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Place of Arbitration in the Proposed “Investment Court” Scenario: An Overlooked Issue?

Wed, 2017-03-22 23:30

Joel Dahlquist

The international arbitration community has lately been occupied with various proposals to reform investor-state disputes. On the interstate level, a consensus seems to be building that several aspects of the current system need to be modified in order for the system to safeguard its own legitimacy.

In this context, there are various reform proposals floated in different fora. Most notably – and most concretely – the EU Commission has been clear in its ambition to establish a more “court like” system to solve investment disputes. Although this work goes on in parallel on different levels, the proposal has been implemented in the signed but not yet ratified treaty with Canada, the CETA. Among other novelties, the reforms include the establishment of a permanent roster of arbitrators (Art. 8.27), an appellate tribunal (Art. 8.28) and the express opening for a future “multilateral” tribunal and appellate body (Art. 8.29).

Although there are many details still to be worked out with respect to this new dispute settlement mechanism, this blog post discusses one specific aspect, which is presumably relevant for most other reform plans, namely the overlooked issue of the place of arbitration.

Similar to many other investment treaties, Art. 8.23.2 CETA allows an investor to choose between different arbitration rules. The three available regimes are the ICSID Convention (with its associated arbitration rules), ICSID Additional Facility and the UNCITRAL Rules. There are numerous differences between these three rules. One such difference is that the two latter require a legal place of arbitration (lex arbitri) in a national jurisdiction. This aspect is integral to the current structure of the ICSID Additional Facility Rules and the UNCITRAL Rules and nothing in CETA suggests an intention to deviate from this fundamental feature.

The lex arbitri governs the outer procedural frame for the arbitration, and is also integral for the question of set-aside proceedings (determining which court has jurisdiction), as well as enforcement under the New York Convention (which requires that the award has a “nationality”). Arbitration under the ICSID Convention, by contrast, is “self-enclosed” in the sense that all such matters are regulated within the Convention itself. In fact, one stated intention behind the ICSID Convention was to remove domestic courts from the arbitration proceedings entirely.

Given this importance of the lex arbitri, remarkably little attention seems to have been paid to which domestic jurisdiction should govern non-ICSID proceedings under CETA and, more crucially, how the new features described above interact with the lex arbitri and the courts at the place of arbitration.

CETA does not specify the place of arbitration in case the ICSID Additional Facility Rules or the UNCITRAL Rules are used. Therefore, the choice rests with the disputing parties (in the case of the UNCITRAL Rules, which also authorize the tribunal to determine the seat if the parties cannot agree) or directly with the tribunal (in the case of ICSID Additional Facility Rules, which require the tribunal to consult with the disputing parties prior to determining the seat).

Presumably, in the CETA context, the contracting states envisioned – to the extent any such details were envisioned at all – that the disputing parties or the tribunal would choose a neutral and suitable place of arbitration (yes, that means you, Switzerland) where the more creative features of CETA would be respected. Alternatively, the assumption might be that the proceedings might be anchored in either Canada or the EU. In any event, the place of arbitration – or at least a limited list of available options – could easily have been specified directly in the treaty (which is the case, for example, with the NAFTA). As it stands now, it is at least theoretically possible for the disputing parties or the tribunal to choose any seat it deems appropriate, which might be in Singapore, Dubai or Moscow.

So why does the place of arbitration matter in this context? Generally speaking, it matters because the law at the place of arbitration determines the procedural frame for the arbitration and therefore, as international arbitration lawyers are well aware, may have important consequences. The lex arbitri can come into play in everything from fundamental matters such as arbitrability and the tribunal’s general powers, to more detailed procedural questions such as evidence production and court assistance during the proceedings.

More specifically, however, the proposed reforms potentially push up against that procedural frame in an unprecedented way with respect to the post-award stage, in the sense that the proposed appellate mechanism is a novelty whose compatibility with mandatory provisions of domestic arbitration law remains to be tested. At the post-award stage, will domestic courts accept that CETA deprives courts of jurisdiction to hear a challenge against the award, in favor of an international “appellate” court?

It is very possible that this will be a non-issue, in the sense that the contracting states’ intentions, as expressed in the CETA, will be respected by domestic courts. It is submitted, however, that the lack of regulation introduces (further) elements of uncertainty into the ambitious reform efforts. Imagine, for example, a disputing party which loses a CETA arbitration under the UNCITRAL rules. The UNCITRAL tribunal is seated in third state X and the losing party moves to challenge the award before that state’s courts, instead of under the CETA appellate mechanism. It is not particularly far-fetched that the courts in state X would not cede its jurisdiction to hear the challenge in such a case, given that the proceedings are governed by the state’s arbitration statutes which generally give state court’s exclusive jurisdiction over such challenges. In fact, only a few jurisdictions allow for parties to an arbitration to contract out of set-asides at the place of arbitration (although the number seems to be growing, see this earlier post on this blog). By way of illustration, Article 34 of the UNCITRAL Model Law provides that:

(1) Recourse to a court against an arbitral award may be made only by an application for setting aside in accordance with paragraphs (2) and (3) of this article.

(2) An arbitral award may be set aside by the court specified in article 6 [the court specified as competent by the domestic statute] only if […]

The Model Law approach is generally echoed in most arbitration statutes, which seem to presuppose that any post-award challenge against an award can only be brought before the courts in the state.

Finally, given the general calls to include domestic courts to a larger degree in future investor-state proceedings, it is surprising that this particular detail has not been discussed further in the arbitration community. What is the role of domestic courts vis-à-vis the appellate mechanism? How does the place of arbitration affect any subsequent enforcement efforts? Is it desirable to allow for both UNCITRAL/ICSID Additional Facility arbitration (which require domestic lex arbitri and domestic courts) and ICSID arbitration (which does not)? These questions should probably be discussed as part of any further reform effort. This applies especially in the EU context, given the well-known tension between tribunals and EU law: what difference does it make if the place of arbitration is in an EU jurisdiction, compared to in a “third state“ jurisdiction?

It is clear that the interaction between various lex arbitri and the new wave of “reformed” investor-state arbitration has not been researched, or even discussed, sufficiently. At least there is ample room for PhD proposals…

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FIDIC Multi-Tier Dispute Resolution Clauses in the Light of Bulgarian Law

Wed, 2017-03-22 05:11

Martin Zahariev and Boyana Milcheva

The FIDIC forms of contracts (FIDIC forms) constitute a comprehensive set of rules applied worldwide in complicated construction projects. The FIDIC forms contain a multi-tier dispute resolution mechanism – depending on the type of a Book, they provide for consideration of disputes (1) by an Engineer (an Employer’s agent managing the construction project), (2) by an Engineer and a Dispute Adjudication Board (DAB – a private independent panel consisting of one or three experts who consider a dispute and issue a decision binding for the parties under certain conditions), (3) through an amicable settlement, (4) and by an arbitral tribunal/court (depending on the specific agreement between the parties, as stated in the Particular Conditions of the respective contract).

A widely-accepted view among scholars and practitioners is that all tiers should be exhausted, i.e. each of the steps is a precondition for admissibility to the other. So, normally the parties to FIDIC based contracts use all the tiers as provided. This being the case, normally a dispute resolution procedure takes a considerable amount of time. Therefore, for the parties involved in respective projects (and related disputes) it is crucial whether this multi-tier mechanism is compatible with the law governing the contract. In other words, are these multi-tier mechanism provisions enforceable and could arbitral awards resolving such disputes be enforced in the respective jurisdiction. As the number of FIDIC based contracts in Bulgaria increases, this question is a very much valid for the country.

Currently, there are two contradicting views in the Bulgarian court and arbitration practice on the FIDIC multi-tier dispute resolution mechanism and its enforceability.

According to the first view, the referral of a dispute to an Engineer/DAB is a precondition for filing an admissible claim (i.e. the mechanism is recognized as a valid agreement as well as its role as a precondition for approaching a court or arbitration). Such interpretation has its foundations in the party autonomy established in Article 9 of the Bulgarian Obligations and Contracts Act (OCA). Its only limitations are the mandatory rules of the legislation and good morals. Hence, the parties are free to agree on whatever procedure they deem suitable and subsequently should comply with it. At the same time, an arbitral tribunal is obligated to follow the procedure agreed by the parties, and if the tribunal does not give due consideration to this procedure, the award may be set aside or have its enforcement refused. Thus, arbitral tribunals should consider only disputes that were duly referred to an Engineer/DAB.

This interpretation was adopted by an arbitral tribunal of the Bulgarian Chamber of Commerce and Industry in a case decided in 2012 (one of the very few cases related to FIDIC contracts). The case concerned the FIDIC Yellow Book 1999 (providing for a 28-day term to refer disputes to an Engineer – Sub-Clause 20.1). The dispute related to the nature of the obligation for a timely referral of the dispute to an Engineer. The claimant argued that the term under Sub-Clause 20.1 constituted a preliminary waiver of rights, which is void under Bulgarian law. According to the respondent, the clause established a clear mechanism for avoidance of bad faith conduct and for timely referral of disputes for consideration. The arbitral tribunal sustained the respondent’s interpretation – the mechanism under the FIDIC forms was not a waiver of rights, but a contractual provision for referral and timely consideration of disputes on major investment projects.

А similar approach was followed by some Bulgarian courts as well. In the Decision No. 1966 of 13.10.2015 in the commercial case No. 4069/2014, Appellate Court – Sofia, Commercial Division, affirmed a decision of the Sofia City Court [Decision No. 867 of 11.06.2014 of the Sofia City Court, Commercial Division, 2nd Chamber under commercial case No. 6378/2012] which granted enforcement of a foreign arbitration award rendered in an ICC arbitration proceeding under the FIDIC Red Book 1992. In the award, the arbitral tribunal refused to consider counterclaims filed by the Contractor directly before the tribunal, but not referred to an Engineer beforehand. The Contractor argued that Sub-Clause 67.3 (which is similar to Sub-Clause 20.1. cited above) contradicts Bulgarian mandatory procedural rules and Bulgarian public order, and is therefore void. Two instances rejected this argument and granted enforcement of the award. Two things should be noted regarding these decisions: First, both instances did not deal with the matter in detail, stating only that the Sub-Clause providing for a prior referral of a dispute to an Engineer was severable from the arbitration clause. Thus, even if the Sub-Clause was deemed void (which the courts did not examine), it does not lead to the voidness of the arbitration clause per se. Second, the decision of the Appellate Court was signed with a dissenting opinion enclosed.

This dissenting opinion introduces the second view on FIDIC’s multi-tier mechanism: referral of a dispute to an Engineer/DAB as a precondition for filing an admissible claim is void due to contradiction with mandatory Bulgarian legislation. This interpretation derives from the requirement for ensuring equality and competitive conditions for parties in judicial proceedings (Article 121, Paragraph 1 of the Bulgarian Constitution). In addition, the court should provide the parties with an equal opportunity to exercise the rights conferred on them (Article 9 of the Bulgarian Civil Procedure Code). The court (and by analogy, an arbitral tribunal) should apply the law equally in respect of all parties concerned. Therefore, by creating contractual preconditions for filing a claim, the parties violate these mandatory rules as they limit their contractual freedom. According to the dissenting judge, the non-consideration of a claim due to the non-referral to an Engineer constituted impossibility for the aggrieved party to present its case and violated Bulgarian public order.

The decision on the case was appealed before the Bulgarian Supreme Court of Cassation, which rejected the admissibility of the appeal [Court Ruling No. 59 of 03.02.2017 under case No. 788/2016 of the Supreme Court of Cassation, I Commercial Division]. The cassation appeal in Bulgaria is restricted and it is subject to special criteria for admissibility. The Supreme Court of Cassation found that the questions concerning the Engineer’s role in the dispute resolution mechanism do not justify the admissibility of the appeal. According to the court, the Engineer’s decision is not per se enforceable if a party refuses to voluntarily perform it. If a party does not agree to the decision, it is entitled to file a claim before an arbitral tribunal/state court under Sub-Clause 67.3. In such a case, Sub-Clauses 67.1 and 67.2 shall not apply. Thus, according to the Supreme Court of Cassation, Sub-Clause 67, which regulates the procedure for handling claims and disputes by the Engineer, is not void. The Supreme Court of Cassation, however, did not examine in detail whether the Engineer’s decision is a pre-condition for filing a claim. This is unfortunate considering the limited court and arbitration practice on the matter. The eventual interpretation on FIDIC dispute-resolution mechanism given by the highest court in Bulgaria would have created predictability and legal certainty for all stakeholders using FIDIC forms. Unfortunately, the Supreme Court did not admit the appeal.

In conclusion, the lack of clear view on the compatibility of the FIDIC mechanism with Bulgarian legislation creates serious uncertainties for domestic and foreign investors in Bulgaria. Moreover, if it is accepted that the FIDIC mechanism is void under Bulgarian law, the enforceability of awards on sometimes multimillion disputes could be seriously jeopardized.

Bulgarian legislation provides sufficient grounds for making an in-depth analysis of the matter and justifying each of the respective positions. For example, the currently prevailing position that recognizes the mechanism could be further elaborated: if the freedom of contract is not a convincing basis for the FIDIC mechanism to be recognized, other possibilities could also be used. An Engineer/DAB decision can be qualified, for example, as a third-party determination. Under Article 299 of the Bulgarian Commercial Act it is recognized that if the parties agree that a third party shall determine certain terms and conditions of the contract, such determination shall become binding only in case the third party has determined them in compliance with (1) the objectives of the contract, (2) the other provisions of the contract, and (3) the commercial custom. Courts should examine any decision of the Engineer/DAB in the light of the said criteria. Should the decision contradict the latter, either of the parties is entitled to contest it before a court, and thus it has a mechanism available to defend its rights. This qualification has already been supported by some scholars, but has not been confirmed in practice thus far.

Considering the fact that some jurisdictions have already introduced specific legislation regarding the mandatory use of dispute boards, it is about time for both Bulgarian legal doctrine and the Supreme Court to intervene on that matter (regardless of which view will be adopted and on what grounds) in order to create legal certainty for all stakeholders willing to use the FIDIC forms in Bulgaria.

The views and opinions expressed herein are those of the authors and do not necessarily reflect those of Dimitrov. Petrov & Co., its affiliates, or its employees.

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The Hypocrisy of Anti-ISDS Groups – Part 2

Tue, 2017-03-21 03:34

Nikos Lavranos

Not so long ago, I reported on the recent documented discovery that anti-ISDS groups have been making and continue to make a handsome profit from the anti-ISDS/anti-trade/anti-globalization campaign, which they have unleashed over Europe with the active financial support of the European Commission and several EU Member States.

