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Implicit Bias in Arbitrator Appointments: A Report from the 15th Annual ITA-ASIL Conference on Diversity and Inclusion in International Arbitration

Mon, 2018-05-07 03:05

Apoorva Patel

ITA

The past year has made clear that the issue of diversity and inclusion is, at last, firmly on the agenda. The 15th Annual ITA-ASIL Conference, held in Washington, D.C. on 4 April 2018, was the first major international conference to tackle this issue in the context of international arbitration.

Speakers critically examined the lack of diversity in arbitral tribunals, as well as in lead counsel and expert appointments, with respect to gender, race, national origin, and other forms of diversity. Speakers also explored potential solutions from practitioner, institutional, and academic perspectives. Conference co-chairs Won Kidane (Seattle University School of Law) and Caroline Richard (Freshfields Bruckhaus Deringer LLP) led the event, which featured Prof. Anna Spain Bradley (University of Colorado Law School), Gonzalo Flores (ICSID), Prof. Susan Franck (American University Washington College of Law), Lucy Greenwood (GreenwoodArbitration), Mélida Hodgson (Foley Hoag LLP), Prof. Lucy Reed (National University of Singapore), Prof. Catherine Rogers (Pennsylvania State University), Prof. Anne Marie Whitesell (Georgetown University Law Center), and Nassib Ziadé (Bahrain Chamber for Dispute Resolution).

Recent data from many arbitral institutions indicates that female arbitrators constitute only about 16% of total appointments. Further, using ICSID’s 2017 statistics as an example, only about 4% of cases are arbitrated by entirely non-Anglo-European tribunals. As Prof. Lucy Reed explained in her keynote address, these low levels of diversity are likely due to caution + habit + bias. Parties approach high-stakes disputes with caution, and thus form a habit of appointing arbitrators from a limited group of individuals with the most experience. Bias enters the equation, Reed argued, because many people consider the 16% proportion to be a “good enough” sign of progress, even though it is far from parity. In Reed’s view, replacing habit and bias from the equation with patience, persistence, and inclusion can result in improved diversity.

The concept of bias—both conscious and unconscious—was a key theme that emerged during the conference. In particular, many speakers emphasized the need to become aware of and counteract one’s implicit biases, which are unconscious attitudes or stereotypes that our brains use to make automatic judgments about others.

Lucy Greenwood shared examples of empirical studies outside the realm of arbitration that have demonstrated the insidious effect of implicit biases.1)See Lucy Greenwood and C. Mark Baker, Getting a Better Balance on International Arbitration Tribunals, Arbitration International, Vol. 28, Issue 4 (2012); Lucy Greenwood and C. Mark Baker, Is the Balance Getting Better? An Update on the Issue of Gender Diversity in International Arbitration, Arbitration International, Vol. 31, Issue 3 (2015). jQuery("#footnote_plugin_tooltip_6304_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6304_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); For example:

Numerous studies have found that resumes and journal articles were rated lower by both male and female reviewers when the reviewers were told that the author was a woman.
A study examining postdoctoral fellowships found that female awardees needed a substantially greater number of publications to achieve the same rating as male awardees. Peer reviewers overestimated male achievements and/or underestimated female performance.
In evaluating male and female professors, reviewers were four times more likely to ask for supporting evidence about the woman’s qualifications than they were for the man.
Studies have shown that men historically are promoted based on potential, whereas women are promoted based on what they have previously achieved.

These implicit biases can have significant implications on the arbitrator appointment process. Newer and diverse arbitrator candidates may be overlooked when practitioners consider prospective arbitrators, or may be evaluated by different standards. The appointment of diverse arbitrators can also be inhibited by the tendency of practitioners to appoint arbitrators who are similar to themselves in gender, age, or background. As Lucy Reed stated, “If habit is knowing and selecting whom you know, bias tends to slide into knowing and selecting people just like you.”

The conference speakers emphasized that although implicit biases are pervasive, they can be neutralized through personal awareness, meaningful training, and purposeful action. Speakers recommended that practitioners take the following actions, among others, to counteract implicit biases and enhance diversity in international arbitration:

Take an implicit bias test (such as the Harvard Implicit Association Tests) to become aware of the unconscious influences that may affect one’s consideration of potential arbitrators;
Engage in hands-on implicit bias and diversity training, such as the workshops offered by the Alliance for Equality in Dispute Resolution;
Change one’s arbitrator appointment practices to foster the inclusion of more diverse candidates, such as by listing the desired characteristics of an arbitrator before brainstorming names, spending an extra five minutes in compiling lists of potential arbitrators to consider newer and diverse candidates, and rethinking certain assumptions in evaluating arbitrator candidates (such as the perception that a track record of prior appointments is the most relevant marker of an arbitrator’s experience and competence);
Address information asymmetries and broaden access to information about diverse arbitrators, through initiatives such as Arbitrator Intelligence’s questionnaires on arbitrators’ decision-making and case management; and
Support and broaden initiatives such as the Equal Representation in Arbitration Pledge, which encourages practitioners to appoint more female arbitrators.

In the author’s view, the international arbitration community has the opportunity and the responsibility to tackle these issues actively and openly. Although initiatives such as those described above have contributed to an increase in diversity, the passage of time alone is unlikely to produce adequate change. For instance, the National Association of Women Lawyers’ most recent survey of demographic data from the top 200 U.S. law firms (in terms of revenue) provides an illuminating example. Although women have long represented approximately half of law students and entry-level associates, the likelihood that women will become equity partners has remained largely unchanged in the last ten years: 16% in 2007 compared to 19% in 2017. At the current rate, and without new and continued efforts to address the lack of diversity, gender parity might not be achieved in the next hundred years.

Further, as Prof. Susan Franck explained in her concluding remarks, there are unlikely to be blanket solutions to the lack of diversity in international arbitration, because the challenges affecting gender, race, national origin, and other forms of diversity often vary. Effectively addressing these challenges and increasing diversity and inclusion will help ensure the legitimacy, accuracy, and acceptability of the international arbitral process and of the outcome.

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References   [ + ]

1. ↑ See Lucy Greenwood and C. Mark Baker, Getting a Better Balance on International Arbitration Tribunals, Arbitration International, Vol. 28, Issue 4 (2012); Lucy Greenwood and C. Mark Baker, Is the Balance Getting Better? An Update on the Issue of Gender Diversity in International Arbitration, Arbitration International, Vol. 31, Issue 3 (2015). 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 Rule of Law
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The State in Transition – Did the Questionable Privatisation Come to Haunt Bosnia?

Sun, 2018-05-06 03:45

Maja Pravuljac

After three high-value infrastructure and energy projects cases at ICSID and the Permanent Court of Arbitration, Bosnia and Herzegovina (“BiH”) is now facing a new US$40 million investment treaty claim. This time it involves the privatization of an insurance company – Krajina osiguranje a.d. Banja Luka, based in the Republic of Srpska (one of the two BiH’s entities). Following failed negotiations for an amicable resolution with Republic of Srpska’s Government, the Indian investors, Naveen Aggarwal and Neete Gupta and their New Delhi-based chemicals company Usha Industries, filed their request for UNCITRAL arbitration under the India-Bosnia 2006 BIT (“BIT”), seeking US$40 million for fraudulent acquisition of shares of Krajina osiguranje.

Relevant Facts

Initially, a majority state-owned entity, Krajina osiguranje was privatized in December 2015 via an international tender. Republic of Srpska’s Ministry of Finance sought to attract private investors by issuing a prospectus in September 2015 that contained information on insurer’s financial conditions and performance. Aggarwal and Gupta acquired just over 50% of the shares of Krajina for 4 million USD.

The investors claim that the prospectus contained multiple fraudulent misrepresentations and omissions, namely the quantum and value of specific properties owned, significant information on liability associated with pending litigation, and the value of shares that was significantly understated. They base their claim on the Trebinje Commercial Court’s decision where the court found that Krajina’s shares have been dramatically inflated above their true value and ordered the compensation of almost EUR 3 million to the investors. The investors further allege that they presented the judgment to the Bosnian officials who responded with a “series of punitive actions” designed to, among other things, suspend the rights of shareholders and to divert customers to rival insurers.

Notwithstanding the claim, since the investment was made in 2015, the investors were under serious supervision by Bosnian authorities, namely the Republic of Srpska’s Insurance Agency, Security Commission, State Inspectorate and Ministry of Interior. The reason being the number of alleged unlawful misconducts in the management of Krajina that caused the insurance company to trade with high financial losses, questionable dismissals of workers, as well as the absence of the pay of its employees.

Dispute Resolution Clause

The UNCITRAL Arbitration Rules are silent on exhaustion of local remedies. Thus, the question of whether or not this principle applies is of a great importance. The exhaustion of local remedies, as interpreted in the Elettronica Sicula S.p.A case1)Elettronica Sicula S.p.A. (ELSI) (United States of America v. Italy), ICJ Report (1989) jQuery("#footnote_plugin_tooltip_9180_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9180_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, could not be considered dispensed with unless such „dispensation“ had been made explicitly.2)ibid. jQuery("#footnote_plugin_tooltip_9180_2").tooltip({ tip: "#footnote_plugin_tooltip_text_9180_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The alternative nature of the present BIT provision gives a menu of dispute settlement options to the investor (domestic authorities/conciliation or international arbitration). The similar wording can be found in the BIT Article 9(2)3) See, Agreement between the government of the Hellenic Republic and the Federal Government of the Federal Republic of Yugoslavia on the reciprocal promotion and protection of investment, 18 February 1998, available here ,art. 9(2) jQuery("#footnote_plugin_tooltip_9180_3").tooltip({ tip: "#footnote_plugin_tooltip_text_9180_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); in Mytilineos v. Serbia and Montenegro case, where the tribunal opined that the domestic court alternative in the fork-in-the-road clause obliges the investor to make a choice between pursuing the claim before a domestic court or international fora. The tribunal here concluded that due to its alternative nature, once the choice is made in favor of domestic remedies, international arbitration is no longer available. Thus, rather than a precondition, the initiation of local proceedings forfeits access to international arbitration.4) Mytilineos Holdings SA v. the State Union of Serbia & Montenegro and the Republic of Serbia, UNCITRAL, Partial Award on Jurisdiction, paras. 189, 204–208, 220–222 (Sept. 8, 2006), para 221 jQuery("#footnote_plugin_tooltip_9180_4").tooltip({ tip: "#footnote_plugin_tooltip_text_9180_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Therefore, the main question for the tribunal certainly is whether initiating the proceedings before the local courts makes the same matter inadmissible before the international arbitration.

BIT Provisions and Host State’s Measures

The investors claim that the State’s measures breached the FET standard, expropriation provisions and obligation to provide MTF and national treatment.

Initially, the Insurance Agency passed a decision on 11 April 2016 suspending specific provisions of the Articles of Association that enabled the president and members of Managing Board to perform their roles. This entailed the right to dispose the assets on the bank accounts of the company, represent the company in legal transactions, or to authorize any third party to represent the company in any legal transaction. The Insurance Agency established the extraordinary administration in Krajina that then submitted a motion for a retrial to the High Commercial Court in Banja Luka.

The High Commercial Court in Banja Luka found that a number of illegalities in the investor’s conduct initiated the decision of the Trebinje Court. Inter alia, the Court found that Mr Aggarwal, disregarding the decision of Insurance Agency, authorised the member of the Board to sign the Agency Agreement with company’s attorney, to represent Krajina in the upcoming trial at the Trebinje Commercial Court, to admit the claim in full and renounce the right of appeal in the name of the company. Thus, the retrial was granted due to the violation of due process.

Looking at the BIT provisions, Article 3(2) briefly provides for investments and returns of investments to be at all times accorded with fair and equitable treatment. Since the BIT does not provide further elaboration on what would this practice entail, the claimant would in this instance usually argue that the State’s conduct breached their legitimate expectation not just through the State’s intervention in management of Krajina, but most certainly during the privatisation and inflation of value of its shares, and investment in general. On the other side, it is on the host State to prove that the measures in question were proportionate and necessary in order to protect the domestic legal system and that it did not involve a change of predictability and stability of domestic regulatory framework.

Article 5 BIT provides for exceptional cases where expropriation is allowed, prescribes the duty of due process and right to an independent judicial review and puts forth the right to a fair and equitable compensation.

Because of the Security Commission supervision, the investors were disowned of their rights as shareholders, since they failed to act in accordance with the relevant national legislation. The Commission found that the investors have acted in concert during the acquisition of Krajina’s shares and ordered them to take over the company due to the joint venture of their shares. Since they failed to do so within the required timeframe, the management of Krajina was reinstated to the Investment and Development Bank of the Republic of Srpska.

Whether or not the Commission’s decision was an act of expropriation or a valid regulatory act that is not subject to compensation will be on the host state to prove. In practice, States are given a wide margin of appreciation in these instances, both by the theory and practice. For instance, states usually argue that in order to suppress crime or as a sanction of violation of domestic law, the wrongdoing by the claimant necessitated such conduct. Thus, whether that be to prevent or prosecute monopolistic and anti-competitive practices, protect the rights of consumers, environment, and public health, or to regulate the conduct of corporations, the state has a right to intervene.

The same view was established in the case law, for instance in Saluka v Czech Republic, the tribunal found that “States are not liable to pay compensation to a foreign investor when, in the normal exercise of their regulatory powers, they adopt in a non-discriminatory manner bona fide regulations that are aimed at the general welfare.”5)Saluka v. Czech Republic, Partial Award, 17 March 2006, para. 255 jQuery("#footnote_plugin_tooltip_9180_5").tooltip({ tip: "#footnote_plugin_tooltip_text_9180_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Thus, the tribunal would need to assess the nature of the measure whether it was a bona fide regulatory act, in accordance to the common and normal exercise of regulatory powers, whether it pursues a genuine public purpose, or whether it was implemented in a non-discriminatory manner.

Regarding the MFN and NT provisions, Article 4 BIT provides for a treatment that is not less favorable to that given to any third State (Art 4(1)) or its own investors (Art 4(2)) respectively. Whether or not the investors were under less favorable treatment is typically invoked in order to import a more favorable substantive protection, such as a broader definition of “investment”, “compensation” or more favorable procedural conditions in order to bypass the need of exhaustion of local remedies. In this instance, the tribunal would need to determine whether such better treatment was indeed contained in a BIT with a third State, or if State’s measures were to purposefully divert customers to rival insurers and thus provide them with a better treatment.

Conclusion

As it seems, the privatization of Krajina has caused more harm than good to the state that is still facing a significant financial and economic difficulties. The high-value cases like these are undoubtedly alarming and ask for a change and higher level of transparency during investment negotiations. On the other hand, one can wonder if the commencement of arbitration proceedings by the investors, demonstrated in an extreme way a notion of forum shopping, and with that undermined host state’s normal exercise of regulatory power. Thus, the issue admissibility will certainly be the focus of tribunal’s examination.

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References   [ + ]

1. ↑ Elettronica Sicula S.p.A. (ELSI) (United States of America v. Italy), ICJ Report (1989) 2. ↑ ibid. 3. ↑ See, Agreement between the government of the Hellenic Republic and the Federal Government of the Federal Republic of Yugoslavia on the reciprocal promotion and protection of investment, 18 February 1998, available here ,art. 9(2) 4. ↑ Mytilineos Holdings SA v. the State Union of Serbia & Montenegro and the Republic of Serbia, UNCITRAL, Partial Award on Jurisdiction, paras. 189, 204–208, 220–222 (Sept. 8, 2006), para 221 5. ↑ Saluka v. Czech Republic, Partial Award, 17 March 2006, para. 255 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 Rule of Law
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How Does Arbitration Intersect with the Blockchain Technology that underlies Cryptocurrencies?

Sat, 2018-05-05 02:48

Dena Givari

Dena Givari assisted by Ralph Cuervo-Lorens

Yes, there is something to be said on this topic. The first page of the Google search results for the term “smart contracts blockchain” shows an article with the following first line: “Smart Contracts: The Blockchain Technology That Will Replace Lawyers”. While overly dramatic, the sentiment that blockchain technology will change the demands placed on lawyers and the legal system at large is not unfounded.

Cryptocurrencies and Blockchain Technology – A Primer

Bitcoins, cryptocurrencies, Ethereum, smart contracts, blockchain – these are the buzzwords that have spawned from the 2008 paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System” written by the anonymous person, or a team, who go by the name Satoshi Nakamoto. These terms, however, are not interchangeable.

Bitcoin (and e.g., Litecoin, Namecoin and Ether) is a type of cryptocurrency. Each cryptocurrency is unique and based on a different blockchain technology platform. As a common feature, every such platform updates an unchanging and ever-growing ledger which tracks ownership of an underlying asset. All members of the network can access the ownership information contained in a ledger.

