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The Chilean Supreme Court’s Heart Is In The Right Place, But Its Arguments Are Not

Wed, 2021-01-06 23:17

The Chilean Supreme Court recently issued a decision that, on its face, respects party autonomy in international arbitration. But, it could do more harm than good.

On September 14, 2020, the Chilean Supreme Court (the “Court”) entered a final judgement in the case CCF SUDAMERICA SPA, Rol Nº 19568-2020 (“CCF Sudamericana” or the “Decision”). The Court’s judgement decided a complaint appeal (recurso de queja) brought by Sudamérica SpA and CCF Sudamérica SpA (“Sudamérica”) against the Appellate Court of Santiago’s rejection of an appeal lodged by Sudamérica against a final award issued by an arbitral tribunal constituted under the rules of the Mediation and Arbitration Centre of the Santiago Chamber of Commerce (the “CAM Santiago”) on February 12, 2020.

Under Chilean Law, international arbitration is regulated by Law 19.971 (the “Ley de Arbitraje Comercial Internacional” or “LACI”). The LACI is inspired in the 1985 UNCITRAL Model Law on International Commercial Arbitration. In particular, articles 1.3 and 1.4 of the LACI that determines when an arbitration is international are exact copies of articles 1.3 and 1.4 of the 1985 UNCITRAL Model Law.

 

Facts of the case

The parties entered into a Share Purchase Agreement (“SPA”) of several companies known in Chile as Farmacias Cruz Verde. The law applicable to the contract was Chilean law and at least one party to the contract set domicile in Mexico. The arbitration clause contained in the SPA submitted all controversies relating to the contract to arbitration in accordance with the International Arbitration Rules of the CAM Santiago, seated in Santiago, Chile. According to the Decision, the terms of reference of the arbitration provided that the final award could be challenged through appeal and certiorari (casación).1)Decision, ¶ 3. (“Todas las disputas que surjan de o que guarden relación con el presente Contrato o la ejecución de los actos aquí pactados o respecto de cualquier motivo relacionado con el presente Contrato, se resolverá mediante arbitraje, de acuerdo con el Reglamento de Arbitraje Comercial Internacional del Centro de Arbitraje y Mediación de la Cámara de Comercio de Santiago, vigente al momento de su inicio”). jQuery("#footnote_plugin_tooltip_8282_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8282_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

During the course of the proceedings, the parties established the rules applicable to the procedure, expressly agreeing that (i) an appeal and certiorari would be admissible against the final award; and (ii) the Civil Procedure Code and the Court Organization Code (Código Orgánico de Tribunales) applied in a subsidiary fashion.

 

The appeal 

After the arbitration tribunal issued its award, Sudamérica filed an appeal against it. Under Chilean Law, the appeal is first submitted to the arbitral tribunal directly, and only then the appeal is brought to the attention of the judicial appellate body. In this case, the arbitral tribunal sent the appeal to the Appellate Court of Santiago.

The Appellate Court of Santiago dismissed the appeal, correctly noting that the appeal was inadmissible, since international arbitration in Chile is regulated under Law No. 19.971 (inspired in the 1985 UNCITRAL Model Law on International Commercial Arbitration), which provides in Article 34 that final awards can only be challenged through annulment.

The appellant then filed a complaint appeal against the Appellate Court of Santiago’s judgement. The Supreme Court proceeded to reject the complaint appeal but invalidated the Appellate Court of Santiago’s judgement. The Court reasoned as follows. First, that the intent of the parties is quintessential in arbitration. Second, that the parties agreed that the applicable remedies against the final award in both the arbitration clause as well as the procedural rules of the case, would be appeal and certiorari. Third, that regardless of the international or domestic nature of the arbitration, the courts must take into consideration the intent of the parties. Fourth, it would be against the parties’ prior acts to disregard the fact that the parties did not mention Law No. 19.971 while drafting the procedural rules applicable to their arbitration. Fifth, in other disputes relating to the same contract, the parties eliminated the reference to the appeal in order to adequate their terms to Law 19.971. Therefore, the Court concluded that both parties considered that the appeal was a valid remedy against the award.

 

The decision and comment 

The best intentions pave the way to hell. As most things in life, the Decision has a bright side, and a dark side.

On the one hand, the Decision defends the basic premise in arbitration that consent is its cornerstone. In this case, the parties (adequately represented by counsel) expressly agreed that, even though one of the parties was domiciled outside Chile (thus fulfilling the internationality requirement of Law 19.971), that (i) appeal and certiorari would be admissible against the final award, and (ii) the Civil Procedural Code (and the Court Organization Code) applied in a subsidiary fashion, without reference to Law 19.971.

On the other hand, the decision ignores basic principles of international arbitration. The fact that annulment is the sole remedy against an international arbitration award is one of the mainstays of international arbitration practice. More so, the fact that this is specifically mentioned in Law 19.971, should be hard to argue that parties could, in this case, contract away from such provision. Having said this, the Decision does not go into whether article 34 of the LACI can be contracted away from, as discussed in other jurisdictions.2)See for instance, Popack v. Lipszyc, 2015 CarswellOnt 8001, 2015 ONSC 3460 discussed here. jQuery("#footnote_plugin_tooltip_8282_2").tooltip({ tip: "#footnote_plugin_tooltip_text_8282_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Between a rock and a hard place. It appears that the Court found itself between the will of the parties, and the text of Law 19.971. The decision will hopefully be treated as a highly fact specific case and will not be treated as an authority in future cases.3)Under Chilean Law, prior court decisions do not constitute precedent. jQuery("#footnote_plugin_tooltip_8282_3").tooltip({ tip: "#footnote_plugin_tooltip_text_8282_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

References   [ + ]

1. ↑ Decision, ¶ 3. (“Todas las disputas que surjan de o que guarden relación con el presente Contrato o la ejecución de los actos aquí pactados o respecto de cualquier motivo relacionado con el presente Contrato, se resolverá mediante arbitraje, de acuerdo con el Reglamento de Arbitraje Comercial Internacional del Centro de Arbitraje y Mediación de la Cámara de Comercio de Santiago, vigente al momento de su inicio”). 2. ↑ See for instance, Popack v. Lipszyc, 2015 CarswellOnt 8001, 2015 ONSC 3460 discussed here. 3. ↑ Under Chilean Law, prior court decisions do not constitute precedent. 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: International Arbitration and the COVID-19 Revolution
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The CCJA’s Ruling in the Case Republic of Benin v SGS Société General de Surveillance SA: A Step Backwards?

Tue, 2021-01-05 23:11

Since its creation, the Common Court of Justice and Arbitration (CCJA) has been at the forefront of promoting international arbitration in Africa, particularly with respect to creating a favourable setting for international and regional arbitration under the Uniform Act on Arbitration adopted by the seventeen OHADA Member States. This momentum continued with the recent adoption of the new Act which entered into force on 15 March 2018 (Uniform Act on Arbitration dated 23 November 2017).1)For a commentary of this new Act, see N. Aka, A. Fénéon and J.-M. Tchakoua, Le nouveau droit de l’arbitrage et de la médiation en Afrique (Ohada), LGDJ, 2018. jQuery("#footnote_plugin_tooltip_6855_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6855_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Yet, these reforms are not always followed and implemented by the courts. A recent example is a judgment rendered by the CCJA on 27 February 2020 (Judgment n° 068/2020, Republic of Benin v. SGS Société Générale de Surveillance SA). Regrettably, the CCJA’s review of the arbitral award is not only inconsistent with its own case law, but also represents a step back in the development of arbitration in the OHADA jurisdiction, by failing to enforce key principles in support of arbitration, such as kompetenz-kompetenz.

 

The Facts

The dispute arose out of a contract between the Republic of Benin and SGS Société General de Surveillance SA (SGS), whereby SGS was to provide training and consultation services in relation to a program for the certification of customs value (referred to as PCV). Issues arose with payment for the services and with the alleged conflict with another contract, for a similar program (referred to as PVI). This ultimately led to two parallel legal proceedings: one before the Cotonou Court of First Instance and one before an arbitral tribunal constituted under the ICC rules. As such, despite the arbitration agreement contained in the contract, the Republic of Benin hurried to initiate proceedings in December 2016 before its own administrative courts. In response, SGS brought an ICC arbitration claim a few weeks later, as provided by the arbitration agreement.

In a rather hasty judgment rendered on 13 February 2017, without both parties even having the opportunity to be heard, the Cotonou Court of First Instance annulled the contract between the Republic of Benin and SGS based on what the Court considered to be a conflict with the PVI contract entered into with a third party, as mentioned above. It was revealed that the President of Benin had a stake in this other entity.

Undeterred and unconvinced by the decision of the Beninese court and other procedural claims brought by the Republic of Benin, the arbitral tribunal rendered an award on 6 April 2018, finding that it had jurisdiction.

The seat of arbitration being Ouagadougou, Burkina Faso, the Republic of Benin attempted to set aside this award before the Court of Appeals of Ouagadougou. On 21 September 2018, the Court of Appeals dismissed the challenge, finding notably that the arbitration agreement was valid and that SGS had not waived its right to resort to arbitration. The Court of Appeals also ruled that the award did not contradict the decision of the Beninese judges, as the Cotonou Court of First Instance and the arbitral tribunal had ruled on different issues, the first having considered the validity of the contract and the latter having examined its performance and interpretation. Therefore, according to the Court of Appeals of Ouagadougou, there was no conflict with a decision having the effect of res judicata and no violation of international public policy.

The Republic of Benin appealed to the CCJA, which rendered a surprising decision in finding that the award was in contradiction with the Cotonou judgment.

 

The CCJA’s disregard of principles of international arbitration and CCJA precedent

In its decision of 27 February 2020, the CCJA decided only on the issue of an alleged violation of international public policy. This issue was framed, before the Supreme Court, in the same terms as before the Court of Appeals of Ouagadougou. The CCJA first recalled that the principle of res judicata – which precludes arbitrators from considering the same claims or issues, opposing the same parties and having the same subject matter – formed part of OHADA international public policy. On that basis and without the nuance of the decision of the Court of Appeals of Ouagadougou, the CCJA held that the award contradicted the Cotonou judgment, as both ruled on an issue arising between the same parties and with respect to the same contract.

By doing so, the CCJA ignored the fact that the first instance decision was under appeal. This highly questionable decision therefore also contradicts CCJA precedent. Indeed, in a landmark decision of 31 January 2011, the CCJA found, having considered the effect of res judicata, that there is a violation of public policy only where an award contradicts a decision that has been finally settled by a state court. This decision implies that all remedies must be exhausted before there can be a violation of public policy, which did not reflect the case between the Republic of Benin and SGS.

In addition, by deciding only on the issue of a purported violation of public policy, the CCJA overlooked critical elements of the case and the positions of the parties.

First, it failed to address the violation of the kompetenz-kompetenz principle. This principle is established by Article 23 of the OHADA Treaty and by Articles 11 and 13 of the OHADA Uniform Act on Arbitration; it had also been reaffirmed in another decision handed down the same day (CCJA, 27 February 2020, judgment n° 064/2020). By failing to address this issue, the CCJA indirectly disregarded the fact that this principle had been violated by the Cotonou Court of First Instance. Though the Cotonou court had not denied the existence of the arbitration agreement, it still decided to retain jurisdiction in spite of it.

Second, and equally unexpectedly, the CCJA refused to address the issue of the alleged waiver by SGS of the arbitration agreement. According to CCJA case law, the waiver of an arbitration agreement must be unequivocal (see CCJA, 23 July 2015, judgment n° 097/2015), though such waiver may also be tacit. A party may tacitly waive an arbitration agreement by failing to object, based on the existence of a valid arbitration agreement, to the jurisdiction of a state court. Invoking this precedent, the Republic of Benin had argued that the failure by SGS to object to the jurisdiction of the Cotonou Court of First Instance amounted to such a waiver. This failure, however, resulted from the fact that SGS was denied the opportunity to argue its case before the Cotonou court. This was expressly noted by the Court of Appeals of Ouagadougou, which stated that SGS was “not placed, in the procedural circumstances described by it and confirmed by the exhibits, in a position to properly develop its own means“. In addition, SGS immediately claimed the benefit of the arbitration agreement by introducing arbitration proceedings in response to the Republic of Benin’s claim, even before the hearing was held before the court in Cotonou.

The CCJA missed a clear opportunity to build upon persuasive and consistent case law on key issues relating to arbitration. Unfortunately, its decision of 27 February 2020 could have the effect of impairing efforts to construct a quality arbitration ecosystem. The hope is that this decision will not undermine the development of arbitration in the region.

References   [ + ]

1. ↑ For a commentary of this new Act, see N. Aka, A. Fénéon and J.-M. Tchakoua, Le nouveau droit de l’arbitrage et de la médiation en Afrique (Ohada), LGDJ, 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: International Arbitration and the COVID-19 Revolution
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Third-Party Funding Finds its Place in the New ICC Rules

Mon, 2021-01-04 23:01

Third-party funding (TPF) has come a long way from its humble beginnings at the fringes of various jurisdictions, where it was historically a tort and even a crime. Today, the doctrines of champerty and maintenance have been decriminalized and in most jurisdictions no longer fall foul of public policy considerations. TPF is now perceived as one of the key instruments to provide access to justice: In 2013, former President of the UK Supreme Court Lord Neuberger observed that funding is “the life-blood of the justice system” which “helps maintain our society as an inclusive one”.

We are currently seeing the emergence of an ever-growing body of domestic legislation and regulation, e.g. in Hong Kong and Singapore, as well as rules of arbitral institutions, e.g. CAM-CCBC, CIETAC, HKIAC, ICSID (draft Rules), Milan Chamber of Arbitration and SIAC that acknowledge the existence of and the requirement for transparency regarding TPF. The presumption has now shifted – there remain only a few leading institutional rules that do not explicitly address TPF.

Provisions on TPF can also be found in recently-concluded international agreements such as the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union, and soft law, e.g. 2014 IBA Guidelines on Conflicts of Interest in International Arbitration.

Consistent with this trend, the 2021 ICC Arbitration Rules expressly focus on TPF, thereby incorporating into the Rules what was earlier addressed in the ICC’s various iterations of its Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration under the ICC Rules of Arbitration.

 

TPF Is Here to Stay

As the English Court of Appeal observed in the opening sentence of its seminal decision in Excalibur v Texas Keystone: “Third party funding is a feature of modern litigation.” The incorporation of TPF into the 2021 ICC Rules – arguably the gold standard of arbitral institutional rules1)ICC tops most preferred arbitral institute chart (ICC News, 15 October 2015): “Conducted by the Queen Mary University of London, the 2015 survey, Improvements and Innovations in International Arbitration, shows ICC topping the chart of preferred institutions by a significant margin and highlights ICC’s enduring footing as a leader in the field of arbitration for over 10 years.”) (emphasis added). jQuery("#footnote_plugin_tooltip_7944_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7944_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); – further elevates and confirms TPF as an integral part in the development of international dispute resolution. Eduardo Silva Romero, Co-Chair of Dechert’s International Arbitration Global Practice, supports this development: “The inclusion of provisions concerning TPF into the new ICC Rules recognizes funding’s place in the international arbitration landscape.

 

Nothing Worthwhile Ever Comes Easy…

Funders can add significant value, whether they agree ultimately to fund a case or not. An established funder’s decision-making is guided by a myriad of criteria including a case’s prospects of success, the legal budget balanced against a likely awarded quantum and the expertise of counsel. In addition – when they are members of such funding associations – established funders need to uphold ethical and financial standards, for example, those prescribed by the 2018 Code of Conduct for Litigation Funders of the Association of Litigation Funders of England and Wales, and the Best Practice Principles of the International Legal Finance Association.

This often results in funders accepting only a minority of funding applications – some 10% according to the 2018 ICCA-Queen Mary Task Force Report (consistent with the authors’ experience). There is, therefore, a high threshold to overcome when seeking funding. Nonetheless, even if a funding application is declined, a funder’s assessment can be more than worthwhile for lawyers and clients to obtain an independent assessment of a case.

In determining what cases to fund, funders often play the devil’s advocate by stress-testing and subjecting a case to intense scrutiny. The purpose is to ensure it not only has reasonable to strong prospects of success, but that the proceeds can be recovered. Integral to this process is ensuring the lawyers have considered, as far as possible and practicable, the various contingencies and strategies that may arise throughout the life of a case. This in no way interferes with, however, the relationship and decision-making between clients and their lawyers, which remains firmly within their respective control.

This rigorous process is in stark contrast to the misperception that funders may incentivize and finance frivolous claims. On the contrary, established funders act as gatekeepers filtering out unfounded claims, thereby ensuring quality control of exclusively meritorious cases. This incidentally complements the ICC’s renowned award scrutiny, albeit whereas a funder’s assessment is done before agreeing to fund, the ICC reviews an award before it is notified to the parties. This book-ended process ensures, as far as possible, that successful claims are complemented by an enforceable award.

 

Funders Welcome Transparency

In line with the trend towards transparency in international arbitration, Art. 11(7) of the 2021 ICC Rules requires that parties “must” disclose the existence and identity of “any non-party which has entered into an arrangement for the funding of claims or defences and under which it has an economic interest in the outcome of the arbitration.

Disclosure and transparency seek to avoid conflicts of interest between an arbitral tribunal and the parties (or any related parties, including funders), thereby ensuring the enforceability of an award. As concerns funders, this may extend to circumstances where e.g. an arbitrator is a shareholder of a funder, sits on its investment committee or otherwise has advised a funder during its due diligence in a case that is, or may in the eyes of a party may be, related to the arbitration which she/he has been asked to determine.

The obligation to disclose is consistent with a funder’s interest to protect its investment: avoiding conflicts of interest further assures a funder of a return on its investment via an enforceable award (if/when required to be enforced). Investing into an arbitration therefore incentivizes a funder to do all things necessary from the outset to comply with rules and best practices. The 2021 ICC Rules are another step towards allowing funders and parties to work together in a transparent manner, which builds further confidence into the arbitration framework.

 

Scope of Disclosure

At a time where TPF finds itself in the regulatory spotlight for both commercial arbitration and Investor-State Dispute Settlement (ISDS) (e.g. ICSID Rules reform), some stakeholders (notably states) are calling for more comprehensive disclosure obligations, including disclosure of the terms of a litigation funding agreement (LFA) (see e.g. discussions before UNCITRAL Working Group III on TPF in ISDS). This raises a multitude of issues.

Disclosure of the terms of an LFA may give an unfair advantage to an opposing party by revealing, for example, strategic and commercial considerations including the strengths and weaknesses of a case (from a funder’s view). Unless specifically justified in the context of a particular case, there appears little to no good reason why such broad disclosure is required, let alone should become common practice in international dispute resolution. Even if required, protective measures such as the creation of a confidentiality club can serve to protect the parties’ respective interests.

In this context, the 2021 ICC Rules – which require disclosure only of the existence and identity of the funder – strike a sound balance between the interests of transparency on the one hand, and confidentiality on the other.

 

Transparency Can Be a Two-Way Street

Art. 11(7) of the 2021 ICC Rules places the onus to disclose whether a party is funded, on that party. This process may be assisted by having other stakeholders, in particular arbitrators, disclose from the outset and as a matter of practice their interest in any funder(s), whether or not at the time of such disclosure the existence and identity of a funder has been made known in the arbitration. The overarching purpose of such a proposed practice is, again, to avoid conflicts of interest throughout the life of an arbitration, to ensure no arbitrator risks any such conflict if e.g. a funder begins funding at a later stage in the proceedings, and to ensure the enforceability of an award.