This time I would like to draw the attention to an interesting dispute between two NGOs, which is currently dealt with by the Swiss National Contact Point (NCP) that has been established to deal with complaints of NGOs against investors which supposedly have violated the OECD Guidelines for Multinational Enterprises (better known as the OECD Guidelines).

In February 2016, Survival International (an NGO based in London) submitted its claim against the World Wildlife Fund (WWF), which is headquartered in Switzerland. According to the NCP report:

“The submission concerns the rights of the Baka people of southeast Cameroon related to the environmentally protected areas which the government of Cameroon has introduced with the financial and logistical support of WWF, but according to the submitting party without the free, prior and informed consent (henceforth referred to as “FPIC”) of the Baka.

As a consequence, the Baka has been denied or seriously curtailed access to their traditional territories and natural resources on which they depend (the ‘Land Issue’). The submitting party further states that the Baka people have been subjected to violent abuse by the ecoguards and other law enforcement officials who patrol the protected areas with WWF’s support (the ‘Ecoguard Issue’).

The submitting party claims that the responding party has violated the OECD Guidelines by failing to conduct a due diligence and not making its support for the demarcation of the protected areas conditional upon the FPIC of the Baka. Moreover, WWF should have supported ecoguard patrols only if effective steps were taken to ensure that the patrols focused on commercial poachers rather than Baka hunting for subsistence, and that ecoguards should be held accountable if they used or threatened violence against the Baka. The result of the non-intervention of WWF has been a denial of Baka rights to their land and natural resources, and a conflict with the governmental forces.

According to the submission, the development and management of protected areas in southeast Cameroon has required significant expenditure and expertise with WWF being the government’s most important source of funds and logistical support. As a consequence, the protected areas have depended and continue to depend heavily on WWF, which has been able to set the agenda and determine priorities. The submitting party further states that the Ministry of Forests and Wildlife in Cameroon describes WWF as the “joint manager” of each of the parks of the Jengi Southeast Forest Program1. It also mentions that WWF has regarded ecoguards as crucial to its operations, and thus established its own Wildlife Law Enforcement Programme in Cameroon. Furthermore, WWF until the mid-2000 organized workshops to train ecoguards about wildlife law and criminal prosecution and supported the deployment of a heavily armed military unit called the Bataillon d’Intervention Rapide on anti-poaching patrols. Ecoguards were also supported financially and logistically by WWF.

In the view of the submitting party, the responding party should fund an independent consultation of the Baka in which they can express their own views on the way forward and ensure that in future the Baka have an effective say in decisions that affect them, and can protect themselves against physical and other forms of abuse. Consequently, the WWF procedures in order to respect the human rights of the Baka should be revised.”

This dispute is interesting and relevant for the investment arbitration community for several reasons.

The Creeping Hard-Law Effect of the OECD Guidelines

Firstly, it should be recalled that the OECD Guidelines, while intended to be voluntary and of soft-law character, are increasingly turned into hard-law obligations for foreign investors.
This is evidenced by the fact that CETA and the other recently negotiated EU trade and investment agreements (EU FTAs) make direct reference to the OECD Guidelines, which to some extent brings them into the scope of application of CETA and the other EU FTAs.

Moreover, at the 2017 OECD Global Forum on International Investment, which took place on 6 March 2017, practically all participants underlined the importance of strengthening and enhancing the observance and enforcement of the OECD Guidelines as a tool to show that foreign investors are capable of making “good” investments, which benefit the whole society. Indeed, some went as far as claiming that the observance of the OECD Guidelines could be used as a positive tool against the current backlash against globalization and multinationals and foreign investors generally.

In other words, there is a general expectation that the OECD Guidelines must be respected by all investors.

NGOs Can Be Qualified as “Multilateral Enterprise”

Secondly, it is noteworthy that the Swiss NCP qualified the WWF as falling within the scope of a “multinational enterprise” within the meaning of the OECD Guidelines. In this context, the NCP notes that

“[T]he WWF network employs around 6,200 full time staff and has dedicated around USD11.5 billion to charitable activities like conservation projects since its foundation in 1961.”

But more importantly, the NCP concluded that

“WWF’s approach to conservation is to a certain extent market based and it undertakes commercial activities (e.g. income of the WWF network from royalties as well as from other trading activities). WWF for example sells collectors’ albums and the panda emblem for more environmentally friendly products. This would not be possible without projects such as the ones in southeast Cameroon which are part of its activities to protect the environment. Therefore, WWF’s involvement in the establishment and maintenance of protected areas in southeast Cameroon can also be considered as activities of commercial nature, to which the OECD Guidelines are applicable.”

In other words, this is another important decision clarifying that also NGOs can be qualified as multilateral enterprises with commercial activities, similar to foreign corporate investors.

A Meritorious Claim

Thirdly, the initial assessment of the Swiss NCP is that issues raised in this submission “merit further consideration”, and the Swiss NCP therefore accepts the specific instance. However, and at the same time, the NCP stresses that this “conclusion should not be construed as a judgment of whether or not the corporate behaviour or actions in question were consistent with observance of the OECD Guidelines and should not be equated with a determination on the merits of the issues raised in the submission.”

Accordingly, one must wait for the final assessment of the NCP. Nonetheless, it seems clear that the claims by Survival International are not unfounded or without merit, which in itself is an important and relevant conclusion.

No Transparency

Fourthly, the NCP stresses that

“The role of the Swiss NCP is to offer a forum for discussion and to assist the parties concerned to deal with the issues raised. The submitting party has engaged in a mainly written exchange with the responding party prior to this submission during the last two years. The Swiss NCP considers that by accepting this specific instance and offering a confidential setting for discussions, it could foster the continuation of this previous exchange between the responding and the submitting party. Thereby, the NCP could contribute to a better understanding among parties and help them reach a mutually acceptable outcome concerning the issues raised with regard to the future situation of the Baka related to the engagement of WWF in Cameroon.”

At the end of its report, the NCP repeats again that full confidentially must be maintained even after the final outcome of the proceedings:

“The Swiss NCP requests parties concerned to agree to maintain confidentiality during the further proceedings. In order to establish an atmosphere of trust, the OECD Guidelines foresee that no information regarding the content of the proceedings may be shared with third parties or supporters of the complaint. If sensitive business information is provided or discussed during the meetings of the Swiss NCP, special requirements concerning the treatment of confidential information can be agreed upon by the parties involved in this specific instance. The NCP informs the parties that it reserves the right to stop the proceedings if one or other of the parties does not respect this confidentiality. Even after the proceedings have finished, parties concerned remain committed to treat information received during the proceedings in a confidential way unless the other party agrees to their disclosure.”

The issue of confidentiality is of particular interest when contrasted with the criticism against the (limited) confidentiality, which exists in investment treaty arbitration.

No Need for NGOs to Exhaust of Local Remedies

Another interesting point to note is the preference of the NCP as an international dispute settlement forum by Survival International, instead of using Swiss courts. Again, this contradicts the call of anti-ISDS groups to include the exhaustion of local remedies in EU FTAs, thereby forcing foreign investors to first spend a couple of years of proceedings before national courts prior of being allowed to turn to an international dispute settlement forum. This was repeated several times by anti-ISDS NGOs at the EC’s stakeholder meeting on the multilateral investment court (MIC), which was held some weeks ago.

The Same Standards Should Apply to All Investors

While the NCP proceedings are obviously different from international arbitral proceedings, there are interesting parallels. In this specific case, it is interesting to note the different standards, which the NGOs proclaim for themselves but which at the same time ferociously criticize in their anti-ISDS campaign. It is this kind of hypocrisy that has so much contaminated the current debate.

Instead, NGOs should be submitted to the very same standards as foreign investors. Accordingly, it is to be applauded that the Swiss NCP qualified WWF as a multilateral enterprise, thereby requiring it to fully observe the OECD Guidelines.

Similarly, the same standards of transparency as is called for in investment arbitral proceedings and as proposed in the investment court system (ICS) of the EU should be applied to NGOs, i.e. the UNCITRAL Transparency Rules. Indeed, this may require to align on this point the OECD Guidelines with the UNCITRAL Transparency Rules.

As far as the exhaustion of local remedies is concerned, if that were to be made a general rule in EU FTAs or in the proposed multilateral investment court (MIC), that would necessitate a modification of the OECD Guidelines as well.

In sum, there is no need for double standards for NGOs, nor is there any need for more hypocrisy from anti-ISDS NGOs.

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How Legal Traditions (Still) Matter in International Arbitration

Mon, 2017-03-20 06:06

Claire Morel de Westgaver and Sébastien Krier

On 23 February 2017, three prominent international arbitrators shared their views and experience on the controversial question of the influence of legal traditions on arbitrators and arbitral proceedings. Juliet Blanch, Bernard Hanotiau and Pedro J. Martinez-Fraga were interviewed by Oliver Caprasse and Claire Morel de Westgaver at an event jointly organised by Belgian arbitration institution CEPANI and US law firm Bryan Cave. Dirk De Meulemeester, President of the CEPANI, and Maria Gritsenko gave the introductory notes.

Arbitrator nomination and appointment

When it comes to the arbitrator selection process, mixed perceptions exist as to the importance of legal traditions. An arbitrator’s legal background may be the subject of stereotypes. A classic example of such a stereotype is the scope of document production which counsel sometimes assumes can automatically be limited through the nomination of a civil law trained arbitrator.

It was noted that counsel tends to get excessively engrossed on the question of legal backgrounds. Although an arbitrator’s legal training may be relevant with junior lawyers or litigators, more experienced arbitrators tend to understand both civil and common law – notwithstanding the fact that common law can be very different depending on the jurisdiction in question. The panel agreed that more weight should be given to a prospective arbitrator’s experience and qualifications. For example, it was noted that there are cases that benefit from having a non-lawyer involved as arbitrator.

Advocacy and evidence

Advocacy style can be adapted based on the circumstances including the background and experience of arbitrators. If the arbitral tribunal is composed of three QCs, English Court style advocacy might prove more effective. However, given that tribunals, and in fact arbitrators themselves, are often of mixed backgrounds, a particular style might not necessarily be any more helpful.

As regards the conduct of cross-examination, it transpired from the discussion that common law trained lawyers might be better placed than civil law lawyers who generally do not receive such training. It was said that a well-conducted “QC style” cross-examination could be “a real delight”. With regard to how arbitrators approach cross-examination, it was also noted that ultimately, arbitrators cannot extract themselves from who they are: cross-examining witnesses is generally more natural in Anglo-Saxon jurisdictions, meaning that how a document is being used and what it purports to prove is not always scrutinised in the same way by lawyers from across jurisdictions.

When asked about the influence of national legal systems on evidence, it appeared from the discussions that the scope of both documentary and witness evidence tends to be overly broad across the board, civil law and common law lawyers continue to differ in how they view and interpret a document. Generally, from the perspective of a civil law lawyer “the document speaks for itself”. In contrast, a common law lawyer might feel the need to have witnesses introduce documents and examine witnesses in relation to the content of a document that would appear self-evident to a civil law lawyer. It was further advised that counsel often lose track of the two main purposes of cross-examination: impeachment and admission. In relation to bridging the gaps between different legal traditions on evidence, the safest option remains sticking with the 2010 IBA Rules on the Taking of Evidence in International Arbitration.

Settlements

The panel testified that it is not unusual for parties to approach arbitrators to seek their preliminary views on liability but also sometimes on quantum. If the arbitrators engage in this process, this is always on the basis that the tribunal will not be bound by such preliminary views. In fact, parties will sometimes agree in writing not to challenge the arbitrator(s) and/or the ensuing award(s) on the basis that such preliminary views were given. The validity of such a waiver – which could in turn vary across jurisdictions – was questioned by the panellists.

Settlement in the context of arbitral proceedings is an area where the legal culture, in particular the seat of the arbitration, has an impact on the role of arbitration. The process by which arbitrators share their preliminary views on the dispute is more common in certain jurisdictions, such as Germany and Switzerland. Panel members expressed reservation about engaging in this process unless sitting in jurisdictions where such a practice is commonly accepted. In the same vein, the panellists discussed whether it is appropriate to suggest that option to parties, or whether it is preferable to consider it only when expressly sought by the parties.

Sua sponte

Another important topic, which led to very interesting discussion, was sua sponte actions by arbitrators. It emerged from the discussion that whether arbitrators may or should sua sponte raise questions of law may depend on many factors, including the seat of the arbitration, the applicable law, the legal background of the arbitrators and the public policy character of the norm. The principle of iura novit curia was cited as an example of rule relied upon by arbitrators to raise questions of law on their own initiative. Such rule tends to be inexistent in jurisdictions where parties are to prove the law.

Decision making process

Reference was made to the Spanish Supreme Court in the Puma case (Spanish Supreme Court 102/2017, 15 February 2017) where an award was set aside and two of three arbitrators were found professionally liable for excluding their fellow arbitrator from the deliberations. The panel noted that there were sometimes cultural differences in how arbitrators approached the decision-making process, including the deliberations. In this case, it remained to be seen what evidence of the exclusion of the third arbitrator had been adduced in the ensuing litigation.

In this context, it was noted that it is not uncommon in investment treaty cases to have an arbitrator seeking to further his or her appointing party’s agenda – whether consciously or not. Only a minimal number of dissenting opinions come from arbitrators appointed by the successful party. It could, however, be argued that dissenting opinion statistics demonstrate effective selection of arbitrators, thereby proving that cultural background might indeed play a role in the arbitrator selection process. The panel however was adamant that the issue was more likely one of personality or honest belief in different legal theories.

The media sponsors for this event were OGEMID / TDM and ArbitralWomen.

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Antitrust Arbitration in Europe (Part I): Improving Private Enforcement by Removing Procedural and Evidential Barriers in Arbitration

Fri, 2017-03-17 05:01

Patricia Živković (Associate Editor)

The Member States of the European Union (“EU”) had a task that a very few has managed to complete: to implement the Directive 2014/104/EU of the European Parliament and of the Council of 26 November 2014 (“Damages Directive” or “Directive”) by 27 December 2017. According to the website of the EU Commission, only ten Member States have thus far transposed the Directive in their national laws, whereas the remaining 18 countries are in different stages of the implementation process.

