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Hong Kong Arbitration Week Recap: 2018 HKIAC Rules and How They May Help in Resolving IPP Project Disputes

Thu, 2018-11-01 20:00

Kyongsoon Park and Benson Lim (Assistant Editor for PR China, Hong Kong and Central Asia)

2018 HKIAC Rules Come into Force

1 November 2018 marked 5 years from the date on which the 2013 HKIAC Administered Arbitration Rules came into force. 1 November 2018 was also the day on which the new 2018 HKIAC Administered Arbitration Rules (“2018 Rules“) came into force.

The 2018 Rules showcased the latest thinking in arbitration and these amendments – made after much public and internal consultation within HKIAC – are in line with HKIAC’s constant push to improve HKIAC arbitration users’ experience. A succinct summary of the key changes was published on this blog last week.

We discuss our brief views on the likely impact of the changes in the 2018 Rules – specifically from the angle of handling disputes in independent power producer (“IPP“) projects.

Typical characteristics of disputes in IPP projects

The imbalance of bargaining power often drives a foreign investor to accept unbalanced terms of a host country when negotiating project agreements. In a competitive bidding process, a lot of terms can be non-negotiable in practice. For example, in the some Middle East countries, the construction and operation of a power plant are often procured by a government agency or a state-owned enterprise which may be legally prohibited from adopting a foreign governing law (e.g. English law).

Disputes usually arise over, amongst others, the following issues:

  • lower than anticipated revenue for power due to ending of government subsidies or changes in tax laws;
  • exchange rate fluctuations because investors tend to pay in hard currency for IPP project costs while revenue may be in a different currency;
  • obtaining various consents and permits which can involve multiple parties such as landowners and public agencies;
  • parties’ obligations with regard to the construction and operation of the underlying infrastructure for the IPP project; or
  • different dispute resolution provisions in the power purchase agreement and the construction and operation agreements such as the engineering, procurement and construction and the operation and management agreements.

How 2018 HKIAC Rules may aid resolution of IPP project disputes

On balance, we think the latest amendments in the 2018 HKIAC Rules may help in resolving disputes in IPP projects more effectively. We say so because:

1. IPP projects tend to be document-intensive.

Resolving disputes in IPP projects would likely require a tribunal to consider these project documents in arriving at its determination. The 2018 Rules now recognize a new method of document delivery and provide for documents to be delivered by parties through the use of a secured online repository.

Under the 2018 Rules, parties may agree to use their own repositories or a dedicated repository provided by HKIAC. Using, for example, existing document repositories in an IPP project for the purposes of submitting project documents to an arbitrator will make it more cost-efficient and expedient for parties.

2. IPP projects tend to involve multiple parties across multiple contracts.

Parties would want to have all relevant parties added to any action commenced to resolve a dispute. For example, offtakers are key parties in IPP projects with their payments for power generated being key revenue sources for IPP projects. Whilst offtakers may well be involved in a dispute, they – as with other parties – are not necessarily be signatories to every contract for an IPP Project.

Under the 2018 Rules, the scope of the provisions on single arbitration under multiple contracts has been broadened by allowing a party to commence a single arbitration under several arbitration agreements. This is so even if the parties are not bound by each of the arbitration agreements. Under the 2018 Rules the tribunal may also conduct multiple arbitrations at the same time, one immediately after another, or suspend any of the arbitrations. This is possible if the same tribunal is constituted in each arbitration and a common question of law or fact arises in all the arbitrations. What this means for the parties is that concurrent proceedings may now be conducted where consolidation is not possible or desirable.

3. IPP projects are long-term projects.

Early resolution of disputes as they arise in the course of the IPP project timeline can be helpful. Taking the peculiarity of a long-term project period of the IPP into account (frequently, more than decades), a foreign private party is incentivised to develop an amicable long-term partnership with the host country. In practice, an employer (a state-owned private enterprise) and an EPC contractor (a foreign co-sponsor) would try to settle disputes by themselves and as they arise. If the foreign investor participates in operating and/or maintaining the plant, both parties are more likely to be keen to resolve disputes as early as they can.

The 2018 Rules lend themselves to such quick resolution in two ways.

First, there is greater clarity in the emergency arbitrator procedure under the 2018 Rules. The clarifications include the timing of filing an application for emergency relief, the test for issuing such relief being that applied in deciding on interim relief applications, and the maximum fees payable. Time limits have been shortened. These updates will make the emergency arbitrator procedure more attractive when parties need resort to emergency relief in the course of the long project period.

Second, the early determination procedure is now available under the 2018 Rules. It allows the tribunal to determine a point of law or fact that is manifestly without merit or manifestly outside of the tribunal’s jurisdiction, or a point of law or fact that, assuming it is correct, would not result in an award being rendered in favour of the party that submitted such point. This would help put an end to unmeritorious claims at an early stage.

The innovations in the 2018 Rules will be tested before courts and tribunals in the years to come, not just in relation to IPP project disputes, but also other sectors.

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Hong Kong Arbitration Week Recap: ADR in Asia Conference – The Vision in Revision

Wed, 2018-10-31 20:00

James McKenzie and Wilson Antoon

HK45

Yesterday, participants at this year’s Hong Kong Arbitration Week came together to attend the centrepiece ADR in Asia conference.  The conference, titled “The Vision in Revision,” featured a veritable smorgasbord of speeches, panels and mocks and was held again at the Four Seasons Hotel.

Welcome Address and Keynote Speech

The conference was kicked off with a welcome address by current HKIAC Chair Matthew Gearing QC who announced the appointment of seven new council members to the HKIAC Council: Jianan Guo, José-Antonio Maurellet SC, Andrea Menaker, Catherine Mun, Ronald Sum, Robert Tang GBM, SBS, QC, SC, JP and Rimsky Yuen GBM, SC, JP.  Mr Gearing spoke to a number of positive developments at HKIAC, including the adoption of new rules which come into force on 1 November 2018 and a growing caseload.

Mr Gearing then yielded the conference floor to Professor George Bermann of the Columbia University School of Law who gave a keynote speech posing the question: why, when faced with recent scrutiny and an assortment of challenges, should the international arbitration community look to the future of arbitration with considerable equanimity?   Professor Bermann had three reasons for this.

  • First, he noted that the promised features of international arbitration had not receded in value. Confidentiality, party autonomy in constituting tribunals, finality of awards, ease of enforceability, and above all, the promise of neutrality, remain elementary advantages for arbitration that have not diminished over time.
  • Second, in his view, international arbitration has delivered further benefits that were not part of the “original promise”. These include an aptitude for procedural reform and adaptation that cannot be matched by national systems of litigation, the embrace of new technology, and the development of a dynamic and vibrant community of international arbitration practitioners.
  • Third, he noted that international arbitration has been able, relatively speaking, to avert anticipated risks, including arbitrators cutting procedural corners and not faithfully applying the law chosen by the parties. Professor Bermann said that whilst these might be occasional problems, they are not chronic.

So whilst challenges abound there was, according to Professor Bermann, much for arbitration practitioners (and indeed the day’s attendees) to look forward to.

Who Governs, Who Decides, And How? Arbitral Institutions Under Review

The first panel of the day delved into the inner workings of arbitral institutions in Asia and Europe, attempting to open up the doors in the major institutions’ decision making processes.   The panel was composed of leading members of arbitral institutions: Mr Gearing; Judith Gill QC, LCIA President; Alexis Mourre, President of the International Court of Arbitration (ICC); and Lucy Reed, Vice President, SIAC Court of Arbitration (SIAC) and chaired by Neil Kaplan QC.

Mr Kaplan kicked off discussion about the levels of transparency at the institutions in the decision making process posing the question: who decides things at each of the panel members’ respective institutions?  Each of the panellists introduced the decision-making bodies in their centres, with Mr Gearing noting that its key governing body, the HKIAC Council, has just been “revamped” with new term limits for its members and the aforementioned broadening of the Council.  Mr Kaplan questioned the panel about the transparency of these arbitral centres’ decision making processes and quizzed the panel on what their organisations have and are doing to increase transparency in this area.  All the panellists noted that their organisations publish decisions, particularly in relation to arbitrator challenges and (in most cases) where requested by parties with the ICC making these decisions available on its website.  Ms Gill noted however that not all decision making processes are susceptible to publication and cautioned that a balance needed to be struck.

Mr Kaplan then turned the conversation to the composition of the administrations’ governing bodies and the panellists’ attitudes regarding individuals sitting on governing bodies of multiple institutions.  Ms Gill pointed out the concern at the LCIA that, where there is functional matrix or similarity between roles held at different institutions there is a risk of conflict, though that each situation needed to be looked at individually.

After discussion of transparency in arbitrators’ and counsel’s rates, the panel discussed the topic of arbitration clauses in which parties agree a set of arbitration rules different from their usual administering institution.  All the panellists agreed that this was a vexed topic and that institutions have tried to work together to try to ensure that parties didn’t end up falling between the cracks of the institutions with a pathological clause and recourse only to the courts.  A protocol agreement between institutions on how this should be dealt with was suggested by Mr Kaplan and welcomed by all the panellists.  When queried from the floor whether the institution or the rules should be preferred in such a protocol the panel was unanimous: the rules should prevail.

One-On-One Session with Former Secretary for Justice Rimsky Yuen SC And Address by the Current Secretary for Justice

The first panel session was followed by two sessions with the former and current Secretary of Justices of Hong Kong: Rimsky Yuen SC and Ms Teresa Cheng GBS, SC, JP.  Mr  Kaplan remained on stage to interview Mr Yuen SC who said that in his five and a half years as Secretary for Justice, he had the privilege of participating in many interesting matters, both legal and political, including handling the Snowden case about which (when pressed by Mr Kaplan) he could unfortunately say very little!  When asked about his interests outside of law, Mr Yuen SC said that he is partial to a cigar dipped in whisky, but (of course) after rather than before any court hearings!  The session was rounded off with Mr Kaplan asking Mr Yuen a series of rapid-fire questions:

  1. International arbitration or litigation? A. Arbitration.
  2. Beatles or Rolling Stones? A. Beatles.
  3. Rugby or soccer? A. Soccer.
  4. Apple or Samsung? A. Samsung.
  5. Hong Kong or Singapore? A. Hong Kong, of course!
  6. Institutional or ad hoc arbitration? A. Institutional.
  7. Fine dining or bowl of noodles? A. The latter.
  8. If you were on desert island, what book would you take? A. A book on how to fish, in order to survive.
  9. What one luxury would you pick? A. Cigar. (of course)

 Ms Teresa Cheng then gave a forward looking address focussing on the future business and economic opportunities in Hong Kong, including the Belt and Road Initiative and the Greater Bay Area, and the Government’s policies to promote Hong Kong as an international hub for deal-making and dispute resolution.

Options for Urgent Relief – Which Ones are Most Effective and When?

The first afternoon panel, moderated by Charles Manzoni SC, QC, was on urgent relief and the options available to parties and tribunals.  Claudia T. Salomon outlined that the options available to a party seeking urgent relief include: (1) appointing an emergency arbitrator; (2) seeking interim relief once the full tribunal is constituted; or (3) applying to national courts for relief.

David W. Rivkin outlined a number of considerations in deciding between the three options: (1) confidentiality, (2) level of urgency, (3) degree of impartiality of a national court, (4) nature of the relief requested, (5) the kind of security it might have to provide in order to obtain the requested relief, and (6) the seat of the arbitration and whether an emergency arbitrator’s award will be enforceable in that jurisdiction.

Taking on board these considerations, the second panel on this topic sought to demonstrate them in practice in case scenario showcasing a request for interim relief before the Hong Kong courts and a parallel request for interim relief before an arbitral tribunal operating under expedited proceedings.   Christopher Moger QC introduced the scenario to the audience which involved an apprehended exercise of a contractual put option which was (on the Claimant’s case) a danger to the subject matter of underlying arbitral proceedings.  Simon Chapman appeared as Counsel for the Claimant, Sheila Ahuja as Counsel for the Respondent with Swee Yen Koh acting as arbitrator and José-Antonio Maurellet SC acting as judge.  Catherine Munn was as a commentator to the proceedings.

The respective Counsel took the mock tribunal and court (and of course the audience) through the relevant tests demonstrating the not insubstantial room for argument on the interpretation of the tests for interim relief under the 2018 HKIAC Rules (which, although yet to be in force until the next day, were held to apply) and the Arbitration Ordinance in arbitral and court proceedings.

In the end, Mr Chapman was successful in obtaining part of his relief before Ms Koh, who emphasised her deference to maintaining the status quo over prejudice to the Respondent’s contractual rights.  In the court proceedings, Ms Ahuja was successful as Mr Maurellet SC was not persuaded that the applicant had properly exhausted his avenues through arbitration and was therefore minded to make no order on the basis that the Mr Chapman might come back to the court if it was unable to do so.  Of course, Mr Maurellet SC noted, it would still be open to Ms Ahuja to argue that the applicant could not meet the test for injunctive relief at that juncture.

Summary Proceedings and their Enforcement in Asia – Are They a Positive Development?

On the final topic of the day, a panel consisting of Caroline Kenny QC, Professor Anselmo Reyes SC and William D. Stone SBS, QC and chaired by Cameron Hassall discussed the addition of summary proceedings and whether or not they are a positive development.    Ms Hassall introduced the newly introduced process for early determination under the HKIAC Rules and posed the question: if the Tribunal has wide powers to control and manage the arbitration why introduce an express provision for early determination.  There was divergence on the panel on this.

Ms Kenny QC, on the one hand, conceded that while the provision was not strictly necessary there are two points recommending inclusion of the rule:

  • First, having the rule meant in her view that it will be more likely to be used; and
  • Second, the fact that the rule is expressly included in the rules will reduce the likelihood of challenged to awards on the basis of a lack of due process.

Professor Reyes SC, on the other hand, was less sure because by putting in the rule it might imply that in previous versions of the rules such relief is not available and might lead to additional challenges.

All of the panel raised concerns with meeting the particulars of the procedure and timetable, with Professor Reyes SC noting his worry about doing so under a recent SIAC procedure. He noted the difficulty, given the seriousness of the decision yet the brevity of timeframes under the SIAC procedure that formulating and providing the parties with adequate reasons for a decision was difficult.  Ms Kenny QC noted that the strict process in a sense might be welcomed in that it forces the Tribunal to be more rigorous about setting deadlines for the parties and thinking differently about the application.  The panel also discussed the differing legal tests under the summary determination procedures under the SIAC and HKIAC Rules and the meaning of “manifest” in that context with Mr Stone QC putting it somewhat tongue in cheek as “you know it when you see it”.  The panel concluded that whilst there were concerns about the adoption of the early dismissal proceedings in the new HKIAC Rules and indeed summary procedures in general, it was too early to tell their success or otherwise.

Closing Remarks

It fell finally to the current Secretary-General of HKIAC, Ms Sarah Grimmer, to close the conference by re-capping the day’s events and detailing an exciting roster of activities for HKIAC in the coming year.  Amongst these events: the renovation of HKIAC’s premises; the launch of the inaugural HKIAC Lecture in Beijing; a legal summit focusing African arbitration; and (of course) next year’s Hong Kong Arbitration Week, to be held from 21-25 October 2019 and in which, no doubt, another packed day of ADR in Asia will again be a centrepiece.

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Hong Kong Arbitration Week Recap: Making Arbitration Fit for the Future

Tue, 2018-10-30 20:00

James Kwan, James Ng and Kathy Tang

Hogan Lovells hosted an event yesterday, 30 October 2018, at its Hong Kong office, as part of the Hong Kong Arbitration Week, titled “Making Arbitration Fit for the Future”.  The event was graced by the presence of Bernard Hanotiau as the keynote speaker, followed by speeches from HKIAC’s Sarah Grimmer and Hogan Lovells’ James Kwan, Julianne Hughes-Jennett and Dan González.

Keynote Speaker: Bernard Hanotiau

Bernard Hanotiau kicked off the seminar by noting its fascinating theme of making arbitration fit for the future, which in his view is to make arbitration as efficient as possible by adapting it to match the evolution of society.  Hanotiau believes that there is still room for institutional rules to be improved from an efficiency standpoint, such as expanding grounds for complex arbitrations, introducing summary or early determination procedures and providing secured online repository where documents can be uploaded.

To make arbitration fit for the future, Hanotiau said that practitioners and arbitrators need to step up to the plate by adapting and improving their practice of the arbitral process.  This can be done by making use of modern and appropriate technology, and take the initiatives to shorten the procedure where possible.  On technology, Hanotiau highlighted its importance to shrink a large number of files, and suggested that site visits may possibly be replaced by 3D models or augmented reality very soon.

When met with an audience question on how to balance party autonomy against a party’s demand for a 40-page post-hearing briefs, Hanotiau said that the Tribunal should first discuss with the parties on the way forward.  If the parties are in total disagreement and the Tribunal considers them to be unreasonable, it will need to make a final decision.  Hanotiau thought that parties should approve of Tribunals that put their foot down to make decisions.

Innovation: Improving Institutional Rules as the Answer

HKIAC’s Sarah Grimmer then took the floor and introduced the audience to the brand new HKIAC Administered Arbitration Rules, which will come into effect on 1 November 2018.  Grimmer explained that there were three key objectives behind the amendments in essence: time and cost saving measures, efficiency in complex arbitrations and relevance to developments in international arbitration.

Some of the noteworthy amendments that Grimmer highlighted include: a cap on the total fees charged by an emergency arbitrator; introduction of an early determination procedure; imposition of a three-month time limit to render an award after close of proceedings; amended deadlines to appoint an emergency arbitrator and to render an emergency decision; possibility to file an emergency arbitrator application before commencing an arbitration; express reference to concurrent proceedings; encouraging the effective use of technology and delivery of documents through an online repository system.

Artificial Intelligence in International Arbitration

James Kwan, an international arbitration partner at Hogan Lovells’ Hong Kong office, spoke about the tongue-twisting concept of “AI in IA”.  Drawing on the 2018 Queen Mary University of London International Arbitration Survey, Kwan pointed out that there is a sentiment towards the greater use in the future of artificial intelligence (“AI“) technology, with 61% of the survey respondents noting that “increased efficiency, including through technology” is the factor that is most likely to have a significant impact on the future evolution of international arbitration. Kwan then highlighted for the audience how AI is used in international arbitration, ranging from enhancing case management to predictive justice and even having AI arbitrators.

