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A Data-Driven Exploration of Arbitration as a Settlement Tool: Are Case Outcomes Affected by the Size of the Claim?

Sun, 2019-05-05 00:12

Brian Canada, Debi Slate and Bill Slate

The growing repository of international commercial arbitration case data maintained by Dispute Resolution Data (DRD) is designed to enable practitioners to use analytical tools, ranging from simple to complex, for gleaning valuable insights into the effectiveness of arbitration as an alternative dispute resolution mechanism. For example, we showed in our first blog post that among the 3,500+ active international arbitration cases in DRD’s database, a sizeable majority result in settlement/withdrawal—and in many cases, this outcome is reached relatively quickly, often within one year following the claim date and before any counter-claims or hearings. Since then, we have published follow-up results that dive continually deeper into the dataset to show how the patterns of arbitration case outcomes can vary depending on case type and other parameters.

Here, we examine the potential effect of the size of the claim, both alone and in conjunction with case type, on the outcomes of international commercial arbitration cases, with a specific focus on whether the case resulted in settlement/withdrawal (as opposed to other outcomes, such as the rendering of an award judgment, dismissal of the case, or administrative closure). For the sake of keeping the analysis relatively simple, we will group the cases into three different ranges of claim amounts corresponding to successively larger orders of magnitude. The first range consists of smaller claims, totaling $1M or less (where M = “million”). The second range includes cases with claim amounts between $1M and $10M, and the third range includes cases with the largest claim amounts (totaling $10M or more).

When looking at an aggregate view across all case types in the DRD database, there appears to be an inverse relationship between the claim amount and the likelihood of reaching settlement or withdrawal. As depicted in Figure 1, the average settlement frequency for cases with the smallest claim amounts ($1M or less) is 60%, with a margin of error of ±2% (computed at a 95% level of confidence). Cases with claim amounts in the range of $1M to $10M had a settlement frequency of 54% ± 3%, and the largest cases ($10M or higher) settled at a frequency of 43% ± 4%.

Figure 1. Estimated frequencies at which settlement/withdrawal is reached for international commercial arbitration cases (since 2005), as computed across all case types from the DRD database, and for successively larger ranges of claim amount ranges. Each measurement is annotated with the DRD Signal Strength, which is closely tied to the size of the sample used in the analysis (thereby reflecting data quantity, not quality.) Claim amounts for international cases have been converted to U.S. Dollars for the purpose of this analysis.

 

The DRD Signal Strength, introduced in our October 2018 blog post, is our proprietary indicator of the degree of confidence that the data samples used in our analysis are reflective of the corresponding populations of all such international commercial arbitration cases that meet the same criteria. Similar to examples we have shown previously, larger sample sizes yield a higher “signal strength,” and with the relatively large samples analyzed here (1911 cases with claim amounts of $1M or less, 974 cases with claim amounts between $1M and $10M, and 574 cases with claim amounts of $10M or more), the high signal strength — 5 out of 5 for all three claim amount ranges — is not surprising. Consequently, we can be reasonably confident that the true proportion of international commercial arbitration cases reaching settlement appears to decrease with increasing claim size.

The apparent inverse relationship between claim amount and settlement/withdrawal frequency motivates many possible questions, but one must recognize that we are looking at an overall, “aggregate” view of the data. Could a similar relationship be observed for specific case types—or, at the very least, are there any differences in settlement frequency with respect to the claim amount’s order of magnitude?

Figures 2A through 2D illustrates the settlement/withdrawal frequencies, for each of the three claim amount ranges, across four of the most well-represented case types in the DRD database, respectively: commercial contracts, construction, wholesale & retail trade, and hospitality & travel. For at least one of these case types, there appears to be a pattern of decreasing settlement frequency with increasing claim amount, although the “steadily decreasing” behavior observed in the aggregate view (depicted in Figure 1 above) is not as apparent.

For example, smaller cases ($1M or less) in the commercial contracts category (Fig. 2A), appear to settle at a very high rate (71% ± 3%), with the settlement rate dropping off considerably for cases between $1M and $10M (34% ± 12%) and above $10M (39% ± 17%). In addition, we see what appears to be a drop-off in settlement frequency for cases in the hospitality & travel category (Fig. 2D), but this appears to occur only for cases with claim amounts above $10M, and there is a significant margin of error due to the very small number of cases that fall into this claim amount range. For cases in the commercial contracts category, there is no overlap in the margin of error between the groups of cases with the smallest ($1M or less) and largest ($10M or more) claim amounts, suggesting the possibility of a relationship between claim size and case outcome—at least for this particular case type. However, for the other three case types shown (Figs. 2B-2D), the possibility of a relationship between claim amount and settlement frequency is much less clear, owing largely to the significant margin-of-error overlap across all three claim amount ranges.

Figures 2A through 2D. Differences in the estimated proportions of international commercial arbitration cases (since 2005) that result in settlement/withdrawal, for each of four highly represented case types in the DRD database, grouped by claim size range.

 

The results shown in Figures 2A through 2D suggest that the combination of case type and claim amount could have a potential effect on settlement frequency, but such an effect may only be limited to certain case types. A more complex analysis (at a minimum, a test for statistical significance) would be required to determine the probability that a case’s outcome is potentially dependent on the range in which the case’s claim amount falls. As an example, it can be shown from the results of performing a chi-square (????2) test of independence that for these three ranges of claim amounts (i.e., $1M or less, $1M to $10M, and $10M or higher) and the two outcomes studied herein (i.e., settled/withdrawn vs. not settled/withdrawn), there is a very low, almost negligible probability that reaching an outcome of settlement or withdrawal is independent of the claim amount range—at least for those cases in the commercial contracts category. This appears to be in line with the evidence presented in Figure 2A above, which suggests that—for this case type—there appears to be some relationship between claim amount and settlement frequency.

In contrast, performing a chi-square test of independence for each of the other three case types (construction, wholesale/retail trade, and hospitality & travel) results in a much higher probability of the data observed under the hypothesis that a case’s outcome and the size of its associated claim amount are independent. In other words, we cannot reject the possibility that the size of the claim has little or nothing to do with the outcome of the case, given the data that we currently have available for these three case types. When you look at Figures 2B through 2D above, this should make sense—the proportions of cases reaching settlement/withdrawal for each range of claim amounts appear not to be that different, especially considering the significant overlap in the margins of error across the three claim size ranges.

For space considerations, a detailed walkthrough of the computations involved in this and other tests for significance will be reserved for a future blog post, but of note: a chi-square test based on the data aggregated across all case types (i.e., the data depicted in Figure 1) yields a very low probability that the outcome of a case is independent of its claim amount range. This suggests that performing similar significance tests for other case types (beyond the four case types analyzed herein) could potentially produce results similar to those computed for the commercial contracts category.

DRD continues to grow and strengthen the quantity and quality of international commercial arbitration case data in its repository. In future blog posts, and as noted above, we plan to present at least one tutorial to illustrate the basics of statistical hypothesis tests, such as the chi-square test of independence that was summarized above, and possibly others. We also plan to explore the costs associated with various input variables (including but not limited to claim amount and case type), which can potentially help practitioners to set realistic budgets for international commercial arbitration cases in which they may be involved.

 

 

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Enforcement of Awards Against Sovereign States in Russia: Recent Developments

Sat, 2019-05-04 00:11

Nikita Kondrashov

Several authors have already discussed the enforcement of arbitral awards in Russia (see for example the recent posts on the issue estoppel and public policy in recognition and enforcement proceedings, on the confusion relating to the material scope of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and on the enforceability of awards rendered on the basis of model arbitration clauses).

Notwithstanding the above, the issues related to recognition and enforcement of awards issued against sovereign states in Russian courts have not yet been discussed on this blog. While this issue was also recently addressed in recognition and enforcement proceedings in Entes Industrial Plants (see case A40-230382/2018), the analysis made by Russian courts during recognition of OJSC Tatneft v. Ukraine  award remains the most thorough one.

The outcome of the recognition and enforcement proceedings in both cases can have considerable practical implications. A few former Soviet states may still have assets in Russia that claimants can use to enforce arbitral awards. For instance, as only Belarus, Kazakhstan and Uzbekistan are now involved in at least ten ICSID cases altogether, it is likely that investors may eventually seek recognition and enforcement in Russia should they succeed with their claims. Therefore, the outcome of both the above-mentioned proceedings becomes relevant, given their likely impact on the approach of Russian courts to enforcement against other states’ assets in Russian territory.

The Tatneft Award

The Tatneft award dealt with a number of claims of the Russian oil company Tatneft under the Russia-Ukraine BIT (“BIT”). On 29 June 2014, the tribunal, seated in Paris (France), unanimously found that Ukraine had breached the BIT and was liable to pay compensation amounting to 112 Million USD to Tatneft.

Tatneft sought to recognize and enforce the award in several jurisdictions, including Russia. The approach of the Russian courts to Tatneft’s application was rather peculiar. The Russian courts initially refused to recognize and enforce the award on the ground that Russian courts could only assume jurisdiction over such proceeding if Ukraine had assets that could be used to enforce the award within their territorial jurisdiction. It took Tatneft almost two years to convince the courts to reconsider this position.

Enforcement in Moscow Courts – The Requirement of “Effective Jurisdiction

The legal framework governing sovereign immunities in Russia is set by the Federal law “On jurisdictional immunities of foreign states and their property in Russian Federation” (“FIL”). This law draws a distinction between immunity from jurisdiction, i.e. immunity of a state from being sued in the courts of another state, and immunity from enforcement, i.e. immunity of the property of a state from measures aimed at enforcement of court decisions by another state. According to the FIL, a number of sovereign properties, e.g. properties used for diplomatic purposes, enjoy immunity from enforcement.

The rules for enforcement of arbitral awards in Russia are governed by the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“the NY Convention”), the Code of Arbitrazh Procedure of the Russian Federation (“CAP”), and the arbitration law largely based on the UNCITRAL Model Law on International Commercial Arbitration. Within that framework, the recognition and enforcement of foreign arbitral awards and actual enforcement of recognized awards are two distinct stages of proceedings. The courts handle the recognition and enforcement proceedings of foreign arbitral awards in accordance with the NY Convention and other applicable domestic laws. After the competent court recognizes a foreign award in Russia, the court bailiff carries out the actual enforcement against debtor’s assets.

Article 242 of the CAP provides that the application for enforcement of an award can be filed either at the place where the debtor of the award is located (“seat criterion”) or at the place where the debtor’s property is located (“property criterion”). Unless either of these criteria is met, Russian courts will not accept jurisdiction (see e.g. the Ruling of the Russian Supreme Court in the case A40-183971/2016 dated 11 September 2017).

As Ukraine owned several buildings in Moscow, Tatneft apparently chose to rely on the property criterion and filed its application for recognition and enforcement with the Arbitrazh Court of Moscow (the court of first instance). In its Ruling, the Arbitrazh Court or Moscow held that Tatneft had failed to demonstrate that Ukraine had waived its immunity from jurisdiction in enforcement proceedings, even if it agreed to arbitration under the BIT. Adopting an interesting interpretation of Article 242 CAP, the court also found that it lacked territorial “effective jurisdiction” in the case under the property criterion, as Ukraine’s buildings in Moscow were used for diplomatic purposes and enjoyed immunity from enforcement. Tatneft subsequently challenged this ruling before the cassation court, the Arbitrazh Court of Moscow District.

In its Decree of 29 August 2017, the cassation court disagreed with the reasoning of the court of first instance. Firstly, it found that Ukraine had waived its immunity from jurisdiction both in respect of arbitration proceedings and any subsequent recognition and enforcement proceedings by agreeing to arbitration under the BIT. Secondly, the cassation court concluded that the NY Convention does not allow a refusal of recognition and enforcement of an award on the grounds of immunity of the debtor’s property from enforcement. Therefore, the court implicitly concluded that immunity of debtor’s property from enforcement was irrelevant at the stage of the recognition and enforcement proceedings. The cassation court also reasoned that the court of first instance misapplied Article 242 the CAP because the seat criteria of Article 242 of the CAP was still met, as Ukraine’s official diplomatic representative was located in Moscow.

On those considerations, the cassation court returned the case back to the court of first instance, i.e. Arbitrazh Court of Moscow, for reconsideration. Ukraine unsuccessfully tried to challenge this ruling in the Supreme Court of the Russian Federation (the respective ruling can be found here).

Upon receiving the case back, the court of first instance, the Arbitrazh Court of Moscow, chose to refer the case to another court. In its Ruling of 22 June 2018, the Arbitrazh Court of Moscow reiterated its position on “effective jurisdiction”. As, in the view of the court, Tatneft did not demonstrate that Ukraine held property that could have been used for actual enforcement of the award in Moscow, the court referred the case to the Arbitrazh Court of the Stavropol Region, because Ukraine had other assets in the territorial jurisdiction of that court. In its reasoning, the Arbitrazh Court of Moscow did not draw any distinction between the relevance of immunity from jurisdiction and the relevance of immunity from enforcement in recognition and enforcement proceedings. It also declined to apply the seat criterion of Article 242 CAP ultra petita, as was suggested by the cassation court. Tatneft tried to challenge this ruling before the cassation court but failed (the respective decree can be found here).

Recently, the Arbitrazh Court of Moscow once again endorsed the “effective jurisdiction” approach in recognition and enforcement proceedings concerning the Entes Industrial Plants award (see case A40-230382/18), an arbitral award issued against the Ministry of Transportation of the Kyrgyz Republic. The enforcement proceeding, in that case, was complex and the interplay between immunity from jurisdiction and immunity from enforcement was only a part of the court’s inquiry. Nonetheless, the Arbitrazh Court of Moscow obiter dictum reiterated its position on the role of “effective jurisdiction” in recognition and enforcement proceedings in its Ruling.

Enforcement in the Stavropol Court – The Requirement of “Effective Jurisdiction” Is Rejected

In its Ruling of 11 March 2019, the Arbitrazh Court of the Stavropol Region did not agree with the logic of the Arbitrazh Court of Moscow. The court found that there is a clear difference between the roles of immunity from jurisdiction and immunity from enforcement at the stage of recognition and enforcement of arbitral awards. The court agreed with the proposition that Ukraine had waived its immunity from jurisdiction in respect of arbitral proceedings and any subsequent recognition and enforcement proceedings by consenting to arbitration under the BIT. The court also concluded that Russian law applicable to recognition and enforcement proceedings does not suggest that applicants must show that a state holds property free from the enforcement immunity on the territory of the recognizing state for the application for recognition of an award to be granted.

Even though Tatneft eventually succeeded with its application almost two years after it had been filed for recognition and enforcement, the battle over the enforcement of the Tatneft award is not over. The decision of the Arbitrazh Court of the Stavropol Region can still be challenged by Ukraine.

Conclusions

In light of the above, one can draw two conclusions in respect of enforcement of arbitral awards rendered against sovereign states in Russia. Firstly, for now Russian courts have not developed a uniform position with regards to the role of sovereign immunity from enforcement at the stage of recognition and enforcement of arbitral awards. It is not unlikely that this issue will eventually have to be addressed by the Russian Supreme Court. Secondly, Russian courts have acknowledged that states waive their immunity from jurisdiction in respect of recognition and enforcement proceedings once they give their consent to arbitration.

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Uruguay Holds Firm in Two New Awards

Fri, 2019-05-03 05:05

Santiago Gatica and María Paz Lestido

Within the same week last March, two awards were rendered in cases against the Oriental Republic of Uruguay (Uruguay). One concerned an investment dispute with Italba Corporation (Italba), a company incorporated in Florida, over wireless spectrum services and the allocation of radio frequencies, and was Uruguay’s second case before an ICSID tribunal (the first being against Philip Morris). With this victory, the Southern nation remains undefeated in ICSID proceedings. The other involved a commercial dispute with Conecta S.A. (Conecta), a local gas distribution subsidiary of Brazil’s Petrobras.

 

ICSID Tribunal denies jurisdiction, finding that investor failed to prove ownership or control over local company

In 2016, Italba filed a request for arbitration against Uruguay under the United States-Uruguay BIT (the Treaty). The Tribunal was composed of President Rodrigo Oreamuno (appointed by agreement of the parties) and arbitrators John Beechey and Professor Zachary Douglas, respectively appointed by Italba and Uruguay.

The dispute arose in relation to the revocation of an authorization for the provision of dedicated wireless digital lines for the transmission of data services and the release of certain frequencies, which had been granted to Gustavo Alberelli and transferred to a local company, Trigosul S.A. (Trigosul). Alberelli is an Italian citizen and US resident who is a shareholder of Italba, as well as its president and chief executive financial officer. In the arbitration, Italba claimed to be the shareholder of Trigosul.

Italba claimed that Uruguay had breached its obligations under the Treaty not to expropriate US investments, and to accord US investors and their investments fair and equitable treatment, full protection and security and no less favorable treatment than that accorded to other investors and investments in like circumstances. Italba claimed compensation in the amount of US$ 61.1 million, plus interest.

During the arbitration, Italba filed an application for provisional measures and temporary relief, requesting the Tribunal to enjoin a criminal investigation that Uruguay had initiated against Italba’s witnesses, Gustavo Alberelli and Luis Herbón (Trigosul’s legal representative and former director), for alleged forgery in falsifying the signature of certain documents submitted in the arbitration. The arbitrators rejected the application holding that they lacked the power to order the cessation of the investigation and that Italba had failed to prove that its witnesses’ participation in the arbitration had been affected by the criminal investigation.

Italba also questioned the independence of Uruguay’s expert, Professor Xavier de Mello, for being a partner in a law firm representing Uruguay in another arbitration (coincidentally, the one commenced by Conecta) and accordingly requested that the Tribunal disregard his report and testimony. In rejecting the request, the Tribunal reasoned that the expert’s firm was based on a model known as “economic interest group” that operated similarly to English barristers chambers, which could not be “equated as a law firm in which the members are in partnership and share profits”. The arbitrators found that Italba had not proven that Professor de Mello had obtained an economic benefit from Uruguay, either directly or otherwise, that would affect his independence. Additionally, they noted that Art 5(2)(a) and (c) of the IBA Rules is “very specific” and “refers to the expert’s present or past relationship with any of the Parties and other actors in the proceeding” (i.e, does not require disclosure of the “present or past relationship with the Parties of all members of his/her law firm”).

The Tribunal noted that the Treaty afforded protection to investors who owned or controlled an investment in Uruguay. However, it found that none of the documents produced by Italba evidenced that it was either a shareholder of, or held the control over, Trigosul.

The record only included one share certificate endorsed in favor of Italba. However, the Tribunal held that to transfer a share certificate under local law, “it is imperative to endorse it, hand it over to the acquirer, notify the company in writing and record the endorsement in the company’s stock ledger”. Since the tribunal found there was no such record in Trigosul’s books, it concluded that the endorsement was not perfected and therefore Italba could not claim to be its “lawful holder”. The Tribunal also rejected Italba’s proposition that Trigosul’s officers failed to keep formalities in order because they were not attorneys.

Additionally, and despite considering that the endorsement should be resolved in accordance with Uruguayan law, the Tribunal analyzed Italba’s proposition that it should instead be assessed under the laws of Florida, where Alberelli had purportedly made the endorsement. However, the Tribunal concluded that Italba had failed to prove that it was the shareholder of Trigosul under Florida law.

The Tribunal also rejected Italba’s argument that ownership could be established by a theory of economic reality. The Tribunal noted that this theory is used for situations different than the transfer of shares (i.e, fraud or violation of public order), and concluded that applying it here would be futile as there was no evidence that Italba participated in shareholders meetings, shared profits or losses with the company, or oversaw its management. Italba also argued that ownership could be proven by showing capital contributions to the company, but the arbitrators found no evidence of such contributions from Italba.

Ultimately, the Tribunal concluded that Italba had not proven its ownership of Trigosul, and that it appeared from the evidence submitted that Alberelli and his family were the only shareholders.

The arbitrators then analyzed whether Italba had control of Trigosul, noting that the exercise of control is case-specific. Italba argued that it exercised control by making business decisions, capital contributions, funding operations and representing to third parties that it was the owner of Trigosul. Nevertheless, the Tribunal found no evidence to support these assertions and therefore held that Italba did not have control over Trigosul.

Since Uruguay’s first jurisdictional objection was upheld, the Tribunal considered it unnecessary to rule on the remaining objections. It found that the parties agree that the “loser pays” principle should guide the allocation of costs, and ordered Italba to pay Uruguay all costs.

In accordance with the Treaty’s transparency provisions and following the parties’ agreement, documents for the case can be found online. Those include a submission from the US government on questions of interpretation of the Treaty.

 

ICC tribunal holds that Uruguay has an obligation to renegotiate the terms of a gas distribution agreement, but finds that the State had not breached such obligation

In 2017, Conecta commenced a commercial arbitration seated in Buenos Aires against Uruguay under the Rules of the International Chamber of Commerce (ICC), on the basis of the arbitration clause included in the public works’ concession agreement executed by the parties in 1999 for the project, construction and exploitation of gas distribution systems outside of Montevideo (the Concession).