In turn, smart contracts are not cryptocurrencies or legal contracts. What cryptocurrency and smart contracts do have in common is that blockchain technology gives them practical utility. For example, a bitcoin can exist but it has no use unless it can be transferred from one entity to another. The blockchain platform underlying bitcoin is the medium which makes this transfer possible. Similarly, while a computer can understand the “if-then” instructions that smart contracts contain, the blockchain allows consumers to make practical use of this capability by connecting them to each other on a trusted and immutable network.

It is a myth that blockchain platforms which enable smart contract technology will replace lawyers. This is not to say that they will not have any effect on the way we practice law. Quite the contrary: smart contracts will be something that lawyers may recommend as a measure to backstop enforceability of the traditional legal agreement they have been retained to prepare.

The lawyers who make such recommendations will find themselves having to work closely with computer scientists who will translate the operational clauses of the agreement into code, for example, on Ethereum’s platform. It may also be that upon a dispute arising, smart contracts may be considered in determining the intentions of the parties. An operational clause is one that has conditional logic. By contrast, non-operational clauses will not be translatable into a smart contract for purposes of enforcement. These clauses require an individual to exercise personal judgment in order to advise a party of their obligation under an agreement. Examples include entire agreement clauses or clauses that require performance of the contract in a commercially reasonable manner. 1)For more information on the application of smart contracts to operational clauses, see the August 2017 publication of International Swaps and Derivatives Association called “Smart Contracts and Distributed Ledger”. jQuery("#footnote_plugin_tooltip_4474_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4474_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

What Arbitration Can Do for Businesses which Embrace Blockchain:

To grasp the revolutionary potential of blockchain technology and why arbitration is the ideal forum for resolution of disputes that arise from its use, it may be helpful to understand it in comparison and contrast to the internet.

At the heart of the value of both the internet and the blockchain is communication. Prior to the internet, the ways in which businesses could access markets and resources from across the world was through phone, fax and mail. The internet provided businesses a platform by which they could communicate in a more timely and substantive fashion with others across the globe. This meant more efficient access to markets and resources. As sophisticated as the internet and its applications are today, enhanced communication is at the core of its influence.

Blockchain is simply a platform that further enhances our ability to communicate. However, where the internet arguably addressed the issue of distance and the cost in time associated with that distance, blockchain addresses the issue of trust and the cost in time associated with bridging that gap. That is, it allows its users to trust the information that is being communicated and to be able to do so instantaneously. Users can skip the need to validate the information communicated over the blockchain because by virtue of its construction, the blockchain is incapable of presenting fraudulent information. Of course, that is only in theory and hence the need to practically address the intersection and interplay of blockchain technology and arbitration.

The comparison with the internet highlights some of the reasons why arbitration is a well-suited mechanism for resolving disputes that arise from the use of blockchain technology. First, it is better tailored to deal with issues of jurisdiction where the entities using blockchain to communicate information with one another are from different legal jurisdictions. Second, as smart contracts evolve to at least partially represent the parties’ intentions, the freedom to select arbitrators who can understand the limitations of coding language when determining such intentions will become highly valuable. Along the same lines, arbitration also allows parties some room to detach from the traditional framework of contract law whose doctrines of contract validity, formation and interpretation may not be readily applicable to contracts that adopt the use of smart contracts on blockchain platforms.

Another important consideration which favours the use of arbitration in this context from a business perspective stems from the fact that blockchain technology was introduced by way of cryptocurrencies. Cryptocurrencies are a unique application of blockchain technology in that, to be dramatic, they are a threat to our central governments’ ability to regulate our economies. Cryptocurrencies open the door to a shift of power from government to the people at large. At the extreme ends, opponents could scream “anarchy” and proponents, “freedom”. Either way, blockchain technology has entered the world by way of a very controversial application. This presents a threat of more scrutiny and stricter regulations than would otherwise be warranted. Thus, in the face of uncertainty as to how different legal systems will react to this technology, it may be the best course to embrace the control arbitration allows its parties to have over the resolution of their disputes.

What Blockchain Can Do for Arbitration:

Smart contracts enabled on blockchain platforms may assist in situations where arbitrators find themselves involved in the process of forming a legal agreement that is incidental to the matter submitted or to be submitted to arbitration. One example that comes to mind involves multi-signature smart contracts and an arbitral institution. These entities could jointly condition the release of funds to one of two addresses upon the electronic signing of either the two parties, or one of the two parties and the arbitrator/arbitral institution, in pre-hearing proceedings in aid of arbitration. This means that funds which have been earmarked for a specific purpose under the legal agreement, cannot be transferred by one party alone. If a dispute arises as to whether the obligations under the agreement have been met thus triggering the release of such funds, both parties are forced to comply with the process before either can access those funds. This is because in the absence of the electronic signature of the other contracting party, in a multi-signature smart contract that requires two electronic signatures to transfer funds, the party would need the arbitrator/arbitral institution’s electronic signature in addition to its own.

We are entering into an exciting new era although admittedly less exciting than the internet would have you believe. Nonetheless, blockchain technology is rapidly developing and changing many of the ways industries traditionally carry out their processes. As it does this, the list of possibilities for interplay between blockchain and arbitration will grow and one of the leading topics for discussion should be the role arbitrators can play in the many disputes that are to come our way as this technology gains a foothold across a large swath of our economies.

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References   [ + ]

1. ↑ For more information on the application of smart contracts to operational clauses, see the August 2017 publication of International Swaps and Derivatives Association called “Smart Contracts and Distributed Ledger”. 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 Rule of Law
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New Delhi International Arbitration Centre: Building India into a Global Arbitration Hub

Fri, 2018-05-04 07:00

Binsy Susan and Neha Sharma

On 5 January 2018, the Central Government introduced New Delhi International Arbitration Centre Bill, 2018 (the “Bill”) in the lower house of Indian Parliament (Lok Sabha). This was with the objective of making India an investor-friendly nation. There are few arbitral institutions operating in India – Indian Council of Arbitration (“ICA”), International Centre for Alternative Dispute Resolution (the “ICADR”) and more recently Mumbai Centre for International Arbitration (“MCIA”). However, foreign investors have long preferred referring their disputes to arbitration centres located in Singapore, Hong Kong or London under the aegis of institutional rules of International Chamber of Commerce (“ICC”), Singapore International Arbitration Centre (“SIAC”) or London Court of International Arbitration (“LCIA”). Unwarranted judicial intervention and under-developed dispute resolution infrastructure and procedures have dented investors’ confidence, and discourages investors from adopting recourse to contract enforcement measures. The Bill proposes to establish the New Delhi International Arbitration Centre (the “NDIAC”) in order to acquire and revamp the procedural framework and governance structure that was previously in place under the ICADR. Further, the Bill seeks to develop and expedite the dispute resolution process. Undoubtedly, this is a welcome move to encourage foreign investment in the country and would auger well for India’s reputation globally.

Key features of the Bill

The following features of the Bill seeks to do away with the procedural issues previously in place under the ICADR, making it distinct from other arbitral institutions in India.

  • Incorporation of NDIAC

The NDIAC is proposed to be established as a body corporate, different from the ICADR and ICA that are registered as a society under the Societies Registration Act, 1860. MCIA has been registered as a not-for-profit organisation in Mumbai. Akin to other body corporates, it is proposed to have perpetual succession and a common seal that will permit it to acquire and transfer property, and enter into contracts in its own name. However, as NDIAC will be established pursuant to a notification issued by Central Government, it will be exempt from other requirements, such as minimum shareholders and directors, applicable to body corporates established under the Companies Act, 2013. The NDIAC is proposed to have a head office at New Delhi and branches at various other places in India and abroad.

  • Institute of national importance

The Bill proposes to declare NDIAC an institute of national importance – a step expected to allow NDIAC have autonomy in administrative, financial and academic activities. It is for the first time that the Central Government has proposed to declare an arbitral institution as an institute of national importance. The Central Government also proposes to make contributions to the funds of NDIAC in each financial year to give it the financial fillip required and to enable NDIAC promote research and study, organise conferences and seminars for imparting knowledge of law and procedures on alternative dispute resolution.

  • Organisational structure

The Bill proposes to eliminate the large ICADR governing council. The ICADR governing council consists of 47 members that handles the management of the ICADR. All the decisions are taken based on majority approval of the governing council and various committees of ICADR. Similarly, the MCIA council consists of 17 arbitration practitioners. Lack of coordination among the members of the governing council causes delay in the decision making process of arbitration institutions. NDIAC is proposed to consist of only 7 members appointed by the Central Government. That will expedite the decision making process.

  • Transfer of undertakings

In order to utilise the elaborate infrastructure set up for ICADR, the Bill proposes that ICADR will transfer all its undertakings, including assets and all property, in favour of the Central Government and the Central Government will thereafter transfer the right, title and interest in the undertakings in favour of NDIAC which will facilitate discharge of arbitration proceedings.

  • Chamber of arbitration and arbitration academy

It is proposed that NDIAC will establish two other bodies, namely, a chamber of arbitration to maintain a permanent panel of arbitration practitioners, and an arbitration academy to impart training to the arbitrators and conduct research activities. The proposed panel of expert arbitrators will assist the disputing parties in resolving their disputes in a more efficient and effective manner.

Ambiguities in the Bill

Though the Bill is a crucial step to build India into a global arbitration hub, there are some inherent ambiguities in the Bill that will cause roadblocks in the development of an effective dispute resolution mechanism.

Illustratively, the Central Government is the appointing authority of the members of the NDIAC and a periodic contributor to its funds. Further, its accounts are proposed to be audited by the Comptroller and Auditor-General of India. The Central Government would also have the power to remove members from office. Investors adopting alternate modes of dispute resolution prefer a neutral decision making body. The proactive role played by the Central Government may discourage contracting parties from referring disputes to NDIAC for fear that the independence and credibility of the arbitral institution will be compromised, especially in cases where the opposite party is a public sector undertaking. Although SIAC was established with government aid and funding, it has now become a completely self-sufficient and independent arbitration institute.

Further, the Bill only addresses the administrative issues in relation to NDIAC. It remains to be seen how the procedural framework concerning the settlement of disputes is laid. The primary reason behind ICADR’s failure to become an institute of choice was its antiquated approach in resolving disputes. In order to present NDIAC as a preferred arbitration institute, it must be competitively priced, have state of the art facilities and must have precise timelines for the completion of arbitration proceedings. Separately, provisions such as consolidation of arbitrations, emergency arbitrators, immunity to arbitrators and confidentiality of information that were not envisaged under the ICADR Rules must be incorporated in the NDIAC procedural framework.

Conclusion

The Bill, establishing NDIAC with an organised governance structure, will replace the outdated ICADR and lay a strong foundation in the institutional arbitration setup of India. The High Level Committee headed by Justice B.N. Srikrishna (the “Committee”) suggested taking over of ICADR and overhauling its governance structure because of the procedural deficiencies in the functioning of the ICADR. Particularly, the large governing council and the archaic rules make the institute unattractive to the potential contracting parties. The Bill proposes to overcome these roadblocks by streamlining the organisational structure of the arbitration centre. Further, the Arbitration and Conciliation (Amendment) Bill, 2018 (the “Arbitration Amendment Bill”) proposes to establish the Arbitration Council of India (the “ACI”) which will periodically review and grade the arbitral institutions in India. The periodic review and grading will certainly help in promoting the credibility of NDIAC among the foreign investors. It is hoped that NDIAC will change the perception of doing business in our country and will expedite the dispute settlement mechanism. However, the Parliament must clear the ambiguities associated with the Bill. Particularly, an investor friendly procedural framework must be adopted. A transparent process for appointment and removal of the members must be incorporated. Separately, the Central Government involvement/ interference in the functioning and funding of NDIAC must be phased out to gain investors’ confidence.

 

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Recognition of Foreign Arbitral Awards in Brazil: The Abengoa Decision One Year On

Wed, 2018-05-02 20:00

María Eduarda Lemgruber

For the past few years, Brazil has gained recognition as an “arbitration-friendly” seat when it comes to the enforcement of foreign arbitral awards. However, last year, in a groundbreaking decision, the Brazilian Superior Court of Justice (in Portuguese, “Superior Tribunal de Justiça” or “STJ”) denied recognition of two US arbitral awards.

Abengoa has appealed from this decision through a motion for clarification, followed by an “Extraordinary Appeal” to the Brazilian Federal Supreme Court (in Portuguese, “Superior Tribunal Federal” or “STF”), asserting the violation of Article 105, I (i) of the Brazilian Constitution. Article 105, I (i) provides that the STJ has the power – according to Abengoa, the sole power – to decide on the recognition of foreign awards. Last February 2018, the STJ rejected the appeal on the ground that recognition of a foreign arbitral award is an infra-constitutional matter that cannot be tried by the STF.

In the underlying arbitral proceedings, administered by the International Court of Arbitration at the International Chamber of Commerce, claimant and buyer Abengoa sought to undo the sale of two sugar and ethanol production mills on grounds of alleged errors and omissions in the auditing and negotiation process preceding the sale. In brief, the arbitral tribunal, composed of three renowned arbitrators, rendered two unanimous decisions awarding Abengoa more than $100 million in damages.

The awards were first presented to the US District Court for the Southern District of New York (as New York was the seat of the arbitration). In an attempt to vacate the arbitral awards on the ground of a manifest disregard of the law, the seller stressed the supposedly evident partiality of the chair of the arbitral tribunal, who allegedly failed to disclose that colleagues from his law firm were providing legal advice in a number of matters involving Abengoa.

The court upheld the arbitral tribunal’s decision and said that the chair lacked knowledge of the conflicts at the time of the issuance of the awards. This ruling was affirmed by the United States Court of Appeals for the Second Circuit, which found that “to the extent that the lead arbitrator was careless, that carelessness does not rise to the level of willful blindness”.

Yet, when Abengoa tried to enforce the arbitral awards in Brazil, the STJ, by eight votes to one, declined to recognize the awards on the ground that it was not bound by the decisions of the American courts and was in no way prevented from examining the arbitral awards. The majority held that there were sufficient elements to conclude that the chair was biased. The majority further reasoned that partiality on the part of a decision maker is an infringement of Brazilian constitutional principles and guarantees, and therefore also infringes Brazil’s public policy. Thus, it was open to the parties to reargue the issue of bias, and this issue could be examined by the STJ during the award recognition process.

On the other hand, Justice Felix Fischer voted for the recognition of the arbitral awards on the ground that the process before the STJ should not serve as an appeal of the decisions rendered by the American courts. According to him, the American courts are the only judicial bodies competent to decide on the impartiality of an arbitrator where an arbitration is seated in the United States, and any decision by the STJ contradicting the American courts’ decisions would offend the US’s sovereignty.

Likewise, the Sub-Attorney General’s opinion provided that the recognition process should not serve as a new judgment. He goes on to say that the public policy concept may only be applied to repeal acts that are absolutely incompatible with the Brazilian legal system. According to him, a violation of Brazil’s public policy has to be blatant or, to use his own words, it has to be “primo ictu oculi“, in order to justify non-recognition of a foreign arbitral award.

The STJ’s decision sets an important precedent because it was one of the rare times in which the STJ has refused recognition and enforcement of a foreign arbitral award. For instance, the analytical report on recognition and enforcement of foreign arbitral awards – a survey conducted by the Brazilian Arbitration Committee and published by the Brazilian Association of Arbitration Students in 2016 – showed that out of sixty-one decisions between 2008 and 2015, only eight – five in full, and three partially – were not recognized on the ground of violation of Brazil’s public policy.[1]

Among many other reasons, the rarity with which foreign arbitral awards are denied recognition in Brazilian courts can be understood as a result of the clear obligation to recognize a foreign arbitral award under the Brazilian Arbitration Act. The Act provides that recognition shall be made in accordance with effective international treaties or, in the absence of such treaties, in accordance with the Act itself. Additionally, Brazil is one of the 157 signatories to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which aims precisely to ensure that both foreign and domestic arbitral awards will be recognized and enforced uniformly.

Not only that, but the grounds upon which the STJ may refuse recognition of an arbitral award are very limited and are essentially restricted to the analysis of the formal requirements provided by Brazilian law and a few clearly-defined scenarios. Briefly, the STJ may refuse recognition if it finds that:

(i) the parties to the arbitration agreement were under some incapacity;

(ii) the arbitration agreement was not valid under the law applicable to the agreement, or under the law of the country where the award was made;

(iii) the challenging party was not given proper notice of the appointment of an arbitrator or the arbitral proceedings, or was somehow unable to present his case;

(iv) the arbitral award went beyond the scope of the arbitration agreement and it was not possible to separate the offending portion from the remainder of the award;

(v) the commencement of the arbitration proceeding was not in accordance with the arbitration agreement;

(vi) the award has not yet become binding on the parties, has been set aside or suspended by a court in the country where the arbitral award was made;

(vii) the object of the dispute cannot be settled by arbitration, under Brazilian Law;

(viii) the decision violates national public policy.