While enhancing case management is quite innocuous, predictive justice and AI arbitrators are certainly the more heated topics.  Some of the concerns highlighted by Kwan include the failure for predictive justice to take into account the “human factor”, due process and the right to be heard.  On AI arbitrators, while the idea is tempting, Kwan said that such concept is unlikely to happen in the immediate future given the various hurdles such as: whether machines can be qualified as arbitrators; nationality and security of AI arbitrators; and whether AI arbitrators are capable to render reasoned awards or suitable to decide disputes at all, given their lack of understanding of emotions.  As such, Kwan foresees that although AI is here to stay, in its current form AI can only assist and facilitate, but is nonetheless useful and will play an increasingly significant role in arbitration.  Referring to the Terminator series, Kwan concluded that lawyers and arbitrators can be assured that their services are still needed until the judgment day comes.

Human Rights and Arbitration

Julianne Hughes-Jennett, a partner at Hogan Lovells’ London office, then took the stage to talk about the relationship between businesses and human rights (“BHR“) as well as international arbitration. Drawing from both soft laws (such as the OECD Guidelines) and hard laws (such as national legislations), Hughes-Jennett said that states have the duty to respect, fulfil and protect human rights while corporations have the responsibility to respect the same.  In the context of investment treaty claims, human rights can be used both as a sword (e.g., breach of access to justice and due process obligations) and a shield (e.g., claimant’s breach used to either mitigate the compensation owed).

Hughes-Jennett pointed out that the types of BHR disputes referred to arbitration will either involve a victim against a business, or a business against another business.  However, there are certain challenges to overcome for this type of dispute such as consent to arbitrate, applicable law, public policy, inequality of arms and spurious claims.  Notwithstanding these challenges, BHR disputes have already been filed previously, such as the arbitrations brought before the Permanent Court of Arbitration based on the Accord on Fire and Building Safety in Bangladesh.  Hughes-Jennett concluded that BHR arbitration is undoubtedly a welcome initiative, but it would be important to carefully consider the legal, practical and policy challenges as well as to continue to consult stakeholders on this matter.

Increasing Efficient Access to International Arbitration

Last, but certainly not least, Dan González (Global Head of Hogan Lovells’ International Arbitration practice) spoke about increasing efficient access to international arbitration. González  pointed out the consistency from different surveys that arbitration is the preferred tool for dispute resolution, but that the top complaints about international arbitration from these surveys include costs, delay and time taken to resolve the dispute.

On technology, he noted that electronically stored information (“ESI“) is overwhelming practitioners, as an average employee now generates around 800 megabytes of electronic information per year.  González then shared some tips for promoting better efficiency in arbitral proceedings, which include:

  • Working with the opposing counsel at an early stage. To improve efficiency, parties should try to agree on the procedural order, reduction in the number of pleadings and the discovery procedure. Parties could consider putting mediation on the schedule, as this may lead to early resolution of the dispute, or narrowing down of the issues.
  • Avoid raising every dispute with the arbitral tribunal. Parties should attempt to reach an agreement with the opposing counsel on some issues, and avoid the temptation of raising every disagreement to the Tribunal. However, González reminded the audience that it may be appropriate in some cases to raise significant disputes, which may provide an opportunity to advance one’s own case.
  • Conduct the discovery process in a more efficient manner. Counsel should only ask for the documents we need, rather than engaging in a fishing expedition. González also pointed out the need to identify key custodians, develop intelligent search terms, understand ESI and use technology assisted review (predictive coding) wherever possible.

Questions and Answers

As a parting gift to the audience, Hogan Lovells’ Kent Phillips asked each of the speakers to look into their crystal balls and predict on the future of international arbitration.

Kwan was of the view that there will be a greater influence by Chinese parties in international arbitration, which is evident from the increase in caseload across arbitral institutions such as HKIAC, SIAC and ICC.  He also said that this influence can be felt by the recent amendments to institutional rules like the “med-arb” procedure.

Both Hanotiau and Hughes-Jennett agreed with Kwan, with Hughes-Jennett noting that the bulk of her caseload now involves Chinese parties in commercial arbitrations.  Her prediction, however, is that there will be a rise in BHR disputes.  This is because there are already clauses in place for these disputes, and that it all takes is for them to spring.

González thought that more ADR processes will surface alongside international arbitration, which was traditionally thought to be a form of ADR in the United States but now became the method of dispute resolution.  While it is possible that there will be more and more mediations being conducted by necessity and to save costs, it may be challenging to conduct mediation in other parts of the world due to cultural diversity.

Finally, Grimmer shared González’s view that arbitration will continue to be utilized by more and more parties, which is clear from the arbitral institutions’ recent case load performance and improvement in case management quality.  Grimmer agreed with Kwan that Chinese parties will be engaging more frequently in the arbitral process, and that arbitration – from across the spectrum of dispute resolution – will remain absolutely strong.

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Kick Off: HK Arbitration Week 2018

Mon, 2018-10-29 20:00

Andrew Chin, Eugene Thong and Edern Coent

The week-long series of events for Hong Kong Arbitration Week 2018 kicked off with a seminar hosted by Latham & Watkins entitled “Ensuring Efficiency in International Arbitration  Proceedings: Tips for Asian Users”. The seminar consisted of two roundtable discussions with practitioners and professionals in the field of international arbitration.

The first roundtable featured Mr. Bernard Hanotiau and Mr. Ng Jern-Fei QC, and was moderated by Mr. Philip Clifford QC.

Mr Hanotiau said that quality can never be compromised, and questioned what it means to have a speedy arbitration if both sides agreed to have six months to serve memorials. While the expedited arbitration facility is provided for under the rules of many arbitral institutions, he has not encountered many cases where it has been used.  Mr. Ng agreed that the expedited facility would be favoured by users who prize speediness, but he also noted that expedited arbitrations are not necessarily simpler, explaining that the expedited procedure often leads to what would otherwise have been a typical arbitration being crammed into a shorter timeframe. The usual consequence of this is an extension of the six-month time limit.

Powers of early dismissal of claims or defences that are manifestly unmeritorious and/or over which the tribunal lacks jurisdiction have emerged in the upcoming HKIAC Arbitration Rules (2018 edition) and the SIAC Rules (2016 edition). Mr. Ng considered these powers to be a useful tool that gives comfort to arbitrators that they can summarily deal with such claims or defences without breaching a party’s right of due process, particularly in view of recalcitrant respondents who run unmeritorious defences to filibuster the arbitral process.

Mr. Hanotiau also shared some personal tips on how to conduct arbitrations efficiently. Whilst telephone conferences save travelling time and costs, in-person meetings are often helpful to defuse tensions.  He also tends to impose page limits on submissions, having once received a post-hearing brief of 3,000 pages following a hearing in Dubai.

On whether there should be shorter awards, Mr. Hanotiau emphasised that the main objective in investment treaty arbitrations is to ensure that an award is not annulled, after sharing that one of his awards, at 280 pages, was challenged with annulment because he did not deal with one argument. Mr. Ng had similar views: he expressed the view that a well-reasoned award dealing with the losing party’s arguments is “therapeutic” for the losing party, who will want to know why it lost, because such an award reassures the losing party that it had a full and fair hearing.

As to whether there should be more sole arbitrator tribunals, Mr. Ng likened arbitrators to elephants, and quipped that both move better in herds. He explained that while there is no one-size-fits-all approach, collective wisdom and experience can be drawn on with a three member tribunal.

The second roundtable featured Ruth Stackpool-Moore (Harbour Litigation Funding) and Wang Wenying (CIETAC HK, CMAC).

Ms. Wang shared some innovations in the CIETAC Arbitration Rules (2012 edition) to promote efficiency. The CIETAC Arbitration Rules allow for expedited procedures and provide mechanisms such as joinder and consolidation to deal with multi-party arbitrations. Further, med-arb is often used in CIETAC arbitrations and these procedures have found favour with CIETAC users.

Ms. Stackpool-Moore expressed optimism for the third party funding landscape in Hong Kong as the draft Code of Practice is already available for consultation. Meanwhile, third party funding has been available in Singapore for 18 months and the future looks bright for the region. Ms. Stackpool-Moore also agreed that arbitrations must be efficient as this affects when the third party funder can get its returns. The key factor for third party funders in deciding whether to fund cases is detailed information about the merits of the case. It is not sufficient to expect a funder to base its decisions on the pleadings alone. The funder will then analyse the chances of success and prepare a budget for the case. Although a funder does not normally dictate how a case is run, a funder will usually provide some advice on strategy.

The identity of the lawyers involved are also important to the funder. As the funder will not have active control of the case, the funder will want to ensure that competent lawyers are on board, otherwise they may either decide not to fund the case or may want to engage co-counsel to assist.

To end the event, Mr. Yang Ing Loong noted that it is the responsibility of the arbitral institutions, arbitrators and parties to ensure that arbitrations are efficiently conducted.

COMMENTARY

Discussing efficiency from different perspectives, the two panels hosted by Latham & Watkins showed that arbitration, like any craft, relies heavily on the tools available and the people that use them.

Expedited Procedures

The first and most familiar tool related to procedural efficiency is expedited rules. These have been inserted in the latest revisions of institutional arbitration rules that users are most likely to encounter in Asia, i.e., CIETAC, HKIAC, ICC and SIAC. The discussion from the first panel pointed to two typical issues with expedited procedures.

First, they are still not used that often, even though most of them have been in place for some time now. Given that most of these provisions are triggered by default when the amount in dispute falls below a certain amount, it can be inferred that in a fair number of cases where expedited procedure provisions should apply, the parties agree to opt out. The tool is there, but people are reluctant to pick it up.

Second, expedited procedures are not necessarily simpler. As discussed several times since institutions started to apply these provisions, a low amount in dispute is no guarantee of low complexity. Institutions have an interest in attracting more cases by providing services tailored to smaller disputes, and users are also keen generally to see straightforward issues decided rapidly, but these rarely mirror each other. Even when they do, and the parties agree that an expedited procedure is preferable, conducting the matter efficiently might well rely on how experienced the arbitrator is. Yet institutions will tend to use smaller disputes to promote new arbitrators, to give them experience and expand the pool and therefore the options available to the parties in the future, even though it might take a more seasoned arbitrator to conduct an expedited procedure efficiently and use it to its fullest potential.

Early Dismissal and Long Awards

Another tool available for increased efficiency, which is newer, is early dismissal. Included in the latest versions of HKIAC and SIAC rules, this option does not depend on the parties opting in or out. This does not mean, however, that we will see it more often used or that it will drastically improve efficiency. If the now familiar emergency arbitrations, another tool arguably orientated toward speedy resolution, are any indication, the manifestly unmeritorious nature of a claim or the tribuna’s evident lack of jurisdiction is never so obvious as to be so promptly dealt with. Parties will argue those points extensively and exhaustively, and arbitrators will want to make sure that they cover every argument.

This procedural economy resonates with another point made by the panels with respect to the length of awards. A shorter award might be delivered more quickly, from the tribunal’s drafting to the institution’s scrutiny and the parties’ receipt, but can efficiency be measured by speed here? The parties will of course want to present every possible argument that might improve their case, tribunals will have to tackle and address all of them and institutions will make sure that they do. At the end of the day, the award has to resolve the dispute and it has to be enforceable in order to do so. For all involved, the question is not really to balance efficiency and quality, but to combine them.

Institutions and Third Party Funders

Parties and tribunals have to work towards a combination of efficiency and quality, and other players in the field can help them achieve just that. It is apparent from these two panels that institutions are pushing new tools and procedural devices in order to meet their users’ needs and market expectations. Third party funders provide a budget, advice on choice of counsel and strategy, which will make sure that the tools available are properly used. Time is money, but so is an enforceable award.

In that respect, hearing about efficiency yesterday morning raised familiar questions. Do parties push for unreasonably long pleadings and proceedings? Are arbitrators too busy or conservative? Should institutions be more hands-on? Less so? What about funders? Are they too close to the action? These issues are likely to fuel debates within the arbitration community for the foreseeable future. All in all, this session was a proper kick-off to the Hong Kong Arbitration Week.

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The Asymmetrical Fork-in-the-Road Clause in the USMCA: Helpful and Unique

Mon, 2018-10-29 02:15

Alexander Bedrosyan

Introduction: The Pro-State Orientation of the USMCA

Chapter 14 of the United States-Mexico-Canada Agreement (USMCA) presents a model of investor-state dispute settlement (ISDS) that fundamentally realigns the balance between investors and states in favor of the latter.

This realignment consists in the USMCA’s structure and specific provisions. Structurally, the USMCA eliminates ISDS between Canadian investors and the United States and vice versa. It provides for ISDS between American investors and Mexico and vice versa for only certain types of claims (except for investors in five “covered sectors,” who retain ISDS for all claims.).1) This paragraph implies no criticism of the quality of protection foreign investors can expect to receive in the courts of the USMCA parties. jQuery("#footnote_plugin_tooltip_4567_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4567_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Specific provisions, meanwhile, explicitly codify pro-state interpretations of debated questions in investment arbitration.  Some of these provisions are familiar. For example, Article 14.1 requires an investment to satisfy the Salini criteria in order to be protected, 2) The investment must have “such characteristics as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk.” jQuery("#footnote_plugin_tooltip_4567_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4567_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); while Article 14.6(2) limits the content of the “fair and equitable treatment” and “full protection and security” obligations to the customary international law minimum standard of treatment of aliens.

Other such provisions are unprecedented. Footnotes 22 and 29, in Annexes 14-D and 14-E, respectively, provide that the “most favored nation” (MFN) clause cannot be used to import substantive or arbitration provisions from other treaties.  No other investment treaty explicitly restricts MFN clauses in this way.

It is therefore unsurprising that Roberto Landicho and Andrea Cohen describe the USMCA as effecting a “veritable sea change” compared to ISDS in the predecessor North American Free Trade Agreement (NAFTA), while Nikos Lavranos characterizes the USMCA as providing only a “light and restricted” version of ISDS.

 

The Asymmetrical Fork-in-the-Road Provision in the USMCA

One exceptional provision adopts a pro-investor position on a debated question in investment arbitration: the fork-in-the-road provision, found in Appendix 3. It provides:

An investor of the United States may not submit to arbitration a claim that Mexico has breached an obligation under this Chapter . . . if the investor or the enterprise, respectively, has alleged that breach of an obligation under this Chapter in proceedings before a court or administrative tribunal of Mexico.

The USMCA does not contain a parallel provision concerning Mexican investors looking to submit to arbitration claims against the United States. Appendix 3 is therefore an “asymmetrical” fork-in-the-road provision – the first of its kind.

This asymmetry reflects the drafters’ recognition of the different status that international treaties have in the domestic legal systems of Mexico and the United States.

Like many countries with a civil law tradition, Mexico is a “monist” legal system. Its international treaties are automatically part of its domestic law (i.e., without the need for implementing legislation) and directly enforceable in its courts. 3) Adrián Cisneros Aguilar, The Position of International Treaties in PRC and Mexican Law: Using the Chinese “Dialectical Model” to Implement and Enforce a Hypothetical Mexico-China FTA, as Related to Foreign Investment, 13 Arrelano L. & Pol’y Rev. 29, 35-36 (2015). jQuery("#footnote_plugin_tooltip_4567_3").tooltip({ tip: "#footnote_plugin_tooltip_text_4567_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); As a result, an American investor could bring a claim for violation of the USMCA directly before Mexican courts.

The United States, by contrast, like many common-law countries, is much closer to a “dualist” legal system. A treaty does not automatically become part of American domestic law unless it conveys an intention to be “self-executing.” 4) See Medellin v. Texas, 552 U.S. 491, 504-05 (2008). jQuery("#footnote_plugin_tooltip_4567_4").tooltip({ tip: "#footnote_plugin_tooltip_text_4567_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Even then, the American constitutional separation of powers presumes that the treaty must be enforced by the executive branch through diplomacy, rather than by the judicial branch. A self-executing treaty is therefore not enforceable in American courts unless it clearly confers a private right of action – a rare proposition. For example, in McKesson v. Islamic Republic of Iran, the Court of Appeals for the D.C. Circuit found that the 1955 Treaty of Amity, Economic Relations, and Consular Rights between the United States and Iran, although it was self-executing and conferred property rights to individuals, did not allow individuals to enforce these rights through domestic litigation. 539 F.3d 485, 488-91 (D.C. Cir. 2008). Therefore, it is highly unlikely that a Mexican investor could bring a claim for breach of the USMCA in American courts.

 

The Asymmetrical Fork-in-the-Road Provision and the debate surrounding Fork-in-the-Road Provisions

The USCMA parties drafted the asymmetrical fork-in-the-road provision in the context of a debate among investment arbitration practitioners on how broadly fork-in-the-road provisions in investment treaties should be interpreted. This debate has two camps.

One camp argues that a fork-in-the-road clause prohibits an investor from bringing claims arising out of the same facts in both international arbitration and a host state’s domestic courts only if the claims share the same cause of action.  Under this view, a party could claim before the host state’s domestic courts that a given measure by the host state breached domestic law, and claim in international arbitration that the same measure breached the investment treaty, because each claim would have a different cause of action. 5) CMS Gas Transmission Company v. Republic of Argentina, ICSID Case No. ARB/01/8, Award on Jurisdiction, ¶ 80 (17 July 2003); Ronald S. Lauder v. Czech Republic, Final Award, ¶¶ 159-66 (3 Sept. 2001); Occidental Exploration and Production Company v. Republic of Ecuador, LCIA Case No. UN3467, Final Award, ¶¶ 47-59 (1 July 2004); Azurix Corp. v. Argentine Republic, ICSID Case No. ARB/01/12, Award on Jurisdiction, ¶¶ 89-92 (8 Dec. 2003); Toto Costruzioni Generali S.p.A. v. Republic of Lebanon, ICSID Case No. ARB/07/12, Decision on Jurisdiction, ¶¶ 211-12 (11 Sept. 2009); Alex Genin, Eastern Credit Limited, Inc. and A.S. Baltoil v. Republic of Estonia, ICSID Case No ARB/99/2, Award, ¶ 332 (25 June 2001). jQuery("#footnote_plugin_tooltip_4567_5").tooltip({ tip: "#footnote_plugin_tooltip_text_4567_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The second camp, by contrast, argues that a fork-in-the-road clause prevents an investor from bringing claims arising out of the same facts in both international arbitration and a host state’s domestic courts, regardless of the cause of action underlying each claim. Under this view, it is irrelevant that the claim in the domestic court is brought under domestic law and the claim in international arbitration under international law. 6) Pantechniki S.A. Contractors & Engineers v. Republic of Albania, ICSID Case No. ARB/07/21, Award, ¶¶ 61-68 (30 July 2009); Compañiá de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, Decision on Annulment, ¶¶ 55, 113 (3 July 2002); H&H Enterprises Investments, Inc. v. Arab Republic of Egypt, ICSID Case No. ARB 09/15, Award, ¶¶ 359-70 (6 May 2014); Chevron Corp. & Texaco Petroleum Corp. v. Republic of Ecuador, PCA Case No. 2009-23, Third Interim Award on Jurisdiction and Admissibility, ¶¶ 4.72-4.77 (27 Feb. 2012). jQuery("#footnote_plugin_tooltip_4567_6").tooltip({ tip: "#footnote_plugin_tooltip_text_4567_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The asymmetrical fork-in-the-road provision in the USMCA suggests that its drafters side with the first camp. The provision applies only to claims brought by an American investor in Mexican courts for breach of the USMCA. It prohibits an American investor who has brought a claim for breach of the USMCA in Mexican courts from bringing a claim for the same breach of the USMCA in international arbitration.  Because American law prevents a Mexican investor from alleging a breach of the USMCA before United States courts, the drafters felt no need to include a similar provision addressing Mexican investors. In other words, they agreed that a fork-in-the-road provision is meant to prohibit only parallel claims arising both out of the same facts and under the same cause of action (in this case, under the treaty itself).

