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Interviews with Our Editors: Arbitration Tips, Thoughts and Tattle from Dr Ma Yi of SHIAC

Sun, 2020-09-13 00:00

Dr Ma Yi is the Vice Chairman and Secretary-General of the Shanghai International Arbitration Center (“SHIAC”) – SHIAC is also one of our Blog’s newest Permanent Contributors. Before joining SHIAC, he was actively involved in the growth of Shanghai’s legal scene as a Director at the Shanghai Municipal Bureau of Justice and the Deputy Secretary of the Shanghai Bar Association’s Communist Party of China Committee.

We are pleased for this chance to interview him for our Blog.

 

1. Can you share with us your vision for SHIAC?

Thank you for the question. As SHIAC’s vice-Chairman and Secretary General it is my pleasure to introduce SHIAC to our international arbitration community through this blog.

SHIAC was established in 1988 by the Shanghai Municipal Peoples’ Government (“SMPG“), to improve the business environment for investment and trade, and to resolve disputes more effectively. Inspired by the leading chambers of commerce, i.e. the International Chamber of Commerce and the Stockholm Chamber of Commerce, the SMPG let the China Council for the Promotion of International Trade Shanghai establish the then CIETAC Shanghai, which changed its name to SHIAC in April 2013.

To me, the distinctive feature of SHIAC is its dedication to offering more international dispute resolution services. SHIAC has made significant forays in this respect in recent times:

Over the past 30 years, parties from over 80 countries and regions have had their arbitrations administered by the SHIAC, and SHIAC’s arbitration awards have been recognized and enforced in about 70 countries and regions.

The arbitration community has also acknowledged SHIAC’s efforts to become more international. In March 2016, SHIAC was awarded the Global Arbitration Review (“GAR“)’s “Guide to Regional Arbitration award for an arbitral institution that impressed in 2015“, and also placed runner-up in the category of “innovation by an individual or organization in 2015. SHIAC was the first arbitration institution in mainland China to receive awards from the GAR. In 2018, SHIAC was also included in the China International Commercial Court’s first list of arbitration institutions providing one-stop dispute resolution services to international users.

 

2. It has been some months since the start of the COVID-19 outbreak that prompted the Chinese Ministry of Justice to issue guidelines encouraging online dispute resolution. What are the measures SHIAC has taken, or intends to take, to promote online dispute resolution?

COVID-19 has had a big impact on the world’s legal service industries. The need for technology to assist dispute resolution in difficult times is, I dare to say, staring in our face.

In April 2020, SHIAC organized a seminar to discuss how to use technology to assist dispute resolution amid COVID-19. I talked about what we had done, such as using videoconferencing for case management conferences and for expert witnesses to give evidence. We have also conducted online mediations. In the future, we intend to continue using technology to assist our case management conferences and hearings. We are also looking at the possibility of using digital signatures and evidence storage, and drafting guidelines for those matters. In short, SHIAC will spare no efforts to meet the needs of dispute resolution amid COVID-19.

 

3. We understand from SHIAC’s website that roughly 60% of SHIAC’s arbitrators are from PR China. What advice would you give to counsel on how to best present their case to Chinese arbitrators?

I am first going to look at the other side of the coin. That is, over 40% of our arbitrators are from Hong Kong, Macau, Taiwan and foreign countries. Annually, about 15% of our cases are foreign-related or international. Even in the domestic cases, over 80% of them involve companies with foreign investors. Therefore, even where domestic cases are heard by mainland China arbitrators, they would not be purely domestic or Chinese, or completely different from international arbitration as we know it. 

From my experience, wherever the arbitrators may come from, it’s all about winning their trust. To do that, the parties and their representatives should be knowledgeable about the dispute’s background and the arbitration procedures, and make excellent oral and written submissions. Chinese arbitrators are as practical and professional as international arbitrators. They value the legal texts and documentary evidence, but they also look for practical solutions for effective dispute resolution where the case requires. That said, I think parties and their representatives should bear the legal culture differences in mind when dealing with Chinese arbitrators, to gain their trust.

 

4. Do you foresee that arbitration will continue to grow in popularity in PR China? In your view, what might be some ways to encourage this growth e.g. do you think China’s arbitration laws should be reformed?

The past five years’ data shows that the number of cases, the amounts in dispute and the number of practitioners all have hugely increased. As an example, our annual growth rate of arbitration is about 40%. In 2019, SHIAC accepted 1520 new cases, of which the aggregate amount in dispute reached RMB30.945 billion and the average amount in dispute exceeded RMB20 million. These are all record-breaking figures.  

The driving force of such developments is the inclusion of arbitration in the top-level policy-making process for China’s alternative dispute resolution system. This system is viewed as important support for China to build its business environment in line with the rule of law and attract foreign capital to grow the economy. As such, I am fully confident in the future of Chinese arbitration.

That said, if we want China to become a hub for international arbitration, we still have a long way to go. Five years ago, SHIAC organized an international seminar discussing the construction of an international arbitration center. The participating scholars mapped out the seven core elements for an international arbitration center, i.e. a good system of local arbitration laws, a group of judges familiar with arbitration, excellent arbitration institutions, a powerful team of arbitration practitioners, a well-functioning system for training young arbitrators, an arbitration-friendly environment and geographical advantages. As you can see, establishing an international arbitration hub requires coordinated efforts from the government, the courts and arbitration practitioners. What will put those efforts together and drive them forward is the fundamental consensus that arbitration, unlike litigation, has its own values and ideas. This consensus is critical to the vitality of arbitration itself.

Of course, amending China’s current legal framework for arbitration is important. But we should not neglect the fortunes that the Chinese Arbitration Law has brought to its practitioners. My view is that the current Chinese Arbitration Law remains inclusive and practical. It allows Chinese arbitration institutions to take an innovative approach to arbitration through their rules. The successful operation of the SHIAC’s FTZ Arbitration Rules is a good testimony to this. Those rules provide for innovative procedures such as the appointment of arbitrators outside SHIAC’s panel, mediation, amiable composition, small claims procedure, consolidation of proceedings and joinders.

 

5. You once talked about the “Sinicization of international arbitration”. What do you think are the key elements of this trend?

I think the key is the practices of Chinese arbitration institutions. Each year, Chinese arbitration institutions manage more cases than those of our foreign peers. A Chinese arbitration institution therefore has a larger pool of sample cases to guide it in amending its institutional rules and perfecting its case management practices.

Therefore, while international arbitration is acquiring more Chinese elements, arbitrations administered by Chinese arbitration institutions are also acquiring more international elements and becoming more acceptable to the international arbitration community. I am pleased to see that some of our institutional practices, like the use of tribunal secretaries, the institution’s power to decide jurisdiction, the combination of arbitration with mediation and the scrutiny of arbitration awards, have become increasingly accepted by foreign counsels and arbitrators.

 

6. Arbitration is known for being final and binding. What are your views on an optional appellate mechanism in international arbitration?

I think a selective appeal mechanism gives the disputant a chance to gain relief on the substantive findings. Currently, there are the judicial appeal and the internal appeal mechanisms. The latter is provided for in the arbitration rules of the American Arbitration Association, Spanish Court of Arbitration, International Arbitration Chamber of Paris, Grain and Feed Trade Association, and Federation of Oils, Seeds and Fats Association, etc.

My understanding is that the values of arbitration should be different from those of litigation. Any amendment to arbitration rules that goes against its values will only make arbitration resemble litigation more. That would cause arbitration to lose its charm, and perhaps even its vitality.

Personally, I do not deny that an appeal mechanism may assist in correcting possible errors in factual or legal findings. However, if another group of arbitrators decides the appeal, how do we trust that their views are more correct? If the disputants remain unsatisfied with the appeal results, do we give them a third chance? Or, do we allow the disputants to set aside the results of the appeal so that the original award can be revived? These are all questions we need to think about thoroughly. In fact, if arbitral institutions do well in curating their panel of arbitrators, and increase procedural transparency and scrutiny of arbitration awards, then the efficacy of proceedings and the quality of arbitration awards can be well safeguarded without the need for an appellate mechanism.

 

7. To end on a lighter note, do you have any fun or interesting facts about arbitration in PR China to share with our readers?

I can share the story of when we assisted the International Bar Association (“IBA“) in organizing its International Arbitration Day. This is a global event that has been recognized and well participated by practitioners, arbitrators and jurists around the world. However, up until 2016, the event had never been held in China.

In 2015, the IBA drafted a letter to SHIAC, expressing its hopes to hold the 19th IBA International Arbitration Day in Shanghai. The IBA thought that the Chinese market had huge potential, and that the local institutions were becoming increasingly internationalised.

To ensure the success of the event and attract more participants, the IBA invited SHIAC to be the first local institution to give support to the event. During the preparation stage, we performed a huge amount of coordination, advertising, promoting and administrative work. At last, over 500 participants from 53 countries and regions participated in the 19th IBA International Arbitration Day. This experience shows the unique feature of Chinese arbitration institutions: we are not only providers of professional legal services, but also reliable partners in promoting arbitration. After that event, dozens of participating attorneys expressed their willingness to join our panel, including Mr. David W. Rivkin, the then Chairman of the IBA.

 

Thank you for your time!

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

More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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The Results are in for the Summer 2020 Kluwer Arbitration Quiz!

Sat, 2020-09-12 02:00

The Summer 2020 Kluwer Arbitration Quiz was met with a very enthusiastic response: 271 submissions from around the world!

The quiz focused on how the conduct of arbitrations may differ, depending on industries and regions, as revealed by data collected to date by Arbitrator Intelligence. That data is collected through responses submitted by parties and counsel at the end of an arbitration through the Arbitrator Intelligence Questionnaire (AIQ). We are still building our database, which means some of these answers may change over time.

 

We wish to thank everyone who took the time to send in their answers, especially since the questions were no day at the beach! And please help us continue to build our database by submitting an AIQ at the end of your next arbitration.

The following winners all had a perfect score, and will receive the prizes listed below:

  1. Nikolay Ivanov, Bulgaria (Prize: Crina Baltag & Ana Stanic, The Future of Investment Treaty Arbitration in the EU: Intra-EU BITs, the Energy Charter Treaty, and the Multilateral Investment (Kluwer 2020)
  2. Viktoriia Tolochko, Ukraine (Prize: Bruno Guandalini, Economic Analysis of the Arbitrator’s Function (Kluwer 2020))
  3. Iryna Ivanova, Ukraine (Prize: The Born Lectures (6-month access))

A warm congratulations to all!*

 

And what were the correct answers? The creators of this year’s KAB Summer Quiz, Catherine Rogers and Michael McIlwrath, discuss and debate the data behind the answers.

 

Duration of arbitral proceedings (commencement to award)

1. For three-member tribunals conducting “oil and gas” arbitrations, the average duration is approximately 1,396 days with a three-member tribunal. For sole arbitrators it is:

a. approximately 400 days

b. approximately 600 days

c. approximately 800 days

The correct answer is (b), approximately 600 days.

Mike:  No one who has participated in the appointing process or negotiated schedules for a hearing will be surprised that things happen more quickly with one arbitrator. But this difference is huge, going from a year and a half to nearly four years just by adding two arbitrators. While that seems far too long for any commercial dispute, is it possible that the reason for this difference is that parties tend to designate three arbitrators in larger contracts that could give rise to complex disputes with more evidence and complex issues?

Catherine:  You are right, this is an unexpectedly big difference. But there is an interesting explanation. In our data regarding three-member tribunals, the mean has been skewed by a small number of cases (i.e., cases that took 2,000+ days, or well over five years). The median number of days is approximately 878 days for three-member tribunals and 628 days for sole arbitrators. This distinction between mean and median holds a potentially important insight: a three-person tribunal may not simply take longer time overall—it may also increase the risk that the proceedings could take A LOT longer. That risk may be relatively small overall (only eight cases out of 48 took 2,000+ days), and due factors, beyond the arbitrators’ control. But it is risk we did not observe with sole arbitrators.

 

 

Document production

2. According to AI data, tribunals sitting in “banking and finance” arbitrations mostly order document production with what scope?

a. Narrow: only narrow and specific requested categories of documents that are reasonably believed to exist

b. Moderate: a limited number of individually identified documents

c. Broad: broad categories of documents based on general statements of materiality and relevance

The answer is (a):  narrow.

Mike: This answer is reassuring to see, and it may be that banking and finance disputes more often focus on purely legal than factual issues, so the universe of documents might be smaller.  If so, this would mean that arbitrators are not granting unnecessary amounts of document production.

Catherine: Perhaps one reason for the narrow document production is that the jurisdictions for which we have most of our banking and finance data are Chile, Peru, and Dubai—none of which are jurisdictions with traditions of broad document production requests (or grants).

 

3. Regional differences: According to AI data, parties seeking document production are most likely to have their request granted in full in proceedings seated in:

a. the Western Balkans

b. the Middle East

c. Latin America

The answer is (c): Latin America.

Mike: Instead of complaining about discovery being too broad in the USA, or “North America,” should we be worried about this being an Americas/Western Hemisphere phenomenon?

Catherine: No. At least not based on the answer to this question. In the majority of Latin American arbitrations, parties do not request document production at all. When they do, in our data, they tend to request either documents based on party agreement (50%), narrow categories or a limited number of specific documents (31%). Within this larger context, tribunals in Latin American-seated arbitrations tend to grant what is requested. So, even if the requesting party gets everything, the scope will end up being much narrower than if, for example, only some document requests in US-seated are granted in full.

 

Documents-only arbitration

4. Tribunals are most likely to hold a documents-only procedure (no oral hearings) in disputes in which of the following sectors?

a. construction

b. shipping and transportation

c. sports

d. telecommunications

e. trade in goods

f. banking and finance

g. oil and gas

h. investment

The answer is (e) trade in goods.

Mike: Again, I have to ask, is this because the value and complexity of disputes arising under “trade in goods” contracts is likely to be less fact-intensive and technical than the others?

Catherine: Good question, and one for which we don’t yet have sufficient data to provide a definitive answer. Perhaps trade in goods disputes often involve letters of credit, which tend to be narrow and—as you suggest—open to only a limited range of factual questions. I was a little surprised banking and finance did not come in first.

 

Appointment of tribunal secretaries

5. In which of the following sectors, are tribunals mostly likely to appoint tribunal secretaries/assistants?

a. Trade in goods and shipping and transportation

b. Shipping and transportation and construction

c. Construction and energy

The answer is (a) trade in goods and shipping and transportation.

Mike: This made me scratch my head a little, after seeing the answer for question 4. If tribunals in “trade in goods” disputes are ordering “documents only” arbitrations, then why do they need tribunal secretaries?

Catherine: According to our data, the appointment of tribunal secretaries is more frequent in higher-value arbitrations. This applies across various subject matter sectors. But your question raises an interesting point, which is whether tribunals are appointing secretaries because they add value or as a matter of habit. From a functional perspective, our data has not shown that secretary appointments affect the duration of proceedings, positively or negatively.

 

Encouragement and facilitation of amicable settlement and mediation

6. Tribunals are most likely to encourage and facilitate amicable settlement and mediation in which of the following sectors?

a. energy (other than oil and gas) arbitrations

b. banking and finance arbitrations

c. investment arbitrations

The answer is (b) banking and finance.

Mike: In the energy and oil and gas (equipment and services) sectors in which my company operates, we tend to see efforts to settle achieved through a contractual requirement of mediation before embarking on arbitration. This reflects the importance of relationships in our industry, and also the desire to avoid the costs of arbitration.

Outside of this, I do not see much settlement effort by arbitral tribunals, except those made up of predominantly German arbitrators (or Austria and Switzerland), which follows the German court tradition of encouraging parties to settle.

Catherine: You appear to be right (is that ever not the case?) about there being a strong regional preference to settle cases. Our data indicates that tribunals seated in Central and Eastern Europe reportedly seek to encourage settlement in 57% of cases vs only 16% in cases seated in North America. That’s an enormous difference. In Latin America the statistic is 38% of cases and the Middle East 25%.

As for industry sectors, our data shows that the tribunals in banking and finance are particularly inclined to encourage or facilitate amicable settlement and mediation (in 67% of the cases), which is more than tribunals in oil and gas and energy (other than oil and gas) arbitrations. The question in our AIQ specifically inquires about tribunal efforts (not tiered clauses).

 

Awards of interest

7. Tribunals in which sector award interest most frequently?

a. trade in goods

b. banking and finance

c. oil and gas

The answer is (c) oil and gas.

Catherine: One insight on interest rates—for most cases in our database, no interest was awarded. One arbitrator suggested to me that the likely reason is that parties rarely request interest. So I would have guessed oil and gas because they tend to be some of the largest disputes. For data collected by Arbitrator Intelligence this far, the median value of oil and gas arbitrations is significantly higher than the median value of the arbitrations in banking and finance and trade in goods arbitrations.

Mike: Possibly, but I don’t buy it. I’d be even more surprised to hear that banking and finance clients forget to ask for interest! (Or at least my bank never forgets any interest owed.) My somewhat cynical hunch is that tribunals may be denying requests for interest as a concession to the party that is perceived to lose the dispute. I sometimes feel they do the same with costs.

Catherine: You may be right (again!)—and perhaps it would be worth including a question to address to have parties clarify in our forthcoming AIQ 2.0 whether the parties requested interest in the first place.

 

8. What is the most common interest rate applied in arbitral awards across sectors and regions?

a. the rate imposed by the applicable law

b. the rate agreed by the parties

c. the inter-bank rate

The answer is (a) the rate imposed by the applicable law.

Mike: I suspect most parties do not specify an interest rate in their contracts, which is why (b) is not the correct answer. No surprise to me that, in the absence of a specified rate, arbitrators are looking to the applicable law to determine the rate of interest.

 

Allocation of costs and fees

9. Tribunals in which sector are most likely to award all of the claimed costs of the arbitration to prevailing party, in favor of both claimants and respondents?

a. construction

b. trade in goods

c. shipping and transportation

The answer is (b) trade in goods.

Mike: I am not surprised that (a), construction, is not the correct answer. Construction cases often have multiple claims asserted by each side so that awarding “all” of a party’s claimed costs will be difficult in most cases, as each side may prevail on some claims and not others

Tangentially, however, this question raises a pet peeve of mine, which is that parties often do not know which rules of cost recovery a tribunal in an international arbitration will apply until they reveal it in their final award. In theory, the “costs follow the event” concept seems the one most frequently applied, but in practice this means different things to different arbitrators. In your next data gathering exercise, can you let us know the cost methodology that each arbitrator commonly adopts? I would love to see that.

Catherine: Your pet peeve is precisely why we ask these questions—some parties really want costs (and fees) to follow the event, typically of course the prevailing party. And some have a national tradition or expectation that is different. Particularly for a responding party that prevails, not recovering costs and fees would still seem like a significant loss, particularly if you are not from a jurisdiction with a “loser pays” rule.

 

Conclusion

We hope that the data behind this summer’s quiz has challenged some your assumptions about some issues and trends in arbitral proceedings. And, above all, we hope you enjoyed it!

 

*Two additional contestants may be eligible for prizes and will be announced if they claim their prizes.

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Taming Achmea: The Addiko Tribunal Pulls the Handbrake

Fri, 2020-09-11 00:00

After more than two years of an ever-evolving Achmea-saga, we shall now reap the fruits. Many arbitral tribunals have rejected the application of the CJEU’s findings, such as in the ICSID arbitration UP and C.D. Holding Internationale v Hungary or the ECT arbitration in Vattenfall v Germany (see e.g. here). More recently in June 2020, the ICSID tribunal in Addiko Bank v Croatia rendered a decision on Croatia’s jurisdictional objection which was based on the alleged incompatibility of the BIT with the EU acquis, i.e. the body of common rights and obligations that are binding on all EU Members, including the Achmea decision. Once more, this tribunal also rejected the “Achmea-objection”. Thus, despite 23 EU Member States having signed a plurilateral treaty for the termination of intra-EU BITs (“Termination Treaty”) in May 2020, the tug-of-war between the EU and the arbitral tribunals continues.

This blog post focuses on the most recent decision rendered by the Addiko tribunal which came to the conclusion that the arbitration under the Austria-Croatia BIT is not incompatible with the EU acquis. Although this is another encouraging outcome for all affected investors, the line of argumentation used by the tribunal might cause practical difficulties for the users of international investment arbitration.

 

Changes in Croatian Legislation Sparked an Outcry From Banks

In 2015, Croatia passed new legislation providing that loans and mortgages were converted from Swiss francs to euros. In the view of the banks, they were obliged to bear the cost of conversion of over US$ 1 billion. This triggered a series of ICSID arbitrations by several banks including the Austrian Erste Group; Raiffeisen; the Austrian branch of UniCredit; and Addiko.

In the proceedings between Addiko and Croatia, the State objected to the jurisdiction of the arbitral tribunal due to the incompatibility of the BIT with the EU acquis according to Article 11(2) of the Austria-Croatia BIT (“BIT”): “The Contracting Parties are not bound by the present Agreement insofar as it is incompatible with the legal acquis of the European Union (EU) in force at any given time.”

This argument raises two issues: First, what does “incompatible” mean? To answer this, a close analysis of the EU acquis is necessary. Second, when does this apply? Obviously, there is a big interest in knowing whether the EU acquis – which will be analysed in the following sections – applies to all arbitration proceedings that were initiated under this BIT.

 

Compatibility With EU Acquis: Choice of Law Clauses Determine the BIT’s Legal Fate

According to Croatia, Article 11(2) of the BIT relieved Contracting Parties from all BIT obligations that were incompatible with the EU acquis, including the ISDS clause in Article 9 of the BIT. In defining what “incompatible” meant, Croatia relied on the decision rendered in Achmea where it was established by the CJEU that the jurisdiction of arbitral tribunals was incompatible with the EU Treaties, in particular with Articles 267 and 344 TFEU.