It is clear then that the process is restricted to recognition, partial recognition or non-recognition of the foreign arbitral award. In Abengoa, however, the seller re-submitted his arguments on the impartiality of the chair of the arbitral tribunal before the STJ, which – contrary to the prior decisions of the American Courts -, refused recognition of the award.

This is a very complicated case, dealing with two especially sensitive issues, namely impartiality of the arbitrator and recognition of foreign arbitral awards, but for this very reason, one year later, the decision is still relevant. Abengoa raised a red flag for all who have witnessed the development of international arbitration in Brazil, for the truth is that the prospect of the non-recognition of foreign arbitral awards could threaten Brazil’s hard-earned reputation in the arbitration community as an “arbitration-friendly” jurisdiction. Any further developments along these lines should be watched closely.

[1] Rafael Bittencourt Silva, Daniel Tavela Luís, et. Al., “6. Analytical Report – Recognition and Enforcement of Foreign Arbitral Awards”, Arbitragem e Poder Judiciário: Pesquisa CBAr-ABEArb 2016 (2008-2015).

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Arbitration involving State-owned Entities in Rio de Janeiro: We Cannot See the Wood for the Trees

Tue, 2018-05-01 17:01

José Antonio Fichtner, Andre Luis Monteiro and Sergio Nelson Mannheimer

This post summarises the key features of the Rio de Janeiro State Decree No. 46.245/2018, which regulates arbitrations between state-owned entities and private corporations and came into force on February 20, 2018.

As a brief introduction, and to provide context of the enactment of the referred statute, it is relevant to set forth three pieces of information concerning Brazil. First, according to the World Economic Forum, the country was the ninth biggest economy of the world in 2017. Second, the wide participation of the State in the process of economic development in Brazil is the norm, especially in infrastructure projects. In general, these projects are managed through public-private partnerships (PPP) structured between a state-owned entity on one side, and a private corporation on the other. Third, arbitration is undoubtedly well established in the country as a dispute resolution mechanism, with an increase of 73% in the number of proceedings from 2010 to 2016 (amounting to almost $30 billion in disputes), and Brazil being the seventh jurisdiction in the ICC ranking in 2017.

Moreover, it is noteworthy that Brazilian courts are unable to solve conflicts in an acceptable amount of time: a complex matter involving intense document production and expert evidence – which is often the case in disputes arising from infrastructure projects – can take more than 10 years to be finally settled by state courts. The congestion of the courts is an issue with no foreseeable improvement in the near future, and the situation calls for a way out.

In this backdrop and with an eye towards attracting foreign investment, Brazil has been developing a particular legal framework for arbitrations involving state-owned entities. In the last 15 years, the country has approved dozens of legal provisions authorizing arbitration in the public sector. A landmark of this decisive political move was the amendment of the 1996 Brazilian Arbitration Act, to incorporate the rule in article 1(1) in the sense that “direct and indirect state-owned entities may use arbitration to resolve conflicts related to negotiable and pecuniary matters” (the first author of this post was part of the committee that drafted the bill). This valuable initiative is even more essential considering that Brazil has not signed the 1965 Washington (ICSID) Convention, preventing the country from offering this avenue to attract investors.

Following this national trend, the State of Rio de Janeiro has taken an advanced step with the enactment of Decree No. 46.245/2018 (the second author of this post was part of the committee that drafted the bill). The recently issued statute provides that all entities owned by the State of Rio de Janeiro may participate in arbitral proceedings. In what relates to the arbitrability of disputes, the statute is broad, allowing state-owned entities to resolve through arbitration all conflicts related to pecuniary claims, except those in connection with the narrow concept of acta iure imperii.

Despite being a progressive statute, there are still special requirements imposed on the parties that are subject to its rules. According to the Decree, Brazilian Law is applied mandatorily to the arbitrations involving state-owned entities – there can be no ex aequo et bono ruling –, the City of Rio de Janeiro must be chosen as the seat, and the parties have to adopt Portuguese as the language of the arbitration.

Although the requirements seem to limit the parties’ autonomy, there appears to be no downside to such limitations. Brazilian Law is inspired by European Law, notably Portuguese, French, Italian and German law, and thus will be familiar to foreign investors in general. Moreover, Brazilian state courts are arbitration-friendly and unbiased towards foreign parties – in fact, the Brazilian Constitution guarantees equal treatment between nationals and non-nationals. Hence, Brazil is a trustworthy seat. As for the language, parties can agree on bilingual arbitration, choosing Portuguese (mandatory) and, for example, English (optional).

The Decree only allows for institutional arbitration, prohibiting parties from opting for ad-hoc arbitration. As a rule, private service providers can only enter into contracts with state-owned entities after participating in and winning a public bid. In theory, the same process could be applied when choosing the arbitral institution. However, instead of demanding a public bid between arbitral institutions, the Decree only requires that the institution be registered with the Rio de Janeiro State Attorney’s Office. In other words, there is no need for a public bid to choose the arbitral institution, which will avoid bureaucracy. To be accepted in this registration system, to which both domestic and foreign institutions are eligible, the institution must have at least 5 years of regular existence and be able to present evidence of conducting at least 15 arbitrations yearly.

To be eligible, the institution also needs to have an address in the state of Rio de Janeiro. At first glance, this last requirement could be deemed too restrictive. However, the Decree does not require the entity to have an office in the state – in fact, the arbitral institution only needs to provide a place to receive written submissions and documents and to host oral hearings. It is likely that most international arbitral institutions will be able to meet this condition by establishing partnerships with local institutions.

The statute provides that the registered arbitral institution will be chosen by the contracted company, and not by the State – at the signing of the contract in which the arbitration agreement is contained.

Moreover, the arbitral proceedings will be conducted pursuant to the rules of the chosen arbitral institution, which secures the parties’ rights to due process. When the private corporation commences the arbitration, it shall advance the costs (arbitrator fees, expert fees and arbitral institutional expenses). However, the private corporation may fully recover from the State or the State-owned entity the amounts disbursed, if it wins the case.

According to the statute, parties are free to nominate the arbitrators that will comprise the arbitral tribunal or the sole arbitrator, following the arbitration rules adopted. There are no personal requirements for the arbitrators, not even nationality. However, under article 12, the prospective arbitrator has to disclose if he/she or his/her law firm is representing third parties against entities owned by the State of Rio de Janeiro in other arbitrations or legal proceedings. Furthermore, the prospective arbitrator must reveal if he/she or his/her law firm is representing third parties in cases with connections to the matter submitted to arbitration.

This rule does not implicate the automatic challenge or replacement of the arbitrator who is a member of a law firm in such circumstances. It is merely a duty of disclosure, as generally required in international commercial arbitration (see item 3.4.1. of the IBA Guidelines). Additionally, this requirement should be interpreted in connection with article 11, which states that the prospective arbitrator cannot have a direct or indirect economic interest in the award to be rendered in the case.

The Decree also imposes a high degree of transparency. It orders that written submissions, expert opinions and arbitral decisions be made public. This is not a duty that falls on the private party: the Rio de Janeiro State Attorney’s Office is responsible for displaying all documents for public scrutiny. The statute safeguards commercial secrets from publicity. This is a reasonable compromise between public accountability and the need to protect sensitive commercial information. In addition, the provision ensures that the oral hearings will respect privacy (in camera), meaning that only those parties related to the case are allowed access to the hearing.

In conclusion, the Decree was framed to promote arbitration between state-owned entities and private corporations. Although there are requirements that could be interpreted as limiting the parties’ autonomy, the statute has to be praised undisputedly as a step forward and an important initiative to attract foreign investment to the State. In pursuit of this objective, the State of Rio de Janeiro is waiving its prerogative to access Brazilian courts, thus bolstering a more attractive environment for private corporations doing business in Brazil. We perceive the requirements imposed by the statute that may seem at odds with the practice of international arbitration worldwide as minor details in the context of this important move. We cannot see the wood for the trees.

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Current Issue of the Journal of International Arbitration

Tue, 2018-05-01 03:18

Maxi Scherer

Issue 35, Number 2

Jennifer Kirby, Evolution and the Discoverability of In-House Counsel Communications

This article tracks a keynote speech the author gave at the 2017 conference of the Italian Arbitration Association, which was co-organized by the Italian Forum for Arbitration and ADR. Privilege rules evolve as a function of the threat parties face from discovery. In common law jurisdictions where the threat is high, in-house counsel communications are generally privileged. In civil law jurisdictions where the threat is low, they generally are not. In determining whether in-house communications are discoverable in international arbitration, arbitrators should avoid getting bogged down in questions of applicable law and instead figure out what makes sense – what’s fair. Provided the arbitrator has not lost his fairness instinct, he should manage to get to the right result. Still, there are some basic steps a company can take to protect in-house counsel communications from discovery, just in case.

Johannes Koepp & Agnieszka Ason, An Anti-Enforcement Bias? The Application of the Substantive Public Policy Exception in Polish Annulment Proceedings

This article examines how Polish courts have dealt with annulment applications based upon purported violations of substantive public policy and measures the Polish jurisprudence against the standards developed by the national courts in England, France, Switzerland and Germany. It identifies an anti-enforcement bias of the Polish courts which, in sharp contrast to their European counterparts, still favour an expansive interpretation of the public policy exception and have surprisingly little qualms in engaging in a thinly veiled merits review with unclear boundaries. The markedly interventionist approach of the Polish judiciary encourages annulment applications, which both ill-serves the arbitral process generally and undermines recent efforts to promote Poland as a desirable seat for international arbitration specifically. A solution to these ills can only be found in a narrower interpretation of the substantive public policy exception, in harmony with the standards developed by the national courts in the major European arbitration centres.

Gordon Smith, Comparative Analysis of Joinder and Consolidation Provisions Under Leading Arbitral Rules

A number of leading arbitral institutions, recognizing the significant benefits of joinder and consolidation provisions, and reflecting parties’ demand, have recently amended their arbitral rules either to include joinder and/or consolidation provisions for the first time, or enhance the scope of their existing provisions. The author discusses in this article the benefits of joinder and consolidation, the mechanisms available to parties in international arbitration for joinder and consolidation, the joinder and consolidation provisions contained in leading arbitral rules, and assesses the key similarities and differences among the rules.

Bas van Zelst, Class Actions and Arbitration: Alternative Approaches Based on the (Ever Evolving) Dutch Experiences with Collective Redress

This article first aims to contribute to an understanding of the Dutch regime for collective redress against the background of pending discussions on the possibility, desirability, and practicability of the settlement of mass claims by means of arbitration. Secondly, it assesses to what extent arbitration may play a part in the Dutch context. The article proceeds in two sections. After the introduction, section 2 analyses the Dutch collective redress regime. It is concluded that Dutch law does not allow for class action arbitration. This, however, does not mean that arbitration cannot play a part under Dutch law in the context of collective redress. It is submitted in section 3 that Dutch law provides for two options. First, an arbitral tribunal may be engaged to assess whether a collective claim at law exists. This mechanism allows collective claim vehicles and (purported) wrongdoers to assess their position at law in the realm of a confidential arbitration. In this context arbitrators serve as facilitators to a collective settlement that is subsequently brought before the court in order to be declared binding. Secondly, disputes over rights of individual claimants under a settlement agreement that has been declared binding may be settled in arbitration.

 

Florencia Villaggi, Recent Developments in the Arbitration Legislation in Argentina

 

Argentina has been experiencing a long awaited reform of its arbitration legislation. The first step towards modernizing Argentina’s outdated legislation was the inclusion of a chapter relating to the arbitration agreement on a new federal Civil and Commercial Code enacted in 2015. This new legislation did not, however, repeal the existing arbitration provisions of the procedural codes, generating some tension between certain provisions that overlapped providing inconsistent solutions. The new legislation also included some controversial provisions which appear to be at odds with the modernization efforts. During the last year the federal Government promoted a legal reform aim at making the country more arbitration-friendly which address such criticisms and concerns. This article discusses the current legal regime applicable to arbitration in Argentina while addressing the impact that the reform will have if the draft bills that are currently being discussed are adopted.

Oleg Skvortsov & Leonid Kropotov, Arbitration Changes in Russia: Revolution or Evolution?

This article is devoted to the analysis of commercial arbitration reform in Russia. The authors explore the reasons for the reform. The effect of the reform is a switch from extremely liberal regulatory pattern of arbitration to moderately conservative pattern. Pros and cons of the reform as well as relevant court practice are reviewed. Forecasts are made on further development of commercial arbitration in Russia.

BOOK REVIEW

Valentina Vadi, Cultural Heritage in International Investment Law and Arbitration, Cambridge University Press (by Panayotis M. Protopsaltis)

Sigvard Jarvin and Corinne Nguyen, Compendium of International Commercial Arbitration Forms: Letters, Procedural Instructions, Briefs and Other Documents, Kluwer (by Maxi Scherer and Shouvik Bhattacharya)

 

 

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Rebalancing the Asymmetric Nature of International Investment Agreements?

Mon, 2018-04-30 01:40

Kun Fan

ITA

In the context of the backlash against investor-state dispute settlement (“ISDS”), one of the main criticisms is the asymmetric nature of investment treaties, which impose numerous obligations on the States, but do not seem to hold corporations accountable for the social, environmental and economic consequences of their activities. Some recent developments reflect a redirection away from a sole focus on investor protection, and a move towards a more balanced approach, by respecting States’ regulatory space and introducing a more tenable link between business and human rights and investment treaty instruments.

One attempt to balance between investment protection and the right to regulate is to provide a carve-out for regulatory measures. For instance, some recent treaties, including in Trans-Pacific Partnership (“TTP”)1)Annex 9-B of the TPP. jQuery("#footnote_plugin_tooltip_5231_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5231_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, The Canada-European Union (EU) Comprehensive Economic and Trade Agreement (“CETA”)2)Article 28 of the CETA. jQuery("#footnote_plugin_tooltip_5231_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5231_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, China-Korea Free Trade Agreement3)Annex 12-B, 3(b) of the China-Korea Free Trade Agreement. jQuery("#footnote_plugin_tooltip_5231_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5231_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, exempt non-discriminatory regulatory measures for lawful public welfare objectives (public health, safety and environment) from the indirect expropriation obligations. China-Australia Free Trade Agreement (“ChAFTA”)4)Article 9.11 of the ChAFTA. jQuery("#footnote_plugin_tooltip_5231_4").tooltip({ tip: "#footnote_plugin_tooltip_text_5231_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); takes a step further to provide that non-discriminatory measures for legitimate public welfare objectives are not subject to the ISDS claims. If the respondent deems that its disputed measure falls within such a carve-out, it could deliver a notice elaborating the basis for its position to the claimant and non-disputing party, which is referred to as the “public welfare notice”. This notice will lead to a 90-day consultation between the respondent and non-disputing party, during which the dispute resolution procedure will be suspended. The public welfare notice contained in the ChAFTA is an innovative approach and serves as a strong safeguard for State’s regulatory autonomy.

Another development is the emphasis on corporate social responsibility (“CSR”), human rights and sustainable development in some recent treaties. For instance, the Dutch model BIT 2004 in its preamble recognizes that “the development of economic and business ties will promote internationally accepted labour standards” and that “these objectives can be achieved without compromising health, safety and environmental measure of general application”5)Preamble of the Austrian Model BIT 2010. jQuery("#footnote_plugin_tooltip_5231_5").tooltip({ tip: "#footnote_plugin_tooltip_text_5231_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });. The Dutch government has also linked the OECD guidelines to export credits. Investors that want to have their capital needs insured by the government are obliged to sign a declaration of intent that they will endeavor to implement OECD guidelines.

The Austrian Model BIT 2010 states the commitment to “achieving these objectives in a manner consistent with the protection of health, safety, and the environment, and the promotion of internationally recognised labour standard”, and emphasizes “the necessity for all governments and civil actors alike to adhere to UN and OECD anti-corruption efforts, most notably the UN Convention against Corruption (2003)”. It further acknowledges that “investment agreements and multilateral agreements on the protection of environment, human rights or labour rights are meant to foster global sustainable development and that any possible inconsistencies there should be resolved without relaxation of standards of protection”.6)See “Doing Business the Canadian Way: A Strategy to Advance Corporate Social Responsibility in Canada’s Extractive Sector Abroad”. jQuery("#footnote_plugin_tooltip_5231_6").tooltip({ tip: "#footnote_plugin_tooltip_text_5231_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Since 2010, Canada has also included a voluntary CSR provision in the Bilateral Investment Treaties (“BITs”) it signs, emphasizing that “each Party should encourage enterprises operating within its territory or subject to its jurisdiction to voluntarily incorporate internationally recognized standards of CSR their practices and internal policies, such as statements of principle that have been endorsed or are supported by the Parties. These principles address issues such as labour, the environment, human rights, community relations, and anti-corruption”.