 

Conclusion

The asymmetrical fork-in-the-road provision of the USMCA is unique, both in isolation and in context of the USMCA as a whole. It is the only known fork-in-the-road provision that applies to claims brought by investors of only one party to an investment treaty, and it reflects a rare occasion where the USMCA adopts a pro-investor view of a debated question in investment arbitration.

More important, the provision serves as a reminder for drafters of investment treaties to take into account the role that international law plays in the domestic legal systems of the parties to the treaty, particularly where the parties come from both common-law and civil-law traditions.  If the fork-in-the-road clause in the USMCA were symmetrical, a question would arise as to whether Mexican investors who challenged measures by the United States in American courts as breaching domestic law would retain their rights to challenge the same measures in international arbitration as breaching the treaty. Instead, the drafters of the USCMA appropriately took into account the different role that international treaties play in the Mexican and American legal systems, in order to draft a uniquely asymmetrical fork-in-the-road clause that communicates clearly that the clause has a narrow application.

If more investment treaties follow the innovative lead of the USMCA on similar issues, it would bring welcome clarity for investors, states, and ISDS arbitrators alike.

References   [ + ]

1. ↑ This paragraph implies no criticism of the quality of protection foreign investors can expect to receive in the courts of the USMCA parties. 2. ↑ The investment must have “such characteristics as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk.” 3. ↑ Adrián Cisneros Aguilar, The Position of International Treaties in PRC and Mexican Law: Using the Chinese “Dialectical Model” to Implement and Enforce a Hypothetical Mexico-China FTA, as Related to Foreign Investment, 13 Arrelano L. & Pol’y Rev. 29, 35-36 (2015). 4. ↑ See Medellin v. Texas, 552 U.S. 491, 504-05 (2008). 5. ↑ CMS Gas Transmission Company v. Republic of Argentina, ICSID Case No. ARB/01/8, Award on Jurisdiction, ¶ 80 (17 July 2003); Ronald S. Lauder v. Czech Republic, Final Award, ¶¶ 159-66 (3 Sept. 2001); Occidental Exploration and Production Company v. Republic of Ecuador, LCIA Case No. UN3467, Final Award, ¶¶ 47-59 (1 July 2004); Azurix Corp. v. Argentine Republic, ICSID Case No. ARB/01/12, Award on Jurisdiction, ¶¶ 89-92 (8 Dec. 2003); Toto Costruzioni Generali S.p.A. v. Republic of Lebanon, ICSID Case No. ARB/07/12, Decision on Jurisdiction, ¶¶ 211-12 (11 Sept. 2009); Alex Genin, Eastern Credit Limited, Inc. and A.S. Baltoil v. Republic of Estonia, ICSID Case No ARB/99/2, Award, ¶ 332 (25 June 2001). 6. ↑ Pantechniki S.A. Contractors & Engineers v. Republic of Albania, ICSID Case No. ARB/07/21, Award, ¶¶ 61-68 (30 July 2009); Compañiá de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, Decision on Annulment, ¶¶ 55, 113 (3 July 2002); H&H Enterprises Investments, Inc. v. Arab Republic of Egypt, ICSID Case No. ARB 09/15, Award, ¶¶ 359-70 (6 May 2014); Chevron Corp. & Texaco Petroleum Corp. v. Republic of Ecuador, PCA Case No. 2009-23, Third Interim Award on Jurisdiction and Admissibility, ¶¶ 4.72-4.77 (27 Feb. 2012). function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Attribution in Investment Arbitration: From Stricto Sensu to Lato Sensu

Mon, 2018-10-29 00:33

Csaba Kovacs

In the recently published award in Georg Gavrilovic and Gavrilovic d.o.o. v. Republic of Croatia (ICSID Case No. ARB/12/39)1) Georg Gavrilovic and Gavrilovic d.o.o. v. Republic of Croatia (ICSID Case No. ARB/12/39), Award, dated 26 July 2018. jQuery("#footnote_plugin_tooltip_9213_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9213_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); the tribunal considered whether the notion of attribution extends to the non-wrongful conduct of various State or State-linked actors.

 

The dispute concerned Croatia’s alleged expropriation of properties and contract rights of a meat business acquired by the investor through a controversial bankruptcy sale, which was validated by Croatia’s bankruptcy court. The claimants also complained of Croatia’s alleged interference with the claimants’ attempts to register ownership over the properties claimed to have acquired through the bankruptcy sale. The claimants did not challenge the involvement of the State in the bankruptcy process. Instead, the claimants relied on the attribution of the conduct of the liquidator, the Bankruptcy Council, the Bankruptcy Court, the Bankruptcy Judge and the Croatian Privatisation Fund in order to establish Croatia’s breach of the fair and equitable treatment standard through violation of a legitimate expectation. The claimants argued that attribution could be used to establish who can make representations on behalf of the State, on which an investor is legitimately entitle to rely. In particular, the claimants argued that the State’s involvement in the bankruptcy process gave rise to legitimate expectations concerning the registration of properties that the investor had reasonably and legitimately believed to have acquired through the bankruptcy sale. Citing serious irregularities in the bankruptcy sale, the respondent challenged the validity of the bankruptcy sale and contended that the rules of attribution operate only for the purposes of establishing conduct that is wrongful under international law.

 

The tribunal distinguished between the strict sense of attribution, which it held to apply in the context of the State’s international responsibility for the wrongful acts of its organs and officers, and the ‘broader questions of what constitutes the State’. It correctly observed (in paragraph 779) that the ILC Articles’ rules on attribution apply to the wrongful conduct of the State, noting that the ‘principles of attribution do not operate to attach responsibility for “non-wrongful acts” for which the State is assumed to have knowledge.’ It then observed that the involvement of the host State in the bankruptcy sale was not a matter of attribution because there was no third party seeking to hold the State liable for that conduct.

 

The author submits that attribution establishes whether there is an act of the State through the examination of legal and factual factors connecting the actor, the act or both to the State. The question of the involvement of the host State arises in a number of different factual or legal contexts in investment disputes. For example, it may be necessary to examine if non-wrongful conduct is attributable to the State when a representation, as a predicate of an internationally wrongful act, is alleged to have engendered a legitimate expectation, which is then purportedly violated by the State.

 

The Gavrilovic tribunal’s narrow conceptual approach to attribution, while correct from a normative angle, does not acknowledge that the premise of the concept of legitimate expectations is a promise or representation, which must necessarily be attributable to a competent organ or representative of the state in order to engender the investor’s legitimate expectations. The issue of the normative framework is, of course, another matter: it is largely settled in the jurisprudence that the ILC rules on attribution do not apply outside the realm of State responsibility, which implies a complaint of a wrongful conduct. Instead, the attribution of lawful conduct is governed by the law applicable to the conduct in question.

 

Finally, attribution is not concerned with the legality of an act of the State. The question of whether the lawful conduct thus attributed to the State entitles the investor to rely on it or, put simply, the legitimacy of the investor’s expectation is a matter for the merits of the case. Nevertheless, there can be no legitimate expectation without a representation attributable to the State. Indeed, the Gavrilovic tribunal found that Croatia was not named as a party and did not sign or represented that it intended to be a party to the purchase agreement by which the investor acquired the business in bankruptcy. The tribunal correctly noted (in paragraph 856) that ILC rules on attribution ‘cannot be applied to create primary obligations for a State under a contract.’ Although it found that Croatia orchestrated the bankruptcy in order to return the family business to the investor as a quid pro quo for his currency smuggling services, the tribunal’s conclusion that the State was not a party to the purchase agreement meant that the claimants could not have had a legitimate expectation in respect of property that formed the object of that transaction.

 

The author submits that, in international investment law, the concept of attribution, as the means by which the State’s multi-faceted involvement in an investment dispute is ascertained, goes beyond the traditional realm of State responsibility under international law. The concept of attribution lends itself to a number of uses specific to the substantive and procedural framework of investor-State arbitration, which do not necessarily turn on the legality of the examined conduct under international law. The purpose for which the attribution of a particular – wrongful or non-wrongful – conduct is considered determines its relevant normative framework. These and other related issues are examined in-depth in the author’s book entitled ‘Attribution in International Investment Law’ (Kluwer Law International, 2018).2) Csaba Kovacs, Attribution in International Investment Law (Kluwer Law International 2018. jQuery("#footnote_plugin_tooltip_9213_2").tooltip({ tip: "#footnote_plugin_tooltip_text_9213_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Csaba Kovacs is a solicitor-advocate with a long-standing practice and expertise in international commercial and investment arbitration. The views expressed in this post are the author’s own.

References   [ + ]

1. ↑ Georg Gavrilovic and Gavrilovic d.o.o. v. Republic of Croatia (ICSID Case No. ARB/12/39), Award, dated 26 July 2018. 2. ↑ Csaba Kovacs, Attribution in International Investment Law (Kluwer Law International 2018. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Tailwind for Arbitration in Uruguay: the Model Law Finally Reaches Safe Harbor

Sat, 2018-10-27 16:16

Noiana Marigo, María Julia Milesi, Santiago Gatica and María Paz Lestido

Uruguay’s long journey to approve an international commercial arbitration law has finally come to an end. Act Nº 19.636 (the “Arbitration Act”) was passed at the beginning of July, almost fourteen years after the Executive first sent a draft bill to Congress to regulate arbitration. The Arbitration Act largely incorporates the 1985 UNCITRAL Model Law on International Commercial Arbitration and some of its 2006 amendments (the “Model Law”). The objective of the Arbitration Act is to align Uruguay with accepted international legislative standards, although certain provisions are tailored to adjust them to the country’s procedural regulations, long-standing judicial practices and private international law principles.

Arbitration in Uruguay before the Arbitration Act

Uruguay’s legislative recognition of the institution of arbitration dates back to the second half of the nineteenth century. The Commercial and Civil Codes of 1865 and 1868 respectively included provisions making arbitration mandatory for certain disputes (such as those arising out of commercial lease agreements or between partners in any business entity). Although these provisions requiring mandatory arbitration were repealed in 1975, the country kept its longstanding tradition of recognizing arbitration as a valid dispute resolution mechanism in its general procedural legislation. For example, Uruguay’s first procedural code of 1878 included several provisions on, inter alia, the enforceability of arbitration clauses, the appointment of arbitrators, and the conduct of proceedings, which provided the foundation for domestic arbitration in the country. Subsequently, the 1988 procedural code (the General Procedure Code or “GPC”) included a specific chapter on arbitration.

Uruguay has also adopted, since 1977, numerous bilateral and multilateral treaties, including the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958,  the Panama Inter-American Convention on International Commercial Arbitration of 1975 and the Montevideo Inter-American Convention on Extraterritorial Validity of Foreign Judgments and Arbitral Awards of 1979.

More recently, amendments to the GPC in 2013 brought a number of improvements to the field of commercial arbitration, including the express recognition, for the first time, of the kompetenz-kompetenz principle (art. 475.2), regulation on preliminary measures granted by a court before arbitration is commenced (art. 488) and the inclusion of some additional grounds for the annulment of an award (art. 499).

However, under the GPC, which is still applicable to domestic arbitration in Uruguay, an arbitration clause is not sufficient to submit a dispute to arbitration, and a submission agreement (or compromis) is required once a dispute has arisen. If one of the parties refuses to execute a submission agreement, the other party can request specific performance to a judicial court. This pitfall, coupled with the fact that it is relatively inexpensive to submit a dispute to Uruguayan courts, has traditionally undermined the appeal of arbitration as a dispute resolution mechanism for Uruguayan parties.

Other aspects of the GPC’s provisions on arbitration are also troublesome. For example, arbitrators must ensure that the parties had a chance to conciliate the dispute before commencing the arbitration proceeding (art. 490). Failure to do so could cause subsequent proceedings to be void. Moreover, by default arbitration proceedings will be decided ex aequo et bono unless the parties expressly state in the submission agreement that the dispute will be decided by the application of the law (art. 477).

International Commercial Arbitration under the new Arbitration Act

The recently enacted Arbitration Act has come to solve most of these difficulties for international commercial arbitration.

The Arbitration Act’s scope is limited to international arbitration. According to its provisions, an arbitration is international only if: (i) the parties to the arbitration agreement have their places of business in different countries when such agreement was executed (art. 1.3.a); and (ii) the place of the performance of a substantial part of the commercial obligations, or the place with the closest relation to the subject matter of the dispute, are located outside the country where the parties have their places of business (art. 1.3.b). Hence, the Arbitration Act deviates from the Model Law in the sense that “[t]he sole will of the parties cannot determine the internationality of the arbitration” (art. 1.4). This limitation is rooted in Uruguay’s restrictive approach to party autonomy under its private international law rules, embodied in art. 2403 of the Appendix to the Civil Code which states that the “[t]he rules of legislative and judicial competence […] cannot be modified by the parties’ will. They can only act within the margin conferred by the competent law”. The Arbitration Act continues to reflect the conservative predisposition of the Uruguayan legislator in relation to party autonomy.

A second aspect regulated by the Arbitration Act is what constitutes an “arbitration agreement”. The Act adopted the definition included in art. 7 of the 1985 version of the Model Law, with the purported intention of being consistent with the NY Convention.

Third, the Arbitration Act also recognizes that the tribunal shall decide the merits of the dispute in accordance with the rules of law chosen by the parties (art. 28.1). This provision ratifies the criteria already adopted by scholars and case law, rejecting the application of art. 2403 of the Appendix to the Civil Code to international arbitration (which prevents parties from choosing the applicable law to a contract when the conflict of law rules point to Uruguayan law). However, the Arbitration Act establishes that in the absence of such an agreement, the tribunal will choose the applicable law based on the criteria it deems more convenient (art. 28.2). In contrast, under the Model Law, the tribunal should apply the law determined by the applicable conflict of law rules.

Fourth, the Arbitration Act adopted art. 17 of the original 1985 Model Law on interim measures, incorporating some of the 2006 amendments and additional provisions to harmonize it with the GPC. The Arbitration Act recognizes the binding character of interim measures adopted by an arbitral tribunal (art. 17.2) and incorporates the definitions provided in art. 17.2 of the 2006 version of the UNCITRAL Model Law (art. 17.3). The Arbitration Act requires that notice to the non-requesting party be given before the measure is granted, unless the tribunal determines otherwise due to the harm that would be caused by the delay (art.17.5). Interim measures granted before an arbitration begins will expire in 30 days unless the proceedings are initiated (art. 17.8).

Finally, the Arbitration Act departs from the provisions of the Model Law in several other aspects:

  1. Where a State or a public entity appoints a public official as an arbitrator in a proceeding to which it is a party, this shall not necessarily provide grounds for challenge (12.3).
  2. A specific definition and chapter on costs is included, inspired by the UNCITRAL Arbitration Rules, which shall be applicable in the absence of the parties’ agreement (arts. d and 34-38).
  3. In order to guarantee the celerity and efficiency of the procedure, the Arbitration Act provides that certain arbitration-related issues submitted to judicial courts must be decided within a 60-day period: (i) judicial review of arbitrator challenges rejected by the arbitral tribunal, when requested by the challenging party within 30 days as from the rejection ( 13.3); (ii) judicial review of the de iure or de facto inability of an arbitrator to perform his or her functions (art. 14.1); and (iii) judicial review of the arbitral tribunal’s decision upholding its jurisdiction as a preliminary question, when requested by any of the parties within 30 days as from the decision (art. 16.3).

The Uruguayan judiciary’s approach to arbitration

Uruguayan courts have traditionally shown themselves to be favorable to arbitration. Case law had resolved certain issues that were not addressed in the previous legislative framework governing arbitration in the country. For example, case law had recognized the doctrine of separability, and that parties could choose the applicable law to a contract when international arbitration was agreed. This pro-arbitration stance was also reflected in annulment proceedings, and proceedings on the recognition and enforcement of foreign arbitral awards.

The pro-arbitration approach of the courts combined with the Arbitration Act will likely position Uruguay well to compete with other jurisdictions as a reliable seat of arbitration in the region.  As a first step to making this a reality, the Government has signed an agreement with the Permanent Court of Arbitration establishing Uruguay as a seat country. Furthermore, Uruguay’s leading arbitral institution, the Conciliation and Arbitration Centre of the Chamber of Commerce of Uruguay (International Court for MERCOSUR)—which has so far been used mainly for domestic disputes—may also capitalize on the opportunity to administer more international arbitration proceedings.

Conclusion

The Arbitration Act has at last filled a significant lacuna in the legal framework governing international arbitration in Uruguay and will hopefully position the country as a reliable seat, promoting arbitration as an effective mechanism to resolve international controversies. The application of the Arbitration Act will also hopefully pave the way for future changes to the current domestic arbitration framework.

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Arbitral Precedent: Still Exploring the Path

Sat, 2018-10-27 16:05

Paula Costa e Silva, Beatriz de Macedo Vitorino and Filipa Lira de Almeida

Is there such a thing as an arbitral precedent? Is it binding to judicial courts? The answer to these questions will depend on the clarification of another set of broader issues relating to the existence of precedents themselves and their inevitable role in shaping today’s possible conceptions of the law. We will analyse these matters and attempt an answer to the initially posed questions.

We have already spoken of this theme in our paper Arbitral Precedent: Once and Again. However, while we previously analysed this matter in an international point of view, now we wish to focus on the arbitral precedent in the context of a national legal framework. We will explain why we believe that arbitral awards may furnish innovative norms, susceptible of being applied by decision-makers in future cases, given that a rational decision-making process is what it takes to arrive to the best decision according to the legal order applied: we believe that formal or institutional criteria which limit and define the precedential value of arbitral and judicial decisions are fictitious, although presenting a practical utility related to judicial uniformization.