The Tribunal was composed of arbitrators Antonio Hierro and Dr. Diego P. Fernández Arroyo, appointed by Conecta and Uruguay, respectively, and President Yves Derains (appointed by agreement of the party-appointed arbitrators). The award was rendered on 18 March 2019, and made public as agreed by the parties.

The parties did not contest that in 2004, Argentina, Uruguay’s supplier of natural gas, adopted measures that limited and restricted the export of natural gas and the use of Argentina’s transportation system. Conecta claimed that the Argentine measures triggered its right to restore the initial financial-economic balance of the Concession, but as such balance had not been restored, the State breached its obligations and Conecta had the right to terminate the Concession and receive compensation in the amount of US$ 57.07 million.

The Tribunal recognized that the measures severely affected the financial-economic balance of the Concession, which had been executed on the basis of an abundant and competitive gas supply from Argentina. The Tribunal also recognized that the Concession included an obligation to renegotiate in good faith with the purpose of restoring its financial-economic balance due to severe and unforeseen circumstances, and that Conecta has the right to request a renegotiation of the terms of the Concession.

However, the Tribunal decided that the obligation to renegotiate does not imply an obligation to reach an agreement and concluded that Uruguay had not breached such obligation, as it had agreed to prior amendments to the Concession and had been involved in the project of a regasification plant aimed at solving the supply problem (despite the fact that such project was aborted in the end).

Other subsidiary claims made by Conecta and counter-claims made by Uruguay regarding to alleged contractual breaches incurred by Conecta were rejected by the Tribunal, which ordered each party to pay its own costs.

 

More to come

While Uruguay withstood these closely timed claims, the country’s track record will soon be tested; Uruguay is facing (i) another commercial dispute brought by Montevideo Gas, also a subsidiary of Petrobras, over a similar contract as the one agreed with Conecta and (ii) an investment arbitration for more than US$ 3.5 billion commenced by three UK investors over an iron ore project (PCA Case No 2018-04).

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An Update on the ISDS Reform: the 37th Session of the UNCITRAL Working Group III Investor-State Dispute Settlement Reform

Wed, 2019-05-01 23:54

Crina Baltag (Acting Editor) and Cristen Bauer

Reform of Investor-State Dispute Settlement (ISDS) system has become the focus of various initiatives of different international organizations and groups in the past years. Currently, there are various developments taking place at various levels of the ISDS system. For example, (i) the new generation of international investment treaties—in particular, the new Free Trade Agreements signed by the EU, such as the Comprehensive Economic and Trade Agreement between EU and Canada (CETA), the EU-Singapore FTA and Investment Protection Agreement, and the EU-Vietnam FTA and Investment Protection Agreement, as well as the new models of Bilateral Investment Treaties, such as the Dutch Model Bilateral Investment Treaty; (ii) the amendment process of the Arbitration Rules of the International Centre for Settlement of Investment Disputes (ICSID), the most comprehensive one up to date; (iii) the mandate of the United Nations Commission on International Trade Law (UNCITRAL) Working Group III (Investor-State Dispute Settlement Reform) in assessing the concerns with the ISDS system and in finding possible solutions to address them; and (iv) the initiatives of other institutions and organizations in dealing with particular issues relevant in the context of investment protection and promotion and arbitration, such as the project of The Hague Rules on Business and Human Rights Arbitration, led by Judge Bruno Simma.

The UNCITRAL Working Group III began its work in November 2017 and comprises member States, observer States, as well as observer intergovernmental and non-governmental organizations. The mandate of the Working Group III was set at the 50th session of the UNCITRAL in July 2017. As such, the Working Group III was entrusted with a broad mandate which would ensure that the deliberations, while benefiting from the widest possible breadth of available expertise from all stakeholders, would be Government-led. (para. 264 of the Report of the United Nations Commission on International Trade Law, 50th session, A/72/17) Further, the Working Group would proceed to: (a) first, identify and consider concerns regarding investor-State dispute settlement; (b) second, consider whether reform was desirable in the light of any identified concerns; and (c) third, if the Working Group were to conclude that reform was desirable, develop any relevant solutions to be recommended to the Commission. (para. 264 of the Report of the United Nations Commission on International Trade Law, 50th session) For this, the Working Group III meets twice-yearly to tackle its broad mandate. The Group made substantial progress in its previous three sessions, by identifying concerns and considering whether reform in those areas was desirable. These concerns fell into three categories: (1) concerns pertaining to consistency, coherence, predictability and correctness of arbitral awards (UNCITRAL Working Paper no. 150); (2) concerns pertaining to arbitrators and decision-makers (UNCITRAL Working Paper nos 151 and 152); and (3) concerns pertaining to cost and duration of ISDS cases (with focus on arbitration proceedings; UNCITRAL Working paper no. 153). The 37th session in New York was devoted to addressing and identifying some additional concerns and creating a workplan for carrying out phase three of the mandate—developing possible ISDS reform options.1)The authors attended the 37th session on behalf of the observers Queen Mary University of London (Dr Crina Baltag) and the MAA/Moot Alumni Association (Cristen Bauer and Dr Crina Baltag). The opinions expressed in this post are of the authors only. jQuery("#footnote_plugin_tooltip_3812_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3812_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

ISDS Concerns

Starting the week off in New York, the Group discussed a fourth area of concern—third-party funding. While there is no universally accepted definition, third party funding generally includes some form of payment by an actor outside of the disputing parties that covers one side of the legal fees and costs of the proceedings in exchange for compensation (which is contingent upon the outcome of the dispute). It was pointed out that third-party funding is by no means ubiquitous, as funding mechanisms are diverse and continuously evolving. The Group acknowledged and discussed the dynamic nature of third-party funding and expressed a need for the Group to work on a clear definition in order to better outline the scope of UNCITRAL’s work on reform in this area. Opinions were divided between adopting a broad definition of third-party funding, which would allow for it to naturally adapt to evolutions in the market, or a narrow one, which, arguably, would allow for more clarity and precision.

Further, States emphasized that while third-party funding may be a useful tool, there are several concerns raised in relation to it, which include an increase in frivolous claims, lack of impartiality of the arbitrators, the impact on ISDS costs and security for costs, and a potential negative impact on both the possibility for an amicable settlement and foreign direct investment flows more generally. States expressed the need to change and regulate these funding mechanisms, with many emphasizing the need for disclosure and more transparency. Others in the group cautioned that more evidence and research is needed for regulation, in order to understand the nature of the relationship between the concerns raised and the actual impact of third-party funding, as a causal relationship remains unclear. Other States urged to find a balance between the advantages and disadvantages of third-party funding, while highlighting that transparency should be at the heart of ISDS proceedings, including when it comes to third-party funding. States and observers also indicated that the new generation of international investment treaties, such as the new EU Free Trade Agreements, address in detail the issue of third-party funding, but it would be beneficial to have a uniform approach to the issue.

The Group decided that UNCITRAL reform on third-party funding was indeed desirable, and targeted reforms should also be considered alongside other related concerns such as costs and arbitrator impartiality. The Group also decided to work on a clear definition of third-party funding, which would encompass all forms of funding.2) Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its thirty-seventh session (New York, 1-5 April 2019), A/CN.9/970, paras 17-25. jQuery("#footnote_plugin_tooltip_3812_2").tooltip({ tip: "#footnote_plugin_tooltip_text_3812_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Several other ISDS concerns were raised including, the calculation of damages, exhaustion of local remedies, counterclaims, non-disputing party participation and other methods outside of arbitration for settling investor-State disputes. The Group decided not to specifically address any of these concerns on their own, as many of them fall under one or more of the existing three broad categories of concern. In keeping with the previous Working Group sessions, the Group also highlighted the importance of the ongoing substantive international investment treaty reform and the need to balance States’ fears of ISDS claims against their ability to regulate legitimate public policy concerns, such as environmental and social protection. Many delegations emphasized the overlap between those substantive reforms and the procedural mandate of the Working Group and urged the Group to keep these substantive issues in mind. It was agreed while the Group would be guided by those underlying concerns, substantive issues such as investor obligations and regulatory chill fall outside the scope of the Working Group. As such, the Group decided that no additional reforms will be formally recorded at this stage.

 

Workplan: developing a road map for possible solutions

For the vast majority of the week in New York, the Group discussed proposals for the workplan that will guide their work going forward on reform options and solutions. The discussion included the need to allocate further time to the sessions of the Working Group, in addition to the two weeks in Vienna and New York, as well as the need to employ technological tools, such as teleconference, videoconference, etc., to the discussions, in order to mitigate any risk related to inclusiveness, especially with the view of the additional time proposed for the sessions of the Working Group. Emphasis was also placed on the benefits of having intersessional meetings, which would also involve institutions and other stakeholders.3) Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its thirty-seventh session (New York, 1-5 April 2019), A/CN.9/970, paras 42 et seq. jQuery("#footnote_plugin_tooltip_3812_3").tooltip({ tip: "#footnote_plugin_tooltip_text_3812_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

While the debate included various hybrid proposals for a workplan that would guide the work on options and solutions to the identified concerns, the Group split broadly into two sides based on desired reform outcomes of ISDS: the first group advocating for comprehensive, structural reform, including an investment court and appellate body; and the second group preferring to begin work immediately to reform the current system in a step-by-step process, starting with concerns that already have wide consensus in the Group.4) Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its thirty-seventh session (New York, 1-5 April 2019), A/CN.9/970, paras 63 et seq. jQuery("#footnote_plugin_tooltip_3812_4").tooltip({ tip: "#footnote_plugin_tooltip_text_3812_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In view of working amicably towards progress, the Group agreed to pursue both work streams simultaneously, in order to give ample opportunity for both sides to pursue solutions. The Group compromised to create a three step workplan for developing solutions: (1) delegations need to submit solutions to be developed including a timeline of priorities to UNCITRAL by 15 July 2019; (2) the Group will subsequently discuss the submitted proposals and create a project schedule at the next session in October 2019 in Vienna; (3) once the project schedule is created, the Group will begin to substantively discuss and develop potential solutions for recommendation to the Commission.5) Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its thirty-seventh session (New York, 1-5 April 2019), A/CN.9/970, para. 83. jQuery("#footnote_plugin_tooltip_3812_5").tooltip({ tip: "#footnote_plugin_tooltip_text_3812_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Takeaways

Discussions in the Working Group III are still at an early stage and it is expected that some contour of the ISDS reform will become visible in Vienna, at the 38th session of the Working Group. Until then, it is perhaps relevant to highlight here some of the general points raised by the States and observers at the 36th session of the UNCITRAL Working Group III. States acknowledged that specific criteria must accompany any suggested solution and a distinction must be kept between well-founded concerns, which are supported by facts and empirical research, and unfounded concerns, which are based on perceptions. Ignoring this distinction might result in an aggravation of the concerns, rather than in a solution to them. Further, and as highlighted as well at the 37th session of the UNCITRAL Working Group III, it has to be acknowledged that some of the concerns raised with respect to ISDS can be resolved within the framework of international investment treaties, through amendments or interpretive statements.6) Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its thirty-sixth session (Vienna, 29 October-2 November 2019), A/CN.9/964. jQuery("#footnote_plugin_tooltip_3812_6").tooltip({ tip: "#footnote_plugin_tooltip_text_3812_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

At the early stage of the UNCITRAL Working Group III work, UNCITRAL highlighted that some doubts have been expressed on the desirability and feasibility of a work on possible ISDS reforms, considering the diverse body of more than 3,000 international investment treaties with significantly different approaches to both substantive investment protection and ISDS mechanisms. (para. 244 of the Report of the United Nations Commission on International Trade Law, 50th session) Arguably, such diversity in approaches reflects thoughtful decisions by sovereign States on what approach best suited their particular legal, political, and economic circumstances and, for this, past attempts, such as the OECD Multilateral Agreement on Investment, to find a uniform solution had failed. (para. 244 of the Report of the United Nations Commission on International Trade Law, 50th session)

For these reasons, no doubt that one would accompany with great interest the future discussions in the UNCITRAL Working Group III. While some states will support the evolution of ISDS, other will be inclined to push for a revolution. Certainly, there are States still to assess and decide on a particular position and, as such, middle solutions are likely to emerge.

 

References   [ + ]

1. ↑ The authors attended the 37th session on behalf of the observers Queen Mary University of London (Dr Crina Baltag) and the MAA/Moot Alumni Association (Cristen Bauer and Dr Crina Baltag). The opinions expressed in this post are of the authors only. 2. ↑ Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its thirty-seventh session (New York, 1-5 April 2019), A/CN.9/970, paras 17-25. 3. ↑ Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its thirty-seventh session (New York, 1-5 April 2019), A/CN.9/970, paras 42 et seq. 4. ↑ Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its thirty-seventh session (New York, 1-5 April 2019), A/CN.9/970, paras 63 et seq. 5. ↑ Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its thirty-seventh session (New York, 1-5 April 2019), A/CN.9/970, para. 83. 6. ↑ Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its thirty-sixth session (Vienna, 29 October-2 November 2019), A/CN.9/964. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Arbitrating in Mexico: No Draw-backs for International Arbitration

Tue, 2019-04-30 18:05

Daniela Páez-Salgado (Assistant Editor for Latin America)

The seminar “International Arbitration in Mexico – Latest Developments” took place on March 21, 2019 in New York City (the “Seminar”). International and Mexican practitioners gathered to discuss issues such as the relevant investment climate in Mexico, policy changes from the current administration, as well as, relevant developments in commercial arbitration in the country.

Donald Donovan (Debevoise, NY) introduced the panel, which included Judge Bernardo Sepúlveda Amor and Carlos E. Martínez-Betanzos (Creel, Mexico City) as Speakers, Laura Sinisterra (Debevoise, NY) as Discussant, and Dietmar Prager (Debevoise, NY) as a Moderator, outlining the current situation of Mexico.

Mr Donovan introduced Judge Sepúlveda, to whom he attributed been the key precursor for Mexico joining the ICSID Convention last year, on July 27, 2018.  Judge Sepúlveda served as a Judge for the International Court of Justice in The Hague from 2006 to 2015. In the Seminar, Judge Sepúlveda addressed the relevance of Mexico as a key player in international investment law.

We will first refer to the remarks related to investment arbitration and subsequently to the developments in international commercial arbitration.

 

Mexico as a Relevant Actor in the Investment Treaty Arena

On the investment treaty side, Dietmar Prager began the panel asking about the latest developments in investment arbitration in Mexico, a topic covered by Judge Sepúlveda.  He began his presentation mentioning that since President Andrés Manuel López Obrador (also known as “AMLO”) assumed office on December 1, 2018, Mexico has been facing a period of uncertainty as many feared a change in certain policies.  However, the outlook so far has been positive – with minimal exposure to foreign investment.

Judge Sepúlveda continued explaining that Mexico is treaty bound by a large number of treaties.  In the last 20 to 25 years, Mexico has entered into a series of free trade agreements (“FTAs”) and bilateral investment agreements (“BITs”) containing an arbitration clause.  The first and most iconic treaty was the North American Free Trade Agreement (“NAFTA”) from 1994, which entered into force immediately after its signature.  According to Judge Sepúlveda, the entering into this treaty implied a change in mentality for Mexicans as it was the first time Mexico accepted to protect foreign investment. Now, after two years of negotiations, this treaty has been replaced. We discuss this further below.

Judge Sepúlveda also referred to the ICSID Convention. He tried to address the reasons why Mexico had only ratified this instrument one year ago. “It is complex”, he said.  According to Judge Sepúlveda, politically, the ICSID Convention was not seen as resource needed by the state. Those days are over, Mexico is now a Contracting Party and Mexican investors are relying on it in a claim against Spain.1)See GBM Global, S.A. de C.V., Fondo de Inversión de Renta Variable and others v. Kingdom of Spain (ICSID Case No. ARB/18/33) jQuery("#footnote_plugin_tooltip_3156_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3156_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The third major agreement discussed in the Seminar was the Trans-Pacific Partnership 2.0 (“TPP 2”), which was originally promoted by the U.S. to cover trade in the trans-pacific region.  President Trump, however, on January 23, 2017 – the third day of his presidency – withdrew the U.S. from it.  Notwithstanding, from its 11 original members, 7 states, including Mexico, have so far ratified the TPP 2 (Chile being the last one).  These constitute promising news for Mexico as the TPP 2 will certainly strengthen its trade relationships in the trans-pacific region.

Fourthly, Judge Sepúlveda pointed to a treaty that is currently being negotiated with the European Union to replace the EU-Mexico Global Agreement which entered into force in 2000.

The participation of Mexico in all of these major trade agreements shows the country’s relevance in international arbitration and its important commitment towards it.

 

The UMSCA: A Review of Chapter 14

The United States-Mexico-Canada Agreement (“USMCA”) or, as Mexicans like to refer to it “T-MEC” for its name in Spanish, went through a long negotiation of over 2 years to be finally signed on November 30, 2018.  As described by Judge Sepúlveda, this treaty had several political implications given the latest tensions between the governments of the U.S. and Mexico, one of those being the lack of enthusiasm from the U.S. government.

In relation to international arbitration, Chapter 11 from NAFTA has been replaced for Chapter 14, a 41-page long document, together with annexes and appendixes.  Chapter 14 largely replicates the protections from NAFTA, which are typically found in BITs: minimum standard of treatment (including, fair and equitable treatment, full protection and securities), national treatment (“NT”), most-favored-nation (“MFN”) protection, and protection against expropriation.

Judge Sepúlveda explained that all of these protections are only afforded to investors of specific sectors, so-called “privileged sectors”: oil and natural gas, power generation, telecommunications, transportation and infrastructure. The background to these provisions is that U.S. enterprises are currently doing business in these sectors of the Mexican economy and therefore the U.S. was eager to afford them special protection.  Investors from non-privileged sectors can only claim violations to NT, MFN protection and direct expropriation.  Judge Sepúlveda shared that, this ‘privilege situation’ is found at in an annex to the treaty and needs to be carefully considered.

Another change in the USMCA is that the protections from Chapter 14 do not apply to Canadian investors doing business in the U.S. or Mexico.  Canada has waived any right of its investors to seek relief against the U.S. or Mexico for violations to these protections through international arbitration. Canadian investors would then have to seek redress from local courts under this treaty.  Judge Sepúlveda explained, however, that there is another treaty that is applicable between Canada and Mexico to protect foreign investors: the TPP 2.

As to next steps, the USMCA has not yet been ratified by the legislative body of any of its signatory states. Judge Sepúlveda anticipates that the U.S. will face an important negotiation in Congress, now that it is ran by the Democratic Party.  It is unclear what reactions or conditions the U.S. Congress might come up with, such as any related to labor or environmental matters under the treaty. In relation to the political strategy of Mexico, Judge Sepúlveda anticipated that Mexico would likely wait for the U.S. Congress to ratify the agreement before debating it before its national congress.

 

Latest Developments in Commercial Arbitration in Mexico

Once the discussion on investment arbitration concluded, Dietmar Prager continued asking questions about the latest developments in commercial arbitration in Mexico, topic addressed by Carlos E. Martínez-Betanzos.

Mr. Martínez-Betanzos started pointing out that commercial arbitration in Mexico has steadily increased in recent years and that it will likely continue growing with the new AMLO administration.  He mentioned that this is also due to the fact that Foreign Direct Investment has continue to grow in Mexico and because of that there are more sophisticated foreign parties investing in Mexico that prefer having arbitration clauses in their commercial contracts.

He continued talking about the preferred international and domestic institutions in Mexico, mentioning that the ICC and the ICDR continued to be the preferred international institutions, with an increase in Mexican cases in 2017 and 2018, but he also mentioned that the LCIA had substantially increased its Mexican caseload in 2018, mainly because of the inclusion of LCIA clauses in CFE and PEMEX contracts.  He contrasted the increase in numbers of international institutions with a smaller caseload of domestic institutions such as the Centro de Arbitraje de México (CAM) and the Cámara de Comercio de la Ciudad de México (CANACO).

Carlos emphasized that Mexico as a well-established arbitration system with an arbitration law based on the UNCITRAL model law and with a judiciary that, regardless of some setbacks, is in favor of arbitration.  When asked about annulment proceedings in Mexico, he mentioned that annulment of arbitral awards is very rare and that most awards are complied with before even having to go to court for enforcement.

When asked by Dietmar Prager about the risk of Amparo proceedings” in arbitration and how it affects the arbitration process, Carlos mentioned that they are often used by parties in an arbitration—once the award is before a Mexican court in an enforcement or an annulment proceeding—to delay these proceedings.

Laura Sinisterra then talked about the Amparo experience in other countries such as Peru, mentioning that in Peru because of the “María Julia precedent” an Amparo cannot be used to challenge an arbitral award and the annulment proceeding is the only way to challenge awards.