What is very special about the BIT at hand is the somewhat unique or at least rare inclusion of an express conflict clause in Article 11(2). That provision clearly states that EU acquis trumps the BIT, establishing a hierarchy. It also, however, presupposes some certainty about what the EU acquis is exactly. In order to circumscribe the pertinent acquis, the tribunal chose a very efficient way forward. It recalled “the functional concerns” mentioned by the CJEU in relation to the choice of law clause contained specifically in Netherlands-Slovakia BIT, which stipulated the application of EU law. While the CJEU held that only fora within the EU system are authorised to interpret and apply EU law, it had at the same time no objections to tribunals outside the EU structure interpreting and applying law of a purely international character. The CJEU repeated this view in para. 118 of its Opinion 1/17 related to CETA (see also here). The Addiko tribunal therefore concluded that the CJEU did not suggest that EU Member States were barred from offering to arbitrate disputes under treaties that were not even partly governed by EU law but only by the express treaty provisions and by general principles of international law. As the Austria-Croatia BIT did not contain a comparable choice of law clause giving rise to such “functional concerns”, it would fall under the realm of accepted treaties by the CJEU. The tribunal thus concluded that the arbitration under the Austria-Croatia BIT was not incompatible with the EU acquis.

 

From Technical Theory to Picante Practice

In summary, the Addiko tribunal related “functional concerns” of BITs to the choice of law contained therein – but what does this mean for investors? In light of this decision, investors cannot rely on apparent offers to arbitrate in BITs as soon as there is a reference to the domestic law – including EU law. This again implies that any investor would have to examine in depth all BITs of potential receiving states and to identify traces of EU law before an investment could even be initiated. Alternatively, what happens in practice if a BIT is absolutely free of “functional concerns”? Investors could rely on international principles of course. But could they also rely on EU law at the same time? Before this could be done, a close analysis would be necessary to draw a clear line between the rights granted under EU law and under international law – if this is even possible. If this exercise is done, would investors then be confronted with two alternative legal actions, one in front of arbitral tribunals and another in front of domestic courts, finding themselves between Scylla and Charybdis? Would investors need to take an ultimate decision on which rights they want to rely on while waving the other ones? Many questions therefore remain as a result of the Addiko tribunal’s approach.

 

Retroactivity: Freezing the Manifest Acquis

Also, the question of whether Achmea had retroactive effect was extensively treated in this arbitration. Croatia alleged that the State was not bound by the BIT from the date of its accession to the EU in July 2013. Achmea was only an interpretation of the TFEU which was already in place at that time. The interpretation therefore did not create new acquis on its own but rather “clarified and confirmed” an incompatibility that was already inherent from the very moment of accession.

This reasoning is – at least for the author – quite counterintuitive as it seems to contradict any legitimate expectations of investors. Similarly, Addiko argued that Achmea did not have retroactive effects since it would deprive private parties of the protection that BITs afforded to them up to the date of the Achmea decision. The tribunal found that the specific wording in Article 11(2) reading “the legal acquis […] in force at any given time” implied that the provision only related to the acquis which was in force or “manifest” in 2015. One could say that the tribunal “froze” the acquis as it was when the treaty parties gave their consent to arbitrate.

Such a threshold of “manifest” was derived by the tribunal from the principle of “manifest violation” laid down in Articles 46 and 69 of the VCLT, which broadly provide that States shall not invoke domestic provisions to invalidate their consent to be bound by a treaty unless the violation of internal law “was manifest”. Acts which have been nevertheless performed in reliance of such invalid treaty in good faith and before the invalidity was invoked are not rendered unlawful.

The tribunal persuasively pointed out that if intra-EU BITs were indeed incompatible with the TFEU from the moment of the State’s accession to the EU, this profound deficiency was overlooked by many players in the EU, including the European Commission. Thus, the alleged incompatibility was “certainly not manifest” prior to the CJEU’s findings in Achmea. As a result, the tribunal concluded that any invalidation of the ISDS clause in Article 9(2) by virtue of an incompatibility with EU acquis pursuant to Article 11(2) could not affect any consent to arbitration that was given before the Achmea judgement but for future arbitrations only.

 

More Practical Dilemmas for Investors

Amidst these cogent arguments, the tribunal, however, restricted itself to the specificities of the BIT at hand and to general principles of international law. Most likely, this decision will be helpful for other tribunals in proceedings under the Austria-Croatia BIT, however, it is somewhat unsatisfactory regarding its practical implementation. So, since when should investors have known of the risk associated with relying on the ISDS clause in the Austria-Croatia BIT? According to the tribunal and principles of international law, only after Achmea. According to Croatia, already in the “pre-achmeic age”. Especially with regard to legitimate expectations, many investors would have been grateful to receive an answer to the question on how to resolve the differences between those two stances. However, the Addiko tribunal expressly decided to leave the more general issue of retroactivity as a matter of EU law aside (para. 271).

I dare to make the observation here that the tribunal dropped this hot potato in order to avoid creating further damage in this political melodrama. On the other hand, the tribunal remained consistent with its own argumentation. In order to clarify this question, it would have needed to interpret EU law. According to its own reasoning as shown above, the jurisdiction of an arbitral tribunal is only compatible with the EU acquis if the proceedings are governed purely by international law, leaving no room for any application or interpretation of EU principles. In the end, the snake is biting its own tail.

Meanwhile, the retroactive effect of Achmea was officially laid down in the Termination Treaty. All arbitrations that were not concluded until Achmea was rendered, including the proceedings that were already pending, are supposed to be terminated (see here). This, however, cannot be reconciled with the principle enshrined in Article 70(1)(b) of the VCLT as it clearly states that any form of termination has no retroactive effect. This holds even more true with BITs as they are different in nature conferring rights to a third-party beneficiary – the investor. Against this background, the principle of legal certainty and the doctrine of acquired rights is of crucial importance. As underlined by Addiko, investors need to be capable of unequivocally ascertaining their rights at a given point in time, especially where financial consequences are involved.

Concluding, some arbitration practitioners – including myself – would probably wish to see more arbitral tribunals “taming” Achmea as it is seemingly getting out of hand. Over the coming years, we will be able to observe whether the Addiko tribunal’s views will withstand the ultimate reality check – the enforcement stage. Some enforcement courts were left unimpressed by the “Achmea-objection” (see e.g. PL Holdings v Poland). Meanwhile, the Termination Treaty has entered the stage which, once ratified, will be a real game changer. This is also true for the countries that have refrained from signing the Treaty. Austria is one of the EU Member States that prefer bilateral termination at a later point in time. Bearing in mind that there are currently four pending proceedings of Austrian banks against Croatia, the reasoning behind this sudden U-turn after the Declaration of 15 January 2019 might be obvious. However, with the prospect of possible infringement proceedings, Austria will have to go with the flow eventually. The Achmea-saga – to be continued.

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Cloaked by the Sovereign Veil: Recent Swedish Decision Applies Sovereign Immunity “Categorically”

Thu, 2020-09-10 01:00

The latest decision in the long running investment dispute saga of Stati, Ascom and others v. Kazakhstan came in June 2020, when the Svea Court of Appeal (Svea hovrätt) in Sweden annulled the Swedish Enforcement Agency’s (Kronofogden) (EA) attachment decisions. In this case, the Court of Appeal’s decision effectively expanded the definition of property covered by sovereign immunity (previously discussed on the blog) in Sweden, to include commercial property owned by the National Bank of Kazakhstan (National Bank). The decision represents a further hurdle to the investors to enforce a USD 500 million SCC award rendered in their favour in December 2013.

 

Background

The dispute arose following Kazakhstan’s seizure of the investors’ petroleum operations in 2010. The investors had invested more than USD 1 billion since 1999 and their businesses had become profitable by late 2008. At this point, the Kazakh government undertook a range of measures that ultimately led to the seizure and nationalization of the investments in July 2010. The investors subsequently brought a Stockholm Chamber of Commerce arbitration under the Energy Charter Treaty (ECT), alleging inter alia breaches of the treaty protections in respect of expropriation, fair and equitable treatment, full protection and security and reasonable and non-discriminatory measures.

The arbitral tribunal found that Kazakhstan had breached the ECT’s fair and equitable treatment standard and a majority of the arbitral tribunal awarded the investors USD 500 million plus interest. Kazakhstan then applied in March 2014 to the Svea Court of Appeal (being the court of first instance on such questions in Sweden) to set aside the award. This application was rejected. The investors then applied to the District Court (Tingsrätt) for a freezing order in respect of property belonging to Kazakhstan sufficient to cover the investors’ claims.

The District Court approved the investors’ application, whereupon the investors applied to the EA to attach the Kazakh government’s property in respect of their claims. The EA decided on attachments of property inter alia in the form of securities in securities accounts held in a Swedish bank, claims for dividends on those securities as well as funds deposited to a cash account in the same bank.

 

Application to the District Court

Kazakhstan requested the District Court to repeal the EA’s decision, objecting that the property was not owned by Kazakhstan and alternatively that the securities were not located in Sweden, that the property was covered by state immunity and finally that enforcement would violate the ordre public.

With respect to sovereign immunity, the District Court considered in particular Articles 19(c) and 21.1(c) of the UN Convention on Jurisdictional Immunities of States and Their Property (2004) (Convention). It found that to benefit from sovereign immunity, it is not enough for the property in question to be held for a non-commercial purpose. Rather, the holding must be of a qualified nature, linked to the state’s official functions. In July 2019, the District Court found that as the property was not reported in the National Bank’s accounting and that Kazakhstan on numerous occasions had claimed reimbursement of paid withholding tax, the National Bank should not be deemed the owner of the property. Accordingly, the District Court rejected the appeal on the basis that the property attached by the EA was not protected by state immunity.

 

Appeal to the Court of Appeal

Kazakhstan subsequently appealed the District Court’s decision to the Court of Appeal. The Court of Appeal made several observations on the “restrictive” theory of sovereign immunity, which distinguishes between sovereign acts by states and their private law acts. It noted that under customary international law, a state’s commercial or private acts are typically exempt from immunity.

The Court of Appeal also noted that the Convention, although not yet in force, is largely a codification of customary international law and formed the starting point for its determination. The Court of Appeal focused on the distinction between immunity with respect to jurisdiction as opposed to immunity with respect to enforcement or constraint. Applying the applicable customary international law as expressed in the Convention, the Court of Appeal observed inter alia that the main rule is that a foreign state can only be subjected to enforcement measures with its consent.

The Court of Appeal noted that under the Convention, the assessment of whether property could become subject to enforcement measures should first be made based on the special rules in Article 21 and thereafter based on the general rule in Article 19. The Court of Appeal then considered Article 21.1(c) of the Convention, which exempts the property of a central bank from the exemption of sovereign immunity under Article 19(c). It found on the evidence presented that the National Bank was the owner of the relevant property subject to attachment.

The Court of Appeal then considered the “categorical” and “functional” applications of the provision. A categorical application would mean that, as the property was owned by the National Bank, it was automatically protected from enforcement measures. A functional application, on the other hand, would require that Kazakhstan in fact exercise its sovereign authority over the property in order to benefit from sovereign immunity. Considering inter alia the wording of the provision, the object and purpose of the Convention and the travaux préparatoires, the Court of Appeal held that the provision should be applied categorically. As a result, it found that the property was protected by state immunity.

The Court of Appeal also rejected the investors’ arguments that Kazakhstan had lost its right to claim immunity due to an “abuse of rights”. The Court found that the very purpose of immunity is to protect states and their property against legal procedures to which they do not consent. Accordingly, the EA’s decision on attachment was annulled.

 

Comment

The Court of Appeal referred to Swedish precedent, NJA 2011 s. 475, in which the Supreme Court of Sweden (Högsta domstol) held that immunity would be denied when the property in question was used in a commercial manner. In that case, the Russian Federation was unsuccessful in invoking sovereign immunity with respect to real estate owned and used by the Russian Trade Delegation in Sweden and by the Russian Embassy for housing, storage, archival and other purposes. The Supreme Court then found that a foreign state could not invoke immunity from the enforcement of a judgment in respect of real estate belonging to that state where (i) the property was not used to a significant extent for the official activities of the state, and (ii) the purpose of the ownership was not otherwise sufficiently qualified to protect the property from attachment, in line with Article 19(c) of the Convention.

The Court of Appeal distinguished the present case on the basis that Article 21.1(c) does not set any requirement for qualified use in respect of property owned by a central bank. In other words, there is no need to assess the functions of the property, as the category of property is sufficient to conclude whether the state is entitled to benefit from sovereign immunity. In the present case, although the use of the property was commercial, the ownership could be attributed to the National Bank and consequently classified as an exercise of state authority.

However, the Court of Appeal expressly pointed out that there may be instances where the property of a central bank cannot enjoy immunity under the Convention, such as if a central bank were to offer banking services to consumers in competition with other market actors. The Court of Appeal acknowledged that a categorical application of the Convention could lead to unreasonable outcomes and recommended that a limited scope to apply Article 21.1(c) in conjunction with the Article 21.1(b)(iii) sovereignty criterion. However, it stressed that such a limitation would not apply in this case as the National Bank’s property held within the framework of a national fund amounted to the management of the state’s economy, a clear exercise of the state’s authority.

The Court of Appeal’s decision forms part of a broader trend towards greater immunity of foreign central banks. It represents a potential boon to both central bankers and Sweden, with the possibility of a wave of state asset restructuring to follow. Unsurprisingly, the investors have applied for leave to appeal the Court of Appeal’s decision to the Supreme Court. However, the grounds on which an applicant may be granted leave to appeal to the Supreme Court are limited. In the court’s assessment, the case must have precedent value or there must have been a gross procedural error. Typically, applications for leave to appeal are decided within six months. Given the comments made by the Court of Appeal, it is certainly arguable that there is sufficient interest in setting a precedent. If the Supreme Court grants the investors leave to appeal, there will no doubt be many watching to see whether the central bankers’ boon gets the final green light in Sweden.

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Asynchronous Hearings: The Next New Normal?

Wed, 2020-09-09 02:00

Once one gets past the fact that the word “asynchronous” is impossible to pronounce or spell, it is an interesting concept, including for international arbitration. The Oxford English Dictionary defines it as “not existing or occurring at the same time, not coinciding in time.” If you think about TV shows, for instance, some are broadcast live (i.e., the event happens synchronously, at the same time as the you see it on TV), but most programs are pre-recorded. The moment when you watch it and the moment when the show was recorded are not at the same time. They are asynchronous.

This blog post discusses whether asynchronous participation in hearings will be the next New Normal. Arbitration practitioners are currently getting used to the existing New Normal of remote hearings. Even though remote hearings have been around for some time (ICSID, for instance, announced that in 2019 the majority of its hearings and sessions were held remotely, and the Seoul Protocol on Video Conferencing in International Arbitration was finalized before the start of the pandemic), COVID-19 has propelled the use of videoconferencing and other technology into the arbitration mainstream. For instance, 85% of HKIAC hearings in April and May 2020 required some form of remote hearing services. Hybrid or remote hearings – often (wrongly in my opinion) called “virtual” – have been discussed extensively in past months, including here, here and here.

In a recent UNCITRAL webinar, I was asked to consider how technology could further change our practice as international arbitration lawyers in the years to come. The video of the talk can be found here. I addressed the topic by discussing whether remote hearings could be taken to the next level, allowing for some parts to be held asynchronously. Many steps in international arbitration are already asynchronous: the filing of written pleadings (typically in subsequent rather than simultaneous submissions) and procedural correspondence (today mainly in form of emails) are just two examples. But when it comes to oral hearings, the exchange of arguments and evidence is typically done on a synchronous basis: either in-person (when everyone is in a hearing room together) or remotely (when participants connect at the same time via a video platform).

An asynchronous participation in an oral hearing could take the form of a video recording of the counsels’ opening statements, for instance. They could be made available to the arbitral tribunal some time in advance of the evidentiary hearing (which could still take place in a synchronous fashion). The arbitrators could watch the opening statements at different times, at their leisure. They could also watch them as often as they wish, going back to specific points they are particularly interested in. The tribunal members could prepare the evidentiary hearing, check the oral submissions against the written submissions and evidence already on file, and possibly even pre-deliberate some questions in advance of the evidentiary hearing.

What would be the possible advantages and disadvantages of such a scenario? First, on the positive side, the use of asynchronous oral statements could arguably further an in-depth understanding of the case by the arbitrators before attending the evidentiary hearing. As detailed above, being able to watch the opening statements as often as one wishes, rewind to relevant sections and discuss points with fellow co-arbitrators may promote an enhanced understanding of the case.

Second, any form of asynchronous participation significantly eases questions of timetabling – or rather completely takes this issue off the table. By definition, if you can record or watch a video when you please, then there is simply no need to coordinate timetables at all. Counsel and arbitrators, struggling to find common hearing dates in their busy schedules, would have no excuse to delay proceedings if participation could be done asynchronously.

Third, experience with remote hearings in recent weeks and months has shown that one major issue relates to the participants’ different time zones. Many remote hearings protocols, such as from the ICC or VIAC, and best practice guidelines by practitioners and regional initiatives, advise to take this issue into account. In my own experience, important time zone differences can cause significant organizational problems, resulting either in shorter hearing days (and thus a longer overall length of the hearing) or uncomfortable log-in times for some participants. In one arbitration, a case counsel at ICSID had to regularly get up at 3am to attend a hearing. In a remote hearing scenario using asynchronous participation, again, this problem simply goes away.

Having had a chance to discuss these thoughts recently with Chiann Bao, a fellow international arbitrator, she commented: “The majority of the arbitral process is asynchronous already and by extension why should hearings not also be conducted sequentially? I would think that concerns as to not being able to react in “real-time” could probably be addressed by well thought out case management procedures.”

However, while one can certainly think of other advantages, there are also possible downsides. First of all, pre-recorded messages are often less engaging than live performance. At one of the 2020 LCIA Tynley on Zoom sessions, when I floated the idea of asynchronous hearing participation, one attendee noted half-jokingly that this reminded him of online training courses that he found terribly boring. Indeed, recording an opening statement in front of a camera is less exciting than speaking live before an arbitral tribunal. Counsel might also miss the tribunal’s feed-back as to which part of their submission are most relevant, and feel less effective if they cannot gauge the tribunal’s expression (even though the importance of “reading of the tribunal” is often overstated).

Moreover, a serious disadvantage of an asynchronous, pre-recorded presentation is that the listener cannot interrupt to ask questions. Sometimes, in a live scenario, a short clarification question might dispel misunderstandings and further a better understanding. More generally, many arbitrators find that the ability to ask questions of counsel during the oral hearing is essential. That said, one can think of ways to minimize this drawback. For instance, one could allow for tribunal questions at the outset of a synchronous evidentiary hearing, after the oral opening submissions have been previously provided asynchronously.

For the same reason (i.e. the absence of live questioning), asynchronous forms of hearing participation are not well-suited for the taking of evidence, such as witness and expert testimony. At least as currently practiced in international arbitration, parties expect to be able to ask questions of their witnesses in direct examination, and more importantly still, of the other side’s witnesses in cross-examination. It is difficult to see how these practices could be maintained in an asynchronous setting. Arbitrators typically also find it essential to be able to put questions to the witnesses and experts. One solution could be to limit witness and expert examination, as we currently know it. While there have been calls to limit oral testimony of witnesses and experts, including cross-examination (for instance in the so-called Prague Rules or Rules on the Efficient Conduct of Proceedings in International Arbitration), excluding them altogether seems too far-reaching in most cases.

In addition, and maybe most importantly, just like remote hearings, asynchronous hearing participation further reduces “normal” human interaction. A random exchange or smile at the coffee machine, or a courteous word when entering the hearing room, are sometimes just as important to ensure a good atmosphere between the participants as anything that is done during the hearing.

Many arbitration practitioners will find the hypothetical scenario of asynchronous hearings daunting and remain sceptical about their feasibility. While I share some healthy reticence towards “crazy new ideas,” let me also point out that others have even more far-reaching suggestions. In his book Online Courts and the Future of Justice, Richard Susskind advocates eliminating entirely synchronous hearings for national court litigation. Given the complexity of matters typically involved in international arbitration, such a radical solution might be a bridge too far. Nonetheless, his idea has already found followers in national courts, such as in Singapore where the State Courts Centre for Dispute Resolution (SCCDR) is experimenting asynchronous court dispute resolution hearings by email (aCDR) as part of various initiatives amidst the COVID-19 pandemic. Courts in China, including the Hangzhou Internet Court, are also reported to have developed asynchronous court trials.

Finally, maybe this is a generational question. I realize that when I wrote a couple of paragraphs above that live, synchronous, in-person human interaction is the “norm,” I have outed myself as someone who grew up before mobile phones and the Internet. Lise Alm, Head of Business Development at the SCC and one of the excellent co-panellists at the UNCITRAL webinar mentioned above, pointed out that younger generations have a very different way of communicating. She is right, of course. Anyone who has lived with teenagers will know that they simply do not use synchronous communications, such as phone conversations, anymore. They have been replaced by asynchronous chats on various social media platforms or text messages. And this is not even taking into account a generation of lawyers who will have grown up post-COVID-19. So maybe, after all, asynchronous hearings will be the next New Normal!

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Arbitrators’ Duty to Disclose: a Tale of Two Jurisdictions

Wed, 2020-09-09 01:00

On 11 August 2020, the Court of Appeals of the state of São Paulo, Brazil, annulled an arbitral award1)1ª Câmara Reservada de Direito Empresarial do Tribunal de Justiça de São Paulo. Apelação Cível no. 1056400-47.2019.8.26.0100 [Appeal no. 1056400-47.2019.8.26.0100]. jQuery("#footnote_plugin_tooltip_9557_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9557_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); on the grounds that the chair of the arbitral tribunal had failed to timely disclose his appointment to another arbitration by one the parties.

As discussed in a previous post on this blog, less than two years earlier, the Court of Appeal in the UK denied a request2)[2018] EWCA Civ 817. jQuery("#footnote_plugin_tooltip_9557_2").tooltip({ tip: "#footnote_plugin_tooltip_text_9557_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); to remove the chair of an arbitral tribunal despite the fact that he had not disclosed his appointment to another arbitration by one the parties.