The India Model BIT (draft) issued in March 2015 (“The Indian Model BIT March Draft”) goes further by providing for positive obligations on investors and their investments, in terms of obligation against corruption, obligation to comply with the provisions of Host State’s law on taxation, obligation to compliance with the Law of Host State, including, among other things, environmental law applicable to the investment and its business operations; law relating to conservation of natural resources, law relating to human rights; relevant national and internationally accepted standards of corporate governance and accounting practices.7)Articles 9, 11 and 12 of the Indian Model March Draft. jQuery("#footnote_plugin_tooltip_5231_7").tooltip({ tip: "#footnote_plugin_tooltip_text_5231_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); 
Compliance with these positive obligations is necessary to benefit from the provisions of this Treaty.8) Article 9 of the Indian Model March Draft. jQuery("#footnote_plugin_tooltip_5231_8").tooltip({ tip: "#footnote_plugin_tooltip_text_5231_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Significantly, it also allows the State to initiate a counterclaim against the Investor or Investment for a breach of these positive obligations before a tribunal and seek as a remedy suitable declaratory relief, enforcement action or monetary compensation.9) Article 14.11 of The Indian Model March Draft. jQuery("#footnote_plugin_tooltip_5231_9").tooltip({ tip: "#footnote_plugin_tooltip_text_5231_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In December 2015, the Indian Ministry of Finance released an updated and approved version of the Indian Model Bilateral Investment Treaty (“Indian Model BIT December Version”). The final December 2015 model took a number of steps back from the March 2015 draft by diluting or entirely removing several noteworthy provisions, although a few interesting features remain. For instance, CSR provision is incorporated, though in a much softer language, providing that “investors and their enterprises operating within its territory of each Party shall endeavour to voluntarily incorporate internationally recognized standards of CSR in their practices and internal policies, such as statements of principle that have been endorsed or are supported by the Parties. These principles may address issues such as labour, the environment, human rights, community relations and anti-corruption.”10)Article 12 of the Indian Model BIT December Version. jQuery("#footnote_plugin_tooltip_5231_10").tooltip({ tip: "#footnote_plugin_tooltip_text_5231_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Ministry of Finance confirmed that the Indian Model BIT will be used as the starting point for the negotiation of all standalone BITs and the investment chapters of Free Trade Agreements.

Norway first attempted to incorporate by reference a CSR-style provision in its draft Norwegian Model BIT (2007), stating that “parties agree to encourage investors to conduct their investment activities in compliance with the OECD Guidelines on Multinational Enterprises and to participate in the UN Global Compact”.11)Article 32 of the draft Norwegian Model BIT 2007. jQuery("#footnote_plugin_tooltip_5231_11").tooltip({ tip: "#footnote_plugin_tooltip_text_5231_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Subsequently, the government withdrew its draft Model BIT in 2009, following widespread public criticism. Built on the previous draft in 2007, Norway reintroduced its new draft Model BIT in May 2015. The shift from a sole focus on investment protection is reflected in the preamble of the Norwegian Model BIT 2015, which emphasized the “importance of CSR”, and reaffirmed “their commitment to democracy, the rule of law, human rights and fundamental freedoms in accordance with their obligations under international law, including the principles set out in the United Nations Charter and the Universal Declaration of Human Rights”, as well as the commitment to prevent and combat corruption. The Norwegian Model BIT 2015 expressly preserves the States’ right to regulate for the protection of health, safety, human rights, labour rights, resource management or environmental concerns, and precludes states from waiving or derogating from such measures as an encouragement of investment. It also reserves the state’s right to adopt or enforce measure necessary to protect public morals or to main public order; to protect human, animal or plant life or health, and to protect the environment.12) Articles 12, 11 and 24 of the draft Norwegian Model BIT 2015. jQuery("#footnote_plugin_tooltip_5231_12").tooltip({ tip: "#footnote_plugin_tooltip_text_5231_12", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The above developments propose some novel reforms, reflecting the aim of promoting alignment of international investment agreements with sustainable development objectives. It remains to be seen whether these countries or their treaty partners will seek to incorporate those more progressive features in the forthcoming treaty negotiations, how foreign investors will react to these instruments, and what the potential business costs of doing this are.

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References   [ + ]

1. ↑ Annex 9-B of the TPP. 2. ↑ Article 28 of the CETA. 3. ↑ Annex 12-B, 3(b) of the China-Korea Free Trade Agreement. 4. ↑ Article 9.11 of the ChAFTA. 5. ↑ Preamble of the Austrian Model BIT 2010. 6. ↑ See “Doing Business the Canadian Way: A Strategy to Advance Corporate Social Responsibility in Canada’s Extractive Sector Abroad”. 7. ↑ Articles 9, 11 and 12 of the Indian Model March Draft. 8. ↑ Article 9 of the Indian Model March Draft. 9. ↑ Article 14.11 of The Indian Model March Draft. 10. ↑ Article 12 of the Indian Model BIT December Version. 11. ↑ Article 32 of the draft Norwegian Model BIT 2007. 12. ↑ Articles 12, 11 and 24 of the draft Norwegian Model BIT 2015. 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 Rule of Law
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Latest Developments of Arbitration in the DIFC: On Arbitrability and Status as a Conduit

Sat, 2018-04-28 17:32

Gordon Blanke

To readers of this Blog, the Dubai International Financial Centre (DIFC) is well known as an arbitration-friendly seat of arbitration in its own right. Developments there are fast apace and have more recently given rise to two challenge actions that, in turn, have raised considerations of arbitrability within the DIFC and the status of the DIFC Courts as a conduit jurisdiction. Both of these challenges arose within the context of applications for recognition and enforcement of DIFC-LCIA arbitration awards before the DIFC Courts. In both instances, the DIFC Courts dismissed the challenge as unmeritorious and proceeded to recognition and enforcement without further ado.

In the first case, which dates back to 2016 (but has only been reported on the DIFC Court website most recently) (see Gauge Investments Limited v. Ganelle Capital Limited [2016] DIFC ARB 003/2016), Sir Richard Field rejected the award debtor’s challenge to the effect that the subject matter of the arbitration was non-arbitrable and that the award violated UAE public policy. For the avoidance of doubt, the disputed arbitration was seated in the DIFC and governed by DIFC Law on merits and procedure under the auspices of the DIFC-LCIA. In brief, the Sole Arbitrator rejected all Gauge’s pleaded breaches of the regulatory rules of the Dubai Financial Services Authority (DFSA) and Gauge’s claims for civil law remedies under Arts 65 and 94 of the DIFC Regulatory Law (see DIFC Law No. 1 of 2004), i.e. a declaration that the parties’ underlying debt advisory agreement was null and void and an award of compensation for the various pleaded breaches.

Justice Sir Field, in turn, was unimpressed by the award debtor’s argument that the Sole Arbitrator’s findings violated basic principles of arbitrability and UAE public policy and that the award therefore had to be refused enforcement under Art. 41(2)(b)(i) and (iii) of the DIFC Arbitration Law. In Field’s self-explanatory assessment:

“43. Plainly, steps or proceedings taken by the DFSA and the FMT [the Financial Markets Tribunal] under their enforcement, disciplinary and adjudicative powers will not be undertaken in arbitration proceedings. This is so, first, because it is inconceivable that the DFSA and the FMT would agree to perform these functions through the medium of arbitration and, second, because as matter of statutory interpretation, neither the DFSA nor the FMT can delegate to an arbitral tribunal their enforcement, disciplinary and adjudicative powers. Does it follow that where a user of financial services relies on regulatory breaches to found a private civil remedy under Article 65 or Article 94 in arbitration proceedings that such proceedings are non-arbitrable and/or contrary to the public policy of the UAE?

[…]

46. As exemplified by Khorafi et al v (1) Bank Sarasin-Alpen (ME) Ltd and (2) Bank J Safra Sarasin Ltd (formerly Bank Sarasin & Co Ltd) (CFI 026/2009 and CA 003/2015), Articles 65 and 94 of the Regulatory Law contemplate proceedings before a DIFC Court to which the DFSA is not a party and in which private civil remedies are sought on the back of breaches of DFSA rules and regulations. In my judgment, such civil claims are arbitrable and are not contrary to the public interest of the UAE. They do not trespass on or conflict with the public functions of the DFSA. A party to an arbitration asserting a civil contract remedy founded on a regulatory breach or breaches would remain free to present a complaint to the DFSA and the DFSA would remain free of its own motion to investigate the breaches relied on in the arbitration proceedings and to bring disciplinary proceedings if thought appropriate. The doctrine of res judicata would not apply since the former proceeding will have involved a private civil claim, whilst the other will have been in the nature of public disciplinary/enforcement proceedings.”

In other words, absent any statutory prohibition to the contrary, the civil law consequences of any DFSA regulatory matters are clearly arbitrable under DIFC Law. Arbitration in this sense provides an alternative to recourse to the otherwise competent DIFC Courts.

The second case (see ARB 006/2017 – Isai v. Isabelle, Amended Orders with Reasons of H.E. Justice Omar Al Muhairi, dated 28 February 2018) invites re-consideration of the proper competence of the DIFC Courts as a conduit. I have discussed the concept and role of the DIFC as a conduit jurisdiction in a number of previous blogs (most recently, see http://arbitrationblog.kluwerarbitration.com/2017/12/18/difc-courts-conduit-saving-grace-just-lifeline/) and will not repeat this here. Suffice it to recall that previous reporting has raised concerns that the days of the DIFC as a conduit may be counted. Al Muhairi’s findings in Isai v. Isabelle give hope that the DIFC Courts’ role as a conduit jurisdiction has been granted a new lease of life, at least for purposes of recognition and enforcement of DIFC-LCIA awards rendered in onshore Dubai (irrespective of the location of assets of the award debtor, i.e. whether on- or offshore).

More specifically, Al Muhairi did not hesitate to confirm the concurrent jurisdiction of the onshore Dubai and the offshore DIFC Courts for recognition and enforcement of a DIFC-LCIA award rendered in onshore Dubai (as the seat of the arbitration) even absent any assets of the award debtor offshore. In doing so, Al Muhairi rejected the award debtor’s application for dismissal of the awards creditor’s application for recognition and enforcement before the DIFC Courts. Al Muhairi had no doubt that the DIFC Courts had proper jurisdiction to recognise and enforce the subject DIFC-LCIA award by virtue of Art. 42(1) of the DIFC Arbitration Law, which empowers the DIFC Courts to recognise as binding any arbitral award “irrespective of the State or jurisdiction in which it was made”. The Judge correctly identified as a “gateway” for the Court’s jurisdiction Art. 5(A)(1)(e) of the Judicial Authority Law (which confers exclusive jurisdiction on the DIFC Courts to hear and determine any action over which the Courts have jurisdiction in accordance with DIFC Laws and Regulations) read together with Art. 8(2) of Dubai Law No. 9 of 2004, as amended by Dubai Law No. 7 of 2011 (which requires the DIFC Courts’ jurisdiction to be determined by reference to DIFC Laws) (paras 13-16). Pursuant to Al Muhairi, neither the Judicial Authority Law nor the DIFC Arbitration Law contained any requirement for a connection with the DIFC as a pre-requisite for the DIFC Courts’ competence to hear an action for recognition and enforcement (para. 16). Instead, he relied upon Art. 7 of the Judicial Authority Law to emphasise the concurrent jurisdiction of both the onshore and offshore courts, terming the two courts’ jurisdictions “complementary”:

“In enacting Article 7 of the Dubai Judicial Authority Law, the legislators contemplated that both the DIFC Courts and the Dubai Courts would have power (in appropriate cases) to ratify (or recognise) arbitral awards. There is no conflict between the jurisdiction of the two courts, as is reflected in the complementary relationship highlighted by Article 7 of the Judicial Authority Law.” (para. 20)

Importantly, Al Muhairi was clear that the onshore Dubai and offshore DIFC Courts have “concurrent but separate jurisdiction” (para. 22) to hear applications for recognition and enforcement on- respectively offshore:

“18. It is clear that the DIFC Courts and Dubai Courts cooperate to facilitate the recognition and enforcement of arbitral awards and it is customary, as evidenced by the legislation above, that both the DIFC Courts and Dubai Courts may recognise and/or enforce the same arbitral award.
19. Additionally, the jurisdiction of the DIFC Courts does not deprive the Dubai Courts of any jurisdiction which they may have in respect of the recognition and enforcement of arbitral awards pursuant to Articles 31 and 236 of the UAE Civil Procedure Code [establishing the Dubai Court’s jurisdiction].
20. Not only are the jurisdiction of the DIFC Courts and the jurisdiction of the Dubai Courts in relation to the recognition and enforcement of an arbitral award mutually exclusive, they are also complementary.”
This, no doubt, was intended to serve as a timely reminder that the onshore and offshore courts form part of the same family of UAE courts, ordained by the Ruler of Dubai: There is no judicial hierarchy between the onshore Dubai and offshore DIFC Courts; each is properly competent to determine the limits of its own jurisdiction. Art. 7 of the Judicial Authority Law, in turn, establishes the mutual bond of trust that holds the on- and offshore limbs of the Dubai judicial system together to form part of an integrated whole.

Al Muhairi’s Order in Isai v. Isabelle has to be saluted for its attempt to redress the proper balance of the judicial relationship between the onshore Dubai and offshore DIFC Courts with a measure of encouraging sobriety and to breathe life back into the DIFC Courts’ status as a conduit jurisdiction. Essentially, absent a pending challenge before the Dubai Courts, an onshore DIFC-LCIA award may be properly subject to an application for recognition and enforcement before the DIFC Courts (irrespective of the absence of assets of the award debtor from the DIFC). For the avoidance of doubt, the seating of the arbitration onshore does not prevent recognition and enforcement offshore. That said, had the award creditor applied for a challenge onshore pending the application for recognition and enforcement offshore, Al Muhairi may have considered adjournment of the application by virtue of Art. 44(2) of the DIFC Arbitration Law, or a refusal to enforce the subject award under Art. 44(1)(a)(v) of the DIFC Arbitration Law in the event that the award had been nullified before the onshore courts. This, no doubt, would have been a natural consequence of the operation of the principle of mutual recognition under Art. 7 of the Judicial Authority Law. Al Muhairi was not prepared to give deference to a prospective challenge onshore especially in circumstances where there had been ample time (10 months) for mounting such a challenge. Al Muhairi’s assessment will sit well with the 4-month time-limit introduced for onshore challenge actions by the draft UAE Federal Arbitration Law (which is expected to enter into force later this year).

By way of conclusion, it is encouraging to see the resolve with which the DIFC Courts deal with matters of recognition and enforcement. Vexatious arguments going to the arbitrability and/or public policy will not be entertained, demonstrating the arbitration-friendliness with which the DIFC Courts approach such questions. Equally, the DIFC Courts will not lightly give up their status as a conduit jurisdiction. It is telling in this context that it is a local resident judge, Al Muhairi, who obtained his judicial formation onshore, that turns out one of its most ardent supporters!

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Cruising Around Investment Cases Against the Caribbean Islands

Fri, 2018-04-27 20:00

Anne-Sophie Gidoin

Cruising around investment cases against the Caribbean islands is not only a recreational journey.  It is also an informative one.  This article aims at presenting key observations made during this journey.

As mentioned in a previous publication, since 1973, the sovereign islands of the Caribbean Sea, have concluded over 140 international investment agreements.  The ICSID Convention is in force in all islands except Antigua & Barbuda, Cuba, Dominica, and the Dominican Republic.

The following table lists the 17 investment arbitrations identified to date against the Caribbean islands:

Table of cases (click here)

In these cases, investors based their claims on either contracts or investment treaties.  They invoked BITs, the Dominican Republic-Central America Free Trade Agreement (“DR-CAFTA”), or the Free Trade Agreement between the Dominican Republic and the Caribbean Community (“DR-CARICOM”).

Among these 17 cases, 5 settled, 2 were dropped, 2 tribunals declined jurisdiction, and 4 are pending, including at the annulment stage.  All 5 awards rendered on the merits were decided in favor of the State.

 

Disputes tainted by environmental issues 

Investment disputes against the Caribbean islands mostly concern the Oil, Gas & Mining, Electricity, Power & Other Energy, and Real Estate sectors.