This Directive is the first EU legislation that addresses directly the private rights of actions for antitrust damages, and it was envisioned as a means for leveling the field among EU Member States by providing procedural, evidential and substantive minimum to be implemented in national legal frameworks. Namely, the main reason for a centralization of antitrust claims in only a few EU jurisdictions (for example, in the UK, the Netherlands, Germany, and France) was found to be a direct consequence of the claimant-advantageous procedural and substantive laws in these countries, among other features of their legal systems.

This attempt of achieving the uniformity not only encompasses private actions brought before national courts, but it also actively promotes and facilitates the use of other dispute resolution mechanisms, i.e. “consensual dispute resolution”, to use the (somewhat unclear) terminology of the drafters of the Directive. However, while the position of the EU Commission is clearly to send a signal that there is a need for promotion of alternative dispute resolution mechanisms in this area, it does not provide clear guidelines as to how this is to be achieved.

Research shows that only Finland considered the possibility of the application of reformed laws on arbitration. This was not done explicitly in the act itself, but rather in the Government Bill. Still, it is certainly welcomed when a Member State takes a step further. The drafters of the Directive have not left parties without any incentive to arbitrate their disputes either. Article 19 of the Directive provides that “the claim of the settling injured party is reduced by the settling co-infringer’s share of the harm that the infringement of competition law inflicted upon the injured party”, and that “[a]ny remaining claim of the settling injured party shall be exercised only against non-settling co-infringers”.

Still, whereas the topic of antitrust arbitration is widely discussed in regards to the application of antitrust/competition laws by arbitral tribunals, thus far only a few authors have written about arbitrating antitrust damages claims. Perhaps the thought of arbitrating this type of claims could have been easily dismissed three weeks ago; however, in the meantime, the English High Court has changed this course by deciding on 28 February 2017  to stay the proceedings on antitrust damages claims which were commenced by Microsoft before this court due to an arbitration clause (Microsoft Mobile OY (Ltd) v Sony Europe Limited et al., [2017] EWHC 374 (Ch)). The Microsoft case offered a novel perspective as to whether arbitration clauses encompass antitrust damages claims that will be discussed in a follow up post (Part II). This post is aimed at pointing out which procedural and evidential barriers can be found within the existing arbitration framework when it is observed through the lens of the Damages Directive and private enforcement of antitrust damages claims in general.

Collective Redress: Designing Complex Antitrust Arbitration

Antitrust violation results with scattered harm for a large number of victims on a different level of a distribution chain, i.e. the harm can be caused both to direct purchasers and to indirect purchasers, who suffered the harm passed-on through overcharge. Hence, collective redress plays an important role in private antitrust damages actions.

Antitrust damages proceedings would involve multiple claimants on one side and (possibly) multiple respondents (competition law infringers) on the other side. These parties could, but not necessarily would have had concluded arbitration agreements with each and every one of them. Arbitration would in that regard be bipolar in a sense that there would be a group of claimants and a group of respondents, but not all of them would necessarily be in contractual relations and their contracts would not necessarily contain same arbitration agreements or designate same arbitral institutions.

The Damages Directive, however, did not oblige Member States to introduce procedural mechanisms for collective redress. Collective redress was, nevertheless, mentioned in both the Green Paper and the White Paper, which preceded the Damages Directive, and was also recommended by the Commission in 2013 to be introduced at a horizontal level.

Simply put, in order for antitrust arbitration to become a competitive dispute resolution mechanism for antitrust disputes, the effective and efficient rules on bipolar multi-party, multi-contract proceedings should be introduced. Otherwise, private claimants may have little if no incentive to pursue such claims individually due to the costs and legal risks involved.

Probably the first thing that comes to one’s mind is the conflict between collective redress and the consensual nature of arbitration. However, the recent development in regards to corporate disputes in Russia has shown that these two are not incompatible at all. Besides, the arbitration legal framework already provides for several procedural tools in this regard: arbitration rules usually contain a provision on complex arbitrations, i.e. multi-party and multi-contract claims. Still, without an adequate framework, the involvement of multiple parties in antitrust arbitration will heavily depend on the consensual nature of arbitration.

While awaiting the change of the procedural framework either through the extended application of implementing laws to arbitration or through tailor-made arbitration rules, there is at least one interim solution which can be offered as a middle step. This is the suggestion to create alternative vehicles which will bring such claims instead of multiple claimants. An example of such a vehicle is the Cartel Damages Claims (“CDC”). The CDC is a special purpose vehicle which main task is aggregating individual claims from numerous cartel purchasers and lowering the economic barriers for the enforcement of these claims by enforcing them in its own name and on its own account against cartel members on a Europe-wide basis.

Vehicles such as the CDC could function in the arbitration field as well (perhaps they already do). This would not only lower economic barriers but also procedural barriers since it would, at least on a claimant’s side, reduce the number of parties, and in that way it would ease access to justice and foster the private enforcement system for antitrust damages claims. Recent developments regarding the third party funding industry in relation to arbitration which shows that the lines between third party funders and law firms are becoming blurred open possibilities for this and other types of similar vehicles to be developed for the purposes of aggregating claims in arbitration.

Information Asymmetry and Disclosure: Expanding the Evidential Standard in Arbitration

The disclosure rules imposed by the Damages Directive are more or less novel to most civil law countries in the EU, but they are also recognized by the EU Commission as best-suited rules for this type of proceedings as

“it is appropriate to ensure that claimants are afforded the right to obtain the disclosure of evidence relevant to their claim, without it being necessary for them to specify individual items of evidence”. (Recital 15 of the Directive)

In this type of proceedings, the importance of disclosure should be recognized in arbitration as well, where it should outweigh the usual expectation of the parties to have expedited proceedings.

In order to fully understand why there is a need for the reform of the rules on disclosure of evidence in antitrust arbitration, one needs to look at what is received within the procedural “box” when parties agree to arbitrate their antitrust damages claims. In short, the current stance on the discovery/disclosure of evidence in arbitration is that although arbitrators are usually vested with such an authority under the umbrella of broad discretion, the climate regarding discovery in international arbitration has so far been rather unaccommodating.

The scope of application of the provisions in implementing laws should, therefore, be expanded on arbitration as well, or at least provided in a set of rules for antitrust arbitration. Furthermore, it would be important to establish the scope of persons to whom such an order for disclosure can be addressed by an arbitral tribunal, i.e. whether the tribunal would have the power to order disclosure to a person who is not a party to the dispute. This is perhaps one of the biggest disadvantages of arbitration when it comes to the resolution of private antitrust damages claims, as national courts will usually have much wider powers when making orders against third parties. Hence, it is necessary to determine whether the assistance of national courts to arbitral tribunals can be developed in this area.

On the other hand, consequences stemming from the lack of extension of the rules limiting disclosure to arbitration dealing with private antitrust claims may raise severe questions regarding the subsequent court review of an award. One such consequence may arise in a case when the tribunal orders disclosure of evidence that should not be disclosable according to the Directive, such as leniency statements and settlement submissions. At this point it is not clear in the doctrine and in the practice whether arbitral tribunals ordering disclosure of these or other restricted documents would be violating public policy, and risking setting aside of an arbitral award in that regard. Hence, it needs to be considered whether it is necessary, given the importance of, for example, leniency programs, to protect these documents more effectively from disclosure in arbitration.

To be continued…

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Evidence in Investor-State Arbitration – The Need for Action

Wed, 2017-03-15 23:14

Frédéric Sourgens

ITA

Newspapers, cable television shows, and Twitter are abuzz with claims of “fake news.” Within the past two weeks alone, the U.S. President accused his predecessor of wiretapping his office building, apparently in reliance upon reporting in online news media. More traditional news outlets have responded with innuendo that the Director of the U.S. Federal Bureau of Investigation privately asked the Department of Justice to refute the claim – perhaps even threatened to resign if the Department of Justice failed to act. In this particular instance, both President Trump and his detractors are likely to condemn the other side’s efforts as “fake news” and carry on developing their respective political narratives.

What the world currently experiences is not new to investor-state arbitration practitioners. The world of investor-state arbitration has long been exposed to “guerrilla tactics.” Part of such guerrilla tactics may well be to make unsubstantiated factual claims, support these claims with dubiously sourced news stories, and accuse opposing counsel of relying upon conspiracy theories in seeking to rebut a particular claim or defense. From the claimant’s point of view, the issue is particularly poignant in the context of assertions by the host state that the investor obtained the investment by corrupt means. From the respondent’s point of view, the issue comes to the fore in the context of allegations of bad faith in governmental decision-making, relying as ever upon anonymous reports of internal government deliberations. In our world, too, we are likely to see parties accuse each other of fabrication or “fake news” while carrying on in their respective thematic narratives.

In the world of politics, we can stand to suffer spin – even spin on steroids. As Steven Colbert memorably put it, decisions in politics are often based on truthiness, or the appearance of truth due to gut instinct. The narrative-driven endeavors to campaign and convince are a natural consequence of this modality of political decision.

When the world of politics discovered investor-state arbitration, some painted the picture that arbitrators, like voters, respond to ideologically well-sounding narratives rather than facts. Arbitrators are intellectually predisposed to want to believe one version of the truth. They are thus susceptible to fake news. Thus, investor-state arbitration has been dubbed a dangerous and corruptible realm of pseudo-courts charged with making far-reaching decisions affecting policy choices in host states for years to come.

Investor-state arbitration practitioners and scholars have long sought to refute this charge of bias. Following Susan Franck’s pioneering work, they have shown that decisions are not inevitable, that no one side wins disproportionately, and that stories of arbitrator prejudice are greatly exaggerated. And yet – one might ask, if investor-state arbitration suffers from the same kind of guerrilla tactics as the exchanges between President Donald Trump and his political opponents, how can we be certain that arbitrators remain truly above the fray?

In other words, if champions of investor-state arbitration are to successfully refute the charge that decisions are made based on truthiness rather than truth, there must be a predictable and reliable means of addressing evidence. It is self-evident that binding investor-state arbitration decisions should aspire to be based in fact rather than make-believe. When parties and their counsel have become so good at making believe, however, the practice must be able to look to a nascent law of evidence. It is only if such a nascent law of evidence exists that it is possible to shelve Senator Elizabeth Warren’s criticism of investor-state arbitration in the category of political narrative as opposed to factually warranted critique.

Over the past few years, Ian Laird, Kabir Duggal and I have set out to address whether there are in fact rules of evidence that could rebut recent criticism. Our starting point was that discretion of the arbitrator – the free examination of evidence by the tribunal – would not rebut the charge. Discretion does not per se banish ideological predispositions from deliberations. Discretion could well prefer “fake news” to hard fact in arbitral decision-making. The only check against that possibility is trust in the arbitrators to utilize sound discretion – but this trust would need to be merited in some demonstrable way.

Consequently, we hoped to be able to pull back the curtain of arbitrator discretion and show that tribunals in fact made predictable and reliable factual determinations in investor-state arbitrations. Our conclusion after reviewing arbitral awards, jurisdictional decisions, annulment jurisprudence, and procedural orders is that investor-state arbitration does in fact follow robust rules of evidence. Surprising though this conclusion may sound to some, it is nothing other than confirmation that arbitrators can be trusted, but not because of some intangible quality of “arbitratoriness,” rendering tribunals immune to truthiness arguments. Rather, it is due to an adherence by arbitrators to a basic fact-finding rubric that yields consistent results based in fact rather than conjecture, in record rather than narrative.

Our inquiry, Evidence in International Investment Arbitration (Oxford University Press, forthcoming 2017), begins with an articulation of rules governing burdens and standards of proof. The use of burdens and standards of proof provides the innermost skeleton for decision making in most any form of dispute resolution. Investor-state arbitration is no exception. And the burdens and standards of proof in investor-state arbitration unsurprisingly do not differ from the burdens and standards of proof applied in other international and transnational proceedings. As recently stated in Apotex, the principle of onus probandi actori incumbit applies in investor-state arbitration – the party submitting that an event took place has the burden to prove the veracity of its own claim. Further, as recognized by a Rompetrol tribunal otherwise skeptical of efforts to codify evidentiary rules in investor-state arbitration, the more sensational the claim, the more evidence will typically be required before a tribunal will accept the claim, i.e., a single anonymously sourced news article without more would rarely be sufficient to support a claim of egregious misconduct.

Our inquiry continues by cataloguing how tribunals permit parties to discharge their burdens and meet the respective standards. It catalogues a reasonably consistent practice of drawing inference and using presumptions. It showcases how the use of document disclosures assists a tribunal in shoring up the use of inferences and presumptions and looked to a general practice of treating witnesses and experts. It further finds a consistent practice even with regard to the exclusion of evidence on the basis of privilege, confidentiality, or violation of fundamental principles of international public policy.

In short, investor-state arbitration follows robust rules of evidence. It can withstand the charge that as a practice, it cannot distinguish between truth and truthiness. Our book will provide additional evidence for the integrity and earnest judgment of arbitrators in the field.

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Parties’ Obligations Under an ADR Agreement – A Systematic Content Analysis of Agreements to Resolve Commercial Disputes

Wed, 2017-03-15 03:32

Maryam Salehijam

In the past fifteen years, the European Union has displayed a particular interest in Alternative Dispute Resolution (ADR). Furthermore, a number of recent initiatives have shown that a general, overarching framework relating to both Business-to-Business (B2B) as well as Business-to-Consumer (B2C) ADR would enhance legal certainty in Europe and improve access to justice. Without losing sight of the elaborate work already done by specialized institutions with a global reach, such as the UNCITRAL, one could indeed state that there is a clear need for a more general European framework of minimum minimorum requirements applicable to ADR in Europe.

One aspect that is particularly important in this regard is an ADR agreement. The concept of ‘ADR agreement’ assumes a consent of the parties to resolve their present or future disputes through ADR. So far the ADR agreement has remained under the European radar and European lawmakers expressed no intent to regulate ADR agreements any further than the already are regulated within national legal frameworks. The Consumer ADR Directive (Recital 49, Article 12) and the Mediation Directive (Recital 24, Article 8), for instance, explicitly state that the European legislature does not have the ambition to prescribe the effect of ADR/Mediation agreements. This leaves the Member States with an ample leeway to regulate (or not regulate) the ADR agreement and to determine its legal nature and effect.

Certain jurisdictions have specific ADR legislation governing these agreements, while in others, (significantly varying) general contract law provisions apply. In some countries, they are considered a condition precedent to litigation, while in other countries it is uncertain what the available (procedural or contractual) remedies are in the event of non-compliance. Moreover, there are different rules on the precise moment in time at which ADR begins and ends, and on the exact obligations of the parties to an ADR agreement. This uncertainty leads to the following questions: when are the parties bound by their ADR agreement? What are the parties’ obligations in an ADR agreement? Are the parties’ obligations in an ADR agreement enforceable? Does the non-compliance with an ADR agreement precludes arbitral tribunals’ jurisdiction? Can awards be set aside for the tribunal’s failure to enforce a step prescribed in a dispute resolution clause?