 

Conclusion

The overall conclusion of the Seminar was that it is indeed a benefit for Mexico that the USMCA was concluded.  International investment arbitration is in the process of changing and USMCA is an example of the new provisions that are being brought to the system.  USMCA is only an illustration of a change that is taking place over the world.  For instance, UNCITRAL is working on the reform of investor-state dispute resolution. ICSID, as well, is in the process of review and consultation of its Arbitration Rules.

In the field of commercial arbitration, it is clear that it has steadily grown, and it is likely that it will continue growing in the foreseeable future. This is because Mexico has a legal system and a judiciary that generally favors arbitration (with the exception of some isolated setbacks in decisions) and it is becoming the preferred dispute resolution method for transnational transactions and sophisticated parties.  There is, however, still some work to do by institutions and practitioners in the promotion and use of arbitration.

References   [ + ]

1. ↑ See GBM Global, S.A. de C.V., Fondo de Inversión de Renta Variable and others v. Kingdom of Spain (ICSID Case No. ARB/18/33) function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Opinion 1/17 – The CJEU Confirms that CETA’s Investment Court System is Compatible with EU Law

Tue, 2019-04-30 06:54

Guillaume Croisant

Introduction

In September 2017, Belgium requested the opinion of the Court of Justice of the European Union (“CJEU”) on the compatibility with EU law of the Investment Court System (“ICS”) provided for by the Comprehensive Economic and Trade Agreement between the EU and Canada (“CETA”).

Last January, Advocate General Bot concluded that this mechanism for the settlement of investor-State disputes was compatible with the EU Treaties and the EU Charter of Fundamental Rights. The CJEU followed suit in its much anticipated opinion delivered today.

An adverse opinion would have had serious political consequences, as it would have required the amendment of CETA (pursuant to Article 218(11) of the TFEU), and potentially brought grist to the mill of part of the European civil society opposing investor-State arbitration.

 

Background

As further developed in a previous post reporting on AG Bot’s opinion, most of the recent free trade agreements (“FTAs”) concluded by the EU (including with Canada (CETA), Singapore (the EUSFTA) and Vietnam (the EUVFTA)) provide for a so-called Investment Court System (“ICS”), whereby investor disputes may be submitted to a permanent and institutionalised court, whose members (subject to strict independence and impartiality requirements) are appointed in advance by the States parties to the treaty and whose decisions are subject to an appellate body. The EU ultimately aims to replace the bilateral investment courts of each FTA by a single multilateral investment court (“MIC”). International negotiations are currently ongoing at UNCITRAL Working Group III, where the reform of the Investor-State Dispute Settlement system is under discussion.

This break from the traditional ad hoc arbitration system has not overcome the general public’s mistrust for investment arbitration. The ICS provided for by CETA, in particular, gave rise to heated debates among Belgium’s federated entities. As a result, on 7 September 2017, Belgium requested the CJEU to render an opinion on the compatibility of the CETA’s ICS with EU law – in particular with (i) the exclusive competence of the CJEU to provide the definitive interpretation of EU law, (ii) the general principle of equality, (iii) the requirement that EU law is effective, and (iv) the right to an independent and impartial judiciary.

 

CJEU’s Opinion

As opposed to the striking divergence of views between the Court and AG Wathelet in Achmea, the CJEU has followed closely the opinion of its AG in this case.

1. Principle of Autonomy of EU law (§§106-161)

As expected, this aspect of Belgium’s request constitutes the crux of the Court’s opinion. Indeed, in its seminal Achmea ruling (Case C-284/16 of 5 March 2018), the CJEU held that “an international agreement providing for the establishment of a court responsible for the interpretation of its provisions and whose decisions are binding on the institutions, including the Court of Justice, is not in principle incompatible with EU law”, provided that “the autonomy of the EU and its legal order is respected” (§57).

After having recalled this principle, the Court underscored at the outset that the mere fact that CETA’s ICS stands outside the EU judicial system does not, in itself, breach the autonomy of the EU legal order. It follows from the reciprocal nature of international agreements and the need to maintain the powers of the EU in international relations that an international tribunal may have jurisdiction to interpret those agreements without being subject to their interpretation by the domestic courts of the parties to the agreements. The principle of autonomy of EU law would only be breached if the CETA Tribunal could (i) interpret and apply EU rules other than the provisions of the CETA or (ii) issue awards having the effect of the EU institutions from operating in accordance with the EU constitutional framework. The Court was satisfied that this was not the case.

As regards the first aspect, the CJEU considered on the basis of the relevant provisions of CETA (Articles 8.21 et seq.), and as opposed to the Netherlands-Slovakia BIT in Achmea, that the power of interpretation and application conferred on the CETA Tribunal is confined to the provisions of the CETA and that such interpretation or application must be undertaken in accordance with the rules and principles of international law applicable between the EU and Canada. Domestic laws of the Parties may only be taken into account as a matter of fact, and the CETA Tribunal is obliged to abide by the prevailing interpretation given to that domestic law by the domestic courts (whilst the domestic courts are not bound by the meaning given to their domestic law by the CETA Tribunal). It is therefore coherent that the CETA Tribunal does not have the possibility to make a reference for a preliminary ruling to the CJEU. The Court further distinguishes CETA from intra-EU BITs by highlighting that the principle of mutual trust, which was at the core of its decision in Achmea, is not applicable to the relations between the EU and third countries.

With respect to the effect on the operation of the EU institutions, the Court held that it would be inadmissible that the power of the CETA Tribunal to award damages to an investor where EU measures are in breach of the substantive protections offered by CETA (e.g. fair and equitable treatment, indirect expropriation, unjustified restriction to make payment and transfer capital, etc.) could “create a situation where, in order to avoid being repeatedly compelled by the CETA Tribunal to pay damages to the claimant investor, the achievement of that level of protection needs to be abandoned by the Union” (§149). However, CETA provides enough guarantees in this respect, as it contains various provisions guaranteeing public interest considerations and the Parties’ right to regulate.

2. General Principle of Equal Treatment (§§162-186)

Turning to the principle of equal treatment, the Court held that “the difference in treatment arises from the fact that it will be impossible for enterprises and natural persons of Member States that invest within the Union and that are subject to EU law to challenge EU measures before the tribunals envisaged by the CETA, whereas Canadian enterprises and natural persons that invest within the same commercial or industrial sector of the EU internal market will be able to challenge those measures before those tribunals” (§179). As the situation of Canadian investors that invest within the EU are only comparable to EU investors that invest in Canada (as opposed to EU investors that invest within the Union), the Court found that there was no difference of treatment of persons in a relevant similar situation. Indeed, the reason why Canadian investors have the possibility of relying on the provisions of CETA before the CETA Tribunal is that they act in their capacity as foreign investors.

3. Principle of Effectiveness (§§185-188)

The Court also considered that the effectiveness of EU competition law cannot be jeopardised by the CETA Tribunal’s decisions (e.g. by awarding damages equivalent to the amount of fines imposed by the European Commission or a national competition authority). CETA acknowledges that the Parties may take appropriate measures to proscribe anti-competitive behaviours and guarantees their right to regulate in order to achieve legitimate objectives in the public interest. If, “in exceptional circumstances, an award by the CETA Tribunal might have the consequence of cancelling out the effects of a fine”, this is acceptable as “EU law itself permits annulment of a fine when that fine is vitiated by a defect corresponding to that which could be identified by the CETA Tribunal” (§187).

4. Right of Access to an Independent Tribunal (§§189-244)

Finally, the Court did not conclude that the CETA’s ICS would breach the right to court.

As regard the CETA Tribunal’s accessibility, it first highlighted that “in the absence of rules designed to ensure that the CETA Tribunal and Appellate Tribunal are financially accessible to natural persons and small and medium-sized enterprises, the ISDS mechanism may, in practice, be accessible only to investors who have available to them significant financial resources” (§213). However, the the Council has undertaken to ensure that “‘there will be better and easier access to this new court for the most vulnerable users, namely [small and medium-sized enterprises] and private individuals’ and provides, to that end, that the ‘adoption by the Joint Committee of additional rules” (see Statement No. 36), leading the Court to be satisfied that the approval of CETA by the EU was dependent on this commitment.

The Court also found that CETA offers sufficient procedural guarantees as to the CETA Tribunal’s independence (in particular as regards the tribunal members’ remuneration schemes, their appointment and removal, and the rules of ethics that they have to follow), underlying that this treaty expressly provides that the tribunal members “shall not be affiliated with any government”.

 

Conclusion

The importance of this ruling goes obviously beyond CETA’s ICS. As underscored by AG Bot in his opinion, “what is at issue here is the definition of a model which is consistent with the structural principles of the EU legal order and which, at the same time, may be applied in all commercial agreements between the European Union and third States” (§86). The Court also envisaged the setting up of a “multilateral investment Tribunal in the longer term” (§108).

This opinion will therefore most certainly be welcomed with relief by DG Trade, and the investment arbitration community which had been shaken by the Court’s decision in Achmea. A comparison of the approach taken by the Court in these two rulings would go beyond the ambit of this first report, but is likely to cause much ink to flow…

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Open Position: Assistant Editor of Kluwer Arbitration Blog

Sun, 2019-04-28 22:44

Crina Baltag (Acting Editor)

The Editorial Board of Kluwer Arbitration Blog announces the opening of the following position with Kluwer Arbitration Blog: Assistant Editor for Africa.

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

The Assistant Editor will work remotely. Please note that this is a non-remunerated position. If you are interested, please submit a resume and cover letter by email to [email protected], with cc to Dr Crina Baltag, [email protected]. The deadline for receiving the applications is 12 May 2019.

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The Role of Hong Kong as a Dispute Resolution Hub in the Greater Bay Area

Sun, 2019-04-28 17:01

Madhav Kumar

On 18 February 2019, the Outline Development Plan for the Guangdong – Hong Kong – Macao Greater Bay Area (the “Outline”) was published. Seen to rival the city clusters formed around San Francisco, New York and Tokyo, the development of the Greater Bay Area is a collaborative initiative to transform the Pearl Delta Region of China (south coast of China) into an eminent technology and innovation hub. With an approximate population of 70 million likely to be involved over a total area of approximately 56,000 square kilometers, the Greater Bay Area is set to become the largest megapolitan focusing on innovation, technological advancement and economic development.

In the dispute resolution segment, Asia’s world city – Hong Kong – is set to play a pivotal role in the region due to its reputation as a leading international arbitration place. A highly developed arbitration infrastructure; the enforceability of arbitral awards rendered in Hong Kong in the Chinese mainland and internationally; strict adherence to the rule of law and adherence to internationally recognized practice make Hong Kong a suitable place to refer disputes that may arise within the Greater Bay Area region.

Keeping the Outline in context, this post identifies some of the sector specific disputes which may arise amidst the development of the Greater Bay Area and highlight how the already developed arbitration ecosystem of Hong Kong may be best equipped to handle such disputes.

 

Maritime related disputes

Strategically located in the south coast of China, the Greater Bay Area anticipates a rejuvenated and active maritime industry and this is highlighted in the Outline. This may result in an increased volume in cargo shipments via sea and/or rivers, hence more maritime related transactions, and with that the higher likelihood of maritime related disputes arising.

A long and established history in maritime trade, the common law system, pro-arbitration judiciary and an extensive pool of maritime experts (including lawyers and arbitrators) make Hong Kong an ideal place for handling maritime related disputes using arbitration. Hong Kong also has specialized maritime arbitration centres and organizations such as the China Maritime Arbitration Commission Hong Kong Arbitration Center and the Hong Kong Maritime Arbitration Group to effectively and efficiently assist parties in resolving maritime disputes.

Also, ad-hoc arbitration, which is generally favoured in the maritime industry, is permitted by law in Hong Kong and is often utilized. In view of this, the China International Economic and Trade Arbitration Commission Hong Kong Arbitration Center (“CIETAC Hong Kong”) released its Rules as Appointing Authority in Ad Hoc Arbitrations (the “Rules”) in April 2017. As per the Rules, parties can designate CIETAC Hong Kong as an appointing authority to appoint arbitrators(s) in an ad-hoc arbitration. The Rules have been primarily formulated to address the facilitative arbitration services, upon parties’ request in ad hoc arbitrations, in addition to those that are available under the UNCITRAL Arbitration Rules.

 

Construction related disputes

Developing the Greater Bay Area into a world-class city cluster necessitates numerous infrastructure and construction projects. The successful completion and opening of the Hong Kong – Zhuhai – Macau Bridge (the longest sea crossing bridge in the world), and the Guangzhou – Shenzhen – Hong Kong Express Rail Link, last year, is testimony to the efforts taken by China to boost infrastructural development in the region. Infrastructure and construction projects generally involve multiple contracts and parties. Though dispute resolution mechanisms such as mediation and adjudication are employed to resolve construction disputes, arbitration has generally been the preferred and final choice to resolve construction disputes due to the enforceable nature of the awards that are eventually rendered.

For a long time, Hong Kong has maintained its reputation as a centre for construction arbitration due to the expertise it offers in both construction and arbitration. The Hong Kong High Court maintains the Construction and Arbitration List (Practice Direction 6.1) which designates judges having technical expertise to hear certain civil actions related to construction, including applications pertaining to arbitration. Due to the List, we see an efficient and consistent disposal of applications generally relating to construction arbitration.

Experience and expertise are also associated with the arbitration institutions situated in Hong Kong. For example CIETAC, which has a sub-commission in Hong Kong (CIETAC Hong Kong) has administered a total of 228 cases related to construction projects in 2018 and a total of 172 cases in 2017 (to access the CIETAC Work Reports of 2017 and 2018 click here). CIETAC’s Panel of Arbitrators also includes a prolific list of arbitrators with technical construction expertise.

Hong Kong’s robust arbitration legislation also aids in the effective resolution of construction disputes. For instance, under the Hong Kong Arbitration Ordinance (Cap 609) (the “Arbitration Ordinance”), emergency arbitration is permitted, and the emergency relief granted by an emergency arbitrator can also be enforced by the Hong Kong court (Section 22B of the Arbitration Ordinance). This feature is useful since there is a possibility for issues arising at every stage of a construction project which may require urgent attention to avoid any undesired delays in the project. Institutional arbitration rules, such as the CIETAC Arbitration Rules (effective as from 1 January 2015), contain provisions to assist parties in appointing an emergency arbitrator and provisions that lay down the procedure for carrying out an emergency arbitration. Further, the option available under the Arbitration Ordinance to consolidate arbitrations with the assistance of the Court (by expressly opting the same in the arbitration agreement as per Part 11 of the Arbitration Ordinance) is desirable for construction disputes. Consolidation becomes vital when construction projects comprise of multiple contracts and are multi-party. In the event that parallel arbitrations are commenced in reference to separate contracts but involve the same project, consolidation of the arbitrations into a single arbitration can save costs and time and avoid inconsistent outcomes.

 

Intellectual Property related disputes

With a development strategy driven by innovation and technology set to be implemented, huge policy changes and huge demand for the development of intellectual property (“IP”) is expected in the Greater Bay Area. The Outline highlights the importance to strengthen the protection and enforcement of IP in the region. It also endorses and seeks to promote alternative dispute resolution, including arbitration, to resolve disputes related to IP.

The advantageous features of arbitration make the mechanism suitable for resolving IP disputes. However, uncertainty often prevails over arbitrating IP disputes due to the interplay between arbitrability and public policy. In prominent jurisdictions of Asia, like Singapore and the Chinese mainland, there is no clear picture regarding the arbitrability of IP disputes. For instance, in Singapore, the legislative history of the Arbitration Act of Singapore (Chapter 10) and the International Arbitration Act of Singapore (Chapter 143A) suggests that issues relating to validity of registration of trademarks or patents and copyrights are not arbitrable since they may have public interest elements (Section 2.37.17 of Review of Arbitration Law, LRRD No 3/2001); and in the Chinese mainland, Article 3(2) of the PRC Arbitration Law states that administrative disputes that are to be handled by administrative organs, which include the Trademark Adjudication Board and Patent Review Board, are not arbitrable.

The scenario in Hong Kong though is more certain due to a recent amendment made to the Arbitration Ordinance. In June 2017, the Arbitration Ordinance was amended to clarify that IP related disputes can be resolved using arbitration in Hong Kong and that it will not be contrary to the public policy of Hong Kong to enforce arbitral awards involving intellectual property rights (“IPR”). The amendment further clarifies that parties are not prevented from using arbitration to resolve their IP disputes if the IPR may be protected by registration or whether it is registered, or subsists, in other jurisdictions. The amendment came into force in January 2018 and it places Hong Kong in the forefront of IP dispute resolution. This makes Hong Kong more attractive for resolving IP disputes within the region.

 

Investment related disputes

Aiming to increase the degree of market integration, the Outline seeks to promote investment facilitation by implementing liberalisation measures and relaxing investor restrictions in the Greater Bay Area. The primary focus is to enhance the facilitation of investment under the ambit of the Closer Economic Partnership Agreement (“CEPA”) entered into between the government of the People’s Republic of China (“PRC”) and each of the two Special Administrative Regions of Hong Kong and Macao.

In 2015, the Permanent Court of Arbitration (“PCA”) and the Government of the PRC signed a Host Country Agreement in order to facilitate the conduct of investor-state arbitrations in Hong Kong. As per the Agreement, PCA administered proceedings, which largely include investment arbitrations, can be handled in Hong Kong.

Further, in accordance with the CIETAC International Investment Arbitration Rules (the “Rules”) released in 2017, CIETAC Hong Kong can administer investment arbitration cases. The parties involved in the investment disputes only need to agree to adopt the Rules and specify CIETAC Hong Kong Arbitration to administer, or designate Hong Kong as the seat/place of arbitration (Art. 4 of the Rules).

 

Concluding remarks

The Outline aims to provide a refined and effective dispute resolution service to the economic and trade activities in the Greater Bay Area, and against such a backdrop, Hong Kong’s well-equipped arbitration ecosystem has plenty to offer. The potential for Hong Kong’s arbitration ecosystem to handle the various types of disputes that may arise along the development of the Greater Bay Area, not only signifies Hong Kong’s importance in the region, but also justifies its reputation as a leading dispute resolution hub in the Asia-Pacific.

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Arbitration Agreements Concluded by Agents and the Specific Authority Issue

Sun, 2019-04-28 04:00

Fatih Isik

Introduction

In order to conclude an enforceable arbitration agreement, various validity conditions are required. The authority of the signatory agent to conclude an arbitration agreement on behalf of the principal is one of these requirements. In some jurisdictions, an explicit/specific authority is also required. An agent authorized with a general power of attorney, but without an explicit statement on the authority to conclude an arbitration agreement, is not entitled to conclude so on behalf of the principal. If an arbitration agreement is concluded by an agent who lacks specific authority, the arbitral tribunal’s jurisdiction may be challenged, the award may be annulled, or the enforcement of the award may be rejected.

Specific Authority Requirement in Different Jurisdictions

The legislations of different jurisdictions may vary. For instance, Article 396/3 of the Swiss Code of Obligations, Article 1989 of the French Civil Code, Article 1989 of the Belgian Civil Code, Article 1008 of the Austrian Civil Code, Article 702 of the Egyptian Civil Code, Article 1713 of the Spanish Civil Code require agents to have specific authority in order to conclude an arbitration agreement on behalf of the principal. Contrary to the provisions of these states, Italian, British, German, Swedish, American and Dutch laws do not require such specific authority.

According to Article 504/3 of the Turkish Code of Obligations, and Article 74 of the Code of Civil Procedure, the agent is required to be specifically and/or explicitly authorized to conclude an arbitration agreement on behalf of the principal.

Within this context, the Turkish Court of Appeal (“TCA”) discussed the specific authority requirement, and in some decisions, it rendered arbitration agreements signed by agents who lack specific authority null and void. In some cases, the TCA attached the specific authority rule to the public order.1)Civil Chambers Assembly of TCA dated, 11.10.2000, numbered 2000/19-1122 E., 2000/1256 K.; the decision of the 19th Civil Chamber of the TCA dated 01.05.2003, numbered 2002/3763 E., 2003/4764 K. jQuery("#footnote_plugin_tooltip_4771_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4771_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Notwithstanding this consideration, in other cases, the TCA rejected claims for invalidity raised from lacking specific authority, by ruling that these claims were not made in good faith.2)The decision of the 11th Civil Chamber of TCA dated 09.04.2004 and numbered 2003/6774 E., 2004/3751 K.; The decision of 11th Civil Chamber of TCA dated 26.05.1999 and numbered 1998/9679 E., 1999/4500 K. jQuery("#footnote_plugin_tooltip_4771_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4771_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Form Requirements for Specific Authorization to Conclude an Arbitration Agreement

The method of authorization of the agent to act on behalf of the principal is another issue to be examined. One may ask whether the written form requirement for validity of arbitration agreements is required for the specific authorization of the agent to conclude an arbitration agreement.