This post draws a comparison between these two decisions and their contrasting outcomes.

 

Fazon (Brazil)

The arbitral procedure (“Fazon”) started in 2015, and a final award in favour of the respondent was issued on 7 February 2018. Before deciding on the claimant’s request for clarification, the arbitral tribunal issued a procedural order informing, for the first time, that, on 18 August 2016, the chair of the tribunal had accepted an appointment as co-arbitrator in a different proceeding by the respondent.

The award was challenged in the first instance court, which dismissed the case. The decision was then reversed on appeal. The State Court stated that “each and every piece of information of a personal or professional nature that is capable of generating doubts as to the impartiality or integrity of the arbitrator must be immediately disclosed”. Furthermore, the lack of disclosure “cannot be seen as normal or usual”; it amounts to “a behavioural failure, which may characterise the lack of confidence claimed by the appellant [claimant], hence affecting the validity of the arbitral award”. Citing the Brazilian Superior Court of Justice precedent in Abengoa, the Court moved to annul the award, suggesting the existence of a direct link between the lack of disclosure and the arbitrator’s lack of impartiality.

This is, however, too much for Abengoa to bear. In Abengoa, the law firm to which the chair of the arbitral tribunal was a partner had received significant fees from an affiliate of one of the parties to the arbitration – a circumstance which was not disclosed beforehand. The Superior Court of Justice not only asserted the arbitrator’s violation of the duty to disclose, but went beyond to analyse whether the arbitrator’s lack of impartiality could be inferred from the non-disclosed circumstances. The conclusion was that (i) the commercial relationship between the arbitrator’s law firm and an affiliate of one of the parties amounted to lack of impartiality, (ii) the other party was denied due process due to the lack of disclosure, and (iii) there was an implicit admission of bias when the arbitrator resigned from the panel.

That said, it is easy to see that the decision in Fazon not only failed to distinguish the case from Abengoa, but also misinterpreted Abengoa’s ratio decidendi.

In Fazon, one of the parties appointed the chair of the tribunal as a co-arbitrator in another arbitration. The situation is similar to that described in Paragraph 3.1.5 of the Orange List of the IBA Guidelines on Conflicts of Interest in International Arbitration: “3.1.5 The arbitrator currently serves […] as arbitrator in another arbitration on a related issue involving one of the parties […].”

In Abengoa, the Superior Court of Justice considered that the arbitrator’s law firm had a significant commercial relationship with an affiliate of one of the parties, which falls squarely within Paragraph 2.3.6 of the Red List. According to the Guidelines, “[b]ecause of their seriousness, unlike circumstances described in the Orange List, these situations should be considered waivable, but only if and when the parties, being aware of the conflict of interest situation, expressly state their willingness to have such a person act as arbitrator […]”.

Furthermore, in Abengoa, the Superior Court of Justice, not satisfied with a mere statement of lack of disclosure, went on to verify the nature and gravity of the undisclosed facts to reach a conclusion regarding the arbitrator’s lack of impartiality. The Court in Fazon failed to do so.

It is likely that the Fazon decision will be appealed with the Superior Court of Justice for a final say on the matter.

 

Halliburton v. Chubb (UK)

On 20 April 2010, there was an explosion on the Deepwater Horizon oil rig in the Gulf of Mexico, which resulted in several casualties and a large oil spill. Halliburton provided cementing and well-monitoring services, and had purchased liability insurance from Chubb. When Chubb refused to pay Halliburton’s claim, arbitration ensued.

An application was made to the High Court for the appointment of a third arbitrator, which resulted in the appointment of “M” on 12 June 2015.

In December 2015, “M” accepted an appointment by Chubb to become co-arbitrator in another case, through the same law firm that represented the company in Halliburton. The case involved a claim by Transocean against Chubb related to the same incident. Later, in August 2016, “M” accepted an appointment as a substitute arbitrator in yet another claim made by Transocean against a different insurer on the same layer of insurance.

Neither appointment was disclosed to Halliburton, which only learned of them on 10 November 2016. After a series of developments, Halliburton applied for the removal of the arbitrator. The High Court dismissed the application and Halliburton appealed.

Yet, much unlike the Brazilian court in Fazon, the Court of Appeal in the UK dissected the matter into its essential parts.

First, the court set out to decide “[w]hether and to what extent an arbitrator may accept appointments in multiple references concerning the same or overlapping subject matter with only one common party without thereby giving rise to an appearance of bias”. The Court concluded that “[t]he mere fact of appointment and decision making in overlapping references does not give rise to justifiable doubts as to the arbitrator’s impartiality. Objectively this is not affected by the fact that there is a common party. An arbitrator may be trusted to decide a case solely on the evidence or other material before him in the reference in question and that is equally so where there is a common party”. In the case at hand, although the facts concerned the same incident, the court understood that the matters dealt with in the arbitrations were different. Besides, the financial benefit arising for “M” by his appointments was not relevant to the point of compromising his impartiality. If it were, “then objection could be made to every party-appointed arbitrator, which would be absurd”.

The court then moved to answer “[w]hen should an arbitrator make disclosure of circumstances which may give rise to justifiable doubts as to his or her impartiality”. It stressed the importance of an early disclosure of any given circumstances “which would or might lead the fair-minded and informed observer, having considered the facts, to conclude that there was a real possibility that the tribunal was biased”. In other words, even borderline cases should be disclosed. From the perspective of a fair-minded and informed observer, the test is, however, objective. As the situations in Halliburton fell within the Orange List of the IBA Guidelines (item 3.1.5), “M” should have disclosed them. His oversight could not, therefore, be excused.

Finally, the court established “[w]hat are the consequences of failing to make disclosure of circumstances which should have been disclosed”. While the court admitted that the arbitrator’s non-disclosure of relevant information “must inevitably colour the thinking of the observer”, it cannot “in and of itself justify an inference of apparent bias”. It then moved to analyse the specific circumstances of the case, concluding that (i) the mere acceptance of an appointment in a related case with only one common party does not justify an inference of apparent bias (ii) the arbitrator’s oversight was accidental rather than deliberate, (iii) the degree of overlap in the cases was limited and did not give rise to justifiable concerns, (iv) a fair-minded and informed observer would not consider the arbitrator’s oversight a justifiable reason to doubt the arbitrator’s impartiality and, finally, (v) nothing in the arbitrator’s conduct during the arbitration was substantial as to raise doubts regarding his impartiality.

In doing so, the court upheld the first instance decision that had dismissed the application for removal of the arbitrator.

Said decision is clearly in line with the IBA Guidelines (Part II: Practical Application of the General Standards, Paragraph 5) which state that “[n]ondisclosure cannot by itself make an arbitrator partial or lacking independence: only the facts or circumstances that he or she failed to disclose can do so”.

The decision was appealed with the UK Supreme Court, which heard the parties and amici curiae on 12 and 13 November 2019, and is set to decide the case.3)UKSC 2018/0100. jQuery("#footnote_plugin_tooltip_9557_3").tooltip({ tip: "#footnote_plugin_tooltip_text_9557_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

What’s next?

Both Brazil and the UK are considered arbitration-friendly jurisdictions. Their highest courts will have the final word on Fazon and Halliburton. One can only hope that a clearer guidance on the arbitrators’ duty to disclose will then arise.

 

References   [ + ]

1. ↑ 1ª Câmara Reservada de Direito Empresarial do Tribunal de Justiça de São Paulo. Apelação Cível no. 1056400-47.2019.8.26.0100 [Appeal no. 1056400-47.2019.8.26.0100]. 2. ↑ [2018] EWCA Civ 817. 3. ↑ UKSC 2018/0100. 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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A Third-Party, One Arbitration Agreement, Two Approaches: The French Courts’ Views on the Law Applicable to the Arbitration Agreement in Kabab-Ji v. Kout Food Group

Tue, 2020-09-08 01:00

Almost a decade after the Dallah saga, the French and English courts are once again considering the enforcement of the same award yet reaching conflicting solutions.

On 29 March 2019, the High Court of England and Wales, followed on 20 January 2020 by the England and Wales Court of Appeal both refused to enforce an award on the basis that it was rendered against a non-party to the relevant arbitration agreement. Meanwhile, on 23 June 2020, the Paris Court of Appeal refusing to be bound by the English decisions, dismissed the application to set-aside the same award in Kabab-Ji SAL (Lebanon) v. Kout Food Group (Kuwait) [CA Paris, 23 June 2020, n°17/22943]. It thus confirmed the arbitral tribunal’s findings upholding its jurisdiction over a third party to the arbitration agreement.

The English decisions have already been commented on the blog, here and here. This post provides an analysis of the French law perspective on the salient issues in dispute, i.e. the determination of the applicable law to the arbitration agreement and the extension of an arbitration agreement to a third party.1)A French commentary of the Paris Court of Appeal decision can be found here. jQuery("#footnote_plugin_tooltip_5205_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5205_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Facts

In July 2001, Al-Homaizi Foodstuff Co WWL (AHFC), a Kuwaiti company, and Kabab-Ji, a Lebanese company, entered into a Franchise Development Agreement (FDA). In the FDA, Kabab-Ji licensed its know-how over its restaurant chain to AHFC, while AHFC would develop the Kabab-Ji brand in Kuwait. AHFC was subsequently restructured, leading to the creation of a holding company Kout Food Group (KFG). Kabab-Ji agreed to the creation of KFG, provided that it would not affect the “terms and conditions of agreements already signed” with AHFC.

The FDA was governed by the laws of England. It contained an arbitration clause providing for ICC arbitration. The parties agreed that the seat of arbitration would be Paris but did not mention any governing law for the arbitration agreement.

In March 2015, Kabab-Ji filed a request for arbitration against KFG. In particular, it alleged that KFG had failed to fulfill its development obligations under the FDA and had appropriated know-how without the consent of Kabab-Ji to develop its own restaurants. The tribunal rendered its award in September 2017, upholding Kabab-Ji’s claims against KFG and ordering it to pay over USD 7 million to Kabab-Ji, plus interest.

Kabab-Ji sought the recognition and enforcement of the award in England. In parallel, KFG sought to set aside the award before the Paris Court of Appeal.

 

Arguments and decision of the Paris Court of Appeal

The parties disagreed on the law applicable to the arbitration agreement. On the one hand, KFG argued that the tribunal “should have applied English law to the arbitration agreement and, consequently, found that it had no jurisdiction over KFG” [para. 14]. Kabab-Ji, on the other hand, supported the tribunal’s choice to apply French law, the law of the seat, to interpret the arbitration agreement. The Paris Court of Appeal upheld Kabab-Ji’s argument and confirmed the tribunal’s finding that French law governed the arbitration agreement.

KFG further claimed that, even though French law would be applicable to the arbitration agreement, it could not be bound by the arbitration agreement as the contractual requirements for the extension of the arbitration agreement had not been met. Kabab-Ji replied that the tribunal rightly extended the arbitration agreement contained in the FDA to KFG. The Paris Court of Appeal again confirmed the tribunal’s finding that KFG was bound by the arbitration agreement, as it had directly been involved in the performance of the FDA.

 

Analysis

The analysis conducted by the Paris Court of Appeal of the proper law to the arbitration agreement is unsurprisingly in line with French case law. In the absence of an express choice of law applicable to the arbitration agreement in the contract, the Paris Court of Appeal applied the well-known French law substantial rule of international arbitration recognizing the full autonomy of the arbitration agreement. On the contrary, the English courts followed the Sulamerica standard applying the English conflict of laws rules, which require to consider (i) whether the parties expressly chose a law governing the arbitration agreement; (ii) if they did not, whether the parties made an implied choice of such law; and (iii) in the absence of either choice, which system of law has the “closest and most real connection” with the arbitration agreement.

French law posits that an arbitration clause is independent from the agreement containing it and therefore survives the potential invalidity or inapplicability of this agreement. This principle was first recognized by the Court of cassation in 1963 (Court of cassation, 7 May 1963, Gosset v. Carapelli) and is enshrined in Article 1447 of the French Civil Procedure Code.2)Article 1447 of the French Civil Procedure Code is applicable to international arbitration (Article 1506 of the French Civil Procedure Code). jQuery("#footnote_plugin_tooltip_5205_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5205_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); It is also endorsed by English law, as confirmed by the England and Wales Court of Appeal in this case: “The concept of the separability of an arbitration agreement now enshrined in section 7 of the Arbitration Act 1996…it ensures that the disputes resolution procedure chosen by the parties survives the main agreement becoming enforceable…”. [para 66]

But French law goes a step further and acknowledges that the arbitration clause is also independent from any domestic law. This independence is the result of a series of decisions of the Court of cassation. Indeed, in 1972, it held that an arbitration agreement could be governed by another law than the law governing the underlying contract (Court of cassation, 4 July 1972, Hecht v. Buisman’s). And, in 1993, it admitted that an arbitration agreement was independent from any domestic law (Court of cassation, 20 December 1993, Dalico v. Khoms et El Mergeb).

In its decision relating to KFG’s set-aside application, the Paris Court of Appeal adopted the same reasoning and stated that: “[p]ursuant to a substantive rule of international arbitration law, the arbitration clause is legally independent from the underlying contract in which it is included either directly or by reference, and its existence and validity are interpreted, subject to the mandatory rules of French law and international public policy, according to the common will of the parties, without the need to refer to any national law.” [para. 25]

Furthermore, it held that the choice of English law as the lex contractus was not sufficient to “establish the common will of the parties to submit the arbitration clauses to English law” and to derogate from the substantive rules of international arbitration applicable at the seat of arbitration [para. 27]. By doing so, the Paris Court of Appeal gave full force to the Parties’ agreement as to the seat of arbitration.

However, the Court also prudently confirmed that its approach could only apply in cases where the parties did not choose in the contract the arbitration agreement’s governing law: “…no express provision was agreed between the parties which would designate English law as governing the arbitration clause…”. [para. 29]3)This possibility was admitted by the Court of cassation in Uni-kod v. Ouralkali, 30 March 2004. jQuery("#footnote_plugin_tooltip_5205_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5205_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This is where judges on both sides of the channel fundamentally differ: while the English judge found that “Articles 1 and 15 of the FDA in themselves provide for the express choice of English law to govern the arbitration agreement in Article 14. Article 1 makes it clear that ‘This Agreement’ (capitalised) includes all the terms of agreement then set out, which include Article 14. Because Article 15 provides that: ‘This Agreement [again capitalised] shall be governed by and construed in accordance with the laws of England’ it is making clear that all the terms of the Agreement, including Article 14, are governed by English law” [para. 62] and therefore applied the FDA’s governing law clause to the arbitration clause (just as it would to any other clause contained therein), the French judge considered the arbitration clause as separable from the rest of the contract, and thus, could not apply automatically the governing law clause’s choice in favour of English law when interpreting it. Instead, it held that the parties’ choice in the governing law could not override their ulterior choice in favour of Paris as the seat of arbitration, and French law as (i) the law applicable at the seat of arbitration; and (ii) thus, to the arbitration agreement.

The solution adopted by the Paris Court of Appeal with respect to the extension of the arbitration agreement to a non-signatory is also fully in line with French case law.

As soon as 1988, the Paris Court of Appeal recognized that a third-party could be bound by an arbitration clause if it was involved in the performance of the contract, and to the extent that it could be presumed that it had knowledge of the existence and scope of the arbitration clause (Paris Court of Appeal, 30 November 1988, Sté Korsnas Marma v. Sté Durand-Auzias). This solution was recently confirmed (Paris Court of Appeal, 18 December 2018, Société New Europe Corporate Advisory Ltd. et al. v. Innova 5/LP).

The Paris Court of Appeal later went further and acknowledged that mere participation of a non-signatory in the performance of the contract was sufficient (Paris Court of Appeal, 28 November 1989, Cotunav v. Comptoir commercial André). This solution was confirmed by the Court of cassation (Court of cassation, 27 March 2007, ABS v. Amcor Technology).

In its decision relating to KFG’s set-aside application, the Paris Court of Appeal unsurprisingly followed this approach and stated that: “…the arbitration clause…must be extended to the parties directly involved in the performance of the contract and in any disputes arising out of the contract, provided that it is established that their contractual situation and their activities give rise to a presumption that they accepted the arbitration clause, the existence and scope of which they were aware of irrespective of the fact that they were not signatories to the contract containing the arbitration agreement.” [para. 34]

The French judge then assessed KFG’s role in the execution of the FDA and concluded that: “…the arbitral tribunal rightly, and without the need to reach a decision on the transfer of the arbitration clause from AHFC to KFG, found that the said clause extended to bind KFG.” [para 47]

 

Conclusion

The differing approaches adopted on each side of the channel have as much to do with the contractual parties’ lack of choice of the law applicable to the arbitration agreement, than with their express choice of English law as the law applicable to their contract. Indeed, English law’s rigorous approach to contract interpretation and its relative indifference towards the concept of good faith were bound to place a greater emphasis on the terms of the FDA rather than on the actual circumstances of the performance of the contract. The trickled down effect of this choice also generated significant consequences on the interpretation of the scope of the arbitration clause and the possibility to extend it to a non-signatory party, whether these issues were considered by English or French judges. The lesson should therefore be that great care must be exercised in both the choice of the lex contractus and of the arbitration agreement’s applicable law. And the current debate remains open and unsettled: on 8 July 2020, the UK Supreme Court agreed to hear Kabab Ji’s appeal of the decision of the England and Wales Court of Appeal while KFG has four-months to appeal the decision of the Paris Court of Appeal before the Court of cassation. La suite au prochain épisode.

 

 The views expressed in this post are the authors’ own.

References   [ + ]

1. ↑ A French commentary of the Paris Court of Appeal decision can be found here. 2. ↑ Article 1447 of the French Civil Procedure Code is applicable to international arbitration (Article 1506 of the French Civil Procedure Code). 3. ↑ This possibility was admitted by the Court of cassation in Uni-kod v. Ouralkali, 30 March 2004. 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Egypt’s Personal Data Protection Law and Arbitration: The Ambiguous Position

Sun, 2020-09-06 19:00

Egypt recently set out a legal framework for the protection and regulation of personal data. The legislation was brought about to regulate the protection of personal data which is stored and processed electronically. However, the law is silent on its application to arbitration and arbitral proceedings. The intersection between arbitration and data protection is not unknown. This post discusses the ambiguity with regards to arbitration and whether it forms a part of the exemptions provided in the law or not.

 

Nature of the New Personal Data Protection Law and Its Interaction with Arbitration

The long anticipated Egyptian Personal Data Protection Law No. 151/2020 (DPL) will come into force in October 2020. Prior to this legislation, there was no specific law in Egypt pertaining to data protection. This law is modelled to a large extent on the European General Data Protection Regulation. The new law is in consonance with the constitutional principles of right to privacy enshrined in the constitution of Egypt. Article 57 of the constitution protects privacy of communication and guarantees confidentiality for the same. Further, Article 99 stipulates that inviolability of the private lives of citizens shall be considered to be a crime. The law includes a comprehensive framework of rights of data subjects, obligations of controller and processor, conditions for collecting and processing of data and related procedures.

A significant amount of personal data is processed in the course of resolving a dispute through arbitration. Further, data controllers and processors do not just involve the parties to the dispute, but also the tribunal, counsel, arbitrators and the experts who will have to concern themselves with ensuring the compliance of the law if it is seen to be applicable to arbitration.

 

Arbitration in The Context of DPL: To Exempt or Not to Exempt?

The DPL imposes various explicit obligations on both the data controller and data processor to respect the privacy of individuals and to ensure compliance with privacy obligations. Accordingly, collection, storing and most importantly processing of personal data without the consent of the data subject is not permitted. However, the exceptions to these obligations lie in Article 3 of the said law.

Consequently, it is imperative to specifically analyze Article 3(2) where exemption from compliance is granted for the purpose of processing personal data if it is “in accordance with a legal provision” and also Article 3(4) which sets out an exemption if it is “related to judicial records, investigations and judicial proceedings”.

 

Is It in Accordance With a Legal Provision?

The necessity of processing personal data, producing documents and evidence in arbitration proceedings would prima facie appear to fall under the exemption laid down under Article 3(2) that of complying with a legal provision. The Egyptian Arbitration Law (EAL) No. 27/1994 governs the arbitration process in Egypt. The legal provisions therein create obligations of sharing personal data and other related information for the purpose of solving the disputes. This is laid down in Article 31 and Article 36 of the DPL.

Article 31 of the EAL requires the parties to share briefs, statements, documents, and other information not only with the arbitral tribunal but also with the other party. In addition to this, it requires parties to submit copies of all original documents to the tribunal and the opposite party, for examination, objections, and to store for the record. Article 36(2) imposes an obligation on the parties to furnish relevant information concerning the dispute to the expert. This may take the form of production of documents, providing access to property for inspection and even copies of necessary data.

Since sharing, processing and storing the data is sanctioned by the law of the land itself, it can thus be held conclusive that arbitration would fall under the exception laid down in Article 3(2) of the DPL, as it is according to the legal provisions laid down in the Egyptian Arbitration Law.

 

Is Arbitration Covered Under The Ambit of ‘Judicial Proceedings’?

The key issue here is whether the exemption granted to ‘judicial proceedings’ from applying the said law, as laid down in Article 3(4) of the DPL, would include arbitral proceedings. It is pertinent to note that there exists inconsistency over the nature of the arbitration process in Egypt. In essence, the nature of arbitral proceedings has continuously been a matter of debate. However, certain key findings of the Egyptian courts can provide a better understanding of the nature of these proceedings and its effects.