For starters, a precedent may be defined, as does Duxbury, “a past event – in law the event is nearly always a decision – which serves as a guide for present action”. Guilherme Rizzo Amaral starts off his study about the possibility of arbitrators being bound by judicial precedents with this quotation followed up by the phrase: “In that sense, one can even maintain the existence of non-judicial precedents”, going on further by stating that “the existence of arbitral precedents could be contended to be somewhere between judicial and non-judicial precedents”.1) Guilherme Rizzo Amaral, Judicial Precedent and Arbitration: Are Arbitrators Bound by Judicial Precedent? 2nd ed, Wildy, Simmonds and Hill Publishing. jQuery("#footnote_plugin_tooltip_9021_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9021_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The precedent differs from the decision from which it originates. It is the ratio decidendi that may provide elements prone to establish such relevant connections with posterior cases that they present themselves as precedent. There are binding and persuasive precedents and while the former are as such recognized by all courts pertaining to a national legal order – even if only few of them are actually bound by said precedents (might it be because the law says so or because courts themselves take the responsibility of following certain courts’ decisions’ ratio decidendi) – the latter are extracted from whichever decision a decision-maker finds adequate to solve (or help solve) the case in hands: we may, at this point, already conclude that every decision that applies the law of a certain country may be considered a precedent and that it is considered as such whenever another decision-maker applying said law finds so to be adequate. This means the ratio decidendi of a first instance judicial court decision, appellate court decision, as well as arbitral decision may be a precedent, taken into account by a decision-maker in the deciding process. It is, of course, natural for a judicial court judge to decide the same way an arbitrator previously did, whenever the relevant facts (as considered as so by the judge) are analog to those that the arbitrator considered in order to decide a certain way, so far as the judge thinks the conclusion to which the arbitrator arrived is the correct one – if they think so, the judge must be able to explain the thought process leading up to such conclusion, justifying the decision taken.

This said, we understand arbitral decisions may form precedent because arbitrators too apply the law of the country (except when equity is the criterium chosen by the parties for the formation of the decision, which is not a particularity of the arbitral process, since certain judicial court decisions, depending on each country’s rules, are also based on equity and these ones also do not form precedent). W. Mark C. Weidemeier explains it is clear arbitrators cite other arbitrators’ decisions. This is particularly true when it comes to institutionalized arbitration, such as sports arbitration, where the lack of a set of principles or rules applicable means one of the tasks of the arbitrator is to develop the substantive system, which implies that each arbitrator is aware of creating a new rule (which will guide future arbitrators).

Yet, we admit they might not only form precedents for other arbitrators but also for judicial court judges. Arbitration is often seen, as W. Mark C. Weidemeier states, “as an ad hoc forum in which arbitrators do justice (at best) within the confines of particular cases”, but we do not see in this a differentiated characteristic of arbitration, since the judicial court judge also decides the particular case he is faced with: that is what doing justice means. If the arbitrator is set on the goal of doing justice by applying the national Law, then he or she cannot be oblivious to previous decisions, whether rendered by arbitral or judicial courts.

In fact, this discussion only makes sense when dealing with Civil Law, since it is clear the arbitrator in Common Law orders could never only rely on written laws. And it is when considering Civil Law systems that it is most pertinent (yet paradoxical) to assert that arbitration does not mean a positivistic view of the Law: it is not a field in which decision-makers are only to consider written laws. This observation may seem bizarre, since it contradicts the most common and intuitive thoughts about arbitration, often pictured as a more open and resourceful environment to solve a conflict; yet, when seen as an instance where the arbitrator is to read a law and interpret it without resorting to other interpretations, the result is precisely a positivistic approach. We mean to distance ourselves from it.

Both arbitrators and judges pertain to the Law, since they are the highest expression of its interpretation and application, and, therefore, creation of such Law – as Jhering declares, what only exists in the parliamentary statutes and in paper is nothing but a phantom of Law.

All we have said can lead us to a disturbing conclusion: if arbitral decisions were not to be considered by judicial courts, the State would be failing at one of its most crucial duties – delivering justice through its courts, for they would be reporting to incomplete, stale laws (for their application is also their formation), thus creating a parallel legal context in which former solutions are to be ignored, while the reasoning of solutions found without using all possible tools would be legally binding.

In other words, and consequently, we do not think that the contractual nature of arbitral courts should imply that they be excluded from the idea of jurisdictional system, which consistency depends – even more so if we consider the Common Law family – on the concept of preceding rulings being, at some extent, taken into account by decision-makers.

The definition of precedent has already made us arrive to these conclusions, which will be the starting point to the second part of this paper where we will ponder the weight of the traditional distinction made between binding and persuasive precedents and its usefulness, in an attempt to understand which nature an arbitral precedent (which we have just now clarified as existent) may have. As for now, we will take a short look into how precedents are framed by the legal families of Civil and Common Law.

According to the traditional fons iuris theories, only judicial courts decisions could form binding precedents. In the Common Law tradition, the stare decisis principle implies that previous decisions, rendered by the same or by an hierarchically higher court – therefore, either operating horizontally or vertically – should define not only a pattern to subsequent ones, but peremptory criteria for case resolution. Civil Law orders face the same challenges regarding predictability, equality and, ultimately, the deliverance of Justice in the form of just decisions. However, and although past judgments (more precisely, their reasoning) are presented as relevant arguments both by the parties and the judge, they are challengeable and can almost always be diverted from, for they are not equivalent to parliamentary legal dispositions, save for rare exceptions. Nonetheless a remark is to be made: in both families, the formation of precedents – both binding and persuasive – is taken as a consequence of the hierarchic position of the court that renders the decisions, often sustained by assumptions. They regard the quality of the decision-maker (thus implying another set of assumptions), the jurisdiction of the court or even its composition; more profoundly, and considering that, if binding, court decisions are equivalent to written law – which making power belongs to the State – arbitral decisions are not usually accepted as able to form precedent.

We are left – and leave the reader – with this question: according to the aims of the judgment and its generally accepted conditions of validity, does it make sense to justify the binding force of only some precedents based on a classic fons iuris theory when it only concerns institutional legitimacy? This question is one we will attempt to answer from the premise we started this one off with: every decision that applies the Law of a certain country may be considered a precedent and it is considered as such whenever another decision-maker applying said Law finds so to be adequate (which is a decision he or she will have to justify, as well as the decision to dismiss a previous decision’s ratio decidendi when it concerns a similar case).

In the introductory part to this blog post, we took a stance on what a precedent is – a past decision which serves as a guide for present action – and considered that arbitral awards may create self-standing rules with precedential value for both arbitrators and judges deciding a case. We concluded this by considering that the contractual nature of the arbitration agreement does not exclude arbitral decisions from the jurisdictional system and the Law of the country, when the arbitrator is bound to decide by applying such Law: in such case, arbitrators both interpret, apply and create Law. What this means is that state court judges must also consider arbitral decisions when deciding a case. However, we do not think these conclusions can sustain themselves solely based on the definition of precedent and on the nature of arbitration. We must now better understand what deciding is, what a valid and legitimate decision is, what differs persuasive from binding precedents and why States only consider binding the preceding decisions coming from high courts.

If regarded as previously developed schemes for the resolution of an ensuing conflict, it is easily understandable that the binding content of precedents does not lie on the operative part of the judgment, for the final decision cannot be separated from the situation that requires it.

Those schemes – the ratio decidendi – result from the intellectual effort of selecting from the reality, as presented to Court, what might be relevant for the final goal of delivering a judgment. That process is not crucial only for the purpose of reasoning the final decision. It is also the exercise that enables the construction of a pattern: identifying the general contours and the specifying elements of any given situation.

The selection process itself involves a certain understanding of the facts and knowledge of the applicable legal dispositions. From the choosing of elements and their – at least simultaneous – logical concatenation, a chain of deductions can be made, ideally syllogistically culminating in one sole conclusion, but often leading to a plurality of potential valid options, from which one is to be chosen by the decision-maker.

“Valid” is not a naively chosen word. The processes we are discussing are eminently rational and it is in this rationality that the crucial condition of legitimacy for the rendition of a judgment is. It may be argued that a court’s legitimacy derives from its powers being assigned by the State (even if an arbitrator may be perceived as to having less of a public legitimacy) – this would be the positivistic approach to the much wider question of knowing what makes everything binding and an understanding of the word “jurisdiction” that we cannot follow.Even if we were to accept this statement, it would be now helpful to recall what we have previously written: it is not the operative part of the judgment that must be applicable to subsequent situations. It is not the previous court’s given order that must be followed, thus the cornerstone of the precedent doctrine cannot be the mere power to order.

Even though it may be true that only certain entities may, by law, validly pronounce judgments, it is not true that the conditions for that political kind of validity apply to the legal and philosophical validity of a judgment. Coherence between premises and conclusion does not depend on any kind of hierarchy or institutional criteria, but on the prevalence of reason over randomness and, consequently, unpredictability, which is the enemy to be fought against by any legal thinker.

Trying to explain the existence and functioning of precedents using the topoi from which we discuss institutional legitimacy is an incomplete manner of analysing such matter and tends to deny the possibility of formation of binding arbitral precedents. In one word: the only acceptable justification for the very existence of binding legal precedents also implies accepting arbitral precedents, if the process to achieve the final judgment is submitted to the same rationalizing elements. What we mean to say is that, while a decision is only legitimate when formed by a rational process which can be communicated, and rendered by a competent entity, there is no competent entity to say whether the ratio decidendi of a decision may form a binding precedent, since it is the necessity of a rational decision able to put to terms the conflict taking place that may oblige the decision-maker to follow a previous set of decisions.

The idea we want to make clear is that the source of validity of every precedent rests in its ratio decidendi, which can only be achieved by the rationalizing process of sorting and applicating facts and legal criteria, a process which must be linguistically expressed and comprehensible: as Castanheira Neves explains, the relevant rationality is not the one that simply aims to achieve a necessary inference or demonstration or a true and universal knowledge or explanation, but a finalistic, practical and relational rationality that aims to solve definitively the conflict in a way that is understandable by the parties and third persons.2) Castanheira Neves, “Entre o ‘legislador’, a ‘sociedade’ e o ‘juiz’ ou entre‘sistema’, ‘função e problema’ – os modelos atualmente alternativos de realização jurisdicional do direito”, Boletim da Faculdade de Direito de Coimbra, v. LXXXIV. jQuery("#footnote_plugin_tooltip_9021_2").tooltip({ tip: "#footnote_plugin_tooltip_text_9021_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

This is what we meant by writing that the goal of achieving one decision is merely ideal – it is not incompatible with the potential validity of several judgments. The correspondence between a logical conclusion and a court decision is its most fundamental condition of validity. However, it is not because the conclusion derives logically from the premises – as taken to court by the parties – that the judgment is binding, for that would imply an ontological leap: this is where institutional legitimacy plays its most relevant role. It transforms the judiciary syllogism into an order. Indeed, the correctness of an intellectual construction that supports a final illation does not instantly correspond to the reasons of judgment or to the judgment itself. These are different realities, interlocked by institutional powers, assigned to courts by Law. The gap between logic and a declaration that alters a parties’ juridical situation and consubstantiates an enforceable order is both linguistical and logic itself; yet, the chasm is filled by the implicit transformative power that comes along with the power to render a judgment. We are not contradicting our previous statements, for there are two different kinds of legitimacy at presence – the legitimacy derived from a justified and therefore comprehensible reasoning process of deciding (jurisdictional legitimacy, which allows the validity of the decision) and the institutional legitimacy.

There is, in the end, only one optimal decision: the one reasoned (which means it must be driven by practical motives: obtaining the definitive composition of the conflict and the harmonization of the system and all its rules) and institutionally legitimate.

This obliges us to conclude that, institutional legitimacy checked, binding judicial precedents cannot be accepted without also accepting the formation of arbitral precedents and their binding effects. Why? Because the condition of validity for both judgments lies on the same justification: both judge and arbitrator must reach a reasoned decision to stabilize the legal situation of the parties at conflict.

This is why we understand that, in a legal system in which the law aims to reach a definitive solution to a conflict that is not incompatible with any other decisions and legal rules, the difference between binding and merely persuasive precedents ought to not exist, even though it exists in the praxis of both Civil and Common Law. We sustain that, if the mainstay of the precedent doctrine is, as we argued, the validity of the judgment, all decision-makers must try to achieve that rational decision and therefore make use of every source of Law, both formal and informal. Only institutional and political-legislative structures may make use of hierarchic and judicial vs. arbitration differential criteria, for validity criteria are common and equivalent whether they concern arbitral or state court judgments.

This said and if our premises stand, there is no alternative but to perceive both Civil and Common Law as a rational and, therefore, systematic core of legal rules. The word “systematic” might raise some eyebrows, considering that one of the main distinctions made between Civil and Common Law is the systematic nature of Civil Law – however, the path we rationally traced in this paper forces us to conclude that, in Common Law, it is precedents and not legal codes that reveal its systematic nature, preventing contradictory rulings and guaranteeing predictability and equality before the Law.

Traditional – but still taking effect nowadays – constructions only confer binding effects to precedents derived from decisions rendered by higher courts, basing such option on assumptions of various kinds. These constructions stem from the realization of the inexistence of Dworkin’s Judge Hercules and, therefore, the practical impossibility of having a system able of discovering the absolute best (past) decision. The deliverance of Justice is as limited as we are, for the systems chosen are designed by men who have limited amounts of knowledge, experience and time. Yet, we still need to decide; what is most, we need to decide in the best, longest-lasting way possible. Therefore, these constructions are based on assumptions, on the penalty of facing the impossibility to decide in reasonable time. Binding precedents coming only from higher courts are meant to save the judge from the burden of looking into every past decision and deciding which is best, and are meant also to help enforce judicial certainty and predictability. These assumptions aim to help more the system’s continuity than the specified decision taken, for they might not be verified in a certain case. As we understand it, there is no relation of causality between one instance (legal or jurisdictional) saying which precedents (judicial or arbitral) are or are not binding and their actually binding effects, for it is the process of decision making itself that forces a judge to investigate past decisions and juridical opinions to better interpret laws and apply rules and principles. It is the goal – rectius, the judge’s duty – of reaching the optimal decision for the case in hands that might lead him or her to decide according to a past decision.

References   [ + ]

1. ↑ Guilherme Rizzo Amaral, Judicial Precedent and Arbitration: Are Arbitrators Bound by Judicial Precedent? 2nd ed, Wildy, Simmonds and Hill Publishing. 2. ↑ Castanheira Neves, “Entre o ‘legislador’, a ‘sociedade’ e o ‘juiz’ ou entre‘sistema’, ‘função e problema’ – os modelos atualmente alternativos de realização jurisdicional do direito”, Boletim da Faculdade de Direito de Coimbra, v. LXXXIV. 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: Arbitration in Belgium: A Practitioner’s Guide
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Deep Sea Mining, Arbitration and Environmental Rules: What Role for Standards?

Sat, 2018-10-27 03:18

Marc-Antoine Carreira da Cruz

Deep sea mining regulation is an extremely young field of international law. Recently, there have been some important evolutions in the debate around the contractual and environmental rules that will organize the exploitation of mineral resources in the areas of the seabed beyond the continental shelf – hereafter referred to as “the Area”. Nevertheless, few people know that arbitration can be the stage for the settlement of some specific disputes in this field, with important impacts on the interpretation of environmental duties for the contractors.

The International Seabed Authority (ISA) is in charge of regulating and administrating deep sea economic exploitation according to articles 151 and 153 of the United Nations Convention on the Law of the Sea (UNCLOS).

The dispute settlement around deep sea mining is organized under a complex scheme, with various options and exceptions. Basically, article 187 of the UNCLOS confers a wide jurisdiction upon the Seabed Disputes Chamber of the International Tribunal for the Law of the Sea over disputes arising from activities in the Area. But there are exceptions under articles 188 and 189 of the Convention. Amongst these exceptions, one opens the door to commercial arbitration. Indeed, article 188 (2) (a) of the Convention states that disputes between parties to a contract concerning the interpretation or application of a contract or work plan under article 187(c) (i) shall be submitted, at the request of any party to the dispute, to binding commercial arbitration unless the parties otherwise agree, and unless it concerns the interpretation of UNCLOS.

On the arbitration procedure – and by extension the applicable law and rules – the UNCLOS gives a short indication in its article 188 (2) (c): In the absence of a provision in the contract on the arbitration procedure to be applied in the dispute, the arbitration shall be conducted in accordance with the UNCITRAL Arbitration Rules or such other arbitration rules as may be prescribed in the rules, regulations and procedures of the ISA, unless the parties to the dispute otherwise agree.

For years, this provision has led to an unknown scenario mainly because the ISA is still working on the main legal framework for deep sea mining, the Exploitation Regulations, the standard contract clauses and its annexes. Therefore, there could have been some uncertainty around some important points, notably the way environmental duties would have been defined in ISA regulations, contracts, and work plans and how they can be interpreted in cases of commercial arbitration.

There have been debates on this issue with stakeholders since the decision and first regulation by the ISA in 2011 and 2012 on the Environmental Management Plan for the Clarion Clipperton Zone, notably with the workshop in collaboration with the ISA dedicated to Environmental Assessment and Management for Exploitation in the Minerals in the Area, in May 2016.

Eventually, in April 2018, the ISA Legal and Technical Commission issued the revised draft regulations on the exploitation of mineral resources in the Area for consideration and adoption. What does it tell us?

Firstly, draft regulation 104 reaffirms the regime of dispute settlement set by the UNCLOS and thereby reaffirms the regime of arbitration set by article 187(c) (i) of the Convention.

Secondly, when looking at the Annex X of the document, section 3.2 the standard clauses for exploitation contract specify that the contractor shall implement the work plan in particular which includes the environmental and monitoring plan. At the same time, the document includes schedules that are integrated to the contract and Schedule 1 is dedicated to the use of terms and scope of the contract. This schedule includes several key terms related to environmental duties such as “best environmental practices”, “environmental effect”, “serious harm”, “mitigation”. But, interestingly, it is mentioned that the content and the terms defined are indicative at this stage and that definitions will evolve as regulations content evolves and a common approach towards terms based on internationally accepted definitions is established.

This leads to a rather open situation in the case of arbitration. And in this context, what seems interesting is to think about the way some tools could be used to make the debate around the interpretation of terms regarding environmental duties easier. In this view, there is one interesting option in the toolbox of international law instruments: standards.

Standards – or more precisely ISO technical and management standards, are a key soft law instrument with powerful legal implications as deeply analyzed by various works, notably in various contributions by the Perelman Center for Legal Philosophy. They can have significant advantages as applicable rules or tools for interpretation in international commercial law and in arbitration especially when it comes to complex technical matters.

