Kluwer Arbitration Blog

Syndicate content
Updated: 1 hour 51 min ago

The Protection of the Public Interest in Public Private Arbitrations

Sun, 2017-05-07 23:37

Stavros Brekoulakis

ITA

In international arbitration, as in other fields of law, the divide between private and public—commercial arbitration and public international (including investment) arbitration—traditionally has been the generally, if uncritically, accepted belief. When public bodies are involved in commercial contracts, the traditional point of distinction has been whether the state operated jure imperii or jure gestionis. Apart from the fluid and often difficult to ascertain meaning of the these grandiose Latin terms, the distinction has been unsatisfactory, mainly because it fails to capture an increasingly growing middle ground upon which the arbitration literature has only recently started to focus, including in an article I recently co-authored with Margaret Devaney for the Modern Law Review1)See for example, S. Schill, project on ‘Transnational Private-Public Arbitration as Global
Regulatory Governance: Charting and Codifying the Lex Mercatoria Publica’. jQuery("#footnote_plugin_tooltip_9486_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9486_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });. It is the ground occupied by contracts between public bodies and private parties, and disputes arising out of such contracts that may have public interest implications. Examples of such contracts (and related disputes) include public procurement contracts, big infrastructure and concession contracts, contracts for the provision of an essential public service (provision of energy and water) or contracts for the implementation of important governmental policies in sectors that are sensitive for the public, such as health, education, social welfare and immigration.

The last forty years has witnessed a remarkable growth in the rise of public-private contracts and related disputes. The growth owes to two concurrent developments. One the one hand, with the collapse of the non-arbitrability doctrine, the scope of arbitration has greatly expanded to include not only claims pertaining to the formation, interpretation and performance of commercial contracts, but crucially statutory claims that may have crucial social implications. Today, international arbitral tribunals routinely review disputes associated with public policy, including (in investment law) disputes arising out of the exercise of regulatory sovereignty of host states.

On the other hand, a combination of economic and ideological factors has led to increased interaction between public and private sectors and increased reliance on private actors to perform public functions in virtually every industrialized state.

The connection between these two developments—the expansion of arbitration’s domain and the rise of the ‘contracting state’—is the fact that many public-private contracts favour arbitration and other private forms of dispute resolution over resolution of disputes in the national courts. For example, the Model Terms and Conditions of Contracts for Goods issued by the UK Office of Government Commerce provide for a multi-tiered dispute resolution process ending in arbitration in the event that informal negotiation and mediation are unsuccessful. Similar dispute resolution provisions are common in the standard forms of international construction contracts typically utilized for procurement of public works.

This type of public-private arbitration can have important implications for the public interest. The e-Borders case provides an example from the UK. The case concerned a dispute between the UK Secretary of State for the Home Department and the US defence company, Raytheon Systems Limited, in respect of a 2007 contract for the design, development and delivery of a multimillion pound technology system (e-Borders) which would reform UK border controls by establishing an electronic system to vet travellers entering and leaving the UK. When the Home Office terminated the contract in 2010 for significant delays in progress of the works, Raytheon commenced arbitration proceedings claiming substantial damages for unlawful termination. The arbitration proceedings were conducted confidentially, under the rules of the London Court of International Arbitration. The arbitrators were English and American, with a Canadian chairman. The arbitrators decided, apparently within an exclusively private law setting, that the Home Office had unlawfully terminated the contract. It awarded damages of approximately £190 million to Raytheon, plus £38 million in interest and claimant’s costs. While the award was challenged by the Home Office and subsequently set aside by the High Court for serious irregularity, the Home Office announced in March 2015 that it had reached a negotiated resolution, agreeing to pay £150 million to Raytheon in full and final settlement of the dispute. The e-Borders award raised serious concerns in the British government and attracted intensive media and public interest, with the focus on the impact of the award on public finances and on UK border security. Some observed that the e-Borders dispute cost the British taxpayer millions of pounds, with no disclosure of information about what went wrong with the Raytheon contract.

As the e-Borders case demonstrates, the potential problem with public-private arbitration is that, while their outcomes may have far-reaching implications for the public interest, the resolution of these disputes may be conducted within an exclusively private law framework. This raises important questions, notably whether the public interest is accounted for, and indeed protected, in public-private arbitrations.

The answer to this question depends on the national applicable law. French law, for example, recognizes the distinctive nature of public-private arbitrations, and a number of French courts decisions have held that awards arising out of public-private arbitrations must be reviewed by administrative courts to ensure that the award is not contrary to French mandatory rules of public law.2)See, for example, the decision of Tribunal des conflits in INSERN v Fondation Letten F. Saugstad (2010) and the more recent decision of the Conseil d’Etat in its 9 November 2016 decision. jQuery("#footnote_plugin_tooltip_9486_2").tooltip({ tip: "#footnote_plugin_tooltip_text_9486_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Similarly, Brazil’s recently-enacted arbitration law provides that public-private arbitration is subject to the ‘principle of publicity’ and all other laws governing transparency in public affairs.3)Law No 13,129 of 26 May 2015. jQuery("#footnote_plugin_tooltip_9486_3").tooltip({ tip: "#footnote_plugin_tooltip_text_9486_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

By contrast, and partially because of the lack of a developed administrative law sphere or a separate body of administrate courts, English arbitration law has been exclusively developed around a private law paradigm, which treats all arbitrations (including those with public interest implications) as commercial. In addition, the English concept of public policy generally has been narrowly construed, and does not necessary capture public law norms.

