the EAPs is the parties’ agreement. The UARs will generally apply, subject to the EAPs modifications and “such modifications as the parties may agree”. The parties may agree to apply the EAPs even if their arbitration agreement pre-dated the entry into force of the EAPs.

An issue could arise where a party disputes whether there is in fact an express agreement to use the EAPs. Before an arbitral tribunal is constituted, a decision-maker would not exist to determine whether there was express consent for applying the EAPs. Similarly, prior to the constitution of the tribunal, when the parties agree to convert from the UARs to the EAPs, there would not be a decision-maker to determine the time periods and other matters. The arbitral tribunal would need to make these decisions. If the parties cannot agree on the appointment of a sole arbitrator, then an appointing authority will need to be appointed (if the parties did not designate one). In appointing an arbitrator, the appointing authority would have to make a prima facie determination on whether the arbitration should proceed under the UARs or EAPs; a determination which the arbitrator would ultimately make [A/CN.9/WG:II/WP.214, ¶49)].

The form of the EAPs affects drafting the provisions and the need for cross-references and modifications to the UARs.

Upon filing a notice of arbitration pursuant to the UARs, a party may propose to the other party that the EAPs be used. This may justify revising Articles 3(4) and 4(2) of the UARs to provide that the notice of arbitration and the response to the notice may include a suggestion to use the EAPs. If the parties agree to convert to the EAPs, issues may arise regarding the content of the notice of arbitration and the response, which would have been subject to Articles 3 and 4 of the UARs. Draft provision 4 of the EAPs provides that together with the notice of arbitration, the claimant should communicate its statement of claim in accordance with Article 20 of the UARs. Pursuant to Draft provision 5 of the EAPs, the respondent should communicate the response to the notice together with the statement of defense pursuant to Article 21 of the UARs. The time for filing these pleadings, as well as the designation of an appointing authority (if not already done), and appointing a sole arbitrator would all need to be adjusted from the UARs time periods to the EAPs.

Draft provision 3(1) provides for the non-application of the EAPs, entitling a party to request, at any time during the proceedings, that the EAPs should no longer apply. The arbitral tribunal may, in exceptional circumstances, grant the request. The draft provision provides six non-exclusive criteria that the tribunal may consider (EAP 3(3) (a – f)). However, there are divergent views on whether to include this guidance for the tribunal in exercising its discretion. Should the EAPs no longer apply, “the arbitral tribunal shall remain in place to the extent possible and conduct the arbitration in accordance with the UNCITRAL Arbitration Rules.” [A/CN.9/WG:II/WP.214, Draft Provision 3(4)]. The tribunal may also decide to apply some provisions of the EAPs by exercising its discretion in accordance with Article 17 of the UARs, as well as Draft provision 10 of the EAPs, which could be agreed at the case management conference [A/CN.9/WG:II/WP.214, ¶26]. The request for non-application of the EAPs could be raised prior to the constitution of the tribunal. The proposed solution is that the EAPs would apply until the tribunal made a contrary decision.

 

Success of the expedited rules rests in the hands of the users

The aim of the EAPs is to improve efficiency and reduce costs and duration of proceedings. This aim could be undermined by parties disputing over whether the EAPs or the UARs should apply and whether applicable provisions have been complied with. Disputes regarding the applicable procedural rules can be quite thorny and have significant implications, leading to delays and increased costs.

The EAPs contain a general provision, Draft provision 2, requiring that both the parties and the arbitral tribunal shall act in an expeditious and effective manner to achieve a fair and efficient resolution of the dispute. Arbitrators will need to conduct the proceedings proactively with strong managerial skills to resolve procedural issues efficiently and effectively with regard to the parties’ due process rights and expectations. Ideally, from the start of the case, the tribunal can facilitate a cooperative approach between the parties with the goal to efficiently and fairly resolve the dispute.

Regardless of the form of the EAPs, they will be linked to the UARs both in the minds of users and in practice. Many of the draft EAPs refer to UAR provisions. In the UNCITRAL Secretariat Note, references are made for each EAP provision to its “interaction with the UARs”. The UARs will generally apply to the EAPs except as modified or supplemented by the EAPs.