Three recent cases show the importance of environmental issues:

  • In Allard, the claimant alleged that Barbados’ failure to take necessary and reasonable environmental protection measures destroyed the value of his investment in the Graeme Hall Nature Sanctuary, an eco-tourism project on the wetlands on Barbados’ South Coast. However, the tribunal dismissed the claims for lack of evidence of environmental damage during the investment timeframe.
  • In Corona, the investor sought to invest close to Sanchez, in the Samaná region in the Dominican Republic, to mine for aggregate materials to be shipped to the US. This project was allegedly hindered by the denial of environmental approvals.  The tribunal declined jurisdiction without deciding the relevant environmental issues.
  • In Ballantine, investors in an exclusive housing project on the Jamaca de Dios community in the Dominican hills of Jarabacoa claimed that they did not obtain environmental approval to develop the higher portion of their property, where most valuable residences were to be located. Proceedings are pending.

 

Jurisdictional objections allow DR-CAFTA interpretation

Out of these 17 Caribbean cases, the Corona and the Cable Television of Nevis tribunals have declined jurisdiction.  The jurisdictional objection in Ballantine is still pending.

The most striking jurisdictional objections are those which require the interpretation of DR-CAFTA:

  • In Corona, the tribunal declined jurisdiction under Article 10.18.1, which provides for a 3 years time bar to submit a claim, from the date on which the claimant first acquired, or should have first acquired, knowledge of the breach alleged and knowledge that the claimant or the enterprise incurred loss or damage. This tribunal considered the submission of the US as a non-disputing party dated 11 March 2016, which commented on the interpretation of DR-CAFTA’s statute of limitation rule.  A similar time-bar was raised (but dismissed) in Allard, pursuant to Article XIII.3.d of the Barbados – Canada BIT.  In Ballantine, the Dominican Republic equally alleged that some of the investors’ claims violate the same rule.  The Corona precedent has since been relied on by the Aaron C. Berkowitz, Brett E. Berkowitz and Trevor B. Berkowitz v Republic of Costa Rica tribunal, in its Interim Award of 30 May 2017, which declined jurisdiction on certain claims.
  • In Ballantine, the Dominican Republic alleged that the claimants’ “dominant and effective nationality” was Dominican (not US) at the time of the alleged violations and at the start of the proceedings, in breach of DR-CAFTA Article 10.28. In its Procedural Order No. 2 dated 21 April 2017, the tribunal refused to bifurcate this issue, which remains pending.

 

Re-litigation of contract claims impossible in new treaty arbitration

Only 5 investment tribunals rendered awards on the merits against Caribbean islands, i.e. in Allard, Grynberg, RSM Grenada, RSM St Lucia and F-W Oil.  The 2 RSM awards are not public, and annulment proceedings are pending in RSM St Lucia.

Though it may pertain either to jurisdiction or to the merits, the Grynberg tribunal’s rejection of the claimants’ claims as “manifestly without any legal merits” pursuant to Article 41.5 of the ICSID Arbitration Rules, is interesting.  In this treaty-based case, the investor submitted claims that had already been decided in RSM Grenada, a previous contract-based arbitration.  The Grynberg tribunal refused to re-litigate conclusions of fact or law concerning the parties’ contractual rights that had already been determined by a prior tribunal.  Several ICSID tribunals then referred to this case, in particular NAFTA-based Apotex Holdings Inc. and Apotex Inc. v The US.

 

Cost decisions penalize non-complying and unsuccessful investors

On 13 August 2014, the majority of the RSM St Lucia tribunal ordered the claimant to post security for costs in the form of an irrevocable guarantee for USD 750,000 to cover St Lucia’s potential legal costs.  The RSM St Lucia tribunal notably considered similar requests filed and denied in the RSM Grenada and the Grynberg cases, where RSM reportedly failed to reimburse Grenada’s costs.  The claimant’s failure to comply with the tribunal’s order resulted in the conclusion of the proceedings.  As the first ICSID decision ordering a claimant to pay security for costs, RSM St Lucia has been heavily relied upon.  However, since St Lucia, no respondent State has been granted security for costs.

Claimants have also been subject to penalizing cost decisions when “unsuccessful”.  For example, in Grynberg, the tribunal awarded all costs to Grenada, as the claimant was attempting to re-litigate claims that had been decided in previous contract-based proceedings.  In Silverton, the tribunal awarded all costs to the Dominican Republic after the claimant withdrew its claims, considering the claimant the “unsuccessful party” under Article 42.1 of the UNCITRAL Rules.

This Caribbean journey ends with memorable observations regarding the importance of environmental issues, the interpretation of the 3 years statute of limitations under DR-CAFTA, the articulation between treaty and contract claims, and the tribunal’s power to order security for costs to the claimant.  So far, all cases have turned in favor of the States, but time will tell if future disputes leave the Caribbean islands intact.

 

The views set forth in this post are the personal views of the author and are not intended to reflect those of her employers or clients. The author wishes to thank Mr. Victor Choulika for his assistance in preparing this article. 

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The Present and Near Future of New Technologies in Arbitration: If not Us, Who? If not Now, When?

Fri, 2018-04-27 02:19

Pratyush Panjwani

With the focus of the arbitral community being taken over by the recent discourse surrounding an important branch of international arbitration, i.e., investor state dispute settlement, after the 6 March 2018 Judgment of the Court of Justice of the European Union in Case C-284/16, Slowakische Republik v Achmea BV, there may be a risk today, more than ever, of overseeing what the seemingly distant future holds for international arbitration practitioners. Indeed, a singularly unwavering concentration on the “present” of arbitration practice, without adequate focus on its “future”, is, to a certain extent, emblematic of the issues that have ended up afflicting arbitration practice. However, while the present is sitting the test of time, it is even more critical now to have one eye focused on, and prepared for, the future of this dispute resolution mechanism.

 

With this aim in mind, on 23 February 2018, the Club Español de Arbitraje, Belgium Chapter (“CEA”) organized its Third Annual Conference, hosted and sponsored by Stibbe and FTI Consulting, relating to the topic of “The present and near future of new technologies in arbitration”. The Conference held itself true to the (almost prognostic) words of Mr. Alexis Mourre, which were quoted by Mr. Mathieu Maes during his introductory remarks at the Conference, whereby he alerted us to the fact that “[t]here may be no more relevant topic [today] than this one for the future of dispute resolution”. Indeed, the increasing relevance of this topic has been alluded to by many others recently, including in a post highlighting the 10 hot topics for discussion in arbitration for the year 2018. This hypothesis was afforded credence by the variety of participants that the CEA’s Conference saw, on both sides of the panel, ranging from arbitration practitioners, enthusiasts and aspirants to representatives from arbitral institutions and the community of technical experts, particularly from the field of data science.

 

The keynote address, titled “Algocracy in Arbitration”, was delivered by Ms. Sophie Nappert, who has been a vocal embracer of the impact of new technologies on arbitration.1)Sophie Nappert and Paul Cohen, Case Study: The Practitioner’s Perspective, in Maud Piers, Christian Aschauerp (eds), Arbitration in the Digital Age: The Brave New World of Arbitration (CUP 2018), p. 126 jQuery("#footnote_plugin_tooltip_2787_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2787_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The term (“algocracy”), she explained, was a derivative of two terms, i.e., “algorithm” and “democracy”. Ms. Nappert took us through various ongoing developments being conducted in the field of artificial intelligence (“AI”), which, together with the internet, has created a democratic playing field for humans to operate and interact with technology. She spoke about how AI will soon leave a lasting impact on arbitration as a field of practice by introducing algorithmic decision making using machine learning software, which may possibly even reduce the work force involved in arbitration today. According to Ms. Nappert, the only aspect where human judgment still trumps algorithmic decision making is the more intangible values such as empathy, compassion and fairness. In light of this, she called upon the arbitration community to realize the opportunity that AI offers us to win back the trust in fellow humans, while simultaneously embracing the advancements in technology and keeping pace with them.

 

This speech created the perfect platform for the two panels of speakers that followed, with the first one focusing more on the present technologies being used in arbitration and the second one highlighting potential future technologies that may have an impact.

 

The first panel, moderated by Ms. Dodo Chochitaichvili and Mr. Maxime Berlingin (Fieldfisher), saw speeches from Ms. Erica Stein (Dechert LLP, Brussels), Mr. Matthew Buckle (Norton Rose Fulbright, London), Dr. Franz Stirnimann Fuentes (Froriep, Geneva) and Mr. Alexander Fessas (ICC Paris). Ms. Stein discussed how consent to arbitrate in today’s day and age can be given by and through digital means, such as by email correspondence, and whether and how such consent is recognized within the regime of Article II of the New York Convention 1958. She was followed by Mr. Buckle who advocated for a case-by-case approach in relation to admissibility of hacked information and documents as evidence in arbitration, taking us through various jurisprudential approaches in relation to this threshold question that touches upon parties’ good faith conduct. Thereafter, Mr. Fessas addressed the current use of technology in institutionally administered arbitration, and suggested that it is the need of the hour for arbitrators to polish their technological skillset with the ready help of arbitral institutions, while at the same time maintaining the parties’ fundamental expectations from arbitration and thus not using very costly and complicated technologies.

 

Lastly, Dr. Stirnimann’s particularly interesting presentation addressed the issue of confidentiality in the digital age, speaking about how confidentiality today has evolved from interpersonal confidentiality to technological confidentiality. In this regard, he suggested that as arbitration practitioners it is incumbent upon us to be aware of potential security hacks, of which law firms are often targets, establish security protocols at workspaces and train staff to this effect, and ensure a minimum level of virus protection. The concerns and the potential solutions highlighted by Dr. Stirnimann are extremely relevant in today’s day and age, given that the inclination to access, and the very accessibility, of metadata in legal documents, has been on the rise over the past few years, as law firms gain technological advancements. Notably, the concept of “metadata” has been succinctly explained in the ICC Commission’s on Managing E-Document Production, which described metadata in the following terms:
“‘Metadata’ is, literally, data about (electronically stored) data. Documents or files created on a computer will typically contain embedded information that is not readily apparent on the screen view of a file or in a printed version of the document or file. This secondary “metadata” is information about the electronic document or file that describes its characteristics, origins, or usage.”2)Cf. 4.8. Typical examples of metadata include editing changes or comments made to the document over time, the document’s author or the date and time of its creation etc. jQuery("#footnote_plugin_tooltip_2787_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2787_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });
This discussion initiated during the first session made for the perfect ingredients that helped the second panel create a sumptuous amount of food for thought for the audience in order to comprehend and further explore the relationship between humans and technology.

 

The second panel, moderated by Mr. José Rafael Mata Dona and Ms. Niuscha Bassiri (Hanotiau & van den Berg), saw a more futuristic expedition into technological innovations undertaken by Mr. Erik Schäfer (Cohausz & Florack, Düsseldorf), Mr. Charles Raffin (Hardwicke, London), Dr. (Dr.) Meloria Meschi (FTI Consulting, Paris) and Mr. Mohamed S. Abdel Wahab (Zulficar & Partners, Cairo). Mr. Schäfer, taking a leaf from the recent ICC Report on Information Technology and International Arbitration, by the Commission co-chaired by him, discussed various technological innovations in recent years and their potential impact on arbitration in the near future. Touching upon aspects of AI that Ms. Nappert referenced, such as decision making through machine learning and portals for contract formation, Mr. Schäfer called upon practitioners, especially arbitral institutions, to take the lead in familiarizing themselves and the users of arbitration with these innovations. Thereafter, Mr. Raffin harmonized his speech with the discussions initiated by Dr. Stirnimann. He spoke about protection and acquisition of electronic evidence, taking us through the basics of the components of electronically stored information, such as metadata, and indicating avenues that can help protect such information from requests in document production procedures or otherwise.

 

Mr. Raffin was followed by Dr. Meschi, the only data scientist on the panel. Dr. Meschi took the discussion on AI further by explaining the basics of machine learning and data mining. Interestingly, it was the data scientist on the panel that urged our legal minds to realize the importance of human empathy, by propositioning that while the software may be readily available and easy to use, it’s worth ultimately depends on the human behind the software. Mr. Wahab took on from this and concluded the discussions by highlighting the necessity of being techno-literate in today’s day and age, and the need to bridge the gap between AI and international arbitration, by acquainting oneself with technology.

 

With this exciting thought of embracing human empathy while simultaneously befriending technological advancements, the CEA’s Conference undoubtedly offered many practical insights as to the steps that need to be taken by the arbitral community in order to match pace with technology. Together with such insights, there was also a palpable sense of hope for a more nuanced and technologically sustainable future, which was most appropriately evidenced in the Star Trek quote that Ms. Nappert used to conclude her speech, albeit in reference to the practice of international arbitration – may it “live long and prosper”!

 

The views expressed in this article are solely the personal views of the author and in no way reflect the views of Hanotiau & van den Berg.

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References   [ + ]

1. ↑ Sophie Nappert and Paul Cohen, Case Study: The Practitioner’s Perspective, in Maud Piers, Christian Aschauerp (eds), Arbitration in the Digital Age: The Brave New World of Arbitration (CUP 2018), p. 126 2. ↑ Cf. 4.8. Typical examples of metadata include editing changes or comments made to the document over time, the document’s author or the date and time of its creation etc. 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 Rule of Law
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Lajún Corporation v. The Dominican Republic: Admissibility Issues Just Around the Corner?

Wed, 2018-04-25 20:00

Danilo Ruggero Di Bella

This post gives a bird’s eye view of an   imminent investment arbitration and forecasts procedural and/or jurisdictional hurdles to the case, by analyzing the dispute resolution provision and relevant precedents, with the intention of highlighting recurring inconsistencies on a key procedural issue and urging for more predictable outcomes for the benefits of the stakeholders in the international arbitration industry. At the moment, the case is at its early stage, as its 3-month cooling off-period expired on March 19, 2018.

 

The looming arbitration

On 19 December 2017, Jamaican tycoon, Mr. Michael Lee-Chin, served the Dominican Republic with a notice of intent to arbitrate under the Caribbean Community-Dominican Republic Free Trade Agreement (CARICOM-DR FTA) over alleged treaty breaches concerning the management concession agreement for the landfill facility called Duquesa.

 

The background

In 2013, Mr. Lee-Chin acquired equity participation in Lajún Corporation, a Dominican company operating the landfill and waste-to-energy plant on the basis of a 10-year concession agreement awarded on 1 March 2007 by the Municipality of Northern Santo Domingo. Mr. Lee-Chin holds 90% equity participation in Lajún Corporation throughout two entities – another Dominican corporation (Wilkison Company) and a Panamanian company (Nagelo Enterprises) – whose majority shareholder is   Mr. Lee-Chin himself. The two entities supposedly hold title to the land where the landfill lied, however, the validity of the underlying land purchase and sale contract was challenged for alleged forgery.

Mr. Lee-Chin claimed that the Dominican Republic expropriated his investment in Duquesa, because the Municipality failed to abide by the concession agreement and apply the biannual increases to the tipping fees chargeable to the users for the disposal of the waste and the energy generated by the plant, and, ultimately, because on 27 September 2017 the High Administrative Court divested Lajún Corporation from the management of the Duquesa landfill, pending the decision on the breach of the concession agreement. Therefore, the Claimant seems to contend that the Dominican Republic had violated Article XI of the Annex III to the CARICOM-DR FTA for having expropriated his investment without a fair compensation, seeking compensation of more than US$ 300 million.

On the other hand, the Municipality asserts that Lajún Corporation was not fulfilling its obligations under the concession agreement, causing environmental harms and jeopardizing the public health of the community living in Gran Santo Domingo. That’s why the City Council of Northern Santo Domingo authorized the Mayor, Mr. René Polanco, to take Lajún Corporation to the High Administrative Court to terminate the agreement for noncomplying with it.

After hearing both parties, the High Administrative Court provisionally transferred, by means of its ruling 2030-17, the management of the landfill to a committee formed by the Municipality and the Ministries of Environment and Public Health on 27 September 2017.

 

The Dispute Resolution Provision in the CARICOM-DR FTA

The investor-state dispute resolution mechanism contained in Article XIII of the Annex III to the Treaty invoked by the Claimant envisages three options (in case conciliation fails and once a 3-month cooling-off period has elapsed): the host-state’s courts, a domestic arbitration or an international arbitration. Should the parties to the dispute opt for international arbitration, then they may refer their differences to an ad-hoc single arbitrator or tribunal, to be appointed pursuant to a subsequent agreement or the UNCITRAL Arbitration Rules.

Even though no fork-in-the-road is expressively stated, because the outcome of each of these options final and binding effects, it is sensible to argue that the choice of one option precludes the others.

By entering an appearance as defendant and arguing the case about the concession agreement before the High Administrative Court of the Dominican Republic, and having the seized Court already issued a decision, the Claimant (in the forthcoming arbitration) might have tacitly chosen its option thereby waiving the two arbitration-based alternatives.

 

Relevant precedents: Roundabout or Fork-in-the-road?