The constitutional jurisprudence laid down by various courts indicates that there exists a judicial nature in the arbitration process. This can be seen in the judgements of the Supreme Constitutional Court (SCC) wherein it has repeatedly held that the arbitration process is judicial in nature.1)Supreme Constitutional Court, Challenge No. 8 of 22 JY, session dated 4 August 2001 and Challenge No. 9 of 1 JY, session dated 5 December 1981. jQuery("#footnote_plugin_tooltip_7537_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7537_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Similarly, the Cairo Court of Appeal has reflected the same view in this regard by laying down that “arbitration is a technical mean with a judicial nature that aims to settle a dispute”.2)Cairo Court of Appeal, Circuit (50), Challenge No. 17 of 135 JY, session dated 31 December 2018. jQuery("#footnote_plugin_tooltip_7537_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7537_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The Supreme Administrative Court has held that an arbitral tribunal is a tribunal of judicial competency.3)Supreme Administrative Court, Challenge No. 35839 of 57 JY, session dated 7 February 2018. jQuery("#footnote_plugin_tooltip_7537_3").tooltip({ tip: "#footnote_plugin_tooltip_text_7537_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This was in support of the stance taken by the SCC wherein it held that it has jurisdiction to decide on contradictions between court judgements and arbitral awards because just like courts, arbitral tribunals are tribunals of judicial competence.4)Supreme Constitutional Court, Challenge No. 8 of 22 JY, session dated 4 August 2001 and Challenge No. 9 of 1 JY, session dated 5 December 1981. jQuery("#footnote_plugin_tooltip_7537_4").tooltip({ tip: "#footnote_plugin_tooltip_text_7537_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This factor of judicial competency is also exhibited by Article 13 of the EAL which lays down that if action is brought before a court, concerning a dispute which is subject to an arbitration agreement, the court shall hold itself incompetent and dismiss the matter. Clause 2 of Article 13 of the EAL also ensures that arbitral proceedings are not prevented thereby allowing for their continuance.

In furtherance to the aforementioned points, the SCC has held that the decisions of an arbitral tribunal should be “treated the same as court judgements” where a Public Sector Law is concerned.5)Supreme Constitutional Court, Challenge No. 95 of 20 JY, session dated 11 May 2003. jQuery("#footnote_plugin_tooltip_7537_5").tooltip({ tip: "#footnote_plugin_tooltip_text_7537_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The court in this particular case highlighted that “all arbitral awards are of a judicial nature”. The court also made reference to the fact that “all voluntary arbitrations under Egyptian Arbitration Law are of a judicial nature”. This denotes that the judicial nature of arbitral awards vis-à-vis arbitral proceedings give the arbitration process some sort of judicial power and meaning. This plays an important role in the enforcement factor of awards. The awards rendered by the tribunal can thus be enforced as court judgements, which implies that the result of such arbitral proceedings possess a judicial nature as well. Further, this is strengthened by the provision of Article 55 of the EAL which confers awards with the authority of res judicata.

It can thus be established that arbitral proceedings are of a judicial nature and arbitral awards are enforced as court judgements. However, there has been no clear cut clarity on whether the term ‘judicial proceedings’ can or is actually intended to encompass ‘arbitral proceedings’. Arbitral proceedings can be considered to be similar to judicial proceedings on account of its judicial nature, but the fundamental difference lies between the establishment of an ‘arbitral tribunal’ and a ‘court’ as well as between ‘arbitrators’ and ‘judges’.

 

Conclusion

Arbitration proceedings involve a huge amount of data, as mentioned above, including both personal data and sensitive data at times, which is necessary for storage, usage and processing. To answer the question, of whether or not exemptions laid down in Article 3(2) and 3(4) of the DPL extend cover to arbitration, in light of the aforementioned, it seems that arbitration related data would be exempt from compliance under the law. It can be argued that arbitration satisfies at least one of the two exemptions analyzed above. However, ambiguity still persists.

It is likely that arbitration will be excluded from the application of the new law. Despite this, it is necessary to deal with data protection issues arising within arbitration in an efficient manner. Huge amounts of data are involved in arbitration proceedings. Therefore, it is important to develop a robust framework of measures which can be applied to arbitration to ensure that such personal data is not misused. Hence, even if the DPL, inter alia, does not entail arbitration, a careful balance between the rights of the data subjects and maintaining the feasibility of the arbitral process should be taken into consideration. This is because, potentially, the need for data protection in arbitration proceedings is becoming more accepted and will raise key issues in times to come.

References   [ + ]

1, 4. ↑ Supreme Constitutional Court, Challenge No. 8 of 22 JY, session dated 4 August 2001 and Challenge No. 9 of 1 JY, session dated 5 December 1981. 2. ↑ Cairo Court of Appeal, Circuit (50), Challenge No. 17 of 135 JY, session dated 31 December 2018. 3. ↑ Supreme Administrative Court, Challenge No. 35839 of 57 JY, session dated 7 February 2018. 5. ↑ Supreme Constitutional Court, Challenge No. 95 of 20 JY, session dated 11 May 2003. 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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A Dialogue on International Arbitration and Insolvency

Sun, 2020-09-06 01:00

The intersection of arbitration and insolvency, ever since the onset of the pandemic, is becoming a topical area of focus. The Centre for International Legal Studies (an Austria based non-profit society) and Arbinsol (a platform dedicated to the research on arbitration and insolvency) have responded by organizing an ongoing series of “post-pandemic” webinars. The most recent, ‘A Dialogue on International Arbitration and Insolvency,’ featured Professor Loukas Mistelis and Professor Patricia Shaughnessy, who shared their views on adjudicating claims where the intersection is involved. Ishaan Madaan and Professor Prakhar Chauhan moderated the program while Christian Campbell contributed with a few closing remarks. This post provides a recap of the webinar and additional comments on the topic.

The dialogue centered around the role of an arbitral tribunal adjudicating a dispute where either contesting party is simultaneously undergoing insolvency proceedings elsewhere. It emphasized the complex questions faced by tribunals in two different scenarios: where party (undergoing insolvency proceedings) is in parallel arbitration proceedings, and where the tribunal is seated in a country other than the insolvent’s home jurisdiction.

The stage at which a tribunal is informed of a party’s insolvency was considered to be of utmost importance. Another pertinent issue taken up during the discussion was the relationship between the arbitrators and the insolvency trustee/administrator, who is the custodian of the liquidation estate. The dialogue also covered the speakers’ opinions with respect to sham arbitrations. A discussion on sham arbitrations is imminent as parties often resort to arm-twisting mechanisms to frustrate the entire adjudicatory process by misusing the gaps in the legislative schemes of different countries.

 

Insolvency v. International Arbitration: A ‘nuclear threat’?

Initiating the discussion, Professor Mistelis compared the situation with a ‘nuclear threat’; as the arbitrator is expected to render an enforceable award, and an award against an insolvent party may never be enforced. A claim of insolvency jeopardizes the efficiency of an arbitration, as parties may be required to advance costs, which may further culminate into the inability of the party to participate in the entire process. While a party’s liquidity to meet an award is not the tribunal’s concern, the same does have a bearing when it comes to a party’s ability to participate in the proceedings. Joining in, Professor Shaughnessy detailed the risks which arbitrators face in ad hoc arbitrations when compared to institutional arbitration. She emphasized on the convenience that the more sophisticated institutional arbitration may offer, as opposed to ad hoc arbitration where the tribunal itself may be required to push the parties towards securing the costs of the arbitration. Faced with the risk of rendering an unenforceable award, a tribunal may likely require the party advocating to proceed with the arbitration to make out a convincing case, unless concerns of inarbitrability, public policy, applicable law etc. are facially apparent. The characterization of issues and fact-finding by the tribunal into the allegations by the parties was unanimously agreed upon as a key role which the arbitrators play. A key aspect which surfaced was the categorization of enforceability as ‘enforceability in law’ and ‘enforceability in fact’ (only the former fell within the domain of the tribunal to achieve).

With regard to categorization, the perspective of the tribunal is of immense importance, e.g. whether the validity of the arbitration agreement itself is in question, whether insolvency is seen as a procedural issue, the effect of domestic insolvency proceedings on ongoing international arbitration, etc. The Elektrim/Vivendi saga provides a perfect example of how differently tribunals can approach pendency of a party’s insolvency proceedings in contradicting ways. Although a Swiss tribunal refused to continue with arbitration proceedings against Elektrim (then undergoing insolvency proceedings in Poland), an LCIA tribunal proceeded in arbitration against Elektrim at the same time. Both awards were also, incidentally, upheld. The Swiss Supreme Court, which had upheld the Swiss tribunal’s award, however, later revisited its views in another case. Article II of the New York Convention (the Convention) touches upon capacity of the parties, but that usually comes into play to determine whether the party had the capacity to enter into an arbitration agreement. It may be argued that an insolvent party may enter into such an agreement, however, in most instances, a party would have entered into an arbitration agreement prior to triggers of insolvency, i.e. when capacity was not really in question. Arbitrators would usually be guided by the Convention, especially Article II (3), which entails that matters should not be referred to arbitration when the agreement is either null and void, inoperative or incapable of being performed.

 

Temporal primacy of the proceedings

The issue of temporal primacy of the proceedings (whether insolvency pre-dated arbitration or vice-versa) becomes relevant when addressing the above questions. The source of the tribunal’s power lies in the arbitration agreement. A tribunal would have to be mindful of public policy concerns if an insolvency proceeding has already begun in respect of a party to an international arbitration proceeding. In domestic arbitrations, such situations would likely not arise as typically all proceedings come to a standstill upon the initiation of insolvency proceedings. When arbitration precedes insolvency, the tribunal may have a broader scope of adjudicating the claim before it. In such cases, the role and the interdependence of the tribunal and the insolvency trustee becomes important. Questions of whether the trustee should mandatorily be permitted representation in the arbitral process or whether an application for security costs can be allowed on disclosure of insolvency are worth researching, when the issue of primacy is addressed.

Professor Shaughnessy emphasized the division of core and non-core issues to determine arbitrability. The powers, which the trustee draws, emanate from a legislation governing the insolvency process, whereas, the contractual origins of arbitration limit the scope of the tribunal’s powers (for instance, the liquidation estate cannot be identified in an arbitration, the appointment of the trustee cannot be the subject matter of arbitration, etc.). Although insolvency is a collective process (i.e., involving resolution of claims by multiple creditors), it is different from classical arbitration. They both have different DNAs, with the former having a domestic pull and with a single jurisdiction.

 

Insolvency trustee’s relationship with the tribunal

The relationship between the trustee and the arbitrators was then taken up by the panelists. Professor Shaughnessy indicated that a tribunal lacks jurisdiction to decide on amounts to be disbursed from the insolvency estate once the trustee has been appointed. The domestic rules need to be considered in order to conclusively decide the fate of the intersection, especially when it comes to payments of costs. The trustee or the municipal courts, as prescribed under the legislation, are better equipped to deal with such a situation. Drawing from his experience, Professor Mistelis pointed out that the tribunal should be convinced that the trustee has the capacity to represent the party undergoing insolvency proceedings. A trustee, in his capacity as a party representative, should be treated equally with the opposite party. Citing instances from investment and commercial arbitrations, Professor Mistelis emphasized how security for costs may become a major issue for maintaining the sanctity of the entire process, especially when one of the parties is facing insolvency proceedings. A pertinent question, which Professor Shaughnessy raised in the context of simultaneous representation of the insolvent party by the trustee and by the management of the party in the same arbitration, was the location of the seat (whether the same as or different than the jurisdiction of the insolvency proceedings). The discussion steered to ask whether we are more concerned with the seat of the bankruptcy or with the seat of arbitration. If concerned with former, the court will decide who has a better right. But if latter, then the tribunal may proceed and issue the award. It is hard to find an applicable law on this issue.

 

Allegations of insolvency and Sham Arbitrations

The discussion further progressed to elaborate on the extent to which an arbitrator should investigate the veracity of the claim of insolvency. In Professor Mistelis’ opinion, an allegation of insolvency should be evidenced before the tribunal. The tribunal also has a duty to verify both the allegations and the implications of such insolvency proceedings under domestic law. Professor Shaughnessy stated that court insolvency proceedings provide ample proof of the existence of such a situation, and allegations of impecunity have to be demonstrated, too. In the context of sham arbitrations, an instance was discussed where a creditor forced receivership on a company. The receiver then appointed an arbitrator in one jurisdiction, to gain control over the assets of the company. The company had to approach the local courts arguing that a court in another jurisdiction had already decided the appointment of an arbitrator to be incorrect. ‘Aggressive creditors’ usually tinker with possible recourses and compel multiple proceedings to recover dues. It was also observed that sham arbitrations are more likely to take place in an ad hoc rather than in institutional arbitration.

 

Concluding remarks

The commonalities emerging from this free-flowing exchange of views indicate that the interplay between arbitration and insolvency is largely addressed on a case-by-case basis, whilst there appears a need for addressing it at a legislative level or by resorting to more uniform international instruments. The dialogue, in most part, called out the elephant(s) in the room when it comes to this interplay. Because of the enormity of the conflicts that this interplay raises, it calls for sound and experienced professionals, on either side of the proceedings, to tend to, and to influence the outcomes in a way that results in viable solutions. The myriad of issues that these conflicts raise would otherwise lead to more chaos and less resolution in the post-pandemic times. The dialogue also raised one pertinent point (discussed in detail here) and one that should be advocated for without disregard to insolvency issues. International arbitration should generally be allowed to go forward and its integrity should be maintained subject to the circumstances. It is otherwise easy to derail and disrupt arbitral processes by threatening insolvency. The pandemic would anyway lead to countless reasons for ‘restructuring’ and insolvency triggers would arise in huge numbers.

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Pioneering Mandatory Investor-State Conciliation Before Arbitration in Asia-Pacific Treaties: IA-CEPA and HK-UAE BIT

Sat, 2020-09-05 01:00

Arbitration has been the default dispute resolution mechanism in the investor-state dispute settlement (ISDS) regime for a long time. Provisions for third-party procedures other than arbitration have been relatively rare in older generation bilateral investment treaties (BITs). Even where those have provided in advance for the option of ICSID (Convention or Additional Facility) Conciliation Rules, investors have rarely invoked them. Only 13 cases have been filed since 1982 with four filed since 2016. The latest Conciliation Rules case was filed by Barrick Niugini Ltd against Papua New Guinea on 22 July 2020 under a mining lease contract. Barrick Niugini is a joint venture between Chinese Zijin Mining and Canadian Barrick Gold. In parallel, Barrick Gold’s Australian subsidiary instituted ICSID Convention arbitration on 11 August 2020 under the 1990 Australia-PNG BIT.

Over the past decade, calls have grown for other alternative dispute resolution mechanisms with a special focus on mediation. Mediation is believed to be a time- and cost-efficient dispute resolution mechanism that can prevent disputes from escalating to arbitration. Various stakeholders have taken up the call to facilitate and promote investor-state mediation. UNCITRAL Working Group III is discussing mediation in the context of ISDS reform and so is the Academic Forum on ISDS (see, for example, a March 2020 paper circulated for discussion). Mediator trainings are being offered for investor-state disputes, and ICSID is promulgating mediation rules for the first time that will be available even if neither the home nor host state has ICSID membership status. The UN Convention on International Settlement Agreements Resulting from Mediation (Singapore Convention) is also set to come into force from 12 September 2020. While this Singapore Convention does not extend expressly to investment disputes, there is broad agreement that at least some settlement agreements resulting from investor-State mediations will fall within its scope.

Some newer treaties include additional express references to mediation or conciliation in ISDS clauses, but disputing parties must agree separately and later to those procedures.1)Article 8.20 of Comprehensive Economic and Trade Agreement (CETA) (2016). Article 9.18 (1) Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) (2018). Article 20 of Argentina-UAE BIT (2018), Article 8.19 of Australia-Peru FTA (2020), Article 9.16 of Central America-Korea FTA (2018), Article 9.18 of CPTPP, Article 3.4 of EU-Singapore IPA (2018), Article 10 of Kazakhstan-UAE BIT (2018), Article 14.D.2 of USMCA (2018). jQuery("#footnote_plugin_tooltip_1824_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1824_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); While the use of such voluntary mediation may be growing, until recently there has been little to no interest in mandatory mediation – as a pre-condition to arbitration. Some still see mediation as unlikely to be or even incompatible with the aims of ISDS. Perceived obstacles include: (a) some States may have difficulty determining an authority to conclude settlements on their behalf; (b) settling an investment dispute could be associated with risks of personal liability and criminal prosecution (especially in developing economies or totalitarian States with weak rule of law); (c) settling a dispute could be considered an admission of guilt by the respondent State; (d) settlements do not pay as much as what a Claimant could be awarded through a successful award; (e) some investment disputes have non-monetary claims that require certain legislative or policy measures from the Respondent State which would go beyond the capacities of mediation; and (f) settlements promote secrecy of outcomes.

Several such arguments have been challenged through a recent empirical study analysing 541 concluded, treaty-based investor-state arbitration cases with the focus on settlement outcomes. The findings suggest that none of the key factors — such as the economic industry of the investment, size of the initial claim (or whether it was monetary or non-monetary), or the economic development status of the respondent state (and claimant home state) — have a negative impact on settlements. The study also found that in settlements the average compensation rate is 32%, very similar to that of the awarded-to-claimed compensation rate (31%). In addition, settlement agreements have been reached on non-pecuniary terms even when the claim was monetary, suggesting that the non-pecuniary claimed relief is not an unsurmountable impediment to reaching a settlement agreement. The study did find that settlements are associated with increased confidential outcomes compared to those ending in arbitration awards, but recently the rate of confidentiality for all outcomes has remained stable while the rate of settlements keeps falling. This suggests that leaving investor-state disputes to arbitration does not guarantee increased transparency either. Such findings, highlighting more potential for amicable settlements generally than many may have assumed, dovetail with emerging interest by investors and States in mandatory mediation. A forthcoming report by Queen Mary University of London finds that 64% of respondents (mostly in-house counsel plus some management representatives of firms investing internationally) favour integrating mediation as a mandatory pre-condition to arbitration in ISDS.

Already, the new Hong-Kong-United Arab Emirates BIT (HK-UAE BIT) and the Indonesia-Australia Comprehensive Economic Partnership (IA-CEPA) free trade agreement, add unusual provisions for mandatory conciliation as a pre-condition to arbitration. These provisions mark a break with existing IIAs that do not even mention mediation or conciliation – much less make such provisions mandatory. Under the HK-UAE BIT and IA-CEPA, both signed in 2019, respondent States can require claimant investors to attempt conciliation before they can raise their claims in arbitration. Investors do not have the same right to mandatory conciliation. Both of the treaties carve dispute resolution out of their most-favoured nation provisions (Art. 14.5(3) of IA-CEPA and Art. 4(8) of the HK-UAE BIT), which means that there is no risk that this conciliation requirement can be circumvented by investors on the basis of MFN treatment.

These provisions mark an innovative approach to conciliation and a significant rethinking of its place in the ISDS system. They coincide with ongoing attempts to put States on better footing to manage and defend investor claims that include control mechanisms on treaty interpretation, procedures to address frivolous claims, and the potential creation of a multilateral advisory centre. The State option to require mediation as a precondition to arbitration could serve as a model for other treaties, although the forthcoming Queen Mary report suggests that there may also be appetite for mandatory mediation among investors. Quite similarly, some commentators have argued that greater transparency around investor-state disputes can appeal to investors, not just host states, by highlighting state practices (such as discrimination in favour of well-organised local interests) that diminish overall welfare among more disparate citizens. Accordingly, in advocating compulsory investor-state mediation, reformers may find more widespread support than expected.

Nonetheless, to minimise the risks of just adding extra time and expense to ISDS proceedings, such provisions need to be well drafted. A separate analysis already identifies some uncertainties in interpretation, including for different timeframes established by IA-CEPA compared to the HK-UAE BIT. In theory, different timelines might be expected if the treaty involves a developing country, likely to have more inbound than outbound ISDS claims. Indeed, Indonesia seems more likely to have proposed the compulsory mediation step than Australia, as it has been subject to 7 inbound treaty-based claims according to UNCTAD (including a high-profile one brought ultimately unsuccessfully by Australian/British mining companies under the now-terminated 1992 Australia-Indonesia BIT). Indonesia has also mentioned mediation in UNCITRAL reform deliberations, whereas no compulsory mediation step was included in the Australia-Hong Kong BIT – even thought that too was signed in 2019.

Nonetheless, the HK-UAE BIT shows that even developed economies can be willing to add a compulsory investor-state mediation step. It seems more likely to have been proposed from the UAE side, as the latter has experienced 4 inbound claims (although its outbound investors have also initiated 12), whereas Hong Kong has not been subject to any – although Hong Kong has also been trying to position itself as a hub for investor-state mediations generally. Just as Lauge Poulsen’s earlier empirical research showed a significant (though temporary) slowdown in investment treaty signings after a host state’s first inbound ISDS claim, it may be that states subject to several claims become more likely to negotiate for compulsory investor-state mediation provisions. Australia instead has only been subject to one serious inbound claim, albeit the very high-profile Philip Morris Asia claim brought unsuccessfully under the now-terminated 1993 BIT with Hong Kong, and its government may be mindful that Australian investors (especially resources companies) are now initiating quite a few outbound claims. Accordingly, even if a counterparty proposes a compulsory mediation step (like Hong Kong may have done for the new BIT), Australia may be less likely to agree unless pressed strongly (as Indonesia may have done with IA-CEPA).

If such hypotheses are plausible, it may take more sustained effort to “nudge” more states towards adding such compulsory investor-state mediation provisions in addition to the default arbitration clause. This could be done through international bodies (UNCITRAL, ICSID, UNCITRAL and the OECD) but also widespread consultation among stakeholders domestically, including firms or industry groups interested in outbound investment as well as the civil society groups that are typically more concerned about inbound ISDS claims. Broader discussion is needed anyway as Poulsen’s study reveals how “status quo bias” extends to treaty negotiators, and jurists may be particularly risk averse and wedded to precedent. A rethink may be particularly timely as concerns are emerging, including in Australia, about potential ISDS claims in the wake of the COVID-19 pandemic. The Australian government has also just announced public consultation to review remaining older bilateral investment treaties. One question for stakeholder submissions is whether those should incorporate modern provisions from Australia’s FTA practice. Compulsory mediation before arbitration is not specifically mentioned but is worth considering.