 

Conclusion

Funders applaud the ICC for its measured and reasonable approach towards TPF in its 2021 Rules. This bodes well to strengthening TPF’s place in the arbitration community, and overall to the evolution of arbitration as a reliable and robust dispute resolution system.

References   [ + ]

1. ↑ ICC tops most preferred arbitral institute chart (ICC News, 15 October 2015): “Conducted by the Queen Mary University of London, the 2015 survey, Improvements and Innovations in International Arbitration, shows ICC topping the chart of preferred institutions by a significant margin and highlights ICC’s enduring footing as a leader in the field of arbitration for over 10 years.”) (emphasis added). 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: International Arbitration and the COVID-19 Revolution
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The 2021 ICC Arbitration Rules: Changes to the Arbitral Tribunal’s Powers

Sun, 2021-01-03 23:00

The 2021 ICC Arbitration Rules introduce new procedures, update key provisions, and formalize the existing practices of the ICC Secretariat and the Court in order to allow for greater flexibility, efficiency and transparency in the administration of ICC arbitration cases. We will focus in this post on the changes made under the new Rules to the Arbitral Tribunal’s powers. In particular, we will address the following five key provisions: new Articles 12(9), 13(6), 17(1)-(2), 26, and Appendix IV paragraphs (h)(i).

In proposing modifications to the 2017 Rules, the ICC conducted a thorough revision process by consulting with the relevant stakeholders. The ICC first revealed the proposed modifications to the Commission on Arbitration and ADR at its fall meeting in Seoul on 21 September 2019 and solicited comments from the various National Committees and Commission members. New draft proposals were discussed at the Commission’s meeting in July 2020. In total, the ICC received hundreds of written comments from various National Committees and individual Commission Members. Flowing from this consultation process, on 6 October 2020, the ICC Executive Board approved the revised ICC Rules of Arbitration as proposed by the International Court of Arbitration. On the same day, the ICC released the 2021 ICC Rules in draft form to the public. The new Rules came into force on 1 January 2021 and replaced the existing 2017 ICC Rules.  The ICC Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration under the ICC Rules of Arbitration has also been updated to reflect these changes.

With this in mind, we will shed light on some of the notable changes to the Arbitral Tribunal’s powers in the 2021 Rules.

 

Constitution of the Arbitral Tribunal

New Article 12(9): “Notwithstanding any agreement by the parties on the method of constitution of the arbitral tribunal, in exceptional circumstances the Court may appoint each member of the arbitral tribunal to avoid a significant risk of unequal treatment and unfairness that may affect the validity of the award.

This first and the most controversial change relates to the constitution of the arbitral tribunal itself. The amendment to Article 12(9) endeavours to give the ICC Court the power to appoint all members of the arbitral tribunal when there is an innate inequality or unfairness in the parties’ arbitration agreement. This change addresses exceptional situations where following the parties’ arbitration agreement would result in an unequal treatment of the parties and thus put at risk the enforceability of any award subsequently rendered.  For example, the designation of a co-arbitrator as sole arbitrator in the event of the failure to nominate the other co-arbitrator.

The ICC has already been confronted with such arbitration clauses and has remedied them by referring to the “spirit of the Rules” found in Article 42 of the Rules.  Moreover, it is to be expected that the ICC Court will only exercise the power in this new Article 12(9) in exceptional circumstances and that an arm’s length party agreement on the method of constitution of the arbitral tribunal will not be disregarded.

Nonetheless, there is opposition to the new Article 12(9).  In particular, there are concerns that the ICC has granted itself the authority to disregard an arbitration agreement in the event that it perceives an unfairness.  Those opposing this change consider that the ICC should leave the parties’ arbitration agreement in place and that such issues are better resolved in the course of the arbitral proceedings or at the enforcement stage.  The debate over new Article 12(9) will surely continue and it will be interesting to observe whether other arbitral institutions will follow the ICC in the adoption of this provision.

 

Nationality of arbitrators in treaty-based investment disputes

New Article 13(6):Whenever the arbitration agreement upon which the arbitration is based arises from a treaty, and unless the parties agree otherwise, no arbitrator shall have the same nationality of any party to the arbitration.

The use of the ICC Rules in treaty-based investment disputes has grown substantially in recent years. Therefore, the ICC Rules must be appropriately adapted to reflect the sensitive nature of these investment disputes. More specifically, there is a particular need in investor-State disputes to secure the complete neutrality of the arbitral tribunal by ensuring that no arbitrator holds the same nationality as any of the parties to the dispute. Such a rule is important in treaty-based investment disputes where the arbitral tribunal is likely tasked with assessing the legitimacy of a state’s laws, policies, and public interests. The introduction of Article 13(6) now aligns the ICC Rules with other investment arbitration rules such as Rule 1(3) of the ICSID Arbitration Rules.

 

Party representation  

New Articles 17(1)-(2): “(1) Each party must promptly inform the Secretariat, the arbitral tribunal and the other parties of any changes in its representation. (2) The arbitral tribunal may, once constituted and after it has afforded an opportunity to the parties to comment in writing within a suitable period of time, take any measure necessary to avoid a conflict of interest of an arbitrator arising from a change in party representation, including the exclusion of new party representatives from participating in whole or in part in the arbitral proceedings.

The changes to Article 17 flow from an existing practice in international arbitration where arbitral tribunals commonly insert a similar provision in the Terms of Reference or Procedural Order No. 1.  These provisions require the parties to notify promptly changes of counsel and also allowing the tribunal to act upon changes which may create a conflict of interest. The purpose of the provision is to address upfront any issues related to the change of counsel that may give rise to conflicts of interest or otherwise lead to challenges against the arbitrators. Similar provisions are contained in article 18.4 of the LCIA Rules.

As will be familiar to most readers, this issue was raised in Hrvatska Elektroprivreda d.d. (HEP) v. Republic of Slovenia where it was revealed ten days before the hearing that respondent had chosen a barrister from the same chambers as the president of the tribunal. The tribunal disqualified the barrister on the basis of the overriding principle of “the immutability of properly-constituted tribunals”.1)Hrvatska Elektroprivreda d.d. v. The Republic of Slovenia, ICSID Case No. ARB/05/24, Tribunal’s Decision on the participation of counsel, 6 May 2008, at para. 25. jQuery("#footnote_plugin_tooltip_9131_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9131_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This power is now enshrined in Article 17 and need no longer be expressly included in the Terms of Reference or the Procedural Order No. 1.

However, new Article 17 gives rise to a potential issue.  There is an inherent tension created by making the arbitral tribunal a judge in its own case on matters of representation.  The arbitral tribunal’s interest (i.e., to avoid a conflict of interest and thus having to resign) may be directly at odds with the inherent right of each party to choose its representatives.

 

Remote hearings

New Article 26: “A hearing shall be held if any of the parties so requests or, failing such a request, if the arbitral tribunal on its own motion decides to hear the parties. When a hearing is to be held, the arbitral tribunal, giving reasonable notice, shall summon the parties to appear before it on the day and at the place fixed by it. The arbitral tribunal may decide, after consulting the parties, and on the basis of the relevant facts and circumstances of the case, that any hearing will be conducted by physical attendance or remotely by videoconference, telephone or other appropriate means of communication.

The Covid-19 pandemic affected all walks of life and international arbitration was not spared. As the pandemic spread, working through Zoom, Teams, Skype, and other videoconferencing platforms became our new normal. With in-person hearings precluded for large portions of 2020, parties requested, and tribunals considered, ‘virtual’ hearings. However, the 2017 ICC Rules did not state expressly that the hearing could be held virtually, instead Article 25(2) of the Rules provided that the tribunal “shall hear the parties together in person if any of them so requests”. Indeed, the ICC was quick to act. On 9 April 2020, the ICC issued its Guidance Note on Possible Measures Aimed at Mitigating the Effects of the Covid-19 Pandemic, which clarified in paragraph 23 that hearings may be held virtually under the ICC Rules and now this practice has been formalized in new Article 26.

New Article 26 contains some other interesting elements. Notably, while discretion is given to the arbitral tribunal, it must first consult with the parties before deciding on the format of the hearing. When taking such a decision, the tribunal must consider the relevant facts and circumstances along with the fairness of the proceedings and equal treatment of the parties. Moreover, a careful reading of Article 26 reveals that the arbitral tribunal’s options are not limited to videoconferencing, but also include telephone and “other appropriate means of communication”. These technological options endeavor to avoid prejudicing parties who do not have access to more expensive videoconferencing technologies or adequate internet speeds to support such platforms.  Moreover, these options encourage the parties to use the most suitable mean of communication for their hearing. Finally, Article 26 does not presume that the hearing will be held in person. Indeed, it will be interesting to observe in a post-pandemic world whether international arbitration users will continue to use virtual hearings as a way to reduce the costs of arbitration despite not being constrained to use them.

 

Settlement of disputes  

New Appendix IV paragraph (h)(i): “encouraging the parties to consider settlement of all or part of the dispute either by negotiation or through any form of amicable dispute resolution methods such as, for example, mediation under the ICC Mediation Rules

The changes to Appendix IV are subtle, but significant. The language of paragraph (h)(i) has been strengthened from “informing the parties that they are free to settle” to “encouraging the parties to consider settlement”. The revised provision now vests the arbitral tribunal with more power to guide the parties towards an amicable settlement either by negotiation or through any form of amicable dispute resolution methods, such as, for example, mediation under the ICC Mediation Rules. The question is how the tribunal can extend such an encouragement so that it has an impact on the parties’ behavior, but without the arbitrators feeling that they have exceeded their mandate.

Overall, the 2021 ICC Rules are a welcome revision. The changes to the arbitral tribunal’s powers are precise, reflect the evolution of the ICC Court and the Secretariat’s practices and are consistent with the techniques and procedures that have become the norm in ICC arbitrations.

 

The views expressed in this article reflect those of the authors and not necessarily those of Mayer Brown, Quinn Emanuel Urquhart & Sullivan, or any of their clients.

References   [ + ]

1. ↑ Hrvatska Elektroprivreda d.d. v. The Republic of Slovenia, ICSID Case No. ARB/05/24, Tribunal’s Decision on the participation of counsel, 6 May 2008, at para. 25. 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: International Arbitration and the COVID-19 Revolution
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Joinder and Consolidation Provisions under 2021 ICC Arbitration Rules: Enhancing Efficiency and Flexibility for Resolving Complex Disputes

Sat, 2021-01-02 23:37

Multi-party and multi-contract complex disputes are now ubiquitous in international arbitration practice. This is unsurprising given the increasingly complex nature of international trade and commerce. Institutional statistics show substantial growth in the number of disputes involving multiple parties and multiple contracts. The 2019 International Chamber of Commerce (“ICC”) Dispute Resolution Statistics reveal that out of the 2,498 parties involved in cases filed in 2019, approximately a third of the cases involved multiple parties (31%), of which the majority (59%) involved several respondents, 24% several claimants, and 17% several claimants and respondents. Although most multi-party cases involved three to five parties (87% of multi-party cases), cases involving six to ten parties represented 11% of multi-party cases. Three cases involved 10 to 30 parties while in two cases, the number of parties exceeded 100.

In order to meet the challenge of administering complex and sophisticated international disputes, the world’s leading arbitral institutions have adopted new rules or introduced amendments in recent years. Joinder and consolidation are two key procedural mechanisms that have been incorporated in leading institutional arbitration rules in order to save time and costs and avoid parallel proceedings and inconsistent decisions.

On 1 December 2020, the ICC officially launched its 2021 Arbitration Rules, which entered into force on 1 January 2021. The new rules make important changes to the 2017 ICC Arbitration Rules including enhancements to the joinder and consolidation provisions, which will be the focus of this blog post. The changes to the rules advance the ICC’s mission of delivering efficient and flexible arbitration services.

 

Article 7: Joinder of Additional Parties

The ICC in its 2012 Arbitration Rules introduced wide-ranging changes in relation to both joinder and consolidation, which were fully maintained in its 2017 Arbitration Rules. In the 2021 version, there is a significant amendment to the joinder provision.

An application to join additional parties after the constitution of the arbitral tribunal is not infrequent in arbitrations. In the 2017 Arbitration Rules, no additional party could be joined after the confirmation or appointment of any arbitrator, unless the consent of all parties, including the additional party, was obtained. This limitation has, to some extent, been relaxed under the 2021 Arbitration Rules by adding a new exception, namely Article 7(5) which states that

Any Request for Joinder made after the confirmation or appointment of any arbitrator shall be decided by the arbitral tribunal once constituted and shall be subject to the additional party having accepted the constitution of the arbitral tribunal and agreeing to the Terms of Reference, where applicable.

In this regard, even if a party at the commencement of the arbitration objects to the joinder of an additional party, the arbitral tribunal now has the power and discretion to permit the joinder where the conditions are met. The possibility of such joinder may arise as the case progresses, particularly where procedural efficiency and the relevance of the final award is bolstered by the joinder of the consenting additional party. The additional party may have evidence central to the dispute or a vested interest in the outcome of the dispute. Such joinder of a relevant party can facilitate the expansion of the scope of the award to cover that additional party’s own prayers for relief. It can also ensure the efficacy of the award by ensuring that the proceedings take into account the effect of the award on other parties. This reduces the need for satellite or parallel proceedings in national courts that dilute the utility and impede the enforcement of the final award.

The requirement that the joined party accept the composition of the arbitral tribunal and the Terms of Reference, where applicable, avoids unnecessary delay, ensures the equality of treatment for all parties in the selection and appointment of the tribunal by way of the joined party’s consent, and eliminates the risk of non-enforcement or setting aside of the award. This also assists to respond to the issues that arose in the case of Siemens AG/BKMI Industrienlagen GmBH v Dutco Construction Company. In this case, the French Cour de Cassation set aside an award, holding that the principle of equality in the appointment of arbitrators was violated. It further held that, as a matter of public policy, the party’s right to nominate an arbitrator by way of agreement to arbitration rules can only be waived after the dispute has arisen.

The new Article 7(5) also sets out a non-exhaustive list of relevant circumstances which should be considered by the arbitral tribunal, including “whether the arbitral tribunal has prima facie jurisdiction over the additional party, the timing of the Request for Joinder, possible conflicts of interests and the impact of the joinder on the arbitral procedure.

Prima facie jurisdiction over the additional party is a paramount condition. Article 7 should be read with Article 6(4), which similarly specifies the requirement that the ICC Court is prima facie satisfied that an arbitration agreement may exist. The new Article 7(5) clarifies that “any decision to join an additional party is without prejudice to the arbitral tribunal’s decision as to its jurisdiction with respect to that party.” The introduction of other relevant factors provides the tribunal with clear guidance and adequate flexibility to make decisions.

 

Article 10: Consolidation of Arbitrations

The amendments on consolidation of arbitrations under Article 10 of the 2021 ICC Arbitration Rules are less substantial and focus more on sharpening and clarifying the rule.

According to consolidation provisions under Article 10(b) of the 2017 ICC Arbitration Rules, consolidation is possible where all the claims in the arbitration were made under “the same arbitration agreement”, namely the same contract. In addition, the original Article 10(c) only permitted consolidation of arbitrations under “more than one arbitration agreement” when the arbitrations involved the same parties, the disputes in the arbitrations arose in connection with the same legal relationship, and the ICC Court found the arbitration agreements to be compatible.

The new Article 10 of the 2021 ICC Arbitration Rules maintains the substance of its prior iteration but broadens the scope to include the circumstance of “same arbitration agreements”. In this regard, the ICC Court may consolidate arbitrations when all the parties to the arbitration have signed the same arbitration agreement or arbitration agreements. Such consolidation does not have to be done between multiple parties to the same and single arbitration agreement. The new Article 10(c) clarifies that consolidation may be available even if the claims are “not made under the same arbitration agreement or agreements”.

This proposed amendment aims at achieving a balance between the necessary flexibility in complex arbitrations and the need to maintain the required predictability by avoiding giving the ICC Court excessive discretion. As a consequence, consolidation will be possible when:

  1. All parties agree – Article 10 (a);
  2. The parties in the arbitrations are not the same but have all signed the same arbitration agreement or arbitration agreements – Article 10 (b);
  3. The parties in the arbitrations are the same, the disputes in the arbitrations arise from the same legal relationship and the ICC Court finds the multiple arbitration agreements under which the claims are made to be compatible – Article 10 (c).

In practice, this revision will be instrumental for managing complex disputes in the construction and energy sector where multiple parties, such as the employer, designer, engineer, main contractor and various subcontractors, are involved and multiple agreements are entered into among these multiple parties, as well as mergers and acquisitions disputes which usually involve a series of transaction documents, and multiple buyers and sellers, or shareholders.

An example of a situation captured by the new Article 10(b) is as follows. Parties A, B, C and D have signed both a Share Purchase Agreement and a Shareholders Agreement. Parties A and B are parties to the first arbitration based on the Share Purchase Agreement and parties A, C and D are parties to a second arbitration based on the Shareholders Agreement. In this scenario, if the Share Purchase Agreement and a Shareholders Agreement contain the same arbitration agreements, consolidation of arbitrations can occur, despite the parties in both arbitrations not being the same.

As to “compatible” arbitration agreements under Article 10(c), the lack of definition of what makes agreements “compatible” provides much needed flexibility and will assist to ensure that the Rules continue to be relevant as commercial disputes evolve. The typical circumstances of incompatible arbitration agreements have thus far included agreements with different mechanisms for the selection and appointment of arbitrators, seat of arbitration, language of arbitration and number of arbitrators. It demonstrates the importance of drafting arbitration agreements in multi-contract situations in identical terms as far as possible.

 

Conclusion 

The 2021 ICC Arbitration Rules reinforce the ICC’s position as a premier global arbitral institution that is nimble and responsive to a rapidly changing economic landscape. By enhancing the efficiency and flexibility of its arbitration rules with carefully considered and well framed amendments, users continue to have their commercial disputes administered with integrity, certainty and transparency.

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2020 in Review: Proper Law of Arbitration Agreement

Fri, 2021-01-01 00:00

2020 saw important case law developments concerning the proper law of arbitration agreements, where the seat of the arbitration is in a different jurisdiction from the governing law of the main contract, particularly in the UK. However, various jurisdictions have adopted different approaches to this issue. It remains to be seen which jurisdictions will follow the latest UK jurisprudence. This year, we covered on our Blog some of these approaches in a few select common law and civil law systems. We summarise below our coverage as well as include further comments from our Europe and Australia editorial teams.

 

Common law approach

English courts

Discussions on the law governing the arbitration agreement may and do arise when jurisdiction of the arbitral tribunal is contested (e.g. whether a party has agreed to submit a dispute to arbitration, as in Svenska Petroleum Exploration AB v Lithuania [2005] EWHC 2437 (Comm), Arsanovia Ltd & Ors v Cruz City 1 Mauritius Holdings [2012] EWHC 3702 (Comm), Kabab-Ji SAL (Lebanon) v Kout Food Group (Kuwait) ([2020] EWCA Civ 6), or whether there is a valid arbitration agreement, as in Abuja International Hotels Ltd v Meridien SAS [2012] EWHC 87 (Comm)), or when anti-suit injunctions are sought (e.g. XL Insurance Limited v Owens Corning [2001], C v D, [2007] EWCA Civ 1282, Sulamerica CIA Nacional De Seguros SA v Enesa Engenharia SA [2012] EWCA Civ 638, Enka Insaat Ve Sanayi AS v OOO “Insurance Company Chubb” & Ors [2020] EWCA Civ 574), at the set aside or at the enforcement stage.