As with launching any new rules, the success will depend in part on their “user-friendliness”, practicability, and predictability. This will be enhanced through education and guidance. The EAPs have great potential to provide useful tools to enhance efficient, cost-effective and fair dispute resolution, particularly suitable for users with less complicated and lower value cases. These users will need to have access to information and guidance about the rules in order to ensure that the EAPs can fulfill their potential. WG II has agreed to consider other related work including model clauses and guidelines for the EAPs. These instruments will be needed to facilitate the use of EAPs, but the arbitration community will also need to contribute to spreading information about the use of the EAPs to both parties and their counsel.

 

The see our full series of posts on the UNCITRAL WG II process, click here.

References   [ + ]

1. ↑ Of 59 arbitral institutions surveyed, 23 indicated they had “stand alone” expedited rules, while 36 have “integrated” expedited provisions in the regular rules. For example, the ICC has an integrated approach, while the SCC has a “stand alone” approach. 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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UNCITRAL Working Group II: Investment Disputes and Expedited Arbitration: A Probable Symbiosis?

Tue, 2020-09-15 00:00

Arbitrating investment disputes has its peculiarities stemming out of the nature of the dispute, as well as from the parties involved, which become relevant when assessing the feasibility of implementing expedited arbitration provisions. ICSID Arbitration Rules and UNCITRAL Arbitration Rules, the main arbitration rules currently used for investment arbitration proceedings, are in the process of approving their first sets of expedited arbitration rules. This post will discuss these developments.

 

Peculiarities of Investment Disputes: Short Considerations

In addressing the viability and potential use of expedited arbitration rules for investment disputes, certain elements directly affecting the efficiency of the proceedings must be considered, in addition to other factors which are not specific to investment arbitration proceedings, such as the intricacy of the factual background, bifurcation of proceedings, management of the arbitration proceedings etc.

State party involvement is the main element which should be factored in, with a view of the complexity of State apparatus, complex internal organization, approvals and authorizations to be cleared before any decision, and which usually translate in longer periods required for submission of memorials and evidence. Investment arbitration proceedings may raise specific issues outside of the procedural framework but which may have a direct consequence on it, such as the public interest in the underlying dispute, in some cases translated in the participation of amici curiae in the arbitration or transparency obligations under the applicable treaty or rules.

Further, the consent to arbitrate investment disputes is usually the result of the offer of the host State to arbitrate under an international investment agreement (IIA), followed by the acceptance of the offer by the investor by submitting the dispute to arbitration. As such, for an investment dispute to be resolved under an expedited arbitration, the offer of the host State would have to incorporate an expedited procedure.

 

UNCITRAL Reforms and the ICSID Amendment Process at Glance

Reforms to implement expedited arbitration procedures in investor-State arbitration are particularly likely to emerge from the two major reform processes currently underway at UNCITRAL and ICSID.

At the fifty-first session of the UNCITRAL in 2018, it was agreed that the Working Group II would take up issues relating to expedited arbitration. The work of Working Group II is aimed “at improving the efficiency of the arbitral proceedings, which would result in reduction of costs and duration of the proceedings”, and expedited arbitration, “as a streamlined and simplified procedure with shortened time frame”, could ensure this efficiency goal.

The UNCITRAL Working Group III on Investor-State Dispute Settlement (ISDS) Reform is also addressing concerns with costs and duration of investment disputes as ongoing concerns with the ISDS system, in addition to the outcome of the arbitration proceedings – inconsistency in arbitral decisions and the lack of predictability of such outcome -, and the arbitrators appointed in the investment arbitration cases. At its 37th session, the UNCITRAL Working Group III discussed a wide range of possible mechanisms to improve the efficiency of ISDS, including the option of expedited procedures for low-value claims. To this end, it was highlighted that such procedures might not be practicable for States when they require more time to prepare their cases. At the 38th session, the UNCITRAL Working Group III included expedited arbitration as one of the possible reform options. Referring to this, the Secretariat emphasized that such expedited procedures may be considered for smaller claims and non-complex cases, as well as the development of rules to streamline the procedures and expedite certain of its aspects. Further, such reform option could be implemented as a stand-alone reform or in conjunction with any other reform options.