Two main diverging lines of reasoning exist when it comes to allow or disallow a claimant to resubmit to an arbitral tribunal a dispute sharing the same background of a claim brought before a local court or previously adjudicated by another court or local arbitration.

One line of thinking revolves around the “triple identity test” and allows such a possibility as long as the claimant, the causa petendi and the petitum of the two disputes do not overlap. Therefore, even though the claimant and petitum in the two proceedings may often coincide, the causa petendi always differs, being rooted in special rights conferred on the basis of an international treaty and put forward as treaty claims (whilst in the court proceedings, the claimant would argue its case on the basis of national law provisions only). Some illustrative arbitral rulings of the application of the triple identity test are the 2003 Decision on Jurisdiction in Champion Trading Company, Ameritrade International, Inc. v. Arab Republic of Egypt (ICSID Case No. ARB/02/9), and CMS Gas Transmission Company v. The Republic of Argentina (ICSID Case No. ARB/01/8), and the 2004 Decision on Jurisdiction in Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic (ICSID Case No. ARB/01/3).

The other approach – which seems to be gaining ground based on the 2017 Award in Supervision y Control S.A. v. Republic of Costa Rica (ICSID Case No. ARB/12/4) –  relies on the “fundamental basis of a claim test”. According to this test, if the dispute before the national court and the one before the arbitral tribunal share the fundamental cause of the claim, seek substantially for the same effects and are submitted by two different claimants, one, however, controlling the other through equity participation, then the claims presented before the national court are the same as the ones presented before the arbitral tribunal. This line of reasoning strives to avoid contradictory rulings between a national court and an arbitral tribunal on essentially the same dispute. Other precedents in favor of the fundamental basis of a claim test are the 2014 Award in H&H Enterprises Investments, Inc. v. Arab Republic of Egypt (ICSID Case No. ARB/09/15) and the 2009 Award in Pantechniki S.A. Contractors & Engineers v. Republic of Albania (ICSID Case No. ARB/07/21).

Curiously enough, tribunals that spouse the “triple identity test” tend to consider this matter a question of jurisdiction or competence, whereas tribunals that adopt the “fundamental basis of a claim test” look at this issue as a question of admissibility. Consequently, the former usually come to the conclusion that they have jurisdiction over the dispute and adjudicate the case, while the latter conversely hold that the claims are inadmissible and dismiss the case because, even if they assert jurisdiction, they deem it inappropriate to hear claims already heard by another adjudicatory body.

 

Other two non-fully aligned concepts to weigh in

Another two questions may come into play and conflict with each other in this case and right on this procedural point, so it would be worthy to recall them:

  • On one hand, the well-established arbitrators’ Kompetenz-kompetenz principle, e. the arbitral tribunal’s power to hear and assess objections to its own jurisdiction;
  • On the other, the determination of the time by which jurisdiction must be challenged (in favor of another adjudicatory body) to prevent implied prorogation of jurisdiction is inherently a prerogative of the court first seized, which will make such a determination on the basis of its rules of procedure and can actually render any arbitration agreement inoperative by the subsequent conduct of the parties, pursuant to Article II(3) of the 1958 New York Convention. Such reference to national law and deference to the court seized have been also upheld by conventions assigning jurisdiction in civil and commercial matters among different States (such as the 1968 Brussel Convention and the 1988 Lugano Convention, respectively, recast into and amended by Brussel I-bis Regulation and the 2007 Lugano Convention). Under this approach, the ball might be sent back to the Dominican Court’s court, which will have to decide on the retention of its jurisdiction on the case.

 

Conclusion

Given the procedural and factual matrix of the imminent case as described above, the relevant dispute mechanism provision invoked and the conflicting arbitral precedents on this point, the looming arbitration in question may well fall within the applicability of either of such tests having to face the corresponding jurisdictional or procedural barrier. The choice of which test to deploy will ultimately rest with the arbitral tribunal, but equally the High Administrative Court might have its say on the case as to the viability of the arbitration agreement at this point in time.

 

The views expressed in this article are those of the author and DO represent those of the law firm Bottega DI BELLA.

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Investment in the Times of Achmea

Wed, 2018-04-25 03:14

Maciej Kuropatwiński

The CJEU judgement issued in the much-discussed (here and here) C-284/16 Slovak Republic vs. Achmea case has every chance of becoming a game changer in the field of the investment protection regime within the EU. Where does that leave the protection of investors within the EU?

The message of the CJEU to those who welcomed the AG Wachelet’s opinion’s conclusion that intra-EU BITs are not incompatible with the EU law seems clear: abandon all hope. That conclusion is justified not by the operative part of the CJEU’s decision, but even more so by what the CJEU included and what it omitted in the grounds of the judgement.

In the operative part, the CJEU found that Articles 267 and 344 TFEU preclude a provision in an intra-EU BIT, under which an investor may bring an investment dispute against a Member State before an arbitral tribunal. More striking, however, is that the CJEU ignored a number of available more nuanced options and chose to cut the Gordian Knot instead. That may be indicative of the Court’s barefaced approach and its determination to close the chapter of intra-EU BITs once and for all.

In the grounds of the judgement, the CJEU came to a different conclusion than AG Wathelet and found that arbitral tribunals in investment disputes are not courts of Member States within the meaning of Article 267 TFEU and they cannot request a preliminary ruling when faced with a question of application of the EU law. The Court also drew a line between the investment arbitration and commercial arbitration.

The Court has not considered that the conformity with the EU law could be ensured through the assistance of national courts at the seat of the arbitral tribunal (as considered in C-102/81, Nordsee Deutsche Hochseefischerei GmbH v Reederei Mond Hochseefischerei Nordstern AG & Co. KG). Even the fact that the case at hand has been referred to the CJEU by a national court (the German Bundesgerichtshof) in the course of the revision of an arbitral award has not led the CJEU to a conclusion that such a procedure might be sufficient to ensure the conformity of arbitral awards with the EU law (as in the case C-174/84, Bulk Oil (Zug) AG v. Sun International Ltd. and Sun Oil Trading Co.).

It should also be pointed out that the European Commission so far presented a threefold approach to investment arbitration under an intra-EU BIT. Firstly, it acted as amicus curiae to arbitral tribunals; secondly, it intervened in revision stages of awards (including the ICSID ad hoc Committee) and thirdly, by initiating infringement proceedings against the Member States that were reluctant to terminate their intra-EU BITs. The first approach, at least in theory, could give the European Commission an opportunity to present its views on the merits of the case. Similar chance was available in the second approach, although it was limited to the challenge grounds, usually including public policy considerations. In contrast to the latter, the third approach in its essence ignored circumstances of a specific case and questioned the dispute resolution mechanism under intra-EU BITs as a whole. In the Achmea decision, the CJEU did not consider whether the first two options could be sufficient to safeguard the autonomy of the EU law but endorsed the latter approach instead. Thus, the CJEU left little doubt as to the prospective outcome of the infringement proceedings, if they ever make it to the Luxembourg courtrooms.

The possible effects of the judgement should be considered against the background of the 2015 non-paper agreed by the delegation of five Member States (the ‘first group states’ as referred to in the AG Wathelet’s opinion in the Achmea case). The non-paper identified three options of possible mechanism of binding and enforceable resolution of investment disputes: by conferring the jurisdiction in investment disputes directly to the CJEU, by establishing a permanent investment tribunal comparable to the Unified Patent Court, or to rely on the Permanent Court of Arbitration in The Hague as a court common to all Member States. The two latter options will only meet the essential requirement under the Achmea judgement if they prevent the adverse effect on the autonomy of EU law, in particular by providing for the procedure of reference for a preliminary ruling.

After the Achmea judgement, the Member States (and the ‘second group states’ as the usual suspects in particular) may breathe a sigh of relief. At first glance, the ‘freezing effect’ of the prospect of being summoned before an arbitral tribunal for making use of its regulatory powers seems diminished. Yet, it could be premature to perceive the Achmea judgement as strengthening the host state’s position. In fact, the CJEU has augmented its own position and secured its judicial monopoly.

Where does that leave the protection of investment within the Single Market? The European Commission’s approach in the proceedings was based on the premise that the EU law itself already provides for ‘full protection’ of investment. The CJEU stressed the importance of common values under Article 2 TFEU, as well as mutual trust and the principle of sincere cooperation. By endorsing the European Commission’s view, the CJEU effectively vouched for the same ‘full protection’ of EU law, whether specific investment protection legislation will be introduced into the EU law (as proposed here) or not. Therefore, the Achmea judgement should be seen in its essence as a promise. Investors within the EU have been left with little choice but to rely on it. It remains to be seen if the European Commission and the CJEU can deliver on that promise.

The views set out in this publication are those of the author and do not necessarily reflect the opinion of any entity he may be associated with.

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Pakistan’s Dilemma with Foreign Arbitrations

Tue, 2018-04-24 03:00

Hassan Raza

The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“Convention”), 1958 was adopted by Pakistan on 14 July 2005 through the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Ordinance, 2005. This was re-promulgated in the years 2006, 2007, 2009 and 2010 until it was finally enacted in 2011 (“2011 Act”).

 

The purpose of the 2011 Act was to adopt the Convention by recognising and enforcing: (i) foreign arbitration agreements (under Sections 3 and 4 of the 2011 Act); and (ii) foreign arbitral awards (under Sections 6 and 7 of the 2011 Act). In doing so, the 2011 Act limited the judicial discretion of the Pakistan Courts (by using the word “shall”) and repealed the Arbitration (Protocol and Convention) Act, 1937 (“1937 Act”).

 

With the enactment of the 2011 Act, international award creditors filed applications for recognition and enforcement of the foreign awards on the basis that the new law was clearer and had lessor scope of judicial intervention. The 2011 Act, being a special law, was to be strictly construed with the effect that the Courts under Sections 6 and 7 of the 2011 Act “shall” not refuse an application for recognition and enforcement of the foreign award unless it was contrary to the grounds enumerated in Article V of the Convention. However, in practice, the Pakistan Courts could not adapt to the radical change in law (since the 1937 Act) and, consequently, the recognition and enforcement of foreign awards was delayed (making such awards redundant) or inconsistent judgments were passed contrary to the established principles of arbitration.

 

The judgment of the Lahore High Court titled Taisei Corporation versus A.M. Construction Company (Private) Limited, PLD 2012 Lahore 455, is a first example in which the Court, while interpreting Section 14 of the Arbitration Act, 1940 (“1940 Act”) and Sections 6 and 7 of the 2011 Act, held that the powers of the Court to recognise and enforce a foreign award under the 2011 Act are limited and thus, the general remedy to seek recognition and enforcement under Section 14 of the 1940 Act would remain available. This appears to be incorrect as the 1940 Act applies to domestic awards and not foreign awards.

 

Another interesting interpretation is the judgment of Abdullah versus CNAN Group Spa, PLD 2014 Sindh 349, which held that an award debtor could not seek to nullify a foreign award through a civil suit filed against such award on the grounds mentioned in Article V of the Convention. The Court held that the grounds mentioned in Article V could only be taken by the award debtor in defence to any proceedings initiated by the award creditor for recognition and enforcement of the foreign award.

 

A unique perspective was seen in the judgment of Rossmere International Limited versus Sea Lion International Shipping Inc., PLD 2017 Baluchistan 29, in which the Quetta High Court recognised a foreign award but rejected its enforceability on the basis that the award debtor did not have any assets or bank accounts in the territorial jurisdiction of the Court. It also created an interesting procedural deviation by holding that: (i) in the case of assets and person (i.e. of the award debtor), a civil suit (which could result in a re-trial) for recognition and enforcement is to be filed by the award creditor in the court of territorial jurisdiction where such assets / person are present; and (ii) in the case of a money award, an application for recognition and enforcement is to be filed by the award creditor in the court of territorial jurisdiction where the bank accounts of the award debtor are maintained.

 

This procedural issue has led Pakistan Courts astray in the previous century and also defeated the purpose of international arbitrations. The 2011 Act aimed to address it but it does not also specify any procedure for the Courts to recognise and enforce foreign awards. Moreover, the Federal Government has also not framed any rules under Section 9 of the 2011 Act which outlines a procedure for recognition and enforcement of foreign awards. Pakistan Courts have thus remained inconsistent with respect to the procedure for recognition and enforcement of the foreign awards and are unable to  decide inter alia : (i) whether an award creditor is required to file a civil suit (which could result in a re-trial) or an application (summary procedure) for recognition and enforcement of the foreign awards; and (ii) the parameters of the Court’s discretion and powers in recognising and enforcing foreign awards.

 

In this context, two cases pending before the Lahore High Court are of particular interest. In these cases, the award creditors have filed applications under the 2011 Act for recognition and enforcement of foreign awards passed by the International Cotton Association. In the first case, namely Louis Dreyfus SA Commodities versus Acro Textile Limited, Civil Original No.649 of 2012, I am representing the award creditor (Louis Dreyfus) before the Lahore High Court. The matter is in adjudication since the year 2012 with over forty (40) hearings in which I and my counter-part have addressed the Court on the above questions but the respective judges have not passed any judgment in the matter – which has thus suffered inordinate delay.

 

The second case is Jess Smith and Sons Cotton LLC versus D.S. Industries, Civil Original No.628 of 2014, in which the Lahore High Court has passed an Order dated 12 December 2017 which held that the interpretation of Articles IV and V of the NY Convention (to make any factual inquiry in terms thereof) “usually involve investigation into the disputed questions but it is not in every case that the Court would be under obligation to frame issues, record evidence of the parties and follow the procedure prescribed for decision of the suit. In my view, the matter has been left to the satisfaction of the Court which has to regulate its proceedings and keeping in view the nature of the allegations in the pleadings, may adopt such mode for its disposal, as in consonance with justice, the circumstances of the case may require. It is thus within the competence of this Court to frame formal issues and record evidence if the facts of a particular case so demand. So far as the case on hands is concerned, inter alia, the questions whether the e-mails/ letters available on record constitute contract containing arbitration; whether Pakistan AXA International was duly authorized to act as an agent of the plaintiff; and, whether the arbitration proceedings were conducted in accordance with the rules of the International Cotton Association Limited, in my view, are the questions which cannot be decided without framing issues and allowing the parties to adduce evidence in support of their respective claims…In view of above, office is directed to fix this case on 12 .01.2018 for framing of issues.” (emphasis added).  In other words, the Lahore High Court is likely to adjudicate the matter as a court of appeal1)Deriving appellate powers from Section 107 of the Civil Procedure Code, 1908 including framing additional issues and conducting evidence. jQuery("#footnote_plugin_tooltip_3752_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3752_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); – a concept that has been domestically and internationally denounced by the superior courts. It is unfortunate to see that the Court appears to have travelled beyond its jurisdiction in adopting the code of civil procedure and decided to frame issues and conduct evidence. In my view, the Court should have simply evaluated the foreign award in terms of the grounds mentioned in Article V of the NY Convention and accepted or rejected the award without venturing into further inquiry. This case is likely to settle an unwanted precedent which must be criticised for defeating the purpose of the 2011 Act and the NY Convention.

 

In the author’s opinion, the answer to Pakistan’s problem in recognising and enforcing foreign awards lies in an article authored in the year 2004 by the present Chief Justice of Pakistan namely Justice Mian Saqib Nisar titled International Arbitration in the context of Globalization: A Pakistani Perspective which stated that “The enforcement of foreign awards has also been much simplified and the legal framework strengthened in favour of the award…The Convention, and hence the Ordinance, can be said to have a “pro- enforcement” bias and a strong case can be made out that the grounds under Article V are to be applied restrictively and construed narrowly  (emphasis added). This simple, yet important, guideline has the capacity to remove major inconsistencies in interpreting the 2011 Act and improve the quality of precedents of the Pakistan Courts at par with its international counterparts.

 

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References   [ + ]

1. ↑ Deriving appellate powers from Section 107 of the Civil Procedure Code, 1908 including framing additional issues and conducting evidence. 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 Rule of Law
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Adverse Inferences in Defense of Good Faith

Mon, 2018-04-23 07:05

Menalco Solis

Principles of adverse inferences are applied universally. International law endorses the arbitrator’s inherent authority to draw adverse inferences against a party for unjustified non-compliance with an order to produce information. Moreover, arbitrators can rely on general principles of law when applying adverse inferences as a basis for decisions.

The general principle of good faith imposes a positive obligation on parties to cooperate in international arbitration proceedings. Contracts like treaties in international law carry the obligation to honor the agreed undertaking according to good faith. 1)See Charles T. Kotuby Jr. and Luke A. Sobota, General Principles of Law and International Due Process 90-91 (2017); see also Bin Cheng, General Principles of Law as Applied by International Courts and Tribunals 113 (1993). jQuery("#footnote_plugin_tooltip_1794_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1794_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Because arbitration agreements are a type of contract, good faith requires that parties submit to the “obligation to act with fairness, reasonableness, and decency in the formation and performance” 2)Kotuby and Sobota, General Principles of Law and International Due Process, supra note 1, at 88 jQuery("#footnote_plugin_tooltip_1794_2").tooltip({ tip: "#footnote_plugin_tooltip_text_1794_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); of agreements to arbitrate disputes.