Has the ISA considered this option during the drafting process and consultation of stakeholders? There is no answer on the specific issue of arbitration and interpretation. Nevertheless, the ISA and its stakeholders are aware of the subtle but crucial importance of standards to consolidate and make the environmental rules of deep sea mining operational in the contract and work plan framework.

Indeed, standards were already scrutinized in the Discussion Paper of January 2017 published by the ISA on the development and drafting of Regulations on Exploitation for Mineral Resources in the Area (Environmental Matters). The way standards such as ISO: 14001 (environment management) and ISO 31000 (risk management) could be appropriate was mentioned, even if it was not in a discussion on rules of interpretation in the arbitration procedure. This tentative working draft contained a commentary inside section 3, stating that the regulation sets the benchmark for an Environmental Management System equivalent to the principles of ISO 14001:2015. In this proposed option, the provision 3 of the Draft regulation 28 stated that where an applicant possesses or proposes to implement an Environmental Management System which is not equivalent to the principles of ISO 14001:2015, the Authority would have the option – without obligation – to consider the alternative Environmental Management System. This would imply a de facto kind of conformity presumption.

Actually, this has been already pushed for and brought up in contractual obligations by the ISA in its Environmental Management Plan for the Clarion Clipperton Zone of 2011 that stated in the management objectives (contract areas- B.41) that the management objectives for the contract include that the contractors will apply the principles of ISO 1400133 to the development of their site-specific environmental management plans.

But what about the revised draft regulations of April 2018? It does not actually contain the same explicit mention. Nevertheless, there are some important indications on the consideration of standards related to the environment, with interesting consequences on interpretation in arbitration cases. Regulation 1 – on the use of terms and scope, indicates that the regulations shall be supplemented by standards in particular on the protection and preservation of the Marine Environment. At the same time, Annex X related to Standard Clauses for exploitation contract specifies in provision 3.2 that the Contractor shall in particular implement the work plan which integrates the Environmental Management and Monitoring Plan, in accordance with Good Industry Practice. One can remark on several interesting points here.

Firstly, the definition of “good industry practice” in Schedule 1 notably says that the requirements under applicable standards adopted by the ISA are one implementation of the skills and diligence reasonably expected to be applied as good industry practice. As the ISA may adopt ISO standards in its guidelines, it will shape this definition in the light of standards on risk assessment, environmental management, environmental assessment and deep sea mining industrial processes.

Secondly, the Environmental Management and Monitoring Plan, ruled by Annex VII, also introduce standards in the process, as it must include a description of relevant environmental performance standards, indicators and details of the quality control and management standards.

Thirdly, the Environmental Management and Monitoring Plan must be read in parallel with Part IV of the Regulations related to the Protection and Preservation of the Marine Environment which have also opened the door to the standards – directly and indirectly. Directly, with some provisions such as Regulation 47 which states that the Contractor shall take necessary measures to prevent, reduce and control pollution and other hazards to the Marine Environment as far as reasonably practicable, and in accordance with the applicable standards. And indirectly, with Regulation 46 stating that contractors shall integrate Best Available Scientific Evidence in environmental decision-making, including all risk assessments and management undertaken in connection with the management measures taken under or in accordance with Good Industry Practice.

Thus, all in all, the situation is the following: one must be careful and wait for the results around the draft regulations of ISA, notably the draft of Schedule 1 on the terms of the standard clauses for exploitation contracts. But it can observed that the door is potentially open to the use of standards in helping to interpret environmental terms and obligations if an arbitration takes place under the specific case set by art. 188 (2) (a) of the UNCLOS.

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CJEU Opinion re CETA – Opinion AG Bot

Fri, 2018-10-26 07:11

Guillaume Croisant

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Do Party Appointments Encourage Compliance With Awards?

Thu, 2018-10-25 02:58

Paul Baker

YIAG

Party-appointed arbitrators have recently been the subject of much debate in the arbitration community. There are those who see the ability to ‘choose’ an arbitrator as one of the fundamental pillars of arbitration. For others, it is a time- and cost-consuming exercise leading to potential conflicts and an increased likelihood of arbitrator challenges, both of which undermine the arbitral process and its reputation.

One arbitration textbook (which shall remain nameless) contains the comment that the parties’ ability to participate in the appointment of the tribunal makes the parties more likely to comply with the resulting award. At first glance this would appear to make some sense. Where the competence of the tribunal is known and respected then a ‘correct’ result is anticipated and there should be no reason to challenge or appeal the award or resist enforcement (save in exceptional circumstances). In this vein, even a losing result should be perceived as fairly reached and, as such, complied with.

In this paper we consider whether it is really the case that parties’ ability to nominate an arbitrator impacts their attitude to enforcement.

Appointing the tribunal

In the 2018 Queen Mary International Arbitration Survey: The Evolution of International Arbitration, 39% of survey participants placed the ability of parties to select their own arbitrator as one of the three most valuable characteristics of arbitration. This is consistent with anecdotal evidence both from parties and advisors that it is ideal, but not imperative, to have nominated or appointed a member of the tribunal. Such engagement with the make-up of the tribunal should naturally encourage confidence that the tribunal possesses the skills that party desires to determine the dispute in hand.

For this reason, many arbitration agreements set out the tribunal appointment mechanism. Commonly this will be the joint appointment of a sole arbitrator or a panel of three with each party nominating one arbitrator and the co-arbitrators nominating a Chair.

Other arbitration agreements make no provision for appointment and instead default to the relevant arbitral rules or legislation. Others will, perhaps deliberately, leave the appointment structure to those relevant rules and institutions or courts.

Under the LCIA Rules (whereby parties nominate rather than appoint arbitrators) if the parties have not agreed the mechanism by which the tribunal will be appointed, the default position, absent any agreement of the parties for the mechanism for appointment, is that the LCIA appoints all members of the tribunal. In practice, the LCIA leave it open to the parties to agree on party-nominations and a variety of methods can be used (names provided by LCIA, ranking/striking out from a list of names etc.) Often, though not always, the appointment of a three-member tribunal will be resolved by one party nomination per side and a joint Chair nomination by the two tribunal members or appointment of the Chair by the LCIA.

Under the ICC Rules, where the parties have provided for a sole arbitrator but no mechanism for appointment, they may agree a joint nomination or the sole arbitrator will be appointed by the ICC Court. Where the parties have provided for three arbitrators but no mechanism for appointment, each party shall nominate one arbitrator failing which the appointment will be made by the ICC Court.

It is therefore clear from these institutional rules that party autonomy in choosing the tribunal is encouraged by the institutions.

There is, however, usually a degree of compromise in any tribunal. In the case of a sole arbitrator, while a party may have the opportunity to agree a jointly appointed arbitrator, it is standard for that appointment to be one of compromise rather than either party’s first choice. Where a party appoints its arbitrator to a panel of three, the parties have participated in the appointment of one third of the tribunal but they could well be dissatisfied with two-thirds of the tribunal (particularly if it had no involvement in the appointment of the Chair). In these ways, party-appointment may not result in the appointment of a tribunal in which either party has its complete confidence.

Independence and impartiality

The important topics of independence and impartiality come into play too. While parties and their advisors will always try to appoint an arbitrator who they believe will correctly determine the dispute, the arbitrator remains independent and impartial. Yes, concerns such as bias, repeat appointments and ‘hidden’ conflicts related to the involvement of funders are topics that take up a lot of column inches in arbitration but, on the whole, international arbitrators are not appointed to be partisan, they are appointed to understand the case and reach the correct result on the law and facts.

Why comply?

There are of course a myriad of reasons why a party would comply with an award including acceptance of the result following a fair process, resignation to the finality of the result and reputational concerns.

A review of case law under Arbitration Act 1996, s.103 under which parties resist enforcement of awards yields no supporting evidence either way.

a. In 2015 there were three s103 decision:
one Court of Appeal decision which was considered by the Supreme Court in 20171) IPCO (Nigeria) Ltd v Nigeria National Petroleum Corporation [2017] UKSC 16 jQuery("#footnote_plugin_tooltip_4289_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4289_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); (so won’t be double-counted here)
in the second2) H & C S Holdings Pte Ltd v Rbrg Trading (UK) Ltd [2015] EWHC 1665 (Comm) jQuery("#footnote_plugin_tooltip_4289_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4289_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); a sole arbitrator was appointed but the judgment does not say how he was appointed
in the third3) Malicorp Ltd v Government of the Arab Rpublic of Egypt and others [2015] EWHC 361 (Comm) jQuery("#footnote_plugin_tooltip_4289_3").tooltip({ tip: "#footnote_plugin_tooltip_text_4289_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); the parties each appointed one arbitrator and the two co-arbitrators appointed the Chair

b. In 2016 there is only one reported decision4) Pencil Hill v US Citta Di Palermo S.p.A [2016] EWHC 71 (QB) jQuery("#footnote_plugin_tooltip_4289_4").tooltip({ tip: "#footnote_plugin_tooltip_text_4289_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); which involved a three-person tribunal. While the judgment does not say how the panel was appointed, it is not unreasonable to think that the parties would have appointed one arbitrator each.

c. In 2017 there were five reported decisions on AA 1996, s.103,5) Lexis Library search 2 July 2018. Zavod Ekran OAO v Magneco Metrel UK Ltd [2017] EWHC 2208 (Comm) – enforcement resisted on grounds that defendant was not given proper notice of the arbitration proceedings. Defendant did not participate in appointment of the tribunal; Viorel Micula and others v Romania and another [2017] EWHC 1440 (Comm) – each party appointed one arbitrator; Eastern European Engineering Ltd v Vijjay Construction (Proprietary) Ltd [2017] EWHC 797 (Comm) – it is unclear from the judgment how the tribunal was constituted or appointed though it is likely that the tribunal was a sole arbitrator (there is reference to arbitrator rather than arbitrators in the judgment); IPCO (Nigeria) Ltd v Nigeria National Petroleum Corporation [2017] UKSC 16 – it is unclear from the judgment how the tribunal was constituted; Sinocore International Co Ltd v RBRG Trading (UK) Ltd [2018] 1 All ER (Comm) – each party appointed an arbitrator, the Chair was appointed by CIETAC. jQuery("#footnote_plugin_tooltip_4289_5").tooltip({ tip: "#footnote_plugin_tooltip_text_4289_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); of these:
in two the parties appointed their own arbitrators;
in two it is unclear how the tribunal was constituted; and
in one the party was resisting enforcement on grounds that defendant was not given proper notice of the arbitration proceedings and as such the defendant did not participate in appointment of the tribunal.

With the benefit of educated guesses, in half of the cases the parties were involved in the appointment of the tribunal. This is of course insufficient and not sufficiently accurate data to draw any firm conclusion.6) Expanding the search to include another popular arbitral seat – Hong Kong – yields similarly inconclusive results. Utilising the same three year sample size (2015-2017) provides just one relevant case from each year. In none of the three cases does the judgment specify the means by which the tribunal was appointed. jQuery("#footnote_plugin_tooltip_4289_6").tooltip({ tip: "#footnote_plugin_tooltip_text_4289_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Perhaps what it does indicate is that the numbers of applications seeking to resist enforcement remain low. This in turn, indicates that a large number of awards are complied with without enforcement being challenged. With a degree of frustrating circularity this brings us to the question of why parties comply with awards and if the presence of a party-appointed arbitrator is a factor.

It appears that regardless of the parties’ participation in the appointment process, unsuccessful parties will regularly consider whether there is scope for challenge or appeal a final award and consequently whether there is any just cause for resisting enforcement. Presumably in the majority of the cases this is not intended to be disrespectful to the tribunal or the arbitral process, it is simply seeking to understand whether additional steps can be taken in the best interests of the unsuccessful party. While it may be the case that the users of arbitration like to think that parties comply with awards following the fair outcome of a legitimate process parties agreed to enter into, we have seen no definitive evidence to link this to the parties’ ability to participate in the appointment of the tribunal.

References   [ + ]

1. ↑ IPCO (Nigeria) Ltd v Nigeria National Petroleum Corporation [2017] UKSC 16 2. ↑ H & C S Holdings Pte Ltd v Rbrg Trading (UK) Ltd [2015] EWHC 1665 (Comm) 3. ↑ Malicorp Ltd v Government of the Arab Rpublic of Egypt and others [2015] EWHC 361 (Comm) 4. ↑ Pencil Hill v US Citta Di Palermo S.p.A [2016] EWHC 71 (QB) 5. ↑ Lexis Library search 2 July 2018. Zavod Ekran OAO v Magneco Metrel UK Ltd [2017] EWHC 2208 (Comm) – enforcement resisted on grounds that defendant was not given proper notice of the arbitration proceedings. Defendant did not participate in appointment of the tribunal; Viorel Micula and others v Romania and another [2017] EWHC 1440 (Comm) – each party appointed one arbitrator; Eastern European Engineering Ltd v Vijjay Construction (Proprietary) Ltd [2017] EWHC 797 (Comm) – it is unclear from the judgment how the tribunal was constituted or appointed though it is likely that the tribunal was a sole arbitrator (there is reference to arbitrator rather than arbitrators in the judgment); IPCO (Nigeria) Ltd v Nigeria National Petroleum Corporation [2017] UKSC 16 – it is unclear from the judgment how the tribunal was constituted; Sinocore International Co Ltd v RBRG Trading (UK) Ltd [2018] 1 All ER (Comm) – each party appointed an arbitrator, the Chair was appointed by CIETAC. 6. ↑ Expanding the search to include another popular arbitral seat – Hong Kong – yields similarly inconclusive results. Utilising the same three year sample size (2015-2017) provides just one relevant case from each year. In none of the three cases does the judgment specify the means by which the tribunal was appointed. 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: Arbitration in Belgium: A Practitioner’s Guide
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Proposed 2018 Amendments to Indian Arbitration Law: A Historic Moment or Policy Blunder?

Thu, 2018-10-25 01:11

Pranav Rai

YIAG

The lower house of the Indian Parliament recently passed the Arbitration and Conciliation (Amendment) Bill 2018 (“Bill”) to amend the arbitration law. If also passed by the upper house of Parliament, and upon receiving the President’s assent, this will become a law. It will then come into force when the Government so notifies.

The Law Minister termed this Bill as a historic moment. It is largely based on the report (“Report”) of a High Level Committee (“Committee”), which was given a mandate to identify the roadblocks to institutional arbitration (“IA”), examine issues which affect the arbitration landscape, and prepare a roadmap for making India a robust center for international and domestic arbitration.

This post argues that the Report has taken a myopic view of the problems and has made some suggestions which do not have a sound basis in policy. To be fair to the Committee, it was given a flawed mandate by the government – to implement rhetoric, disguised as an objective. The Report, however, instead of correcting this flawed objective, had a one-dimensional focus of improving IA. In this process it ignored the more importunate issues which plague Indian arbitration landscape. Below is an analysis of some important policy flaws in the Report which have crept into the Bill.

Making India a global arbitration hub – a wrong premise to start with

For some time now, statements made by the government on the issue of arbitration have contained more rhetoric than substance. One such rhetoric has been to make India a global arbitration hub (“Hub”). It is important to point out that, due to similarity of terms there is a scope of confusion over the meaning of the term Hub, especially at the government level. However, a reading of government statements, here and here, and an earlier Law Commission report suggests that the intent has indeed been to make India a Hub i.e. making India a globally preferred seat when both parties are foreign.

Consequent to such an objective, one of the aims of the Committee was to formulate a roadmap to achieve this. This, in my view, was an opportunity for the Committee to set the record straight by pointing out the impossibility of this objective (at least in the near future) and instead suggest a more modest objective with a clear roadmap and timelines. It however ended up presenting an ambiguous picture of this objective coupled with an equally ambiguous roadmap.

These are some fundamental flaws with the objectives which the Report fails to properly address.

a) All of the existing Hubs are cities or city states. It would be nothing short of a miracle if a country of India’s size becomes a Hub. As a proposition, this is a non-starter and the Committee should have advised the government accordingly. If the other flaws with such objective (explained below) could be resolved, the Report should have first suggested that some cities should be identified for this purpose. Priority should have been given to new smart cities such as GIFT City which would have complemented the larger plans of the government in the financial space. A model suitable in the Indian context should have then been applied to such cities, differently if necessary. But since neither of this was done, it is still not clear what will be the government’s objective going forward.

b) This idea of a Hub seems to have been developed by the government without a clear understanding of its rationale. The Report suggests that improving the arbitration landscape in India and making India a Hub will help in improving the ease of doing business and will also promote India as an investor-friendly country. While an improved arbitration landscape should help in the ease of doing business and should also promote India as an investor-friendly country, these are not plausible reasons to endeavor to become a Hub. Generally, it is the other way around – ease of doing business and being investor friendly are more like a pre-requisite to be a Hub. The case of Singapore and Hong Kong are good examples here. There are on the other hand several reasons for not aiming so high. Substantial costs for considerable period of time is one such reason. It would have been helpful if the Report could have included a cost-benefit analysis and financial feasibility study of this objective before even attempting to provide a solution.

c) None of the existing Hubs have directly become a Hub. A possible process which could have been followed here is – first improve upon the international arbitration landscape and identify the cities and arbitral institutions which need to be developed. Care should be taken so that the arbitral institutions are evenly spread across the cities and do not exceed beyond a point. An opportunity to be a regional or global player can only arise later once the arbitration system is well developed. The Report however did not provide any roadmap or timelines here, except for suggesting that an Arbitration Promotion Council should be set up to grade arbitral institutes and that as of now one arbitral institution has been identified for this purpose. With the aims so high the Report’s roadmap should have been more robust than this.

More immediate problems overlooked

The ambiguity surrounding the objectives of the Committee has also resulted in the more immediate problems being overlooked. For example, the Law Commission’s earlier report (see above) noted that the shortcomings in the arbitration law resulted in even the Indian parties preferring arbitration seat abroad. The judiciary has also been unable to resolve this issue and has instead given contradictory signals. This should have set the alarm bells ringing and, in my view, calls for a legislative fix. This was an achievable goal and should have been the first priority for the Report. But instead, the Report seems to suggest that IA is a general medicine which will cure all problems. These could have been resolved if the Committee would not have mixed all problems together and could have clearly prioritized its objectives.

One-dimensional focus on institutional arbitration

The Report and the Bill clearly favour IA at the cost of ad hoc arbitration (“ad hoc”). This is an important arbitration policy deviation because until now the arbitration law has been IA agnostic. Being an important deviation, the Report should have at least provided plausible reasons for favoring IA over ad hoc. But all it seems to suggest is that ad hoc should be discarded gradually as they are costly and cause delay. There was, however, one favourable change suggested in the Report – to provide model arbitration rules. Although this was not intended to directly benefit ad hoc, this could have been beneficial for ad hoc. These model rules, however, do not form part of the Bill.