This year saw important developments in the English courts on this issue. In English courts, the applicable law to the arbitration agreement is determined by applying the three-stage test required by English common law conflicts of law rules for determining the law governing contractual obligations (as the Rome I Regulation does not apply to arbitration agreements), namely (i) is there an express choice of law? (ii) if not, is there an implied choice of law? (iii) if not, with what system of law does the arbitration agreement have its closest and most real connection?

First, as reported by our contributor, we experienced at the beginning of the year an emerging focus on the express choice, as the England and Wales Court of Appeal (EWCA) determined in Kabab-Ji that the question can be answered at the first stage not only if exceptionally there is an express choice of the law of the arbitration agreement, but also in other cases. As such, the express choice of law in the main contract may amount to an express choice of law of the arbitration agreement, if the construction of the contract so mandates (essentially “This Agreement” clauses, which means that the law agreed for the main contract covers all clauses, including the arbitration clause). Both the EWCA (para. 90) and the Supreme Court (paras. 43, 52, 60) endorsed this ruling in Enka.

With respect to the second stage of the inquiry, as we have reported on the Blog, we saw the EWCA departing from Sulamerica in its decision handed down in April, as it held the seat of arbitration as an implied choice of law of the arbitration agreement, subject to any countervailing factors in the relationship between the parties or the circumstances of the case (e.g. if the arbitration agreement would be invalid under the law of the seat).

The Supreme Court disagreed and ruled in October this year, as explained on the Blog, that at the second stage of the inquiry, prevalence should be given to the parties’ intention when agreeing on the law of the main contract; where the parties have (expressly or impliedly) chosen the law applicable to the main agreement, it would normally govern the arbitration agreement as an implied choice.

At the third stage, the Supreme Court held in Enka that the arbitration agreement is most closely connected with the law of the seat if the parties had chosen one, as, inter alia, this is the most used connecting factor and it is also consistent with international law and legislative policy, such as the New York Convention.

In practical terms, it means that under English law, as it currently stands, the law of the seat would govern the arbitration agreement in those (presumably limited) cases where parties do not agree (expressly or impliedly) on the law applicable to the main contract. In Enka the majority found there is no express or implied choice for the main contract and, moving to the third stage of the inquiry, determined that the applicable law of the arbitration agreement is English law, as the seat was London.

Also, the UK Supreme Court expressly confirmed the existence of the validation principle under English law to realign UK jurisprudence with the transnational approach to the proper law of the arbitration agreement, as another contributor explained at length.

 

Singapore courts

This year has seen continued discussion (see here, here and here) of the late 2019 decision of the Singapore Court of Appeal in BNA v BNB and another [2019] SGCA 84 (“BNA”). The Court of Appeal overturned the earlier High Court ruling and provided authoritative guidance on the applicable principles in determining the proper law of an arbitration agreement. By applying the three-stage analysis, the Court of Appeal expressly endorsed the approach taken in Sulamérica that in the absence of an express choice of the proper law of the arbitration agreement, the implied choice of law should presumptively be the proper law of the underlying contract.

However, unlike the UK Supreme Court, the Singapore Court of Appeal did not decide on the applicability of the validation principle. Whilst the validation principle was rejected by the High Court, this issue was not considered by the Court of Appeal and arguably it remains unsettled law. Singapore courts may also have to deal with the apparent conflict between Singapore contract law principles and the choice of law principles in the New York Convention.

 

Australia

Australian courts have yet to consider a test to determine the applicable law governing an arbitration agreement in the absence of an express choice of law. Time will tell whether Australian courts will be persuaded by the majority opinions in the UK Supreme Court’s Enka decision, the approach of the Singapore Court of Appeal in BNA, or if a different approach is adopted altogether.

 

Pacific Islands

Whilst the courts in the Pacific Islands have also not had the opportunity to rule on this topic, the Pacific Islands region saw more fundamental developments in arbitration this year. 2020 was the year that saw the Kingdom of Tonga and Palau accede to the New York Convention. They now join other Pacific states to have done the same, such as Fiji, Papua New Guinea, the Marshall Islands and the Cook Islands. With more and more countries acceding to the New York Convention each year, there is an obvious benefit in Pacific Islands’ jurisdictions seeking to streamline their domestic approaches to the position adopted under the New York Convention, for consistency with other jurisdictions.

 

Civil law approach

French courts

We mentioned above the findings of the English courts on the law applicable to the arbitration agreement in Kabab-Ji. The effect was that both the High Court of England and Wales and the EWCA refused to enforce the award on the basis that it was rendered against a non-party to the arbitration agreement. However, as explained in detail by our contributors, on the other side of the channel, the Paris Court of Appeal dismissed the application for the same award to be set-aside, confirming the arbitral tribunal’s findings upholding jurisdiction over a third party to the arbitration agreement. The different solution was triggered by the application of a different law to the arbitration agreement: the English courts applied English law, while the Paris Court of Appeal applied the French law and extended the arbitration agreement to a non-signatory. Our contributors explain that the solution is in line with the French case law allowing such extension if the non-signatory was involved in the performance of the contract.

When determining the law applicable to the arbitration agreement, the Paris Court of Appeal gave prevalence to the law of the seat, on the ground that the parties’ choice in the governing law of the main contract (in this case English law) could not override their ulterior choice in favour of Paris as the seat of arbitration, and French law as (i) the law applicable at the seat of arbitration; and (ii) thus, to the arbitration agreement.

 

Swedish courts

Earlier this year, our Blog revisited a judgment of the Svea Court of Appeal handed down in late 2019. The court considered whether an arbitral award rendered by a tribunal some years earlier should be set aside on the grounds it lacked jurisdiction to decide the dispute.

The court applied a statutory provision in the Swedish Arbitration Act. That provision, in effect, requires that if parties have not agreed on the choice of law for an arbitration agreement, then the law of the forum country applies. In resolving the case, the court arguably applied a strict approach to interpreting whether the parties have agreed on the choice of law for an arbitration agreement, seemingly recognising only explicit statements to that effect within the contract itself.

As the parties had not explicitly agreed on a choice of law for the arbitration agreement (only for the ‘main agreement’), the court found that Swedish law applied as the law of the forum country. From there, the court used customary principles of contract interpretation under Swedish law to find that a valid arbitration agreement existed between the parties. On that basis, there was no reason for the court to set aside the arbitral award on the ground that the tribunal lacked jurisdiction to decide the dispute.

On its face, the statutory provision applied by the court broadly mirrors the approach advocated by Articles V(1)(a) and II(3) of the New York Convention in recognising that, absent the parties agreement as to the governing law of an arbitration agreement, the law of the forum country applies. However, by recognising only explicit agreement as to a choice of law (rather than also implicit agreement), the position in Sweden now arguably departs from the position under New York Convention (see Enka at 129 and 130 and a recent Blog post here). Time will tell whether subsequent decisions in Sweden will interpret the statutory provision in such a way as to better align it with the broader interpretation of Articles V(1)(a) and II(3) of the New York Convention, now supported by the UK Supreme Court in Enka.

 

Conclusion

The common and civil law approaches seem to converge in that where there is no agreement of the parties on the law applicable to the arbitration agreement, the law of the seat would govern it (either by statutory grounds, or by applying the closet connections test). However, as the law currently stands, what differs is a more lenient approach in common law courts – at least the English courts – on what amounts to parties’ agreement (either as an express choice by way of construction, e.g. Kabab-Ji, or by implied choice, e.g. Enka), leaving less cases to be governed by the law of the seat compared to the civil law approach.

The UK courts’ judgments this year provided welcome clarity on how UK courts will seek to determine the governing law of an arbitration agreement where the parties have not made an express choice. However, whether or not the reasoning of the majority is persuasive in developing or clarifying this area of law in other (at least common law) jurisdictions around the world remains to be seen. We look forward to continuing our Blog’s global coverage on this topic in 2021.

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Open Positions: Assistant Editors of Kluwer Arbitration Blog

Wed, 2020-12-30 22:49

The Editorial Board of Kluwer Arbitration Blog announces the opening of three positions with Kluwer Arbitration Blog: Assistant Editor for Europe, Assistant Editor for Middle East North Africa (MENA), and Assistant Editor for Investment Arbitration.

For each respective position, the Assistant Editor reports directly to the coordinating Associate Editor and is expected to (1) collect, edit and review guest submissions from the designated region or issue area for posting on the Blog, while actively being involved in the coverage of the assigned region or issue area; and (2) write blog posts as contributor. The position provides an opportunity to work with a dynamic and dedicated team and liaise with the arbitration community and various stakeholders.

The Assistant Editor will work remotely. Please note that this is a non-remunerated position. If you are interested, please submit a resume and cover letter by email, before 10 January 2021, to [email protected], with cc to Dr Crina Baltag, [email protected]. We will only reach out to shortlisted candidates for an interview.

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2020 in Review: Reflections on the Sea-Change in Arbitration in Southeast Asia

Wed, 2020-12-30 00:00

Today is the last day of 2020. For most of us, 2020 has been a particularly unusual year due to the COVID-19 pandemic.

Prompted by necessity, arbitration in Southeast Asia adapted to the sea-change by: (i) using technology for virtual hearings, events and to build on existing diversity initiatives, (ii) developing domestic arbitration case law and legislation, and (iii) propelling international economic treaties forward.

Our Southeast Asia editorial team looks back on how the region has subtly shifted towards private commercial dispute resolution this year, and considers whether these developments are likely to stay with us.

 

Using technology to connect the arbitration community in Southeast Asia

Amidst the travel and other restrictions on gatherings arising from the COVID-19 pandemic, arbitration hearings and conferences took to virtual platforms. Arbitral institutions in Southeast Asia were no exception.

Our Blog provided same-day coverage of the Singapore International Arbitration Centre (“SIAC”)’s first virtual congress, in particular on the congress’ plenary session on “International Arbitration: the Challenges and Changing Landscapes” and its debate with the highly apposite motion “This House believes that Virtual Hearings are just as effective as In-Person Hearings”. We also specially conducted an interview with a member of the SIAC Court of Arbitration, Ms. Ariel Ye, as part of our Blog’s Interviews with our Editors series.

Given the significant increase in the use of technology in business this year, one of our Blog’s Permanent Contributors, the Asian International Arbitration Centre (“AIAC”), also covered the potential use of standard form contracts in the tech industry.

By using far-reaching and popular webinar platforms, the international arbitration community in Southeast Asia re-doubled its commitment to wide-ranging diversity initiatives. Most notably, arbitral institutions placed themselves at the forefront of championing diversity. Several arbitral institutions which have significant presences in Southeast Asia, including the Hong Kong International Arbitration Centre and the International Chamber of Commerce, were part of the Cross-Institutional Task Force on Gender Diversity in Arbitral Appointments (the “Task Force”). The Task Force published a report on 28 July 2020, which analysed recent statistics on the appointment of female arbitrators and identified opportunities and best practices to promote gender diversity in international arbitration.

Additionally, the AIAC launched its inaugural Diversity in Arbitration Week as part of its ADR Online: An AIAC Webinar Series, during which it engaged with gender, age, professional, race, and ethnic diversity. Young SIAC (“YSIAC”) – another Permanent Contributor of our Blog – also held a webinar on gender diversity in arbitral appointments and proceedings which discussed and supported the Task Force’s findings in its report.

 

Developments in national arbitration laws and cases

Significant amendments were made to the Singapore’s International Arbitration Act in September 2020. Our Blog covered the key features of the amendments, including a default mechanism for appointment of arbitrators in a multi-party arbitration and an express recognition that both the arbitral tribunal and the High Court have the powers to enforce confidentiality obligations when parties have agreed to such obligations in writing.

Our contributors also opined on potential amendments to Indonesia’s Law Number 30 Year 1999 on Arbitration and Alternative Dispute Resolution, to commemorate the 21st anniversary of the legislation on 12 August 2020.

Some potential uncertainty was noted in the enforcement of awards in Vietnam this year. On 20 February 2020, the Vietnam’s Supreme People’s Procuracy issued Notice No. 97/TB-VKSTC (Notice 97) drawing the attention of Vietnamese courts to Decision No. 253/2017/KDTM-PT dated 13 September 2017 (Decision 253), which is an appellate court decision upholding the People’s Court of Hanoi’s refusal to recognise an arbitral award.

In August 2020, Timor Leste amicably concluded an arbitration with an international oil and gas consortium regarding production sharing in the joint petroleum development area in the Timor Sea, by entering into a deed of settlement.

 

Treaty developments and economic recovery

In 2020, Southeast Asia persisted in leading the conclusion and promotion of international economic treaties.

Most notably, the Regional Comprehensive Economic Partnership (“RCEP”) was signed on 15 November 2020 by the Association of South-East Asian Nations, Australia, China, Japan, Korea, and New Zealand, creating one of the world’s largest international trading blocs. Investor-state arbitration was conspicuously left out of the RCEP; however, the treaty contains a work programme that requires the States Parties to enter into discussions on the settlement of investor-State disputes within the next two years after entry into force of the RCEP.

The Singapore Mediation Convention (the “Singapore Convention”) entered into force on 12 September 2020, prompting contributors to further consider its potential impacts, particularly on the role of mediation as a dispute resolution tool in investor-state disputes vis-à-vis arbitration: see here and here. Apart from Singapore, however, the other Southeast Asian States have yet to ratify the Singapore Convention. Further discussion of the Singapore Convention can be found at Kluwer Mediation Blog.

On a separate note, the Indonesia – Australia Comprehensive Economic Partnership Agreement (the “IA-CEPA”) entered into force on 5th July 2020. This was preceded by the termination of the Australia – Indonesia Bilateral Investment Treaty (the “BIT”) together with the survival clause therein. The IA-CEPA is one of the most highly anticipated international economic agreements that has been gaining traction in recent years. Observations on the effect of termination of the BIT and its survival clause, and how it unfolds vis-à-vis investor-state dispute settlement under the IA-CEPA is certainly one for the book!

 

Looking forward to 2021

As 2020 ends on a hopeful note, with reports of imminent vaccines promising to curb the COVID-19 pandemic, our Southeast Asia editorial team hopes that 2021 will bring positive developments to the arbitration scene. Chiefly, we anticipate more diversity initiatives and events and greater gender diversity in arbitral appointments.

It seems that along with the retreat into our homes this year, we may see a shift away from the traditional and adversarial arbitration model, and towards more private and amicable dispute resolution methods such as mediation. If such a shift manifests, it would not necessarily mean a decrease in arbitration, as these are complementary forms of dispute resolution. It would, however, require arbitration lawyers to adapt their skills and approaches to disputes.

As restrictions lift and Southeast Asia recovers economically in the wake of the pandemic, it will also be interesting to observe whether the shift to virtual hearings and the embracement of technology in 2020 sustains. As travel corridors are proposed in this region, we may see a contrast between events involving regional parties that will be increasingly held in person, and larger and more international events that will continue to take place virtually.

We thank our readers and all our contributors this year for engaging with us. We look forward to an equally fruitful discussion of arbitration developments and thoughts on our Blog in 2021!

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The Arab Investment Court and Intra-Arab BITs: a Potential New Frontier?

Mon, 2020-12-28 22:34

The past decade has witnessed a surge in popularity of the Organisation of Islamic Cooperation’s Agreement for the Promotion and Protection of Investment, which is a multilateral treaty that binds twenty-seven states and allows for the resolution of investor-state disputes by ad hoc arbitration. There has been much scholarly discussion about this treaty as cases under its aegis continue to be filed every year. Another somewhat similar regional treaty has however kept a low profile, namely, the “Unified Agreement for the Investment of Arab Capital in the Arab States” (the “Arab Investment Agreement”), which is a treaty concluded by the members of the Arab League. This latter treaty appears to have garnered less interest and excitement.

Notwithstanding, this overlooked treaty possesses quite a unique feature; that is, it was the first investment agreement ever to establish a permanent forum for the settlement of investor-state disputes. The Arab Investment Court was established in 1983 and has been operational since 2003. Critics of Investor-State Arbitration who have called for the creation of a permanent investment court, have often neglected the fact that such a jurisdiction has existed for quite some time.

In light of this, one may wonder why this avant-garde treaty has been neglected and underutilised? The answer is perhaps that the proceedings of the Arab Investment Court are conducted entirely in Arabic, which might render international law firms advising on investment disputes less keen to recommend this option to their clients where others exist. Another possible answer is that investors and their counsel feel more comfortable resorting to arbitration where they know they will be able to have a say in the identity of their adjudicators. But ultimately, the main reason for the Arab Investment Court’s lacklustre popularity is the narrow definition of “investors” contained in the Arab Investment Treaty.

Indeed, in its original iteration, the Arab Investment Treaty, under Article 1, defined an Arab Investor as a “natural or juridical person who is a national of a contracting state, provided that no part of the juridical person is owned, directly or indirectly, by any person that is not an Arab national […].” A revised version of the treaty, adopted in 2013, somewhat relaxed this requirement by now only requiring a 51% ownership by Arab nationals for a juridical person to qualify for protection under the Treaty. The amendment has now entered into force between a handful of member States but the old language prevails where either or both of the host or home state have not yet ratified the revision. Whichever definition applies, however, a clear hurdle exists for the numerous multinational investors operating throughout the region through locally incorporated entities.

However, there may well be a way to bypass this onerous requirement which has so far been overlooked. Article 30 of the Arab Investment Treaty (Article 25 in the amended version) provides that “If it is stated in an Arab-international agreement establishing an Arab investment or in any agreement regarding investment within the scope of the Arab League or between its members that an issue or a dispute shall be referred to international arbitration or to international courts, the parties involved may agree to deem said issue or dispute falling within the jurisdiction of the Court.”

What this effectively means is that investors may be able to access the Arab Investment Court through one of the many Intra-Arab BITs rather than relying upon the Arab Investment Treaty. Indeed, this possibility has been acknowledged in the Amended Statute of the Arab Investment Court under Article 21, which underlines the Court’s competence to consider cases arising out of Intra-Arab Investment Agreements.

A survey of Intra-Arab Investment Treaties reveals that no less than thirty-four of these agreements have pre-emptively provided the states’ consent for disputes under these agreements to be resolved by the Arab Investment Court. It is worth noting that another three treaties grant the investor prior consent of the State to resort to the Arab Investment Treaty’s optional arbitration provisions without however explicitly allowing recourse to the Arab Investment Court.1)Bahrain-Morocco BIT; Jordan-Oman BIT; Mauritania-Morocco BIT. jQuery("#footnote_plugin_tooltip_5226_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5226_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

These Intra-Arab Investment Treaties invariably define “investors” less restrictively than the Arab Investment Treaty. The question, however, remains as to whether the Court, in ruling on its ratione personae competence, would ultimately rely on the definition in the BIT, by virtue of the lex specialis or lex posterior rule, or that of the Arab Investment Treaty which may be deemed to have been incorporated by reference. None of the twenty judgements rendered by the Court to date offers an answer. Attention must therefore be given to the particular wording of the provisions in the different BITs that redirect the investor towards the Arab Investment Court and/or the Arab Investment Treaty.