Now that ADR has become more prominent in the European Union, regulating the European status of the ADR agreement is the next logical (and necessary) step. In that line, my PhD research, which is funded by BOF (Special Research Fund) and supervised by Professor Piers at the Transnational Law Center (University of Ghent), focuses on the ADR agreement. The research will examine whether and how European law regulating the ADR agreement could advance the use of ADR in a European cross-border context. In addressing the above question, a chapter of the PhD researches the parties’ obligations under the ADR agreement. Do parties to an ADR agreement calling for mediation or conciliation have to set up the proceedings? Attend a minimum number of session? Cooperate? Act in good faith? Settle? Refrain from commencing litigation/arbitration?

In order to assess the scope of the parties’ obligations to an ADR agreement, the research is divided into two stages. The first stage involves a questionnaire. The questionnaire targets legal professionals – including lawyers and third-party neutrals – who have experience in drafting, inserting or enforcing dispute resolution clauses that provide for non-binding ADR mechanisms such as mediation and conciliation. The aim of the questionnaire is to gather model/standard or previously utilized dispute resolution clauses with a non-binding ADR element. The choice for a questionnaire instead of a general call for clauses was prompted by the fact that many professionals are unwilling to provide such a clause due to various reasons, such as confidentiality.

In the second stage, the clauses gathered as well as clauses extracted from other sources will be content coded using the software NVivo in order to determine which obligations tend to be reoccurring in the majority of the clauses under analysis. If a “common practice” in terms of obligations is detected, the findings can be relied upon by courts and tribunals to imply terms to an otherwise uncertain ADR agreement. This is essential to promote the conclusion of ADR agreements, as today a simple omission in the ADR agreement might results in its invalidity. For instance, if an ADR agreement fails to address the remuneration of third-party neutral, the courts in certain jurisdictions, such as in England & Wales, will find the clause to be void for uncertainty.

The participation in the short questionnaire will require minimum effort, as most questions only require a simple mouse-click. Please note that the information entered in the survey is kept anonymous, unless indicated to the contrary by participants. Moreover, as the analysis takes place on an aggregated level, the findings will not disclose personally identifiable information. Accordingly, the information provided will only serve scientific purposes.

To complete the questionnaire, please click on the following link (closing date 29 April 2017).

If you wish to provide the model/previously used dispute resolution clauses without completing the questionnaire, please email Maryam Salehijam at [email protected].

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Green Light for Romania to Terminate its Intra-EU Bilateral Investment Treaties

Tue, 2017-03-14 00:07

Crina Baltag (Associate Editor)

On 8 March 2017, the Romanian Parliament sent to the Romanian President for promulgation the Law allowing for the termination of the Bilateral Investment Treaties between Romania and other Member States of the European Union (“Intra-EU BITs”). This comes after Poland adopted a similar measure at the beginning of January 2017 and with the European Commission starting to assume a more active role in the issue of Intra-EU BITs. (See Markus Burgstaller, Recognition and Enforcement of ICSID Awards: The ICSID Convention and the European Union, p. 412, in Crina Baltag (ed.), ICSID Convention After 50 Years: Unsettled Issues, 2017, Wolters Kluwer). With the entry into force of the Lisbon Treaty and the shift in the competencies with respect to Foreign Direct Investment, the European Commission voiced its real concerns with respect to the issue of Intra-EU BITs. For instance, in the Observations submitted in Eureko BV v. the Slovak Republic (now, Achmea BV v. the Slovak Republic), the European Commission stated that

Eventually, all intra-EU BITs will have to be terminated. Commission services intend to contact all Member States again, urging them to take concrete steps soon. Furthermore, while the Commission is in favour of consensual solutions with EU Member States, as guardian of the EU treaties it cannot exclude eventually having to resort to infringement proceedings against certain Member States. (Award on Jurisdiction, Arbitrability and Suspension of 26 October 2010, para. 182)

The measure adopted by the Romanian Parliament is a direct consequence of the infringement proceedings under Article 258 of the Treaty on the Functioning of the EU, commenced in 2015 by the European Commission against Austria, the Netherlands, Romania, Slovakia and Sweden in respect to their Intra-EU BITs. As highlighted by the European Commission, Intra-EU BITs affect the single market by conferring rights to some EU investors on a bilateral basis, which come in conflict with the EU Law and with the principles of a single economic market. As noted by the Commission, there is a high reliance by some investors on these BITs in the recent years and the outcome of this might create legal uncertainty for cross-border investments. The Commission referred here to the outcome in the Micula I case against Romania where the European Commission regarded the damages awarded by the ICSID tribunal as illegal state aid. (For the enforcement of the Micula I Award, see Markus Burgstaller, Recognition and Enforcement of ICSID Awards: The ICSID Convention and the European Union, in Crina Baltag (ed.), ICSID Convention After 50 Years: Unsettled Issues, 2017, Wolters Kluwer).

This position of the European Commission is reflected in the reasoning of the Law by the Romanian Parliament. It is highlighted here that there are twenty-two Intra-EU BITs in force signed by Romania and, in accordance with the EU Law, such agreements are superfluous given the fact that the EU Law guarantees to EU investors and their investments in the EU Member States proper and equal protection. While the Law refers to termination by consent or by unilateral termination, issues concerning the sunset clauses in the terminated BITs should not be much debated.

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Current Issue of the Journal of International Arbitration

Sun, 2017-03-12 17:49

Maxi Scherer

Issue 34, Volume I

ARTICLES SECTION

Ank Santens & Jaroslav Kudrna, The State of Play of Enforcement of Emergency Arbitrator Decisions

Abstract: The 2015 Queen Mary/White & Case International Arbitration Survey found that 79% of respondents considered the enforceability of emergency arbitrator decisions to be the most important factor influencing their choice between state courts and emergency arbitration when seeking urgent relief before the constitution of the arbitral tribunal. Given that the enforceability of emergency arbitrator decisions is a major concern for users of international arbitration, it is useful to explore the state of play of the enforcement of these decisions. This article provides an overview of all cases reported globally to date involving a request for enforcement of an emergency arbitrator decision and discusses key questions that arise in that context. The authors conclude by analysing the impact of the enforceability of emergency arbitrator decisions on whether users should seek emergency relief from an emergency arbitrator or a state court.

Beata Gessel-Kalinowska Vel Kalisz, UNCITRAL Model Law: Composition of the Arbitration Tribunal Re-considering the Case upon Setting Aside of the Original Arbitration Award

Abstract: In this article, the author analyses the question whether it is possible for the arbitrators, after their original award had been annulled, to sit on the arbitration tribunal hearing the case again, to reconsider the case, and to issue a second award in the same case in light of the UNCITRAL Model Law regulations. This question is addressed from two basic perspectives. The first one relates to arguments rooted in the functus officio principle, especially in reference to rectification and remission proceedings, as laid down in relevant regulations. The second perspective, meanwhile, encompasses the ethical principles and usages concerning appointment of arbitrators in international commercial arbitration, including the concept of prejudgment. In her conclusions, the author rejects a blanket prohibition on re-appointment of arbitrators, arguing that it does not duly account for all the nuances of the notion of impartiality in the context of actual practice.

Jakob B. Sorensen & Kristian Torp, The Second Look in European Union Competition Law: A Scandinavian Perspective

Abstract: Under European Union (EU) law, arbitrators and national courts are obligated to apply, ex officio, EU competition law. Also according to EU law, any failure by an arbitral tribunal to apply such rules, or any erroneous interpretation or application hereof, constitute grounds for setting aside the subsequent award, if and when such measure is dictated by the Member State’s procedural rules. This article examines the relevant procedural rules in Denmark and Sweden based on two recent decisions by the national Supreme Courts. It concludes that under Scandinavian procedural law, courts will generally limit their inquiry to a superficial review of the premises of the award and will only reluctantly set aside an otherwise valid award based only on matters of merit. The main purpose of the article is to provide an up-to-date analysis of the position of the Scandinavian courts, thus helping to ‘map’ the European arbitration landscape. Even so, we have attempted to include and contribute to a few of the main discussions concerning the landscape in which the decisions were rendered in the introductory section. In the last section, we build on the reasoning of the two Supreme Courts in order to propose a framework for understanding the interplay between national and EU law, at least in the Scandinavian countries.

César R. Ternieden, Tarek Badawy & Sarwat Abd El-Shahid, Arbitrability and Choice of Law in Transfer of Technology Agreements under Egyptian Law

Abstract: This article analyses the mandatory provisions of Article 87 of the Egyptian Trade Law of 1999 concerning the arbitration of disputes on transfer of technology agreements, and attempts to shed light on this problematic topic of Egyptian law, particularly in light of the dearth of relevant Egyptian jurisprudence. This article demonstrates the contradiction between the Egyptian Supreme Constitution Court’s view of the ‘mandatory’ nature of the Arbitration Provision of Article 87(1) and the plain language of the statutory provision, that is not synchronized with the current Egyptian Arbitration Law. Most importantly, the Supreme Constitutional Court’s judgment of 2007 is not yet finally conclusive with respect to the ‘mandatory’ nature of the arbitration provision, as it did not issue an interpretive decision. Absent the full legal consequences of an official interpretive decision by that Court, the Supreme Constitutional Court’s view should be considered obiter dictum, and parties should carefully consider pursuing the argument that the clear language of the statute dictates that they remain free to refer disputes related to transfer of technology agreements to arbitration with the seat of their choice, particularly in light of the ambiguities in the Egyptian Arbitration Law.

Philippe Hovaguimian, The Res Judicata Effects of Foreign Judgments in Post-Award Proceedings: To Bind or Not to Bind?

Abstract: This comparative analysis explores the question of preclusive effects arising from arbitration-related judgments, particularly when a foreign court has already ruled upon an issue relevant to the grounds for refusal under Article V of the 1958 New York Convention. It argues that arbitration-related judgments like exequatur or non-annulment decisions, along with the res judicata and estoppel effects arising from them, can be subject to recognition in other countries. The article thereby rejects some of the views contending that various legal obstacles stand in the way of such recognition, including its compatibility with the 1958 New York Convention. However, risks of forum shopping and undue imbalances in the parties’ rights ultimately support restricting this recognition of judgments rendered at the arbitral seat only. Such judgments should be able to preclude the re-litigation of identical issues in non-seat countries as a matter of res judicata and estoppel.

BOOK REVIEWS

International Commercial Arbitration Handbook (ed. Stephan Balthasar) (2016), reviewed by Volker Triebel

Reto Marghitola, Document Production in International Arbitration (2015), reviewed by John V.H. Pierce

Practising Virtue: Inside International Arbitration (eds. David D. Caron, Stephan W. Schill, Abby Cohen Smutny & Epaminontas E. Triantafilou), reviewed by David Pusztai & Philip Devenish

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The Winner of 2017 GAR Awards for Best Innovation?: Transparency & Diversity

Sat, 2017-03-11 23:16

Lucy Greenwood, Catherine Rogers, Mirèze Philippe and Michael McIlwrath

Last week GAR released the shortlist for its 2017 award for “best innovation by an individual or organization”. What is notable about this year’s shortlist is that of the ten innovations on the list, six directly address transparency and/or diversity in international arbitration. From an online directory of African arbitration practitioners, to the launch of “Dispute Resolution Data”, which offers 100 data points on cases heard by a variety of institutions, to a clarion call to increase the number of women appointed to tribunals, international arbitration may be finally shaking off its ‘pale, male and stale’ image. The 21st century makeover that international arbitration has needed for so long may at last be here.

We are, of course, delighted that three innovations in particular have been recognized by GAR this year: the Pledge, Puppies or Kittens and Arbitrator Intelligence. All three are close to our hearts. As champions of these three projects, we are writing this collective blog post because we believe that the process of selecting a single project as the award winner blurs the collective purpose of our work.

Each adopts a different approach and methodology, but they all three aim—individually and cooperatively—to promote diversity and transparency. For this reason we believe that, whichever innovation among the many deserving shortlisted projects actually receives the actual award at the GAR Gala in Milan, 2016 marked a year for great strides in innovations promoting Transparency and Diversity.

The Equal Representation in Arbitration Pledge was the first global initiative to address the under-representation of women in international arbitration which gained traction within the community. Not only did it chime with growing dissatisfaction with the status quo, but it was also backed by sufficient resources to garner support on a global scale. Signatories to the Pledge commit to increase, on an equal opportunity basis, the number of women appointed as arbitrators, with a view towards reaching the goal of full parity. Specifically, signatories promise to take steps to ensure that, whenever possible, committees, governing bodies and conference panels in the field of arbitration include a fair representation of women; that lists of potential arbitrators or tribunal chairs include a fair representation of female candidates; and that arbitral institutions include a fair representation of female candidates on rosters. The Pledge currently boasts 1627 signatories and anecdotally, has caused a major change in approaches to appointing female arbitrators. The Pledge Steering Committee will release a statistical analysis on the one-year anniversary of the launch of the Pledge to determine whether the Pledge has resulted in real change.

While the Pledge encourages greater consideration of diverse candidates, it is, of course, difficult to consider someone about whom little is known. Better access to information is also what the market wants. A recent study by Berwin Leighton Paisner found that a staggering 92% of respondents indicated that they would welcome more information about new and less well-known candidates, and a whopping 81% wanted to be able to provide feedback about arbitrator performance at the end of cases. The other two projects – Puppies or Kittens and Arbitration Intelligence – seek to help address this information gap.

The attraction of the article “Puppies or Kittens? How To Better Match Arbitrators To Party Expectations?”, published in the Austrian Yearbook on International Arbitration and co-authored by Michael McIlwrath, Lucy Greenwood and Ema Vidak Gojkovic, was not merely in its quirky title. A practical step towards greater transparency and diversity, the co-authors, suggested, would be for arbitrators themselves to publicly disclose their preferences with respect to certain issues relevant to the conduct of proceedings. They argued that by just answering a short questionnaire, arbitrators could help parties better select candidates that match their expectations, and, in doing so, also “promote diversity by allowing parties to better assess newer entrants and consider them alongside arbitrators whose soft skills they know through reputation and word of mouth.” The arbitrators would not be asked about their views on substantive legal issues. Rather, the Puppies or Kittens approach suggests arbitrators volunteer information on their attitudes towards issues of case management, to delegation of work to tribunal secretaries, to settlement discussions, to disclosure, and to costs, amongst others. This simple proposition stimulated debate at conferences, on list servs, at cocktail parties and in print during the year. While we are aware of only a few arbitrators who have so far adopted the proposal, what is clear is that it touched a nerve. As Lucy Greenwood says “No other industry operates by appointing skilled workers without a truly informed understanding of how they will carry out the work”.