Comparative law has varying solutions on the matter. For instance, Article 217/2 of the Greek Code of Procedure requires the same form for the authorization and the transaction to be used. While Article 1008 of the Austrian Civil Code does not require written form for the authorization in order to conclude an arbitration agreement, the doctrine and case law accept the need of the written form.3)For a recent decision of Austrian Supreme Court, please see Mirando Mako, “Form Requirements For Authorisations To Enter Into An Arbitration Agreement: The Austrian Perspective”. jQuery("#footnote_plugin_tooltip_4771_3").tooltip({ tip: "#footnote_plugin_tooltip_text_4771_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); According to Article 1985 of the French Civil Code, and Article 110/3 of the French Commercial Code, the authorization to conclude an arbitration agreement is not subject to a form requirement in line with the British, Swedish, Finnish and Italian laws. Article 167/2 of the German Civil Code explicitly regulates that authorization is neither subject to any form requirement, nor must it be in line with the form requirement of the transaction. In Turkish Law, apart from the conclusion of arbitration agreements, the matter is discussed for other transactions related to specific authorization. However, there is no legal regulation or a consensus among the scholars related to this discussion.

In international arbitration practice, there are varying opinions as well. According to some, the written form requirement as regulated under the New York Convention for an arbitration agreement shall be applicable merely to the arbitration agreement, and should not be applied to the specific authorization.4)Andreas Reiner, “The Form of the Agent’s Power to Sign an Arbitration Agreement and Article II(2) of the New York Convention”, ICCA Congress Series No: 9, 1998, p. 90; Gary Born, International Commercial Arbitration, Kluwer Law International, 2014, p. 663. jQuery("#footnote_plugin_tooltip_4771_4").tooltip({ tip: "#footnote_plugin_tooltip_text_4771_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); An opposing view defends that the written form requirement regulated under the New York Convention should be extended to the authorization.5)For the scholars of this view, please see Reiner, p. 83, fn. 8 and p. 84, fn. 12. jQuery("#footnote_plugin_tooltip_4771_5").tooltip({ tip: "#footnote_plugin_tooltip_text_4771_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The third view on this issue affirms that non-regulation of this issue at the New York Convention shall not be interpreted as it failing to require any form for authorization. Hence, the form requirement on authorization is to be determined by national laws that may require specific methods for authorization.6)Jean François Poudret / Sebastien Besson, Comparative Law of International Arbitration, translated by Stephen V. Berti and Annette Ponti, 2. Edition, Sweet & Maxwell, London 2007, p. 236. jQuery("#footnote_plugin_tooltip_4771_6").tooltip({ tip: "#footnote_plugin_tooltip_text_4771_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Law Governing the Requirement of Specific Authority

Neither national nor international legislation has an explicit answer as to which law governs the requirement of specific authority. In other words, none of the stated legislations answer whether or not the issue shall be governed by the “law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made,” or “the law applicable to them (to the parties).”

In order to ascertain the law governing the authority, a qualification on this issue must be made.7)For the discussions, please see: Fatih Isik, Authority to Conclude Arbitration Agreement in International Commercial Arbitration and the Law Applicable to this Authority, On Iki Levha Publications, Istanbul 2015, p. 8-17. jQuery("#footnote_plugin_tooltip_4771_7").tooltip({ tip: "#footnote_plugin_tooltip_text_4771_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); According to one view, the invalidity of the arbitration agreement which was signed by an agent who lacks specific authority shall be evaluated under the scope of the merits or material validity of the arbitration agreement. This opinion defends that the principal who did not grant authority to the agent to conclude an arbitration agreement never had the intent to enter into an arbitration agreement, which causes the invalidity of the agreement based on its merits. Another view associates this issue with the capacity of the parties, and interprets Article V/1(a) of the New York Convention in a wider scope by including the authority. The last view on this issue affirms that the conclusion of an arbitration agreement through an agent is a matter of representation, and the issue shall be determined as per the law governing the representation/agency relationship or the effects of representation authority.

As the scholars have no consensus as to the qualification of authority, the court decisions and arbitral awards given on the authority to conclude an arbitration agreement do not provide explicit argumentation as to this qualification either. However, it is possible to make a classification departing from the conclusions drawn in these decisions.8)

For arbitral awards evaluating the authority issue (i) within the material validity of the arbitration agreements, please see ICC Case no. 5730, ICC Case no. 6850, ICC Case no. 5065, ICC Case no. 7047; (ii) within the capacity of the parties, please see ICC Case no. 12073, ICC Case no. 6474, ICC Case no. 7373, ICC Case no. 6850; and (iii) within the representation doctrine, please see ICC Case no. 6268, ICC Case no. 5832, ICC Case no. 10329. jQuery("#footnote_plugin_tooltip_4771_8").tooltip({ tip: "#footnote_plugin_tooltip_text_4771_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In some disputes9)Agrimpex S.A. v. J. F. Braun & Sons, Inc., Areios Pagos decision of the Supreme Court of Greece dated 14 January 1977; Société CTIP v. Société Ferich International decision of the Paris Court of Appeal dated 21 March 1986; Bargues Agro Industrie SA (France) v. Young Pecan Company (US) decision of the Paris Court of Appeal dated 10 June 2004. jQuery("#footnote_plugin_tooltip_4771_9").tooltip({ tip: "#footnote_plugin_tooltip_text_4771_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, judges and arbitrators directly apply substantive rules of lex fori without raising any argument as to the law applicable to the authority to conclude an arbitration agreement. The implementation of international practice and internationally acknowledged principles, such as the good faith principle on authority10)ICC Case no. 5080, ICC Case no. 5065, ICC Case no. 4667, ICC Case no. 6268, ICC Case no. 7047, ICC Case no. 10982, ICC Case no. 5730, ICC Case no. 4381. jQuery("#footnote_plugin_tooltip_4771_10").tooltip({ tip: "#footnote_plugin_tooltip_text_4771_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, was also applied in some cases. The TCA has also rendered some decisions which disregarded the discussions on applicable law, and has granted its decision by merely focusing on the good faith principle.11)Please see fn. 2 above. jQuery("#footnote_plugin_tooltip_4771_11").tooltip({ tip: "#footnote_plugin_tooltip_text_4771_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Conclusion

The issue of specific authority triggers several discussions. Although this old-fashioned rule was sometimes disregarded by arbitral tribunals and local courts by applying internationally accepted rules, such requirement for the arbitration agreements by the agent remain as an important pitfall of Turkish arbitration law, which should be revised as per international commercial practices.

 

References   [ + ]

1. ↑ Civil Chambers Assembly of TCA dated, 11.10.2000, numbered 2000/19-1122 E., 2000/1256 K.; the decision of the 19th Civil Chamber of the TCA dated 01.05.2003, numbered 2002/3763 E., 2003/4764 K. 2. ↑ The decision of the 11th Civil Chamber of TCA dated 09.04.2004 and numbered 2003/6774 E., 2004/3751 K.; The decision of 11th Civil Chamber of TCA dated 26.05.1999 and numbered 1998/9679 E., 1999/4500 K. 3. ↑ For a recent decision of Austrian Supreme Court, please see Mirando Mako, “Form Requirements For Authorisations To Enter Into An Arbitration Agreement: The Austrian Perspective”. 4. ↑ Andreas Reiner, “The Form of the Agent’s Power to Sign an Arbitration Agreement and Article II(2) of the New York Convention”, ICCA Congress Series No: 9, 1998, p. 90; Gary Born, International Commercial Arbitration, Kluwer Law International, 2014, p. 663. 5. ↑ For the scholars of this view, please see Reiner, p. 83, fn. 8 and p. 84, fn. 12. 6. ↑ Jean François Poudret / Sebastien Besson, Comparative Law of International Arbitration, translated by Stephen V. Berti and Annette Ponti, 2. Edition, Sweet & Maxwell, London 2007, p. 236. 7. ↑ For the discussions, please see: Fatih Isik, Authority to Conclude Arbitration Agreement in International Commercial Arbitration and the Law Applicable to this Authority, On Iki Levha Publications, Istanbul 2015, p. 8-17. 8. ↑

For arbitral awards evaluating the authority issue (i) within the material validity of the arbitration agreements, please see ICC Case no. 5730, ICC Case no. 6850, ICC Case no. 5065, ICC Case no. 7047; (ii) within the capacity of the parties, please see ICC Case no. 12073, ICC Case no. 6474, ICC Case no. 7373, ICC Case no. 6850; and (iii) within the representation doctrine, please see ICC Case no. 6268, ICC Case no. 5832, ICC Case no. 10329. 9. ↑ Agrimpex S.A. v. J. F. Braun & Sons, Inc., Areios Pagos decision of the Supreme Court of Greece dated 14 January 1977; Société CTIP v. Société Ferich International decision of the Paris Court of Appeal dated 21 March 1986; Bargues Agro Industrie SA (France) v. Young Pecan Company (US) decision of the Paris Court of Appeal dated 10 June 2004. 10. ↑ ICC Case no. 5080, ICC Case no. 5065, ICC Case no. 4667, ICC Case no. 6268, ICC Case no. 7047, ICC Case no. 10982, ICC Case no. 5730, ICC Case no. 4381. 11. ↑ Please see fn. 2 above. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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The Indonesia-Australia Comprehensive Economic Partnership Agreement: the Good, the Not-So-Good and the In-Between  

Sat, 2019-04-27 00:01

Kevin Elbert

The signing of the Indonesia-Australia Comprehensive Economic Partnership Agreement (“IACEPA“) on 4 March 2019 marked an important milestone for both States (as covered in a post earlier this week).

Given that both Indonesia and Australia have their reservations on investor-state dispute settlement (“ISDS“) processes, it is interesting to see that the IACEPA contains a chapter on ISDS.

It has been around 5 years since Indonesia announced its policy to “terminate” its bilateral investment treaties (“BITs“). This was spurred by Indonesia’s concern that it has been pressured by multinational companies, which resulted in a number of billion-dollar ISDS claims, such as the Churchill Mining plc and Planet Mining Pty Ltd cases.1)ICSID Case No. ARB/12/14 and 12/40 jQuery("#footnote_plugin_tooltip_7915_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7915_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });The sentiment was so strong that there was even a call for Indonesia to withdraw from the ICSID Convention.

For Australia, the issue of ISDS has been hotly debated since the Philip Morris case2)PCA Case No. 2012-12 jQuery("#footnote_plugin_tooltip_7915_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7915_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });. Since that case, the Australian government declared that it would consider ISDS provisions on a “case-by-case” basis. As a result, ISDS provisions have been included in the free trade agreement entered into with Korea in 2014 but not with Japan.

In light of the above, the investment chapter in the IACEPA seems to reflect a compromise achieved by both countries to balance between the public interest and the rights and obligations of investors.

This post seeks to briefly discuss and highlight ‘the good, the not-so-good and the in-between’ under Chapter 14 (Investment) of the IACEPA.

 

Comments and Observations

At the outset, it is observed that the IACEPA, similar to how the more modern BITs are drafted, provides a greater clarity as to how the substantive obligations and the dispute settlement processes are to be interpreted.

Expectedly, these obligations and processes are generally more refined in comparison to the ASEAN-Australia-New Zealand Free Trade Agreement (“AANZFTA“) (signed in 2009) which both Indonesia and Australia are parties to.

  1. Section A of Chapter 14 – Substantive Obligations

The In-Between

In line with the more modern BITs, the IACEPA provides a clearer demarcation of the substantive obligations therein.

For example, Art 14.11 (Expropriation and Compensation) read together with Annex 14-B clarifies that whether expropriation is made out requires a case-by-case and fact-based inquiry considering a number of factors, e.g. the economic impact of the government action and proportionality. The use of fact-based inquiry is often employed in the modern BITs (such as the AANZFTA) and are in line with widely accepted ISDS jurisprudence.

It is worth highlighting that the IACPEA contains provisions to exclude shell companies from benefiting from the IACEPA by way of a denial of benefit clause under Art 14.13.

In light of the Philip Morris case (where claimant’s (a Hong Kong registered company) investment in its Australian subsidiary was made only in order to be able to bring an arbitration claim under the BIT), it is unsurprising and expected that Australia would want these provisions in the IACEPA.

The Not-So-Good

There are, however, some provisions that could have been clearer and better defined.

They include Art 14.7 (Minimum Standard of Treatment), which provides for the fair and equitable treatment (“FET”). Considering the elusive nature of the FET obligation, Art 14.7 could have been better drafted. Currently, Art 14.7 simply states inter alia that FET does not require treatment in addition to standard required under customary international law; and requires the host State to not deny justice in any legal or administrative proceedings.

Further definition and limitation could have been drafted into the scope of the FET obligation. For instance, under the EU-Singapore Investment Protection Agreement (“EUSIPA”), Art 2.4 (Standard of Treatment) expressly states that a party breaches the FET obligation if its measure or series of measures constitutes:

  • denial of justice in criminal, civil and administrative proceedings;
  • a fundamental breach of due process;
  • manifestly arbitrary conduct; or
  • harassment, coercion, abuse of power or similar bad faith conduct

Another curious provision is Art 14.18 which establishes a Committee of Investment. This Committee’s function shall be, inter alia, to consider and recommend any amendments to Chapter 14. However, unlike the Commission under the NAFTA or the Committee under the EUSIPA, the Committee under the IACEPA does not seem to have a more practical power, such as the power to issue a binding interpretation of the provisions under the IACEPA.

The Good

Interestingly, there are certain ‘bespoke’ provisions / mechanism that are introduced seemingly to address Australia and Indonesia’s concerns with the ISDS regime.

One of them is the exclusion of Art 14.6 (Prohibition of Performance Requirements) from the ISDS mechanism. Art 14.6 (Prohibition of Performance Requirements) provides generally that neither Party shall enforce any requirement to, inter alia, to achieve a given level or percentage of domestic content. For Indonesia, this would inevitably cover vital legislation such as Indonesia’s Law No. 4 of 2009 on Mineral and Coal Mining (the “2009 Mining Law“) which requires minerals to be processed domestically. Given that minerals and coal mining is an important (yet sensitive) industry to Indonesia, and the fact that such mining laws have given rise to ISDS proceedings (Nusa Tenggara Partnership B.V. and PT Newmont Nusa Tenggara v Indonesia3)ICSID Case No. ARB/14/15 jQuery("#footnote_plugin_tooltip_7915_3").tooltip({ tip: "#footnote_plugin_tooltip_text_7915_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });), it is not surprising that this is kept out of the ISDS regime but is left to state-state settlement.

  1. Section B of Chapter 14 – Dispute Settlement

Generally, the procedures set out under Section B are in line with modern investment arbitration rules.

The In-Between

The procedures set out under Section B seem fairly typical, which require parties to first undergo consultations and conciliation (Arts 14.22 and 14.23) before claims can be submitted to a number of fora including arbitration under the ICSID Convention, ICSID Additional Facility Rules, UNCITRAL Arbitration Rules or such other rules that the disputing parties may agree to.

In line with the more recent innovations in the investment arbitration rules (e.g. the SIAC 2017 Investment Arbitration Rules or the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration, Section B also includes provisions such as

  • Art 14.31 (Transparency of Arbitral Proceedings);
  • Art 14.28 (Security for Costs);
  • Art 14.29 (Consolidation); and
  • Art 14.32 (Third Party Funding).

The Not-So-Good

That being said, there are features (normally found in the more modern BITs and/or arbitration rules) that are not found in the IACEPA. This includes provisions relating to third-party submissions or a non-disputing contracting party and interim relief.

It is also worth highlighting that Art 14.21 (Exclusion of Claims) provides that no claim may be brought inter alia if the claim is “frivolous or manifestly without merit”.

However, it is this author’s view that the IACEPA could have provided clearer guidance on the scope of that ground – for instance Rule 26 of the SIAC 2017 Investment Arbitration Rules specifies that the grounds for early dismissal includes where the claim or defence is manifestly without legal merit, outside the jurisdiction of the tribunal or inadmissible; similarly, Rule 40 of the revised draft ICSID Convention Arbitration Rules (second draft) provides that an objection that a claim is manifestly without legal merit may relate to the substance of the claim, the jurisdiction of ICSID or the competence of the Tribunal.

That being said, the above may not be fatal considering that these matters may be further supplemented by the relevant rules of arbitration.

The Good

Similar to the substantive provisions, there are also a number of ‘bespoke’ processes introduced to address Australia and Indonesia’s concerns with the ISDS regime.

To highlight, Art 14.21 (Exclusion of Claims) provides that no claim may be brought where the claim is brought in relation to a measure that is designed and implemented to protect or promote public health. This is presumably introduced to address measures giving rise to cases like the Philip Morris case (which revolves around the plain packaging rules that were implemented to protect public health by reducing tobacco consumption).

Art 14.21 (Exclusion of Claims) also clarifies that no claim may be brought where the claim is brought in relation to an investment that has been established through illegal conduct such as corruption (though, minor or technical breaches of law are excluded from this exception). This clarification is definitely welcomed in light of the issue surrounding the ‘corruption defence‘ (as promulgated in cases such as Metal-Tech4)Metal-Tech Ltd. v. Republic of Uzbekistan, ICSID Case No. ARB/10/3 jQuery("#footnote_plugin_tooltip_7915_4").tooltip({ tip: "#footnote_plugin_tooltip_text_7915_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });) and the de minimis rules (as promulgated in cases such as Tokios Tokeles5)Tokios Tokeles v Ukraine, ICSID Case No ARB/02/18 jQuery("#footnote_plugin_tooltip_7915_5").tooltip({ tip: "#footnote_plugin_tooltip_text_7915_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });).

 

Conclusion

In conclusion, this author is of the view that, overall, the IACEPA is a balanced compromise achieved by both Indonesia and Australia. Instead of categorically dismissing ISDS, the IACEPA clarifies the protection that the States are willing to grant to investors; and procedural rules that they are willing to adopt.

Perhaps this is one solution moving forward for States (like India and Ecuador) that have similar concerns with ISDS.

 

References   [ + ]

1. ↑ ICSID Case No. ARB/12/14 and 12/40 2. ↑ PCA Case No. 2012-12 3. ↑ ICSID Case No. ARB/14/15 4. ↑ Metal-Tech Ltd. v. Republic of Uzbekistan, ICSID Case No. ARB/10/3 5. ↑ Tokios Tokeles v Ukraine, ICSID Case No ARB/02/18 function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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One Country, Two Systems: Availability of Interim Measures in China, a New Argument for Hong Kong on the Asia-Pacific Arbitration Stage?

Fri, 2019-04-26 00:03

Edern Coënt and Eugene Thong

Introduction

On 2 April 2019, the Supreme People’s Court and the Government of the Hong Kong Special Administrative Region announced the signature of the “Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong Special Administrative Region” (“Arrangement”).

This announcement as well as the contents and importance of the Arrangement have immediately been the subject of much attention and coverage. Most of these contributions came from Hong Kong-based colleagues and pointed out the significance of the Arrangement for Hong Kong as an arbitral seat. This blogpost further assesses this significance, but more broadly, in the contexts of the Asia-Pacific region and competition amongst the region’s preferred seats.

 

Interim Measures and the New Regime

Interim measures, meant to protect a party’s interests or property during the pendency of proceedings, are usually available during arbitral proceedings in mature jurisdictions. They are available from either the arbitral tribunal or national court, and this is usually provided for in national legislation. In most of these jurisdictions, the relevant law, whether statute or case law, presumes that parties agree for tribunals to be empowered to grant interim measures, unless there is express indication otherwise.

With this context in mind, it is notable that mainland Chinese courts have no power to grant interim measures in support of foreign-seated arbitrations, and interim measures obtained from an emergency arbitrator or arbitral tribunal in a foreign-seated arbitration are not enforceable in mainland China either. Given this regime, a party entering into an arbitration agreement with a potential need for interim relief in mainland China may be forced to accept a clause providing for arbitration seated in mainland China and, given the relative uncertainty on that point,1) For example, in a survey involving 100 orders by mainland Chinese courts on applications to recognise and enforce arbitral awards rendered outside of mainland China spanning from 1994 to 2015, 83% of SIAC awards and 78% of HKIAC and ICC awards were found to be successfully enforced. jQuery("#footnote_plugin_tooltip_9008_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9008_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); administered by a mainland Chinese institution as well.

Hong Kong has now become an exception to that regime and is likely to remain the only one in the foreseeable future.2) Recent decisions by Chinese courts opened the door to change but only in relation to Hong Kong-seated, HKIAC administered arbitrations, which may have paved the way for the Arrangement rather than announce a sea change. See a Kluwer Arbitration Blog post on the subject from October 2018 here. jQuery("#footnote_plugin_tooltip_9008_2").tooltip({ tip: "#footnote_plugin_tooltip_text_9008_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Arrangement allows mainland Chinese courts to grant interim measures in support of arbitrations seated and administered in Hong Kong. This is subject to a number of formal requirements, which have led to some reservations as to its practical application,3) The reservations mostly touch upon the fact that Chinese law remains applicable to the application, that the application has to go through the institution administering the case or that the supporting documents may be voluminous and would all have to be translated in Chinese. See, e.g., law firm comments here and here. jQuery("#footnote_plugin_tooltip_9008_3").tooltip({ tip: "#footnote_plugin_tooltip_text_9008_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); but the overall sentiment is that this is a markedly positive development for Hong Kong as an arbitral seat.4) In a Statement published on the HKIAC website, Neil Kaplan calls it “a game changer”. jQuery("#footnote_plugin_tooltip_9008_4").tooltip({ tip: "#footnote_plugin_tooltip_text_9008_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Arrangement follows in the steps of previous similar developments in the Hong Kong-mainland China relationship regarding the enforcement of arbitral awards and court judgements, which also crystallised in the form of bilateral agreements, and therefore reinforces the special status of Hong Kong within the “One Country, Two Systems” framework.