It may be rather dubious to exact a definition of the good faith principle, but the duty imposed can be illustrated by experience. Whether it derives from a contract, national, or international law, good faith commands that parties cooperate in the evidentiary procedure. That is, parties must provide truthful responses to information requests, not use document production to obstruct proceedings, and produce responsive documents and witnesses following an evidence order. Also, when the parties agree to be guided by the IBA Rules on the Taking of Evidence in International Arbitration, they agree to be guided by good faith in evidence production.

Good faith compels the parties to marshal the relevant and material information that is within their control and not protected by a privilege. Justified refusals against producing document or witness evidence generally go towards the scope of the evidence request or are based on a control or privilege argument. A justified refusal does not infringe the good faith duty and forecloses the drawing of an adverse inference.

Nevertheless, adverse inferences are warranted for the sake of enforcing good faith. The breach of procedural good faith does not give way to a separate cause of action, but it does allow for arbitral tribunal recourse. The authority to draw adverse inferences can derive expressly from the law of the forum, the arbitration rules, or by way of the IBA Evidence Rules. Moreover, as a matter of international law, arbitral tribunals are inherently equipped to safeguard the integrity of the arbitration in the face of party non-compliance. While a party can choose at its own peril to default in arbitration, tribunals have the inherent recourse to adverse inferences against failures to produce responsive information, which derives from their authority to weigh the evidence and to govern the procedure.3)Menalco J. Solis, Adverse Inferences in Investor-State Arbitration, Arb. Int’l 79, 81-85 (2018). jQuery("#footnote_plugin_tooltip_1794_3").tooltip({ tip: "#footnote_plugin_tooltip_text_1794_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Whether arbitral tribunals draw adverse inferences in defense of good faith, in any event, may depend on fairness and efficiency. Fairness is considered because adverse inferences bridge gaps in information that a party may need to make out their case effectively. To invoke adverse inferences, however, the breach of good faith or unjustified non-cooperation must be attributable to the party against whom the adverse inference is sought. For instance, in Copper Mesa Mining v. Ecuador, the tribunal refused to draw the respondent’s adverse inferences from several witnesses’ failure to appear (fugitive and former employers) because the non-cooperation of the private individuals could not be attributed to the claimant.

Furthermore, when a party seeks an adverse inference regarding information that the counterparty refused to produce, that party must have itself cooperated in good faith and been unable to produce the information. For example, in ConocoPhillips v. Venezuela, the tribunal refused to draw an adverse inference regarding any misrepresentation in contractual negotiations because both parties failed to provide evidence regarding the negotiations. Fairness considerations also require the inference request to be reasonably related to the non-production. As in Busta v. Czech Republic, the respondent requested the adverse inference that the claimant did not own all the items on a list of goods because the invoices it provided did not cover their entire value. The tribunal refused to draw the adverse inference that the claimant lacked ownership because the discrepancy alone was an insufficient basis to make that assertion.

Efficiency is considered, on the other hand, because tribunals may refuse to decide matters that are unlikely to succeed on their face or that do not require an answer in order for it to render a decision. Accordingly, the tribunal can decide not to address the breach of procedural good faith and the ancillary adverse inference request if it considers that the request is unlikely to succeed or that it is unnecessary. For example, in WNC Factoring Ltd. v. Czech Republic, the claimant requested an adverse inference to be drawn from the respondent’s unwillingness to produce its employee to testify. The adverse inference from the non-appearance went to substantiate the claimant’s corruption claim. The tribunal found, however, that the claimant failed to muster a prima facie showing of corruption and therefore any adverse inference in that regard could not succeed without more evidence. The refusal to address the adverse inference in WNC Factoring was a matter of arbitral efficiency: although an adverse inference may have been warranted in light of the refusal to cooperate, it was unnecessary to resolve the adverse inference going to bolster a claim that was obviously doomed.

The case of Orascom TMT Investments S.à r.l. v. People’s Democratic Republic of Algeria is also illustrative. The respondent requested the adverse inferences that the claimant did not have a protected invested because it did not produce certain contracts and that it waived its right to bring a damages claim because it did not produce the board minutes related to the sale of its investment. The tribunal never addressed the adverse inference regarding the contracts because it found that the claimant had an independent basis for establishing an investment that did not depend on the contracts. Also, and while the tribunal did not opine on the matter, the adverse inference regarding the contracts could have been rejected outright as a matter of general principles because the contracts were not originally covered by a document production request and the claimant did not rely on them to assert jurisdiction. The claimant, therefore, had no burden to produce the contracts and the claimant did not resist an evidence order that could implicate its procedural good faith obligation. Furthermore, the respondent’s adverse inference request regarding the board minutes may have been warranted, but the tribunal did not address the question because there was an independent and adequate basis to find that the claims were inadmissible. The fact that the claimant sold its shares alone supported the conclusion that it waived its right to claim damages for past harms, which attached to the shares.

Comparatively, in Windstream Energy LLC v. Canada, the claimant requested the adverse inference that the government directed the adoption of a moratorium that negatively affected its investment to support its claim that the moratorium was attributable to the respondent. The adverse inference was to be drawn from the fact that documents were deleted from the premier’s office. The tribunal ultimately did not consider the adverse inference question and whether the documents were intentionally deleted because it already found that imposing the moratorium was attributable to the respondent. The Flemingo DutyFree Shop Private Ltd. v. Poland tribunal similarly found it unnecessary to draw adverse inferences from any failure to comply in the document production for establishing attribution because the evidence in the record was a sufficient basis for attributing the acts or omissions to the respondent.

In short, there is a procedural good faith obligation in international arbitration, which requires that the parties cooperate in the evidence gathering procedure. If procedural good faith is breached in evidence gathering, this can result in the drawing of an adverse inference.  Adverse inferences are justified as a matter of general principles of law and apply in defense of the parties’ obligation of procedural good faith. Whether a tribunal addresses the adverse inference question ultimately depends, however, on considerations of fairness and efficiency.

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References   [ + ]

1. ↑ See Charles T. Kotuby Jr. and Luke A. Sobota, General Principles of Law and International Due Process 90-91 (2017); see also Bin Cheng, General Principles of Law as Applied by International Courts and Tribunals 113 (1993). 2. ↑ Kotuby and Sobota, General Principles of Law and International Due Process, supra note 1, at 88 3. ↑ Menalco J. Solis, Adverse Inferences in Investor-State Arbitration, Arb. Int’l 79, 81-85 (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 Rule of Law
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Foreign Investments in Poland in Light of the Achmea Case and “Reform” of Polish Judicial System – Catch 22 Situation?

Sat, 2018-04-21 18:02

Marcin Orecki

On 6 March 2018, the Court of Justice of the European Union (“CJEU”) in the case no. C‑284/16 Slovak Republic v. Achmea BV (“Achmea case”) (available here) stated that arbitration agreements concluded between the Member States of the European Union (“EU”) in the so-called intra-EU BITs have an adverse effect on the autonomy of EU law. Achema case is a precedent in many respects and has already resulted in many comments.  It must be noted  that the Judgment of the CJEU prima facie is not surprising – taking into account primacy and autonomy of the EU law – especially the four freedoms of the Single Market of EU: free movement of goods, capital, services and labour. This post aims however to highlight a probably unintended aspect of the Achmea case which might lead to difficulties of a legal situation for foreign investors in EU Member States in which judicial systems are not efficient or have issues with political influence (see the fifth edition of the EU Justice Scoreboard, available here).

The Achmea case, as entire EU Law, is based on the principle of mutual trust and cooperation between EU Member State. Using the words of the CJEU in the Achmea case:

“EU law is […] based on the fundamental premise that each Member State shares with all the other Member States, and recognizes that they share with it, a set of common values on which the EU is founded, as stated in Article 2 TEU. That premise implies and justifies the existence of mutual trust between the Member States that those values will be recognized, and therefore that the law of the EU that implements them will be respected […] In order to ensure that the specific characteristics and the autonomy of the EU legal order are preserved, the Treaties have established a judicial system […] it is for the national courts and tribunals and the Court of Justice to ensure the full application of EU law in all Member States and to ensure judicial protection of the rights of individuals under that law […] Article 8 of the BIT [arbitration agreement – added by the author] is such as to call into question not only the principle of mutual trust between the Member States but also the preservation of the particular nature of the law established by the Treaties, ensured by the preliminary ruling procedure provided for in Article 267 TFEU, and is not therefore compatible with the principle of sincere cooperation” [emphasis added].

The mutual trust between the EU Members led the CJEU to the conclusion that an arbitration agreement concluded in the intra-EU BITs is incompatible with EU Law. This should not be controversial. However, the devil, as always, lies in the detail. Poland can serve as an example.

In 2016, the Polish Government initiated a so-called “reform” of the Polish judicial system (see my post on this reform here). The Polish Government “reformed” the Polish Constitutional Tribunal, the National Council of the Judiciary of Poland (constitutional organ safeguarding independence of courts and judges), the Polish Ordinary Courts and finally the Supreme Court. Many of the amendments are deemed by some unconstitutional. The reform of the Polish judiciary lead to the precedent procedure adopted under art. 7(1) of the Treaty on European Union (see here).

Simultaneously with the “reform” of the Polish judicial system, the Polish Government started to terminate intra-EU BITs (see my posts here, here). Until now, Poland commenced the procedure to terminate its BIT with Portugal, Denmark, Netherlands, Cyprus, BLEU – Belgian – Luxembourg Economic Union, France, Austria, United Kingdom, Bulgaria, Germany, Finland, Spain, Greece, Sweden, Latvia, Lithuania, Hungary and Croatia. The Polish Government persistently repeats:

“the law, as well as access to courts in Poland, guarantees foreign investors the protection of their investments with a possibility to execute investors’ rights before courts. Poland , as an EU Member State, established democracy which respects market rules and has a confident, independent, and impartial judiciary system”.

One may say that reasons given by the Polish Government to justify termination of intra-EU BITs concur with the reasoning of the CJEU in the Achmea case. However, in the light of the “reform” of the Polish Judicial system reasons given by the Polish Government are questionable, especially in the eye of other EU Member States. On 13 March 2018, it was reported that the Irish High Court decided to ask the CJEU for a ruling on the effect of recent legislative changes in Poland which are, in the opinion of the Irish Court

“so immense, the High Court has been forced to conclude that the common value of the rule of law has been systematically damaged and democracy in Poland has been breached. The recent changes in Poland have been so damaging to the rule of law that this Court must conclude that the common value of the rule of law as well as democracy in Poland had been breached. Respect for the rule of law is essential for mutual trust in the operation of the European arrest warrant”  (the case deals with an extradition due to the issued European Arrest Warrant, see here, here, here).

We will have to wait for the decision of the CJEU regarding the “reform” of the Polish Judicial system and its effects on the mutual trust and cooperation between Poland and other EU Members. At this moment, one may aptly ask the question: If the arbitration agreements concluded in the intra-EU BITs are incompatible with EU Law (what is now confirmed by the CJEU) and if the rule of law has been violated in Poland, then where and how should foreign investors execute their rights?

Prof. Nikos Lavranos in his Kluwer blog post proposed to

“One way to improve the situation could be to draft and adopt an EU regulation on investment protection that would incorporate the substantive and procedural standards currently contained in the gold standard BITs, such as in particular the Dutch BITs.

Accordingly, this regulation would contain the Fair and Equal Treatment, Most-Favored-Nation, National Treatment standards as well as an (in)direct expropriation with full compensation provision and an umbrella clause. The procedural standards would include specified timelines for concluding the proceedings and guarantees for the impartiality and independence of domestic courts.”

This proposition sounds interesting. However, it is somewhat doubtful that an EU regulation would intervene into a procedural aspect of investment protection before domestic courts or influence institutions of a particular judicial system of an EU Member State in order to guarantee the impartiality and independence of domestic courts from political influence (institutional aspect).

Hence, another solution which would allow foreign investors to execute their rights would be a creation of a separate, independent adjudicatory body (whether ad hoc or permanent) which would represent a neutral forum. It could be similar to the Iran-United States Claims Tribunal or take the form of the (EU) Multilateral Investment Court. Namely, on 20 March 2018, the Council adopted the negotiating directives authorising the EU Commission to negotiate, on behalf of the EU, a convention establishing a multilateral court for the settlement of investment disputes (see here). It would, therefore, be important to include intra-EU investment disputes under the jurisdiction of the court. An example of other independent bodies and committees which could serve as an example are the Advisory Commission and the Alternative Dispute Resolution Commission, which will act under the EU Council Directive 2017/1852 of 10.10.2017 on tax dispute resolution mechanisms in the EU.

The Achmea case has “emancipated” EU Member States and investors from arbitral tribunals constituted under the intra-EU BITs. Now the EU, in order to guarantee investors right for independent and impartial proceedings, must provide them with an independent body of a different external appearance but of an identical function. One could say that intra EU-BITs constitute a thesis, whereas the Achmea case constitutes the antithesis. The synthesis will be reached once the EU adopts an effective mechanism for the protection of EU investors and replace the old system. Until that moment, foreign investors are probably in a “Catch 22” situation.

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What Next for Intra-EU Investment Arbitration? Thoughts on the Achmea Decision

Sat, 2018-04-21 03:38

Neil Newing, Lucy Alexander and Leo Meredith

On 6 March 2018, the Court of Justice of the European Union (the “CJEU“) delivered its ruling in the case of Slovak Republic v Achmea (“Achmea“), holding that the investor-state arbitration provisions in a bilateral investment treaty (“BIT“) between the Netherlands and the Slovak Republic are invalid, as they are incompatible with EU law.

In reaching the opposite conclusion to that set out in the Advocate-General’s Opinion in September 2017, the CJEU decided that: (i) a tribunal formed under the BIT could be called on to interpret or apply EU law (because EU law is part of the law of both States and because EU law derives from an international agreement between the States), yet (ii) the dispute resolution mechanism of the BIT could prevent the kind of legal review of EU law questions that is required by EU law as a tribunal formed under the BIT had no power to make a reference to the CJEU. This had an adverse effect on the autonomy of EU law and, accordingly, the arbitration clause was incompatible with EU law.

The CJEU’s judgment raises more questions than answers, not least as it looks, prima facie, to have far-reaching implications on both current and future intra-EU BIT disputes (there are currently 196 intra-EU BITs in force containing arbitration clauses which would potentially be affected).  It is likely as a result that attempts will be made to distinguish or get around Achmea, in order to maintain some semblance of protection for intra-EU investment. We consider three possible areas of concern below.

Impact on Countries yet to Join the EU 

Countries such as Serbia and Albania, who are currently in negotiations with the EU regarding accession, have concluded BITs with a number of EU Member States. Once they join the EU, arguably no dispute relating to an intra-EU investment made after that date could be referred to arbitration under those BITs (indeed, that was precisely the position in Achmea). However, what about investments made prior to accession? If the dispute itself arose before accession, it might be argued that neither the investment nor the measure giving rise to the dispute involve EU law, and so the CJEU’s reasoning would not apply as no tribunal would need to consider EU law.  However, this could become more complicated if the measure giving rise to the dispute did not arise until after accession, and even more so if the measure in question was a direct result of accession and the imposition of EU law into that State. Yet, when the investment was made, there would likely have been no expectation of EU law being relevant.

There is little to no direction as to whether future EU Member States will have to terminate their current BITs as a condition of accession. In any event, this will not affect investments made pre-accession, as many BITs contain ‘sunset clauses’ designed to protect investors post-termination of BITs.

It is, of course, only the ISDS (investor-state dispute settlement) mechanisms of intra-EU BITs that are potentially affected by the CJEU’s decision. The substantive protections in the BITs still exist, yet the investor would have potentially no means of effectively enforcing them. Claims could be brought before the host State’s courts, yet in many jurisdictions, i.e. those with less developed or slower court systems or where there may be issues of impartiality and lack of due process, this will not be a satisfactory alternative.

This uncertainty could (conveniently) give the European Commission the impetus required to push forward their proposals for an investment court system, mooted as an alternative to vocal opposition to the current system.

Impact on BITs Between the UK and other Member States post-Brexit

The immediate impact of the Achmea decision will be to reduce confidence in the EU as a place for investment treaty arbitration, both in terms of structuring any future investment (so as to avoid relying on intra-EU BITs) and choosing a seat for any arbitration (to avoid as far as possible any recourse to EU Member State courts). This could, however, make post-Brexit Britain more attractive.