Probably the largest-scale project currently underway is Arbitrator Intelligence (AI). AI’s stated mission is to promote transparency, fairness, and accountability in the selection of international arbitrators, and to facilitate increased diversity in arbitrator appointments. The primary means for AI to achieve these ends is its newly developed Arbitrator Intelligence Questionnaire (IQ). The purpose of the AIQ to approximate—through systematically gathered responses—the kinds of information that are currently sought by parties through ad hoc, person-to-person phone calls during the arbitrator selection process. Once collected, data from AIQ responses will be analyzed and results will made available to arbitration users, counsel, institutions, and also arbitrators through “AI Reports”.

One central premise of AI’s work is that lack of information is one of the primary impediments preventing expansion of the pool of arbitrators to include newer, and more diverse candidates. Imagine, for example, a female arbitrator who performed exceptionally well in her first few debut arbitrations. Because the arbitrations and resulting awards are confidential, her demonstrated abilities are unknown and unknowable outside that small group of parties and counsel who were directly involved in those first few cases. Future parties will only be able to consider her fully if they are lucky enough to come across one of those parties or counsel in their ad hoc research during the arbitrator selection process.

Now, reimagine that at the end of those few cases, the parties and counsel provided feedback through the AIQ about this arbitrator’s excellent case management and decision making. Imagine further that their feedback and related data analytics were then available to other parties (and institutions) who may want to consider this new arbitrator for a future case. AI believes this systematically collected information about this arbitrator’s performance will make it more feasible for parties (and institutions) to give her meaningful consideration for future appointments, and for her to compete on a meritocratic basis with other more established arbitrators.

And the Winner Is….

These three initiatives described above challenge the status quo. Each adopts a different methodology and approach. But all three, both individually and collectively (along with several other short-listed nominees), aim to help international arbitration to meet the increasingly challenging environment it confronts in the 21st Century by increasing Diversity and Transparency.

The full list of the nominations for best innovation is set out below. No matter how you vote, please sign up for the Pledge at www.arbitrationpledge.com, visit www.arbitratorintelligence.com to support the Arbitrator Intelligence Questionnaire, and (for arbitrators) be open about whether you prefer Puppies or Kittens.

The nominations for best innovation – 2017 GAR Awards
• “Dispute Resolution Data” – founded by former American Arbitration Association president Bill Slate – goes live. It offers 100 data-points on every case heard by a variety of institutions, including the ICC
• Africa International Legal Awareness unveils an online directory featuring practitioners from the continent with expertise in the field
• The launch of the Equal Representation in Arbitration Pledge – a call to increase, on an equal opportunity basis, the number of women appointed as arbitrators
• Gabrielle Kaufmann Kohler and Michele Potestà suggest that the UN Convention on Transparency in Treaty-based Investor State Arbitration (Mauritius Convention) could be basis for reform to investor-state arbitration system
• Michael McIlwrath, Lucy Greenwood and Ema Vidak Gojkovic propose that arbitrators should identify their procedural preferences and case management techniques in a questionnaire
• HKIAC offers free hearing space where at least one party to an arbitration, mediation and conciliation is listed on the OECD Development Assistance Committee List
• Sundaresh Menon suggests a role for the Chartered Institute of Arbitrators as a “robust and independent” central disciplinary body with “bite” to investigate allegations of arbitrator misconduct
• Swiss Chambers’ Arbitration Institution unveils a revolutionary new “turbo” arbitration clause allowing parties to super-expedite proceedings
• Barry Leon’s proposal for a “deemed consent” to arbitration in national bankruptcy and insolvency laws and corporate statutes
• Arbitrator Intelligence – Catherine Rogers’ initiative to level playing field when it comes to the selection of arbitrators through information and feedback on their performance

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ICCA Celebrates 40 Years of the Yearbook Commercial Arbitration

Fri, 2017-03-10 23:26

Lauren Voges

In 1976, ICCA published the first ICCA Yearbook Commercial Arbitration, compiled and edited by Professor Pieter Sanders, assisted by Professor Albert Jan van den Berg. In the introduction to this first edition, Prof. Sanders wrote, “This Yearbook is the first of a series of at least five… .” Forty years later, the Yearbook is 41 editions strong and has opened the way to other ICCA publications, notably the International Handbook on Commercial Arbitration (first published in 1984), as well as the ICCA Congress series (from 1982) and the ICCA Guide to the 1958 New York Convention (launched in 2010).

“I started the idea of ICCA Publications and the first publication was the ICCA Yearbook,” said Prof. Sanders in a 2011 interview with the current General Editor of the Yearbook and founding partner of Hanotiau & van den Berg, Albert Jan van den Berg. Prof. Sanders was appointed editor of the Yearbook during the 1975 ICCA Congress in New Delhi, or as he explained in the same interview, “I was not appointed to be the General Editor, I appointed myself!”

During its infancy, the ICCA Yearbook was a project developed almost solely by Sanders and van den Berg. In an interview published in the April 2016 ICCA Newsletter, van den Berg fondly recalls his role in shaping the Yearbook: “I became Piet Sanders’ assistant… when he returned from the ICCA Congress in New Delhi [in 1975] he told me he’d made a proposal that ICCA should produce a yearbook on commercial arbitration to report on developments in arbitration worldwide and that I should assist him.”

By 1977, van den Berg had been working on the Yearbook in the attic of Sanders’ home in Schiedam, a suburb of Rotterdam, for two years. He went on to get his doctorate at Aix-en-Provence and in 1980 went into law firm practice. Through all this, he continued to work on the Yearbook (albeit not from Sanders’ attic) and in 1986, took over the position of General Editor of ICCA Publications from Sanders.

During its 40-year lifespan, the Yearbook has grown from a series of reports on developments in commercial arbitration to a prestigious periodical that includes more than 2,000 reported decisions on the 1958 New York Convention. “The Yearbook has a wide network of loyal correspondents and contributors, which allows for the publication of court decisions from a continually increasing number of jurisdictions, some of which are applying the New York Convention for the first time,” explains Ms Silvia Borelli, Managing Editor of ICCA Publications. While many can proudly claim to have contributed to the Yearbook, few can claim a hand in the editorship of the publication. In its 40-year history, the Yearbook has had only two General Editors, Sanders, who passed away at the age of 100 in 2012, and van den Berg, and two Managing Editors, Judy Freedberg followed by Borelli, who has held the position since 2007.

When prompted for comment on the Yearbook’s 40-year anniversary, both van den Berg and Lise Bosman, ICCA Executive Director, commented on the enduring uniqueness of the Yearbook. “Quality, detail and an ever-expanding reach are its trademark,” added Borelli. Whether its unique nature or high-quality content are to thank for the Yearbook’s graceful ascent into middle age, we look forward to the next 40 years of its journey through commercial arbitration.

Are you an ICCA Member? ICCA Members are entitled to a 10% on the Yearbook Commercial Arbitration. Head to KluwerArbitration.com to order your copy.

This article was originally published on arbitration-icca.org. ICCA is a worldwide non-governmental organization (NGO) dedicated to promoting and developing arbitration, conciliation and other forms of international dispute resolution.

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The Revision of Article 257 of the UAE Penal Code: A problem also for Party-Appointed Experts?

Thu, 2017-03-09 17:36

John Gaffney

The Federal Law No. 7 of 2016 recently amended Article 257 of the UAE Penal Code to impose criminal liability on arbitrators, experts and translators who issue decisions and opinions contrary to the duties of impartiality and neutrality. The amendment became effective on 18 October 2016. As we have seen in the last few months, the international arbitration community has expressed its understandable concerns and criticisms in relation to the revision of Article 257, especially as regards its implications for arbitrators in the UAE.
What may have gone unnoticed, however, are the implications of the revision to Article 257 for party-appointed experts in arbitration proceedings. This may be because it is assumed that prior to its revision, Article 257 applied to all experts. This is not so. The former version of Article 257 applied only to court-appointed experts.
Article 257 previously stated that “[t]he expert, who, appointed by the judicial authority in a civil or criminal proceeding, asserts a fact that is contrary to the truth or gives knowingly a false interpretation thereof, shall be punishable by confinement for a minimum period of one year.” In its revised form, Article 257 now stipulates that “anyone who […] submits a report […] in favor of or against a person, in contravention of the requirements of the duty of neutrality and integrity, while acting in his capacity […] [as an expert] […] selected by the parties, shall be punished by temporary imprisonment”.
Hence, party-appointed experts in arbitration proceedings may be held criminally liable for any alleged failure to comply with the duty of neutrality and integrity stipulated in the revised Article 257. This is problematic. Generally, parties appoint experts to submit reports in order to support their claims. Thus, the recent revision to Article 257 may expose party-appointed experts more readily to criminal charges, since an obstructive party may claim that the payment by a party to that expert necessarily implies that the expert’s report will be biased in favor of that party.
Indeed, it may be argued that prima facie the payment by any party to its appointed expert in an arbitral proceeding would give rise to that expert issuing a “report […] in favor of or against a person, in contravention of the requirements of the duty of neutrality and integrity,” since party-appointed expert reports tend to favor the position of their party and contradict the position of the other party. The fact that an expert is appointed and remunerated by a party does not necessarily mean that the expert lacks independence, but the retainer of an expert may give rise to a presumption that the resulting report would contravene Article 257, which obviously would be an intended consequence of the revision.
Moreover, the scope of the expert’s duties has been extended from not “assert[ing] a fact that is contrary to the truth or gives knowingly a false interpretation” to not contravening the “the duty of neutrality and integrity” of the expert. UAE law does not define what “integrity” and “neutrality” actually mean. The absence of a definition in the UAE law thus may make it easier for an expert to be wrongly accused of acting of bias in preparing a report for the party that appointed him, even where the expert conscientiously endeavored to exercise independence in preparing his report. The revision of Article 257, thus, may be abused as an additional ground to disrupt the proceedings. This would also be regrettable.
If the recent revision of Article 257 is to be modified, as urged by the international arbitration community, it is respectfully submitted that not only should arbitrators be excluded from its scope, but also party-appointed experts.

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State Corruption in ICSID BIT Arbitration: Can it be Estopped?

Wed, 2017-03-08 17:04

Matt Reeder

ICSID tribunals have refused to hear the merits of investment treaty claims if a corrupt act was involved in contract formation, even where that corruption involved state actors. Consequently, the arbitral system—which was designed to ensure the neutral and apolitical resolution of investment disputes, inadvertently incentivizes states to “promote a corruption scheme in order to establish in advance the [corruption defense].” In an article I wrote, published at 27 American Review of International Arbitration 311, I propose a practical 3-step approach to estopping states who are complicit in the corrupt act from asserting this defense in partial reliance on their own corruption. I discuss the basic arguments supporting this approach below.

  1. Claimants must distinguish the seminal ICC case that recognized the corruption defense in the context of international arbitration.

In that case, ICC Case 1110 (1963), Judge Lagergren held that a contract between private parties in which they agreed to bribe a public official was non-arbitrable for lack of jurisdiction. Many subsequent tribunals have relied on this opinion as standing for the proposition that a successful corruption defense is a complete bar to an arbitral award. I believe that this is an overbroad interpretation of ICC Case 1110 for several reasons.

First, unlike BIT claims, Case 1110 involved a private contract which was drafted for an invalid purpose. BIT claims will always involve contracts where a government is a party, and will have a legitimate purpose—even where corruption is involved during contract formation. Second, BIT claims lack a key policy justification for completely barring claims subject to a corruption defense. As judge Lagergren pointed out, when corruption creeps into a contract, both parties accept the risk that they cannot recover if the other party breaches. In BIT arbitration, the state is almost always the defending against an investor’s claim of breach. Consequently, and unlike in case 1110, when corruption creeps into a contract formed under a BIT, only the private investor accepts the risk that it cannot recover if the state breaches. This disproportionate allocation of risk cuts against the purpose of treaty-based investment arbitration.

  1. Litigants must analogize to existing ICSID jurisprudence recognizing the estoppel doctrine.

The doctrine of estoppel is no stranger to ICSID tribunals. The Fraport tribunal pointed out that a tribunal should “hold a government estopped from raising violations of its own law as a jurisdictional defense when it knowingly overlooked them and endorsed an investment which was not in compliance with its law,” and Desert Line Projects actually applied the doctrine to a jurisdictional challenge. The Waguih case offers insight into when an ICSID tribunal might find that a state “knowingly overlooked” a material fact relating to the legality of contract formation under a BIT. There, the tribunal estopped Egypt from claiming ignorance of a fact that—if timely raised—would have been a jurisdictional bar to arbitration. Egypt was estopped because the Egyptian judiciary knew of the material fact. In reaching this conclusion, the tribunal stated as a general principle of international law that “the conduct of any State organ shall be considered an act of that State,” even when such conduct is illegal or exceeds the authority of the state organ. Claimants could strengthen their argument by demonstrating some ex post knowledge of the corrupt act giving rise to a contract and plead some sort of theory of constructive knowledge or ratification. Ionnis Kardassopoulos v. Georgia seems to support such an argument. The policy justification for ruling in such a way is also apparent. Bruce Klaw argues compellingly that BITs hold great promise for serving as tools to hold states accountable to avoid and prevent the payment or receipt of bribes.

  1. Claimants must justify a departure from the results in World Duty Free and Metal-Tech.

Both World Duty Free and Metal-Tech are much talked about ICSID decisions. World Duty Free was a contract-based claim where the ICSID refused to reach the merits because the contract was formed after bribes were paid to the Kenyan President. Metal-Tech was a BIT claim where the tribunal refused jurisdiction because pass-through “lobbyists” were used to pay bribes to Uzbek officials in order to get and keep the investment contract. To successfully estop a corrupt state’s corruption defense, litigants must justify a departure from these results.

Claimants must argue that a facially enforceable contract that was formed after some corrupt acts is not void ab initio, but is merely voidable. This echoes the argument above relating to Case 1110, emphasizing the important difference between a contract made for an illegal purpose and a contract whose formation involved an illegal act. World Duty Free provides a vehicle for this argument in its heavy reliance on Lord Mustill’s principles of avoidance.