The problem of ad hoc was not only with respect to cost and delay, as has been pointed out by the Report, but also of independence and impartiality along with the unique problem of unilateral clauses. However, all of these have to a large extent been resolved by the 2015 amendment, but the Report discounts this fact. This amendment inter alia made provisions for: a) reduction in arbitrators’ fee on account of delay; b) model fee; and c) adoption of a modified version of IBA Guidelines on Conflicts of Interest in International Arbitration. These problems are thus not inherent in the system and a cure is possible. Also, most of the problems are common to both IA and ad hoc, so if the Report suggests a resolution of the problems for IA then it is difficult to comprehend why cannot the same be done for ad hoc.

While the Committee was constantly looking at other models for inspiration, it could have also studied India’s history and culture of alternative dispute resolution. This culture continues even today and is also one possible reason why majority of Indian parties prefer ad hoc over IA. Some versions of Ramayana, for example, cite attempts by deities to settle the dispute between Rama and his twin sons, which is akin to modern day alternative dispute resolution. Informal arbitration proceedings have been conducted by the panchayats (village councils) since ancient times and there is some evidence to suggest that it is still preferred over litigation. This not only shows that ad hoc has been functioning reasonably well since ages, but this could have also been used as a model even today, with some modifications to suit the current day requirements. The Report completely ignored these indigenous sociocultural aspects of ad hoc.

In view of the above, rather than out rightly rejecting ad hoc, there was at least a case to improve the existing ad hoc systems and provide it an equal playing field in the domestic arbitration sphere.

Conclusion

The above analyses show that there are some vital flaws in the Report and consequently in the Bill. The legislature should thus reconsider this Bill. In its eagerness to make India a robust center for arbitration, the government is perhaps missing the point that all successful models of arbitration have their own uniqueness. Hence, instead of blindly following a foreign model, India should first weigh in all options to see which model suits best from an Indian context and how best to utilize India’s rich history and experience in this sphere.

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The Contents of the ASA Bulletin, Volume 36, Issue 3, 2018

Thu, 2018-10-25 00:31

Matthias Scherer

We are happy to inform you that the latest issue of the ASA Bulletin (3.2018) is now available and includes the following articles and cases:

 

ARTICLES

Luka GROSELJ, Stay of arbitration proceedings – Some examples from arbitral practice

This article outlines a number of situations, illustrated by practical and (thus far) unpublished cases, in which parties requested arbitral tribunals to decide on a stay of the arbitration proceedings. The most frequently invoked reason that would justify a stay is the existence of on-going parallel proceedings. A number of other circumstances may also lead to a stay application, e.g., pending payment of security for costs or clarification of the opposing party’s representation.

As the reviewed cases demonstrate, arbitral tribunals have no legal obligation to grant a stay and exercise discretion to decide whether a stay request is well-founded. In principle, a stay will only be granted if exceptional reasons or circumstances exist. There are three guiding criteria that appear to be applied by most arbitral tribunals. First, the circumstances purportedly warranting a stay must have a clear impact on the arbitration. Second, the interests and intentions of the parties to the arbitration must be assessed with due regard to the principles of fairness and due process. Third, a stay should not adversely affect procedural efficiency or cause undue delay.

 

Michael W. BÜHLER, Anne-Sophie GIDOIN, L’« étape préalable » dans le nouveau droit de l’arbitrage et de la médiation OHADA

The new Uniform Arbitration Act, the new Rules of Arbitration of the Common Court of Justice and Arbitration (Abidjan) and the new Uniform Mediation Act, adopted by the Council of Ministers of 17 OHADA Member States of Western and Central Africa, entered into force on 15 March 2018. All three texts expressly grant arbitral tribunals the power to suspend the arbitral proceedings if a party rightfully claims non-compliance with a mandatory pre-arbitral procedure which may be imposed by a multi-tier dispute resolution clause. In such case, the non-compliance may be cured without the arbitral tribunal having to dismiss the claims for not (yet) being admissible.

Article 8-1 of the revised Uniform Arbitration Act, Article 21-1 of the revised Arbitration Rules of the Common Court of Justice and Arbitration, and Article 15 of the Uniform Mediation Act allow arbitral tribunals to fix a time limit for the parties to comply with the pre-arbitral procedure, after which the arbitral proceedings will resume unless the parties were able to settle their dispute. These truly innovative provisions are a first of their kind in modern arbitration law worldwide as they address, in a pragmatic and cost-effective manner, the growing number of objections (whether they be as to the tribunal’s jurisdiction and/or to the admissibility of the claims) related to the issue of compliance with mandatory pre-arbitral steps in multi-tier dispute resolution clauses.

This article compares the OHADA’s new provisions on mandatory pre-arbitral procedure with diverging positions taken by the French and Swiss courts in two decisions issued in 2016. Treating compliance with a pre-arbitral conciliation step as an issue of admissibility (the French solution) or as a jurisdictional matter (the Swiss solution) may have dire consequences for parties to an arbitration, not just in terms of the award’s ultimate judicial control.

 

Harshad PATHAK, India’s Tryst with Non-Signatories to an Arbitration Agreement in Composite Economic Transactions

Indian courts have dealt with issues relating to the effect of an arbitration agreement on related non-signatory entities in a plethora of circumstances. And, like a pendulum, their response has swung from one end of the jurisprudential paradigm to the other. While initially reluctant to bind non-signatory entities to an arbitration agreement as a matter of principle, the courts of India now adopt a pragmatic approach. Today, they are inclined to venture beyond the formal constraints of an arbitration agreement in writing to identify entities that may have tacitly consented to arbitrate, despite not signing the agreement. Against the backdrop of a conceptual discussion surrounding the issue, this article maps this particular journey undertaken by Indian courts over the past decade. It keeps a close eye on the inconsistent application of the principles expounded by the Supreme Court of India in its seminal judgment in Chloro Controls v Severn Trent Water Purification Inc., resulting in some confusion. In this light, the article examines why the Supreme Court of India’s latest exposition on this issue in its judgment in Rishabh Enterprises attains significance. Accordingly, while it is inevitable that Indian courts will continue to struggle to distinguish the circumstances in which they may bind non-signatories to an arbitration agreement from those where they may not, for now, there are more signs of clarity than concern.

 

Hui WANG, Multidimensional Thinking about the ‘Soft Laws’ Phenomena in International Commercial Arbitration: A Chinese Perspective

The arbitration regime is a multidimensional system. Together with ‘hard laws’, ‘soft laws’ are also inalienable components of the arbitration regime. ‘Soft laws’ are non-state enacted texts which aim at regulating procedural issues in international commercial arbitration. Although ‘soft laws’ are not legally binding, they are of some normativity. ‘Soft laws’ cover various arbitration topics, ranging from arbitration law harmonisation, arbitration evidence, arbitration ethics and arbitration management skills to the latest arbitration developments. The history of arbitration, global governance, and social interrelation all help to explain why ‘soft laws’ are developed. The author explains the reluctance of Chinese practitioners and tribunals to apply ‘soft laws’ and militates for more acceptance of ‘soft laws’ in China.

 

ARBITRAL DECISIONS

In this issue of the Bulletin, we have compiled extracts of a number of rulings by arbitral tribunals upon applications for a stay of arbitral proceedings. They are summarised by Luka GROSELJ in his paper, Stay of arbitration proceedings – Some examples from arbitral practice, see above.

 

DECISIONS OF THE SWISS FEDERAL SUPREME COURT

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BCLP International Arbitration Surveys: Party Appointed Arbitrators and the Drive for Diversity

Tue, 2018-10-23 23:43

Carol Mulcahy and Victoria Clark

Bryan Cave Leighton Paisner LLP

Party Appointed Arbitrators and the Drive for Diversity

Over the last 8 years, BCLP’s International Arbitration Group has conducted a number of surveys on issues affecting the arbitration process.  In 2017 the survey focused on the issue of diversity [Diversity on Arbitral Tribunals: Are we getting there?] and in 2018 on the issue of party appointed arbitrators [Party Appointed Arbitrators: Does Fortune Favour the Brave?].

These topics are related.  In recent years the system of party appointments has been the subject of some criticism based on concerns over potential arbitrator bias in favour of the appointing party.  It has been suggested that party appointments be replaced with arrangements by which an institution or other independent body appoints all members of the tribunal, which could have the further advantage of improving diversity on arbitral tribunals, increasing the opportunities for younger arbitrators and improving gender and ethnic/national diversity.

The results of our 2017 survey confirmed that there is a desire within the arbitration community to improve diversity. However the results of our 2018 survey show that parties are reluctant to abandon a system of party appointments, in spite of the potential benefits for increased diversity on tribunals.

 

Party Appointments

Arbitrations routinely begin with each side naming an arbitrator.  Arbitration agreements often provide for this and the appointment procedures of many institutional and ad hoc rules permit party appointment or nomination.  Large numbers of users of arbitration favour party appointments and it is said that the ability to select one of the arbitrators gives a party a sense of control and proximity to the arbitration proceedings that engenders confidence in its outcome.  However, there are also criticisms of the system of party appointments, many of which are based on concerns that it can result in the appointment of partisan arbitrators. The practice of party appointments has been described as a “moral hazard” and a practice based on “comfort in the status quo”.  Another concern is that the system does not encourage diversity on arbitral tribunals as parties tend to select the same well-known names.

For the purposes of our 2018 survey, we asked arbitrators, corporate counsel, external lawyers, users of arbitration and those working at arbitral institutions for their views on the arguments for keeping, or for discarding, the system of party appointments.

The results of the survey confirmed that there is a strong body of opinion in favour of retaining party appointments with 66% of respondents considering the retention of party appointments to be desirable.

One of the key reasons for wanting to retain the system of party appointment was party control.  82% of respondents felt that the system gives a party some degree of control over the background and expertise of the tribunal and 79% felt that party appointments give a party greater confidence in the arbitration process.

However, respondents recognised the risk of partisan arbitrators as well as the potential benefits for increased diversity on tribunals if there were fewer party appointments.

52% of respondents saw an increased risk of partisan arbitrators as a legitimate reason for ending party appointments.  When respondents to the survey were asked about individual experiences of the conduct of party appointed arbitrators, 55% of respondents who sat as arbitrators said that they had experience of a party appointed arbitrator who tried to favour the appointing party by some means. 70% of respondents who had acted as counsel had been in a situation where they believed a party appointed arbitrator tried to favour the party that had appointed them.

A significant number of respondents agreed that an increase in institutional appointments would bring about greater diversity on arbitral tribunals and would create greater opportunities for younger practitioners to sit as arbitrators.  41% felt that more institutional appointments would help gender diversity and 31% that it would also help ethnic/national diversity.  45% of respondents felt that it would provide increased opportunities for younger arbitrators.

 

The Drive for Diversity

The results of our 2017 survey confirmed that there is a clear ambition within the arbitration community to improve diversity, in respect of age, gender and nationality/ethnicity.  The survey also demonstrated a recognition that everyone involved in the arbitration process has a part to play. There is some way to go.

80% of respondents thought that tribunals contained too many white arbitrators, 84% thought that there were too many men, and 64% felt that there were too many arbitrators from Western Europe or North America.  On the assumption that all potential candidates have the necessary level of expertise and experience, 50% of respondents thought it was desirable to have a gender balance on arbitral tribunals and 54% thought it was desirable that the tribunal should come from a diverse range of ethnic and national backgrounds.

56% of respondents said that they already consider diversity when drawing up a short list of potential candidates for appointment as arbitrators. 47% said that they were likely to consider diversity more often in the future than they had in the past.

An overwhelming 92% of respondents said that they would welcome more information about new and less well-known candidates.  81% of respondents said that they would welcome the opportunity to provide feedback about arbitrator performance at the end of a case, although only 36% thought that such information should be made publicly available.

As regards responsibility for change, the clear message from respondents was that everyone involved in the arbitration process has a role to play in improving diversity on tribunals.  78% of respondents thought that arbitral institutions have a role to play, 65% thought that counsel for the parties also had an important role and 60% thought that arbitrators had a part to play.

The clear message from respondents to our 2018 survey is that parties wish to have a role in the appointment process.  Our 2017 survey demonstrated that, when considering who to appoint/nominate, some parties and counsel do consider the issue of diversity and would welcome more information about new and less well-known candidates. Initiatives like Arbitrator Intelligence play an important part in this process by making information about arbitrators available for all.

 

The 2019 Survey

BCLP’s 2019 survey considers the issue of cybersecurity in arbitration.

Electronic documents and other information are introduced into international arbitration proceedings in vast quantities. Are participants in the arbitration process sufficiently aware of the need to protect that data against unauthorised access by third parties, and should more be done to promote risk assessment and the taking of active steps to enhance data security?

There has been a dramatic increase in cyber-attacks on corporations, governments and international organisations. Law firms and arbitration proceedings are not immune from these threats.  Disputes referred to international arbitration have characteristics that can lead to an increased level of risk and adverse commercial consequences in the event of a data security breach. These developments have led to debate about the need for reasonable cybersecurity measures in individual arbitration proceedings, and how best to go about initiating and organising those measures.

We would like to obtain the views of our professional colleagues on this topic by requesting their responses to our survey questions. All responses will be treated as confidential and a report and editorial on the results of the survey will be circulated to all participants.

To participate in the survey please follow this link.

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2018 Taipei International Conference: Competitive, Collaborative or Cooperative Relations between Litigation, Arbitration and Mediation?

Mon, 2018-10-22 20:00

Winnie Jo-Me Ma

Are litigation, arbitration and mediation competitive, collaborative or cooperative? Is litigation becoming an “alternative” to “alternative dispute resolution”, especially keeping arbitration on top of its game? Are mixed processes or combined regimes becoming the preference?

These questions were part of the timely and timeless theme for this year’s Taipei International Conference on Arbitration and Mediation on August 27-28, the 12th annual conference co-hosted by CAA (Chinese Arbitration Association, Taipei) and ACWH (Asian Center for WTO & International Health Law and Policy, College of Law, National Taiwan University) since 2007.

There was near-unanimous consensus among conference speakers that the tables are turning and a storm is brewing. This resonates with the “growing ecosystem” and “changing culture” as described by Eunice Chua.

Several meaningful bases of comparison and choice are emerging from the proliferation of international commercial courts and dispute resolution hubs, together with the increasing accession to the Hague Convention on Choice of Court Agreements and the new UNCITRAL Convention on International Agreements Resulting from Mediation. They include: enforceability; efficiency (especially containment of cost and delay); expertise, availability and diversity of decision-makers; appellate review versus institutional scrutiny; transparency versus confidentiality; and flexibility versus predictability (Janet Walker, Osgood Hall Law School; Gary F. Bell, National University of Singapore). Languages and legitimacy were also raised (Ling Yang, HKIAC), which were the recurring and dominating themes of the 2016 Taipei International Conference and this year’s 2018 ICCA Congress respectively.

One may conclude from these considerations that many of the so-called “international commercial courts” are not really “international”, and that arbitration already has their international features (Stephan Wilkse, Gleiss Lutz). In any event, there is room for co-existence and even partnership between international commercial courts and arbitration, as both are fishing in the same pond while enlarging the pie. However, res judicata in litigation and arbitration remains an unresolved problem, risking double recovery and conflict of laws (Philip Yang, Independent Arbitrator).

Another ongoing debate in some jurisdictions is whether international and domestic arbitration regimes should be combined or bifurcated, which requires delicate balancing of party autonomy, arbitrability and public policy (Doug Jones, Independent Arbitrator). For instance, CAA is currently working on a legislative bill to reform Taiwan’s Arbitration Act, which will be based on UNCITRAL Model Law on International Commercial Arbitration and modified by Taiwan-specific features.

Mediation is another source of complexity – be it another choice, contender or challenge. And change is needed, as confirmed by the latest Queen Mary International Arbitration Survey, as well as the four global themes of the Global Pound Conference series (Kathryn Sanger, Herbert Smith Freehills). First, efficiency is the parties’ key priority in their choice of dispute resolution processes. Yet efficiency will not always be the quickest and cheapest. Furthermore, Asia represents a regional trend of preferring enforceability (through increased regulation) over efficiency.

Second, many parties desire pre-dispute protocols and hybrid processes. Yet the debate about whether and when an arbitrator can act as mediator persists. Efficiency cannot compromise impartiality. We need innovative combinations of the existing models such as med-arb, binding mediation and amiable composition to achieve a more informed and just resolution of disputes (Joe Tirado, Garrigues). The dual roles of mediator and arbitrator can create the most dilemmatic conflicts but also the best decisions. In addition, effective use of ex aequo et bono and lex mercatoria may counteract the over-judicialisation of arbitration without over-complicating arbitral procedures (Nobumichi Teramura, UNSW Law Faculty; Horia Ciurtin, EFILA).

Third, the parties expect greater collaboration from their representatives – the traditional role as warriors in battle may be out of step with their needs. This leads to the fourth observation that external lawyers stifle change whereas in-house counsel enable change, fueling further controversy and disparity.

More challenges and opportunities arise from innovative technology and online dispute resolution (Kim Rooney, Gilt Chambers). Artificial intelligence, Blockchain, smart contracts and eBRAM are already well-known work in progress.

Coincidentally, the brewing storm of international tax disputes relating to bilateral tax treaty Mutual Agreement Procedure may be the litmus test or a niche for the competitive/collaborative/cooperative relations between litigation, arbitration and mediation (Michelle Markham, Bond University Faculty of Law). As at July 2018, only 28 of the 83 signatories to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting have adopted the mandatory binding arbitration provision. The main controversy concerns the perceived loss of sovereignty, the ability for revenue authorities to veto arbitral decisions. Mediation is relatively untested, but if it can foster collaborative working relationships and thereby facilitate arbitration, it may be used as an addendum to arbitration, rather than as a stand-alone process. On the other hand, litigation is unlikely to remain costly, complex and time-consuming for taxpayers and tax authorities.

The ultimate goal, and also the ultimate test, is to reach a resolution and closure – to end, move on and away from the dispute. Anyone involved in any dispute resolution process can be expected to aim and strive for this goal.

We may continue to be challenged or comforted by several continuing questions after the 2018 Taipei International Conference. The first is enforceability: what are the prospects of the Hague Convention on Choice of Court Agreements and the new UNCITRAL Convention on International Agreements Resulting from Mediation in comparison with the 60-year-old New York Convention? The second relates to efficiency: will competition truly reduce costs? Will collaboration improve the effectiveness or speed of dispute resolution (by combining the best rather than the worst of multiple worlds)? The third (re)explores legitimacy: what is the appropriate balance between over-regulation and under-regulation, particularly in the context of promoting or preserving public confidence? Will UNCITRAL continue its future work on the ethical regulation of arbitrators and even extend to party representatives or third party funders?