Three BITs make a direct reference to the Arab Investment Court as a means of resolving investor-disputes, with no further mention of the Arab Investment Treaty.2)Algeria-Yemen BIT; Oman-Yemen BIT; Syria-Tunisia BIT. jQuery("#footnote_plugin_tooltip_5226_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5226_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); If a dispute is brought under any of these agreements, it is therefore likely that the definition of investor within them would prevail over any language contained in the multilateral treaty and the Court should have no problem considering cases brought by foreign-owned locally incorporated corporations.

Twelve BITs give investors the option to resolve disputes through the Arab Investment Court “in accordance with Chapter 6 of the [Arab Investment Treaty].3)Algeria-Oman BIT; Algeria-Libya BIT; Algeria-Syria BIT; Bahrain-Sudan BIT; Bahrain-Syria BIT; Egypt-Syria BIT; Jordan-Syria BIT; Kuwait-Syria BIT; Morocco-Sudan BIT; Morocco-Syria BIT; Sudan-Tunisia BIT; Sudan-UAE BIT. jQuery("#footnote_plugin_tooltip_5226_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5226_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); A further two treaties use very similar language but refer to the “dispute resolution provisions” rather than to Chapter 6 specifically.4)Jordan-Qatar BIT; Libya-Morocco BIT. jQuery("#footnote_plugin_tooltip_5226_4").tooltip({ tip: "#footnote_plugin_tooltip_text_5226_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Fourteen treaties make no express mention of the Arab Investment Court but refer the investor to the Arab Investment Treaty’s dispute resolution provisions/chapter.5)Algeria-Kuwait BIT; Algeria-UAE BIT; Bahrain-Jordan BIT; Bahrain-Lebanon BIT; Jordan-Kuwait BIT; Jordan-Lebanon BIT; Kuwait-Egypt BIT; Kuwait-Lebanon BIT; Kuwait-Morocco BIT; Kuwait-Sudan BIT; Kuwait-Tunisia BIT; Lebanon-Morocco BIT; Lebanon-Sudan BIT; Lebanon-Yemen BIT. jQuery("#footnote_plugin_tooltip_5226_5").tooltip({ tip: "#footnote_plugin_tooltip_text_5226_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In each of these instances, the wording is restricted to only a specific part of the Arab Investment Treaty, the Court will therefore likely prioritise the language in the BIT over any part of the Arab Investment Treaty that falls outside of the dispute resolution provisions. In such cases, the distinction between the original and revised versions of the Arab Investment Agreement regains relevance. Article 29 of the original treaty, which falls under the abovementioned Chapter 6, refers back to the restrictive definition of investor under Article 1, which means that the Court would have to grapple with the question of what definition overrides the other. The amended version of the Arab Investment Treaty however contains no such reference to Article 1 in its dispute resolution chapter which means that the definition of investor under the BIT is likely to prevail.

Finally, Three BITs redirect investors to the “authorities in charge of the resolution of disputes under the [Arab Investment Treaty] of 1980”. This wide and unspecific reference to the Arab Investment Treaty means that the definition of investor under Article 1 may apply in the Court’s view and override the definition in the BIT.6)Jordan-Palestine BIT; Lebanon-Oman BIT; Lebanon-Syria BIT. jQuery("#footnote_plugin_tooltip_5226_6").tooltip({ tip: "#footnote_plugin_tooltip_text_5226_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Further ratifications of the 2013 amendment to the Arab Investment Agreement and an ever-growing awareness of investor-state dispute resolution in the region may lead to an uptick in popularity of the Arab Investment Court in the future. We will have to wait and see whether some adventurous investor might explore the road uncovered in this article, and if so, how the Court will rule on this conflict of treaties.

References   [ + ]

1. ↑ Bahrain-Morocco BIT; Jordan-Oman BIT; Mauritania-Morocco BIT. 2. ↑ Algeria-Yemen BIT; Oman-Yemen BIT; Syria-Tunisia BIT. 3. ↑ Algeria-Oman BIT; Algeria-Libya BIT; Algeria-Syria BIT; Bahrain-Sudan BIT; Bahrain-Syria BIT; Egypt-Syria BIT; Jordan-Syria BIT; Kuwait-Syria BIT; Morocco-Sudan BIT; Morocco-Syria BIT; Sudan-Tunisia BIT; Sudan-UAE BIT. 4. ↑ Jordan-Qatar BIT; Libya-Morocco BIT. 5. ↑ Algeria-Kuwait BIT; Algeria-UAE BIT; Bahrain-Jordan BIT; Bahrain-Lebanon BIT; Jordan-Kuwait BIT; Jordan-Lebanon BIT; Kuwait-Egypt BIT; Kuwait-Lebanon BIT; Kuwait-Morocco BIT; Kuwait-Sudan BIT; Kuwait-Tunisia BIT; Lebanon-Morocco BIT; Lebanon-Sudan BIT; Lebanon-Yemen BIT. 6. ↑ Jordan-Palestine BIT; Lebanon-Oman BIT; Lebanon-Syria BIT. 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: International Arbitration and the COVID-19 Revolution
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The New Brazilian Data Protection Law Permits the Use of Personal Data in International Arbitration, Subject to Appropriate Measures by the Parties and/or Tribunal

Sun, 2020-12-27 22:17

Brazil’s new data protection law, the Lei Geral de Proteção de Dados (LGPD) (September 18, 2020), has important implications for international arbitration users and practitioners.1)On August 2018, the law was approved with an effective date of February 2020. Because of the COVID-19 pandemic, the effective date was postponed and the law came into force in September 18th, 2020. jQuery("#footnote_plugin_tooltip_7288_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7288_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The impact of the emerging data protection regulation in international arbitration is triggering new rules and guidelines that aim to accommodate compliance with data protection obligations. The International Chamber of Commerce (ICC), for example, recognizing the “importance of effective and meaningful personal data protections”, addressed protection of personal data in its Note to Parties and Arbitral Tribunals on the Conduct of Arbitration under the ICC Rules (Note). In another example, the London Court of International Arbitration (LCIA) released its 2020 LCIA Rules, which came into effect on October 1st, 2020, providing a new Article 30A addressing “applicable data protection legislation”.

Brazil’s new law requires participants to take steps to safeguard the personal information of any Brazilian participant and the personal information of any Brazilian third parties that might form part of the evidence of the case, as well as the personal information of any data processed2)Processing has a broad definition within the LGPD. It involves any operation carried out with personal data such as collecting, producing, using, accessing, transferring, modifying, storing and deleting data (Article 5). jQuery("#footnote_plugin_tooltip_7288_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7288_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); in Brazil regardless of that person’s nationality.

The LGPD was inspired by the European General Data Protection Law (GDPR), and it is largely aligned with the GDPR’s principles. Like the GDPR, the LGPD imposes obligations on the processing of personal data, including before, during and after the arbitral proceeding. However, the particular provisions of each regulation may end up affecting international arbitration proceedings differently.

 

Personal data may be used in international arbitration

Under the LGPD, processing personal data is permitted when doing so complies with one of the lawful bases enumerated in the regulation. Articles 7, VI, and 11, II(d) allow the processing of personal data for the regular exercise of rights, including arbitration. Such provisions strengthen the use of arbitration and they are in harmony with the regular exercise of rights under the Brazilian Arbitration Law. The LGPD’s specific reference to arbitration adds a degree of certainty over the GDPR, which only provides four general bases for the potential use of personal data in an international arbitration (i.e., to satisfy a contract to which the data subject is a party; to comply with a legal obligation; to perform a task in the public interest or to carry out some official function; and when there is a legitimate interest to process someone’s personal data) (Article 6; GDPR).

 

Personal data may be transferred to another country for use in international arbitration

The LGPD allows cross-border data transfers whenever it is necessary to comply with the regular exercise of rights, including arbitration proceedings (Article 33, IX). This provision is an express exception for international arbitration to the general rule by which the LGPD permits the international transfer of personal data only to other countries with a similar level of protection (Article 33).

The GDPR likewise permits the international transfer of personal data when it “is necessary for the establishment, exercise or defence of legal claims” (Article 49(e)). Although the provision does not mention expressly arbitration, the GDPR’s broad definition would seem to apply to international arbitration.

 

Material and territorial scope of the LGPD

The LGPD protects any data that relates to an identified or identifiable Brazilian individual, such as name, identification number, location and genetic or biometric data (Articles 5 and 11). The LGPD is triggered whenever personal data is processed. Moreover, the regulation adopts an extra-jurisdictional approach, reaching businesses overseas where (Article 3):

  1. the data processing operation is carried out in Brazil;
  2. the processing activity aims to offer or supply goods or services to persons located in Brazil, even when data processing is carried out outside Brazil;
  3. the data being processed belongs to individuals located in Brazil at the time of its collection; or
  4. the data has been collected in Brazil.

The GDPR and the LGPD have a fairly consistent approach in terms of material and territorial scope of the law.3)Articles 3 and 4; GDPR. jQuery("#footnote_plugin_tooltip_7288_3").tooltip({ tip: "#footnote_plugin_tooltip_text_7288_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Nevertheless, given the particularities of each regime, arbitrators may reach different outcomes depending on which regulation is being under review. For example, in Tennant Energy vs. Canada, an international arbitration under NAFTA, the investor addressed the subject of GDPR because one of the tribunal members was based in the United Kingdom which, at that time, was a member of the European Union (here). However, without further explanation, the tribunal held that an arbitration under NAFTA does not “come within the material scope of the GDPR” because “neither the European Union nor its Member States are party” to the treaty invoked in the arbitration.

The decision in Tennant raised several issues about the application of the GDPR in international arbitration, particularly with respect its Article 2(2)(a) which provides that the GDPR does not extend to the processing of personal data “in the course of an activity which falls outside the scope of the Union law”. One wonders whether the tribunal in Tennant would have reached a different outcome if the applicable regulation did not have a provision that limited its scope to European Union Law.

Given that the GDPR is inspiring emerging data protection norms worldwide, such as the LGPD, the issues involving the scope and application of the GDPR may also arise under these other regimes. The potential complexity that data protection regimes impose on arbitration participants highlights the need for a framework to address data protection regulation compliance in arbitrations.

 

Accommodating emerging data-protection laws

Because of the relevance of data protection in cross-border disputes, arbitral institutions and organizations have been working to standardize compliance practices in the protection of personal data in arbitration. For example, Brazil’s Câmara do Mercado (CAM), has responded to the rise of data protection norms by offering a digital platform for communication, file sharing, and control of costs (here).

The ICC provided new rules addressing Protection of Personal Data determining that (i) parties shall ensure that applicable data protection regulations are complied with, (ii) arbitrators shall ensure that only necessary and accurate data are processed, and (iii) any breach of the security and confidentiality of personal data must be reported (Section VI, D).

The LCIA reserved an entire article in its 2020 Rules to accommodate compliance with data protection legislation. Article 30A establishes that the arbitral tribunal shall, with consultation with the parties and/or the LCIA, consider (i) security measures to protect information shared in the arbitration, and (ii) means to process personal data in light of the applicable data protection law. The 2020 Rules coupled with its General Privacy Notice aim to protect and respect personal information.

The International Council for Commercial Arbitration (ICCA) and the International Bar Association (IBA) launched a task force to specifically discuss data protection in international arbitration. In 2020, this task force released a consultation draft of ICCA-IBA Roadmap to Data Protection for public comment. The ICCA-IBA Roadmap was open to public comment until June 2020 and its final form should be available in 2021.

Based on the ICCA-IBA Roadmap, and given that data protection regulation is on the rise in many other jurisdictions,4)For example, the California Consumer Privacy Act, the India Information Technology (Reasonable Security Practices & Procedures and Sensitive Personal Data or Information) Rules, 2011, and the Law of the People’s Republic of China on the Protection of Personal Information (draft released on October 21, 2020). jQuery("#footnote_plugin_tooltip_7288_4").tooltip({ tip: "#footnote_plugin_tooltip_text_7288_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); we expect to see a continued proliferation of internal checklists and guidelines to ensure compliance with these new norms.

 

Minimizing risks

Breaches of the data protection obligations may result in fines of up to R$50 million reais (US$ 9.6 million) for each infraction and the blockage or exclusion of the personal data to which the infraction refers (Article 52; LGPD). In order to minimize such risks, each individual dispute requires a tailormade approach which can be an appropriate subject for the tribunal and the parties to address at the initial procedural conference of an arbitration and for the tribunal to establish finally in any terms of reference or first procedural order concerning the conduct of the proceedings.

The parties can also consider (i) data mapping to determine where the data to be processed during the arbitration is located and where it will be transferred and processed;5) See https://iapp.org/news/a/top-10-operational-responses-to-the-gdpr-data-inventory-and-mapping/ jQuery("#footnote_plugin_tooltip_7288_5").tooltip({ tip: "#footnote_plugin_tooltip_text_7288_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); (ii) data processing agreements when personal data is being transferred to a third-party for the purpose of the arbitration (e.g. experts, translators etc.);6)See Article 39; LGPD and Article 28; GDPR. jQuery("#footnote_plugin_tooltip_7288_6").tooltip({ tip: "#footnote_plugin_tooltip_text_7288_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and (iii) data protection protocols to address mechanisms to allocate the risks of non-compliance and to provide data breach notification obligations. The ICC, for example, encourages the arbitral tribunal to include in the terms of reference a data protection protocol to remind the arbitration participants that data protection regulation “applies to the arbitration and that by accepting to participate in the proceedings, their personal data may be collected, transferred, published and archived” (here).

In summary, the rise of personal data protection norms is challenging and is likely to be more present in the context of arbitral proceedings, now including those with a connection to Brazil. The issues regarding personal data protection in international arbitration require a close look by international arbitration users and practitioners in each case. Early consultation and advice from experienced counsel is essential to ensure compliance with applicable laws throughout the arbitration.

References   [ + ]

1. ↑ On August 2018, the law was approved with an effective date of February 2020. Because of the COVID-19 pandemic, the effective date was postponed and the law came into force in September 18th, 2020. 2. ↑ Processing has a broad definition within the LGPD. It involves any operation carried out with personal data such as collecting, producing, using, accessing, transferring, modifying, storing and deleting data (Article 5). 3. ↑ Articles 3 and 4; GDPR. 4. ↑ For example, the California Consumer Privacy Act, the India Information Technology (Reasonable Security Practices & Procedures and Sensitive Personal Data or Information) Rules, 2011, and the Law of the People’s Republic of China on the Protection of Personal Information (draft released on October 21, 2020). 5. ↑ See https://iapp.org/news/a/top-10-operational-responses-to-the-gdpr-data-inventory-and-mapping/ 6. ↑ See Article 39; LGPD and Article 28; GDPR. 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: International Arbitration and the COVID-19 Revolution
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2020 in Review: Institutional Trends in Investor-State Dispute Settlement

Sun, 2020-12-27 00:00

In 2019, we were wondering whether winter had come to Investor-State Dispute Settlement (ISDS), bringing with it a decline in the negotiation and conclusion of bilateral investment treaties. Looking back on 2020, we are left asking ourselves a similar question. This post will examine the year’s major institutional developments and their effects on ISDS both in 2020 and beyond.

 

COVID-19: ISDS’ Cosy Winter?

Despite the growing news fatigue, it would be remiss to write a 2020 review without briefly mentioning COVID-19. Its “unprecedented impact on individuals, entities, businesses, and states” has, naturally, greatly impacted the world of ISDS. In July, UNCTAD’s Investment Dispute Settlement Navigator reported that only 31 known ISDS arbitrations were initiated in the first half of 2020 (a 47% decrease from 2019). At the time, ICSID’s 2020 Financial Year Annual Report stating that only 23 cases had been registered under the ICSID Convention (a 41% decrease from those registered in the 2019 financial year). However, ICSID’s recently released ‘Year in Review’ newsletter reports a record 58 new cases were registered in 2020 under the ICSID Convention and Additional Facility, providing some optimism for those concerned about the effect COVID may have had on the demand for ICSID’s services.

In addition to these quantitative changes, the year has also seen several qualitative changes to ISDS as a result of COVID-19. The recently released ‘International Arbitration and the COVID-19 Revolution’ explores the innovative effect that COVID-19 has had on ISDS; particularly, the ways the ISDS community has adapted to the new, harsher, conditions. Leading the way, arbitral institutions jointly declared their intention of ensuring that “pending cases may continue and that parties may have their cases heard without undue delay.” Primarily, this response saw arbitral institutions embrace remote technologies and strive to implement secure online communication.

Yet, as Secretary-General of the ICC Mr Alexander Fessas has noted, “this really is not that new”. Many of these ‘adaptations’ existed well before the pandemic: ICSID announced that 60% of ICSID hearings were occurring remotely in 2019; several institutions were in the process of updating their electronic filing rules; and all institutions provide a wide discretion for the parties and the arbitrators to frame the procedure for a given case. This pre-existing framework for remote hearings should not be surprising: ISDS tribunals have always needed to facilitate arbitrators, counsel, and witnesses appearing from across the world; COVID-19 has simply increased the demand. Moreover, flexibility goes to the core of arbitration’s raison d’être – it is meant to adjust swiftly to uncertainty. Accordingly, while the rest of the world was adapting to the chilling effect of COVID-19, ISDS institutions were already relatively well-prepared for the weather.

 

Diversity in Investment Arbitration

In 2018, Gary Benton summed up the problem of diversity in international arbitration by stating: “we widely recognize there is something wrong but we haven’t effected a solution.” In 2020, a solution appeared further away than ever. The ICSID Fiscal Year 2020 Caseload Statistics reported that only 14% of appointed arbitrators, conciliators and ad hoc committee members were women – a steep drop from the 24% of appointed arbitrators reported in 2019 and 2018. While this “step back” is a blow for gender diversity in ISDS, the general trend remains positive. Over the 2020 financial year, individuals of 44 nationalities were represented amongst arbitrator, conciliator and ad hoc committee member appointments—”the highest number in a single year at ICSID”. Equally, in their 2020 report, the Cross-Institutional Task Force on Gender Diversity in Arbitral Appointments and Proceedings ­­– 17 leading international arbitration institutions, law firms and gender diversity initiatives – reported that the proportion of female arbitrators has almost doubled over the past four years. However, the report also recognised that the most frequent source of information about arbitrator candidates is through word of mouth ­­– something which entrenches existing standards and presents a barrier to new and diverse arbitrators.

 

Forging Ahead with ISDS?

The year saw a number of important bilateral and multilateral developments as States and institutions attempt to address the issues associated with ISDS.

In 2020, India and Brazil attracted attention from the ISDS community by signing the investment cooperation and facilitation treaty (‘India-Brazil BIT’). Although seeking to encourage the ‘cooperation and facilitation’ of foreign investors, the India-Brazil BIT provides little in the way of investment protection: it does not contain ISDS or rules on indirect expropriation. Instead, the India-Brazil BIT rather adopts the Brazilian approach to BITs which “brings dispute prevention to the center stage with the adversarial form of dispute resolution being a secondary consideration.” Such model-BITs tend to favour the host State’s right to regulate but also undermine the value of any substantive rights as foreign investors find themselves without a means of enforcing them. In this sense, they may be seen as a return to a pre-ISDS era, thereby representing a significant shift away from the “decades-old practice of investor-state arbitration”.