References   [ + ]

1. ↑ Article 8.20 of Comprehensive Economic and Trade Agreement (CETA) (2016). Article 9.18 (1) Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) (2018). Article 20 of Argentina-UAE BIT (2018), Article 8.19 of Australia-Peru FTA (2020), Article 9.16 of Central America-Korea FTA (2018), Article 9.18 of CPTPP, Article 3.4 of EU-Singapore IPA (2018), Article 10 of Kazakhstan-UAE BIT (2018), Article 14.D.2 of USMCA (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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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SIAC Congress Recap: This House believes that Virtual Hearings are just as effective as In-Person Hearings

Thu, 2020-09-03 21:00

Since COVID-19, virtually everything that can be moved online has been moved online. The Singapore International Arbitration Centre (“SIAC”)’s flagship event, SIAC Congress, is no exception and as such, it was most befitting that the motion of the debate was “This House believes that Virtual Hearings are just as effective as In-Person Hearings“.

The debate involved some of the most illustrious names in the arbitration sphere.

Arguing for the motion were:

  • Mr Gary Born, President, SIAC Court of Arbitration; Chair, International Arbitration Practice Group, Wilmer Cutler Pickering Hale and Dorr LLP; and
  • Ms Joy Tan, Joint Head of Commercial & Corporate Disputes Practice, Corporate Governance & Compliance Practice and the Financial Services Regulatory Practice, WongPartnership LLP.

Arguing against the motion were:

  • Mr John P Bang, Member, SIAC Court of Arbitration; Head of International Arbitration, Bae, Kim & Lee LLC; and
  • Mr Rob Palmer, Managing Partner, Ashurst LLP (Singapore).

Mr Edmund J Kronenburg, Managing Partner, Braddell Brothers LLP, moderated the debate with his characteristic wit.

 

Results

The debate was a closely contested one. Ultimately, the opponents narrowly edged the proponents out, with 54% of viewer respondents voting against the motion.

 

Round 1 of arguments

The first exchange between Ms Tan (for) and Mr Bang (against) involved: (i) a debate about the definition and context of the motion itself; and (ii) the benefits of virtual hearings versus its detriments.

Having flagged that delays as well as long and expensive hearings are the main complaints by users of international arbitration, Ms Tan highlighted the following benefits of virtual hearings: (i) costs and time efficacy; (ii) increased participation and access to justice; (iii) increased use of electronic documents and hearing bundles; and (iv) reduction in environmental externalities. Ms Tan also argued the common concern that the existing state of technology is “not good enough” to support virtual hearings is misplaced. With proper preparation and the promulgation of institutional protocols, issues such as slow connectivity are surmountable. Instead, virtual hearings allow for greater innovation and for arbitration to be freed of its slow, high costs shackles of yesterday.

In response, Mr Bang’s central premise was that virtual hearings are not, today, as effective as in-person hearings. Whilst virtual hearings are possibly the future, two hurdles prevent it from being equally effective presently: (i) questions as to accessibility and efficiency given the reliance on technology; and (ii) enforcement of procedural rules and ethical conduct in cross-examination. On (i), Mr Bang argued that adequate high-speed internet connectivity is not always available and virtual hearing hubs are unequally distributed globally. Video-conference fatigue would also exacerbate time zone differences and possibly render unsustainable lengthy and intense cross-examination sessions. On (ii), Mr Bang flagged the increased risk of cheating and other unethical conduct. Finally, Mr Bang forcefully noted that virtual hearings were available even before the pandemic but parties preferred in-person hearings, which indicates their view that the latter is more effective.

 

Round 2 of arguments

The second exchange between Mr Born (for) and Mr Palmer (against) continued the debate about the definition and context of the motion itself and also undertook an empirical examination of the issues.

Mr Born opened by remarking that when it comes to remote hearings, as with anything novel, we react with uncertainty and, in some cases, fear. He bolstered Ms Tan’s earlier points with empirical data:

  • First, arbitral institutions and national courts have uniformly and overwhelmingly voted in favour of virtual hearings. The Canadian courts specifically approved virtual hearings as being “just as fair“.
  • Second, virtual hearings are more accessible than in-person hearings. Users, judges and arbitrators have commented on the convenience and time and costs savings.

Mr Born reiterated that guides and protocols which walk through the nuts, bolts and technicalities of virtual hearings have been published to improve the process and ensure due process. Further, a virtual hearing being the only show in town is, by definition, more effective than an alternative which is impossible. In closing, arbitration has always (and rightly) been a leader in innovation, and we should embrace innovation and technology.

In response, Mr Palmer reiterated that the motion was whether virtual hearings are “just as effective” as in-person hearings rather than simply being efficient. The two are not commensurate. In the arbitration context, effectiveness encompasses: (i) the ability to cross-examine fairly; and (ii) fairness – the right to be heard, due process and confidentiality. His key concerns were: (i) the inadequacy of safeguards against witnesses conferring with counsel; (ii) preservation of confidentiality in light of reliance on technology, particularly in arbitrations involving state actors or geopolitics; and (iii) erosion of the collegiality (and hence fairness and impartiality) in decision making.

Mr Palmer also raised the online disinhibition effect which reduces the restraint of online participants, and argued that the ethical concerns and opportunities for bad behaviour are fatal. Thus, virtual hearings may never be as effective as in-person hearings.

 

Rebuttal

The final round of rebuttals raised the following key points.

Proposition:

  • Mr Born reiterated the “fundamental point” that something is better than nothing; in which case, virtual hearings are more effective today.
  • As regards the “limited” number of practical issues raised, Mr Born noted that witness coaching is not unique to virtual hearings. He suggested (in accordance with published arbitral protocols) that a camera showing a reasonable amount of the room the witness is in could be used to ensure that there is no foul play. Further, rather than make it difficult to observe a witness’ demeanour, virtual hearings enable greater focus on a witness’ facial expressions and body language.
  • Mr Born also argued that the online disinhibition effect results from a “vast and unregulated” cyberspace and would not apply to virtual hearings which are tightly controlled by tribunals and where counsel are bound by ethical and procedural rules.
  • Ms Tan posited that the technological and ethical concerns raised by the Opposition had practical solutions such as the use of virtual hearing hubs with dedicated and integrated facilities which would allow for seamless hearings. She noted that the SIAC itself had taken steps to partner other institutions to provide such facilities for parties in London and Canada.

Opposition:

  • Mr Palmer emphasised that any user given the option would opt for a physical hearing rather than a virtual one. That was, in and of itself, dispositive of the motion.
  • On costs efficiency, Mr Palmer argued that this is a critique of the arbitral system itself and not in-person hearings and, in any event, the cost savings from virtual hearings are marginal.
  • Finally, Mr Palmer referred to judicial scepticism in the US and in Australia, that virtual hearings are a problem for due process.
  • Mr Bang ended by stating that the Proposition’s argument that “something is better than nothing” was an unfair reading of the motion.

 

Q&A

With over a thousand viewers, there was certainly no lack of questions on the debate. Some of the questions included.

Q: How can virtual hearings be as effective if access to technology is unequal? What happens to places where internet is not as good?

Both the Proposition and Opposition took the view that access to technology would not be an issue in the vast majority of cases.

Ms Tan further noted that if technology is in fact a threshold issue, it is for the tribunal and parties to consider what is appropriate, but ultimately, the minority cases can be dealt with and managed with the necessary safeguards.

Q: Would virtual hearings negatively affect cross-examination by limiting counsel’s view of facial expressions? What about issues relating to camera quality?

The Proposition argued that video cameras (even standard laptop cameras) allow for “tight focus” on the witness’s face. Further, video-recording playback would allow the tribunal/parties to replay and/or zoom in on a witness’s expression, rather than rely on transcripts.

Q: Would virtual hearings affect enforceability of an award?

Mr Born stated that if parties have agreed to a virtual hearing, then this is not an issue. He also took issue with Mr Palmer’s earlier reference to US judicial scepticism on the basis that those comments were made in the context of a criminal matter and so had domestic constitutional implications.

On the other hand, Mr Palmer noted that in some ICC arbitrations, the power of the tribunal to conduct virtual hearings under the ICC Rules has been challenged and that that challenge could be rehashed at the enforcement stage.

 

Comments   

Two points are worth noting at the outset. First, the debate motion cannot be construed in a vacuum and must be looked at in the post-pandemic context with the attendant travel restrictions. Second, the unspoken assumption was that the issue is raised in the context of international commercial arbitration.

The substantive issues running through the debate and the Q&A session were chiefly: (i) technological equality of arms; (ii) ethical considerations; and (iii) due process (confidentiality and impartiality).

On (i), fringe cases where parties have limited or no internet access (whilst uncommon) cannot be dismissed. One audience member noted that his jurisdiction might lose internet connectivity for weeks, if not months. While this might mean that virtual hearings may never be as effective, it would be unfair to consider the motion divorced from the present health concerns and international travel restrictions.

On (ii), one issue worth exploring is the extent to which suggested practical solutions to ethical concerns would increase costs and render virtual hearings less efficient than in-person hearings. For example, one solution already used by tribunals and national courts to address witness coaching concerns or technical cheating mechanisms is for opposing counsel to have a representative in the same room as the counterparty’s witness.

On (iii), confidentiality and attendant concerns of data privacy and protection are as important as impartiality concerns. This is not a novel issue: the Cybersecurity Protocol in International Arbitration was launched in late November 2019 and the consultation draft of the ICCA-IBA Roadmap to Data Protection in International Arbitration was released in February 2020. It is crucial to the legitimacy of the process that data can be exchanged virtually without compromising confidentiality and data privacy.

More generally:

  • The online disinhibition argument raises interesting questions. Donning a practitioner’s hat, a less tense witness is likely to give evidence more freely and forthrightly but, on the other hand, may also be more prone to slips of tongue or glib admissions.
  • The extent to which national courts’ sentiments about virtual hearings are applicable in the international commercial arbitration context is a legitimate question. National courts normally deal with domestic disputes or, even when faced with an international commercial dispute, the judge(s) and counsel are invariably in the same jurisdiction. It might have been more relevant to canvass the views of specialist international commercial courts instead.
  • Nonetheless, it was interesting to hear from Mr Bang that the Korean courts have not adopted virtual hearings at all. Mr Palmer also observed that the Honourable Chief Justice Sundaresh Menon had referenced the use of video-conference links only for directions hearings and hearings without witnesses in the Singapore courts, which suggests the limits of virtual hearings for proceedings which require witness evidence and examination. Relatedly, we note that UK has moved towards increased face-to-face hearings.
  • Finally, it would have been interesting to hear the debaters’ views on whether a tribunal’s deliberation (including its speed) would be impacted by an inability to deliberate in person.

 

Conclusion

Inertia notwithstanding, the contours of the legal profession have in recent years shifted rapidly in light of technological disruption and globalisation. Just as we have learnt to adapt and evolve with the demands of modern practice, we must continue to do so in this post-pandemic world where virtual hearings have inevitably become the norm.

 

This post concludes our coverage of SIAC Congress 2020. More coverage from SIAC Congress is available here.

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SIAC Congress Recap: SIAC Virtual Congress 2020 Plenary Session on the Challenges and Changing Landscape

Thu, 2020-09-03 04:00

The Singapore International Arbitration Centre (“SIAC”) hosted its Congress on 2 September 2020.  For the first time, the Congress was held virtually.  The Chairman of the Board of Directors of SIAC, Mr Davinder Singh, SC, in his welcome address thanked over 1,000 attendees for attending virtually from all over the world despite time zone differences.  The Honourable Chief Justice of Singapore, Mr Sundaresh Menon, delivered the keynote address on “Arbitration’s Blade: International Arbitration and the Rule of Law”.

The plenary session on “International Arbitration: the Challenges and Changing Landscapes” followed the keynote address.  The moderator, Mr Toby Landau, QC, Member, SIAC Court of Arbitration; Barrister and Arbitrator, Essex Court Chambers Duxton (Singapore Group Practice) and Essex Court Chambers (London), divided the discussion into 2 themes: (A) rule of law issues arising in international arbitration (as highlighted in Chief Justice Menon’s keynote address); and (B) Covid-19 related issues.  This blog provides an overview of the discussion.

 

A. Rule of Law Issues

Mr Landau set the ball rolling by referring to Chief Justice Menon’s ICCA 2012 Congress keynote address and queried whether the “frailties” he identified, to the development of international arbitration, in 2012 persisted in 2020.  Chief Justice Menon noted that costs, delay and inefficient processes remain challenges to be surmounted.  He cautioned that the significant global efforts, which have made arbitration successful, would be lost if users started believing that arbitration had become too complex and burdensome for effective use.  He encouraged the international arbitration community to periodically re-examine these issues and strive for solutions.

 

Groundhog Day in International Arbitration?

Recognizing that certain issues remained unresolved, Mr Landau remarked that international arbitration was experiencing Groundhog Day.  The potential solution to these problems had been discussed at various international seminars over the years but an effective solution was yet evasive.  Chief Justice Menon suggested that it was imperative that the international arbitration community remained open to radical rethinking.  Referring to the increasing complexity and costs of arbitrations in the present times, Chief Justice Menon attributed this to the fact that arbitration was a “one-shot process”.  Parties leave no stone unturned towards achieving the desired result before a tribunal because of limited avenues for appeal / review.  Therefore, costs and efforts are front loaded.  He urged tribunals to limit time and costs on discrete issues.  To bring home his point, Chief Justice Menon cited the example of a case in which written submissions were so voluminous that it was estimated the arbitrator, spending 6 minutes per page, would take a year to finish reading the submissions!  He stressed that if the arbitration community shied away from taking a step back and revisiting these issues, mediation could benefit (at the cost of arbitration).

The Honourable Justice Anselmo Reyes, Singapore International Commercial Court, concurred with Chief Justice Menon that these issues would continue to arise in the future.  Referring to Chief Justice Menon’s comment on shared values, he noted that there exists a divergence in the treatment of international arbitration in jurisdictions around the world.  For example, Justice Reyes noted that Singapore and Hong Kong shared similar notions of due process and public policy.  However, the same notions may not be applicable for other jurisdictions in South East Asia.  He commended the role institutions like SIAC play, in cultivating a universally acceptable approach on these issues, through discussions among judges, arbitrators, lawyers and law students.  Justice Reyes added that while rethinking the system was a good idea, it was a difficult task.

At this point, Mr Landau invited Ms Natalie Y. Morris-Sharma, Deputy Senior State Counsel, Attorney-General’s Chambers, Singapore, to comment on whether these recurring issues affected the investor state dispute settlement (“ISDS”) sphere.  Ms Morris-Sharma agreed that these issues afflicted ISDS as well, however, the difference was that the radical rethinking was already afoot, which could result in a transformed ISDS system in the near future.  Professor Lawrence Boo, Member, SIAC Court of Arbitration; Independent Arbitrator, The Arbitration Chambers, remarked that, comparatively, it was easier for reforms to occur in ISDS.  This was due to the involvement of states.

 

Going Back to the Basics

Mr Edwin Tong, SC, Minister for Culture, Community and Youth, and Second Minister for Law, Singapore, commented that international arbitration was set up as a “mercantile alternative” to dispute resolution before courts.  Mr Tong added that the features of arbitration were market driven.  The merchants valued confidentiality and the ability to choose arbitrators with the requisite expertise and finality.  However, over the years, Mr Tong agreed with others, arbitration had indeed become more expensive and time consuming.  He, too, urged the arbitral institutions and policy makers to come up with solutions.  However, he cautioned that in the zeal to solve problems, we must not throw out the baby with the bathwater.

Mr Landau observed that the market demands increasingly constrained the application of rule of law in arbitration.  He noted that there is a trade-off between what the market wants, in terms of party nomination and confidentiality, and the values of rule of law.

Mr Gary Born, President, the Court of Arbitration of SIAC, also agreed with the panellists’ assessment that these issues would likely continue to afflict international arbitration.  On a positive note, Mr Born highlighted SIAC’s expedited procedure and early dismissal (see Rules 5 and 29 of the SIAC Rules, 2016, respectively), as successful methods to tackle time and costs issues.

 

Possible Solutions

Taking a cue from an audience member’s question regarding the Prague Rules, Mr Landau asked the panellists whether the civil law inquisitorial model, where the court plays an active role, as opposed to the common law model, where the court plays a passive role, presents an answer to the issues which arise with arbitration being a “one-shot process”.

In response, Mr Reyes noted that the Prague Rules were unlikely to help in stemming the problems.  He added that while the Prague Rules encouraged tribunals to be proactive, this failed to provide any guidance on the applicable due process or the rule of law criteria.

 

Overcoming Due Process Paranoia

Circling back to the Chief Justice Menon’s point on finding solutions, Mr Landau stated that the due process paranoia may inhibit a tribunal’s endeavour to come up with innovative solutions.  Chief Justice Menon pointed out that empirically, there were very few cases which have been set aside on due process concerns.

Mr Born emphasized the role arbitral institutions play in dealing with the issue of delay and costs.  He explained that under the SIAC ad valorem system of compensating arbitrators (see Rule 34.1 of the SIAC Rules, 2016), there was no incentive to prolong the arbitral process.

 

B. Covid-19 Related Issues

Mr Landau next explored issues arising due to Covid-19 under 2 heads: (i) policy issues; and (ii) practical considerations of running cases remotely.

Mr Landau asked the panellists their views on the extent to which the pandemic had forced the changes and whether these changes would remain subsequently?  According to Chief Justice Menon, the pandemic has taught the legal community three things: (i) it is possible to deploy virtual media for conducting hearings; (ii) technology harnesses efficiency – waiting and travel time has been reduced drastically, and schedules can be accommodated easily; and (iii) access to justice – technology has increased the access to justice by reducing the cost of accessing justice.  On a lighter note, he remarked that video hearings are tiring and hoped that the pandemic would lead to the development of bespoke hearing platforms.

Justice Reyes commented that practitioners were still grappling with the implications of virtual proceedings and currently, what was being done physically had been transposed to the virtual space.  He anticipated that in due course, oral advocacy and witness examinations would undergo changes to adapt to the virtual space.

 

Effect on ISDS

As far as the effect of Covid-19 on ISDS is concerned, Ms Morris-Sharma noted that the current global uncertainty weighed in favour of mediation as a method of resolving disputes as opposed to arbitration.  She added that mediation was premised on bringing together people in order to resolve disputes.  Towards this goal, technology could level the power play between disparate players by use of “synchronous and asynchronous mediation processes”.  She, however, noted that the ability to gauge subtle body language was valuable during an in-person mediation and it would be useful to find ways to replicate this in a virtual environment.

 

Effect on Singapore and SIAC

Mr Born noted that Covid-19 challenges, in fact, presented opportunities for SIAC because Singapore was no longer beholden to the “tyranny of geography”.  As a global arbitral institution, SIAC was ready to compete with other institutions around the globe.  Mr Tong added that there was a lot more to Singapore than just the physical infrastructure.  Singapore has a first class judiciary, internationally reputed arbitral institutions and more importantly, the resilient spirit to overcome any challenges that Covid-19 may pose.

 

C. Conclusion

The Covid-19 made 2020 a year of many firsts.  The SIAC Congress, for the first time, was held entirely virtually.  In several SIAC arbitrations, cross-examinations were conducted virtually, for the first time.  Despite fears of a Groundhog Day in arbitration, the caseload at SIAC has shown a consistent upward trend.  This trend is a testament to the international arbitration community which embodies the resilient Singapore spirit to combat challenges.  It is hoped that the community will respond to Chief Justice Menon’s call for a radical rethinking and come back as a stronger “mercantile alternative” to courts.

 

More coverage from SIAC Congress is available here.

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SIAC Congress Recap: Interviews with our Editors – Perspectives from Singapore with Ariel Ye

Tue, 2020-09-01 23:00

This year our Blog is providing live coverage of the SIAC Virtual Congress 2020. We kick off our coverage with our interview with Ariel Ye. 

Ariel has more than 35 years of experience in cross border commercial dispute resolution. She handled, together with her colleagues, the first international arbitration case since China instituted its open door policy in the late 1980s. Following her graduation from the Law School of the Chinese Academy of Social Science and the Law School of Peking University, she started her practice of law in mainland China in Chinese law firms and then joined an international law firm in Hong Kong for several years. She continued her legal practice at King & Wood Mallesons since 2004 and she is currently a senior partner there. A former member of the task force for the IBA Rules on Taking Evidence in International Arbitration, she is currently a member of the Court of Arbitration of the Singapore International Arbitration Centre (“SIAC”).

Thank you Ariel for joining us today.

 

  1. When (and why) did you become interested in arbitration?

I was lucky to enter into college after China’s Cultural Revolution, which ended in the late 1970s. My first court experience was in the Spring of the early 1980s when I was an intern to a judge working on a tort case. My interest in dispute resolution practice began at that time. After graduation, I joined a Chinese state-owned law firm. It was there that I had a chance to participate in the first international arbitration case since China’s Open Door Policy, acting for a Chinese company in its trade dispute against a Middle-Eastern company before an international arbitral tribunal.

Interestingly in that first international arbitration case, the hearing happened to be conducted in a hotel room in Singapore, so Singapore was the first foreign country that I visited in the late 1980s.

 

  1. What do you enjoy most about being a SIAC Court of Arbitration member? What do you see as the future for SIAC?

I have served as a member of the SIAC Court of Arbitration for several years. I have also handled SIAC arbitration cases either as counsel or as arbitrator. In my experience, SIAC deserves the trust and respect of the international arbitration community because it is truly one of the few leading international arbitration institutions of the world, rising in a relatively short time period. The other leading institutions have a much longer history.

What impressed me most are the people of SIAC: the SIAC Court members are some of the most experienced arbitrators and arbitration counsel of the international arbitration community, so it has been a good opportunity for me to learn from them. The SIAC Secretariat team is well-trained, hardworking and they form the backbone of the institution. As a SIAC Court member, whenever I was requested to make decisions on consolidation and requests for joinder, the briefing notes I received were always of top quality. One procedural quality of SIAC case administration is particularly “Singaporean”: emergency arbitration applications are processed in 24 hours, which is usually difficult in many other jurisdictions.