Most of us would agree that one size does not fit all. We are unlikely to predict the outcome, nor dispute the need to do (more) of the following in the meantime: provide integrated training for judges, arbitrators, mediators, practitioners and all service providers in dispute resolution, management and prevention; remove or reduce any legislative and institutional barriers to integrated dispute resolution processes; promote public awareness of all dispute resolution processes.

Turning point or brewing storm, a race to excellence has begun.

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HKIAC Introduces New Rules

Sun, 2018-10-21 20:00

Joe Liu

HK45

In August 2017, the Hong Kong International Arbitration Centre (“HKIAC”) launched a rules revision process to consider amendments to the 2013 HKIAC Administered Arbitration Rules (“2013 Rules”), having regard to the latest trends in international arbitration, feedback from users and HKIAC’s past case management experience.

The 2013 Rules have been widely regarded as one of the market-leading set of rules with a number of innovative provisions, such as the availability of two options to pay arbitrators’ fees, leading HKIAC to receive a nomination for a GAR award in 2014. Notwithstanding this, after multiple rounds of public consultation, HKIAC considers that it is time to update the 2013 Rules with certain amendments that might benefit its users.

HKIAC has announced several new provisions to add to the 2018 Administered Arbitration Rules (“2018 Rules”), which are intended to improve the procedural certainty and cost-efficiency of HKIAC arbitration. These provisions address primarily the following areas:

Use of technology

It is inevitable that technology will transform the conduct of arbitration and be increasingly used to address the constant demand for cost and time-effectiveness of arbitration. In recognition of this, HKIAC encourages the use of technology to manage proceedings and to deliver documents.

There are new provisions to recognise the uploading of documents onto a secured online repository as a valid means of service. Parties may agree to use their own repositories or a dedicated repository provided by HKIAC. The 2018 Rules will also identify the effective use of technology as a factor for an arbitral tribunal to consider when adopting suitable procedures for an arbitration.

Multi-party and multi-contract disputes

HKIAC is at the forefront of developing effective provisions for disputes involving multiple parties and/or contracts. It is known for its comprehensive and far-reaching provisions on joinder, consolidation and single arbitration under multiple contracts. These set the market standard at the time of their introduction in 2013.

In the 2018 Rules, HKIAC further expands those provisions in, among other things, allowing a party to commence a single arbitration under multiple agreements even though these are between different parties. This feature is not available in the 2013 Rules. Further, HKIAC has added provisions to allow expressly the same arbitral tribunal to run multiple arbitrations concurrently with, for example, common procedural timetables and pleadings, concurrent or consecutive hearings, and separate awards, provided that a common question of law or fact arises in all the arbitrations. This new mechanism is intended to enhance efficiency and reduce costs in multiple proceedings, where consolidation is not possible or desirable.

Third party funding

With the imminent implementation of the legislative amendments to permit the use of third-party funding in arbitration and associated proceedings in Hong Kong, the 2018 Rules include express provisions to address the issues of disclosure, confidentiality and costs of third-party funding.

Under these provisions, a funded party is required to disclose the existence of a funding arrangement and the identity of the funder, as well as any changes to these details that occur after the initial disclosure. The confidentiality provisions have been amended to allow a funded party to disclose arbitration-related information to its existing or potential funder for the purposes of obtaining or maintaining funding. In addition, a provision has been added to confer discretion on an arbitral tribunal to take into account any funding arrangement when fixing or apportioning costs of arbitration.

Early determination of points of law or fact

There appears to be a trend among major arbitral institutions to include summary determination procedures in their rules in response to the common criticism that arbitration has no equivalent to the summary judgment or striking-out procedure in court litigation, thereby allowing a party to advance a meritless claim or defence through a full procedure. This trend also reflects users’ demand, as shown in the 2018 Queen Mary and White & Case International Arbitration Survey (“2018 Survey”) where over 20% of respondents selected summary determination procedures as an innovation that would make international arbitration more appealing for the banking, energy, construction and technology sectors.

The 2018 Rules introduce an Early Determination Procedure expressly to empower an arbitral tribunal to determine a point of law or fact that is manifestly without merit or manifestly outside of the tribunal’s jurisdiction, or a point of law or fact that, assuming it is correct, would not result in an award being rendered in favour of the party that submitted such point. The tribunal must decide whether to proceed with a request for early determination within 30 days from the date of the request. If the request is allowed to proceed, the tribunal must issue an order or award, which may be in summary form, on the relevant point within 60 days from the date of its decision to proceed. These time limits may be extended by HKIAC or party agreement. Pending the determination of the request, the tribunal may decide how to proceed with the underlying arbitration.

Procedural certainty

Commercial parties want certainty. 43% of respondents to the 2018 Survey considered “greater certainty” as a factor that would have the most significant impact on the future evolution of international arbitration. To that end, HKIAC has introduced a series of provisions to achieve greater procedural certainty.

HKIAC’s Emergency Arbitrator Procedure has been updated to confirm the timing of filing an application for emergency relief, the test for issuing such relief and the maximum fees payable to an emergency arbitrator. The procedure has been expanded to allow a party to file an application before, concurrent with or after the submission of a Notice of Arbitration, but prior to the constitution of an arbitral tribunal. All time limits under the procedure have been shortened and an emergency arbitrator’s fees are subject to a maximum amount. A new provision has been added to clarify, among other things, that the granting of emergency arbitrator relief is subject to the same test applied by an arbitral tribunal when deciding whether to issue an interim measure.

In its regular procedure, HKIAC has introduced for the first time a default three-month time limit for rendering an arbitral award after the closure of the proceedings or the relevant phase of the proceedings (as opposed to the overall six-month time limit for issuing an award in the expedited procedure). There is also a requirement that, after the proceedings are declared closed, the tribunal must notify the parties and HKIAC of the anticipated date of delivering an award. All these requirements bring certainty as to when parties can expect to receive a decision on their dispute.

Coming into force

With the above provisions and many others, the 2018 Rules provide a procedural framework under which parties and arbitral tribunals can conduct proceedings seamlessly with an unrivaled range of mechanisms to resolve disputes through a highly efficient, cost-effective and procedurally certain process.

The 2018 Rules have been selected for the next Willem C. Vis International Commercial Arbitration Moot in 2019. It will be interesting to see how some of the new provisions are used to address the Moot problem.

The 2018 Rules will come into force on 1 November 2018 and the full text is available at www.hkiac.org.

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Form Requirements For Authorisations To Enter Into An Arbitration Agreement: The Austrian Perspective

Sun, 2018-10-21 00:11

Miranda Mako

Young ICCA

In its decision 6 Ob 195/17w dated 17 January 2018, the Austrian Supreme Court decided that the form requirements for an arbitration agreement also apply to the authorisation to an agent to enter into an arbitration agreement (or a contract containing an arbitration agreement).

I. Stopping the movement towards a liberalisation of form requirements

Austria is among the few countries requiring a special type of authorisation to enter into an arbitration agreement (“Spezialvollmacht”) which must also be in writing. Since the revision of the Austrian Commercial Code (“ACC”) in July 2007, the legislature decided to drop the requirement of a special authorisation when it comes to the (i) power of procuration (“Prokura”) and (ii) general corporate authorisation. They are now deemed to implicitly encompass the authorisation to enter into an arbitration agreement, unless provided differently. This legislative change aimed at finally harmonising the requirements for concluding the contract which includes the arbitration agreement with those of the arbitration agreement itself, in order to avoid the unwanted situation where the contract was validly concluded whereas the arbitration agreement was not. However, the question remained whether, despite removing the requirement for such separate special authorisation within the mentioned context of the ACC, the authorisation was still subject to a written form requirement. Whether the authorisation must take the same form as the act for which it is intended will, in principle, depend on the purpose of the respective form requirement.

Historically, the written form requirement for the arbitration agreement (and the respective authorisation) served both an evidentiary and a warning function, to protect the parties from waiving access to judicial remedies lightly. The 2006 reform of the Austrian arbitration law loosened this strict writing requirement with the adoption of section 583(1) of the Austrian Code of Civil Procedure (“ACCP”): E-mail correspondence or other means of correspondence exchanged between the parties are now deemed to satisfy the writing requirement as long as they provide “proof of the agreement”. According to the prevailing view, these “new” and less stringent forms of the writing requirement would hardly carry a cautionary effect anymore. Hence, the previously advocated warning function of the provision has arguably lost its significance.

Furthermore, when it comes to international business transactions between commercial parties, arbitration as a dispute resolution mechanism can be said to have become the rule as opposed to the exception. Parties often want to avoid ending up before national courts where proceedings could be overly long and additional uncertainties might exist. Therefore, the warning function has to a large extent lost its purpose. However, despite these clear trends of moving away from the historical warning function of the writing requirement, the Supreme Court took a protective stance and decided to continue embracing it.

II. The Supreme Court’s conservative approach

In essence, the facts of case 6 Ob 195/17w are as follows: The respondents in the case were partners in buying and developing real estate with the help of contractors. For one of their properties, respondent A orally gave respondent B the authorisation to manage the development in both their names with the contractor. Accordingly, respondent B signed a contract with the claimant on his and respondent A’s behalf, which included an arbitration agreement.

When a dispute arose, the claimant commenced proceedings before the Austrian courts, claiming compensation. In response, the respondents raised a jurisdictional objection in favour of arbitration due to the arbitration agreement contained in the contract between the claimant and respondents. The issue before the Supreme Court was whether a valid arbitration agreement had formed between the parties.

The Supreme Court decided that an arbitration agreement was only validly concluded if the authorisation to an agent followed the same form requirements as those imposed on the arbitration agreement by section 583(1) ACCP. Hence, even in a commercial context, an authorisation that was given only orally would not suffice. It held that the arbitration agreement had therefore not been validly concluded between claimant and respondent A, the effect of which, according to Austrian case law, also extended to respondent B.

The Supreme Court gave two main reasons for its decision to tie the form requirements for the arbitration agreement to the authorisation to an agent to conclude such an agreement: First, it made reference to the draft bill of section 583. In particular, during the revision of section 583, the draft bill included an express provision that the form requirements for the arbitration agreement would not apply to the authorisation to enter into an arbitration agreement. However, this addition was eventually removed so that the law in its final form did not include such clarification. Hence, although it was considered to explicitly exclude the form requirements of section 583 for the authorisation to enter into an arbitration agreement, the legislature decided not to adopt it.

Second, it explained the historical function of the written form requirement. Keeping the previous version of section 583 ACCP in mind, the Supreme Court discussed at length how the writing requirement mainly served the purpose to ensure that parties do not light-heartedly abandon their right to access judicial remedies. This, it held, was a valid reason which ought to be maintained even post-revision. The Supreme Court explained that by entering into an arbitration agreement, the parties waived their rights of having access to national courts, which gravely limited their possibility of appeal, and thus, their judicial remedy.

Accordingly, the writing requirement not only served an evidentiary but also a warning function which extends to the authorisation. Although the revision of the Commercial Code removed the requirement for a special authorisation to enter into an arbitration agreement in a commercial context, it did not pronounce itself on form requirements. The Court concluded that it was not possible to simply deduce that by removing the special authorisation, the legislature also aimed at adopting the same form requirements for the corporate authorisation as those for the main contract. Therefore, even within a commercial context, the authorisation to enter into an arbitration agreement had to be in writing in accordance with section 583(1) in order to serve the said warning function.

This decision is a considerable step backwards from the progress of easing the form requirements for entering into an arbitration agreement in a commercial context. Although no additional special authorisation is required, an authorisation to enter into a contract containing an arbitration agreement must still be in writing, even if the contract would otherwise not require such specific form.

III. The scope of application of Article II of the New York Convention

In principle, the Supreme Court’s decision would only be of relevance if the validity and form requirements of the authorisation to an agent to enter into an arbitration agreement were to be governed by Austrian law. The ACCP, however, provides for the application of section 583 even if the seat is either not yet determined or abroad, which gives section 583 an overriding mandatory character. Since the Supreme Court has decided that the section 583(1) form requirements equally apply to the authorisation to enter into an arbitration agreement, the question arises whether the overriding mandatory application of section 583 also extends to authorisations which could have an impact on enforcement actions before the Austrian courts.

It is, however, debatable whether the writing requirement for an authorisation to enter into an arbitration agreement would demand a stricter form requirement than Article II of the NY Convention. Since Article II of the NY Convention provides for the maximum standard which the Contracting States may impose, any stricter provision on form requirements in section 583 ACCP would be superseded. The NY Convention does not, however, include any provision on authorisation, questions of which could therefore be left to the applicable national law to answer. Nevertheless, according to Gary Born’s treatise on International Commercial Arbitration, there is a substantial argument that Article II extends to related instruments concerning the formation of the arbitration agreement such as the authorisation.

Under this interpretation, the only form requirements imposed by the NY Convention are those that apply to the arbitration agreement itself. A lack of written form for the authorisation to an agent would therefore not provide grounds for challenging the validity of the arbitration agreement under the NY Convention. Or else, it would open the door to indirectly imposing stricter form requirements and contravene the Convention’s aim to facilitate the enforcement of arbitration agreements.

The Austrian Supreme Court has not yet considered the interplay between section 583 and the NY Convention as the decision was rendered in a domestic context. Therefore, there is hope that this decision’s impact can be confined to a domestic context.

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SOAS Arbitration Report 2018 Bolsters Conversation on Arbitration in Africa

Sat, 2018-10-20 23:20

Osasiuwa Edomwande

Young ICCA

On 2 May 2018, the maiden edition of the School of Oriental and African Studies (SOAS) Arbitration in Africa Survey was launched at the SOAS Arbitration in Africa Research Conference in Kigali, Rwanda. The survey, conducted using an online questionnaire, focused on perspectives of African arbitration practitioners in domestic and international arbitration.

The insufficiency of information on the availability of skilled African arbitration practitioners, and enquiries about the place of the African arbitration practitioner in the global arbitration arena, were some of the reasons that necessitated the survey. This survey debunks the myth that ‘African arbitrators are not available or lack expertise and experience’ by showing that there is a large number of arbitrators on the African continent, and they are well-trained. It serves as empirical data on the skills, expertise and experience of African arbitration practitioners that will aid future discussions and developments in the area of Arbitration and Alternative Dispute Resolution (ADR) in Africa.

Profile of the African Arbitration Practitioner

The survey, which was open for responses between 4 December 2017 and 12 February 2018, received 191 responses during the period. The first group of questions sought to understand the profession, domicile and arbitration experience of the respondents. 90.6% of the respondents to the survey are lawyers, with few representations from academics, engineers, surveyors and other professions, and the majority of the respondents are domiciled in Nigeria. 83.8% of the respondents describe themselves as arbitration practitioners acting in the capacities of counsel, arbitrator, registrar or tribunal secretary, academic, consultant and legal adviser.

Lawyers are known to be the primary professionals who engage in the resolution of disputes, though there are dispute resolvers or resolution specialists who may not necessarily be lawyers. Aside from legal practitioners, respondents to the survey could (in addition to those listed above) also have been architects, accountants, physicians and nurses. The arbitration pool is becoming increasingly diverse in terms of the specialization of arbitration practitioners.

81.7% of the respondents have undergone formal training in arbitration law and practice, while 23% studied arbitration as part of a higher degree at university. 72% of these were trained by the Chartered Institute of Arbitrators (UK) – an arbitration institution with an international network. This lends credence to the fact that Africa has a large pool of arbitrators who can serve dispute resolution needs on the international and domestic scene by applying best practices. It is essential that arbitration practitioners have good training or first-hand experience with the process. This training, which should be continuing, is best served by membership of arbitration organizations/institutions. This affords potential and active arbitration practitioners with the opportunity to garner international best practices that are paramount for work as arbitrator, arbitration counsel or arbitral secretary.

Experience of African Arbitration and ADR Practitioners

The second group of questions analysed information to understand the experience of the respondents in arbitration in the last five years (2012-2017) which served as the reporting period. The survey also measured participation in mediation. The results show that the African arbitration practitioner also engages in other forms of dispute resolution particularly mediation with 45.5% of the respondents stating that they have acted as mediators in the last five years. 64.4% of these respondents reported that they have sat as mediators in one to five mediations over the reporting period.

The Future of Arbitration and ADR in Africa

The survey was conducted in three languages: English, Arabic and French, with the majority of responses in English. The report provides data on active participation in 19 of the 54 countries in Africa. As there are six Lusophone countries in Africa, the survey reporters expect to add Portuguese as one of the languages in future surveys in order to measure the perspectives of arbitration users in those countries and for more representative information about Arbitration in Africa.

Furthermore, only three (Benin, Cameroon and Togo) of the 17-member states of the OHADA (Organisation pour l’harmonisation en Afrique du droit des affaires – Organisation for the Harmonization of Business Law in Africa) are represented in the survey. For the OHADA member states, three revised laws on Arbitration and ADR came into effect in March 2018: the new Uniform Act on Arbitration Law, the revised Arbitration Rules of the Common Court of Justice and Arbitration (CCJA) and a new Uniform Act on Mediation. These developments are sure to increase the use in arbitration and ADR processes of African practitioners and on the African continent. It will be interesting to see future results from more OHADA member states.

The African Continental Free Trade Area Agreement (AfCFTA) signed by 44 out of the 55 African Union member states in April 2018 will also welcome an increase in African trade which inevitably leads to an increase in commercial disputes. The international dispute resolution community looks forward to the benefits of the South African International Arbitration Act no. 15 of 2017 and envisions the reforms that will arise from Nigeria’s Arbitration and Conciliation Bill of 2017 which is currently before the National Assembly. As arbitration and ADR practitioners continue to raise awareness of ADR methods outside of litigation and parties decide to choose arbitration and ADR as methods of resolving disputes, more of this type of surveys will be needed to measure trends and shape the future of arbitration and ADR.

The survey itself has a promising future. I commend the researchers and supporters – the firm of Broderick Bozimo & Company – for taking the step to provide data in this area and encourage everyone to read the full survey report here.

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Tips from the top: Young ICCA interviews Nora Fredstie

Sat, 2018-10-20 21:25

Young ICCA

Young ICCA

Source: personal archive

Nora is an associate in the Paris office of Latham & Watkins and a member of the firm’s International Arbitration Practice. Her work focuses on international investment arbitration, international commercial arbitration, and public international law.

She acts for clients across a broad spectrum of sectors, including investment, oil and gas, energy, construction, pharmaceutical, and automotive. Nora operates in a range of geographic locations and with a current emphasis on South American related and intra-EU disputes. She has acted and participated in international arbitrations conducted under the ICC, ICSID, LCIA, SCC, CRCICA and UNCITRAL arbitration rules. Further to her counsel work, she has acted as administrative secretary to arbitral tribunals, both in commercial and in investment arbitrations. She has also assisted with IBA and ICC projects and speaks at conferences on various international arbitration topics.