In the past few years, that infamous formula has often been referred to ironically. There was, and maybe still is, the view that Hong Kong and the mainland were more and more one country and less and less two systems, to the point that Hong Kong, as an arbitral seat and jurisdiction generally, was perceived to be too close to China and no longer neutral. The Arrangement turns the tables on that perception. It is interesting to note that both signatories to the Arrangement used the “One Country, Two Systems” formula in their inaugural speeches. Teresa Cheng, Secretary for Justice of Hong Kong, declared that “[w]ith this Arrangement, we are confident that Hong Kong will continue to thrive as a leading international arbitration centre under the ‘One Country, Two Systems’ framework”. Yang Wanming, Vice-President of the Supreme People’s Court, labelled it “a practical measure taken by the Central Government to support the development of Hong Kong’s legal services and its position as an international legal and dispute resolution services hub in Asia Pacific” and also “a reflection of closer regional judicial assistance under the ‘One Country, Two Systems’ principle, and another judicial wisdom in the implementation of the principle”.

There is indeed wisdom in the implementation of the Arrangement. First, given the type of disputes likely to arise out of China or out of transactions involving a Chinese party, availability of interim measures could go a long way. Issues commonly associated with such disputes, like violations of intellectual property rights, ongoing breaches of distribution or licensing agreements, frustration of joint ventures and dissipation of assets, typically call for urgent provisional relief. Second, by giving teeth to such relief as granted by tribunals seated in Hong Kong, as opposed to other tribunals seated outside of mainland China, the Arrangement reverses the growing perception that Hong Kong was getting too close to China and that this was bad news for it as an arbitral seat in Asia. In announcing the Arrangement while referring to the “One Country, Two Systems” mantra, the message seems to be: yes, it is still two systems (with all the attendant advantages that entails, including neutrality, especially given the objective quality and independence of the Hong Kong judiciary) but it is also one country and here is why that is actually useful.

 

Implications for other Asia-Pacific Arbitral Seats

That message, and the practical argument that it makes for Hong Kong, is likely to affect the comparative advantages of the two other preferred arbitral seats in the region, Singapore and Seoul. Both have invested heavily in their capabilities as arbitration-friendly venues, with Singapore having established the world’s first integrated dispute resolution complex and emerged as the leading arbitral seat in the region,5) See 2018 Queen Mary International Arbitration Survey, p 9. jQuery("#footnote_plugin_tooltip_9008_5").tooltip({ tip: "#footnote_plugin_tooltip_text_9008_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and Seoul undertaking wide-ranging amendments to its laws to improve its legal infrastructure as an arbitral seat.

Both cities have also certainly profited from the neutrality concerns arising out of the relationship between Hong Kong and mainland China, by being perceived as more neutral seats for China-related disputes. The Arrangement does not change that perception; it flips it on its head. Whereas parties may have been dismissing Hong Kong based on perception rather than fact, they now have a very specific and practical argument for choosing Hong Kong, considering the relief that will be available to them in potential disputes. That choice is already significant for the competition amongst the three arbitral seats, but in the context of the Belt and Road Initiative (“BRI”), with China as the main driver of potential future disputes in the region, this new development may indeed prove to be of great consequence. As it is, some US$ 1 trillion has already been committed to date to the BRI, which, at maturity, is expected to see a further investment of at least a few more trillions of US dollars. Moreover, its membership continues to expand, with European countries starting to join in: Italy became a member in March 2019, while Switzerland has expressed support this month. To say that the stakes are high may be considered an understatement.

For now, a very immediate and concrete effect of the Arrangement will be that parties and their counsel will have to pay more attention to the midnight clause that is the arbitration agreement. Parties dealing with mainland China and choosing arbitration as their dispute resolution mechanism will have to weigh more seriously the pros and cons of Hong Kong as an arbitral seat in comparison with its two regional competitors. Conversely, mainland Chinese parties may wish to consider whether Singapore or Seoul might turn out to be more favourable seats, despite their offshore status.

Meanwhile, Singapore and Seoul will have to come up with additional reasons to remain attractive in the region at a time when China’s economic importance is still growing. Presently, Singapore seems to be continuing to seek new areas of potential innovation for arbitration, while further developing the full range of dispute resolution services on offer: for instance, it is finetuning the regimes for alternative or complementary solutions like mediation, which may also be important for the BRI, given the Asian centre of gravity. On the other hand, Seoul is vigorously fostering the growth of its arbitration community and market, in addition to emphasising its civil law roots as a factor distinguishing it from Hong Kong and Singapore.

 

Concluding Remarks

All in all, concrete and precise arguments based on fact, rather than vague sentiments or impressions, are very much welcome to spur competition between rivals, for, if Hong Kong withers, Singapore and Seoul’s gain can only be one-off. Hong Kong should prosper through this new development, because this will push other seats in the region to greater heights, and all will be the better for it, for a long time to come.

References   [ + ]

1. ↑ For example, in a survey involving 100 orders by mainland Chinese courts on applications to recognise and enforce arbitral awards rendered outside of mainland China spanning from 1994 to 2015, 83% of SIAC awards and 78% of HKIAC and ICC awards were found to be successfully enforced. 2. ↑ Recent decisions by Chinese courts opened the door to change but only in relation to Hong Kong-seated, HKIAC administered arbitrations, which may have paved the way for the Arrangement rather than announce a sea change. See a Kluwer Arbitration Blog post on the subject from October 2018 here. 3. ↑ The reservations mostly touch upon the fact that Chinese law remains applicable to the application, that the application has to go through the institution administering the case or that the supporting documents may be voluminous and would all have to be translated in Chinese. See, e.g., law firm comments here and here. 4. ↑ In a Statement published on the HKIAC website, Neil Kaplan calls it “a game changer”. 5. ↑ See 2018 Queen Mary International Arbitration Survey, p 9. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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A Fresh Look at Arbitration in the Commonwealth: The Opportunity to Shape the Future

Thu, 2019-04-25 22:41

Tochukwu Anaenugwu

The Commonwealth is a voluntary association of 53 independent countries, comprising large and small, developed and developing, landlocked and island economies. It is home to about 2.4 billion people with not only shared but also very distinct history, culture, values, languages and legal traditions. The shared Commonwealth heritage leads to close diplomatic and commercial relationships, which is ultimately reflected in levels of intra-Commonwealth trade and foreign direct investment (FDI).  Indeed, despite being a voluntary association and not a trading bloc, the value of intra-Commonwealth trade in goods and services is reported to have tripled between 2000 and 2016 – from about US$200 billion to about US$600 billion. Intra-Commonwealth trade and greenfield FDI is estimated to exceed US$ 1 trillion by 2020.

Boosting economic growth and development of member states remains a top priority for the Commonwealth Heads of Government. There is a growing appetite to harness and strengthen what has now come to be termed the “Commonwealth effect” or “advantage”- this is an inherent 19 per cent trading costs savings realized from bilateral trade between Commonwealth member states.

These commercial relationships require effective dispute resolution mechanisms, especially considering the magnitude of trade involved. It is recalled that an effective dispute resolution mechanism remains fundamental to sustained economic growth. It is therefore surprising that little attention has been paid to international commercial arbitration in the Commonwealth. Hence, the Resolution by the Senior Officials of Commonwealth Law Ministries, at their meeting in London in October 2018, requesting the Commonwealth Secretariat to conduct a study on accessing international commercial arbitration across the Commonwealth is timely and most welcome.

The Study will perform an expansive review of the existing arbitral landscape in each member state of the Commonwealth. It will seek to understand the use of international commercial arbitration in addressing commercial disputes across the Commonwealth, as well as ways in which member countries may strengthen the accessibility and effectiveness of international commercial arbitration.

 

Intra-Commonwealth trade and investment

Intra-Commonwealth trade has seen a steady rise in recent years.  According to  2018 Commonwealth Trade Review,  intra-Commonwealth exports of goods and services stood at US$560 billion in 2016. This constitutes approximately 20 per cent of Commonwealth members’ total trade.  Singapore, Malaysia and India were major drivers of this growth, recording shares of intra-Commonwealth exports, between 19.4 per cent, and 14.2 per cent. These countries were closely followed by Australia and the United Kingdom.   In terms of imports, the United Kingdom, India and Singapore were the largest importers from within the Commonwealth.

As for FDI, Commonwealth member countries invest in each other more than the rest of the world. Cumulative intra-Commonwealth greenfield investment from 2003 to 2017 is estimated to have generated 1.4 million jobs through 10,000 projects and has been valued at about US$700 billion. In 2016, the top sources of intra-Commonwealth investment were the United Kingdom at 26 per cent, India at 19 per cent, Malaysia at 14 per cent and Singapore at 14 per cent, whereas the top destinations for investment were India, Bangladesh, Singapore, Nigeria and Sri Lanka (in that order).

Commonwealth least developed countries (LDC) have also been recipients of intra-Commonwealth FDI flows. Between 2003 and 2016, an average of 13 per cent of intra-commonwealth FDI has been invested in Commonwealth LDCs, aggregating a total of about US$81 billion. 89 per cent of this total is split between five Commonwealth LDCs – Papua New Guinea, Bangladesh, Mozambique, Uganda, Tanzania and Zambia (in that order). The rest is split among other LDCs – Kiribati, Lesotho, Malawi, Rwanda, Sierra Leone, Solomon Islands, the Gambia, Tuvalu, and Vanuatu. Overall, there is a considerable flow of goods and services, and investments between Commonwealth developed and developing countries (2015 Commonwealth Trade Review; 2018 Commonwealth Trade Review).

 

The dispute resolution landscape across the Commonwealth

Despite the burgeoning intra-Commonwealth trade, together with the ease and advantages it provides, there is still a huge disparity across the 53 Commonwealth countries in the accessibility and effectiveness of dispute resolution mechanisms.

In some states, contract enforcement procedures are very costly, slow and inefficient: court systems are overburdened, and commercial cases languish for years before they are resolved; political interference with the judiciary persists at the expense of judicial independence/impartiality; or there is a simple lack of requisite expertise. In others, commercial disputes are resolved in a timely and cost-effective manner. According to the World Bank’s Doing Business rankings, it takes about 4 years to enforce a contract in first-instance courts in countries like Trinidad and Tobago, Bangladesh and India, compared to the just under 10 months it takes to do so in Singapore, New Zealand and Rwanda.

These figures translate to very real effects on trade and commerce, as demonstrated by the 2018 Commonwealth Trade Review, which examined enforcement of contracts and efficiency of the court system as relevant governance indicators with potential impact on intra-Commonwealth trade. The Review found that efficient contract enforcement increases trade and investment, reduces trade costs and boosts business confidence. It also found that further trade gains could be realized from greater efficiency and that for every 10 per cent reduction in time taken to enforce a contract, there is a corresponding 6.4 per cent increase in intra-Commonwealth trade.

The Review found that contract enforcement is relatively efficient among Commonwealth states, requiring 20 per cent less time compared to the world average. Building on the existing efficiency, promoting international commercial arbitration as an effective dispute resolution mechanism for cross-border trade within the Commonwealth, will enhance the efficiency of contract enforcement even more. In particular, it will enable small and medium-size enterprises to circumvent the pitfalls of cross-border litigation. (See Born & Butler – UNCITRAL)

However, regarding (international) arbitration, unfortunately, there are also significant disparities amongst the 53 countries in their legal frameworks for international commercial arbitration. Save for a few Commonwealth jurisdictions, international commercial arbitration is not fully developed. In most jurisdictions, the arbitration legislation is outdated and contains obsolete provisions that are wholly unsuitable for modern commercial arbitration practice. Some states are yet to accede to the New York Convention. In others, the judicial approach to arbitration is unsupportive of arbitration and the arbitral institutional capabilities are generally weak.

Based on a preliminary and high-level review of the legal framework for arbitration in all 53 countries, this author found that 33.9 per cent of Commonwealth countries have not acceded to the New York Convention and about 58 per cent countries have outdated arbitral legislation. The 53 member countries can be loosely classified into three broad categories.

  • The first category features member states with well-developed arbitration practice. Arbitration in these states is governed by a modern arbitration legislation partially or wholly based on the UNCITRAL Model law. These countries have acceded to the New York Convention. They have strong arbitral institutional capacity and the overall attitude of their judiciary is pro-arbitration. The countries include Australia, Canada, Mauritius, New Zealand, Nigeria, Singapore, South Africa and United Kingdom.
  • In the second category, the countries have relatively modern arbitral legislation partially or wholly based on the UNCITRAL Model Law, are signatories to the New York Convention, but their overall arbitration practice is not as developed as in the first category. These countries include Bahamas, Bangladesh, Barbados, Brunei, Cyprus, Fiji, Ghana, India, Jamaica, Kenya, Malaysia, Malta, Mozambique, Rwanda, Sri Lanka, Uganda, and Zambia.
  • The third category includes countries with no arbitral legislation, outdated arbitral legislation (such as those based on the repealed English Arbitrations Acts of 1889 or 1950), and/or are non-signatories to the New York Convention. They include Antigua and Barbuda, Belize, Botswana, Cameroon, Dominica, Gambia, Grenada, Guyana, the Kingdom of eSwatini (previously Swaziland), Kiribati, Lesotho, Malawi, Namibia, Nauru, Pakistan, Papua New Guinea, Saint Lucia, Samoa, Seychelles, Sierra Leone, Solomon Islands, St Kitts and Nevis, St Vincent and the Grenadines, Tanzania, Tonga, Trinidad and Tobago, Tuvalu, and Vanuatu.

 

The present dispute resolution landscape across the Commonwealth is inadequate to sustain the needs of the burgeoning intra-Commonwealth trade. Absent significant legislative reforms, ineffective dispute resolution processes will continue to chip away at whatever gains the Commonwealth advantage provides. While reform of court systems in the individual member states may be unlikely in the near future, reform activities directed at strengthening international commercial arbitration practice are more targeted and can return appreciable gains more quickly.

It is on the above premise that the ongoing Commonwealth Secretariat’s Study on the challenges to accessing international commercial arbitration across the Commonwealth is applauded and will contribute to its development across the Commonwealth. The study will be authored by a group of distinguished arbitration experts, advised by a task force representing arbitration expertise from every region of the Commonwealth. More information on the Study can be found here. The Commonwealth have invited input to the Study through completion of a questionnaire by 10 May 2019: lawyers (conseil des parties; advogados ), arbitrators (arbitres; arbitros) and academics (Universites; Universidades

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New CIArb Guidelines on Witness Conferencing

Wed, 2019-04-24 18:37

Peter Yuen and Matthew Townsend

On Tuesday 22 April 2019, the Chartered Institute of Arbitrators (Singapore) issued their Guidelines for Witness Conferencing in International Arbitration (the “Guidelines”),1) Guidelines to be soon made available. See here the latest draft. jQuery("#footnote_plugin_tooltip_5224_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5224_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); providing tribunals, witnesses and parties with guidance in the conduct of witness conferencing.

 

Witness Conferencing

Witness conferencing is the process by which two or more witnesses give evidence concurrently before a tribunal. (Guidelines, page 13)  In practice, this may take the form of any one of a number of procedures, usually agreed on a bespoke basis taking into account the relevant circumstances.

Participants may elect for a process driven by one (or more) of the tribunal; the parties’ counsel; or even the witnesses themselves.  The conference might at any one time include all witnesses testifying on a particular issue or range of issues, or it might be directed to specific participants and/or issues. The approach taken will depend upon the scope of the issues in dispute, the nature and extent of the evidence proffered, the degree of expertise of the witnesses, as well as other factors such as the number and language of the witnesses.

Commentators cite a number of potential advantages to witness conferencing. These include the prospect of a more efficient presentation of views; greater scope for meaningful comparison of competing evidence when presented side-by-side; the moderating effect that the threat of contemporaneous rebuttal might have upon a witness’s evidence; and shorter hearing times arising from concurrency of testimony.

However, others have warned that the process might be undermined should, for instance, the witnesses in question become unnecessarily confrontational. This is a particular risk when it comes to witnesses of fact, and it is noteworthy that conferencing is less prevalent when it comes to fact witnesses. Conferencing might also be less effective should personality, cultural and/or seniority dynamics give rise to unnecessary deference between witnesses. Further, as a general matter, some practitioners (particularly those from common law jurisdictions) might simply be uncomfortable with the reduced role of the parties’ representatives, who have less freedom to present their evidential case as they choose.

Ultimately witness conferencing can be a powerful tool that in certain circumstances, and if applied and regulated appropriately and proportionately, can give rise to a quicker and more cost-effective determination of contested witness evidence.

 

The Guidelines

The Guidelines comprise three main parts: (a) a “checklist of factors to consider in determining a procedure” for witness conferencing (“Checklist”); (b) a “framework procedural order that may be used as a basis for crafting appropriate directions” for witness conferencing (“Directions”); and (c) explanatory notes for each if items (a) and (b) (“ Notes”).

The Guidelines, which extend to 66 pages, provide detailed direction. However, in recognition of the diversity of witness conference procedures, the provisions adopt non-mandatory language throughout.

The Guidelines apply both to factual and expert evidence.  However, the drafters recognize that “[i]n the majority of cases witnesses giving concurrent evidence will be experts giving opinion evidence”. (Guidelines, page 11)

 

Checklist

The Checklist includes a list of matters, ranged across four headers: “Matters in Issue”; “Witnesses”; “Pre-hearing”; and “Logistics”.  The Notes provide detailed considerations in respect of each issue, some of which “militate in favour of a conference, whereas others may detract”. (See Guidelines, page 12)

Some of the matters, such as “allocation of time among the witnesses” or “presentations and demonstrables” go only to the question of which form the conference might take.  Others, such as “[t]he relationship between witnesses…”, go also go to the wider question of whether or not to conduct a witness conference at all.

The Guidelines specify that the Checklist is “non-exhaustive”; and that [n]ot all of the items in the Checklist will be relevant in all cases”. (Guidelines, pages 9 and 26) Again, this is helpful recognition of the diverse and bespoke nature of witness conferencing.

 

Directions

The Directions establish (a) “Standard Directions” to be incorporated as part of an initial procedural order; and (b) “Specific Directions” to be issued once the tribunal and the parties have determined to hold a witness conference.

The Standard Directions are intended to provide a set of applicable principles in the event that the tribunal subsequently orders some of the witness evidence to be taken concurrently. They anticipate that in such circumstances the witnesses jointly prepare a schedule listing “areas on which the witnesses agree and disagree and a summary of the witnesses’ views on those areas of disagreement” as well as a “chronology of agreed facts”.  Inclusion of the Standard Directions into a procedural order does not displace the taking of consecutive evidence. (Guidelines, page 12)

The Specific Directions are addressed in turn to three principal scenarios: (a) a Tribunal led conference; (b) a witness-led conference; or (c) a counsel-led conference.  They contemplate tribunal direction on issues such as: sequestration of witnesses; administration of oaths; and the right of witnesses to give an oral presentation. Further, they establish the right of a party’s counsel to seek clarifications from its witness following its examination in a counsel-led process; as well as to question the other party’s witness, and seek clarification from its own, following tribunal questioning in a tribunal-led or witness-led process. (Guidelines, sections A6, B5(5) and C5)

 

Conclusion

The Guidelines seek to achieve a difficult balance between on the one hand identifying and codifying best practice for those conducting witness conferencing, and on the other recognizing the necessarily bespoke, flexible and context-specific nature of such procedures.  The resulting Guidelines are non-prescriptive, but nonetheless comprise a convenient reminder of the key considerations that arbitration participants might bear in mind when contemplating witness conferencing. The drafters of the Guidelines express their hope that the Guidelines prove a “useful aide-memoire” for experienced practitioners, while assisting those with more limited experience navigate the process. The Guidelines appear well calibrated to this objective.

 

 

 

 

References   [ + ]

1. ↑ Guidelines to be soon made available. See here the latest draft. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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The Indonesia-Australia Comprehensive Economic Partnership Agreement: Repeated Debates, New Issues and Open Questions

Tue, 2019-04-23 17:41

Esme Shirlow (Assistant Editor for Australia, New Zealand and Pacific Islands)

Last month, Australia and Indonesia signed the Indonesia-Australia Comprehensive Economic Partnership Agreement (‘IA-CEPA’), containing in Chapter 14 provisions related to the protection of foreign investments. Negotiations of an IA-CEPA were initially announced in 2010, and formally began in September 2012. The negotiations were thereafter suspended, but relaunched in March 2016. Signature and ratification of the treaty have subsequently been waylaid on a number of occasions due to domestic political developments and bilateral tensions, including those stemming from Australia’s announcement in 2018 that it would consider relocating its embassy in Israel to Jerusalem. Despite these delays, the treaty was finally concluded on 31 August 2018, and was then signed on 4 March 2019. This post examines some outstanding questions related to the treaty, which indicate that the IA-CEPA may still have some hurdles to conquer before its ratification.