Given the significant increase of cross-border investment and economic activities in Asia, I can only envisage further successes of SIAC because people working in the institution are those whom one can trust and count on.

 

  1. International arbitration inherently involves a diversity of legal cultures. In future, do you think there will be differences in the way that arbitration is currently practiced, for instance, in document production or waivers of rights to seek annulment on certain grounds?

My experiences suggest that due to great teaching and training efforts made in promoting international arbitration by organizations like International Council for Commercial Arbitration (“ICCA”) and the International Bar Association (“IBA”), various arbitration institutions, as well as LLM programs on the subject of international law in many law schools around the world, the way arbitration is practiced is increasingly convergent. I have handled arbitration cases before the Arbitration Institute of the Stockholm Chamber of Commerce (“SCC”), which tend to be of civil law tradition, and Hong Kong International Arbitration Centre (“HKIAC”) and SIAC, which tend to be of the common law tradition. There was little difference between those arbitration proceedings before the SCC and the HKIAC / SIAC.

As arbitration is a tool for resolving international commercial or investment disputes, I do not think the so-called “differences in legal culture” should be exaggerated. For example, SCC rules allow document production, and so do the SIAC rules. In a recent SIAC case involving our Chinese client, it was not difficult to explain to the Chinese company the importance of and rules for document production that it should follow.

Document production is a pillar of international arbitration for the purpose of seeking the truth. My strong personal view is that such procedural requirements should be widely accepted in international arbitration and become the norm, whether in civil, or common law, or any other legal systems.

 

  1. Do you expect to see arbitration feature as the most preferred method of dispute resolution for Belt and Road disputes? Why or why not?

According to statistics provided at the website of the State Council, in the first quarter of 2020, the total amount of capital invested in projects along the Belt and Road countries was valued at USD 4 trillion. Russia, Saudi Arabia and Malaysia are the top three countries attracting most of capitals / projects, followed by UK. The transportation sector accounts for 47% of the total investment; the power/energy sector accounts for 23%. Out of the total investment, capital from the private sector accounts for 25.8%.

Given that most of these projects are meant to be the long term investments, including a long period of time for construction, it is my view that Belt and Road disputes are likely to arise in the near future.

In my experience, arbitration would still be the preferred method for dispute resolution for Belt and Road disputes. However whether publicly funded projects will instead choose courts, such as the China International Commercial Court (“CICC”) set up by the Supreme People’s Court of China in 2018, remains to be seen.

Some arbitration institutions have been very active in the resolution of Belt and Road disputes. In 2019, CIETAC published a report, which stated that it studied 263 cases administered by CIETAC involving companies doing business in Belt and Road countries.

 

  1. Arb-med is widely and regularly used in PR China. In your experience, how could mediation best complement arbitration? Should arbitrators and counsel use mediation more? How can we benefit from both mechanisms while avoiding any due process challenges? Is it a myth that Asian parties tend to prefer mediation over contentious arbitration?

According to the annual report published by CIETAC in 2017, only 29% of arbitration cases administered by Chinese arbitration institutions, including CIETAC, were settled by mediation where arbitrators acted as mediators without commencing a separate mediation proceeding. The number of such cases has been decreasing from 65% in 2014 to 41% in 2015 to 58% in 2016. This clearly indicates that Chinese parties are now more conscious of potential due process concerns and are more willing to accept decisions made by tribunals.

Again, I would personally recommend that parties first consider mediation as a dispute resolution method, given the cost associated with arbitration and the length of time spent on proceedings. Chinese courts increasingly encourage parties to mediate in recent years and many small claims in domestic court cases have been referred to mediation institutions for resolution with the consent of the parties, which I believe is the new trend for dispute resolution.

According to the Singapore International Mediation Centre, during the period of 2014 to 2019, there were approximately 80 cases referred to it, and a good number of cases involved Chinese parties, which accounted for 22% of its international cases.

When arbitration and mediation are combined in one proceeding, an arbitrator switches his / her “hat” from an arbitrator to a mediator. From a counsel’s perspective, I take a very conservative view when advising my clients to engage in Arb-Med. Therefore, as arbitrator, only in cases where I assess that the chances of a successful mediation as high after the hearing would I then initiate an Arb-Med process at the end of the hearing with the parties’ agreement. Nevertheless, most of the time, I always encourage parties to further negotiate and seek settlement with the assistance of their counsel, i.e. asking their counsel to facilitate settlement discussion rather than having arbitrators involved in the process.

These are my personal views, and I would like to make it clear that my personal experience and preference do not represent or reflect the views of others in the Chinese arbitration community in this regard.

 

  1. While there have been a number of initiatives aimed at improving gender diversity in international arbitration, we are still frequently faced with under-representation of women at senior levels in the legal profession and on arbitral tribunals. What positive steps can we take towards gender equality and diversity in international arbitration?

In the early years of my career, there were only a few female practitioners in international arbitration. Now in the younger generation, the situation is quickly changing, both in China and internationally. I believe that I personally did not experience such discrimination as a female practitioner largely because of my language skills. I have noticed that usually female lawyers are equipped with better English language skills, which is critical to their success in international arbitration.

I do see the progress of gender equality in this field in recent years, and this could not have been achieved without the efforts taken by members of the international arbitration community. There are a lot of outstanding female lawyers and arbitrators in Asia. Noticeably, there are ten female SIAC Court members.

I also highly appreciate the Equal Representation in Arbitration Pledge and other initiatives that further raise awareness on gender equality and create more opportunities for those excellent female arbitrators, while acknowledging equal opportunities for male arbitrators. I believe these efforts will lead to greater gender equality. Currently, I am working on a SIAC case as a party appointed arbitrator, in which the presiding arbitrator for the case is also a female arbitrator, which is good proof of such progress in gender equality.

Thank you Ariel for your time!

 

More coverage from SIAC Congress is available here.

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

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Allocating Pre-award Interest When a Procedural Delay is Beyond Parties’ Control

Tue, 2020-09-01 03:00

The allocation of pre-award interest is a standard feature of most international arbitration proceedings and is often contested before a tribunal. The complexity is accentuated when a tribunal is unable to render a timely award for procedural reasons beyond its own control and beyond the parties’ control. The delay caused by the rescheduling of evidentiary hearings due to the ongoing pandemic is a relatable example but is far from being the only one.

As a rule of thumb, a tribunal has wide discretion in deciding the pre-award interest in an arbitration regardless of whether there is a provision in the applicable law.1)See Berger, General Principles of Law in International Commercial Arbitration: How to Find Them – How to Apply Them, 5 World Arb. & Med. Rev. 97, 130-36 (2011) (practice of international tribunals “to award interest goes back to the famous ‘Alabama’ Award of 1872”) (as cited in Born, International Commercial Arbitration [2014] at 3103). jQuery("#footnote_plugin_tooltip_4469_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4469_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Nor does the lack of a provision on pre-award interest in institutional rules stop a tribunal from awarding it. However, depending on the law applicable to the allocation of pre-award interest, a tribunal will likely evaluate the allocation of pre-award interest differently.

Common law and civil law jurisdictions treat pre-award interest differently. While most common law jurisdictions tend to treat pre-award interest as a procedural matter, civil law jurisdictions usually view it as a substantive one for conflict of law purposes.2)See Born, International Commercial Arbitration [2014] at 3106. jQuery("#footnote_plugin_tooltip_4469_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4469_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); We illustrate this below with Singapore and Korea as examples.

Further, institutional rules tackle the issue differently. For example, in SIAC 2016 Rules, Rule 32.9 provides that a tribunal may award simple or compound interest at a rate it deems appropriate unless the parties have agreed otherwise. This arguably provides a tribunal with even broader discretion to award (or to not award) pre-award interest as it considers appropriate. In contrast, the KCAB International Arbitration Rules 2016 are silent on the issue of interest.

Therefore, depending on which curial law is combined with which institutional rules, the allocation of pre-award interest can turn into a complex subject. Thus, it is no surprise that despite the availability of scholarly writings on the topic, parties, counsel, and tribunals often struggle to agree on the appropriate amount, rate, and period for pre-award interest in situations of a procedural delay not attributable to any party.

Singapore and South Korea are two prominent arbitration hubs of the common law and the civil law worlds, respectively. A comparative view of both jurisdictions might give some perspective on how to approach the issue practically.

 

Singapore

Singapore’s International Arbitration Act (IAA) specifically empowers a tribunal to award interest under section 12(5) and 20(1). In 2005, the Singapore Academy of Law’s Law Reform Committee expansively examined the question of interest awarded by the courts, including interest running on arbitral awards. The Committee’s report concluded that an arbitrator should have the power to set an appropriate interest rate to run on the award. It also stated that an arbitrator “should be allowed to order interest on an award unfettered by the rules of court whether the award is made in a Singapore or foreign currency.” Thus, it can be said that Singapore’s approach towards the issue is two-fold: First, the tribunal has maximum freedom to exercise discretion in awarding pre-award interest. Second, stemming from the first point, the preferred approach is one that bolsters Singapore’s pro-arbitration stance.

In 2012, after section 20 of the IAA was repealed and re-enacted, it granted an arbitral tribunal broad powers to award interest. Section 20(1) provides that unless parties otherwise agree, “an arbitral tribunal may […] award simple or compound interest from such date, at such rate and with such rest as the arbitral tribunal considers appropriate […]”. Unlike that for the post-award interest, there is no guidance on what the rate of interest for pre-award interest should be.3)Post-award interest for awards governed by IAA is currently set at 5.33% per annum. jQuery("#footnote_plugin_tooltip_4469_3").tooltip({ tip: "#footnote_plugin_tooltip_text_4469_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); There is also no default pre-award interest if the award is silent on the issue. However, the flexibility empowers the tribunal to determine the appropriate rate of interest. Thus, if a tribunal decides to delve into the issue it will have wide powers which may include: 1) not awarding any interest for the period if it deems fit; 2) imposing a reduced interest rate (i.e., lower than the post-award interest rate) for the entire period to balance the delay effect; 3) enhancing the overall interest rate (as compared to the post-award interest) if the losing party is to benefit unduly from the delay; and 4) increasing the interest rate only for the period where the losing party is to benefit unduly.

Singapore’s legislative framework and institutional rules, therefore, encourage arbitral tribunals to devise an appropriate rate and duration of interest where there is a procedural delay beyond the parties’ control. How this plays out in practice varies, and a survey on the specific issue of a tribunal evaluating interest owing to an unforeseen procedural delay would be resourceful for the arbitration community.

 

Korea

Unlike Singapore law, Korean law treats the issue of interest as a substantive law matter. Thus, if a tribunal were to award pre-award interest where the delay was beyond the parties’ control, it would factor in the statutory interest that accrues under Korean law (provided that Korean law governs the merits). More specifically, if there is no agreement on any interest rate, either party may seek pre-award and post-award interest at the statutory rate of 5% per annum for general civil claims (Article 379 of the Civil Code) and 6% per annum for claims arising out of commercial activities (Article 54 of the Commercial Code). Such pre-award interest would run notwithstanding an unexpected procedural delay, for instance, a delay of the hearing or a subsequent postponement of rendering the award. Therefore, at least in theory, in comparison to a common law jurisdiction like Singapore, there is little that a tribunal can do to reduce the applicable interest rate or period in a case where the substantive applicable law is Korean law.

Article 34-3 of the 2016 Korean Arbitration Act allows a tribunal to award interest in the absence of a contrary agreement by the parties.4)Notably, this explicit provision allowing an arbitral tribunal to award interest is a recent phenomenon i.e., it was introduced in 2016. Before 2016, interest found no “interest” in the arbitration legislation of Korea i.e., the arbitration law did not specifically contain a clause on that point because this was conceptually not a procedural issue. jQuery("#footnote_plugin_tooltip_4469_4").tooltip({ tip: "#footnote_plugin_tooltip_text_4469_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); But that is not to say that a tribunal has uninhibited power and discretion that it would have under Singapore law or any other common law jurisdiction. In Korea, the tribunal is to “have regard to all of the circumstances” to determine whether it would be “appropriate” to order it.5)Joongi Kim, International Arbitration in Korea, page 312. jQuery("#footnote_plugin_tooltip_4469_5").tooltip({ tip: "#footnote_plugin_tooltip_text_4469_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This would also mean that a tribunal should consider and have regard to the issue of pre-award interest from a substantive law perspective.

Therefore, in a Korea-seated arbitration for which the governing law of the contract in question is Korean law, the arbitral tribunal will have less flexibility to reduce the rate or applicable period of interest if a procedural delay has occurred and such delay is not attributable to any party.

 

Conclusion

Singapore’s IAA allows the tribunal broad discretion to deal with adjusting pre-award interest where delays have occurred beyond the parties’ control. In other words, from a party’s perspective, everything is unclear and difficult to predict until an award has been issued.

Korean law governed and Korea-seated arbitrations provide more predictability on this issue (that pre-award interest is likely to be deemed running no matter what). However, that also means that the arbitral tribunal has less flexibility in comparison to a tribunal seated in Singapore.

Instead of leaving the issue of pre-award interest entirely to the tribunal, parties and counsel may want to approach this issue more proactively and creatively. One viable option could be to enter into a standstill agreement on pre-award interest prior to agreeing on a postponement of the proceedings as it might be difficult to do so at the post-hearing stage. This would allow counsel to save time and resources as they would not have to address any of the above pre-award interest-related arguments. This option would also relieve the tribunal from having to dive into one more issue at the outset.

Another option could be parking a consolidated sum of money in an escrow bank account for it to generate interest, which may be later transferred to the parties in the proportion of the claims awarded to them. While the interest generated from a bank escrow may not yield as much value and may greatly differ depending on the jurisdiction in which the principal is deposited, it will mitigate the potential loss to some degree.

Finally, even if the parties would not be able to agree on a standstill agreement or an escrow arrangement, a tribunal could still communicate to the parties (by way of routine correspondence or through a procedural order) prior to granting an extension that it will consider the delay later when deciding the pre-award interest. On the one hand, this would provide the parties with a certain level of assurance that the tribunal is mindful of the issue, and, on the other, it would allow the tribunal to have more flexibility to exercise the option best suited under the given circumstances at a later point in time and alleviate potential concern for due process violations.

References   [ + ]

1. ↑ See Berger, General Principles of Law in International Commercial Arbitration: How to Find Them – How to Apply Them, 5 World Arb. & Med. Rev. 97, 130-36 (2011) (practice of international tribunals “to award interest goes back to the famous ‘Alabama’ Award of 1872”) (as cited in Born, International Commercial Arbitration [2014] at 3103). 2. ↑ See Born, International Commercial Arbitration [2014] at 3106. 3. ↑ Post-award interest for awards governed by IAA is currently set at 5.33% per annum. 4. ↑ Notably, this explicit provision allowing an arbitral tribunal to award interest is a recent phenomenon i.e., it was introduced in 2016. Before 2016, interest found no “interest” in the arbitration legislation of Korea i.e., the arbitration law did not specifically contain a clause on that point because this was conceptually not a procedural issue. 5. ↑ Joongi Kim, International Arbitration in Korea, page 312. 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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What Impact Will Brexit Have On Public International Law In The UK?

Mon, 2020-08-31 03:00

With the unfolding global pandemic, Brexit has largely taken a back seat. Yet, with the transition period due to end (at the time of writing) in just a few months, it is more important than ever to consider the implications for public international law (PIL) of the UK’s departure from the European Union. Exactly four years after the UK voted to leave the EU, a webinar co-organised by the Young Public International Law Group (YPILG) and Arnold & Porter considered precisely this topic.

Five “young voices” in PIL explored a range of perspectives on PIL in the UK, post-Brexit. The event was moderated by Lucas Bastin of Essex Court Chambers and Laura Rees-Evans of Fietta LLP.

Below, we present summaries of the topics addressed during the webinar, followed by concluding observations by Laura Rees-Evans.

 

Post-Brexit EU-UK dispute settlement: critical and contentious issues

The dispute settlement mechanism to regulate any future EU-UK agreement has emerged as a contentious issue capable of derailing negotiations. Maria Fogdestam-Agius of Volterra Fietta addressed the positions of the two sides and their legal and political underpinnings.

The EU seeks a partnership to regulate the post-Brexit relationship in full with a dispute settlement mechanism modelled on the Withdrawal Agreement. The latter provides for arbitration with mandatory, binding referral to the Court of Justice of the European Union (CJEU) for any question of interpretation of a concept or rule of EU law. Citing the level of integration achieved during EU membership, the EU seeks to uphold “common high standards” on competition policy, trade and labour protections and environmental standards, proposing EU rules as “reference points”. Were the agreement to incorporate such norms deriving from or replicating EU rules, a role for the CJEU is a constitutional requirement under EU law.

The UK prefers a separate trade agreement, supplemented by sectoral substantive agreements, each with its own governance arrangement, no role for the CJEU and no binding dispute resolution for level-playing-field issues. Regulatory lockstep and European judicial oversight were central themes in the Brexit movement and may exclude also the possibility of relying on the EFTA Court.

Following Round 6 of negotiations, post-dating this webinar, the EU announced that progress had been made towards agreeing on a single enforcement mechanism but also that any role for the CJEU in the UK remained a “red line” for the British government.

 

Post-Brexit claims by individuals under public international law

Generally, individuals cannot make a public international law claim before international courts or tribunals unless a treaty gives them a right to do so. Certain investment protection agreements and trade agreements are classic examples of such treaties. Jackie McArthur, a barrister at Essex Court Chambers, discussed the effect that Brexit might have on the capacity of individuals to make international claims under treaties between the EU and non-EU States.

During the transition period, the rights and liabilities of the UK and its citizens under EU agreements with third countries are governed by Art. 129(1) of the Withdrawal Agreement, and an accompanying footnote. In compliance with those terms, the EU sent a notification to all its treaty partners that during the transition period the UK is treated as an EU member State for the purposes of all agreements with third countries. Jackie discussed the question of what it means for the UK to be treated as an EU member State, and what legal effect the notification might have in an arbitration claim brought by an individual against the non-EU country.

Following the end of the transition period, other than where the UK has ratified an EU-third country agreement in its own right, the UK will cease to be a party to EU agreements with third countries and the EU’s notification will no longer apply. As Jackie explained, an individual might still be able to rely on transitional provisions or sunset clauses in those agreements to make a claim, depending on the terms of the particular treaty.

 

The role of UK courts in investment treaty arbitration post-Brexit

London courts are often involved in investment treaty arbitrations. Generally, this happens at the post-award stage, either when awards rendered by London-seated tribunals are challenged or in enforcement proceedings. Joel Dahlquist of Arbitration Chambers discussed to what extent this might change after the end of the transition period.

As for challenges against London-seated awards, Joel pointed out that an increasingly small number of investment treaties provide for London to be the seat. In the absence of designation in the treaty, London is instead designated by someone else (usually tribunals, based on party agreement or otherwise). Thus, for London courts to remain involved in investment treaty arbitration – in general as well as those involving intra-EU relationships –arbitrators, States and investors must be convinced that London remains an attractive seat.

Turning to enforcement, leaving the EU will not significantly affect the application of either the New York Convention or the ICSID Convention. In the case of the latter, UK courts have already demonstrated a certain level of commitment to the UK’s obligations under the ICSID Convention even in the face of possibly conflicting obligations of EU law, as evidenced by the recent Micula judgment in the UK Supreme Court.

 

The prospect of Brexit-related investment treaty claims

Brexit will significantly affect the UK’s legal environment and UK-registered companies’ ability to conduct business within the EU. Bart Wasiak of Arnold & Porter addressed the prospect of Brexit-related investment-treaty claims against the British government.

There are a variety of arguments that a foreign investor could pursue in support of a Brexit-related investment-treaty claim. For example, an investor could argue that: at the time of its investment, it held a “legitimate expectation” that it would continue to benefit from the UK’s EU membership; Brexit has “radically” altered the legal regime in which the investor had invested; the British government has acted inconsistently with its earlier assurances; and/or the UK has violated its treaty obligations through specific Brexit-related decisions.

However, an investor-claimant may face several obstacles to a successful claim. The UK could counter-argue, for instance, that the decision to leave the EU was an exercise of the State’s fundamental right to legislate and adapt its legal system to changing circumstances. The UK could also seek to present any disputed measures as attributable to the EU, rather than the UK alone; and/or as trade- (rather than investment-) related measures.

The scope for potential claims, and defences, is wide. Brexit is likely to give rise to interesting developments in investment-treaty arbitration jurisprudence.

 

The UK’s post-Brexit investment policy: an opportunity for novel design choices

In February 2020, the UK announced it would seek to secure in the next three years free trade agreements with countries covering 80% of the UK’s trade. Elizabeth Chan of Three Crowns explained that the ambition of the UK’s trade agenda makes Brexit an important opportunity to reimagine the UK’s investment policy design.

It has been more than a decade since the UK formulated its independent trade policy separate from the EU’s. Most of the UK’s investment treaties were negotiated in the 1980s and 1990s, with the last being signed with Colombia in 2010. The cessation of the UK’s negotiation of new BITs coincided with the entry into force of the Lisbon Treaty, through which the EU obtained primary authority to negotiate and conclude investment treaties with third countries.

The UK’s post-Brexit investment policy has been revealed through policy documents issued over the past year or so. In July 2019, the House of Commons’ International Trade Committee called on the UK to publish an overarching investment strategy. In October 2019, the UK Government issued a Response, indicating certain policy preferences. It affirmed, inter alia, that investor-State dispute settlement provides an impartial process for resolving disputes. The UK’s negotiating objectives with the EU (and proposed text) and the US suggest that investment policy design may ultimately be decided on a case-by-case basis.

 

Concluding observations

The UK formally invoked article 50 of the Treaty on European Union on 29 March 2017. Over three years later – and four years on from the referendum itself – much uncertainty remains over the impacts Brexit will have for PIL in the UK.