Originally from Norway, she completed her LLB/BA at the Australian National University and an LLM in International Dispute Settlement (MIDS) in Geneva, Switzerland. She is an Attorney and Counselor at Law in the State of New York as well as a Solicitor in England and Wales. Prior to joining Latham & Watkins in Paris, Nora gained experience working in Australia, the Netherlands, Chile, Norway, and France.

What drew you to the world of International Arbitration?

The mind-against-mind intellectual challenges you are faced with is what drew me to international arbitration. For example, I love exchanging with experts. There is something uniquely challenging about getting an expert report in a field you do not know, or a legal system you have not encountered, and start learning and challenging the statements of a preeminent expert. In a very short time, you will have to understand the field in order to challenge their conclusions and to undermine their points. It is invigorating. I have the same feeling about cross-examinations.

When did you start laying the groundwork for a career in International Arbitration? (e.g., was it while in law school, during a moot court, during your career or placed on a case within your firm)

ICSID arbitration was the first thing I learned about international arbitration while doing the Jessup moot for the ANU. I remember pronouncing it “I”-“C”-“S”-“I”-“D”. At this point, international arbitration was only a part of the international law career I was pursuing. I therefore did not do any international arbitration related courses in law school. After law school, I did an internship at the ICTY in The Hague, working for the Radovan Karadžić defence team. International Criminal Law did not turn out to be what I expected. I therefore quickly looked around to do something else. In The Hague, I had come across individuals working with the Permanent Court of Arbitration. The way they described their job made it sound like real litigation on an international plane. I decided that it was what I wanted to do and started the MIDS LLM in Geneva, Switzerland. MIDS was my first full introduction to international arbitration. Thereafter, I built my career through an internship with BMAJ Abogados in Chile and Freshfields in Paris until I was hired at Latham & Watkins.

What kind of groundwork did you do to set yourself up? (e.g., what steps did you take to enter the field?)

I first did a masters specialising in international arbitration and then followed-up with internships in the field. I know some older practitioners still advise that candidates pursue a career domestically before moving to international arbitration. It is my opinion that this is less and less true when looking at the candidates being hired for associate positions in the main international arbitration hubs. I believe doing this specialised international arbitration masters gave me the grounding I needed to enter the field. Not only did I leave with a broad knowledge of the field, I also had the insight to know where there were job opportunities and a network that would make me happy living in any of the big international arbitration centres.

Describe a pivotal moment in your career in arbitration and how did that affect your career (e.g., an opportunity to work with a prominent arbitrator/on a pioneering case?)

A pivotal moment of my career is when I decided to join an arbitration group that had just been set up. I joined Latham & Watkins in Paris. Although Fernando Mantilla-Serrano (the group’s leader) and John Adam (the group’s counsel), had a reputation as being excellent practitioners, it was still a gamble. It is obviously more comfortable to join an established team, where everything has been set up and everyone has a specific role.

The gamble paid off in a big way. Within a few weeks, I was working on a number of large cases in a variety of areas. I was given responsibility and tasks that were more akin to mid-level associates in more established groups. For example, I got to do my first cross examination in international arbitration in my second month as a second-year associate. While I initially felt like I was drowning, I would not have wanted it any other way. I cannot imagine that I would learn that much in such a short period if I were not with Fernando and John in Latham’s Paris arbitration group.

It was very educational to see an arbitration practice created around me. Although we are now a bigger team, when I joined it was still so small I genuinely felt I was part of the creation of a team and its processes.

If we look at arbitration as a battlefield, what are the three metaphorical weapons any lawyer needs, and why?

I do not look at international arbitration as a battlefield. Being one of the arbitration/litigation warrior class can make you blind to the real wants and needs of your client. I further believe it blinds you to the real strength and weaknesses of your case, creating pitfalls as you overestimate your skill as a warrior.

That being said, if I could only have three metaphorical weapons I would want: 1) a real team; 2) passion; and 3) attention to detail. I have listed this in the order of importance.

First, it is my opinion that, regardless of who you are, you cannot get anywhere without being part of a real team. You will never learn enough to be strong enough on your own. You need a group that complements and supports you. A team will not only allow you to successfully represent your client, it will build you as a professional and also allow you to be successful in achieving a work/life balance.

Second, when it comes to passion, this is what will help you survive. There is no way around the fact that international arbitration requires an extreme commitment from you in terms of hours. You will also operate in high stress situations. Unless you are truly passionate about what you are doing, you will be miserable. To find the unique arguments, to be happy while working, to be successful in general, you must be passionate about international arbitration.

Third, my final weapon is attention to detail. You must become a detail sniper. You can go far without being the smartest or most knowledgeable person if you are diligent with a good attention to detail. Attention to detail is what will win or lose the case for your client. It is never your knowledge of the deep philosophical principles of international arbitration that does so. Attention to detail is the one trait that is more or less consistent across those who makes it in international arbitration today; it is also the consistent trait in who is and is not hired as an associate.

Upon reflection, are there any decisions you made that you feel aspiring arbitration practitioners could learn from?

Of the decisions I have made, the one I believe is worth sharing is my decision to go off the beaten track and not to be afraid to leave what was not right for me. Moving on from international criminal law is the best decision I have made in my career. I am now in a profession I genuinely like and which I can see myself in for the foreseeable future, instead of sticking with something I had worked to achieve for so long but could not have fulfilled me. Sometimes you just have to jump. When it comes to going off the beaten track, I think this can give you unique perspectives and opportunities. When I finished my masters, most of my classmates were looking for internships in the traditional arbitration law firms in Geneva, Paris, and London. I instead went to do an internship at BMAJ Abogados in Chile. This helped me understand a different way of working, gave me insight into Latin America, helped me learn some Spanish, and let me build a global network. I am currently working on many cases with links to Latin America with underlying documentation in Spanish. Had I not gone off the beaten track, I would not have learned the skills that are now essential to my work.

Is there any additional candid advice or insight that you can offer to assist those who are entering the field, deciding whether to enter the field, or already are in the field of International Arbitration?

You need to find what makes you unique or something that you are better at than anyone else. Maybe you already speak a relevant arbitration language; if not, consider learning one. Are you particularly good at oral advocacy? Then you should hone that skill and use any opportunity to perfect it. Are you a good writer? Perfect your writing style. Start reading literature, like Hemingway, which will improve your legal drafting skills.

You will also need to think about your reputation and what you want it to say about you. Everyone has a reputation, whether you want it or not, whether you care about it or not. Given that you have a reputation, you should control it. Arbitration is a small community; your reputation will always play a pivotal part in your career. Be genuine. Remember, your reputation is not only built on whom you mingle with at conferences. It is a sum of how you come across to all the people you encounter, from opposing counsel to your trainees.

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Brussels Court Holds Arbitration Agreement in FIFA Statutes Invalid: Final Call or Half-Time Whistle for CAS Arbitration in Sports Disputes?

Sat, 2018-10-20 02:00

Maarten Draye and Benjamin Jesuran

The authors write this contribution strictly in their own name.

Most arbitration laws require parties to identify in their arbitration agreement the “defined legal relationship” for which they wish to submit disputes to arbitration. Nonetheless, this requirement has given rise to little case law in practice. In a judgment of 29 August 2018 (“Judgment”), however, the Brussels Court of Appeal (“Court”) assumed jurisdiction over a football-related dispute despite a clause providing for CAS arbitration in the FIFA Statutes, holding this arbitration clause invalid for failure to identify any defined legal relationship. While the Judgment may give rise to debates in ongoing cases, it is not expected to put CAS arbitration of future football disputes in jeopardy, provided that the shortcoming is remedied through appropriate drafting.

Background

At the heart of the dispute lies FIFA’s prohibition of third-party ownership agreements (“3POs”). Under this practice, private investors acquire rights over football players to later profit from transfer fees. 3POs are controversial given their alleged links with game fixing, corruption and money laundering.

In 2015, RFC Seraing – a third division football club affiliated to the Belgian Football Federation (“URBSFA”) – entered into a 3PO with Maltese company Doyen Sports Investments Limited (“Doyen Sports”). Following an investigation, FIFA fined RFC Seraing and imposed a four-year transfer ban. The decision was confirmed by FIFA’s Appeal Committee. In an arbitral award dated 9 March 2017, a CAS tribunal reduced the transfer ban but confirmed all other sanctions.

RFC Seraing applied to set aside the arbitral award before the Swiss Federal Court, which dismissed the application on 20 February 2018.1)Swiss Federal Court, 20 February 2018, 4A_260/2017 and “A Pyrrhic Victory for FIFA?”. jQuery("#footnote_plugin_tooltip_2990_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2990_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In parallel, RFC Seraing and Doyen Sports started proceedings against URBFSA, UEFA and FIFA (“Respondents”) before the Belgian Courts, arguing that FIFA’s prohibition of 3POs is incompatible with EU Law. Respondents challenged the jurisdiction of the Belgian courts in light of the arbitration agreement in FIFA’s Statutes, to which RFC Seraing had adhered through its own statutes.

In an interlocutory decision, the Court invited the Parties to address the validity of an agreement that submits any dispute without restriction to arbitration.

Decision

Belgian law – like the UNCITRAL Model Law and the New York Convention – requires the arbitration agreement to identify a “defined legal relationship”.2)Article 1681 and Article 1682, § 1 of the Belgian Judicial Code (“BJC”), which adopt Articles 7 (Option II) and 8 of the Model Law, which mirrors Article II (3) New York Convention. jQuery("#footnote_plugin_tooltip_2990_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2990_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

By reference, inter alia, to the ICCA Guide, the Court explained that this requirement seeks to prevent parties from generally referring any and all disputes that may arise between them to arbitration. This requirement finds its ratio in (i) the right of access to justice (Article 6.1 ECHR, and Article 47 Charter of Fundamental Rights of the EU); (ii) party autonomy (notably the necessity to avoid that parties be surprised by the application of the arbitration agreements to disputes not anticipated), and (iii) the concern of preventing the party in a stronger bargaining position from imposing on the other party the jurisdiction of any other court.3)The Court referred to the Advocate-General’s Opinion in Powell Duffryn, C-214/89. jQuery("#footnote_plugin_tooltip_2990_3").tooltip({ tip: "#footnote_plugin_tooltip_text_2990_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Against this background, the Court proceeded to analyze the arbitration provisions in the FIFA Statutes.4)In particular Articles 66 and 68 of the FIFA 2015 Statutes, which correspond to Articles 57 and 59 of the FIFA 2018 Statutes currently in force. jQuery("#footnote_plugin_tooltip_2990_4").tooltip({ tip: "#footnote_plugin_tooltip_text_2990_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Court considered that these provisions are drafted in very broad terms to generally submit to CAS arbitration all disputes between FIFA and “leagues, members of leagues, clubs, members of clubs, players, officials and other association officials”, without any specification or indication of the legal relationship concerned.

The Court rejected Respondents’ arguments that a limitation of the scope of the arbitration clause ratione materiae is implied by, or could be derived from, external elements. First, neither the nature of FIFA’s statutes or activities, nor the fact that CAS can only be seized for sports-related disputes define a legal relationship. CAS is, moreover, an independent body that could amend its own bylaws. Further, the undertaking in RFC Seraing’s statutes to comply with the “statutes, regulations, directives, and decisions of URBFSA, FIFA, and UEFA” would have represented the source of the duty to arbitrate, not the subject-matter of the arbitration agreement provided in FIFA’s statutes. The court also recalled that the favor arbitrandum principle cannot be relied upon to deviate from a requirement provided by law. Finally, the Court rejected Respondents’ analogy with arbitration clauses in bylaws of companies, which relate only to corporate law disputes between the company and its shareholders.

The Court, therefore, concluded that the FIFA statutes impose CAS arbitration as a general method of dispute resolution for any dispute between the parties, subject only to the exceptions provided for by FIFA. Absent any “defined legal relationship”, these provisions do not constitute a valid arbitration agreement under Belgian law.

Commentary

Despite its widespread existence, the requirement of a “defined legal relationship” rarely gives rise to issues in practice.5)Gary B. Born, International Commercial Arbitration, 2nd edition, Kluwer Law International, 2014, p. 295. jQuery("#footnote_plugin_tooltip_2990_5").tooltip({ tip: "#footnote_plugin_tooltip_text_2990_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); From this perspective, the Court’s decision to hold FIFA’s arbitration agreement invalid is surprising at first sight. However, upon closer examination, the Judgment raised a valid point. Three questions arise.

Why the Red Card? Far from the typical arbitration agreement, FIFA generally submits to CAS arbitration, without identifying the subject matter of the disputes submitted to arbitration. In its 2015 Statutes, “FIFA recognizes [CAS] to resolve disputes between FIFA, Members, Confederations, Leagues, Clubs, Players, Officials, intermediaries and licensed match agent”.6)Article 66 FIFA 2015 Statutes jQuery("#footnote_plugin_tooltip_2990_6").tooltip({ tip: "#footnote_plugin_tooltip_text_2990_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Confederations, member associations and leagues are compelled to recognise CAS’s authority and must, in turn, include a provision in their statutes or regulations to the effect that their disputes affecting leagues, clubs, plays, and officials must be settled by arbitration. Finally, these Statutes prohibit recourse to state courts even for provisional measures, unless provided otherwise by FIFA.

The Court’s finding that FIFA’s statutes lack any express reference to a “defined legal relationship” should be endorsed. It is telling that Respondents had to infer the existence of a “defined legal relationship” from elements external to FIFA’s statutes. Furthermore, the Court’s insistence on this criterion was based on widely applicable general principles of due process. It is therefore well possible that the Court’s conclusion will receive following in other jurisdictions.

Why Only in Extra Time? Until the Judgment, the broad wording of the arbitration clause in the FIFA arbitration clause appears to have stayed below the radar. Moreover, the same dispute between RFC Seraing and FIFA had already been adjudicated by a CAS tribunal whose arbitral award was upheld by the Swiss Federal Court. What made the Court’s review different?

In this case, the Court was faced with an arbitration exception raised by Respondents. Under Belgian law, courts in such case have to confirm that the dispute before them is the object of a valid arbitration agreement before declining jurisdiction.7)See M. Draye  & E. Stein, “Article 1682” in M. Draye & N. Bassiri (eds.), Arbitration in Belgium – A practitioner’s guide, Kluwer Law International, 2016, p. 93 at para. 22. jQuery("#footnote_plugin_tooltip_2990_7").tooltip({ tip: "#footnote_plugin_tooltip_text_2990_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); During this analysis the Court raised the question regarding the validity of the arbitration clause in the FIFA Statutes.

The issue does not necessarily manifest itself in the same manner before an arbitral tribunal or annulment court. When neither party raises an objection to jurisdiction there seems to be little ground for an arbitral tribunal, seized with a specific dispute in which parties voluntarily take part, to raise sua sponte the issue of lack of a defined legal relationship in the FIFA statutes. Furthermore, the lack of validity of the arbitration is generally not a ground that may be raised ex officio by the annulment court if it has not been raised by a party.

In the parallel arbitration, the absence of a “defined legal relationship” was not raised before the CAS tribunal, nor was the lack of a valid arbitration agreement raised as a ground for setting aside before the Swiss Federal Court.

What’s Next? As explained above, the Court only took issue with the general submission to CAS arbitration and rejected the arguments that a defined legal relationship could be implied by external elements. The Court did not rule out the ability for a football club to enter into an arbitration agreement by undertaking in its own statutes to comply with FIFA’s statutes. Nor is there a reason to see an onslaught against CAS’s ability to administer sports disputes, or a desire to deviate from the recent German Federal Court of Justice decision confirming the validity of arbitration agreements imposed to sports players by their federations, 8)See, “Claudia Pechstein’s Challenge to the CAS”, “Invalidity of arbitration agreement when lack of choice to refuse it”, and “Federal Tribunal Rejects Pechstein Petition” jQuery("#footnote_plugin_tooltip_2990_8").tooltip({ tip: "#footnote_plugin_tooltip_text_2990_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); as now confirmed by the ECHR.9)See ECHR, Mutu and Pechstein v. Switzerland (nos. 40575/10 and 67474/10) jQuery("#footnote_plugin_tooltip_2990_9").tooltip({ tip: "#footnote_plugin_tooltip_text_2990_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

It is submitted that, to comply with the “defined legal relationship” requirement, it is sufficient for FIFA to redraft its arbitration provisions so as to expressly identify the disputes that must be submitted to CAS arbitration in the clause itself.

Conclusion

The Court rightly pointed to the existence of the requirement to identify a “defined legal relationship” in arbitration agreements, as well as to its importance in light of due process rights. These principles are prevalent in most arbitration laws. FIFA’s arbitration provisions can be redrafted to ensure compliance with this requirement. The Court’s decision did therefore not sound the death knell of CAS arbitration as a valid forum to arbitrate football disputes. Nor did it create an earthquake like the Bosman ruling. As such, it may instead well constitute a wake-up call to anyone involved in drafting arbitration clauses in statutes or regulations. By contrast, the decision on the compatibility of FIFA’s prohibition of 3POs with EU Law, which is still pending before the Court, may be more consequential and will surely be highly anticipated.

 

 

References   [ + ]

1. ↑ Swiss Federal Court, 20 February 2018, 4A_260/2017 and “A Pyrrhic Victory for FIFA?”. 2. ↑ Article 1681 and Article 1682, § 1 of the Belgian Judicial Code (“BJC”), which adopt Articles 7 (Option II) and 8 of the Model Law, which mirrors Article II (3) New York Convention. 3. ↑ The Court referred to the Advocate-General’s Opinion in Powell Duffryn, C-214/89. 4. ↑ In particular Articles 66 and 68 of the FIFA 2015 Statutes, which correspond to Articles 57 and 59 of the FIFA 2018 Statutes currently in force. 5. ↑ Gary B. Born, International Commercial Arbitration, 2nd edition, Kluwer Law International, 2014, p. 295. 6. ↑ Article 66 FIFA 2015 Statutes 7. ↑ See M. Draye  & E. Stein, “Article 1682” in M. Draye & N. Bassiri (eds.), Arbitration in Belgium – A practitioner’s guide, Kluwer Law International, 2016, p. 93 at para. 22. 8. ↑ See, “Claudia Pechstein’s Challenge to the CAS”, “Invalidity of arbitration agreement when lack of choice to refuse it”, and “Federal Tribunal Rejects Pechstein Petition” 9. ↑ See ECHR, Mutu and Pechstein v. Switzerland (nos. 40575/10 and 67474/10) function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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