The Inclusion of ISDS: A Settled Debate, or a Rocky Road to Ratification Ahead?

Both Indonesia and Australia have equivocated on including investor-State dispute settlement (‘ISDS’) provisions in their investment treaties. Some years ago, Indonesia announced its intention to review, revise and/or terminate its investment treaties. This new policy was reportedly a reaction to claims filed against Indonesia under its bilateral investment treaties with Australia and the United Kingdom. In 2011, Australia’s Labor Government similarly announced that it would no longer conclude treaties with ISDS clauses. This policy was later changed by Australia’s Liberal Government, which instead negotiates ISDS clauses on a case-by-case basis.

This debate about the desirability of ISDS also played out during the IA-CEPA negotiations. In June 2017 the Australian Joint Standing Committee on Trade and Investment Growth produced a report considering Australia’s trade and investment relationship with Indonesia. It noted with concern the possible inclusion of ISDS provisions in a future treaty between the two States, and recommended that ‘the IA-CEPA should not include…ISDS provisions’ (Recommendation 4). In March 2018, the Australian Government responded to the Committee’s report. While accepting some of the Committee’s recommendations, it declined to exclude ISDS from the treaty. It noted its policy of taking ‘a case-by-case approach to the inclusion of ISDS commitments in international trade agreements’, and undertook to ensure that any ISDS provisions in the IA-CEPA would contain ‘robust safeguards to preserve the Government’s right to regulate in the public interest’. Ultimately, this view of the desirability of including ISDS won the day, with the IA-CEPA containing numerous provisions concerning the procedures that will apply in future ISDS proceedings under that treaty.

Following the conclusion of IA-CEPA negotiations in 2018, Australia’s Labor Opposition indicated that ‘it would not ratify the deal, or any other FTA in the pipeline’ unless ISDS provisions were removed. In the same month, however, Labor supported the passage of legislation necessary for the ratification of the TPP-11, despite the inclusion of ISDS provisions in that agreement. Labor has since re-iterated that it will – if elected following the May 2019 federal election – ‘seek to remove ISDS provisions from existing free trade agreements’. There are already indications that this policy may be applied to the newly signed IA‑CEPA. Indonesia, too, held a general election in mid-April, the results of which will not be officially announced until May. Both the IA-CEPA and ISDS have both featured in political debates in that electoral campaign. Ratification of the IA-CEPA is therefore likely to be subject to future roadblocks, and will depend upon the outcomes of these elections in both States.

Towards a Treaty Spaghetti Bowl?

In its June 2017 report, the Australian Joint Standing Committee on Trade and Investment Growth noted that the Indonesia-Australia investment treaty and the ASEAN-Australia-New Zealand free trade agreement (‘AANZFTA’), meant ‘there are some questions about coherence and so on’ between the new IA-CEPA and the States’ existing treaties (para. 3.61). Reacting to these comments, an Australian Labor MP noted that the negotiation of the IA-CEPA alongside other ‘better’ multilateral agreements, risked a ‘spaghetti bowl effect’ of trade and investment agreements. He cautioned of the need ‘to tread carefully’, given that ‘the more trade agreements you have with the same country the more confusing it can be for business to figure out’. Unphased by such concerns, the Australian Government instead responded to calls to exclude ISDS from the IA-CEPA by noting that these existing ISDS provisions meant in any case that ‘[b]ilateral investment with Indonesia is already subject to ISDS’.

Prior to the Australian election being called on 11 April, the IA-CEPA was referred to Australia’s Joint Standing Committee on Treaties for review. That Committee has previously raised concerns about the increasingly dense web of Australian treaties with overlapping ISDS provisions. Those concerns have, however, so far been dismissed by the Government. The Government’s current policy indicates that reducing such overlaps is not a particularly pressing objective. Issues of overlap arise in part because of Australia’s relatively ad hoc approach to the negotiation of investment agreements, including parallel negotiations of bi- and multi-lateral agreements with the same treaty partners. In fact, the Government is currently negotiating a Regional Comprehensive Economic Partnership (‘RCEP’) which encompasses the same States that are party to the AANZFTA, and Indonesia is slated as a possible future party of the above-mentioned TPP-11.

Unlike other recently-concluded treaties, the IA-CEPA appears not to include a clause or side letter terminating the application of clauses in other treaties providing for ISDS between Indonesia and Australia. Australia or Indonesia might in the future decide to adopt termination or side agreements to address these overlaps. For now, however, the treaty practice of both States indicates that the relationship between these treaties and their ISDS provisions is likely to become ever more complicated in the future. This reflects broader regional trends, with some commentators referring to an increasing ‘Asian noodle bowl’ of overlapping international investment agreements. It remains to be seen whether the impetus for decreasing such overlaps will come through the ratification process, or the decision of a new (or returned) Government. The answer to these questions is likely some way off, given that Australia’s Joint Standing Committee on Treaties was dissolved when the election was called, and that any new or returning Government will likely take some time to consider and chart its course on these issues.

Indications of New Approaches?

Australia has not released a model investment treaty, and Indonesia has not released a revised version of its model for some time. The IA-CEPA therefore provides useful indications of the potential approaches of these two States to the drafting of contemporary investment treaties. A separate post on the Blog will consider the provisions of the IA-CEPA in more detail in the coming days. For now, the following paragraphs identify two particularly interesting aspects of the treaty.

Treaty Scope

Article 14.2 of the IA-CEPA delineates the treaty’s ‘scope’, specifying that the Investment Chapter applies to measures adopted or maintained by ‘any person, including a state-owned enterprise or any other body, when it exercises any governmental authority delegated to it by central, regional or local governments or authorities of that Party’. A footnote clarifies that:

For greater certainty, governmental authority is delegated under a Party’s law, including through a legislative grant or a government order, directive or other action transferring or authorising the exercise of governmental authority.

A similarly worded provision of the US-Oman FTA was at issue in the case of Adel A Hamadi Al Tamimi v. Sultanate of Oman. That tribunal held that the provision stipulated a test for attribution that was narrower than that under customary international law. This was on the basis that the treaty required the exercise of ‘regulatory, administrative or governmental authority’ which must also have been ‘delegated…by the State’ (para. 322). It held, in light of this ‘specific test’ that ‘the ILC Articles are not directly applicable to the present case’ (para. 324), instead being displaced by a narrower test of attribution. Nonetheless, the tribunal referred to Article 5 of the ILC draft articles as a ‘useful guide’ in applying the treaty provision. The precise impact of the provision – now reproduced in the IA-CEPA – therefore remains unclear, and it is a pity that Australia and Indonesia did not seize the opportunity to clarify the relationship between customary international law rules of attribution and their treaty text.

Alternative Approaches to Investor-State Dispute Settlement

During the drafting of the IA-CEPA, Australia conducted a number of public consultation processes, during which alternative forms of investor-State dispute settlement were raised for consideration. Some submissions, for example, recommended that the treaty be drafted to encourage disputing parties to seek the resolution of investor-State disputes through non-adversarial processes. This included suggestions that the treaty provide for investor-State mediation instead, including because this would be ‘adaptable to fundamental tenets of Indonesian culture such as “musyawarah” – the tradition of amicable discussion and consensus among Indonesian people’. Despite this, the IA-CEPA does not adopt particularly innovative provisions on dispute settlement. The IA-CEPA subjects arbitration proceedings to a cooling off period, with options for referral to consultation or conciliation. The investor is, nevertheless, permitted to initiate investor-State arbitration where ‘an investment dispute has not been resolved by consultations…or conciliation’ within specified timeframes (Article 14.24).

Settled Debates or Open Questions?

Both Australia and Indonesia have previously adopted ISDS policies that indicated that they might become States to watch in respect of future reforms to the investment arbitration regime. Both States have thus-far exhibited ambivalent approaches to reform. Despite potential for new approaches, the IA-CEPA fits the mould of existing investment treaties. At various times during the drafting of the treaty, Australia and Indonesia side-stepped opportunities to adopt more innovative approaches. Whilst indicating that ISDS might be abandoned altogether or otherwise re-envisaged to incorporate alternative approaches to dispute settlement, at the key moments of negotiation, conclusion and signature both States elected not to adopt more novel approaches. Instead, the IA-CEPA adds to a web of overlapping investment treaties, without itself addressing how issues of overlap might be dealt with. It remains to be seen whether opportunities to remove or modify the treaty’s ISDS provisions will be seized in the post-signature and ratification phases. The IA-CEPA thus does not represent a paradigm shift, but its future is far from certain and many open questions remain.

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Interviews with Our Editors: A Viennese Flavor for Arbitration with Alice Fremuth-Wolf, Secretary General at VIAC

Mon, 2019-04-22 17:17

Kiran Nasir Gore (Associate Editor) and Patricia Živković (Associate Editor)

Ms. Fremuth-Wolf, thank you for joining us on the Kluwer Arbitration Blog!  We know that spring is a busy time for the arbitration community in Vienna and we are grateful to have the opportunity to share your unique perspective with our readers, particularly as Vienna International Arbitral Centre (VIAC) undertakes important steps to establish itself as a leader for best practices both regionally and globally.

 

  1. To start, can you briefly introduce yourself and describe your role and focus at VIAC?

In 2018, I was appointed Secretary General of VIAC. My current role is to oversee the case management, to represent VIAC at conferences and promote arbitration and mediation as a peaceful means for the resolution of international disputes. One of my personal goals is to promote diversity in arbitration and break-up old structures (if you want to read more on my personal drivers, please see my contribution in Women Pioneers in Arbitration, 2nd ed, p. 65 et seq.)

I originally joined VIAC as Deputy Secretary General back in 2012. Prior to that (between 2005 and 2011) I was teaching at the Vienna University, coaching the Viennese Team for the Vis Moot – this was the period when my 3 kids were born, in 2005, 2007 and 2010. Before that, I had been working with major law firms in the field of international arbitration after having passed my bar exam in 2001 and having completed my law studies at the University of Vienna, where I also obtained my JD, and at the London School of Economics, where I earned my LL.M.

 

  1. Can you tell us more about VIAC as an institution – what kind of disputes do you most frequently encounter? What industries and sectors are prevailingly covered in VIAC cases? In your opinion, is there certain preference towards regional arbitration institutions when it comes to the nature of the dispute submitted to arbitration?

VIAC is the premier international arbitration institution in Central and Eastern Europe with a long-standing tradition. It was established by the Austrian Federal Economic Chamber (AFEC) in 1975, and has celebrated its 40th birthday in 2015. Initially, its main purpose was to facilitate trade between the former Eastern bloc and the West, as a neutral forum for the settlement of disputes arising out of East-West trade.

Since then it has a steadily-increasing caseload from a diverse range of parties with a strong focus on the CEE/SEE-region (a third of our parties stem from this region), but also from Western Europe, the Americas and Asia. We are thus not focusing on a particular type of dispute but rather on a particular region. The disputes handled by us involve a broad variety of topics, post M&A, Energy, commercial contracts, construction etc. (see our statistics for further details).

 

  1. Last year VIAC launched new Arbitration and Mediation Rules. What are some of the important new features of the rules and how are these features responsive to your users’ needs? In relation specifically to mediation, are there any known efforts in Austria to secure a more efficient enforcement of parties’ settlements?

The VIAC Rules 2018 have three parts: Rules of Arbitration (part I), Rules of Mediation (part II) and Annexes (part III); this means that arbitration and mediation now are on equal footing and we have foreseen incentives for parties to combine proceedings.

The following new features are worth mentioning:

  • VIAC now also administers purely domestic cases, implementing the amendment of Section 139 WKG (Article 1 VR and Article 1 VMR). This change was driven by a call from our (Austrian) users to unify all disputes within VIAC and dissolve the Arbitration Courts of the Regional Economic Chambers previously responsible for domestic disputes.
  • In the interest of gender diversity, it is explicitly defined that, in practice, the terms in the Rules shall be used in a gender-specific manner (Article 6 VR and Article 2 VMR). This is due to VIAC’s commitment to support the ERA Pledge.
  • Since 1 January 2018, all new proceedings are administered by VIAC through an electronic case management system; provisions on submission of Statement of Claims and service have been adapted accordingly (Articles 7, 12 and 36 VR and Articles 1 and 3 VMR). This is a move towards completely paperless administration of our disputes.
  • Arbitrators and parties, as well as their representatives, shall conduct the proceedings in an efficient and cost-effective manner; this may also be taken into account in determining the arbitrators’ fees/costs (Article 16 para 6, Article 28 para 1, Article 38 para 2 VR). This is to increase and enhance efficiency and cost sensitivity in arbitration.
  • For the first time, Respondents now have the possibility to request security for costs under certain circumstances (Article 33 paras 6 and 7 VR). This was introduced in order to create clarity on that issue.
  • In determining arbitrators’ fees, the VIAC Secretary General is more flexible to increase the fees on a case-by-case basis by a maximum total of 40% or, conversely, to decrease the fees where appropriate (Article 44 para 7 and 10 VR). This is to enhance efficiency and to take action where necessary.
  • The Model Arbitration Clause and the Model Mediation Clauses have been revised and adapted to new wording (Annex 1) in order to provide our users with a variety of options and escalated dispute resolution clauses.
  • Revision of the schedule of fees to take into account the administration of purely domestic disputes: The Registration and Administrative Fees for lower amounts in dispute were staggered and reduced. At the same time, Administrative Fees for very high amounts in dispute have been slightly increased; still, they remain very moderate in comparison to other institutions.

With respect to mediation, settlement agreements reached in the course of mediation in Austria or within the European Union may be rendered enforceable in the following ways: creation of an enforceable notarial deed or the conclusion of a mediation settlement in court according to Section 433a ZPO and/or acc. to Regulation (EC) No 805/2004. These instruments are enforceable not only under the Austrian enforcement act (EO), but also in member states of the EU.

Another option is the conduct of Arb-Med-Arb proceedings under the VIAC Rules and to obtain an award on agreed terms to ensure enforceability under the New York Convention.

The new Singapore Convention that regulates the enforcement of international mediation agreements will be signed in August 2019. It will be seen how it will change the game and when Austria will accede to this convention. Settlement agreements that have been recorded and are enforceable as an arbitral award/award on agreed terms will be excluded from the scope of application of the Convention (Art 1 para 3 lit b); for these the New York Convention will remain applicable.

 

  1. For decades VIAC (and Vienna by association) has been one of the global centers of arbitration. What are the top three distinguishing features that set it apart from other options for arbitration around the globe, in particular with so many other competing institutions in the region?

We are a boutique arbitration centre with personable conduct.  Namely:

  • Flexible & lean rules (no compulsory ToR, scrutiny of award) that allow parties and arbitrators to tailor the proceedings according to their needs;
  • Flexible joinder of third parties which makes such joinder possible at any stage of proceedings and in any form (as party, third-party intervener, amicus curiae), to be decided by the arbitral tribunal after hearing all persons involved (Article 14); and
  • Conscious decision against emergency arbitration.

 

  1. We understand that in Germany there was recently a complaint that some areas of law (namely M&A disputes) are effectively monopolised by arbitration (see, for example, the discussion in this August 2018 interview with Dr. Klaus Peter Berger). Do you think that the popularity of arbitration for dispute resolution has a negative impact on the development of national law and jurisprudence? 

The reasons why parties have turned their backs on state court litigation and resorted to arbitration in some areas (such as M&A) are three-fold: (1) selection of the arbitrators with specialized persons dealing with the disputes; (2) confidential nature of the proceedings; and (3) flexibility of the proceedings including language.

To my opinion, in civil law countries, the law should not be made by judges, but by the parliament. Even if no binding case law exists, Supreme Court judgments still serve as an important guide, as they are publicly available. So if this is missing because parties shy away from state court litigation, a solution for this dilemma could be that more arbitral awards in this area are made available to the public (see below my response to your Question 7).

 

  1. Another pervasive criticism of commercial arbitration involves a perceived lack of transparency because so many parties invoke their right to confidentiality of proceedings and resulting arbitral awards. Do you think there is a clear contradiction? How has VIAC worked to strike a balance between increasing transparency for the arbitration community as a whole, while securing confidentiality and privacy for specific users and their disputes?

There seems to be an intrinsic tension between transparency and confidentiality. One of the main advantages of commercial arbitration has always been its confidential nature with disputes being settled in a private arena. However, especially in the case of investment arbitration where decisions are being rendered that impact the fate not only of the parties involved but of a larger group of people or even nations, transparency is needed. In commercial arbitration, there is no such subordinate public interest that requires private disputes to be publicly debated. The VIAC Rules contain strict confidentiality provisions for arbitrators, Board members and VIAC’s members of the Secretariat ensuring that all information acquired in the course of their duties is kept confidential, while parties are recommended to conclude an explicit confidentiality agreement, either in a separate document or as part of the arbitration agreement.

Following the call for more transparency in the appointment process of institutional arbitration, VIAC has decided to publish the names of arbitrators (“VIAC Arbitral Tribunals”). The list is updated regularly. It provides information on the appointment method, i.e. if the arbitrator has been appointed by the VIAC-Board or nominated by the parties/co-arbitrators and the date when the case file was handed over to the respective arbitrator.

 

  1. Is the fact that too few arbitral awards are published a “lack of transparency” problem? Does the process of anonymisation before publication resolve that problem?  Are there any “best practices” in this regard?

Another field of tension between transparency and confidentiality is surely the publication of decisions rendered by arbitral tribunals. In my opinion, the publication of awards in anonymized form resolves that problem as the need of the public is met to be informed on the (legal) outcome of a dispute providing a summary of legally relevant and interesting details while cutting out confidential data and information that are of no avail.

According to the Vienna Rules (Art 41) anonymized summaries or extracts of awards may be published in legal journals or VIAC’s own publication unless a party has objected to the publication within 30 days upon service of the award. When VIAC for the first time published its “Selected Arbitral Awards, Vol 1” in 2015, we prepared abstracts for each case reported. Still, as a matter of courtesy, we sought permission from the parties beforehand and were prepared to amend the drafts in accordance with the parties when they felt that the information disclosed could infringe their rights or lead to identify the parties. With this procedure, albeit cumbersome, we ensured that parties felt safe while at the same time nursing the appetite of practitioners to get insights into decided cases and their reasons. This publication is now available on Kluwer Arbitration. We are planning to publish a second volume in 2020.

 

Thank you for your time and perspective – we wish you and VIAC continued success!

 

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

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What To Do About Corruption Allegations? – A Conference Report

Sun, 2019-04-21 17:52

David Attanasio and Ana Duran (Dechert LLP)

The conference “What to Do About Corruption Allegations? Debating the Options for Investment Law”, was presented by the ILA American Branch Investment Law Committee and the Georgetown International Arbitration Society, and hosted at Dechert LLP’s Washington D.C. office on 19 February 2019. The conference was dedicated to an in-depth exploration of the proof required for corruption allegations and the consequence of corruption in an investment dispute.

As David Attanasio (Co-Chair of the ILA American Branch Investment Committee; Associate, Dechert) set out in his opening remarks, the conference addressed the resolution of corruption allegations in international investment arbitration following the Metal-Tech and Spentex awards.  In the aftermath of those awards, the field of investment arbitration has had to grapple with a set of questions regarding the proof of corruption and response to findings of corruption.  Those awards combined flexible evidentiary techniques for assessing corruption allegations with the outright dismissal of the arbitration upon finding corruption.  The conference addressed whether and to what degree investment arbitration should follow such approaches to corruption allegations.

This blog post will discuss several (of many) important contributions from the conference, focusing on two principal threads: proof of corruption, and the proper response when corruption is found.

  1. What is sufficient proof of corruption?

The first panel, moderated by Susan D. Franck (Professor of Law, American University), focused on the question of the proof of corruption.  This issue has become increasingly heated against the background of the Metal-Tech tribunal’s invocation of red flags to find corruption (see a previous discussion of Metal-Tech on the Blog) and the Spentex tribunal’s finding of corruption on the basis of “connecting the dots.”

To stimulate discussion, Prof. Franck put to the panelists a 2014 empirical study, carried out during the biennial Congress for the International Council for Commercial Arbitration (ICCA) and presented in the article “International Arbitration: Demographics, Precision and Justice”.  The study concluded that practitioners consider that the burden of proof is frequently outcome determinative in international arbitrations, but that it is only occasionally or never identified in advance.

In this regard, Aloysius Llamzon (Senior Associate, King & Spalding) observed that the failure to identify the applicable standard of proof in advance is a common flaw in the adjudication of corruption allegations.  Jason Yackee (Professor of Law, University of Wisconsin) too was of the opinion that parties should know what standard of proof they will be judged by, given that it may be outcome determinative.