While the mandate of the Working Group II is focused “preliminarily on international commercial arbitration”, still the relevance of the proposed rules on investment and other types of arbitration is reserved for the later stage of the discussions. This cautious approach is understandable and recognized as such by the Working Group II, given the parallel work of the UNCITRAL Working Group III, as mentioned above, and that certain issues might overlap. This would become relevant in particular with regard to the application of the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration. If the expedited rules would be presented as an appendix to the UNCITRAL Arbitration Rules, then the UNCITRAL Rules on Transparency would apply to the expedited proceedings, unless expressly excluded by the parties.1)For a detailed discussion on the intersection between the UNCITRAL Arbitration Rules, UNCITRAL Transparency Rules and the future UNCITRAL Expedited Rules, see UNCITRAL A/CN.9/WG.II/WP.214, p. 9. jQuery("#footnote_plugin_tooltip_6898_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6898_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

At the same time, the ICSID Arbitration Rules Amendment Process, now at an advanced stage (the last step being a 4th Working Paper published in February 2020), is proposing a set of expedited arbitration rules for ICSID investment arbitration proceedings. This is in line with the overall amendment process of the ICSID Arbitration Rules, and, in particular, with the efforts of reducing the duration of the arbitration proceedings, where possible.

The ICSID Arbitration Rules Amendment Process that commenced in 2018 has, among other, the objective to reduce time and cost, by implementing amendments which address the constitution of the arbitral tribunals, provide for a general obligation for parties and arbitrators to conduct the proceedings in an expeditious manner, incorporate more flexibility in the organization of hearings and witness examination, and introduce expedited arbitration provisions. By implementing the expedited procedure, the arbitration proceedings could conclude within 470-530 days after the date of registration of the Request for arbitration. Compared to 49 months, the average duration of an arbitration procedure, the proposal of expedited proceedings appears to substantially contribute to addressing the concern with the length of the arbitration proceedings and to strike a balance between the expedited nature of the proceedings and “a realistic schedule for investment disputes given their special characteristics”. Nevertheless, expedited arbitration will continue to be an ‘arbitration’ for the purposes of the ICSID Convention.

 

Certain Points of Consideration

Consent for advancing an investment dispute under (ICSID or UNCITRAL) expedited rules may be one of the preliminary points of discussion between the parties at the start of an arbitration. Proposed ICSID Rule 75(1) provide for an opt-in model for expedited arbitration, meaning that an agreement is needed in addition to the agreement to arbitrate. Reference to the expedited arbitration may be contained in the arbitration agreement, if there is a contract between the parties, or in the State’s offer to arbitrate, be it in an IIA or in the domestic legislation of the host State. Proposed provision 1 of the UNCITRAL Expedited Arbitration Provisions also advances consent as the exclusive criterion for the application of the provisions. It was considered that an express consent will guarantee that awareness of the parties as to the application of the provisions, with the consequences deriving from this.

Both ICSID and UNCITRAL drafts preserve the possibility of opting out of the expedited proceedings under certain circumstances. Proposed ICSID Rule 86 provides for the situations for exiting the expedited arbitration and includes (i) the joint notification by the parties; (ii) upon request of a party, allowing the arbitral tribunal to decide that an arbitration no longer be expedited, based on the complexity of the issues, the stage of the proceedings and all other relevant circumstances. Similarly, provision 3 of the UNCITRAL Expedited Arbitration Provisions provides that (i) at any time during the proceedings, the parties may agree that the expedited proceedings no longer apply, and that (ii) in exceptional circumstances, a party may request the arbitral tribunal to determine that the Expedited Arbitration Provisions shall not apply to the arbitration, in which case, consideration should be given to the overall circumstances of the case, including the amount in dispute, the urgency of the resolution of the dispute and the proportionality of the amount in dispute to the estimated cost of arbitration, procedural fairness, etc.

Both ICSID and UNCITRAL proposals advance an arbitral tribunal composed of a sole arbitrator. Proposed ICSID Rule 76 gives the parties the option to proceed with a sole arbitrator or with a three-member arbitral tribunal and provide for the sole-arbitrator tribunal as the default option, if the parties fail to agree on either option. Proposed provision 7 of the UNCITRAL Expedited Arbitration Rules refers to one arbitrator, unless otherwise agreed by the parties. Sole-arbitrator tribunals are, indeed, associated with lower costs and speedier proceedings, as also reflected in the new generation of international investment agreements, such as CETA, which provides for the sole-arbitrator rule when the investor is a small or medium-sized enterprise or the compensation or damages claimed are relatively low.