As it currently stands, the Achmea decision arguably renders ISDS provisions in BITs between the UK and EU Member States invalid under EU law, yet once the UK leaves the EU, it will cease to be a Member State. It does not appear to be the case that the effect of the Achmea decision is to essentially ‘strike’ out ISDS provisions in BITs as if they never existed (although the European Commission may well argue to the contrary).  Therefore, arguably,  the ISDS provisions will continue to exist and could then be relied on post-Brexit as if the UK had never been a Member State.  It could, however, also be argued that they should apply only to investments carried out or disputes that arose after the UK ceased to be a Member State (as until that point the UK had been subject to EU law and the supremacy of the CJEU).

Of course, the precise relationship that will exist between the EU and the UK post-Brexit remains to be seen. There is a debate surrounding the role of the CJEU and its influence on the UK going forward, which will clearly impact the UK’s autonomy. The question of the proper resolution of investment disputes between the UK and EU Member States is also likely to be discussed in the Brexit negotiations. If, however, the CJEU is not the final point of authority post-Brexit, in line with the UK Government’s stated objective, and in the absence of any alternative mechanism, then the UK could become a more attractive place (i) to structure investments through, and (ii) as a seat for BIT arbitrations against EU Member States.

Impact on Multilateral Treaties

The Achmea decision also raises questions concerning multilateral treaties such as the Energy Charter Treaty (“ECT“).  Under this treaty, where a Member State is involved on both sides, it could be argued that the judgment in Achmea would apply as EU law may well need to be considered and applied.  However, arguably disputes under the ECT differ from those under intra-EU BITS for at least the following two reasons:

(a)             there are non-EU Member State signatories to the ECT, and

(b)             both the European Union and Euratom are signatories to the ECT in their own right.

Where a dispute is intra-EU, it may be that the CJEU looks to assert its authority as in Achmea.  However, different questions arise where the ECT is invoked by or against a party from outside the EU which has not agreed to be subject to the supremacy of EU law. This could create a situation where EU investors are unable to bring claims in arbitration against EU Member States, but non-EU investors are, effectively creating two classes of investor within the ECT, contrary to the wording of the treaty.  Indeed, a key tenet of the ECT’s investment protections is non-discrimination.

Moreover, as a signatory, the EU itself (and also Euratom) has given its “unconditional consent to the submission of a dispute to international arbitration” under Article 26(3)(a). In doing so, it has arguably also ratified the same consent given by the individual EU Member States that are signatories, and no declaration has been made by the EU that would appear to limit this consent. Arguably, therefore, the EU has already agreed, on an international level, that disputes falling under the ECT are to be dealt with by way of arbitration, effectively carving such disputes out from the jurisdiction of the CJEU. Any CJEU ruling that sought to undermine this would be undermining the political will of the signatories, and arguably also (as an institution of the EU) acting contrary to the EU’s obligations under the ECT.

It is noted that the EU has never been party to an ECT dispute.  Indeed, if it were, it could hardly argue that it lacked the capacity to set out the correct understanding of EU law to the tribunal.  However, as the EU does not have sovereignty over the energy resources of its constituent member states, it is unlikely at the current time that it would ever be a party to such a dispute.  Accordingly, there is currently uncertainty as to how the CJEU will deal with ECT claims in light of Achmea. For non-Member State investors, it may be advisable, where possible, to look to BITs as a more certain mechanism for asserting claims against Member States. When the dispute is between Member States, investors may wish to consider structuring their investments differently – through non-Member State entities that are either signatories to the ECT or, perhaps better still, that have relevant BITs.

Final Thoughts

The Achmea decision does not reach as wide as may be feared. It expressly excludes commercial arbitration and does not apply to ICSID arbitration (which is governed by the ICSID Convention). Whilst national courts of Member States will be bound by the decision, arbitral tribunals will not. Further, it may be possible to seek to isolate the decision as specific to the BIT in question. The UK could, meanwhile, seek to benefit from this uncertainty by positioning itself post-Brexit as the obvious jurisdiction for both structuring investments into the EU and bringing BIT disputes.

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Could Blockchain Help the Recognition of International Arbitration Awards?

Thu, 2018-04-19 20:00

Mauricio Duarte

 “We simply cannot go on with this utterly outmoded way of working…Endlessly re-keying in the same information; repeatedly printing and photocopying the same documents; moving files about, losing all or parts of them in the process… It is a heavy handed, duplicative, inefficient and costly way of doing our work and it is all about to go. Considerably past time, we will finally catch up with the world.”  Sir Brian Leveson.

An initial issue in any effort to obtain recognition and enforcement of an international arbitral award is the proof of the existence of an award. This subject is addressed by both the New York Convention and many national arbitration laws, which generally seek to simplify the process of proving the existence of an award. However, in a digital world, the way we operate could be more efficient. Blockchain promises to solve many problems, and just like Charlie Morgan mentioned in his article published on March 5, 2018, smart contracts executed on blockchain could be a part of the future in arbitration. Now, what if I told you that the recognition and enforcement of awards could be disrupted by blockchain as well? With blockchain, we can imagine a world in which international awards are rooted in digital code, stored in a transparent platform, and are protected from removal, tampering, and alteration Eventually, there will be no need to “prove” the existence of a duly rendered award that requires additional costs and procedures.

Under Article IV of the New York Convention, the party seeking enforcement of an award must provide: the duly authenticated original arbitral award or a duly certified copy. Additionally, if the award is not in the official language of the country in which enforcement is sought, Article IV requires that an official or sworn translation be provided. It is clear that the creditor bears the burden of proving the existence of an award under Article IV.

Many arbitration laws around the world contain provisions regarding proof of an arbitral award closely paralleling those of the New York Convention. Article 35(2) of the UNCITRAL Model Law requires parties seeking to enforce an international arbitral award to provide the original award and arbitration agreement, or “duly certified” copies thereof. Arbitration legislation in a few jurisdictions imposes less rigorous proof requirements than Article IV of the Convention. For example, the French Code of Civil Procedure omits any requirement for a certified translation or original copy of the award, instead embracing a simpler approach that an award can be proven in the same manner as contracts.

Another preliminary issue concerns the procedures that apply in national courts to actions to recognize arbitral awards. The New York Convention leaves this issue largely to national law, subject to a general principle of non-discrimination awards. The Convention thus does not require either speedy or efficient procedural mechanisms for enforcing Convention awards. It merely requires Contracting States to use procedures no more burdensome than their domestic enforcement procedures. It is clear that the Convention imposes a mandatory rule, requiring Contracting States to recognize and enforce foreign awards, except where one of Article V’s exceptions applies. Article III provides that “each Contracting State shall recognize arbitral awards as binding” and enforce awards in accordance with the Convention and its national procedural rules.

One of the central objectives of the New York Convention was to eliminate the “double exequatur”, meaning that the award needed the confirmation in the place of the arbitration before it could be recognized internationally. If either court denied exequatur, the award could not be recognized and enforced. This process made the recognition and enforcement of arbitral awards difficult, unreliable and slow. The New York Convention eliminated the double exequatur requirement, with the objective of making foreign awards efficiently enforceable and subject to fewer opportunities for judicial challenges.

If we want foreign awards efficiently enforceable, could blockchain, the technology behind Bitcoin, provide another perspective to this issue? Blockchain can best be described as a digital platform or a distributed and immutable ledger that stores records, known as blocks. Blocks can store various kinds of information; in the case of Bitcoin, blocks store information about financial transactions. These blocks, which collectively form a “blockchain”, are stored on various nodes (“computers”), which ensure that no single person or entity can manipulate the ledger without everyone else knowing.

A key property of blockchain technology, which distinguishes it from traditional database technology, is that it is publicly verifiable, supported by integrity and transparency of the system. In other words, it would be practically impossible to change an entry in the database, because it would require changing all of the data that comes before, on every single node.

With this mechanism, it is possible to store a duly rendered award in an arbitration proceeding. By having this information in the blockchain, the competent authority could verify the existence of the award and avoid additional costs, judicial proceedings, and the traditional method of doing things. Forget about having the “burden of proof” to show the existence of the award that is duly certified. The blockchain can do the task in its own.

The Harvard Business Review listed blockchain as one of the “8
Tech Trends to Watch.”  Blockchain technology is expected to disrupt many different industries, and law will be one of them. In a near future, every award, every process, and every task, will have a digital record that could be identified, validated, stored, and shared. This is the immense potential of blockchain. By having a distributed database for awards, courts can benefit from increased accessibility, accuracy, and safety, all of which will result in better and efficient outcomes.

Utilizing blockchain in arbitration could have the effect of automating recognition of awards without human action. Applications are currently in use and others are in development to use the blockchain in law. This technology will apply to almost everything in the future and, as lawyers, we will have to embrace this technology. Just be watchful.

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ICCA Sydney: The Increasing Participation of Public Entities in International Arbitration

Thu, 2018-04-19 00:29

Mitchell Dearness

Young ICCA

On the second day of the ICCA Sydney 2018 Congress, two separate panels considered ‘Arbitrations Involving Public Bodies and Public Interest Salient Issues’. The first panel, moderated by Professor Stavros Brekoulakis (Queen Mary University of London) focused on ‘the Increasing Participation of Public Entities in International Arbitration.’ The panel comprised of Marie Talašová (Government of the Czech Republic), Paolo Di Rosa (Arnold & Porter), Reza Mohtashami QC (Freshfields Bruckhaus Derringer) and Adriana Braghetta (L.O Baptista Advogados). Each panellist brought a different perspective to the table.

Experience of counsel engaged by states

Paolo Di Rosa considered the position of counsel engaged by states, noting some challenges often encountered. The expectations of states and more specifically individual representatives of states can differ to those of private clients. Often observed is an increased fear of decision-making scrutiny with regard to the conduct of a dispute and a greater reluctance to consider settlement options and the expectations of the public. Counsel might often face challenges in the context of document production and locating responsive documents – government agencies often change, merge or move to different locations. Di Rosa also raised some key considerations with respect to the type of fact witnesses engaged by states. Commonly these witnesses are former state officials who may have very little incentive or indeed might have a disincentive to participate in the arbitration. The experience of counsel may of course differ depending on the particular state and the nature of the entity being represented. For example, representing a State Owned Entity (SOE) is likely to be different from representing the state itself although, as noted by Di Rosa, this is likely to depend upon the degree of control the particular state has in the SOE’s operations and decision-making within the SOE.

Expectations of the state

Marie Talašová shared the perspective of ‘the State’ drawing from a wealth of experience negotiating investment treaties on behalf of the Czech Republic. From the state’s perspective the difference between private commercial arbitration and public investment arbitration may not be so great. This is because both types of arbitrations often involve the same economic transactions and could be related to the measures taken by states. Furthermore, the public interest implications (including expenditure of tax payer money) are usually central to both types of arbitration proceedings. Talašová‘s paper (which has been co-authored with Jaroslav Kudrna) will, once formally published in the ICCA Congress Series No. 20 publication, provide an interesting case study on the ramifications of commercial and investment arbitrations on Central European states.

Issues encountered by private parties

Reza Mohtashami QC commented from the perspective of private parties engaged in arbitration proceedings against states. Mohtashami examined some key jurisdictional and practical challenges which arise uniquely in the public-private arbitration process. One such obstacle often encountered is jurisdictional challenges in the context of commercial arbitrations launched by states. Commonly these challenges are based on certain aspects of the state’s internal domestic law. By way of example, Mohtashami refers to Article 139 of the Iranian Constitution, which makes the submission to arbitration of disputes involving state property conditional upon the approval of the Council of Ministers and notification to Parliament. Such objections rarely succeed often due to what is considered to be a ‘substantive rule of arbitration’ although it is always important for non-state parties to consider carefully the seat of the arbitration to limit the prospect of such a challenge succeeding.

Insights from Latin America

Adriana Braghetta provided an insight from Latin America, which is of particular relevance given forecasted infrastructure development and associated public-private partnerships in the impact the region. Braghetta noted that local arbitration laws with Latin American states can differ, some are more pro-arbitration than others. Nevertheless, it can be observed that some domestic laws do in some instances impose conditions on arbitration which impact the conduct of arbitrations between states and private parties. Some conditions which arise within Latin American states include the need for the relevant arbitration institution to be registered as a public entity in the jurisdiction, restrictions on the language, place and applicable law of the arbitration and the liability for costs incurred in the arbitration.

Key takeaway

There will almost always be a tension between the interests of states and private parties with regard to the manner in which public-private and investor-state arbitrations ought to be conducted. As the panel has noted there can however be some divergence between the expectations of different states. Not every state is the same. It is however necessary for counsel for both states and private-parties to be alive to these expectations and also the types of legal issues which have a proven track-record of materialising in these types of proceedings.

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ICCA Sydney: New Frontiers in International Arbitration II: Potential of Arbitration Involving New Stakeholders

Wed, 2018-04-18 23:56

Jonathan Mackojc

Young ICCA

The morning session of the last day of the ICCA Sydney 2018 Conference on “Potential of Arbitration Involving New Stakeholders” was moderated by Ndanga Kamau and had the insightful contributions of Dr. Campbell McLachlan QC, Prof. Makane Moïse Mbengue and Silvia Marchili.

Ndanga Kamau opened the final plenary session by asking the following question: why do we need to evolve? The answer was rather simple: to ensure that the industry can survive. Ndanga Kamau warned delegates that we are still restrained by the myth that inclusiveness leads to the dilution of quality practitioners (counsel or arbitrators), and it is certainly not good enough to keep thinking about inclusiveness, rather than doing what is necessary to address it. Further, in regions where international arbitration is not developed, there is nothing inherent that stops interested parties from participating in the industry. It is important that we involve new stakeholders, even those with little or no understanding of international arbitration.

Ndanga Kamau invited each of the panellists to share their views on the topic.

Dr. Campbell McLachlan QC referred to the Abyei Arbitration and the Bangladesh Factory Accord as two examples where arbitration agreements were used in an innovative manner to protect the rights of all stakeholders affected by the subject matter of the dispute.

Dr. Campbell McLachlan QC offered five relevant themes and conclusions arising from these cases:

1. Access to new stakeholders – there is no inherent difficulty regarding access as it comes down to the will of the disputing parties as well as the arbitration community.

2. Role of arbitration in wider process of dispute settlement – arbitration is only part of a larger dispute resolution process, but it is a significant part.

3.
Engagement of the international community – a reference was made to Chief Justice Sundaresh Menon’s speech earlier in the conference. It was agreed that the success of the global system depends not only on party autonomy but more importantly active support from the international arbitration community.

4. Capacity of arbitral process to handle disputes – the arbitral process has the capacity to deal with claims other than those where a contact or treaty is invoked.

5. Enlargement of facilitation – processes must be developed to promote facilitation, rather than to inhibit collective claims. This will ensure consistency, efficiency and most importantly access. Tribunals must actively promote the consolidation of claims.

Dr. Campbell McLachlan QC assured delegates that a strong understanding of these five key messages will ensure that arbitral tribunals are viewed as being highly independent, impartial, and international.

Silvia Marchili considered that evolution naturally brings about unintended consequences, and that we often fail to appreciate this as we are overly fixated on new initiatives. Silvia Marchili acknowledged the concerns regarding the legitimacy of ISDS, where some nations have denounced the ICSID Convention and where negotiations regarding regional agreements have often veered off course. Further, involving the local population in the process has a limited impact. Although NGOs and other community organisations may help ‘demystify the secrecy aspect’ of international arbitration, they alone are not capable of addressing broader concerns regarding the legitimacy of arbitration.

Silvia Marchili compared international arbitration to teenagers who believe they are capable of changing the world, questioning whether arbitration is in fact a suitable mechanism to solve human rights disputes. Silvia Marchili left the audience with two proposals which may assist with business and human rights (BHR) disputes: working groups and the need to amend BITs and other investment agreements to better reflect matters of consent, arbitrability, and enforceability.

The final part of the panel discussion involved a brief update on investment arbitration in Africa, and how new stakeholders are being considered in recent negotiations of agreements. Prof. Makane Moïse Mbengue noted that African countries have now become ‘rule-makers’, as opposed to ‘rule-takers’ as Africa is becoming more innovative, particularly with respect to new stakeholders in arbitration. Africa has also strived to strike a balance between rights and obligations in agreements, with the latter recently receiving significant attention. Many agreements also now include provisions regarding investor liability.

Prof. Makane Moïse Mbengue also highlighted that there is significant divergence regarding whether or not ISDS requires reform, and suggested that if it is to be reformed, the best avenue is by arguing that it must welcome (and be more accessible to) new stakeholders. Such an approach is ideal as it would also ease general concerns regarding ISDS reform in African countries.

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