Claimants also must argue that the acts of high-ranking government officials or a head of state should, under international law, impute knowledge to the state, as outlined in Waguih—even if the acts are is illegal or exceeds the official’s authority.

Claimants also must specifically plead estoppel. While this may seem like an obvious exhortation, the World Duty Free decision dispensed with all of the claims that were plead (which did not include estoppel) and then declined to consider any other grounds for relief.

Finally, when faced with a clear-cut case involving corruption, a claimant must abandon attempts to legitimize the corrupt conduct. Metal-Tech serves as a cautionary tale for litigants who choose this path. There, the tribunal implied that it was presented with insufficient evidence of corruption, but — as discussed previously on this blog — relied on its sua sponte evidence gathering to find that corruption was present. To avoid this result, a claimant should, in clear cases, admit that the act leading to contract formation was illegal, and in so doing, implicate the defendant state’s officials in the act. This places the defendant in the uncomfortable position of either (1) arguing that the act was lawful or (2) conceding that the act was unlawful but attempting to disclaim knowledge or responsibility in order to justify a corruption defense and rebut arguments in favor of estoppel. In this same vein, complainants should not shy away from supporting a high burden of for proving corruption. This is because the more apparent the corruption was, the harder it will likely be for a state to disclaim knowledge or responsibility for participating in or ratifying that act.

Conclusion

Given the right set of facts, and a careful litigation strategy, it seems that the time may have come for an ICSID tribunal to estop a corrupt government from relying on its own corruption as a defense to liability under the terms of a BIT. Such a result would remove the perverse incentive for states to support—or at least deliberately ignore—corruption in the context of international investment contracts and better align the practice and intent of international investment arbitration.

Of course, apportioning an award in a case involving corruption is the topic of an entirely separate conversation, potentially involving a “flexible approach” that includes restitutionary remedies and proprietary remedies….

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S.18 of the Arbitration Act 1996 – When And How To Use It – Silver Dry Bulk Co Ltd (Claimant) v Homer Hulbert Maritime Co Ltd (Respondent), 13 January 2017.

Tue, 2017-03-07 17:05

Jonas Habert

Betto Seraglini – on secondment at Enyo Law LLP

S.18 of the Arbitration Act 1996 – When And How To Use It – Silver Dry Bulk Co Ltd (Claimant) v Homer Hulbert Maritime Co Ltd (Respondent), 13 January 2017.

S. 18 of the Arbitration Act 1996 (the “Act”), on the power of the courts to appoint an arbitrator, has been portrayed in Noble Denton Middle East v Noble Denton International Ltd [2010] EWCH 2574 as a “gateway” provision.

Mr Justice Males further developed this idea in the “Silver Dry Bulk” case and noted that “[s. 18] provides a way of getting an arbitration started, or at least prevents arbitral proceedings from being aborted by a failure in the agreed appointments process, but does so without requiring the final determination of issues affecting the arbitral tribunal’s jurisdiction […] (applying the kompetenz-kompetenz principle).” The decision provides an interesting, if unusual, illustration of when and how s. 18 can be used.

Background

Silver Dry, a Maltese company, had purchased a vessel from Homer Hulbert for a price of USD 66.5 million pursuant to a Memorandum of Agreement dated 1 February 2011. Homer Hulbert was a company which had been incorporated in the Marshall Islands for the purpose of this very transaction. It was a 100% owned subsidiary of the Sinokor Group, a Korean ship owner and operator.

Silver Dry claimed that the purchase price it had paid included a secret commission to Hannibal Gadaffi who at the time of the transaction was controlling Silver Dry’s holding company, the General National Maritime Transportation Company.

In the notice of arbitration, Silver Dry appointed its arbitrator. Pursuant to the relevant arbitration clause, Homer Hulbert had 14 days to appoint its own arbitrator failing which the arbitrator designated by Silver Dry would become the sole arbitrator to determine the proceedings. This clause, which may look unusual to non English practitioners, is in fact not uncommon in maritime arbitration and simply reflects the terms of s. 17 of the Act. Homer Hulbert – having been dissolved before the serving of the notice of arbitration – did not respond to Silver Dry’s notice and the latter’s designated arbitrator therefore became the sole arbitrator.

The arbitration clause did not provide for any arbitral institution such as the ICC or the LCIA to administer the arbitration proceedings. Had the proceedings been governed by institutional rules, these rules would have remedied the issue of the appointment of the arbitrator. Because the arbitration was ad hoc, it was necessary for the parties to introduce an appointment mechanism in the clause.

The sole arbitrator held a procedural hearing which Silver Dry (as claimant) and Sinokor attended (Silver Dry had taken steps to ensure that the notice of arbitration reached Sinokor). The respondent, Homer Hulbert, did not attend. Silver Dry indicated at the procedural hearing that it might later apply to join Sinokor to the arbitration. The sole arbitrator asked Silver Dry to prepare a Memorial addressing the jurisdictional issues and the merits of its case.

Silver Dry then applied to the English courts for an order under s. 18 of the Act that an arbitral tribunal had been validly constituted to determine its dispute with Homer Hulbert.

In the normal course, the purpose of an application under s.18 is to ask the court to facilitate the constitution of the arbitration tribunal. What is unusual in this case is that Silver Dry was seeking confirmation that the appointment of the sole arbitrator was valid, as a preliminary step to joining Sinokor as a party to the proceedings.

The Decision

Justice Males (i) verified whether the arbitral tribunal would have jurisdiction to determine the issue, (ii) confirmed that Silver Dry satisfied the conditions of s. 18 of the Act itself and (iii) assessed whether he was ready to use his discretionary powers under s. 18(3).

Justice Males dismissed Silver Dry’s application for an order directing that the tribunal had been validly constituted.

(i) Would the arbitration tribunal have jurisdiction to determine the issue?

Justice Males had first to decide between conflicting cases on the standard of proof required to establish a valid arbitration agreement for the purposes of a s. 18 application. One set of case law led by the case of Noble Denton required that a good arguable case had to be proven (or an arguable case in Man Enterprise Sal v Al-Waddan Hotel Ltd [2013] EWHC 2356). A more recent case however held that a lower threshold would be more appropriate with regards to the principle of kompetenz-kompetenz (Crowther and another v Rayment and another [2015] EWHC 427).

Mr. Justice Males followed the decision of the High Court in Noble Denton regarding the standard of proof required in an application for the appointment of an arbitrator under s. 18 of the Act. Where there is an issue as to whether a tribunal has jurisdiction, the court has the power to make the orders listed in s. 18(3) of the Act if the applying party can show that it has a “good arguable case” that a tribunal would have jurisdiction to hear the case. Mr. Justice Males explained that a good arguable case is a case that is “more than merely arguable but need not be one which appears more likely than not to succeed”.

Applying this principle, Justice Males held that there was a good arguable case that Homer Hulbert continued in existence for the purpose of being a respondent in the arbitration proceeding and therefore a good arguable case that a tribunal would have jurisdiction to determine the issue. His main reason for reaching this conclusion was based on submissions made by Silver Dry in an expert report produced by a former Attorney General of the Marshall Islands who “[appeared] to be well qualified to express that opinion which has not been tested by cross-examination”. Underlining the low threshold required to make a successful application under s. 18, despite his reliance on the expert report, Justice Males noted that the arguments put forward in the expert opinion faced “formidable difficulties”.

(ii) Are the conditions required under s. 18 satisfied?

This is where Silver Dry’s application failed. Under s. 18 of the Act, the powers vested in the courts relating to the appointment of an arbitrator can only be exercised if there has been “a failure of the procedure for the appointment of the arbitral tribunal”. Justice Males held that no such failure had occurred. It was not material that Homer Hulbert had not cooperated or appointed its own arbitrator since the arbitration clause itself provided its own solution to this. The clause expressly provided that in the event of a respondent not appointing its own arbitrator within 14 days of the claimant appointing its arbitrator, the claimant’s arbitrator would become the sole arbitrator. The arbitration clause had operated in the way it was intended to since Silver Dry’s appointed arbitrator had automatically been appointed sole arbitrator.

(iii) Discretionary power of the court

Despite reaching the conclusion that the conditions under s. 18 had not been satisfied, Justice Males went on to explain why, had he held that a failure had occurred, he would not have used his discretionary power under s. 18 of the Act in any event. Justice Males commented that there was no need for an arbitrator to be appointed or for any appointment to be revoked. The sole arbitrator had been conducting the proceedings since his appointment. By means of its application, Silver Dry was attempting to obtain an endorsement from the courts of its position (i.e. that the arbitral tribunal had been validly constituted) with a view to later joining Sinokor into the arbitration proceedings. Justice Males commented that a court order determining whether or not the tribunal had been validly constituted would depend upon whether Homer Hulbert continued to have sufficient existence to be a party to the arbitration. Issuing an order holding the arbitral tribunal had been “validly constituted” would go beyond the “good arguable case” test. To hold that the arbitral tribunal had been validly constituted was therefore, an issue which needed to be decided by the arbitral tribunal.

Conclusion and remarks

A few important guidelines on s. 18 can be drawn from this decision:

– A suitably compelling expert opinion provided by a party applying to the court can be sufficient to show a “good arguable case” that a tribunal would have jurisdiction to determine the issue. Justice Males explained that Silver Dry’s arguments faced formidable difficulties but still held that there was a “good arguable case”. This also shows that the threshold is still relatively low and answers some of the worries regarding the principle of kompetenz-kompetenz expressed in Crowther v Rayment (see above).

– A failure to appoint an arbitrator in ad hoc proceedings may not amount to a failure in the appointment procedure if the arbitration clause is well worded or pre-empts the failure and provides a workable solution which was the case here.

– In any case, the courts will usually respect the power of the arbitral tribunal to decide on its own jurisdiction. s. 18 of the Act should not be used to seek a court ruling which may assert whether or not a tribunal has been validly constituted.

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Global Geopolitics and International Energy Arbitration: a Report from the 4th Annual ITA-IEL-ICC Joint Conference

Mon, 2017-03-06 23:58

Mark Stadnyk

ITA

The 4th Annual Joint Conference on International Energy Arbitration, co-hosted by the Institute for Transnational Arbitration (ITA), the Institute for Energy Law (IEL), and the International Court of Arbitration of the International Chamber of Commerce (ICC), took place on January 12-13, 2017, in Houston, Texas. Under the guidance of conference co-chairs Suzana Blades (ConocoPhillips, Houston), Juliet Blanch (independent arbitrator, London) and Jim Tancula (Mayer Brown, Chicago), panelists analyzed the many challenges and opportunities at the intersection of global geopolitics and international energy arbitration. The conference provided a unique platform for senior arbitrators and leading practitioners from energy companies, law firms, and arbitral institutions to debate a wide range of topics, including the fate of international trade treaties like the Trans-Pacific Partnership (TPP), alternative and renewable sources of energy, the call for specialized procedures for energy arbitration, and global geopolitics.

Energy Disputes in a Depressed Price Environment

A major theme permeating the conference was the impact of the low oil price environment on international energy disputes. A panel of corporate general counsel, moderated by Suzana Blades and comprising Hewitt Pate (Chevron Corporation, San Ramon), Marcia E. Backus (Occidental Petroleum, Houston), Janet Langford Carrig (ConocoPhillips, Houston), and Alan Crain (recently retired from Baker Hughes, Houston), shared their experiences addressing the challenges of a low price environment, including heightened cost sensitivities and an increasing number of disputes. Panelists highlighted the cascading effects of a material reduction in corporate legal department budgets which necessitated the adoption of cost-reducing measures (like modern e-discovery technologies to more efficiently identify and classify documents) as well as the cooperation by external counsel in reducing rates. In the panelists’ view, while there was a material increase in litigation and arbitration in the current price environment, no one type of dispute pre-dominated.

Panelists agreed that one issue requiring increased persistence and innovation in the depressed price environment is enforcement of arbitral awards. Marcia Backus, Mark Lowes (KBR, Houston), and Michael Kim (Kobre & Kim, New York/Seoul/London) shared ‘war stories’ on enforcement of major international arbitral awards and judgments. Backus gave an overview of efforts to obtain payment by Ecuador on an approximately US$ 1.1 billion award in favor of Occidental Petroleum. She highlighted the value of creative post-award settlement structuring, including exchanging discounts on the award amount for prompt cash payment and waiver of potential state immunities and other claims against Oxy in Ecuador. Lowes, for his part, focused on KBR’s long-running efforts to enforce an ICC award against Pemex. Despite annulment of the award by the courts at the seat of arbitration (Mexico), the U.S. federal appeals court for the Second Circuit recently upheld a lower court’s decision to recognize and enforce that annulled award in the U.S. Kim, whose practice includes a focus on enforcement, shared his game plan and strategy for obtaining payment. Where sophisticated commercial parties have hidden assets, Kim recommended identifying “points of consumption” (e.g., an award debtor’s home) which can then open avenues of investigation into hard-to-find networks of shell structures supporting that consumption (e.g., offshore companies paying for the home). He also counseled award creditors to educate themselves on alternatives to judicial freezing of assets, including freezing by police in certain jurisdictions. In certain jurisdictions, these alternatives may be instant or, in any event, significantly faster.

Enhancing Efficiency and Reducing Costs in Energy Disputes

Continuing with the theme of assessing the implications of the low price environment, conference participants and attendees also evaluated whether specialized arbitrators, forums, and procedures in energy arbitration could enhance efficiency and reduce costs. A panel moderated by Tomas Vail (White & Case, London) and including Professor Peter Cameron (University of Dundee), Ginny Castelan (King & Spalding, Houston), Lauren Friedman (Kirkland & Ellis, New York), and Aaron Rofkahr (Chevron Upstream, San Ramon) considered the use of specialized fora for energy disputes, lists identifying experienced energy arbitrators, and bespoke procedural rules, like time limits on rendering awards. The majority of panelists and audience members expressed skepticism about the utility of specialized institutions and rules, voicing concern that such mechanisms might not be suitable for the diverse range of disputes arising in the energy sector. To the extent that energy arbitration users desired reform – for instance, time limits on rendering arbitral awards or restrictions on document production – the panelists cautioned that such measures should build in flexibility to allow users and arbitrators to take account of the breadth and potential complexity of energy disputes.