As to the management of the proceedings, both UNCITRAL and ICSID drafts have included in provisions addressing the procedural timetable. For example, proposed ICSID Rules 80 and 81 provide that bifurcation of the proceedings is not allowed under the expedited provisions, nor is the objection that a claim manifestly lacks legal merit under current ICSID Arbitration Rule 41(5). Further, the ICSID proposal keeps the hearing on the merits as the default option and provides that it shall be held within 60 days as of the filing of the last submission, that is nine months after the first session. Proposed provision 11 of the UNCITRAL Expedited Arbitration Rules provides that hearing on the merits shall be held if requested by the parties, thus, reflecting the understanding that the absence of hearings is a characteristic of expedited arbitration proceedings. As to the written submission, proposed ICSID Rule 81 limits the round of submissions to two, with an additional limitation in the second round, on the number of pages submitted – 100 pages. Similarly, interpretation, revision and annulment of arbitral awards rendered in ICSID expedited proceedings have adjusted time limits, in the light of the expedited nature of the proceedings. Proposed provision 14 of the UNCITRAL Expedited Arbitration Rules allows the arbitral tribunal to limit the number of written submissions in the proceedings.

 

Brief Conclusions

Expedited arbitration proceedings for investment disputes could be a valid response to the concerns with duration and costs, as highlighted by UNCITRAL Working Groups II and III, as well as by ICSID.2)Additional considerations are presented in the forthcoming paper “Expedited Arbitration Rules for Investment Disputes: ICSID Amendment Process and UNCITRAL Working Group II” by the author, to be published in the Stockholm Arbitration Yearbook 2020 (Kluwer Law International). jQuery("#footnote_plugin_tooltip_6898_2").tooltip({ tip: "#footnote_plugin_tooltip_text_6898_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The adoption of expedited arbitration rules, however, should not exclude solutions which are available at the pre-arbitration stage, nor should it discourage addressing time and costs of regular arbitration proceedings. Further, one must also consider, in particular for investment disputes, which bear their inherent complexities, that short proceedings are not automatically better proceedings. As such, expedited arbitration proceedings should be flexible (or tailored) enough to respond to the peculiarities of resolving investment disputes.

 

The see our full series of posts on the UNCITRAL WG II process, click here.

References   [ + ]

1. ↑ For a detailed discussion on the intersection between the UNCITRAL Arbitration Rules, UNCITRAL Transparency Rules and the future UNCITRAL Expedited Rules, see UNCITRAL A/CN.9/WG.II/WP.214, p. 9. 2. ↑ Additional considerations are presented in the forthcoming paper “Expedited Arbitration Rules for Investment Disputes: ICSID Amendment Process and UNCITRAL Working Group II” by the author, to be published in the Stockholm Arbitration Yearbook 2020 (Kluwer Law International). 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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UNCITRAL Working Group II: An Introduction and Update

Mon, 2020-09-14 02:15

Next week, the seventy-second session of the United Nations Commission on International Trade Law’s (“UNCITRAL”) Working Group II (“WG II”), considering the issue of expedited arbitration, will be held in a hybrid system, with participants being able to take part in the session either in person, in Vienna, or remotely, via an online platform. The measure is of an exceptional and temporary nature, taking into account evolving public health concerns and travel restrictions due to COVID-19. In advance of WG II’s meeting, we are running this week a series of posts discussing some of the key issues under consideration by the WG II. This post sets out the background of the WG II process to date and introduces the topics addressed by the posts in this series.

 

Background and the process so far

By way of background, between September 2015 and February 2018, the WG II worked on instruments for the enforcement of international commercial settlement agreements resulting from mediation, and successfully concluded with the entry into force on 12 September 2020 of the United Nations Convention on International Settlement Agreements Resulting from Mediation (the “Singapore Convention on Mediation”).

At the sixty-eighth session, in February 2018, several topics for future work of the WG II had been suggested for the Commission to consider: (i) a possible revision of the UNCITRAL Conciliation Rules (1980) and preparation of notes on mediation to reflect developments in the field (A/CN.9/934, ¶150-151); (ii) expedited arbitration procedure and adjudication, potentially to be discussed together, as the former would provide tools for reducing the cost and time of arbitration, while the latter would facilitate use of a particular tool that has demonstrated its utility in efficiently resolving disputes in a specific sector (A/CN.9/934, ¶152-155); (iii) developing uniform principles on the quality and efficiency of arbitral proceedings in the form of soft law instruments or legislative provisions (A/CN.9/934, ¶156).