The five speakers at the webinar highlighted some of the wide variety of opportunities and challenges that Brexit poses, and which lie ahead. Since the date of the webinar (i.e. 23 June 2020), the UK and EU have apparently remained far apart on a wide variety of important issues in their negotiations of a future relationship. However, the outlook for the UK and EU reaching agreement on a form of dispute settlement mechanism in the new EU-UK agreement appears brighter.

Also since the webinar, on the topic of Elizabeth’s presentation, a Lords Select Committee (the EU International Agreements Sub-Committee) has launched three new inquiries into the UK’s ongoing trade negotiations with Japan, Australia and New Zealand (in addition to its existing inquiry into the UK-US trade negotiations). This presents the latest opportunity for stakeholders to influence the UK’s investment policy in general and, in particular, the investment promotion and protection provisions of these agreements.

The end of the transition period on 31 December 2020 will bring clarity to whether or not the UK and EU have managed to reach an agreement on their future trading relationship, and what progress has been reached in the UK’s other important negotiations. However, it is likely to bring little certainty to the issues highlighted by our other speakers. First, what it means for the UK to be treated as an EU member State during the transition period, and what legal effect the EU’s notification has, may only become clear through those issues being brought before and decided by (international or domestic) courts and tribunals. Second, the frequency with which London is selected as the seat of arbitration will provide an indication as to whether England has retained, post-Brexit, its reputation as an arbitration-friendly jurisdiction. Third, the appetite of foreign investors in the UK to bring investment treaty claims against the British government will depend on numerous factors, including regulatory decisions the UK takes once it is no longer bound by EU law. In short, the full ramifications of Brexit on PIL in the UK will play out for many years to come.

A video recording of the event is available online.

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The Devil is in the Detail: Unpacking the Judgment in Xstrata v Benxi Iron & Steel

Sun, 2020-08-30 03:00

The judgment issued by the High Court of England and Wales in Xstrata Coal Queensland P Ltd & Anor v Benxi Iron & Steel (Group) International Economic & Trading Co (Xstrata) is a rare example of a successful challenge brought under section 68 of the Arbitration Act 1996 (“the Act”). It serves as a reminder of the importance of paying close attention to detail at every stage of the proceedings in an arbitration.

 

Background

The factual matrix is relatively simple but the timeline of this case is critical to understanding why this challenge was successful. It should be noted that this was not the first application made by the claimants to the High Court in this dispute.

The underlying dispute concerned a contract for the sale of coking coal with disputes to be resolved via LCIA arbitration. There were four sellers, and the contract named one of them as “ICRA NCA”. When a dispute did arise, it was referred to arbitration and upon issuing the award, the Tribunal referred to “ICRA OC” as a party to the contract and beneficiary of the award. Upon failure of the defendant to pay, the claimants applied to enforce the award in China. Recognition and enforcement were refused by the court, on the grounds that ICRA OC was not in a contractual relationship with the defendant, and therefore the arbitration agreement was not valid thus rendering the award unenforceable.

The claimants initially made an application under section 27 of the LCIA Rules 1998 (“the Rules”) seeking clarification from the Tribunal as regards to what was meant by “ICRA OC”. The LCIA’s position was that: “while sympathetic to the claimants’ position, …absent agreement of the parties or an order from a competent court extending time from the application [the Tribunal was] functus officio”. In other words, the Tribunal had fulfilled its mandate and could not hear the application. As English law was both the governing and curial law, the claimants then applied in 2016 to the High Court under section 79 of the Act (for time to be extended to make the Article 27 application), which grants the court power to extend time limits relating to arbitral proceedings. In granting the application, Mr Justice Knowles noted that in practice, the time limit under Article 27 of the Rules would “almost always expire before the outcome was known of a contested attempt under the New York Convention to obtain recognition and enforcement of an award in another country”.

The Tribunal refused to correct the award on the basis that the identity of the relevant party had never been addressed during the proceedings, and so was not the subject of any finding in the award. Furthermore, the Tribunal noted that Article 27’s application was “limited to correction of computational, clerical and typographical errors or errors of a similar nature.” In relation to the identity of a contracting party, the Tribunal’s position was that this would be an “addition to the Award, not a mere correction”.

This prompted the claimants to make an application under section 68. The function of section 68 of the Act serves to challenges “serious irregularity” concerning an arbitral award. Section 68(2) provides a detailed list as to what constitutes “serious irregularity”, and in particular the claimants’ application sought to persuade the court that sections 68(2)(c) and 68(2)(f) had been engaged. Namely, that there had been a serious failure by the Tribunal to: conduct the proceedings in accordance with the procedure agreed by the parties; and, that there was uncertainty or ambiguity as to the effect of the award. The application was hindered by considerable delay, and so when the case came before the Court, it considered two key questions: first, whether the application had been made in time; and, secondly, whether section 68(2)(f) was engaged.

 

Analysis

Was the application brought in time?

The Defendant opposed the application on the grounds that under section 70(3) of the Act, any challenge to an Award under section 68 should be brought within 28 days of the Award, or the date on when the applicant was notified of the result. The Claimants advanced the argument that the application had been made timeously as the 28-day period only ran from the date of the Tribunal’s rejection – under Article 27 of the Rules.

In considering when the relevant date was to be determined for the purposes of the section 70 time limit, Mr Justice Butcher made it clear that English case law “provide[s] clear support to the proposition that, if there is a material application for a correction under section 57 of the Act, or an agreed process to the same effect such as Article 27 of the LCIA rules, and if that leads to a correction, then on the proper construction of section 70(3), the 28 day period runs from the date of the award as corrected.” This conclusion is in line with Mr Justice Teare in K v S, where he noted that what constituted a ‘material application for correction of an award’ is “where the correction is necessary to enable the party to know whether he has grounds to challenge the award”.

The Court concluded that the Article 27 application was “directly relevant” to the section 68 application now being made, insofar as had it been successful, there would have been no basis for the section 68 application. In other words, the entire premise of the section 68 application was materially dependent on the outcome of the Article 27 application. In looking closely at numerous authorities, Mr Justice Butcher held that the arbitration claim initiating the section 68 challenge was brought in time – within the 28-day period from the relevant date for the purposes of section 70(3).

This question highlights the importance of following procedure as set out by the curial law of any arbitration, and substantively being able to support the same. In this instance, the English courts also looked to what would be fair, just and reasonable in the circumstances. A strict application of the 28-day limit would have meant that the Claimant would have missed the deadline for submitting its appeal. However, the Court considered the factual matrix to be critical. In this instance, the Claimant waited for the outcome of the Chinese Court proceedings before initiating its application before the LCIA. The LCIA Rules are changing with effect 1 October 2020, and Article 27 is one of the provisions which has been updated. The main changes it now contains is a reference to including an addendum dealing with costs relating to such applications – so this will be something for those making applications pursuant to this Article to bear in mind more consciously in the future.

 

Is Section 68(2)(f) engaged?

The arguments advanced by the Claimants were that that there was uncertainty or ambiguity as to the effect of the Award, which would cause “substantial injustice by rendering it impossible or difficult to enforce the Award as it stands” – as demonstrated in the Chinese Courts. The Defendant argued that there was no such uncertainty, and that the Chinese Courts had simply determined that the Award should not be enforced. The Defendant went further to submit that if such an application were to be granted, it would open the doors to a host of unmeritorious applications and that such a challenge should only be permitted in extreme cases “where the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected”.

The Court agreed that section 68 should be applied where the Tribunal had gone wrong in its conduct of the arbitration, but that its remit was not confined to such circumstances. Accordingly, it was held that there was uncertainty and ambiguity as to the effect of the Award, as was manifested in the enforcement proceedings.

Accordingly, the Claimants’ application under section 68(2)(f) was granted, and the Award was remitted to the Tribunal to once more reconsider the identity of the parties to the contract.

It is demonstrative of the English Courts’ willingness to embrace the arbitral process, and recognise the arbitral ‘self-correcting’ mechanism to be engaged that resulted in this successful challenge. The Court did not consider it should be constrained by the Tribunal’s earlier decision that “the grounds for granting corrections are narrow in scope”. Rather, the Court expressly acknowledged that the “arbitral tribunal will carefully control the process”. Furthermore, the Court alighted upon the absence of any explanation by the Tribunal as to how it had dealt with the identity of the parties as it been the subject of this strand of litigation. It made clear that it would “just and reasonable” for the Tribunal to provide some further explanation.

 

Conclusion

This is a rare example of a successful section 68 challenge, but it falls neatly in line with a strong line of authorities in the English Courts (particularly the Commercial Court) demonstrating its pragmatic and pro-arbitration position in recent years. It has shown that the English Courts are prepared to deal robustly with ambiguities or uncertainties, and that wide consideration will be given to follow the maxim of permitting the arbitral process being allowed to self-correct. Detail is clearly critical in any arbitration, and Xstrata serves as a timely reminder of the importance paying close attention at all stages to the minutiae – no matter how trite they may seem at first blush.

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Jurisdiction Clause in the Liability Limitation Provision of the New LCIA Rules 2020: Reactive to Proactive, But is That Enough?

Sat, 2020-08-29 03:00

The newly released LCIA Rules 2020 have brought some exciting developments, which have already been subject to detailed analysis on this blog. However, there is more to the new rules than what catches the eye. This post addresses the new jurisdiction clause in the liability limitation provision (Article 31) of the LCIA Rules 2020. The same provision was last amended in the LCIA Rules 2014, and it left some ends open. However, the amendment brought by the LCIA Rules 2020 attempts to tie those loose ends by clearing the air around the competent court to deal with actions against the LCIA. But does it cover the ground entirely?

 

Brief History of Liability Exclusion and Limitation Provisions in Institutional Rules

Before getting into the nuances of the new jurisdiction clause in liability limitation provisions of the LCIA Rules 2020, it is crucial to introduce some historical context.

The oldest available version of the LCIA Rules can be traced back to 1998. Article 31 of the LCIA Rules 1998 was titled, “exclusion of liability” and that is what it purported to achieve. Article 31.1 excluded all the liability of the LCIA and the related actors. The only exception to the exclusion was the conscious and deliberate wrongdoing committed on the part of the LCIA or the related actors namely the President of the LCIA Court, Vice Presidents, individual members, the Registrar, the deputy Registrar, the arbitrator(s) and expert(s) to the Arbitral Tribunal.

The provision under the contemporary set of rules, i.e., the ICC Rules 1998 also purported to achieve the same effect. In fact, Article 34 of the ICC Rules 1998 was also titled, “exclusion of liability”. However, this provision did not contain any exceptions and sought to exclude the liability absolutely.

This position changed after the decision by the Paris Court of Appeal in SNF SAS v. ICC in 2009. In this case, the holder of two annulled awards, the SNF SAS, filed a liability lawsuit against the ICC before the Paris Tribunal of Grande Instance (“TGI”) alleging miscalculation of the costs by the ICC, excessive duration of the proceedings, and the ICC’s failure to follow the public policy of the seat despite the scrutiny of the award. The TGI ruled that the ICC was not liable for any losses caused in the course of the proceedings due to the presence of Article 34. The SNF SAS filed an appeal before the Paris Court of Appeal. While the Court did not hold the ICC liable, it declared Article 34 of the ICC Rules 1998 unlawful under French Law. The Court reasoned that Article 34 by excluding liability “for any act or omission in connection with the arbitration”, would contradict the very scope of the contract for organisation of arbitration that the ICC enters into with the parties through its rules. In other words, the Court ruled that Article 34 would exclude the liability emanating from the core contractual duties of the ICC, which is why such a provision would be unlawful.

The immediate effect of the SNF SAS ruling was evident on the ICC Rules 2012. The renumbered Article 41 was now titled “limitation of liability”, and it only excluded liability to the extent permitted by the applicable law. Similarly, under the LCIA Rules 2014, Article 31 was retitled to “limitation of liability” and it excluded liability to the extent permitted by the applicable law in addition to the previous exception of conscious and deliberate wrongdoing.

Understandably, such adaptation was essential for the ICC since it has its siège social in Paris. Absence of any such provision would have created a legal vacuum for the ICC’s liability considerations. But what prompted the LCIA to do it?

Some commentators1)Maxi Scherer, Lisa Richman and Remy Gerbay, Arbitrating under the 2014 LCIA Rules. A User’s Guide (Kluwer Law International 2015) 377-378. jQuery("#footnote_plugin_tooltip_8614_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8614_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); have argued that this change was indeed brought due to the SNF SAS case and in order to harmonise the LCIA Rules to the applicable law, which might not always be English law. In other words, the LCIA brought this change in anticipation of any future actions arising out of LCIA arbitrations where applicable law is, for example, French law. By virtue of being the applicable law, French law would have made the application of the liability exclusion clause invalid.

This approach was clearly reactive, which is why both the LCIA Rules 2014 and the ICC Rules 2012 fell short of addressing a connected and an arguably critical issue – what would be the appropriate court of action? With this issue not clarified, the parties could go forum-shopping or initiate multiple parallel proceedings and get an order against the institution. In fact, in 2013, the ICC faced a liability lawsuit in the US. This action was unsuccessful, however, without any mention of forum non conveniens and agreeably so because the ICC Rules 2012 or 2017 never really excluded the jurisdiction of the US Courts.

 

Jurisdiction Clause in the Liability Limitation Provision

The new addition to the LCIA’s liability limitation provision seeks to address the very problem outlined above. The newly added Article 31.3 states that “the courts of England and Wales shall have exclusive jurisdiction to hear and decide any action, suit or proceedings between [the] party [to an LCIA arbitration] and the LCIA […].”

This will have three-fold benefits. Firstly, it will prevent forum-shopping. Secondly, it will make it convenient for the LCIA to deal with the lawsuits at one place. Thirdly, from an enforcement perspective, an action in England and Wales would be preferable for the party initiating the claim.

However, the jurisdiction clause is not entirely unsusceptible to controversy. While the courts are certainly influenced by contractual exclusive jurisdiction clauses, they are not bound by it. The Supreme Court of India has ruled that Indian courts can exercise jurisdiction over a matter despite the exclusive jurisdiction clause should it be essential in the interest of justice.

Additionally, with the Brexit and England’s inclination towards the Lugano Convention, a new set of issues arise. For example, the Lugano Convention’s inability to tackle with the Italian torpedo (an act of initiating a claim in a different jurisdiction despite the exclusive jurisdiction clause). Hence, even if England manages to accede to the Lugano Convention, the effectiveness of this exclusive jurisdiction clause remains to be seen.

Moreover, post-Brexit transition period (31 December 2020), England plans to accede to the Hague Convention in its own capacity. However, the Hague Convention would only apply to the exclusive jurisdiction clauses entered into after the convention comes into force for England (presumably 1 January 2021). The new LCIA Rules 2020 come into effect on 1 October 2020.

Hence, while the jurisdiction clause is certainly helpful, it could be subject to some short-term turbulence in the near future.

 

The Applicable Law Question

While this new addition to the rules is undoubtedly a welcome step, there is one subsidiary issue that deserves analysis – what would be the applicable law to the lawsuit against the LCIA? Two approaches emerge: English law or the law applicable to the arbitration.

The first approach emanates from Article 4(1)(b) of Rome I Regulation, that the applicable law in the service provider contract is the law of the habitual residence of the service provider, in this case, English law. With the new jurisdiction clause in Article 31.3, this applicable law approach will naturally result in the application of lex fori. This choice of law approach is not readily dismissed due to Brexit because according to Article 66(a) of the withdrawal agreement, Rome I Regulation will apply to contracts concluded before the end of the transition period.

The second approach builds upon the argument2)Maxi Scherer, Lisa Richman and Remy Gerbay, Arbitrating under the 2014 LCIA Rules. A User’s Guide (Kluwer Law International 2015) 377-378. jQuery("#footnote_plugin_tooltip_8614_2").tooltip({ tip: "#footnote_plugin_tooltip_text_8614_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); that the applicable law to the liability action would depend upon the law applicable to the arbitration. This follows from the fact that international arbitration as an object anchored in one jurisdiction could be administered by an arbitral institution domiciled in another jurisdiction. If the performance of the contractual obligations of the LCIA is in a foreign jurisdiction (the seat) and not in England, the applicable law to the contractual obligations of the LCIA would be foreign law, which would not only be lex arbitri (of the arbitration) but also lex contractus (of the contractual relationship between the parties and the LCIA). Consequently, in the light of the new Article 31.3, the English courts being the competent courts would decide the liability action against the LCIA by applying foreign law.

Under Common Law, foreign law is treated as a fact which needs to be pleaded by the claiming party. If the trial court makes an error of fact, it is not appealable because appeals are generally reserved for questions of law. Hence, in jurisdictions like Australia, misapplication of foreign law as fact would be unreviewable. In England, however, foreign law is treated as “fact of a peculiar kind” and hence reviewable by appeal.3)Parkasho v. Singh [1968] P 233. jQuery("#footnote_plugin_tooltip_8614_3").tooltip({ tip: "#footnote_plugin_tooltip_text_8614_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

While both applicable law approaches do not cause any controversy within themselves, it remains to be seen how the courts will deal with the tension between lex fori and lex contractus.

 

Conclusion

The LCIA has pioneered several developments in the sphere of international arbitration. From being the first institution to release the reasons for its decisions on the challenges against the arbitrators to now adding a jurisdiction clause to its liability limitation provision, the LCIA has once again set a benchmark for efficient institutional practice. However, the new jurisdiction clause is not immune from the debate, particularly in light of Brexit. Additionally, there’s an argument to be made that instead of using the term “applicable law” in the liability limitation provision, the LCIA could have put “choice of law” clause, putting to rest this tension between lex fori and lex contractus.

Nevertheless, this new provision would lead to more certainty for everyone involved, and it is another step in the process of creating a more balanced arbitral system.

 

The opinions of the author are personal and do not represent the opinion of the organisations he is affiliated with.

References   [ + ]

1. ↑ Maxi Scherer, Lisa Richman and Remy Gerbay, Arbitrating under the 2014 LCIA Rules. A User’s Guide (Kluwer Law International 2015) 377-378. 2. ↑ Maxi Scherer, Lisa Richman and Remy Gerbay, Arbitrating under the 2014 LCIA Rules. A User’s Guide (Kluwer Law International 2015) 377-378. 3. ↑ Parkasho v. Singh [1968] P 233. 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Interviews of Our Editors: A Fireside Chat with Kiran Gore, Mary Mitsi, Theresa Tseung and Ylli Dautaj

Fri, 2020-08-28 03:00

The third of our series continues with a fireside chat with four of our fellow editors: Kiran Gore (Associate Editor), Mary Mitsi (Assistant Editor for Europe), Theresa Tseung (Assistant Editor for East and Central Asia), and Ylli Dautaj (Assistant Editor) (Investment Arbitration).

 

Good day all and thank you for joining me today!

 

  1. Let’s start by asking you to share three adjectives that your close friends would use to describe you.

Kiran: Rather than three words, I will respond with a description I have heard used for me in different settings. I am often told that I am “the eye within a storm.” I operate well in high pressure situations and am not easily flustered. My secret for maintaining this composure is years and years of yogic training.

Mary: Observant, patient, and proactive. I am told that I have a serene way of dealing with problems and providing solutions.

Theresa: Having tapped some of my closest friends on the shoulder for this question, the general responses are perceptive, motivated and resilient.

Ylli: I have been described as hard-working, energetic, and positive.

 

  1. Thanks for sharing! You all have taken different career paths in arbitration. What surprises you most about your job?

Mary: Combining academia with the practice of arbitration has been the most pleasant surprise for me. Arbitration has challenged me to apply theory to practice but also to theorise over the nature, proceedings and transnational character of this dispute resolution process. This multilevel approach to arbitration makes me feel that I am practicing a field of law which is constantly evolving and redefining itself.

Theresa: I second Mary’s views on how working in the field of arbitration could bring pleasant surprises and lead to much personal and professional growth.

Thanks to the exposure I gained on the job, it has been immensely motivating to witness the level of dedication and skills shown by many in the arbitration community, who persistently strive for excellence and advancement in their work.

It has also led me to appreciate the importance of diligence, discipline, attention to details, as well as the ability to react responsively and constructively to even the most delicate issues with precise solutions, while staying composed and organised under pressure.

The opportunity to be closely involved in a large number of multifarious cases with brilliant minds has been inspiring, and has tremendously strengthened the appeal of arbitration.

Ylli: I would also agree with Mary in toto. Combining academic endeavours with practice makes this particular field of law very dynamic and intellectually stimulating. I happen to enjoy the comparative methodological approach applied to the procedural dilemmas that often arise in practice.

I am surprised with the enthusiasm surrounding the transnational nature of international arbitration. The sociology of arbitration is fascinating. It is truly exciting.

 

  1. I like how all three of you point to the challenging nature of arbitration practice as a motivation for your dedication to arbitration. Many younger arbitration practitioners regularly cite mentorship as something fundamental to them. Who is your most inspiring arbitration mentor and why?

Ylli: A role-model or a source of inspiration is very important. In fact, in terms of personal development, I rank it above anything else. In that light, I feel that we should express appreciation where appreciation is due. I have many inspiring arbitration mentors, but will mention three here: Professor Kaj Hobér, Per Magnusson, and Professor William F. Fox.

I would be nowhere close to where I am today but for the Uppsala University program on investment treaty arbitration, founded and run by Professor Kaj Hobér. In addition, since I graduated many years ago, I have been blessed with his kind support and mentorship, culminating in various academic achievements. Per Magnusson has made me a much better arbitration practitioner. Every time we discuss matters it feels like I am partaking in enjoying the fruits of his life-long labour, achievements, and wisdom. Finally, Professor William F. Fox has been so gracious and kind with his time, we have travelled the world together on arbitration-related matters – from Hong Kong, to New York, to Delhi, to London, and so on and so forth.

I would be nowhere today but for the above-mentioned individuals. I cannot express my gratitude enough. I hope that my students and associates will feel the same about me.

 

  1. As society evolves, notions of success and failure are being challenged and redefined. What would you consider to be one of the characteristics of a successful arbitration practitioner today?