The India-Brazil BIT is by no means an isolated development: the trend internationally has been one of review and reform, with UNCITRAL’s Working Group III (‘WG III’) and ICSID’s working papers being prominent examples. During these reviews, States and arbitration institutions have been “exploring the potential for investor-State mediation to work alongside arbitration, or even to replace it altogether for some disputes.” Utilising mediation as part of a reform to ISDS has become a common theme throughout the UNCITRAL Working Group III discussions. Similar to the India-Brazil BIT, institutionalising mediation in a reformed ISDS regime is said to facilitate settlements before arbitration is necessary.

However, while the advantages of these institutional reform efforts can be debated, a fundamental issue remains how to implement them. At the 39th session, WG III outlined a few approaches to incorporating substantive changes into a multilateral instrument. For example, a “suite” approach was suggested, according to which States could choose to incorporate one or more of the proposed reform options based on their political and policy concerns and interest. Alternatively, a minimum standard approach was offered, whereby certain core elements would be included in a multilateral instrument that would need to be adopted by all participating States.

In a lecture on the topic, Professor Zachary Douglas QC highlighted the complications that multilateral institutions can bring to this process; namely, a highly political and convoluted negotiation process. As an alternative, Professor Douglas recommended a bilateral approach designed to address the issues that have arisen from a State’s own BITs and ISDS experience. This, it was reasoned, would speed up the negotiation process and allow for targeted solutions to the particular concerns of the State conducting the review of their BITs.

As we move into 2021 and States continue to review their BITs, we are likely to see new alterations and alternatives to the traditional ISDS model. However, there is no panacea to the issues surrounding foreign investment. As Dr Esmé Shirlow notes, reforms “to one procedure may produce unintended consequences for others.” Accordingly, while arbitral institutions continue to discuss their role in facilitating international investment agreements, there will still be a need for a comprehensive approach that leverages “the strengths of different dispute settlement techniques whilst minimising their weaknesses”.

More from our authors: International Arbitration and the COVID-19 Revolution
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Interviews with our Editors: A Chat with the Registrar and CEO of the Nairobi Centre for International Arbitration, Mr. Lawrence M. Ngugi

Fri, 2020-12-25 23:05

Welcome to the Kluwer Arbitration Blog, Mr. Ngugi!  We are grateful for this opportunity to learn more about the Nairobi Centre for International Arbitration – NCIA, the type of disputes it handles and the way it is facing recent developments, such as the COVID-19 crisis.

  1. Please give our readers a brief background of yourself and your journey to NCIA.

I attribute my profession to my faith in God, support from my wife Karen and our four children. I am an advocate of 20 years having started off as a litigator with a bias for commercial disputes. I got a flavour of arbitration in my seventh year of practice and from then my interest in arbitration has remained steadfast. I regularly acted as counsel in domestic and international arbitrations and became acquainted with the work of the UNCITRAL Working Groups II and III which are shaping development and reform in international arbitration whilst heading the Commercial and Arbitration division of the Attorney General’s Office in Kenya. In 2014, I was asked to start the NCIA.

 

  1. What is the general composition of cases that the NCIA has administered? How many cases are currently ongoing with the NCIA?

There has been a mix of different kinds of disputes, including supply contracts, employment, infrastructure development and construction, and shipping. Construction disputes have been on the upward trend with the main areas being road, aerodrome, and other infrastructure projects. Currently, we have about 40 active cases at various stages of proceedings and with the total value in dispute above Kenya Shillings 21 Billion or USD 210 Million.

 

  1. What difference do you see that the NCIA has made in the seven years since its establishment to arbitration in Africa and particularly in Kenya?

We are the premier arbitral institution in Kenya that has a dedicated case administration service complete with its own arbitration rules. As a result, we have broadened the choices of parties with regard to administered arbitration using institutional rules developed in Kenya for both domestic and international arbitration. Prior to NCIA, parties had a limited choice of adapting ad-hoc arbitration or institutional arbitration rules from outside Kenya. The NCIA has given an opportunity to develop arbitration further in Kenya. We are mindful that our remit is global hence we have forged partnerships with other arbitration centers and initiatives on the African continent to provide a much-needed catalyst to the growth of international arbitration. To this end we have entered into co-operation agreements with CRCICA- Cairo, the PCA- Hague, the China-Africa Joint Arbitration Centre framework amongst others. We have ventured into networking conferences, training and mentorship including an annual Moot Program for Regional Universities in East Africa. These are essential for emerging markets to shore up capacity and for exposure.

The SOAS Africa Arbitration Survey for 2020 ranked the NCIA amongst the top 5 arbitral institutions on the Continent.  

 

  1. A common observation of the arbitration community is that African heritage arbitrators are under-represented in arbitrations that concern disputes in Africa. What are your thoughts on this? What are your observations from arbitrations administered by NCIA? Any figures on the appointment of African arbitrators that you could provide?

There is a history to this concern. It is no doubt that post-independent African nations have developed expertise in various facets of international law including arbitration. The African continent has contributed a fair share of cases for adjudication through international arbitration. However, it is also true that not many arbitrators of Africa’s nationalities have been appointed to adjudicate those disputes that have a nexus with the continent. In my view, this situation is both a factor of systemic problems of international arbitration and wrong perceptions of the realities within the different jurisdictions on the continent. But with the surge in Africa based institutions, initiatives such as the African Promise, Africa Arbitration Survey, and Africa Arbitration Association amongst others these perceptions are changing.

As an institution we have deliberately promoted the advancement of Africa’s talent and this is evidenced by the number of NCIA panel arbitrators who are from Africa. The arbitrator appointments have also reflected a similar trend of having arbitrators from the African continent.

 

  1. What is the approach of Kenyan courts towards arbitrations in Kenya? Do they play a supportive or interventionist role?

Kenya is an arbitration friendly jurisdiction by every score. Kenyan courts have taken a minimalist approach and maintained a supportive stance towards arbitration. The underpinning of Alternative Dispute Resolution (“ADR”) in the Constitution has cemented this attitude. Article 159 (2) (c) requires Courts to promote the use of alternative dispute resolution. To my mind, this places a duty on the court to encourage parties to consider other mechanisms. The cummulative effect of this bold policy is a judicial culture endeared towards other forms of dispute resolution including arbitration.

The Arbitration Act is modelled on the UNCITRAL Model Law and the country is a signatory to both the New York Convention and the ICSID Convention. Its fidelity to the tenets of these legal frameworks has been repeatedly asserted by the judiciary. With a robust legal fraternity testing various aspects of the practice, the courts have defined the limits of judicial involvement within the confines of the Arbitration Act. The Supreme Court recently explored the landscape in the decision of Nyutu Agrovet Limited v Airtel Networks Kenya Limited; Chartered Institute of Arbitrators-Kenya Branch (Interested Party) [2019] eKLR. The case examined the question of finality and scope of appeal against the decision of the High Court (court with jurisdiction to determine applications to set aside an award) under Section 35 of the Arbitration Act (Kenya). The Court’s approach in this Case was to emphasise minimal judicial intervention.

Like every other jurisdiction that is committed to the continual development of jurisprudence in this area the core of the Court’s decision in this and other decisions mirrors the view that we have a bench and a bar that is increasingly aware of the framework of the UNCITRAL Model Law on Arbitration. This is good for any jurisdiction.

 

  1. I understand NCIA also administers mediation. Do you see an increase in mediation?

Yes! We have the NCIA Mediation Rules, 2015. We have entered the space for commercial mediations with an impressive response from the industry. This has been mainly in the construction sector in mega projects with domestic disputes.

Admittedly, this is an area where much more needs to be done for mediation to have the same level of acceptance as arbitration does. We are excited about the Singapore Convention which could be the precursor of a brighter future for mediation.

 

  1. The COVID-19 health crisis has caused and is expected to keep causing unprecedented disruptions to several sectors of the economy and business relationships. How is NCIA facing the challenges brought by this new reality?

Quite unexpectedly, the pandemic has not slowed the flow of disputes to NCIA. We have recorded more cases registered per quarter than in the same period last year. Since NCIA already had a functional virtual infrastructure before the start of the pandemic, we have been able to support the continuity of proceedings without any interruptions. That said we have adjusted our services to ensure the safety of the most important resource, our staff, and facilitated remote operations during the height of the pandemic.

We have also adopted the Africa Arbitration Academy Protocol on Virtual Hearings in Africa to guide parties on efficient use of remote hearings. We are committed to continual improvement and learning from our international network.

 

  1. Any parting words of wisdom you would like to share with African practitioners particularly the younger generation?

The train has left the station and we on the continent are firmly in the carriage. The debate will no longer be about inclusivity but the excellence of your performance. Learn, learn, learn!

We are well positioned in history to participate fully in the new advent for international arbitration. Rather than focus on past decades of isolation we have the opportunity to actively pursue excellence and live a footprint and a legacy that will usher a new dawn for posterity. I personally see no reason why the future can’t be anything but optimistic.

 

  1. Where do you see NCIA in ten years?

On the global map of international arbitration innovating, creating, and offering end-user friendly arbitral and other ADR services fashioned to meet the demands of a fast-evolving online generation.

 

Thank you for your time and perspectives – we wish you and NCIA continued success!

This interview is part of Kluwer Arbitration Blog’s “Interviews with Our Editors” series.  Past interviews are available here.   

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From the Editors of Kluwer Arbitration Blog: 2020

Thu, 2020-12-24 22:57

In December of each year we take a moment to thank our readers, collaborators and editors for their tremendous support. This year is special. As we come at the end of a year of challenges, but also of opportunities, we express our gratitude for being part of an amazing community and for being able to bring our contribution to the scholarship and practice of arbitration.

Entering a New Year has also a special meaning to us. Every January we add another year to Kluwer Arbitration Blog and, in 2021, we will be celebrating the 12th anniversary. We hope we will continue to bring you “high quality discussions on arbitration”.

2020 was a generous year for Kluwer Arbitration Blog, with over 170,000 readers every month! We hope that this number reflects the increased awareness of international arbitration worldwide. Our readers come from established arbitration jurisdictions, such as the US, UK, France etc., but also from – hopefully – up-and-coming arbitration hubs, such as Fiji, St Lucia, Tajikistan, and Mali.

For international arbitration, no doubt, 2020 was the year of covid-19 and of the developments in international arbitration related to responses to the pandemic, including the rise of remote and virtual hearings and related concerns on the administration of justice, the seat of the arbitration, fairness and efficiency and due process. We could also see the court approach to covid-19 and arbitration matters, including by the Austrian Supreme Court in July 2020.

Nonetheless, 2020 has seen other significant developments above and beyond covid-19: new institutional arbitration rules of LCIA and ICC; the revival of the Yukos awards; the aftermath of Achmea and Micula cases; the Treaty for the termination of the intra-EU BITs entered into force on 29 August 2020; the ongoing modernisation of the Energy Charter Treaty (ECT), including the latest request from Belgium to CJEU for an opinion on the interaction between EU law and the future modernised ECT; the entry into force of the USMCA; ISDS and its reform, including the proposed Code of Conduct for Adjudicators; The Hague Rules on Business and Human Rights; arbitrators’ liability; and UNCITRAL Working Group II on expedited arbitration.

On the national fronts, we have seen ratifications and accessions to the New York Convention of Tonga, Palau and Seychelles, Ethiopia, Sierra Leone, and the 2020 Amendment to the Indian Arbitration Act. National courts have also been active, with the Uber v. Heller case and unconscionable arbitration agreements in Canada; disclosure obligations vs confidentiality in Halliburton v. Chubb; the application of international law by the U.S. Supreme Court in a case involving a non-signatory in GE Energy Power v. Outokumpu; strides in the enforcement of foreign awards in India; dissenting opinions and public policy; law governing the arbitration agreement in Enka v. Chubb.

Last, but not least, as it emerges that the UK has reached the Brexit deal with the European Union, sources indicate that “the draft deal includes a new arbitration mechanism intended to ensure ‘a level playing field’ between the two sides”.

 

As usual, this is also the time to acknowledge and thank our Editors. This year – and with many thanks to Mike McIlwrath for the suggestion-, we have started a new series “Interviews of Our Editors”. These are interviews with our Editors, bringing their perspectives on international arbitration and Kluwer Arbitration Blog.

The Blog is also the result of the fruitful collaboration with its publisher, Wolters Kluwer, and the Editorial Board is grateful to Eleanor Taylor and Vincent Verschoor, editors and content managers with Wolters Kluwer, for ensuring that we deliver the best final product to our readers.

We are also grateful to the permanent contributors and to the affiliates of the Blog, some being with us from the first days of Kluwer Arbitration Blog.

We are committed to deliver diverse arbitration. It is more important than ever to pursue gender, age, racial etc. diversity in international arbitration and Kluwer Arbitration Blog is an active participant in this discussion, aware of the responsibility it has in shaping the arbitration practice.

We would like to thank you for all your support and we send our best wishes for the Festive Season. We wish you a 2021 when we can meet in person.

 

Professor Roger Alford and Dr Crina Baltag, on behalf of the Editorial Board

 

The editors of Kluwer Arbitration Blog are always available at [email protected].

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Are Commercial Agency Disputes Arbitrable in the UAE?

Wed, 2020-12-23 18:00

One of the questions that the legal community in the United Arab Emirates (“UAE”) has been grappling with is whether or not commercial agency disputes are arbitrable. Decisions have been issued invalidating arbitration agreements in the context of commercial agency disputes. However, contrary decisions upholding arbitration agreements have also been issued. This post examines one recent decision upholding an arbitration agreement.

 

The Commercial Agencies Law

Activities of commercial agents in the UAE are governed by the Federal Commercial Agencies Law no. 18 (1981) (“Commercial Agencies Law”). Agency agreements that are subject to the Commercial Agencies Law must meet certain requirements, including (1) exclusivity, (2) Emirati nationality1)Until recently, the Commercial Agencies Law required that the agent be a UAE national or a corporation that is entirely owned by UAE nationals. There has been a recent amendment of this requirement which introduced a limited expansion of types of entities that can act as commercial agent. jQuery("#footnote_plugin_tooltip_4002_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4002_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and (3) registration with the Ministry of Economy.

When these requirements are met, the Commercial Agencies Law affords a commercial agent with a high level of protection, in particular by rendering the termination of the agency agreement by the principal a very difficult task. To ensure that the Commercial Agencies Law is applied to all qualified disputes between agents and principals arising from commercial agency agreements (and thereby guaranteeing the envisioned protection), as elaborated below, jurisdiction for such disputes is granted to UAE courts.

 

Jurisdiction of UAE Courts

Article 6 of the Commercial Agencies Law states that disputes arising out of commercial agency agreements shall be heard by UAE courts and that an agreement to the contrary is not valid. Consequently, Article 6 is a mandatory provision.2)This provision has been introduced in 1988 and has been maintained since then although the Commercial Agencies Law itself was subject to a number of amendments over the last two decades. jQuery("#footnote_plugin_tooltip_4002_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4002_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

If Article 6 is mandatory and parties to an agency agreement cannot agree to bring their dispute before a forum other than UAE courts, then they would not be allowed to arbitrate any potential disputes. In line with this view, a number of decisions have confirmed that an arbitration agreement cannot be upheld in agency agreements disputes (See Federal Supreme Court Case No. 270/judicial year 16 and Federal Supreme Court Case No. 99/ judicial year 20). As a result, it was often reported that agency disputes are not arbitrable.

 

Summary of the Dispute

The dispute arose out of a commercial agency agreement (“Agreement”) between a French manufacturer of a specific type of vehicles (“Principal”) and their commercial agent (“Agent”). The Agreement was exclusive for the entire territory of the UAE, which meant that the Agent would be entitled to commission for all sales done within the country even when such sales were concluded without the Agent’s involvement. The Agreement was registered with the Ministry of Economy in line with the Commercial Agencies Law since 1992 and was still valid when the dispute arose between the parties around the end of 2017.

The Principal concluded a transaction for the sale of vehicles to a governmental entity in the UAE without the involvement of the Agent. The latter learned of the transaction, in spite of its confidential nature, and claimed commission in line with the provisions of the Agreement. The Principal refused to pay the commission. The Agent filed a complaint with the Ministry of Economy’s Commercial Agencies Committee (“Committee”), which is the administrative body designated to issue a determination in disputes between agents and principals.3)According to the Commercial Agencies Law, no claim can be field to the courts before submitting the claim to the Committee. The decision of the Committee can then be challenged before the courts. jQuery("#footnote_plugin_tooltip_4002_3").tooltip({ tip: "#footnote_plugin_tooltip_text_4002_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); As part of its claim, the Agent requested an order for the payment of almost four million euros as commission for the concluded transaction. The Committee issued a decision in favor of the Agent, stating that the Agent is entitled to commission in line with the Agreement and it directed the Agent to resort to courts to claim its entitlements.

On the basis of the Committee’s decision, the Agent filed a request, amongst other, for the appointment of an expert by Abu Dhabi Courts to determine the exact value of the commission that the Agent is entitled to and an order against the Principal for the payment of the determined amounts.

The Principal raised a number of defenses amongst which a challenge to the jurisdiction of the court on the basis of the arbitration clause in the Agreement, which provided that all disputes arising between the parties shall be settled through arbitration. On the basis of the arbitration clause, the Principal requested the court, to dismiss the claim for lack of jurisdiction.

 

The Courts’ Reasoning

The Court of First Instance (“CFI”) accepted the Principal’s defense and dismissed the case on the basis of the arbitration agreement. The CFI simply explained that the defendant had invoked the arbitration clause in line with the UAE Federal Arbitration Law and the court should therefore dismiss the case on that basis.

The Agent filed an appeal before the Court of Appeal (“CA”) (see Case 2652/2018 Commercial). The CA upheld the decision of the CFI, agreeing that the case should be dismissed on the basis of the arbitration clause and provided a detailed reasoning for its decision. The Agent then challenged the CA decision before the Court of Cassation (“CC”) (see Case 362/2019 Commercial Cassation), which upheld the decision of the CA adopting the same reasoning.

According to the CC, the exclusive jurisdiction of UAE courts provided for in Article 6 of the Commercial Agencies Law is “conditional upon the dispute being related to the commercial agency itself in terms of its existence, its scope and the extent to which its provisions are complied with, determining the area it covers, or when the dispute relates to its being, or hanging on to its survival or its continuation or determining who should practice it according to its definition in the law or the non-compliance with its obligations or its execution principles”. The language used by the CC is not clear and requires a closer examination, and may be better understood in the context of the full decision.

The CC goes on to explain that the rules of the Commercial Agencies Law aim at protecting the exclusive agent from the potential of the products, subject matter of the agency agreement, being distributed through someone other than the agent in the territory of exclusivity of the agent. However, if the request of a party to the agency agreement is to settle the account between the parties with respect to transactions resulting from the agency agreement, then the arbitration clause is not a violation. This is so because the claim relates to the entitlements of a party with respect to acts performed by such party and which have benefitted the other contracting party.

The CC then concludes that, given that the Agent’s claim is to appoint an expert to determine the amount of commission it is entitled to and request an order for payment of amounts determined by the expert, then the dispute between the parties relates to settling their account. It does not relate to the terms of the agency, its area or its continuation and as such the arbitration clause remains valid.

 

Final Observations

The reasoning is difficult to understand at first, but it is clarified when considered against the backdrop of the scenarios in which disputes arise between an agent and a principal.

The first scenario arises where the principal, when unsatisfied with the performance of the agent, would want to terminate the agency agreement and cancel its registration with the Ministry of Economy. When looking at the text of the judgment closely, we note that the CC is primarily concerned with protecting the agent’s territory. Such protection requires maintaining the registration of the agency agreement, resisting its cancelation and eventually preventing the appointment of another agent (as another agent may not be appointed unless the previous agency is canceled). The CC uses too many words to simply say that disputes relating to the existence, registration and maintenance of the agency agreement fall within the jurisdiction of UAE courts.