There was general support by the member states, at the sixty-eighth session of the WG II and shortly thereafter, for giving priority to work on expedited arbitration in the field of commercial arbitration (with the exclusion of family and consumer law issues, and without impact on the works of the UNCITRAL WG III on ISDS reform), as the work would be timely and reflect the needs of the businesses for streamlined dispute resolution mechanisms.

The Commission agreed and tasked the WG II to consider issues relating to expedited arbitration. The WG II started its work at its sixty-ninth session in February 2019, with the attendance of member states, observer states and observers international organisations. During this session, the WG II had a preliminary discussion on the scope of its work and on the focus, that should be on improving the efficiency of the arbitral proceedings, which would result in the reduction of the cost and duration of the proceedings (A/CN.9/969, ¶13). While there was no decision on the form that the work will take (a set of new rules, model clauses, or guidance material), the WG II agreed that it would focus on establishing an international framework on expedited arbitration and asked the Secretariat to prepare draft texts on expedited arbitration for the WG II to discuss (A/CN.9/969, ¶11).

At its seventieth and seventy-first sessions, the WG II considered the draft provisions on expedited arbitration (“EAPs”) prepared by the Secretariat; while for the seventieth session the Secretariat prepared draft provisions which could be included in a set of rules on expedited arbitration (without prejudice to the decision by the WG II on the final form of its work), for the seventy-first session the Secretariat was tasked to and prepared draft provisions on expedited arbitration both as an appendix to the UNCITRAL Arbitration Rules (“UAR”) and as a stand-alone set of rules.

Without taking a final decision, the WG II shall consider the expedited arbitration provisions only as an appendix to the UAR, and the Secretariat has prepared the draft accordingly for the next session.

While mindful to preserve due process and fairness in streamlining the arbitration procedure, the WG II is discussing:

  • the determining factor for the application of expedited arbitration,
  • the number of arbitrators,
  • shorter deadlines for submitting written submissions, and timeframe for the rendering of the award,
  • possibility to file counterclaims or additional claims,
  • other procedural means aimed at making the process more efficient.

A constant criticism over the last decade has been the perceived increased costs and time for the arbitral process to be completed. Even though on the table for a while, the users still view costs as the worst characteristic of international arbitration and lack of speed and lack of insight into arbitrators’ efficiency among the top five worst characteristics. In this context, the process at the WG II is of great importance and we hope you will join the debate with our series.

 

A preview into our WG II Series

It was recently advanced that expedited arbitration will receive this decade a significant amount of attention, as emergency arbitration received in the last decade1)Ten Years Later: Why the ‘Renaissance of Expedited Arbitration’ Should Be the ‘Emergency Arbitration’ of 2020, Hamish Lal and Brendan Casey, ‘Ten Years Later: Why the ‘Renaissance of Expedited Arbitration’ Should Be the ‘Emergency Arbitration’ of 2020’, in Maxi Scherer (ed), Journal of International Arbitration, (© Kluwer Law International; Kluwer Law International 2020, Volume 37 Issue 3) pp. 325 – 340. jQuery("#footnote_plugin_tooltip_3666_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3666_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and while we have to wait and see if the prediction comes true, we will engage this week in a debate with a stellar line-up of contributors who will explore various aspects of the works of the WG II.

Dr Crina Baltag (Senior Lecturer in International Arbitration, Stockholm University) discusses the reforms that might lead to implementation of expedited arbitration procedures in investor-State arbitration. The post examines the particularities of investment arbitration, the undergoing reforms concerning expedited arbitration in ISDS, including with reference to the work of the WG II, and whether the overall efficiency of the ISDS process could be obtained with expedited arbitration.

Dr Patricia Shaughnessy (Professor, Stockholm University) will comment upon the form of the EAPs and their linkage to the UARs. The EAPs could take the form of self-contained, “stand alone” rules or could be integrated into the UARs as an addendum (appendix) with cross-references to and modification of the UARs. To date there have been diverging views on how to best achieve a user-friendly approach. The form of the EAPs has drafting implications for some other EAPs provisions, such as the scope of application, initial submissions, appointment of the tribunal, and general provisions of the EAPs.

Rekha Rangachari, Esq. (Executive Director, New York International Arbitration Center) explores how the expedited arbitration process might affect due process.