There is a question, however, as to the degree to which knowing the standard of proof in advance would significantly alter party behavior, since parties might present whatever evidence they have in order to support their allegations regardless.  This is true even if the standard of proof would be relevant to the tribunal’s analysis of the case.

Nevertheless, the panel reported that the field has splintered in its views on the applicable standard of proof for such allegations.  One division, highlighted by Prof. Yackee, is the difference between the civil law standard of proof of intimate conviction and the probabilistic standards used in the US.  A second division, noted by Mr. Llamzon, is that regarding the stringency of the standards of proof, where there are two main camps: one advocating a higher standard, versus the other advocating an ordinary standard of proof.

As Mr. Llamzon observed, much of the difference is derived from national conceptions of fraud and corruption.  In his view, these different national conceptions are likely to lead to disagreement regarding the standard to adopt when a tribunal is comprised of arbitrators from both civil and common law traditions.

Prof. Yackee observed that, when a probabilistic standard of proof is employed, one analytic approach to setting the standard is to compare the costs of a false positive (i.e., an erroneous finding of corruption) with the costs of a false negative (i.e., an erroneous finding against corruption).  In this regard, a higher standard of proof may be required if the costs of a false positive (for example, the denial of the forum) are considered to be higher than the costs of a false negative.

A major further question is whether the applicable standard of proof can be satisfied by identifying so-called red flags of corruption—an increasingly common tactic by parties following the Metal-Tech award.  Mr. Llamzon took a skeptical view, observing that the concept of red flags comes from the world of compliance where it is used to assess, ex ante, the risks of entering into an agreement with a third party, not for the evidentiary purpose of assessing, ex post, the existence of corruption.  By contrast, in Prof. Yackee’s view, red flags of corruption could go into the “bucket” of evidence, albeit taking into account the specific evidentiary weight of a given red flag.

Nevertheless, the question remains as to whether red flags should in fact constitute evidence and how strong that evidence might be.  This is a question that tribunals will continue to confront in light of the contrast between the seriousness of allegations of corruption, on the one hand, and the limitations on the tribunal’s evidence-gathering powers, on the other.

Meriam Al-Rashid (Partner, Dentons) noted that, whatever standard of proof is ultimately adopted, in accordance with the principle of equality of arms, arbitrators have a duty to apply the same standard of proof to allegations of corruption made by an investor against the state as it applies to allegations of corruption made by the state against an investor.

  1. What is the right response when corruption is found?

The second panel, moderated by Jan Paulsson (Professor of Law, University of Miami School of Law; Partner, Three Crowns), addressed the appropriate response from an investment tribunal following findings of corruption.  This issue too has become increasingly challenging given that some investment tribunals are inclined to take a more flexible evidentiary approach to finding corruption and it is increasingly recognized that “it takes two to tango”—i.e., alleged corruption often involves both the state and the investor.

The panel had doubts as to whether a binary response to corruption—i.e., either ignore the corruption or dismiss the arbitration entirely—is appropriate.  Lucinda Low (Partner, Steptoe) noted that the binary response incentivizes the respondent state not to investigate allegations of corruption.

Arif H. Ali (Partner, Dechert) considered the binary response problematic at its core: a tribunal’s role is not to mete out punishment for corruption.  However, according to him, refusing to address the legality or the economics of the situation on the moral grounds that some tribunals have invoked is an abdication of the arbitrator’s function.  This could be the case, for example, when the tribunal relies on standards of public policy as did the tribunal in World Duty Free.

Further, Mr. Ali noted that arbitrators usually do not examine questions of fact in the same detail and depth as, for example, domestic courts do in a criminal trial, and the procedural forum is far too limited in its evidence-gathering to accommodate the evidentiary challenges of corruption allegations.

Two potential alternatives to the binary response emerged from the panel.

Mr. Ali proposed that the concept of contributory fault could be employed to balance the pertinent considerations of law, morality, and economics.  The corruption could be taken into account (if relevant) in determining the compensation due to the investor for the state action at issue in the investment arbitration. In this case, the compensation could be reduced based on the investor’s contribution to its own loss through its participation in the corruption.  This is an approach that some investment tribunals, such as the MTD tribunal, have adopted, albeit not in connection with corruption.

By contrast, Ms. Low set out—albeit for provisional consideration only—a proportionality approach.  Such an approach might ensure that the state has proper incentives to eliminate corruption, consistent with obligations assumed under international anti-corruption treaties.  Under this approach, tribunals would look to a set of relevant factors to determine the appropriate remedy for its findings of corruption, but would not automatically dismiss the arbitration simply because corruption is found.  Among the factors that a tribunal might consider for this purpose:

  • Was the public sector involved in the investment or the corruption?
  • Did the investor freely offer the alleged bribe, or did a host state official extort it from the investor?
  • Did both the investor and the state comply with their obligations to prevent or investigate the corruption?

A third new option, suggested by these panelist comments, could be to apply a merged version of these two approaches. For example, tribunals might consider some of the factors identified by Ms. Low in order to determine each party’s fault in the case and, thus, the compensation that should be awarded to the investor.

The conference concluded with closing remarks from Malika Aggarwal (Georgetown International Arbitration Society).

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Brexit: Screaming for Vengeance? Enforcing Intra-EU Arbitral Awards in the Post-Brexit UK

Sun, 2019-04-21 04:00

Danilo Ruggero Di Bella and Josep Gálvez

Introduction

The approaching BREXIT, in conjunction with the recent Svea Court of Appeal‘s decision upholding largely an intra-European Union (EU) Stockholm Chamber of Commerce (SCC) award against Poland, provides the opportunity to further discuss the ramifications of the preliminary ruling by the Court of Justice of the EU (CJEU) in the Achmea case (Case C-284/16). The Achmea ruling has notoriously precluded intra-EU investment arbitrations because they may undermine the full effectiveness of the autonomy of EU law, ensured by Articles 267 and 344 of the TFEU. This situation begs a response to the question: Could Brexit turn the United Kingdom (“UK”) into a “safe” island for enforcing the contested intra-EU awards?

 The Swedish Perspective

The Svea Court of Appeal confirmed the existence of a valid arbitration agreement between PL Holding, the Luxembourgish investor, and Poland, and accordingly confirmed the ensuing SCC award. The Court reached this conclusion since Poland failed to raise – in due time during the arbitration – objections as to the validity of the arbitration agreement in article 9 of the Belgium-Luxemburg Economic Union (BLEU)-Poland BIT, which allegedly stands in contravention of EU law. By failing to raise such an objection – which should have been raised, at the latest, in its Statement of Defense according to the applicable Stockholm Chamber of Commerce (SCC) Arbitration Rules (namely, articles 5(1)(i) and 24(2)(i)) – Poland accepted the jurisdiction of the arbitral tribunal. Without making such a timely and clear objection based on EU law, Poland was deemed to have waived this right to object as per article §34(2) of the SAA.

A contrario sensu, it could be argued that if a Respondent State had raised the invalidity of the arbitration agreement contravening EU law at the right procedural moment, then the ensuing award would have run the risk of being set aside. By comparison, the Swedish Court noted 1)At page 56 (of the English translation) jQuery("#footnote_plugin_tooltip_8767_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8767_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); that in the Achmea v. Slovakia arbitration – where the award was annulled by the German Supreme Court – Slovakia, indeed, raised promptly the jurisdictional objection as to the incompatibility of the arbitration agreement with EU law, thus preserving its chance to have the award annulled based on this ground before the German court. Therefore, the decision of the Swedish court reconciles with the ruling of the German court.  This suggests that whenever a Respondent State raises, in due time, the incompatibility between EU law and intra-EU investment arbitrations as a jurisdictional objection, then the ensuing award will be annulled in the case the arbitral proceedings are seated in an EU Member State.

Surprisingly, neither Poland nor the Swedish Court deemed necessary to ask for a preliminary ruling from the CJEU. Interestingly, despite its rulings not being ordinarily subject to appeal, the Svea Court of Appeal granted the parties leave to appeal to the Swedish Supreme Court.

Brexit Meets Achmea

Unless the UK Parliament decides otherwise, Brexit will become effective in 31 October 2019, placing the UK outside the autonomous EU legal order. After Brexit, English courts may take distance from the approach of the EU Member States’ courts, which will have to set aside intra-EU awards in order to conform with the preliminary ruling of the CJEU on Achmea. In other words, the UK may become a favorable place for seeking enforcement of the several intra-EU awards that might be on the verge of being annulled because of where they were seated.

To test this theory, it becomes worthy to examine the following points:

1) the standard of review used by English Courts in reviewing jurisdictional challenges to an investment arbitration tribunal;

2) the deference paid by English courts to the findings of investment arbitration tribunals;

3) the English courts’ approach with respect to the enforcement of annulled awards (in other words their deference to foreign courts’ decisions).

1) Standard of Review

Section 67 of the 1996 English Arbitration Act confers broad power upon judges to review the jurisdiction of a tribunal seated in England. English courts will re-examine the jurisdiction of arbitrators by carrying out an independent and full investigation of the arbitration agreement with the view of testing the court’s conclusion against the tribunal’s decision to find out whether the tribunal was indeed correct in its decision on jurisdiction.

2) Deference to Tribunals’ Decisions by English Courts

Given the post-Achmea reactions by investment tribunals – which have been either to disregard or reject Achmea-based arguments – it is crucial to examine if the English courts usually pay any deference to arbitrators’ decisions.

Despite the exercise of these full re-examination powers, eventually, English courts have found themselves agreeing with investment tribunals reaffirming their jurisdiction since the very first investment award was ever challenged before English courts, which was Republic of Ecuador v Occidental Exploration.

This approach has been confirmed by a relatively recent English High Court ruling setting aside for the first time an investment treaty award, which declined jurisdiction over part of the Griffin v Poland arbitration. 2)GPF GP S.à.r.l v. Republic of Poland, SCC Case No. V 2014/168 jQuery("#footnote_plugin_tooltip_8767_2").tooltip({ tip: "#footnote_plugin_tooltip_text_8767_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Since this SCC arbitration is seated in London, the High Court re-examined its interim jurisdictional award, the applicable BIT – coincidentally, it is the same BLEU-Poland BIT as the one underlying the challenge before the Svea Court of Appeal – and concluded that the tribunal erred in limiting the scope of its substantive jurisdiction to direct expropriation only (similarly to the Swedish Supreme Court when in 2008 it annulled the award in Petrobart v Kyrgyz Republic because the tribunal wrongly declined jurisdiction).

These are all indications pointing in the direction that, should an investment award be challenged before an English court, the competent judge will tend to either uphold or even expand the tribunals’ jurisdiction. By the same token, seemingly, an application for the enforcement of a foreign investment award should be easily granted, or at least not thwarted by objections limiting the scope or validity of the arbitration agreement. In this context, the next question that arises is the following: Would an English court keep the same line in case the award was annulled or ought to be annulled at its seat?

 3) Deference to Foreign Courts’ Decisions by English Courts

The view that international awards are not the exclusive products of the given legal system where the arbitral proceedings are anchored, coupled with the pair of discretionary “may” in Articles V(1)(e) and VI of the NY Convention, give certain leeway in enforcing a nixed award. Consequently, the enforceability of an annulled award is unpredictable. It varies depending on the jurisdiction where enforcement is sought and the ground/s on which the annulment is based. It is also not unusual that the same jurisdiction has adopted inconsistent stances.

English courts have been consistent in that they are not barred from enforcing an award by the existence of an annulment decision by the supervisory court at the seat of the arbitration. However, a high threshold has to be satisfied to warrant such enforcement. By a coordinated reading of Yukos v Rosneft [2014] EWHC 2188 (Comm) and Maximov v OJSC Novolipetsky Metallurgichesky Kombinat [2017] EWHC 1911 (Comm), a foreign award will be enforced if the home court’s decision setting it aside the award was so extreme and incorrect so as to be found contrary to basic principles of honesty, natural justice and domestic public policy.  This means that domestic public policy provides a benchmark for determining the enforcement of an annulled award. However, after Brexit, the English concept of public policy may drift apart from EU Member States public policies. Accordingly, English courts may not be swayed by EU-based objections and disregard them merely as “Local Standard Annulments”.

A taste of this approach can be found in the way Justice Bryan refrained from addressing any Achmea-based argument in Griffin v Poland.3)[2018] EWHC 409 (Comm) at. 3 jQuery("#footnote_plugin_tooltip_8767_3").tooltip({ tip: "#footnote_plugin_tooltip_text_8767_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); At the time when the Claimant challenged the interim jurisdictional award, the CJEU had not ruled on Achmea yet. Still, Poland reserved any rights it may have in the context of that pending decision. On this point, Justice Bryan preferred to say nothing about whether Poland did or did not have any such rights.

It is worthy to recall that Griffin v Poland is an intra-EU arbitration seated in UK, an EU Member State at the time the arbitral proceedings was instituted. Therefore, this arbitration will provide the perfect opportunity to see how post-Brexit English courts will tackle Achmea-based exceptions attempting to set aside the award. Griffin v Poland is now pending at the liability stage (after the partial annulment of the interim award by Justice Bryan, who ordered the tribunal to re-expand its jurisdiction to also hear the Claimant’s indirect expropriation and FET claims). Undoubtedly, as soon as the arbitration comes to an end, Poland will attempt to have the award set aside. It will then be that the English courts will confirm or dispel the hypothesis that the UK may become a favourable jurisdiction either for enforcing intra-EU awards or for being the seat of intra-EU arbitrations.

Conclusion

Before Brexit, English courts have always proven to be strong as well as critical supporters of the investment arbitration regime as a whole, rather than blind advocates of any findings of investment arbitration tribunals. In fact, the full standard of review gives them a totally independent stance when it comes to scrutinising the correctness of a tribunal’s determination on its own jurisdiction. Moreover, English courts have not felt compelled to recognize the decision of foreign courts ordering the annulment of an award. Thanks to the flexibility recognised on this point by the New York Convention, English courts have enforced, from time to time, annulled awards based on a domestic public policy benchmark. After Brexit, English Courts most likely will keep all these features, with the sole exception that their public policy will no more be aligned with the EU. As a result, post-Brexit UK will be theoretically a suitable jurisdiction to enforce intra-EU awards.

References   [ + ]

1. ↑ At page 56 (of the English translation) 2. ↑ GPF GP S.à.r.l v. Republic of Poland, SCC Case No. V 2014/168 3. ↑ [2018] EWHC 409 (Comm) at. 3 function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Determining Quality FDI: A Commentary on the OECD’s “FDI Qualities Project”

Sat, 2019-04-20 00:36

Karl Sauvant

The OECD Secretariat launched, in 2018, a “FDI qualities project”. Its objective is to provide governments with a tool kit to attract investment that contributes as much as possible to sustainable development. For that purpose, the project has identified five clusters of “FDI qualities indicators”: productivity-innovation, skills, job quality, gender, and carbon footprint. These indicators were selected on the basis of a detailed assessment of how FDI can contribute to specific Sustainable Development Goals, and in cooperation with an FDI Qualities Network (consisting of interested stakeholders) established to provide feedback to the project.1)OECD, “FDI Qualities Toolkit: Investment for Inclusive and Sustainable Growth. Progress Report III” (Paris: OECD, March 2019). See also the earlier report “FDI Qualities Toolkit: Investment for Sustainable Growth: Progress Report II” (Paris: OECD, October 2018). jQuery("#footnote_plugin_tooltip_7094_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7094_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This note is a commentary about the OECD’s FDI qualities project, knowing that FDI qualities indicators are the first part of the project, and that the indicators will be complemented (beginning October 2019) by a discussion of policies on FDI qualities, in recognition of the fact that sustainable development outcomes may depend on the country context as well as domestic and international policies. This work will—and should—have implications for future arbitral proceedings, as well as the WTO’s Structured Discussions on investment facilitation.

 

It is no doubt laudable that the OECD is examining questions related to the quality of FDI.

It would be desirable, too, if the Secretariat, at one point, could look not only into the question of how countries can attract higher quality FDI and ensure that FDI has a positive impact on sustainable development, but also how investors can increase the contribution of their investments to the host countries in which they are established, based on the work already done in relation to the OECD Guidelines for Multinational Enterprises. Since policy questions will be addressed at a later stage of this project, maybe then it is the time to look at this question as well.

We all realize, of course, that “quality”, like “beauty”, is in the eyes of the beholder—and the principal beholder in this case is the host country government. It is therefore necessary to develop quality indicators that reflect the different priorities that governments have, as indicated also in their differing SDG implementation plans.

This leads to the question of how to identify quality indicators.

One approach, the approach that the OECD Secretariat has taken, is to look to the literature, firm and other databases and to experts. That is of course a reasonable approach, and the resulting five indicators are certainly very useful, very well developed and very well discussed in the excellent background paper prepared by the Secretariat.2) OECD, 2019, op. cit. jQuery("#footnote_plugin_tooltip_7094_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7094_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

But one could also take another—perhaps complementary—approach to identify quality indicators or quality characteristics of FDI. And that approach is to look at, on the one hand, what governments say they expect FDI to contribute to the sustainable economic development of their countries and, on the other hand, to look at what investors say they contribute to the sustainable economic development of their host countries. The underlying assumption of this approach is of course that—regardless of what academic experts say—the principal actors in the FDI relationship know best what is good for them (in the case of governments) and what they can contribute (in the case of investors).

This is the approach Howard Mann and I have taken when we sought to develop a list of “FDI sustainability characteristics” (or what the OECD Secretariat calls “qualities indicators”).3) Karl P. Sauvant and Howard Mann, “Towards an indicative list of FDI sustainability characteristics” (Geneva: ICTSD and WEF, 2017). jQuery("#footnote_plugin_tooltip_7094_3").tooltip({ tip: "#footnote_plugin_tooltip_text_7094_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); We looked at a wide range of instruments—ranging from international investment agreements to the corporate social responsibility statements of MNEs—to determine what governments expect that investors contribute to the development of their economies, and what investors say they contribute to the development of host countries.

What is interesting is that this research shows that there is in fact a substantial overlap between the qualities that governments seek in FDI and the qualities investors say they bring to host countries to advance sustainable economic development. These include (apart from those identified by the OECD Secretariat), labor rights, human rights, transparency, supply chain standards, and stakeholder engagement. In fact, one could even go so far as to speak about an emerging consensus between governments and investors as to various “quality” indicators. It is a consensus that includes the five indicators identified by the OECD Secretariat.

But the research undertaken by Howard Mann and myself also shows something else, namely that there are considerably more “quality indicators” (or “FDI sustainability characteristics”) than the five indicators identified by the OECD Secretariat. That is important when creating a “toolkit”, as it reflects the reality that different governments do indeed look for different qualities in FDI when seeking to advance their sustainable development.

This, in turn, suggests that the OECD Secretariat might want to aim for a list of “FDI qualities indicators” that is longer than the five clusters it has identified so far and that, in the end, would constitute an indicative list of FDI quality indicators that could provide guidance to governments—and, for that matter, investors—that are interested in seeking to increase the contribution of FDI to sustainable development. Such an approach would also be in line with my earlier observation, namely that “quality” is in the eye of the beholder—and the principal “beholder” in this exercise is, as noted before, the host country.

Importantly, the issue of FDI quality, in terms of the contribution that FDI can make to development, is also beginning to be considered in arbitral proceedings, by bringing various aspects of the sustainability characteristics into their deliberations. Examples include Salini v. Morocco, Biwater v. Tanzania, Inmaris Perestroika Sailing v. Ukraine, and Alpha Projektholding v. Ukraine. These decisions include references to contribution to infrastructure,4) Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction, ¶ 57 (23 July 2001). jQuery("#footnote_plugin_tooltip_7094_4").tooltip({ tip: "#footnote_plugin_tooltip_text_7094_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); technology transfer,5) Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award, ¶ 320 (24 July 2008). jQuery("#footnote_plugin_tooltip_7094_5").tooltip({ tip: "#footnote_plugin_tooltip_text_7094_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); local employee training,6) Inmaris Perestroika Sailing Maritime Services GmbH and Others v. Ukraine, ICSID Case No. ARB/08/8, Decision on Jurisdiction, ¶ 132 (8 March 2010). jQuery("#footnote_plugin_tooltip_7094_6").tooltip({ tip: "#footnote_plugin_tooltip_text_7094_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and the generation of government revenue7) Alpha Projektholding GmbH v. Ukraine, ICSID Case No. ARB/07/16, Award, ¶ 330 (8 November 2010). jQuery("#footnote_plugin_tooltip_7094_7").tooltip({ tip: "#footnote_plugin_tooltip_text_7094_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); as characteristics associated with the notion of an investment contribution to development. An indicative list of FDI sustainability characteristics/quality indicators could be a helpful tool for future arbitral tribunals when considering individual cases.