The second scenario arises where the agent seeks commission for sales performed in its territory, whether through the agent’s involvement or not and whether these were performed by the principal on its own or through another agent. Clearly, this scenario is what the current case is about and the courts upheld the arbitration provision. The CC explained that when the issue relates to payments a party is entitled to then arbitration would be upheld. In other words, claims relating to an agent’s commission are arbitrable.

The confusing and rather convoluted language used in the courts’ decisions makes it hard to determine in a conclusive manner the distinction made above. One would hope that future decisions would shed further light on the envisaged distinction and make it easier for practitioners to predict the potential outcome of inserting an arbitration clause in a commercial agency agreement.

 

The author of this Blog post has been involved in the case discussed.

References   [ + ]

1. ↑ Until recently, the Commercial Agencies Law required that the agent be a UAE national or a corporation that is entirely owned by UAE nationals. There has been a recent amendment of this requirement which introduced a limited expansion of types of entities that can act as commercial agent. 2. ↑ This provision has been introduced in 1988 and has been maintained since then although the Commercial Agencies Law itself was subject to a number of amendments over the last two decades. 3. ↑ According to the Commercial Agencies Law, no claim can be field to the courts before submitting the claim to the Committee. The decision of the Committee can then be challenged before the courts. 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: International Arbitration and the COVID-19 Revolution
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2020 in Review: Despite a Global Pandemic, Europe Saw Some Action-Packed Arbitration Developments

Wed, 2020-12-23 00:00

Although the Old Continent has suffered tremendously at the hands of the COVID-19 pandemic, the world of arbitration still managed to find a way to keep on going. In this post, we are going to provide an overview of the most pivotal arbitration developments that occurred on the European soil in 2020. Among others, these include the updated or new rules of several arbitral institutions, significant legislative developments as well as advances in case law that have made some heads turn. So, without further ado, let us examine these one by one!

 

Updated Rules and a New Star on the European Sky

In 2020, updating arbitration rules has been on the agenda of several arbitral institutions. For instance, the International Court of Arbitration (ICC Court) has released a draft version of its 2021 Rules of Arbitration. The revisions were made against the background of the ICC Court’s relentless mission to increase efficiency, flexibility and transparency of arbitral proceedings organised under their auspices. In the update process, the ICC Court focused, among other things, on the provisions on party representation, multi-party arbitrations, disclosure of external funding and the powers of the ICC Court to appoint all arbitrators in arbitral proceedings to prevent unequal treatment of the parties. Furthermore, in light of the COVID-19 pandemic, the 2021 Rules of Arbitration reaffirm that the tribunal may decide, after conducting consultations with the parties, to have virtual hearings through remote means of communication.

The London Court of International Arbitration (LCIA) is another arbitral institution that sought to update their Rules this year. The new LCIA Rules have already entered into force on 1 October, meaning that they will be applied to arbitrations from that date onwards. Striving to bring their Rules in line with the realities of contemporary arbitration as well as to ensure that they reflect the best practice of their tribunals, the LCIA entertained a wide array of topics in the update process, including early determination and multiple proceedings and claims. Moreover, just like the revised ICC Rules, the updated LCIA Rules as well took note of the COVID-19 pandemic by making it clear that hearings may also take place “virtually by conference call, videoconference or [by] using other communications technology with participants in one or more geographical places (or in a combined form)”.

While the well-established institutions such as the ICC Court and the LCIA sought to update their existing rules, there are those that had to start from scratch. More precisely, that was the case with the London Chamber of Arbitration and Mediation (LCAM), an arbitral institution that was established in May this year. Only time will tell whether this new star on the European arbitral sky will manage to shine bright or not. Looking at their Rules and the overall approach, the LCAM seems to be vying for a particular niche of the arbitration market involving smaller businesses and modest claims. The indication of this is the fact that the LCAM will be placing emphasis on its extensive institutional case management competences, and it will also aim to provide for a rather fixed, affordable and somewhat predictable approach to costs.

 

To Revise or Not to Revise Arbitration Laws, That Is the Question

In 2020, we have approached the crowning moment of Switzerland’s efforts to revise Chapter 12 of its Private International Law Act (PILA) that contains the country’s law on international arbitration. The final draft of the bill was approved in June this year, with the entry into force expected to take place sometime in 2021. There were four aims that ran as leitmotifs through the revision process:

  1. Alignment of the legislative text with the case law of the Federal Supreme Court of Switzerland;
  2. Clarification of the matters not been expressly tackled in Chapter 12 of PILA;
  3. Buttressing the role of party autonomy; and
  4. Making Chapter 12 of PILA more user-friendly.

What is interesting to note is that the final draft of Chapter 12 of PILA foresees the option for parties to submit applications in English both for setting aside and revision of arbitral awards, something that has stirred debate and provoked somewhat of a backlash. Nevertheless, some have characterised this as a positive development with the potential to enable counsel to represent the interests of their clients in a more effective manner.

Luxembourg is another jurisdiction that has taken steps towards overhauling its arbitration law. Namely, a draft bill has seen the light of day in September. It draws its inspiration from the work done by UNCITRAL in the area of arbitration as well as the French Code of Civil Procedure. The aim, unsurprisingly, is to modernise the country’s arbitration law. The ball is now in the court of Chamber of Deputies, the legislative body of Luxemburg, to transform the draft bill into law.

In contrast to the Swiss timely efforts and the Luxembourgish draft bill, still there are those countries that, in spite of having numerous scholars and practitioners calling for reform for years, have failed to take any meaningful action. Bosnia and Herzegovina (BiH) is a quintessential example of this laid-back approach. This year we have again heard pleas from experts that it is high time to tackle the country’s ineffective arbitration framework, and it remains to be seen whether BiH’s legislative bodies will continue to remain deaf in this respect.

 

The Rich Harvest from the International Case Law’s Soil

The year 2020 was rich for precedent cases. The ones that stole the spotlight are highlighted below, noting that the precedents for the proper law of the arbitration agreement will be discussed in a separate year in review post.

 

When Parties’ Right to be Heard May or May not be Violated

Saying ‘no’ to parties may be risky, but the Vienna International Arbitration Court (VIAC) tribunal did it and was right. Following respondents’ unsuccessful attempt to challenge the tribunal before the VIAC based on its decision to conduct an evidentiary hearing by videoconference over the respondents’ objection, the case had landed at the Austrian Supreme Court’s (OGH) doorstep. In holding that such a setting may not in fact violate due process, the OGH established that, inter alia, procedural errors are not enough to successfully challenge arbitrators. It could have been successful had the arbitrators’ case management decisions resulted in violations of the parties’ right to be treated equally and their right to be heard. Here, however, neither of the rights were violated as covered in the Blog post here. As result, OGH’s landmark decision found its relevance not only for the Vis Problem this year, but also for practitioners all over the world facing the challenges created by the global pandemic.

While in contrast to the decision above, the Swedish Supreme Court (SC) dealt with a procedural error which had affected the parties’ right to present their case which in turn affected the outcome of the case. The tribunal, in a dispute over royalty payments under pharmaceutical license, established in the Procedural Order its “final” position on respondent’s conditional entitlement to royalty payments and declared it would not deviate from this position “without informing the parties in advance and providing them with an opportunity to comment on the issue”. The tribunal has however never informed the parties that it decided to change its position and therefore deprived the parties of an opportunity to address this issue. Although the matter was reopened by the claimant, the SC concluded that the respondent was deprived of the opportunity to fully argue its case as a result of the procedural error created by the tribunal itself. Thus, the tribunal walked on thin ice when it declared it will ensure the parties’ opportunity to address a specific matter, but the weight of such a declaration turned out to be heavier than the ‘ice’ could actually hold.

 

Why Staying Quiet in Austria and Dissenting in Germany are Both Against Ordre Public

In a case decided by the OGH, the arbitrator appointed by the respondent was excluded from the deliberations on the merits, thereby prevented from the general decision-making process, and from influencing the decision-making of other arbitrators. Naturally, the arbitrator raised concerns as to his/her involvement in the deliberations, while, the presiding arbitrator merely referred the prior to the possibility of a dissenting opinion. Arbitrator’s concerns were justified, as the OGH held that, inter alia, it is preferable for all arbitrators to be physically present during the deliberations on the merits of the case. Otherwise, the award is considered to be against Austrian ordre public, which was the case at hand. The decision therefore demonstrated which consequences “ghosting” arbitrators may have on the enforceability of the award.

But what if the minority arbitrator did issue his/her dissenting opinion? Had it happened in Germany, such an action would have been against ordre public. With a place of arbitration in Frankfurt am Main, the award rendered, from the German perspective, was domestic. As the Frankfurt Court of Appeals held, disclosure of a dissenting opinion is inadmissible in domestic arbitral proceedings as it will violate the confidentiality of the tribunals’ deliberations. Although German legal commentators are of the position that attaching a dissenting opinion to the award is “predominantly considered permissible” as it is subject to party autonomy, the court had taken a strict position in holding that in domestic arbitral proceedings a dissenting opinion will be against German ordre public.

 

The Legendary Comeback: Revival of the Yukos Awards

The Yukos Awards’ saga had taken a new turn when on 18 February 2020 the Court of Appeal (CA) in The Hague reversed the lower court’s decision annulling the awards rendered against the Russian Federation in Veteran Petroleum Ltd., Yukos Universal Ltd., and Hulley Enterprises Ltd. cases. The CA therefore followed a pro-investor approach by holding that, inter alia, although the Russian Federation had signed the Energy Charter Treaty (ECT) but had not ratified it, under the Limitation Clause of the ECT, each State that signed the treaty will apply the treaty in a provisional way. It thus concluded that Contracting States accepted to comply with obligations found in the preamble of the ECT to establish conditions for investment immediately upon the signing of the treaty. The newly revived awards will therefore be subject to prompt enforcement, while, on the other hand, the issue of whether annulled awards shall be enforced or adjourned is in particular of issue in this Blog post.

 

A Word on Investment Arbitration in Europe

In the realm of investment arbitration, the highlight of the year in Europe has certainly been the enforcement of arbitral awards rendered in the intra-EU setting. More precisely, Europe is still dealing with the aftermath of the Achmea case. In this context, probably the most discussed development on the Old Continent has been the case of Micula and others v. Romania in which the UK Supreme Court held unanimously that the “UK’s enforcement obligations under the ICSID Convention could not be affected by the EU duty of sincere co-operation […], as the UK’s ratification of the ICSID Convention preceded its accession to the EU”. The holding of this case has served as a ‘told you so’ moment for those who argued that post-Brexit the UK may serve as a convenient spot for enforcing intra-EU arbitral awards stemming from investment arbitrations. Another relevant development in the field was the signing of the Agreement to terminate intra-EU BITs, whereby, according to our contributor, the Commission and most EU Member State are testing the principle of good faith under international law. This development will be discussed in more detail in another year in review post highlighting developments in investment arbitration.

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The Egyptian Court of Cassation Sets Standards and Affirms Arbitration-Friendly Principles and Trends in a Ground-Breaking Judgment

Mon, 2020-12-21 23:20

On 27 October 2020, the Egyptian Court of Cassation (“Court”) rendered a ground-breaking judgment that is demonstrative of the Court’s appreciation of ongoing global developments in the field of arbitration (a courtesy translation prepared by the author of this post is available here).

The case pertains to a domestic construction dispute under a subcontract that included an institutional arbitration clause. Owing to disputes between the contracting parties, an arbitration case was filed and an award was rendered in favour of the subcontractor. The contractor filed for annulment before the Cairo Court of Appeal, and a subsequent further challenge was lodged before the Court.

The Court addressed and analyzed the grounds for the challenge, and ultimately dismissed it. In the context of its analysis and reasoning, the Court affirmed certain general principles of Egyptian law and acknowledged and recognized certain trends in arbitration. Amongst the principles espoused by the Court are estoppel and resorting to general principles of law as a source of legal principles, prohibition of taking advantage of one’s own wrongdoing, the right to representation in arbitration by foreign lawyers and/or non-lawyers, the distinction between the ‘seat/place of arbitration’ and the ‘venue for certain aspects of the proceedings’, and the limited judicial review of awards in a nullity action. The Egyptian Court of Cassation also made passing references to the ‘notion of delocalization’ and the practice of ‘virtual hearings’.

 

Prohibition of taking advantage of one’s own wrongdoing, estoppel and resorting to general principles of law as a source of legal principles

The Court held that if a party continued with the arbitration proceedings, without an objection, despite its knowledge of a breach of a condition of the arbitration agreement or one of the non-mandatory provisions of the Egyptian Arbitration Law No. 27 of 1994 (“EAL”), this would be deemed a waiver of his/her right to object. The Court found that the appellant had participated in the arbitration without objecting and in full knowledge that the agreement was concluded by the vice-chairman of the board of directors, and went further to hold that even if the appellant had invoked this objection earlier, the challenge would still be rejected because a person may not benefit from his/her own wrongdoing. The Court also added that the principle of estoppel would militate against the success of the appellant’s plea, and remarked that estoppel is in application of the universal maxim ‘non concedit venire contra factum proprium’ which is derived from Roman law.1)This is not the first time the Egyptian Court of Cassation affirms the existence of the principle of estoppel as a matter of Egyptian law. As early as the 1950s, the Egyptian Court of Cassation affirmed the existence of the principle of estoppel, albeit in a non-arbitration context. In 1952, by way of example, the Egyptian Court of Cassation unequivocally held (in Challenge No. 171 of Judicial Year 20, Court Session of 3 April 1952) that “he/she whomever seeks/attempts to negate what he/she has previously consented to/acknowledged/undertaken shall be estopped/prevented from doing so”. The Arabic words used in that judgment to refer to the principle of estoppel mirror those used in the 27 October 2020 judgment. jQuery("#footnote_plugin_tooltip_9867_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9867_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The Court innovatively unveiled two conditions for application of this principle, these are: (i) a statement, an act, or an omission is made by a party and contradicts with its previous conduct; and (ii) that contradiction would prejudice the other party who acted in reliance on the validity of the first party’s previous conduct. Whilst the Court did not expressly refer to Islamic Shari’a in this context, it is worth noting that the principle of estoppel is also derived from Islamic Shari’a where no party may revoke what he/she has undertaken, concluded or consented to. It is also worth mentioning that estoppel is considered a variant of good faith.2)See for example, the Cairo Court of Appeal, Challenge No. 57 of judicial year 128, hearing session dated 4 April 2012; the Cairo Court of Appeal, Challenges Nos. 35, 41, 44 and 45 of judicial year 129, hearing session dated 5 February 2013. jQuery("#footnote_plugin_tooltip_9867_2").tooltip({ tip: "#footnote_plugin_tooltip_text_9867_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The fact that the principles of no party may benefit from its own wrongdoing and estoppel are not expressed in Egyptian legislative texts does not negate their inclusion as overarching general principles of Egyptian law. The Court correctly affirmed the diversity of sources of legal principles and norms when it expressly referred to the long-forgotten and rarely invoked Article 1(2) of the Egyptian Civil Code No. 131 of 1948, which lists the sources of legal principles.3)Article 1(2) of the Egyptian Civil Code states “if there is no applicable legislative provision, the judge shall rule on the basis of custom, and if it does not exist, [the judge shall rule] by virtue of the principles of Islamic sharia, and if they do not exist, [then the judge shall rule] according to principles of natural law and rules of equity” [Bracketed words added for clarity]. jQuery("#footnote_plugin_tooltip_9867_3").tooltip({ tip: "#footnote_plugin_tooltip_text_9867_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Party representation in arbitration proceedings

The Court made several important findings and determinations, these are: (i) parties in Egyptian-seated arbitrations need not be Egyptian lawyers, despite the express reference in the Advocacy Law No. 17 for 1983 and that the subsequently enacted EAL, which is the lex specialis that trumps any express requirement of Egyptian lawyers in the Advocacy Law, does not include any restrictions or limitations on the parties’ right of representation; (ii) parties to an arbitration can elect to be represented by persons of their choice, whether lawyers or non-lawyers, Egyptians or foreigners in domestic or international arbitration; and (iii) rules relating to party representation in arbitration are not part of Egyptian public policy.4)On the issue of appearance of foreign counsel in arbitrations seated in Egypt, see Amr Omran, ‘The Appearance of Foreign Counsel in International Arbitration: The Case of Egypt’ (2017), 34(5) Journal of International Arbitration, pp. 901-920. jQuery("#footnote_plugin_tooltip_9867_4").tooltip({ tip: "#footnote_plugin_tooltip_text_9867_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Court also emphasized that arbitration has gradually distanced itself from strict territorial limitations following the release of the New York Convention on the Recognition and enforcement of Foreign Arbitral Awards (1958).

 

Modernization of arbitration and virtual hearings

The Court held that arbitration has gradually shifted away from the traditional notion of localization. The Court did not expressly refer to arbitration as an autonomous legal order as championed and endorsed by French courts,5)On the existence of an arbitral legal order that is distinct from national legal systems, see Emmanuel Gaillard, ‘Legal theory of International Arbitration’ (2010), Martinus Nijhoff Publishers, Leiden, pp.52-66. jQuery("#footnote_plugin_tooltip_9867_5").tooltip({ tip: "#footnote_plugin_tooltip_text_9867_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); but such reference was used to anchor the distinction between the notions of ‘legal seat/place’ and ‘geographical venue’ (already expressed in Article 28 of the EAL), and to expressly acknowledge that “virtual hearings” are increasingly used in arbitrations across the globe.

The Court was keen on incorporating an express reference to ‘virtual hearings’ (in English) in its judgment, and this came across as a coded message that virtual hearings are consistent with Egyptian law, which does not include any express prohibition of virtual hearings. In essence, this is a ground-breaking statement, whereby the Court signals that if parties wish to try and set aside arbitral awards on the sheer ground that a hearing is held virtually, this may not fly as a matter of principle.6)This is consistent with the ICT revolution that the Egyptian judiciary is undergoing. By way of example, a recent Law No 146 of 2019 was enacted to amend Law No 120 of 2008 establishing the Economic Courts, and the new 2019 amendments provide for the possibility of conducting court proceedings electronically. Moreover, the Egyptian State is currently preparing a draft law aimed at introducing amendments to the Criminal Procedures Law, whereby the competent investigating or trial authority may conduct all or part of the investigations remotely, noting that a criminal trial has already taken place online in 2020 owing to the COVID-19 crisis. jQuery("#footnote_plugin_tooltip_9867_6").tooltip({ tip: "#footnote_plugin_tooltip_text_9867_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Accordingly, concerned parties would need to establish how, if at all, virtual hearings would encroach upon their fundamental rights on a case-by-case basis.

 

Role of arbitrators and the review of arbitral awards

The Court remarked that it is common in arbitration for parties to choose arbitrators with technical knowledge and expertise on the subject matter of the dispute. The Court did not consider this sufficient to render arbitrators partial. In that specific Case, the Court found no evidence that the arbitrators decided the case on the basis of the personal knowledge of the facts.