Further, Gretta L. Walters and Erin Valentine (Chaffetz Lindsey LLP) look at the tools in the EAPs aimed at encouraging efficiency and analyse whether those tools will be effective. They discuss the broad obligation in draft provision 2 and also specific provisions in the draft rules, such as the number of arbitrators, provisions dealing with written submissions, time frame to render the award, possibility of no hearing, procedural provision that provide the arbitral tribunal with broad discretion to manage the proceedings consistent with its provision 2 efficiency obligations.

Giuditta Cordero-Moss (Professor, University of Oslo) takes a look at the discussions in the WG II on early dismissal and preliminary determination. She analyses the latest draft provisions prepared by the Secretariat to determine if a request for an early determination in case a claim or an issue manifestly has no merits or is irrelevant, or evidence is inadmissible, is an appropriate tool in the context of expedited arbitration.

Thomas Allen (Shareholder, Greenberg Traurig, LLP) will look at certain strategy considerations for expedited arbitration that parties should be aware of when determining whether to opt for expedited arbitration. Parties often focus on the costs and schedule efficiencies that a streamlined presentation of a case can achieve, but efficiency does not come for free. The post looks at the tradeoffs to obtain efficiency with expedited arbitration.

Our contributors this week offer a diverse set of perspectives on the topical issue of ensuring efficiency of international arbitration while making sure due process is observed, as currently under consideration by the WG II. We hope you enjoy the series!

 

The see our full series of posts on the UNCITRAL WG II process, click here.

References   [ + ]

1. ↑ Ten Years Later: Why the ‘Renaissance of Expedited Arbitration’ Should Be the ‘Emergency Arbitration’ of 2020, Hamish Lal and Brendan Casey, ‘Ten Years Later: Why the ‘Renaissance of Expedited Arbitration’ Should Be the ‘Emergency Arbitration’ of 2020’, in Maxi Scherer (ed), Journal of International Arbitration, (© Kluwer Law International; Kluwer Law International 2020, Volume 37 Issue 3) pp. 325 – 340. 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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The Contents of the Yearbook Commercial Arbitration, Volume XLV (2020), Upload 4

Sun, 2020-09-13 23:45

The fourth upload of ICCA Yearbook materials in 2020 is now available on KluwerArbitration.com. It features a total of twenty-one court decisions applying the New York Convention – from Austria, Germany, Italy, Kenya, Luxemburg, Malaysia, the Russian Federation, Seychelles, Switzerland, Tanzania, the United Kingdom, the United States, and Uzbekistan – as well as two decisions reflecting the practice and doctrine of arbitration in France and Ghana.

One of the latter decisions is of particular interest, not least because it shows a continuous rift on international arbitration law in the courts on both sides of the Channel. In June 2020, the Paris Court of Appeal held in Kabab Ji v. Kout Food Group that French law applied to determining the validity and personal scope of application of a clause providing for ICC arbitration in Paris, even if the main agreement between the parties was governed by English law. That choice, the Court held, was not by itself sufficient to establish the common intention of the parties to submit the arbitration clause – an independent agreement – to the same law. On this basis, the French Court found that binding a non-signatory to the arbitration agreement passed muster. By contrast, the English Court of Appeal had reached the opposite conclusion only in January 2020, when it refused to enforce the award in question in England because under English law, which the English Court found to be applicable, the issue had to be decided differently.

Three decisions on the New York Convention also merit special attention.

The Austrian Supreme Court denied recognition and enforcement of a Belorussian award on the ground that one arbitrator on the panel had been excluded from deliberations. The arbitrator had been told at the conclusion of the evidence-taking phase that there would be further meetings, but then was simply presented a draft award already signed by two arbitrators and asked to sign it as well.

The Berlin Court of Appeal denied recognition of the part of a Russian award directing the defendant to pay a particularly high penalty for delay. It found that the contractually agreed daily rate of 0.5 percent, which corresponded to an annual rate of 180 percent was exorbitant and incompatible with German public policy.

The Swiss Federal Supreme Court, finally, affirmed that an arbitration agreement could be based on a consent by implied action (konkludentes Handeln). It found the arbitration clause in a distribution agreement to be binding on a party that had performed under the distribution agreement for many years, with the agreement of all parties, even though it had not signed the agreement or the arbitration clause.

More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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