Kiran: I have been a practicing lawyer for 12 years and during this period I have been through two recessions (2008 and also the current one), held a variety of full-time and part-time positions in well-established and start-up environments, and become a mother. Not only have I seen society’s notions of success and failure evolve, but my own personal views have become more nuanced.

Today, I see arbitration as a field that thrives through innovation on traditional approaches to dispute resolution. I find the same to be true for arbitration practitioners. The most successful among us are intellectually curious, keen to propel the profession forward, and always looking to address the next challenge or unsolved problem.

 

  1. Kiran, I find it interesting you talk about always looking to address the next challenge. C.S Lewis once said, “You can make anything by writing.” What is one tip you would want to share with aspiring writers for our Blog?

Kiran: I teach written and oral advocacy in the international LL.M. program at The George Washington University Law School. Based on my work mentoring students from around the world, and in honing my own writing skills, I have two key bits of advice. First, think big picture. Research involves understanding details and forming evidentiary bases for your ideas. But strong writing entails identifying the most important pieces of information for the story or argument at hand. Second, and relatedly, as advocates and writers, we must be engaging storytellers. We should aspire to use words effectively and accurately, and revise to cut the fluff! We should tailor the story to its audience, with room for adaptation and improvisation in case the unexpected comes up. This kind of writing involves knowing the story inside and out, which brings us back to the necessity of strong research and investigative skills. We should never be caught off guard and must be so well-informed that we can manage even if left surprised.

Mary: To add to what Kiran said, not losing sight of the big picture is very important. As jurists, it is rather tempting to delve into the world of research by over-analysing laws, facts and arguments. However, this should be done in a way that is not detrimental to the consistency and coherence of our writing. Words, phrases, sentences and paragraphs should be written always with a view to the core argument and main purpose of our writing. My second advice is to ‘keep it personal’. Aspiring authors should adopt their own personal writing style which will constitute the identity of their writings. How we put words together, the way we express our opinion, the courtesy with which we disagree with other opinions out there, will define the kind of authors that we are.

Theresa: Thank you Kiran and Mary for the valuable advice. I am certainly taking note myself! Over the one year I spent on our Blog’s editorial team, I have observed that a key element to building the breadth of quality knowledge and insights on the Blog is the infinite intellectual curiosity of our writers and editors. Participants in the writing and editing processes are eager to understand and reflect on the dynamic development, and sometimes stagnation, of the law in the context of the ever-changing global realities. To develop meaningful contents, I would encourage aspiring writers for our Blog to stay curious, aware and analytical.

 

  1. To end our fireside chat, name one bucket list place that you hope to visit.

Kiran: In my “free” time I am an avid yoga practitioner and I am an internationally-certified yoga instructor. I would like to one day visit the Galapagos Islands for an extended yoga retreat. I have my eye on a particular resort that allows access to local wildlife and natural preserves. Some years ago, my husband and I spent several days at an island eco-lodge (no electricity or mobile reception) in Brasil’s Rio Negro. It was a refreshing experience and I would like to experience something similar again, but more immersive!

Mary: I would love to visit Egypt. The Nile, the pyramids of Giza, the library of Alexandria, the beaches of Hurghada make Egypt an alluring travel destination.

Theresa: The Summit of Kebnekaise, the highest mountain in Sweden. This mountain has been repeatedly mentioned in conversations since I first moved to Sweden in 2013. In terms of destination, the furthest north I have reached in the country so far is Åre, which is only halfway between the southwest coast where I lived and Kebnekaise in the north even after a 12-hour drive!

Ylli: I really enjoy food, coffee, and beautiful architecture (old and modern alike, but especially university campus’). For the combined reasons, there are so many places I still want to visit. However, to mention one, it would be Cartagena, Colombia.

  

Those sound like amazing places to visit, and thank you all for your time! I wish you the best of health and a fruitful rest of the year for 2020.

 

Further interviews in this series of interviews of our editors are published here.

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Global Trend of Tightening FDI Screening: A Race to Build Walls?

Thu, 2020-08-27 04:00

The years since 2017 have witnessed a global trend of tightening foreign direct investment (FDI) screening processes. Major economies, including the United States, Germany, France, the United Kingdom, and the European Union have moved towards stricter FDI rules. In all of these cases, security concerns and, in particular, the need to protect cutting-edge technologies against theft and prevent foreign control over strategic infrastructure assets, have been cited by governments to explain the policy shift.

Japan is no exception to this trend. In 2019, rules on investment screening under the Foreign Exchange and Foreign Trade Act (FEFTA), which sets out cross-sectoral regulations on inward FDI in Japan, were tightened only two years after their last amendment in 2017. Following the 2019 amendment foreign investments in “designated business sectors” are subject to tightened regulations. According to the list issued by the Japanese Ministry of Finance (updated as of 10 July 2020), the majority of Japanese-listed companies fell within “designated business sectors’. Notably, following the spread of COVID-19 and the intensifying race to develop vaccines and treatments, the scope of “core designated business sectors” (which are subject to the most extensive regulations) has expanded to include manufacturing industries for pharmaceuticals and highly controlled medical devices. In order to address the concern that the reform causes a chilling effect on inward foreign investment, the 2019 FEFTA amendment also introduces a system for exemption from the requirement of prior notification under certain conditions.

It is worth noting that behind the 2019 amendment was recognition of the need to keep pace with Europe and the United States’ movements towards strengthening inward FDI screening that occurred in and after 2017. Specifically, the interim report of the Subcommittee on Security Export Control Policy explained the need for an immediate review of Japan’s inward FDI management as follows:1)Translation by author. The 2019 FEFTA amendment drew on the interim report. jQuery("#footnote_plugin_tooltip_7816_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7816_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

If the level of inward FDI management in Japan is lower than others [US and specific European countries] and thus Japan becomes a ‘loophole’ ¼ it would not only raise security concerns through the outflow of technology but also deter foreign companies from building business relationships with Japanese companies”.

While this may be a valid approach under the current rules of the World Trade Organization (WTO) and international investment agreements (IIAs) that draw on the concept of national (as opposed to international) security interests, it also suggests the risk exists that states will continue to introduce increasingly restrictive measures on the grounds of national security, which may cause a ‘race to build walls’.

 

Tension between FDI screening measures and investment liberalisation commitments

Introducing stricter domestic measures on FDI screening creates tension between these measures and states’ commitment to liberalise international investment under the General Agreement on Trade in Services (GATS) and IIAs which include such commitments (Liberalisation Model IIAs). While the possible inconsistency between tightened screening and liberalisation primarily concerns the pre-investment stage, whether the dispute may be brought to investor-state dispute settlement fora depends on the wording of the relevant IIA and the facts of the case.

For example, under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), arbitrable investment disputes may exist in the following situations: where an attempted expansion (e.g. an additional acquisition of shares) of covered investments is blocked under the strengthened FDI screening rules, which results in the investor incurring loss or damage; and where pre-investment expenditures for the establishment or acquisition of investments qualify as a ‘loss or damage by reason of, or arising out of’ a breach of investment liberalisation obligations (Article 9.19(1)).2)Walid Ben Hamida, ‘The Mihaly v. Sri Lanka case: some thoughts relating to the status of pre-investment expenditures’, in Todd Weiler (ed.) International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law (2005) 47-76. jQuery("#footnote_plugin_tooltip_7816_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7816_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Even when the dispute falls outside the scope of investment dispute settlement, a contracting party may dispute the interpretation and application of the IIA at state-state dispute settlement forums provided in the relevant IIA (e.g. inter-state arbitration and panel proceedings). In both state-state and investor-state disputes, several major legal issues arise concerning the consistency of the screening measure in question and investment liberalisation commitments.

 

Possible legal issues

Liberalisation Model IIAs typically seek to avoid conflicts between domestic restrictive measures and international liberalisation commitments by providing ‘reservations’ of non-conforming measures and exception clauses. An increasing number of IIAs, including the CPTPP, have adopted the “negative list approach” and identified non-conforming measures, business sectors, and activities (collectively, Activities) that need to be excluded from investment liberalisation obligations.

Even when the relevant non-conforming measures are listed, the contracting party may not adopt new or more restrictive measures than those identified in the list in the future if they are subject to so-called ratchet obligations. Under the ratchet obligations, an amendment to any non-conforming measure must not decrease the conformity of the measure with the relevant obligations as they existed immediately before the amendment. For example, Article 9.12 of the CPTPP provides that:

Article 9.4 (National Treatment), Article 9.5 (Most-Favoured-Nation Treatment), Article 9.10 (Performance Requirements) and Article 9.11 (Senior Management and Boards of Directors) shall not apply to: (a) any existing non-conforming measure that is maintained by a Party … (c) an amendment to any non-conforming measure referred to in subparagraph (a), to the extent that the amendment does not decrease the conformity of the measure, as it existed immediately before the amendment” with these obligations.

Therefore, in the case of the FEFTA amendments, unless a more restrictive FDI screening measure introduced by the amended FEFTA falls within the category of non-conforming measures without ratchet obligations, it would prima facie amount to a violation of Japanese investment liberalisation obligations. As the scope of activities Japan reserves without ratchet obligations under its IIAs is highly limited,3)Under the CPTPP, such activities are identified in Annex II. jQuery("#footnote_plugin_tooltip_7816_3").tooltip({ tip: "#footnote_plugin_tooltip_text_7816_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); tightened FDI screening will, in many cases, have to be justified by exception clauses, particularly security exception clauses.

 

Security Exception Clauses

All security exception clauses in Japan’s Liberalisation Model IIAs have used “self-judging” wording concerning, inter alia, the question of whether a measure is necessary to protect essential security interests. For example, Article 29.2 of the CPTPP provides that:

Nothing in this Agreement shall be construed to: (a) require a Party to furnish or allow access to any information the disclosure of which it determines to be contrary to its essential security interests; or (b) preclude a Party from applying measures that it considers necessary for the fulfilment of its obligations with respect to the maintenance or restoration of international peace or security, or the protection of its own essential security interests.

This is in contrast to the ‘non-self-judging’ wording of necessity exception clauses in other bilateral investment treaties (BIT) such as the US–Argentina BIT (Article XI), Mauritius–India BIT (Article 11(3)) and Germany-India BIT (Article 12) that have been discussed in investment arbitration cases.4)E.g. LG&E Capital Corp, and LG&E International, Inc v Argentine Republic, ICSID Case No. ARB/02/1, Award (25 July 2007); CC/Devas (Mauritius) Ltd., Devas Employees Mauritius Private Ltd and Telecom Devas Mauritius Ltd v India, PCA Case No. 2013-09, Award on Jurisdiction and Merits (25 July 2016); Deutsche Telekom v. India, PCA Case No. 2014-10, Interim Award (13 December 2017). jQuery("#footnote_plugin_tooltip_7816_4").tooltip({ tip: "#footnote_plugin_tooltip_text_7816_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Whether, and to what extent, self-judging security exception clauses allow substantive review by adjudicatory bodies is a matter of controversy. Outside the context of IIAs, the judgment of the International Court of Justice in Certain Questions of Mutual Assistance in Criminal Matters5)ICJ, Certain Questions of Mutual Assistance in Criminal Matters, Djibouti v France, Judgment 4 June 2008, ICJ Rep 177. jQuery("#footnote_plugin_tooltip_7816_5").tooltip({ tip: "#footnote_plugin_tooltip_text_7816_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and the WTO panel report in Russia-Transit6)Panel Report, Russia — Measures Concerning Traffic in Transit, WT/DS/512, adopted 5 April 2019. jQuery("#footnote_plugin_tooltip_7816_6").tooltip({ tip: "#footnote_plugin_tooltip_text_7816_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); both support the approach that these clauses fall under the general obligation of a state to carry out its commitments in good faith (Article 26 of the Vienna Convention on the Law of Treaties), and that the good faith standard is subject to judicial review. However, what the good faith obligation actually requires remains unclear, and will need to be assessed on a case-by-case basis.

 

Need for an international cooperation mechanism

As noted above, the current international law framework, in which invoking the concept of national security is the only means for states to address newly emerging security threats, has the risk of causing a “race to build walls”. The tension between tightened FDI screening and investment liberalisation commitments, thus heightened, may lead to state-state and investor-state disputes. This underscores the urgent need to establish an international mechanism of cooperation to address emerging and borderless security threats. Doing so is admittedly challenging given the highly political and inherently sensitive nature of security issues. Nevertheless, as the tension between economic globalisation and security will certainly increase rather than abate during and after the COVID-19 crisis, now is the time for initiatives to create a mechanism for dialogue and cooperation in political, business and academic communities.

References   [ + ]

1. ↑ Translation by author. The 2019 FEFTA amendment drew on the interim report. 2. ↑ Walid Ben Hamida, ‘The Mihaly v. Sri Lanka case: some thoughts relating to the status of pre-investment expenditures’, in Todd Weiler (ed.) International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law (2005) 47-76. 3. ↑ Under the CPTPP, such activities are identified in Annex II. 4. ↑ E.g. LG&E Capital Corp, and LG&E International, Inc v Argentine Republic, ICSID Case No. ARB/02/1, Award (25 July 2007); CC/Devas (Mauritius) Ltd., Devas Employees Mauritius Private Ltd and Telecom Devas Mauritius Ltd v India, PCA Case No. 2013-09, Award on Jurisdiction and Merits (25 July 2016); Deutsche Telekom v. India, PCA Case No. 2014-10, Interim Award (13 December 2017). 5. ↑ ICJ, Certain Questions of Mutual Assistance in Criminal Matters, Djibouti v France, Judgment 4 June 2008, ICJ Rep 177. 6. ↑ Panel Report, Russia — Measures Concerning Traffic in Transit, WT/DS/512, adopted 5 April 2019. 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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The Contents of Arbitration: The International Journal of Arbitration, Mediation and Dispute Management, Volume 86, Issue 3 (August 2020)

Thu, 2020-08-27 03:00

IN Memoriam Derek Roebuck (1935 – 2020) by Neil Kaplan

With the passing of Derek Roebuck on 27 April the world of arbitration has lost its current and much-loved chronicler. Although Derek was a prolific author of legal texts he will long be remembered for his outstanding volumes on the history of arbitration from earliest times until almost the present.

 

Michael Davar & Ioana Bratu, ‘Recognition and Enforcement: Brussels V. Arbitration’.

This article focuses on the enforcement of arbitral awards, particularly within the European Union (‘EU’), the impact of EU policy measures, EU case law, and Brexit on the recognition and enforcement of arbitral awards. The article also touches upon the interplay between the New York Convention and the Brussels regime, in order to explain the role of the Court of Justice of the European (‘CJEU’) and the English courts in the evolution of EU law.

 

Karl Hennessee, ‘Change for the Sake of Change: Does the Explosion of Recent Arbitral Innovations Actually Deliver on the User’s Expectations?’.

The arbitration community of institutions, practitioners, arbitrators and academics compete for attention with frequent announcements of ‘innovations’ and related claims of increased efficiency and other inchoate benefits. This article calls for a standardised definition of innovation and its application to proposals for change in the world of commercial arbitration, seeking an assessment based on outcomes and increased relevance for the ultimate commercial users that arbitration is meant to serve. Examples of recently announced innovations are reviewed from an empirical perspective, by comparing similar initiatives and then drawing the author’s personal conclusions on how well the exemplars meet the expectations set by their proponents and the objective standard proposed by the author.

 

Daniel LING Tien Chong, ‘Institutional Leadership or Institutional Overreach?: Overriding the Parties’ Agreement for the Number of Arbitrators in Expedited Proceedings’.

The institutions of international arbitration have played an increasingly active role in arbitral governance. The claim that they merely provide administrative services no longer holds water. With the ability to amend institutional rules, update practice guidelines, and revise institutional practices, they wield the power to efficiently effect change – a power which no other actor in international arbitration comes close to having. However, it has been said that in their quest to lead change, some institutions have overstepped their mandate and overreached their powers. Based on a variety of primary and secondary sources, this article examines the situations in which institutions have overridden the parties’ agreement for the number of arbitrators appointed in cases of expedited proceedings. Thereafter, it seeks to analyse whether institutions, in a bid to push progress have overstepped their authority.

 

Suraj Sajnani, ‘Emergency Arbitration in Asia: Threshold for Grant and Enforcement of Emergency Relief’.

This article explores the origins of urgent relief in legal proceedings and how this laid the groundwork for the advent of modern emergency arbitration. It then conducts a review of the different thresholds for grant adopted by arbitration institutions in the Asia Pacific region, commenting on the value of codification of a test for grant and on key elements common to the different thresholds adopted. It also then discusses the legislative framework for enforcement adopted by jurisdictions within the Asia Pacific region, and relevant emergency arbitration enforcement case law to date.

 

Lim Siyang Lucas, ‘Rules of Procedure and the Blurred Lines of the 1958 New York Convention’.

In proceedings for recognition and enforcement of international arbitral awards, national courts are allowed to apply their own rules of procedure, pursuant to Article III of the New York Convention. However, the application of some of these procedural rules may lead to the award being denied recognition and enforcement, including rules on personal jurisdiction, limitation periods, and forum non conveniens. This comes into conflict with the widespread belief that the grounds for refusing recognition and enforcement that are listed in Article V of the New York Convention are exhaustive. This article challenges the conventional wisdom that the grounds listed in Article V are exhaustive, and argues that a domestic rule of procedure may be used to deny recognition and enforcement where either: the rule in question is widely applied in Contracting States to the New York Convention; or some interest or policy of the forum State would be significantly furthered by the application of that rule.

 

Mary Howard, ‘International Arbitration and Cross-cultural Issues.

This article highlights and explores the impact of denial and lack of awareness of the issues related to social cultural differences in the context of international arbitration. Research shows that some arbitrators deny Cultural Difference Issues (CDI) or act as if public or private international law in the cases exist in a vacuum. There is evidence of cases where arbitrators ignore that CDI have significant impacts on the outcome of international arbitration. Furthermore, some international arbitrators believe that the only cultural differences are differences between the legal systems and technical understanding, denying the existence of CDI in the context of international arbitration, and yet, evidence shows that culture affects a person’s world view, understanding of law, business norms, emotions and expectations.

 

Peter Ashford, ‘Is an Asymmetric Disputes Clause Valid and Enforceable?’

Asymmetric clauses are a regular feature of commercial contracts, especially in finance transactions. The apparent unfairness reflected by one party having different, and often ‘better’, rights than the counterparty has given rise to a number of reactions. In many courts, party autonomy, in agreeing to the asymmetry, is upheld. There are sound policy reasons to do so. Elsewhere, the principle of equal treatment is invoked to challenge the asymmetric clause. Several major decisions upholding the equal treatment challenge have been handed down. Many of these have either been misunderstood, misapplied or have subsequently been clarified in favour of broad party autonomy.

 

Case Note:

Sam Luttrell & Peter Harris, ‘Confronting the Incredible: Revisiting the Applicability of the Rule in Browne v. Dunn in International Arbitration’.

Taking its name from an old English case, the rule in Browne v Dunn refers to the principle that if a party wishes to have the evidence of the other party’s witness disregarded or discredited, it must challenge the relevant witness on their evidence in cross examination. The applicability of this rule in international arbitration is controversial, not least because of the tension between, on the one hand, requiring a party to exhaustively cross examine a witness on every contested point of their evidence and, on the other hand, the requirements for procedural economy. International arbitration must also allow for different legal traditions, many of which do not have a similar to practice to those that follow the rule in Browne v. Dunn. This controversy reached a new height in 2019 when, in P v. D, the English High Court refused to enforce an arbitral award, in essence, because there had been a failure to cross examine the witness on a factual point which was pivotal to the tribunal’s deliberation (and therefore, in the Court’s mind, a breach of the rules of natural justice, based on the rule in Browne v. Dunn). This article reviews the applicability of the rule in Browne v. Dunn to international arbitration and makes suggestions for wording that may be included within procedural orders to create clarity and reduce the risk of challenges to the enforceability of an arbitral award.

 

Book Reviews:

Mika Savola: Roman Khodykin – Carol Mulcahy (Consultant editor Nicholas Fletcher QC), A Guide to the IBA Rules on the Taking of Evidence in International Arbitration, Oxford University Press (2019), 584 pages ISBN 978-0-19-881834-2. Nathan D. O’Malley, Rules of Evidence in International Arbitration: An Annotated Guide, (Second Edition, Informa Law from Routledge 2019), 397 pages ISBN 978-1-138-67473-8.

Two comprehensive commentaries on the IBA Rules on the Taking of Evidence in International Arbitration (‘the IBA Rules’) were published last year. This is a joint review of both of them. The authors and titles are mentioned above; in the following, I shall refer to one of the books as ‘Khodykin – Mulcahy’ and the other one as ‘O’Malley’.

 

Gordon Blanke: Arbitration in Malaysia: A Commentary on the Malaysian Arbitration Act, by Thayananthan Baskaran, (Wolters Kluwer, 2019), 433 pp., EUR 177, ISBN: 978-90-411-8665-2

This book is one of the most recent publications in the Kluwer series of commentaries on the world’s national arbitration laws. It has been authored by an English- qualified barrister of Malaysian origin with particular practical experience in the field. The subject of this Commentary is the Malaysian Arbitration Act, which was adopted in 2005 and primarily applies to arbitrations seated in Malaysia.

 

Gordon Blanke, The ICSID Convention, Regulations and Rules: A Practical Commentary, edited by Julien Fouret, Remy Gerbay, Gloria M. Alvarez, with Denis Parchajev (Edward Eldgar Publishing, 2019), 1,499 pp., £ 375, ISBN: 978–17-86-4352-1

The coverage of this work is comprehensive, comprising both (1) the provisions of the Washington Convention, which the reader will know in long hand under the title of the Convention on the Settlement of Investment Disputes between States and Nationals of other States or simply the ICSID Convention, and (2) the ancillary ICSID instruments, that is the ICSID Administrative and Financial Regulations, the ICSID Rules of Procedure for the Institution of Conciliation and Arbitration Proceedings, and the ICSID Rules of Procedure for Arbitration Proceedings.

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