The Court also confirmed that arbitral awards may not be reviewed on the merits and that a setting aside action is not an appeal. Accordingly, judicial review of awards should not transcend the normative limitations and courts may not (i) review the arbitral tribunal’s understanding and assessment of the facts; and (ii) ascertain whether the arbitral tribunal erred on the application of the law governing the merits. The Court also held that there is a presumption that the proceedings have been properly conducted, which implies that the party, which claims otherwise, would naturally bear the burden of proof. The Court emphasized that the grounds for setting aside arbitral awards are exhaustively defined in Article 53 of the EAL and that the Court may not review the arbitral award to examine its adequacy/appropriateness and/or to ascertain the soundness of the determinations of the arbitrators.

 

Concluding remarks

This landmark judgment serves as a further welcomed development, affirming the Court’s willingness to boldly set standards and principles that are of utmost importance for users. It also affirms the leading edge of the Egyptian judiciary within Africa, the MENA region and beyond. This wide-ranging judgment serves as a beacon of hope and a clear testament to the indispensable role of the judiciary in supporting the legitimacy and development of arbitration.

The Court capably navigated its way through intricate procedural and substantive issues, and reminded us of the unequivocal fact that the law goes well above and beyond the four corners of legislative texts. To all those familiar with Egyptian law and the fact that the judgments of Egyptian courts do set principles and address legal issues that are not necessarily fact-specific, it is clear that the Court seized an opportune moment to showcase its support to credible arbitration proceedings and its commitment to aligning Egypt with best practices in international arbitration.

 

Founding Partner and Head of International Arbitration, Construction and Energy, Zulficar & Partners Law Firm (Cairo) and Chair of Private International Law, Cairo University, Egypt.

References   [ + ]

1. ↑ This is not the first time the Egyptian Court of Cassation affirms the existence of the principle of estoppel as a matter of Egyptian law. As early as the 1950s, the Egyptian Court of Cassation affirmed the existence of the principle of estoppel, albeit in a non-arbitration context. In 1952, by way of example, the Egyptian Court of Cassation unequivocally held (in Challenge No. 171 of Judicial Year 20, Court Session of 3 April 1952) that “he/she whomever seeks/attempts to negate what he/she has previously consented to/acknowledged/undertaken shall be estopped/prevented from doing so”. The Arabic words used in that judgment to refer to the principle of estoppel mirror those used in the 27 October 2020 judgment. 2. ↑ See for example, the Cairo Court of Appeal, Challenge No. 57 of judicial year 128, hearing session dated 4 April 2012; the Cairo Court of Appeal, Challenges Nos. 35, 41, 44 and 45 of judicial year 129, hearing session dated 5 February 2013. 3. ↑ Article 1(2) of the Egyptian Civil Code states “if there is no applicable legislative provision, the judge shall rule on the basis of custom, and if it does not exist, [the judge shall rule] by virtue of the principles of Islamic sharia, and if they do not exist, [then the judge shall rule] according to principles of natural law and rules of equity” [Bracketed words added for clarity]. 4. ↑ On the issue of appearance of foreign counsel in arbitrations seated in Egypt, see Amr Omran, ‘The Appearance of Foreign Counsel in International Arbitration: The Case of Egypt’ (2017), 34(5) Journal of International Arbitration, pp. 901-920. 5. ↑ On the existence of an arbitral legal order that is distinct from national legal systems, see Emmanuel Gaillard, ‘Legal theory of International Arbitration’ (2010), Martinus Nijhoff Publishers, Leiden, pp.52-66. 6. ↑ This is consistent with the ICT revolution that the Egyptian judiciary is undergoing. By way of example, a recent Law No 146 of 2019 was enacted to amend Law No 120 of 2008 establishing the Economic Courts, and the new 2019 amendments provide for the possibility of conducting court proceedings electronically. Moreover, the Egyptian State is currently preparing a draft law aimed at introducing amendments to the Criminal Procedures Law, whereby the competent investigating or trial authority may conduct all or part of the investigations remotely, noting that a criminal trial has already taken place online in 2020 owing to the COVID-19 crisis. 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: International Arbitration and the COVID-19 Revolution
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Revisiting Islamic Finance Arbitration: An Opportunity for Malaysia?

Mon, 2020-12-21 00:00

Aside from providing great entertainment, films such as Wall Street and The Big Short have taught us that there are numerous complex financial products which are regularly created within the banking and finance industry that could give rise to disputes.

Traditionally, litigation has been the mode of choice for resolving banking and finance disputes. However, the aftermath of the 2008 global financial crisis has resulted in the steady increase of using international arbitration to resolve certain financial disputes, especially those of a transnational nature, such as cross-border swaps and derivatives transactions.

Despite this trend, one area which is arguably yet to fully embrace international arbitration is Islamic finance. The ICC Task Force on Financial Institutions and International Arbitration suggested that this was attributable to the potential lack of desire on the part of major Islamic banks and financial institutions to have disputes relating to Islamic finance decided by arbitrators in accordance with Shari’a principles. Alternatively, it could also be due to a lack of awareness of the products and services available to deliver a Shari’a-compliant dispute resolution process. This post will explore these issues in the context of choice of law issues in Islamic finance disputes and Malaysia’s suitability as a hub for Islamic finance arbitration.

 

What is Islamic Finance?

According to S&P Global Ratings’ Islamic Finance Outlook for 2020, the Islamic finance sector, which is predominately centralised around the Middle East, Africa and South East Asian regions, is presently worth more than US$2.1 trillion.

The economics underlying Islamic finance have been around for more than a millennium and are vastly different from those of the conventional banking industry. The four core concepts of Islamic finance are that the products must be halal (i.e. investments should be in compliance with Shari’a principles) as opposed to haram (i.e. in prohibited industries), interest or excessive gain is prohibited (riba), as is engaging in uncertain (gharar) or speculative transactions such as gambling (maysir). Social justice is also facilitated through the systems of profit and loss sharing and requiring zakat (taxing of property of people who acquire wealth and distributing the same to people in need).

In terms of the financial instruments available in the industry, there are profit-and-loss sharing partnerships (mudarabah), profit-and-loss sharing joint ventures (musharakah), and leasing (ijarah) arrangements, to name a few. Also available are Shari’a compliant fixed-income instruments (sukuk) and insurance arrangements (takaful). Irrespective of the product offering, it is imperative for any Shari’a product to maintain compliance with Shari’a principles throughout the lifecycle of the Islamic finance transaction.

 

Choice of law issues in Islamic finance transactions

Where money is involved, there may be commercial disputes. The obvious choice for resolving disputes arising from Islamic finance transactions would be for an Islamic finance or Shari’a law expert to get involved in dispute resolution process. In this regard, arbitration seems to be the go-to dispute resolution option given that parties have the autonomy to either contract in advance, or submit post-dispute, that the appointed tribunal is to have certain expertise.

However, most often, Islamic finance disputes are intentionally referred to civil courts which generally do not have the specialist expertise to address Shari’a compliance issues. Where this is the case, such disputes are resolved on the basis of the governing law, which often is English law in the context of cross-border Islamic finance disputes. Also noticeable is that there are some Islamic financing arrangements that may expressly exclude the application of Shari’a in determining the dispute and instead opts for a secular law in a jurisdiction well established to deal with financial disputes, such as English or New York law.

On the other hand, there are also some Islamic finance transactions where the underlying contract may contain a governing law clause which refers to both a national law and Shari’a. The English Court of Appeal considered such a clause in Beximco Pharmaceuticals Ltd v Shamil Bank of Bahrain [2004] EWCA Civ 19. In that case, it held that the reference to the agreement being governed by the laws of England “[s]ubject to the principles of the Glorious Sharia”, was not enforceable because the language was intended to reflect the religious principles by which the Bank had held itself out as conducting business, as opposed to expressly trumping the application of English law. However, in Sanghi Polyesters Ltd (India) v The International Investor KCFC (Kuwait) [2000] 1 Lloyd’s Rep. 480, the English High Court permitted the enforcement of an arbitral award where the arbitrator, who was a Shari’a expert, disallowed claims for additional damages on the grounds that such claims, although compliant with English law, were not compliant with Shari’a. The governing law in that dispute provided for English law “except to the extent that it may conflict with Islamic Shari’a which shall prevail”.

However, such issues relating to the choice of law in Islamic finance transactions should not deter parties from opting to resolve their disputes using arbitration. This is especially so given that certain jurisdictions, such as Dubai and Malaysia, have arbitration frameworks to ensure compliance with Shari’a.

 

Malaysia’s Potential to become a hub for Islamic Finance Arbitration

To date, Kuala Lumpur is considered a leading centre for Islamic finance. Indeed, Malaysia is one of the world’s largest issuers of Sukuk having issued nearly US$19.4B in the first half of 2018 alone. This industry expertise places Malaysia on a strong footing to spearhead the growth of Islamic finance arbitration.

A prime benefit of resolving Islamic finance disputes in Malaysia is that the national legal framework explicitly supports the resolution of Islamic finance disputes through civil proceedings or arbitration. Specifically, Section 56 of the Central Bank Act 2009 (the “Act”) provides that where a question arises in a court or arbitration proceeding with respect to a Shari’a matter, the court or the arbitral tribunal shall either: (a) take into consideration any published ruling issued by the Shariah Advisory Council (“SAC”) on that question, or (b) refer the question to the SAC for a ruling which shall be binding on the court or arbitral tribunal.

The SAC is a body which was established under the Act to, inter alia, advise the Central Bank of Malaysia (Bank Negara Malaysia) and Islamic finance institutions on matters relating to Shari’a law and compliance. In a recent landmark decision, the Malaysian Federal Court, by majority, held that the powers of the SAC were not unconstitutional because the SAC does not exercise a judicial function; rather, its purpose is to ascertain Islamic law for the purpose of Islamic finance disputes, which are binding on courts in the interest of harmonising the proliferation of Shari’a opinions in the industry. This, in turn, conserves and protects public interest.

A similar provision is reflected in the AIAC i-Arbitration Rules 2018. Specifically, Rule 11 contains a detailed provision on references to the SAC, or a Shari’a expert, whenever the arbitral tribunal has to form an opinion on a point related to Shari’a principles and decide on a dispute arising from a Shari’a aspect of the contract. Further, Rule 6(g) permits the arbitral tribunal to award a late payment charge on the awarded sum, determined by applying the principles of ta’widh and gharamah, in lieu of awarding pre- or post-award interest. Additionally, the AIAC i-Arbitration Rules 2018 also provide for the technical review of awards, which are aimed verifying the procedural aspects of the dispute and ensuring that the award meets the formal requirements at the seat, to minimise any issues with enforcement. Granted, these rules require some reworking to reflect best standards in international arbitration practice, but they are a good example of how Shari’a compliance can be facilitated through institutional arbitration.

With respect to the choice of law issue highlighted above, the 2018 amendments to Section 30 of Malaysia’s Arbitration Act 2005 clarify that the arbitral tribunal, in both domestic and international arbitrations, shall decide the dispute in accordance with such rules of law as are chosen by the parties as applicable to the substance of the dispute. The reference to “such rules of law” is arguably broad enough to encapsulate an agreement where the substantive law provision only makes reference to Shari’a, or a combination of a national law and Shari’a.

 

The Way Forward

Despite the above-mentioned advantages of arbitrating Islamic finance disputes in Malaysia, the uptake of the same has been low across the board. However, in light of the World Bank’s recent remarks on the potential of using Islamic finance to alleviate the impact of COVID-19, and Malaysia’s role as a global leader in effecting the same, it is likely that the remainder of this new decade will see a flourishing of Islamic finance activity, and hopefully, greater use of arbitration as the preferred dispute resolution tool. In this regard, the AIAC will also be making a greater investment to revitalise its Islamic arbitration offering in the near future.

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Riding New Tides: Arbitration in a Changing World – A Conference Report

Sat, 2020-12-19 23:49

The Centre for Advanced Research and Training in Arbitration Law (CARTAL) and the Indian Journal of Arbitration Law (IJAL) organised the 5th Annual Conference on International Arbitration titled ‘Riding New Tides: Arbitration in a Changing World’ (‘Conference’) on 9–11 October 2020 with the support of the SAARC Arbitration Council. The Conference comprised three panel discussions on forward-looking topics in the field of international arbitration, which are discussed below.

 

Arbitration in a Data-Driven World

The first panel discussed best practices for compliance with data protection laws in the arbitral process. Ms. Kristin Campbell-Wilson (Deputy Secretary-General, SCC Institute) observed that since most arbitrations involve multiple parties, institutions, and documents which may be in various jurisdictions, the data processed in arbitration could be subject to multiple data privacy regulations. Flagging the same concern, Prof. Dr. Jacomijn van Haersolte-van Hof (Director General, LCIA) emphasised the need for harmonising different data protection standards across jurisdictions.

Ms. Mélanie van Leeuwen (Partner, Derains & Gharavi International, Paris) then explained how the classification of arbitral participants as data controllers, processors, and subjects further determines the data protection obligations that may apply in an arbitration proceeding. By way of illustration, Ms. van Leeuwen mentioned that as arbitral institutions and arbitrators define a purpose and means for processing of personal data, they become data controllers (or fiduciaries). She emphasized that by being aware of these classifications, each participant can better ensure compliance with applicable data protection laws. For example, there may be situations where the data collected from employees (by a firm) or from an e-mail (by a CEO) is analysed by an arbitrator. In such instances, Ms. van Leeuwen mentioned that the arbitrator will be using data as a secondary processor, such that care has to be taken to ensure that the use of such data is consistent with its original purpose. Similarly, Prof. Dr. van Haersolte-van Hof explained the data protection provision in the new LCIA Arbitration Rules 2020 to highlight the need for those dealing with protected data in arbitrations to balance concerns about transparency, confidentiality, and cybersecurity.

Recognising the potentially arduous requirements associated with complying with data protection standards, both Ms. van Leewen and Ms. Marily Paralika (Partner and Head of the International Arbitration Practice, Fieldfisher, Paris) stressed the importance of identifying where data is located, which jurisdictions are involved, and where data will have to be transferred even before the arbitration commences. Ms. Paralika recommended that any potentially relevant information about the data involved in the dispute – such as where it is located, stored, or how it has been collected – be mentioned in the notice for arbitration (or response to the notice of arbitration). The objective behind this approach would be to give all of the arbitral participants enough time to check what their compliance requirements might be with regard to sharing and processing the data involved. The Panel emphasised that there exists a shared responsibility amongst the arbitral participants towards data protection that must be fulfilled together with other stakeholders in the process. Ultimately, however, the Panel emphasised that minimizing data collection is the safest option in like of current data protection frameworks.

 

State-State Dispute Settlement: A Viable Alternative to Investor-State Dispute Settlement?

The second panel considered the criticisms against the investor-State Dispute Settlement (‘ISDS’) system to discuss the viability of State-State Dispute Settlement (‘SSDS’) as an alternative to ISDS. Dr. Prabhash Ranjan (Senior Assistant Professor, South Asian University, New Delhi) opened the discussion by noting that several recent Bilateral Investment Treaties (‘BITs’) have included SSDS as the sole mechanism for resolution of investment disputes.

However, this extreme approach is not predominant at the multilateral level as highlighted by Dr. Catharine Titi (Research Associate Professor (tenured), French National Centre for Scientific Research (CNRS)-CERSA, University Paris II Panthéon-Assas). Dr. Titi recalled that the UNCITRAL Working Group III on ISDS Reform has considered several alternatives (such as mediation and dispute prevention) to date, but it is yet to consider SSDS as a reform option. From an investor’s perspective, Dr. Titi observed that it is better to have access to ISDS as the investor will not have to depend on its home State to bring claims against the host State. However, for States, there are various factors at play. In theory, a capital-importing State might consider opting for SSDS instead of ISDSto discourage investor claims. Capital-exporting States might be concerned, by contrast, about the potential re-politicisation of disputes through SSDS mechanisms. Dr. Titi noted that the dangers of re-politicisation led to the replacement of SSDS by ISDS in the first place. Dr. Titi concluded that the ISDS system may be ‘very far’ from being perfect, but it is considerably a better option than SSDS. Dr. Ranjan concurred and observed that if a country truly believes in upholding its international obligations, it would retain ISDS as a deterrence against breaching its treaty obligations. He compared this to SSDS, where relief will be generally declaratory in nature. Dr. Ranjan, however, did not agree that re-politicisation is a concern for SSDS alone as the ISDS system is also mired in similar controversy.

Dr. Romesh Weeramantry (Counsel, Clifford Chance, Singapore) thereafter discussed the rare SSDS case of Italy v. Cuba, in which Italy had invoked the SSDS provision under the Italy-Cuba BIT to exercise diplomatic protection in relation to its investors. Deciding upon the admissibility of the claims, the tribunal emphasised the role of exhaustion of local remedies requirements in this context. It held that the ISDS provision under the Italy-Cuba BIT waived the requirement for exhaustion of local remedies for investors, but the SSDS provision remained subject to exhaustion of local remedies as a mandatory requirement under principles of customary international principle.

The Panel unanimously concluded that while both systems have their advantages and disadvantages, the ISDS system is more favourable. It was also noted that SSDS may serve as a complementary mechanism, but was not a viable alternative to ISDS.

 

Rise of Effective Cross-Border Litigation and Mediation: Does Arbitration Still Wear the Crown?

The third panel debated the most effective method of international dispute resolution, in light of the United Nations Convention on International Settlement Agreements Resulting from Mediation (‘Singapore Convention’) and Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters (‘Hague Convention’), which facilitate enforcement of mediated settlements and court judgments respectively.

Enforcement has always been a concern for parties seeking resolution of international disputes. Edna Sussman, Esq. (International Arbitrator and Mediator) and Ms. Sherina Petit (Partner and Head of India Practice, Norton Rose Fulbright, London) took the view that while the recent Singapore and Hague Conventions are a step in the right direction, they will likely take considerable time to become as widely accepted as the New York Convention.

Mr. Paul Mason (International Counsel, Arbitrator, and Mediator) noted several reasons why the Singapore Convention may become more effective than the New York Convention in time. For instance, since the Singapore Convention does not impose an additional requirement of recognition, it may prove less time-consuming and expensive to enforce mediated settlements in comparison to arbitral awards. He further noted that the Singapore Convention better respects confidentiality, given that the text of mediated settlements need not be disclosed for enforcement. Lastly, Mr. Mason observed that the Singapore Convention removes an obstacle to enforcement by not including a reciprocity-based reservation, unlike the New York Convention which permits an optional reciprocity declaration by parties.

Prof. Robert Volterra (Partner, Volterra Fietta, London) lauded the Hague Convention’s endeavour to avoid the conflict surrounding the interpretation of the term ‘contrary to public policy’ under the New York Convention, by imposing the standard of ‘manifest violation of public policy’ to refuse enforcement.

The Panel also considered Arb-Med/Med-Arb procedures for international dispute resolution. Ms. Sussman observed that some jurisdictions require the existence of a dispute when an arbitrator is appointed, and already having a mediated-settlement may pose a problem for enforcement of consent awards obtained through Med-Arb procedures, especially, as noted by Mr. Mason, if the Singapore Convention is not widely ratified.

Lastly, Prof. Dr. Katia Fach Gomez (Tenured Associate Professor, University of Zaragoza, Spain) stressed that in investor-state disputes, with the new ICSID Mediation Rules, mediation may be conducted prior to or in parallel with arbitration proceedings. However, in her view, arbitration would still be the predominant mode of resolution of such disputes in the near future.

The Panel concluded that both the Hague and Singapore Conventions have built on the experience of implementation under the New York Convention. Nevertheless, with limited signatories at present, there is a long road ahead for achieving effective cross-border litigation, mediation, and Med-Arb procedures.