Finally, I should like to note that the work of the OECD Secretariat is especially important and timely at this particular moment, for an additional reason. And that reason is that the WTO Structured Discussions on a multilateral framework on Investment Facilitation for Development are moving along quite rapidly.8) See the “Joint Ministerial Statement on Investment Facilitation for Development”. For an analysis of these Discussions, see ICTSD, “Crafting a Framework on Investment Facilitation” (Geneva: ICTSD, 2018). jQuery("#footnote_plugin_tooltip_7094_8").tooltip({ tip: "#footnote_plugin_tooltip_text_7094_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Most of these discussions have focused so far on the “facilitation” part of the objective, while the explicit and direct “development” part of the objective has not yet received much attention.

Accordingly, the work that the OECD is undertaking in the framework of its “FDI qualities project” could make an important input into the WTO Structured Discussions. It should, therefore, be brought to the attention of the WTO process, to help inform the development part of its deliberations.

 

Karl P. Sauvant is Resident Senior Fellow at the Columbia Center on Sustainable Investment, a joint center of Columbia Law School and the Earth Institute at Columbia University. This note is based on an intervention prepared for the Third Policy Network Meeting, Paris, OECD, 13 March 2019, on FDI qualities.

References   [ + ]

1. ↑ OECD, “FDI Qualities Toolkit: Investment for Inclusive and Sustainable Growth. Progress Report III” (Paris: OECD, March 2019). See also the earlier report “FDI Qualities Toolkit: Investment for Sustainable Growth: Progress Report II” (Paris: OECD, October 2018). 2. ↑ OECD, 2019, op. cit. 3. ↑ Karl P. Sauvant and Howard Mann, “Towards an indicative list of FDI sustainability characteristics” (Geneva: ICTSD and WEF, 2017). 4. ↑ Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction, ¶ 57 (23 July 2001). 5. ↑ Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award, ¶ 320 (24 July 2008). 6. ↑ Inmaris Perestroika Sailing Maritime Services GmbH and Others v. Ukraine, ICSID Case No. ARB/08/8, Decision on Jurisdiction, ¶ 132 (8 March 2010). 7. ↑ Alpha Projektholding GmbH v. Ukraine, ICSID Case No. ARB/07/16, Award, ¶ 330 (8 November 2010). 8. ↑ See the “Joint Ministerial Statement on Investment Facilitation for Development”. For an analysis of these Discussions, see ICTSD, “Crafting a Framework on Investment Facilitation” (Geneva: ICTSD, 2018). function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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What’s “Next” for Arbitration in Korea

Thu, 2019-04-18 17:01

David MacArthur

Sometimes described as “a shrimp among whales,” Korea is situated between China to the west and Japan to the east. Historically, the ambitions of the two large, neighboring countries—and, in more recent times, other larger powers—have sometimes threatened to overwhelm or subsume Korea. Indeed, during the Cold War, the political maneuverings of global powers divided the country in half, reducing South Korea’s population and geographical footprint even further, not to mention the devastation inflicted on the country in economic and other terms. But while its northern sibling may grab more headlines, South Korea has not only persisted in maintaining its independence of sovereignty, culture and spirit, it has thrived. The upshot of this history is that, out of sheer necessity, Koreans have developed a powerful resilience and capacity to seize and magnify opportunities when they arise.

This is no less true in the field of international arbitration. South Korea has seen a dramatic rise in international arbitrations involving Korean parties (as well as Korean counsel) over the past two decades, with a quantity and quality of cases comparable to—or even the envy of—many more established or much larger jurisdictions.

 

Growth of Arbitration in Korea

Serendipitously, this came about by historical accident, through the catalyst of the Asian Financial Crisis in the late 1990s. As the Korean economy teetered on collapse, the IMF infused the largest bailout in its history, on terms that required many corporations and conglomerates to achieve fiscal stability by dispensing of non-core assets, resulting in rapid and large-scale FDI in Korea, with international arbitration clauses inserted in most of the resulting deals. This crucible of forced corporate divestments predictably resulted in many hotly contested disputes arising in the ensuing years, mostly resolved in international arbitrations. Moreover, these cases tended to be relatively high value, complex, and often culminated in a final award (rather than settlement at an earlier stage).

Korean parties soon grew to be among the most frequent users of international arbitration under various institutional rules. In the case of ICC arbitrations, for instance, Korean parties became overall more active than Chinese and Japanese parties in objective numbers despite the country being significantly smaller in nearly every relevant measure, whether land mass, population, size of economy, or volume of international trade.1) With an estimated 1.4 billion people (as of 2018 data), China is the world’s most populous country, with Japan at 126 million and Korea 51 million. In landmass, China has 9,326,410 sq km, Japan 364,485 sq km and South Korea a mere 96,920 sq km. Likewise, looking at recent data for comparative purposes, China has the world’s highest national GDP at 23.21 trillion in USD (as of 2017 data), with Japan at 4th with 5.443 trillion in USD, and Korea at 14th, with 2.035 trillion in USD. In trade volume, China had import/export volumes of USD 2.216 trillion/1.74 trillion respectively (as of 2017 data), while Japan had USD 688.9 billion/644.7 billion, and Korea USD 577.4 billion/457.5 billion. Data drawn from https://www.cia.gov/library/publications/the-world-factbook/. jQuery("#footnote_plugin_tooltip_8527_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8527_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); For example, over the two-decade period from 1998 to 2008, there were 665 Korean parties in ICC arbitrations, 422 Japanese parties and 499 mainland Chinese parties.2) Data for 1999 to 2009 has been drawn from ICC International Court of Arbitration Bulletin, Vol. 19, No. 1 (2008), Vol. 20, No. 1 (2009), and Vol. 21, No. 1 (2010); data for 2009 to 2018 was directly provided to the author by ICC staff. jQuery("#footnote_plugin_tooltip_8527_2").tooltip({ tip: "#footnote_plugin_tooltip_text_8527_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In addition, over the same time period, over 1,100 international cases were filed with the KCAB, typically involving one or more Korean parties.

As this wave of arbitrations began sweeping over Korea, several young, ambitious partners at major Korean firms saw an opportunity. Initially through co-counseling with more experienced international firms in significant cases, they formed teams of young practitioners who soon became deeply familiar with global ‘best practices’ in international arbitration while also advancing in advocacy skills. Since then, through the rapid growth in the field, several of those early arbitration teams have grown exponentially, with the top practices reaching upwards of 25 active practitioners. And, as the market has matured, other local firms have also established dedicated international arbitration practices while a number of international firms have set up offices in Seoul as well.

 

Growth of International Arbitration Community in Korea

One of the notable ways that the first generation of arbitration leaders in Korea—who have since joined the ranks of the global and regional leaders in the field—was able to capitalize on this burgeoning practice area was through deliberate efforts to share know-how, forming organizations expressly for this purpose, including the Korean Council for International Arbitration (“KOCIA”), the ICC Korea and the Federation of Korean Arbitrators, working to enhance the arbitration chops of the local bar.

In addition, they began to directly recruit talent from outside of Korea, including from the Americas, Europe and across Asia. In this way, they were able to add a variety of capabilities in language, law and advocacy to their already skilled local teams. I was one of the lucky ones to stumble into this small but very active arbitration scene in the mid-aughts, as was my co-chair, Robert Wachter of Lee & Ko, along with Sue Lim—who is now Secretary General of KCAB International—and several other members of the KCAB Next Steering Committee. Notably, three or more Korean firms have ranked in the GAR 100 global rankings every year since its inception in 2008, with the top firms occasionally breaking into the GAR 30.

In tandem with the rise of arbitration among parties and counsel in Korea, the country also took proactive steps to establish and enhance its reputation as a reliable and attractive seat for arbitrations. Among them:

  • Korea was the first East Asian country to adopt the UNCITRAL Model Law in 1999, which has since been updated from time to time, including most recently to reflect certain aspects of the 2006 revisions to the Model Law.
  • The Korean judiciary, with a high rating for independence and lack of bias or corruption, regularly provides focused training on matters particular to international arbitration. The courts tend to be supportive of the arbitral process, not intrusive.
  • In 2012, following the example set by Singapore’s Maxwell Chambers, Korean authorities established the Seoul International Dispute Resolution Center (SIDRC) with attractive and convenient hearing rooms utilizing the latest multi-media screen technology from Samsung and Apple. In 2018, the SIDRC was moved to even more spacious facilities.
  • In addition, Seoul offers travel infrastructure on par with any modern international city as well as, increasingly, transcription, translation and other essential services for arbitral hearings and a location that might be considered convenient and neutral in cross-border deals involving parties in the Asia-Pacific region.

 

KCAB and KCAB International

Over this same time period, Korean Commercial Arbitration Board (KCAB), as the official arbitral institution of Korea, steadily developed into a globally recognized and reliable institution. It did this in a number of ways including the establishment of a separate set of rules for international disputes in 2008, which have since been updated several times.

In recent years, it has received substantial governmental funding for purposes or promotion and development of international arbitration services in Korea. In 2018, KCAB International was established as an independent division of the KCAB to meet the growing demand for cross-border commercial dispute resolution, with leadership drawn from the ranks of the most experienced practitioners and arbitrators in Korea, demonstrating a commitment to world class case handling for international disputes. This commitment is manifest in the appointment of Ms. Lim, who as mentioned above, is its first Secretary General and previously practiced for over a decade at one of the premier arbitration practices in Seoul; as well as the appointment of Prof. Hi-Taek Shin, a highly respected and experienced international arbitration hand based in Seoul, as the Chairman of the organization. In addition, an International Arbitration Committee comprised of many well-known figures in the field worldwide, has been established to consult on issues relating to the appointment, challenge, replacement, and removal of arbitrators by KCAB International. The organization now also has offices in Los Angeles and Shanghai.

 

KCAB Next

It is with this historical and institutional backdrop that KCAB International led the creation of KCAB Next. It is tasked with aiding the next generation of arbitrators, leaders and practitioners with a nexus to Korea in developing their career and skills. Unlike various “young” groups formed under the auspices of various arbitral organizations, this group has no specific age limitation and invites the involvement of anyone falling within those categories who believes they can contribute to or gain something from the group.

KCAB Next aims to aid in the professional development of its members through various initiatives, including workshops and training events, social networking events, and encouraging and providing opportunities to publish on various topics in international arbitration, including in partnership with the Kluwer Arbitration Blog, as well as other innovations currently under discussion. The Steering Committee is optimistic that the organization will be able to offer unique and valuable opportunities to its members in the development of their careers in the field of international arbitration, at various levels. Like the organizations set up by the early practice leaders in Korea, its primary aim is to facilitate the sharing of know-how and build-up of skills through collaboration among its members. In this way, we hope that the KCAB Next will facilitate the growth of Seoul’s arbitration services cluster, boosting its creative and intellectual capital even further. One key difference from the first decade of arbitration growth in Korea, reflecting the more mature and established position of Korea in the global field of international arbitration, is that the KCAB Next has an expressly more international mission, which is to connect those practicing in Korea with their peers abroad who have a nexus with or interest in Korea, and vice-versa.

In this regard, KCAB Next aims to collaborate with various organizations, institutions and individual practitioners in other jurisdictions around the globe. Readers of this blog with an interest in the Korean arbitration market are invited to register with the organization by emailing [email protected].

References   [ + ]

1. ↑  With an estimated 1.4 billion people (as of 2018 data), China is the world’s most populous country, with Japan at 126 million and Korea 51 million. In landmass, China has 9,326,410 sq km, Japan 364,485 sq km and South Korea a mere 96,920 sq km. Likewise, looking at recent data for comparative purposes, China has the world’s highest national GDP at 23.21 trillion in USD (as of 2017 data), with Japan at 4th with 5.443 trillion in USD, and Korea at 14th, with 2.035 trillion in USD. In trade volume, China had import/export volumes of USD 2.216 trillion/1.74 trillion respectively (as of 2017 data), while Japan had USD 688.9 billion/644.7 billion, and Korea USD 577.4 billion/457.5 billion. Data drawn from https://www.cia.gov/library/publications/the-world-factbook/. 2. ↑ Data for 1999 to 2009 has been drawn from ICC International Court of Arbitration Bulletin, Vol. 19, No. 1 (2008), Vol. 20, No. 1 (2009), and Vol. 21, No. 1 (2010); data for 2009 to 2018 was directly provided to the author by ICC staff. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Vienna Arbitration Days: How to Deal with Biases and Cultural Differences and Other Practical Issues

Thu, 2019-04-18 00:11

Floriane Lavaud and Edna Sussman

In the beautiful surroundings of the Palais Niederosterreicher, the 200+ delegates at Vienna Arbitration Days (VAD) 2019 were warmly welcomed by members of the Organising Committee, representing ArbAut, VIAC, AYIA (the Austrian Yearbook of International Arbitration), ICC Austria, YAAP (Young Austrian Arbitration Practitioners), and UNCITRAL.  Anna Joubin-Bret, UNCITRAL’s Secretary, provided an overview of UNCITRAL’s work streams, including its work on ISDS procedural reforms and expedited proceedings under the UNCITRAL rules.

The keynote speech from Professor Catherine Rogers of Penn State University and Queen Mary, University of London discussed the development of Arbitrator Intelligence, which is due to launch later in 2019.  Adopting an engaging presentation, Catherine considered the points of relationship between the storylines of James Bond films and the sorts of scenarios which arise in international arbitration, contrasting Bond’s gadgets with the most-used gadget in arbitrator selection, i.e., the old-fashioned word-of-mouth recommendations.

Arbitrator Intelligence seeks to unlock a wider range of options for parties and appointing counsel by using an in-depth data-driven analysis of an arbitrator’s track record to assist parties in making more informed selections of arbitrators.  Delegates were encouraged to explore the AIQ (the Arbitrator Intelligence Questionnaire) to see the depth of information which it seeks to extract. Such information being objective and factual, there is a limit to how much a disgruntled party, for example, can affect the feedback on a particular arbitrator.  The more data submitted via the AIQ, the more likely it is that the reports generated by Arbitrator Intelligence will be of high value to users.

The first panel session of the VAD featured four ArbitralWomen: Edna Sussman (independent arbitrator and mediator), chair, Philippa Charles (Stewarts, London), Giuditta Cordero-Moss (University of Oslo) and Claudia Winkler (Negotiation Academy), as well as Dr Philip Anthony from DecisionQuest (a leading mock trial/arbitration provider based in the U.S.).  Within the umbrella topic of psychology and its impacts in arbitration, the four speakers each gave a short presentation on a particular psychological dynamic in arbitration, which may affect the outcome if not anticipated and managed by participants.

Edna Sussman opened the discussion on cultural differences by reference to the Hofstede Dimensions and the studies that have demonstrated that people from countries with a higher “power distance” and who accept that some people have more power than others are more likely to be persuaded by expert testimony.  Philippa Charles noted that far from being cultural chameleons, arbitration practitioners are—at least, to some extent—influenced by their nationality and the approaches to society which that nationality imports.  She explained Professor Hofstede’s six cultural hard-wiring characteristics, where a high or low score tends to illustrate a particular national characteristic which is distinctive.  She drew out the overwhelming influence, for example, in US nationals, of a preference for individualism, and how that feeds into, for example, a drive for success.  Philippa also referred to high-context and low-context cultures, which can greatly impact a tribunal’s understanding of evidence.

Giuditta Cordero-Moss focused her presentation on the imprinting of a decision-maker’s home legal culture on their approach to legal issues.  Using as an example a contractual pricing mechanism dispute, she contrasted the instinctive, textual approaches of a Norwegian-trained lawyer and a British-trained lawyer.  The differing approaches led to different results in Giuditta’s example: the challenge for practitioners -and especially for arbitrators- is to apply the relevant applicable law without being influenced by one’s personal legal culture.

Claudia Winkler drew on her experiences training negotiators and mediators to look at framing and its effect on one’s receptiveness to a proposition.  In the negotiation context, the way in which an offer or proposal is framed may affect the recipient’s response, engaging either the recipient’s risk adversity or risk acceptance.  The effect of the choice of presentation has far wider implications, including in cross-examination questioning and a tribunal’s appreciation of the gulf between the parties’ positions. Being aware of the other party’s alternative framing and addressing it proactively, rather than being defeated in a “battle of the frames,” is also key.

Closing the session with practical guidance on how counsel can counter these biases, Edna quoted Lucy Reed comment that “what mock arbitration therefore does is to change the lawyers’ biases about their own cases. It allows them to see whether what they think are the most important points to make are (or are not) as good as they think, and therefore whether their clients are likely to win (or not).”  Dr. Philip Anthony highlighted two particular advantages of mock arbitration: First, having the mock judge’s private feedback assists the party in addressing any quasi-emotional or experientially-driven responses.  Second, the effect and influence of a dominant arbitrator or judge on the rest of the panel can be explored.  By matching the mock arbitrators as closely as possible to the selected panel, parties have an opportunity to assess how much a dominant arbitrator may affect the proceedings and potentially the outcome.

The second panel, consisting of Wendy MacLaughlin (GBsqd LLP), Howard Rosen (Secretariat International), and Manuel Conthe (Independent Arbitrator), was chaired by Dr. Günther Horvath (Dr. Günther J. Horvath Rechtsanwalt GmbH) and focused on the importance of mathematics and economics in arbitration. Wendy MacLaughlin explained the complexity in establishing reasons for the late completion of a project by means of forensic analysis.  She emphasised that delay analysis in construction projects should not be perceived as a “black box.” One of the challenges faced by arbitrators is that the use of the different methodologies can lead to different results, despite being based on the same facts (for example, relying on the actual progress records vs. using software with hypothetical calculations). Wendy explained that one methodology is not necessarily better than the other. The arbitral tribunal has to make its choice based on the available data and contractual requirements.

Howard Rosen explained the importance of the ability of counsel and arbitrators to manage economic and industry skills. Experts, in turn, should use plain language and provide practical examples that would complement an academic approach with practical market knowledge.  Bringing the message across in a clear and understandable manner requires time and cannot be underestimated by counsel. Arbitrators should also approach the presentation of the quantification of damages in an efficient manner and not leave it for the end of a long hearing.  Howard noted, although AI tools are very useful in the quantification of damages, they raise various ethical, practical and legal issues, such as who should be designing and maintaining the system, what should be the basis used by the system to “learn,” and whether the result should be considered valid evidence.

Manuel Conthe focused on the role and impact of time warps in the assessment of risks.  Manuel referred to the “curse of knowledge,” a cognitive bias under which an individual assumes that others have the technical and legal expertise to understand what he/she is explaining.  In arbitral proceedings, the time-lag between the events that led to a dispute and the actual time of arbitration unavoidably imposes a “curse of knowledge” upon arbitrators and causes discrepancies between the assessments of facts at the different stages of the dispute.  It is important for tribunals and parties to be aware of this phenomenon as both influence the decision-making process.

Building on the preceding panels, the third panel considered—from the perspective of counsel—the myriad of ways in which unconscious bias affects arbitral proceedings.  The panel featured two ArbitralWomen: Floriane Lavaud (Debevoise & Plimpton) and Cecilia Carrara (Legance), as well as Paul Oberhammer (WilmerHale), Carsten van de Sande (Hengeler Mueller), and moderator Klaus Peter Berger (Center for Transnational Law).  After discussing the different types of bias that affect arbitration proceedings, the panel suggested possible solutions and mitigating measures, including through the use of technical tools.

Floriane and Cecilia discussed the effect of the arbitrators’ legal background and training on their decision-making, particularly with respect to evidentiary rulings, and how to mitigate such bias.  For instance, practitioners from civil law jurisdictions may undertake a more inquisitorial approach to evidence, thereby limiting party-initiated disclosures, while arbitrators from common law jurisdictions may more broadly permit such disclosures.

Next, the panel considered a range of other biases, including self-serving bias, where decision-makers resolve ambiguities in a manner favourable to themselves, and hindsight bias, where decision-makers perceive certain facts as being more predictable than they actually were at the time.  The panel focused especially on the cultural biases of arbitrators vis-à-vis gender and race, in connection with how arbitrators assess the reliability of witnesses.  The panellists cited numerous efforts to tackle such biases in the selection of arbitrators, including the Pledge on Equal Representation in Arbitration and the ArbitralWomen arbitrator database.

Among the technical tools for mitigating bias, Floriane mentioned the hidden bias tests and training modules, such as the Implicit Association Test and Project Implicit (Harvard University- University of Virginia). Carsten discussed the increasing use of artificial intelligence (AI) in arbitration, but also the risk of AI tools leading to dysfunctional results, because not all relevant elements to disputes are taken into consideration when developing the original algorithms.  Cecilia discussed the Council of Europe’s first European Ethical Charter on the Use of Artificial Intelligence in Judicial Systems. They all stressed the importance of ensuring equal access, warning that any existing procedural unfairness may be further entrenched otherwise.

To conclude, Paul raised the importance of not losing sight of the fundamental goal to ascertain the underlying truth and distinguished between “scientific” and “legal” truths and the influence of such modalities on advocacy techniques. The panel emphasized that arbitrators are often self-aware of their biases and will indeed try to look beyond the manner and style of presentation of counsel to ascertain the underlying facts.

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