The issue of enhancing efficiency and reducing costs also arose before another panel on managing the arbitral tribunal and process, moderated by James Tancula and comprising of Rocío Digón (ICC International Court of Arbitration, SICANA, Inc., New York), Mark Kantor (independent arbitrator, Washington), Clyde W. Lea (Reed Smith, Houston), and Dietmar W. Prager (Debevoise & Plimpton, New York). These panelists also indicated a general preference against imposing procedural limitations in an arbitration clause (e.g., limiting document production or reliance on experts) so that counsel and arbitrators would have the discretion to implement appropriate procedures on a case-by-case basis. Rocío Digón also gave an overview of the ICC’s upcoming Expedited Procedure Rules for cases under US$ 2 million, which aimed to give arbitrators and parties the tools necessary to reduce time and costs.

Taken together, the panelists and conference attendees’ preferences for preserving arbitral tribunals’ procedural flexibility suggest that the onus is on arbitrators and counsel to actively manage the arbitral process. This responsibility includes, where appropriate, considering and implementing cost- and time-saving procedural devices (such as those in the new ICC Expedited Procedure Rules) suitable to the dispute at hand.

International Trade Treaties ‘In the Pipeline’

Conference participants also devoted extensive attention to the fate of a number of international trade treaties ‘in the pipeline,’ including the TPP and the Comprehensive Economic and Trade Agreement (CETA) between the European Union and Canada. Laurence Shore (Herbert Smith Freehills, New York) delivered the conference’s “Year in Review” in which he analyzed the top 2016 developments in international energy arbitration. Shore identified the rulings and trends that will, in his view, have the most important influence on energy arbitration in 2017 and beyond. Shore contrasted the waning influence of the TPP, which was likely to be stymied by the incoming U.S. administration, with the CETA, which is going forward.

Some conference attendees viewed the push-back to the TPP, and to investor-state arbitration in treaties like the CETA, as part of a broader trend of states rejecting or seeking to circumscribe arbitration of foreign direct investment disputes. Countries like Ecuador and Bolivia have terminated a significant number of their bilateral investment treaties (BITs), and others—particularly in Latin America—have denounced the ICSID Convention. In a luncheon interview conducted by Professor Catherine A. Rogers (Penn State Law), Professor William (Rusty) W. Park (Boston University School of Law) opined that international arbitration was nevertheless in its “Golden Age,” and was not on the wane despite often-vociferous opposition and criticism. He viewed the contemporary push-back to investor-state arbitration as a part of a cyclical trend, and saw its predecessor in the 19th century “Calvo Doctrine” whereby Latin American countries, in particular, eschewed arbitration of international investment disputes. Other conference attendees and participants shared his optimism that, despite mounting opposition to investor-state arbitration and, indeed, to international trade treaties like the NAFTA, there remained a meaningful role for arbitration—both in the resolution of international trade disputes and in enhancing the rule of law.

Renewable Energy: Incentives and Arbitration

Another important topic receiving extensive attention at the conference was renewable energy. Shore, in his “Year in Review,” opined that 2016 was striking for the significant number of high-stakes energy disputes in that area, including a large number concerning nuclear and solar projects in Europe. Their outcomes will impact and define a state’s right to regulate in a number of sensitive areas, including renewable energy and climate change. Shore focused on Charanne and Construction Investments v. Spain, the first decision on the merits in a stream of disputes by solar investors against Spain, Italy, and the Czech Republic. For Shore, the partial victory for the state could set an important precedent with respect to the scope of fair and equitable treatment (FET) obligations and, in particular, whether general legislation aimed at promoting solar investment could generate legitimate expectations of stability for foreign investors that would be enforceable under the FET standard.

More broadly, these solar and nuclear cases demonstrate how international arbitration is intimately intertwined with geopolitics and states’ efforts to encourage renewable sources of energy. In the conference’s keynote presentation, Sarah Ladislaw (Center for Strategic & International Studies, Washington) discussed oil price forecasts and the influence of the geopolitical environment on the energy industry, as well as the impact of alternative or renewable energy sources on the oil and gas industry in the short and long terms. Ladislaw’s wide-ranging presentation also addressed the effect of the Paris Agreement on climate change. In her view, China and India—despite their extensive emissions—were nevertheless keen to play a leading role in developing renewable production technologies, like nuclear and solar energy, as well as in developing clean energy consumption methods, like electric cars. The large number of pending nuclear and solar arbitrations testify to arbitration’s continued role at the cutting edge of these efforts.

Conclusion

Issues at the forefront of international relations and domestic policy—openness to international trade, encouragement of renewable energy sources, cyber security—are all intertwined with the energy sector. As in years past, the conference tasked leading arbitration practitioners from a diverse range of professional backgrounds to debate technologies, doctrines, and techniques to address these and other challenges. Developments proposed for the energy sector and debated at the Houston conference can be expected to be at the cutting edge of the development of international dispute settlement.

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Jurisdiction of Investment Tribunals Over Host States’ Counterclaims: Wind of Change?

Mon, 2017-03-06 00:36

Elena Burova

The beginning of 2017 has already been remarkable to contribute to discussions regarding counterclaims in investment arbitration: two recently finalized cases against Latin America states (Urbaser et al. v The Argentine Republic, ICSID Case No ARB/07/26 ; Burlington Resources Inc. v Republic of Ecuador, ICSID Case No. ARB/08/5) provide several noteworthy points for further debates on the host states’ counterclaims towards investors.

While both the jurisdictional and merits findings in these cases worth particular attention, this post looks at them primarily from the jurisdictional perspective.

Urbaser et al. v The Argentine Republic

The counterclaim by the Argentine Republic related to the Claimants’ investment obligations under the concession contract for water and sewage services in the Province of Greater Buenos Aires. Respondent alleged that by failing to make the agreed investments, Claimants violated the principles of good faith and pacta sunt servanda under both Argentine law and international law, but more importantly – basic human rights to water and sanitation, which affected the health and the environment of people in that area. The Tribunal found itself competent to hear Argentina counterclaim, but rejected it on the merits.1)For a more detailed analysis of the merits part of the award in Urbaser from human rights perspective, see Edward Guntrip. jQuery("#footnote_plugin_tooltip_6944_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6944_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Asymmetric nature of BITs: too categorical understanding of investment treaties

First of all, the Tribunal rejected the Claimants’ objection regarding the asymmetric nature of BITs that, in the Claimants’ view, prevented a host state from invoking any right based on the BIT. Claimant asserted that since BITs do not impose obligations upon investors, a right to counterclaim ‘would run counter to the object and purpose of treaty arbitration, which is to grant the investors a one-sided right of quasi-judicial review of national regulatory action’.

The Tribunal, referring to the dispute resolution clause of the Spain-Argentina BIT:

‘Disputes arising between a Party and an investor of the other Party in connection with investments within the meaning of this Agreement shall, as far as possible, be settled amicably between the parties to the dispute’ (Article X (1))

interpreted it as not indicating that a state party cannot sue an investor in relation to a dispute concerning an investment, as opposed to dispute resolution provisions in the treaties from the arbitral decisions invoked by Claimants (eg, Roussalis v Romania; Amco v Indonesia (II)), that are more narrowly drafted. Also, in the merits part of the award, the Tribunal reiterated that such a categorical understanding of the nature of the BIT, as Claimant suggests, is wrong.

Scope of consent: not restricted without express exclusion of counterclaims agreed by both parties

The Tribunal then moved to rejecting the Claimants’ objection regarding the scope of their acceptance of the offer to arbitrate, that, according to the Claimants, was limited only to disputes arising from damage caused to their investment, ruling out any potential losses by Argentina. Noting that Claimants admitted that their acceptance did not explicitly excluded counterclaims, the Tribunal pointed out that it would be contradictory to further admit that Claimants would be able to render the right to counterclaims nonexistent merely by restricting the acceptance to their own claims.

There was no indication that the offer to submit to arbitration could be split into any parts and Article 46 ICSID Convention does not open the door for any unilateral determination of the Tribunal’s competence. Moreover, even if assuming that Claimants had restricted its acceptance of the offer in any way, this would result in no agreement being concluded between the parties to arbitration. The Tribunal probably made this conclusion based on the basic principles of contract formation (‘mirror image rule’) that an acceptance with modifications is a rejection of an offer and constitutes counteroffer.

Connection with original claims: factual link is sufficient

The Tribunal also dismissed the Claimants’ objection that the Respondent’s counterclaim had no connection with its original claims, as required under Article 46 ICSID Convention. In a manner, somewhat different from the most of the previous arbitral practice (eg., Saluka v Czech Republic; Sergei Paushok v Mongolia), it was highlighted that the factual link between original and ancillary claims would suffice to establish jurisdiction over counterclaims. This conclusion represents a considerable move from interpreting overrestrictively connection requirement as implying both legal and factual nexus and, thus, deserves welcoming.

Cooling-off periods and local courts requirement: not applicable for counterclaims

The Tribunal also addressed quite an unconventional objection to counterclaims regarding failure to comply with preliminary steps for negotiation and submission to the jurisdiction of local courts by Respondent. Pointing at the Claimants’ own failure to comply with domestic litigation requirement and its further success in arguing the irrelevance of this step, the Tribunal found it purposeless to require the same from Respondent. As regards cooling-off period for counterclaims, the Tribunal also found it unreasonable to request Respondent to attempt prior settlement, particularly, in light of the Claimant’s criticism for not raising counterclaims as soon as the arbitration commenced.

Although quite understandable under the circumstances of the case at hand, the answer to the potential objections regarding cooling-off period for counterclaims does not seem unequivocal in investment arbitration. Hypothetically, if respondent state raises counterclaims even long after the start of arbitration by claimant, it can still attempt at settling them amicably, which may also give respondent some leverage over the original claims. However, a careful look at the wording of the cooling-off period requirement is essential, as this step may be imposed only on claimants, depending on the exact formulation.

Burlington Resources Inc. v Republic of Ecuador

Ecuador raised two types of counterclaims against Claimant: environmental counterclaims related to the alleged contamination of soil and groundwater on the land sites that Claimant exploited, and infrastructure counterclaims related to the standards of maintenance of oil fields and equipment. The Tribunal granted both Respondent’s counterclaims, ordering Ecuador USD 41.7 million as a set-off for Burlington’s claims.2)For a more detailed analysis of the merits part see Jarrod Hepburn, Successful Counterclaim In Burlington v. Ecuador Breaks New Ground jQuery("#footnote_plugin_tooltip_6944_2").tooltip({ tip: "#footnote_plugin_tooltip_text_6944_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

No jurisdictional objections from claimant, but still some food for thought

In jurisdictional regard, the instant case stands out from the most of the previous investment cases dealing with counterclaims: at the outset of the proceedings Claimant committed not to raise any jurisdictional objections to Ecuador’s counterclaims. The parties to arbitration reached an agreement that they both would commit to the jurisdiction of the Tribunal over counterclaims, with the exclusion of jurisdiction of any other arbitral tribunals or national/international courts, ‘so as to ensure maximum judicial economy and consistency’.

Nevertheless, the Tribunal still examined Ecuador’s counterclaims as to its compliance with the requirements under Article 46 ICSID Convention and concluded that these conditions were met. ‘Within the scope of consent’ condition was met obviously due to the parties’ manifest agreement and ‘otherwise within the jurisdiction of the Center’ condition was met due to the compliance with Article 25 ICSID Convention.

As regards ‘arising directly out of the subject-matter of dispute’ condition, it was also met, as the counterclaims related to the same investments (in Block 7 and 21) that Claimant addressed in the principal claims. The Tribunal did not go to examine whether the counterclaim and the principal claim were based on the same legal instruments. It is possible to infer from it that the Tribunal interpreted the ‘connection’ requirement under Article 46 as implying factual nexus, rather than legal.

Key takeaways

Taken that the backgrounds in both cases are quite specific (in Urbaser – broadly worded BIT dispute resolution clause, in Burlington – the agreement regarding the jurisdiction over counterclaim between the parties), they are not likely to become game changers in the arbitral practice on the host states’ counterclaims. Nevertheless, both cases provide some important points for respondent states to take note of.

Firstly, the approaches of tribunals both in Burlington and Urbaser indicate a long-awaited move from the restrictive interpretation of connection criterion in Saluka v Czech Republic, where the Tribunal required the same legal instrument underlying both the claim of investor and the counterclaim of host state. That interpretation has been heavily criticized as leading to it being near-impossible for states to succeed with counterclaims.

Moreover, another significant step forward is the confirmation by the Tribunal in Urbaser of the principal wrongness of categorical understanding of BITS’ nature as asymmetric and only protecting investments through rights exclusively granted to investors. It was also confirmed that BITs are not international investment law in isolation, fully independent from other sources of law (both national and international) that might provide for rights the respondent can invoke before an international arbitral tribunal. The fact that the Tribunal in Burlington gave protection to Respondent’s right both under Ecuador domestic and international law is meaningful in this regard as well.

References   [ + ]

1. ↑ For a more detailed analysis of the merits part of the award in Urbaser from human rights perspective, see Edward Guntrip. 2. ↑ For a more detailed analysis of the merits part see Jarrod Hepburn, Successful Counterclaim In Burlington v. Ecuador Breaks New Ground function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors:

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Facing the Next BIT Negotiations: Argentina’s Approach to the FET Standard

Sat, 2017-03-04 17:10

Nahila Cortes

Argentina recently entered into a new Bilateral Investment Treaty with Qatar. After 15 years of absence in this type of negotiations and several claims the country faced since the economic and financial crisis of 2001, Argentina sat again in the BIT negotiation table. This was a unique opportunity for Argentina to start from scratch, and especially set the terms to balance the State’s right to regulate and the investors’ expectations. In this context, this article seeks to understand to what extent Argentina’s tumultuous investment arbitration past influenced the negotiation of this newly signed BIT (and future ones), in the sense of narrowing the investors’ standing to assert claims against the State. Did Argentina negotiate terms to narrow the space for investors to initiate frivolous claims and use expansive interpretations of the BIT? On this post, I will focus on the negotiated FET standard, which has been a popular cause of action against Argentina in recent years.