***

The Conference concluded with closing remarks from Dr. Nidhi Gupta (National Law University, Jodhpur), with hopes for more certainty on these challenges in the future. The Conference was supported by SARCO. Wolters Kluwer and TDM were the Media Partners. ICC, LCIA, SIAC, VIAC, HKIAC, SCC, AAA-ICDR, AIAC, MCIA, Young ICCA, CIArb (India), Bar Association of India, and Society of Indian Law Firms were the Institutional Partners. SCC Online and EBC were the Knowledge Partners.

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2020 in Review: Latin America and Investment Arbitration

Sat, 2020-12-19 00:00

In 2020, we witnessed a number of interesting developments in the field of investment arbitration in Latin America. From the entry into force of the United States – Mexico – Canada Agreement (USMCA) signed over a year ago, as well as numerous cases and actions still arising from the Odebrecht scandal that became public back in 2016, to the conclusion of treaties departing from the traditional approach to investor-State dispute settlement (ISDS). Our authors did a tremendous job covering and sharing their insights on the most important developments affecting our industry. In this post, we aim at giving you a quick look back to some of our most impactful publications in 2020.

 

A new era for investment arbitration in Mexico

In 2020, Mexico gained positive attention by strengthening its commitment to ISDS. The United States – Mexico – Canada Agreement (USMCA) finally entered into force in July 2020. The USMCA succeeds the North American Free Trade Agreement (NAFTA) and covers a range of trade-related issues, and investment protection. As reported by Kiran Gore and Esmé Shirlow, the USMCA provides an ISDS mechanism that departs in many ways from the one established in NAFTA. Glaringly, Canada is not a party to the ISDS mechanism. ISDS survives only for the benefit of American and Mexican investors, and even then, with certain procedural and substantive restrictions.

Likewise, in April Mexico and the EU released a draft text of the upcoming EU-Mexico Free Trade Agreement, including its proposed Investment chapter (including ISDS provisions). There are various innovations in the agreement. For example, it removes the system of party-appointed arbitrators in favor of a pre-selected pool of arbitrators, appointed by States. It also includes a permanent appellate arbitration court also appointed by the States. As pointed out by our authors, Danny Davila II and Nicolas Borda, removing party-appointed arbitrators is a stark change from typical ISDS clauses and will test the debate between those in favor of maintaining the status quo and those proposing a centralized appointment mechanism. In regard to the appellate mechanism, the same authors note that this novelty has strengths, such as enhanced consistency, but also weaknesses, such as the replacement of parts of the traditional system, like the finality of awards.

 

The Odebrecht scandal: What’s the burden of proof to prove corruption acts?

It’s been almost four years since Odebrecht admitted to paying bribes to obtain infrastructure contracts throughout Latin America, and the consequences stemming from the scandal are still making the headlines.

In Colombia, a national arbitration tribunal in the Ruta del Sol case ruled in favor of the government, and declared an infrastructure contract null and void, concluding that it was obtained and awarded through corrupt practices. This case is peculiar, however, because it deviates from the current trend in regard to both gathering and assessing evidence of corruption. Regarding the gathering of evidence, the tribunal adopted an active – as opposed to a passive – role. The Tribunal decided to go beyond and didn’t limit its determination on evidence obtained from the parties and other proceedings. It assumed an active role: it undertook its own investigation; it obtained additional evidence and made its own determination regarding the validity of the corruption allegations. In assessing the evidence, the Tribunal seemed to have deviated from the preponderance of the evidence standard, which is customary in civil cases. Specifically, the Tribunal established that, to prove acts of corruption, the evidence should prove them without any doubt. Therefore, implementing a burden of proof resembling the clear and convincing evidence standard.

Peru is probably one the countries most affected by the Odebrecht scandal. In the Rutas de Lima case, an arbitral tribunal – hearing a case between a consortium led by Odebrecht and a Municipality – decided that, in accordance with the current trend in international arbitration, it was bound to apply a preponderance of evidence standard. In other words, the Tribunal concluded that it had to decide whether it was more likely than not that the contract was obtained through corrupt means. Ultimately, the Tribunal rejected the corruption allegations holding that the casual link between the evidence and the contract was insufficient.

In yet another case arising from the corruption scandal, in February 2020, Odebrecht registered a request for arbitration before the International Centre for Settlement of Investment Disputes (ICSID) against Peru, in relation to a concession agreement for the improvement of a pipeline in Peru. As to this date, the case has not moved forward as the Tribunal is not constituted yet. Carlos Matheus opines that, once all the members of the Tribunal are appointed, Peru is likely to use the “clean hands doctrine” to allege lack of jurisdiction. In doing so, Peru will have to prove that the acts of corruption that it alleges actually took place, which in turn will depend on the standard of proof used by the Arbitral Tribunal. The ICSID Convention and the Arbitration Rules are silent on this matter, on which there is no consensus in Investor-State jurisprudence. However, as Pablo Mori Brigante noted, arbitral tribunals currently tend to apply a more flexible standard (preponderance of the evidence) to prove acts of corruption, like the Ruta del Sol Tribunal.

As reported here, Odebrecht’s corruption was not limited to bribes to get contracts from government agencies. It also including bribing arbitrators to obtain favorable awards, in order to increase the value of certain contracts and, hence, increase the company’s profits. In response to this ploy, public and private entities in Peru have endeavored to develop a means to prevent this from occurring yet again, or at least to minimize the risk of recurrence. For example, our authors reported that the National and International Arbitration Center of the Lima Chamber of Commerce (LCC Arbitration Center) launched a digital platform named “Faro de Transparencia” (“Transparency Lighthouse”), aimed at providing public access to key pieces of information with regard to arbitrations administered by the institution as well as the arbitrators acting in them since 2012. The digital platform publishes the full texts of the awards that have been issued in proceedings involving the Peruvian State as a party, and special anonymized summaries of arbitral awards that have been issued in commercial cases. In the same vein, Rafael Boza reported that, in January 2020, Peru amended its arbitration law to increase transparency to any arbitration in which the Peruvian Government is involved. The amendment, for example, bans ad hoc arbitration in almost all cases involving the State, and establishes that the drafting of an arbitration clause is a multi-department process resting on both the contracting agency and the attorney general’s office.

 

Interpretation of treaty provisions – or lack thereof – in investment arbitration

In the passing year, we also reported more than a few issues relating to treaty interpretation and the interplay between arbitration tribunals and courts. In regard to Latin America specifically, Inaê Siqueira de Oliveira noted the development of two cases arising under the Spain–Venezuela BIT, in which the corresponding tribunals and courts diverged in the interpretation of the same term: the applicability of the treaty to “any kind of assets, invested by investors . . . .”

In García Armas v. Venezuela, Venezuela objected to the jurisdiction of the Tribunal, alleging that the claimants were not nationals of Spain when they made investments in Venezuela; they obtained Spanish citizenship only a few years later. Hence, the respondent argued, the treaty protections did not apply to them because they were not “investors,” when the investments were made. The Tribunal issued a jurisdictional award in favor of the claimants, holding that the claimants’ nationality when making the investment was not relevant. The relevant dates were those pertaining to (a) the alleged treaty breach and (b) the commencement of the arbitration. A French Court of Appeals partially set aside the jurisdictional award concluding that nationality at the time of the investment was relevant. This decision was eventually overturned by the French Supreme Court. In June 2020, however, the Court of Appeals rendered a new decision in the annulment proceedings to fix the previous error, reaffirming its prior interpretation and setting aside the jurisdictional award in its entirety.

In Clorox Spain v. Venezuela, the South American nation argued that the tribunal lacked jurisdiction because the claimant – Clorox Spain – had not “invested” in Venezuela, it had merely received shares in Clorox Venezuela, the local investment vehicle, from its parent corporation – US-based, Clorox International. In the award, the tribunal sided with Venezuela’s interpretation, and held that Clorox Spain prima facie had an investment, but that treaty protection was limited to assets “invested by investors”, so an action of investing was also required. In March 2020, Switzerland’s highest court set aside the Clorox award. Unpersuaded by what it called a “particular importance” given to  the term “invested by investors,” the Swiss Federal Tribunal held that Article 1(2) is an ordinary asset-based definition of investment – known for its openness.

In a somewhat similar case – Michael Lee-Chin v. the Dominican Republic – the respondent challenged the jurisdiction of the tribunal not based on what the treaty said, but on what it omitted. Particularly,  the Dominican Republic argued that, unlike the language used in other treaties it signed, the treaty in question (the Free Trade Agreement between the Caribbean Community and the Dominican Republic -“CARICOM-DR FTA”) provides for three different disputes resolution mechanisms, but does not expressly allow the investor to unilaterally choose one of them. Hence, investors cannot resort to any of those mechanisms without the State’s agreement. The majority was not persuaded and held that a difference in wording between treaties could hardly prove which interpretation should be preferred, or be evidence a “special meaning” for a term under Article 31 (4) of the Vienna Convention on the Law of Treaties (VCLT). Hence, the tribunal concluded that even if the ISDS clause of the CARICOM-DR FTA does not specify the investor’s right to choose among the dispute resolution mechanisms, that did not entail that such right was not conferred by the Treaty.

 

Conclusion

We expect to see as many interesting developments in 2021 concerning arbitration in the Latin American region, just as we did in 2020. Once the EU-Mexico FTA is in force, it will certainly be interesting to see how such stark deviations from the traditional system – lack of party-appointed arbitrators and existence of an appellate mechanism – play out. Likewise, we expect to keep reading about cases related to the Odebrecht scandal, expanding existing case law on the role of arbitral tribunals in gathering evidence and the standard used to prove acts of corruption. Last but not least, we expect to see a number of cases and post discussing ways in which COVID-19 has impacted international investments and, hence, investment arbitration.

 

We look forward to receiving our readers and contributors’ insights on these and other matters at [email protected].

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Inaugural Washington Arbitration Week: Industry-Focused Perspectives in International Arbitration, Another Layer of Complexity

Thu, 2020-12-17 23:18

Following on the first day of Washington Arbitration Week (WAW), covered in detail here, later programming of WAW did not shy away from further in-depth discussions. This post highlights programming that dug into energy and the environment, arbitration from the client’s perspective, infrastructure disputes during the pandemic, and last but not least, damages valuation.

 

Fuel, Clean Energy and Environment intersections

Moderator Marinn Carlson (Sidley Austin) set the stage by noting that energy and environmental issues often intersect in commercial and investment arbitrations. Each of the panelists—Tom Sikora (Exxon Mobil Corporation, Institute for Transnational Arbitration), Ian Laird (Crowell & Moring), and Ucheora Onwuamaegbu (Arent Fox)—described the winding professional journeys they took to the subject.

For Mr. Sikora, the field is “very specialized” for three reasons: (i) it is technologically complex, requiring specially-designed equipment to operate flawlessly, particularly in challenging situations; (ii) commercially complex and (iii) legally complex, involving a sophisticated suite of interactive contractual and commercial arrangements. Dr. Onwuamaegbu added another level of complexity, mentioning the large public interest considerations in energy and environmental disputes, and the consequences flowing from that, such as civil society involvement.

The State looms over every energy or environmental proceeding. Even in commercial contract cases, a party might have contracted with a national oil company or regional electricity board standing in the shoes of the sovereign, whose interests are profound. The State as regulator can additionally affect the proceeding in direct or indirect ways.

The panelists identified a number of progressive issues in the field, such as new treaty language more overtly protecting the right to regulate. The panelists identified a number of progressive issues in the field, (such as the EU-Canada Comprehensive and Economic Trade Agreement provisions on regulatory measures at Article 8.9 and indirect expropriation at Annex 8-A(3)), and the difficulty of stranded assets, that is, hydrocarbons that will be left unused if States are to meet their climate change obligations. The move to renewables is not without its challenges, as aggrieved investors in green energy have famously initiated scores of investment proceedings. The most pointed question from the moderator—“what will the situation look like in five years?”—was carried into the breakout rooms for further discussions by WAW attendees.

 

International Commercial Arbitration from the Client’s Perspective

Moderator Chip Rosenberg (King & Spalding) took WAW participants through the looking glass to consider an oft-overlooked perspective: that of in-house counsel. The panel featured Theresa A. Coetzee (Marriott International), Rafael Boza (Sarens USA), Ariel Wade Trajtenberg (Bechtel Corporation) and Alberto Ravell (ConocoPhillips).

Each of the panelists evinced a preference for dispute avoidance. Thus, when asked for the typical steps prior to commencing an international arbitration, the answers primarily sought to resolve the dispute or divert it to a more informal forum, such as mediation. Yet, as we know very well, proceedings are often unavoidable, and Mr. Boza offered three main criteria for the selection of external counsel: (i) budget and economics, which are “paramount;” (ii) the jurisdiction of the dispute; and (iii) the expertise required, in terms of industry or technical knowledge. Ms. Coatzee added that she prefers to choose a firm with a global reach and a true partnership across offices. This ensures consistency across issues and proceedings, and is additionally useful for finding counsel in less frequently used jurisdictions.

By a show of hands, the panelists agreed with the oft-cited advantages of arbitration over litigation, including confidentiality, flexible procedures, choice of decision-makers, natural decision-makers, enforceability, and speed. Mr. Boza and the participants especially appreciate the finality—“you get what you get and it’s over.” While the advantages are well known, Ms. Trajtenberg identified one of the downsides. While flexibility is a positive, it does not allow for much certainty or predictability, which is equally important when advising the company’s commercial executives. Contrary to the findings of the 2015 QMUL Survey, the panelists did not express strong preferences for an arbitral seat, but Ms. Coatzee marveled at the expansion of capable arbitral institutions over the past two decades. When she began her current role, the company’s arbitrations were nearly all administered by the ICC; now, they have had positive experiences with regional institutions in Hong Kong, Cairo, and Dubai.

Some of the commentary might come as a surprise to practitioners. For all of the discussion surrounding third-party funding, none of the panelists had even considered the practice in their current roles. Although some seemed open in theory, others felt it would not be well received internally. As to expedited or emergency arbitrations, Mr. Ravell reported positive experiences, particularly in time-sensitive circumstances, such as where there is need to stop the dissemination of protected information.

As in-house counsel, the panelists offered sound advice for their external counterparts. As fundamentally commercial enterprises, the companies have larger concerns than simply winning the case. Ms. Coatzee shared an experience of maintaining a fruitful business relationship with the respondent after winning in the arbitration. Mr. Boza observed that the parties might have to continue working together on their contracting project during and after the proceeding. A single-minded focus on victory in a discrete arbitral proceeding would fail to appreciate the other important considerations of the client.

At the end of the day, as shared by Mr. Ravell, arbitration practitioners would do well to remember the most important rule that clients expect from external counsel—“no surprises.” That sentiment was widely shared, as was the panelists’ confidence that they would continue to work well along their external counterparts.

 

Infrastructure Disputes in International Arbitration

We live in the era of the global megaproject, but also that of the global megaproject gap—that is, a gap between expected economic growth and productivity of infrastructure development. Megaprojects invite complexity and are inherently challenging—this creates a paradox in which the higher importance placed upon the project, the more difficult it is to complete. This program was moderated by WAW Co-founder Ian Laird (Crowell & Moring). He was joined by Meagan Bachman (Crowell & Moring), Don Harvey (Secretariat), and Michael Nolan (Milbank), each of whom agreed that the infrastructure field was among the most complex and rewarding in international disputes.

The discussion was framed around an unavoidable topic: the effect of the COVID-19 pandemic on infrastructure development and disputes. Ms. Bachman and Mr. Harvey agreed that a “wave” of COVID-related disputes was building, but it is yet unclear how significant it will be.  Ms. Bachman identified several types of claims that were possible, and noted a shift in language from force majeure at the outset of the pandemic, to “change in law” or “delay by authorities” in contract provisions, which in addition to being easier to establish also grant costs, not simply time extensions in the manner of force majeure.

One under-appreciated aspect of the effect of COVID-19 is the restrictions on the movement of persons and labor. In an industry that often relies on foreign workers living communally, this can have a profound effect and the result is yet uncertain. In addition to the creative dispute reduction and avoidance techniques that Ms. Bachman suggests to her clients, COVID-19-specific task forces might dampen the force of the crashing disputes wave.

Mr. Nolan introduced several more of the applicable legal issues. Despite the prevalence of force majeure claims, he agreed with Ms. Bachman that it is not easy to establish, pointing to the reasoning of ICC Award in National Oil Corporation v Libyan Sun Oil Co. He observed that several governments, including China, Italy, France, Iraq, and the UK, have issued pandemic-related declarations purporting to establish a force majeure. This issue is especially sensitive when establishing whether it is a shield for those governments or meant to be a sword for companies established under those State’s laws working abroad.

In any event, global megaprojects are as much drivers of economic activity as they are reflective of it. Their resilience in light of the pandemic will have a profound effect over the next few years.

 

Alternative Approaches to Valuing Early Stage Investments in Investor-State Arbitration

Valuation of damages is a vexing problem faced in every arbitral proceeding, rendered even more acute for early-stage investments, whose cash flows are more uncertain than more established ones. Borzu Sabahi (Curtis Mallet-Prevost Colt & Mosle) began by identifying three main principles that underlie the legal standards for the assessment of damages: (i) the articulation by investment treaty provisions of the compensation due for expropriation; (ii) the familiar Chorzów Factory principle, and (iii) further precepts on reparation contained in the ILC’s Articles on State Responsibility. Panelist Miguel Nakhle (Compass Lexecon) built upon that foundation by introducing three main approaches to valuation: an income-based approach, a market-based approach, and a costs-based approach (“sunk costs”)

A decade ago, tribunals tended to award sunk costs for early-stage investments owing to their inherent lack of certainty. Beginning with the “watershed caseSiag and Vecchi v. Egypt, however, tribunals started using the market-based values of compensation to award damages. According to Dr. Sabahi, one can draw a line between Siag and recent, eye-popping “mega-awards” such as Al-Kharafi v. Libya, Tethyan v. Pakistan, and P&ID v. Nigeria.

Mark Kantor (Independent Arbitrator) underscored that despite the prevalence of highly-valued awards for early-stage investments, he identified a positive development of a move from black-letter law to an evidence-based approach in valuation, a shift that began in Delaware (USA) state courts a few decades ago. He explained that such approach can take many forms, ranging from analysis of future prices and revenues, comparisons to competitive bids, to determining the guaranteed rate of return specified in investment contracts. Garrett Rush (Versant) concurred, and expressed a preference for third-party models, such as those conducted by a bank or other investor, which are not affected by the dispute itself.

 

Conclusion

WAW’s industry-focused panels have a high likelihood of converging in practice over the coming years. The anticipated “wave” of COVID-19 related claims will require creative dispute avoidance and resolution, as clients will prioritize continuity of operations and seek to minimize a multiplicity of legal proceedings. The energy sector has been affected by the pandemic in various ways, with a collapse in oil demand and a reallocation of energy usage to facilitate alternative working arrangements. It was, in some respects, an unexpectedly green year as well. The unique, unanticipated effects of the pandemic will undoubtedly confound valuation exercises as well. The convergence of these issues, the disposition of COVID-19 related claims, and the continued dialogue among parties, counsel, experts, and arbitrators, will have a profound effect as the legal community begins to contemplate the post-pandemic future.

Kluwer Arbitration Blog’s full coverage of Washington Arbitration Week (WAW) is available here

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