On its face, the FET clause in the Argentina-Qatar BIT (the “BIT”) shows a more restrictive approach than the ones in previous BITs entered by Argentina. Article 3.3 states that the “FET is to be interpreted and applied as the treatment provided to aliens in accordance with the principles of customary international law.” Almost all the prior BITs signed by Argentina contained an unqualified (independent) FET clauses (such as the BIT Argentina-US or Argentina-Armenia), which opened the door to debate on whether the clause should be interpreted in the light of the minimum standard of treatment (“MST”) under customary law, or in an autonomous way, on a case-by-case basis, by reference to general notions of fairness and equity. Depending on the position adopted, the legality of the State’s regulatory actions affecting a foreign investment will have different standards of approval. In the first approach, the liability threshold for the State is set very high and requires the State conduct to be egregious, outrageous, shocking, or otherwise extraordinary (Neer case). Differently, the adoption of the second approach lets the arbitrators interpret the clause with a more lenient standard, which normally translates in the search for conduct that breaches basic notions of transparency, predictability, stability, and legitimate expectations, as well as arbitrary and discriminatory conduct, thus enabling the review of wide categories of governmental actions with a lower liability threshold.

The terms of this BIT seem to restrict potential FET claims. By linking the FET provision to the MST, the BIT sets a higher liability threshold for the States’ actions affecting a foreign investment. Additionally, other provisions included in the BIT balance the State’s regulatory power with the investor’s expectations. For instance, (a) art. 4.4 denies the possibility to import through the MFN clause, FET and dispute settlement provisions accorded to investors of any third state under treaties signed by a Contracting Party prior to the entry into force of the BIT; (b) art. 10 expressly recognizes the Contracting State’s right to regulate; and (c) the preamble backs up this balance by stating that foreign investment should be consistent with the promotion of the economic development of the State, that it is the intention of the States to create and maintain favorable conditions for investment by investors of the other Contracting Party, and to encourage the sustainable development of the Contracting Parties.

Despite the above, this is not a final triumph of the State to avoid major claims under FET. Important issues surrounding the FET clause were not addressed; therefore, the text does not block potential claims that could even cast doubt on apparent negotiated balance. First, the standard on which the FET must be analyzed is not defined. There is still an ongoing discussion on whether the interpretation of the MST should be limited to the Neer and Robert Azinian cases (see also Glamis Gold and Genin), where it was held that the State’s conduct should amount to egregious or outrageous conduct, or to an evolving customary law (see Waste Management).

Second, the lack of definition and the indeterminate content of the FET might bring serious issues, even if linked with MST. Arbitrators could opt for a broad interpretation to determine the content of the provision, enabling them to review FET claims based on different factors. Originally, the content of the FET was linked to denial of justice or extreme abuse of persons. The sources to determine the content of the MST relied on the pronouncement of mixed commissions that emphasized in these two factors. Afterwards, the concept evolved and arbitrators started to consider the investor’s legitimate expectations within the analysis of FET and expanded the interpretation of the content. Nowadays, there are several factors that are likely to be analyzed to determine if there has been a breach of the FET. In Lemire v. Ukraine, the tribunal considered several factors such as whether the State failed to offer a stable and predictable framework; made specific representations to investors; denied due process to investors; did not provide transparency in the legal procedure or in State’s actions of State; acted either in a way that evidenced abuse of power, coercion or other bad faith conduct; or in an arbitrary, discriminatory or inconsistent way.

Moreover, a broad interpretation on the content and factors to analyze under the FET umbrella diminishes the stringency of the MST (if we consider the MST from the Neer case viewpoint). The Neer case can be helpful to analyze a FET claim based on denial of justice, but the Neer’s lens won’t help much to analyze other factors, such as legitimate expectations, which is becoming a strong factor under which investors are relying. Consequently, there might be a tendency to make the MST more flexible under certain factors (e.g. legitimate expectations and transparency), thus reducing the threshold for the State’s responsibility. In the effort to limit a broad interpretation and guide arbitrators to stick to the MST, some BITs such as US Model BIT or US-Uruguay BIT links the FET provision to MST and expressly includes “denial of justice” as an example of a breach of FET.

Finally, this BIT (as in most BITs) set forth neither the consequences of a breach of the FET nor the consequential provisions for reparation. Besides from the ILC Draft Articles on State Responsibility, there is nothing in relevant BITs that provides a mandate to the arbitrators to pronounce themselves about the degree of liability and the forms of reparation. Some arbitrators could link the breach of FET to the Chorzow standard of compensation (see CMS, Azurix). However, this reasoning is debatable because Chorzow is based on an illegal seizure of assets and the consequence of an expropriation, which is different from an FET‘s breach.

It is good news that Argentina is back on the negotiation field. From the State’s perspective, the wording of the BIT evidences a better approach to balance the State’s right to regulate and investors’ rights. However, and as in most BIT, there are still important topics related to the FET clause that remain to be a concern: the content of the MST, the lack of definition and content of the FET, and the absence of a link between the FET and the reparation provision. The wording of the BIT limiting a broad and expansive interpretation is certainly welcomed, but these concerns should be addressed. Otherwise, the apparent effect of a balanced wording between the State’s right to regulate and the investor’s right to have their investment protected could be diminished.

**The views expressed herein are the views and opinions of the author and do not reflect or represent the views of Allende & Brea or any other organizations to which the author is affiliated.

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How Much (More) Transparency Does Commercial Arbitration Really Need?

Fri, 2017-03-03 23:29

Victoria Pernt

Schoenherr

The tug-of-war between transparency and confidentiality was a subject of lively discussions at the 2017 Vienna Arbitration Days.

Vienna Arbitration Days is Austria’s leading arbitration conference. Every year, it brings together arbitration practitioners and academics from around the world to discuss ADR developments. The presentations and panel discussions are followed by the “World Café”, which offers the conference participants a forum to contribute their own views. The participants rotate between several tables; each table focused on a different topic. Table moderators and secretaries invite young practitioners and silverbacks alike to offer their opinions, covering a wide range of perspectives.

For its 10th anniversary, the 2017 Vienna Arbitration Days asked whether arbitration needed repositioning. This contentious question centers on transparency, as it also addresses the criticism that arbitral proceedings, hearings, and decisions should be made public so as not to jeopardize the integrity of the justice system.

A panel of arbitration practitioners and in-house counsels opened the transparency discussion by introducing three categories of transparency:
(i) “Organizational Transparency” asking arbitral institutions to be more transparent in their case management and decision-making;
(ii) “Legal Transparency” asking for publication of arbitral decisions; and
(iii) “Transparency of Proceedings” asking for public proceedings and hearings.

The panel discussion soon revealed that arbitration users want to have their cake and eat it too. The in-house counsels confirmed that they choose arbitration for its (perceived) confidentiality, and oppose more transparency. However, according to the 2015 Queen Mary survey, arbitration users’ suggestions for improving arbitration all require more transparency. It appears that, despite acknowledging the benefits of transparency, parties remain reluctant to air their own dirty laundry in public.

I had the opportunity to follow up on that discussion with the World Café participants as secretary of the Transparency table, moderated by Iain Quirk.

Our table’s discussion revealed that these two objectives – transparency and confidentiality – are not necessarily mutually exclusive. They could and should coexist. In our efforts to pin down just how much (more) transparency commercial arbitration really needs, the final answer was: actually, not much (more).

How did we reach that conclusion? Analyzing organizational transparency, legal transparency, and transparency of proceedings individually, the World Café participants noted that promising efforts to render commercial arbitration more transparent are already underway. These would offer the desired benefits of transparency without sacrificing confidentiality.

For instance, the amended Article 11(4) of the ICC Rules now addresses the demand for more Organizational Transparency. It allows the ICC Court to provide reasons for its decisions in certain matters (e.g. appointment, removal, challenge, or replacement of an arbitrator). Since June 2016, the ICC has also been publishing the names of arbitrators serving in ICC administered cases.

Institutions have also sought to achieve more Legal Transparency. An important example is the opt-out provision of Article 41 of the Rules of Arbitration and Conciliation of VIAC (Vienna Rules), which permits the VIAC to publish anonymized summaries or extracts of awards, unless the parties object. The VIAC published a selection of 60 awards. In the VIAC’s words, this was “one first step” in its endeavor to “draw back the curtains and thereby provide greater insight into the work of the institution as well as that of arbitral tribunals appointed under its auspices”.

The World Café participants, regardless of their level of experience, identified Legal Transparency as crucial for the arbitration community. Students and young associates seek a comprehensive body of law to learn from. Experienced practitioners rely on case law to formulate arguments and discern trends in jurisprudence. Arbitrators appreciate guidance by an established body of law; which certainly also fosters legal certainty and predictability.

Thus, there already are efforts for more transparency in commercial arbitration, to the extent beneficial.

The World Café participants, however, recognized a lesser need for Transparency of Proceedings in commercial arbitration. This, because the benefits of transparency must be weighed against parties’ legitimate interest in having their disputes heard in swift and confidential proceedings. A market need that commercial arbitration does and should fill.

In this context, the World Café participants considered an endeavor to transport the UNCITRAL Rules on Transparency to commercial arbitration to be overreaching.

The UNCITRAL Rules apply to treaty-based investor-state arbitrations. These arbitrations affect public funds and interests, such as environmental protection. The UNCITRAL Rules provide that the public should learn about such disputes already upon their initiation. This also permits third parties, such as NGOs, to contribute to the proceedings.

While a line may be hard to draw, commercial arbitrations typically do not involve public funds or interests that justify involving the public early on. Moreover, commercial parties opt for arbitration precisely because they wish to protect their business and trade secrets, and to conceal pending disputes from competitors.

Thus, taking into account the parties’ legitimate choice to resolve their private disputes in confidential proceedings, most World Café participants opposed more Transparency of Proceedings. They found ex post publication and scrutiny to satisfy the request for transparency, and to protect the public’s legitimate interests.

Most World Café participants thus welcomed the efforts towards transparency that are underway, but denied the need for (much) more transparency in commercial arbitration.

It can therefore be concluded that transparency efforts in commercial arbitration, although welcome, should know their metes and bounds. If commercial arbitration introduces mandatory transparency of proceedings comparable to the UNCITRAL regime, parties may opt to resolve their disputes in mediation or State courts instead. Transparency concerns thus should be properly tended to, albeit without sacrificing one key selling point of commercial arbitration: confidential proceedings.

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Kluwer Mediation Blog – February Digest

Fri, 2017-03-03 02:38

Anna Howard

Brexit, biases, workplace mediation, the wisdom of uncertainty, profound apologies: these are just a handful of the topics addressed by writers at the Kluwer Mediation Blog last month. Below are a few words on, and a link to, each post.

In A Mediator’s Pitch, John Sturrock explores how, as we look ahead in an uncertain world, we might identify and communicate our micro-niche, our particular speciality. John invites us to consider what is unique about us, our story, about our ideas and our brand.

In The Wisdom of Uncertainty: On Grey Zones in Mediation, Ian Macduff explores uncertainty both within and about mediation and asks the challenging and powerful question: “What are the areas of doubt and uncertainty that we have?”

In A Little Friendliness Goes a Long Way in Workplace Mediation With Teams, Greg Bond shares his experience of team mediation inside companies and organisations and identifies some of the particular challenges of this type of mediation.

In The Profound Apology, Greg Rooney considers the essential ingredients of a profound apology and examines how a mediator might facilitate the process of giving a profound apology.

In The Mediator Who Planted Trees, Martin Svatos shares an allegorical tale of how destruction and adversity can be defied by single-handed, persistent effort and identifies how this tale captures the essence of a mediator’s work.

In Mediation Act 2017, Rafal Morek considers the recent Irish Mediation Bill, with a focus on two duties in this Bill: (i) lawyers’ duty to advise on mediation, and (ii) parties’ obligation to consider mediation and the associated cost sanctions for failing to do so.

In How to Mutually Gain Experience in Mediation? Mentoring Young Mediators: A Win-Win Situation, Daphne D’Hennezel interviews the highly regarded French mediator, Claude Amar, on his experience of mentoring young mediators.

In What Can Mediators Do To Help Parties Overcome Their Biases, Catherine Brys explores some of the perception and cognitive biases relevant to conflict as well as the interaction between biases and conflict. Catherine identifies how mediators might help parties to overcome their biases and use a problem-solving conflict resolution approach.

Given the high level of interest in our posts which address Brexit, Maria Kendrick (Visiting lecturer and PhD candidate at King’s College London) prepared a detailed analysis of the Supreme Court’s decision on the Brexit process.

Finally, Maryam Salehijam, a PhD researcher at the Transnational Law Centre of the University of Ghent, is undertaking research on the familiarity of legal professionals (including lawyers and third-party neutrals) with dispute resolution clauses which provide for non-binding ADR mechanisms such as mediation and conciliation. A short description of Maryam’s research and a link to her survey can be found here.

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What Role Shall Play the Qatar Financial Center Civil and Commercial Court under the new Qatari Arbitration Law?

Wed, 2017-03-01 17:06

Minas Khatchadourian

The Qatar Financial Center Civil and Commercial Court (“QFC Court”) is considered a Qatari on-shore Court established in 2009 and modelled on leading international corporate courts. Under the new Qatari Arbitration Law (“Law n. 2 of 2017”), the QFC Court has a very decisive role to play.

By Agreement of the Parties, the QFC Court can be appointed jointly as a forum to hear requests relative to nominate an arbitrator/ or chairman of the arbitral tribunal; to replace a nominating authority in case of the latter failure to do so; to decide on the challenge of an arbitrator raised by either party; to terminate the mandate of an arbitrator under specific circumstances; to suspend the arbitration proceedings; and to make necessary corrections or to give interpretation of the award in case the re-composition of the arbitral tribunal is impossible.

Furthermore, the new law has granted to the QFC Court the competence to examine the requests raised by the loosing party to challenge an award by way of action of nullity. The causes to seek nullity coincide with the same ones mentioned for setting aside the arbitral award under the UNCITRAL model law (as revised in 2006). The time limit to raise the action for nullity is one month (instead of three months in the UNCITRAL Model law) from the day the award is notified to the Parties.

As for the execution judge at the QFC Court, his role is pivotal as he shall be in charge of ordering interim or conservatory measures upon the request of a party either before the constitution of the arbitral tribunal or after the start of the proceedings. This new Qatari provision is crucial, as it enables the execution judge (called under the new law the “competent judge”) to assist the parties in critical times where it is necessary to order some conservatory measures in case of urgency.

In addition, the QFC execution judge shall be in charge of ordering the enforcement of arbitral awards, whether rendered in Qatar or abroad. The debtor of the award shall be able to seek its non-enforcement by bringing proof on the parties’ incapacity, the invalidity of the arbitration agreement, the irregular appointment or composition of the arbitral tribunal, the violation of due process principle, the ultra-petita nature of the award, etc. Similarly, the QFC execution judge shall have the authority – by its own motion – to refuse the enforcement of an award in case the subject-matter is unarbitrable under the Qatari law or the award is contrary to the public policy in Qatar.

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