Resolution of public-private disputes within this private law framework gives rise to a number of potential threats to the public interest. One threat is the likely non-application of public law norms, such as the administrative law doctrines of ultra vires and the rule against fettering, which allow public bodies to disrupt public-private contracts to pursue a competing public interest goal. A second potential threat is the non-application of public law principles of openness and accountability. As public bodies are given their powers on the understanding that they are to be exercised in the public interest, the public has an interest in ensuring such powers are not abused. However, this objective cannot be achieved in public-private arbitrations, which are typically private and confidential. As in the e-Borders case, if the public is denied access to important information in relation to these arbitrations, the public is deprived of the opportunity to consider ‘what went wrong’ and to attribute accountability either to the public body (in which case political accountability should ensue) or to the private party (in which case civil liability should follow).

International arbitration, as a private means of dispute resolution, has been under public scrutiny and (often unfair) criticism, especially in relation to investor-state dispute settlement. However, as the number of public-private contracts increases, public attention is likely to be drawn to public-private arbitrations as well. Unless arbitration responds by dealing with important public interest concerns, state regulation (possibly unwelcome) may soon ensue.

References   [ + ]

1. ↑ See for example, S. Schill, project on ‘Transnational Private-Public Arbitration as Global
Regulatory Governance: Charting and Codifying the Lex Mercatoria Publica’. 2. ↑ See, for example, the decision of Tribunal des conflits in INSERN v Fondation Letten F. Saugstad (2010) and the more recent decision of the Conseil d’Etat in its 9 November 2016 decision. 3. ↑ Law No 13,129 of 26 May 2015. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors:

The post The Protection of the Public Interest in Public Private Arbitrations appeared first on Kluwer Arbitration Blog.

The Vis Moot Is Much More Than Who Wins

Sat, 2017-05-06 20:17

University of Ottawa

From left to right: Aaron King, James Plotkin, Natalie Kolos, Chloe Waind, Dora Konomi, Emily Bradley, Emily McMurtry, Prof. Anthony Daimsis, Eric Bergsten (moot founder), the final bench: Professor Yeşim M. Atamer (Turkey; Professor at Istanbul Bilgi University and also a member of the CISG Advisory Council), Carlos S Forbes, (Brazil; President of CAM-CCBC), and the Rt Hon. Lord Phillips of Worth Matravers (UK; former Senior Law Lord and former President of the UK Supreme Court).

It is hard to put into words the sheer magnitude of the Vis Moot, let alone how it feels to win such a prestigious and challenging competition. While we cannot begin to describe the emotions experienced during the six months leading up to the University of Ottawa’s victory, nor the feelings we continue to experience since then, this post is our best attempt to explain the individual moments, both big and small, that made the Vis Moot one of the most memorable experiences of our lives.

While the competition itself began in the beautiful Vienna Opera House, where we were serenaded with the latest version of Harry Flechtner’s CISG song, our preparation began long before then. The team spent many nights debating on the best arguments for the Claimant and the Respondent, all while endeavouring to remember our high-school math when trying to figure out how many Equatorianian Denars there are in one US Dollar based on the variable exchange rate.

We had the pleasure of attending several pre-moots before travelling to Vienna, including the 4th Annual Penn State Law Pre-Moot, the 5th Annual NYU Practice Moot, and the 1st CAM-CCBC Hanseatic Pre-Moot. These pre-moots gave us the opportunity to test our arguments in front of expert arbitrators from around the world who challenged us and pushed our oral advocacy skills to the next level. Before the competition began, we also participated in a few informal practice rounds with the University of Freiburg, the University of Belgrade, and the University of Auckland. There we met students who were not only articulate and compelling speakers, but also kind and sincere individuals who truly embodied the Vis Moot’s professional and inclusive character. They gave us yet another glimpse into the exceptional talent we would encounter over the next few days.

In the general rounds we faced opponents from the HBKU School of Law, Peking University, Catholic University of Andres Bello, and the University of Zenica. While we felt confident in our performance, we could not help but ruminate on the mistakes we made and the things we wished we had done differently. Given the scoring system’s subjectivity and the strength of our competition, we were relieved to learn that our hard work got us into the playoffs.

We went up against some excellent teams during the playoffs. In the round of 32 we faced the University of Mainz in one of our closest matches. Both the team and their coach, Prof. Dr. Peter Huber, were humble and gracious when we were declared the winners of the round. Throughout the remainder of the competition, they would continue to support us and congratulate us on our success.

By the end of the first day of the playoffs, we were tired – we had argued four challenging rounds in one day, with some of us arguing every round. After a good night’s sleep we were recharged and ready for the semi-finals. There, we faced the University of Montevideo, a consistently strong competitor. The University of Ottawa had faced Montevideo in the 2011 Vis Moot finals so we knew we had our work cut out for us. The team held each other and our breath as we awaited the results. At that moment we felt the weight of the blood, sweat, and tears we had poured into this moot for the last six months. When the arbitrators declared that the University of Ottawa would be advancing to the Grand Final, we cheered and cried.

Walking into the Reed Messe Vienna for the final round brought back the same feelings of awe we experienced during the opening ceremony. Sitting in an immense room filled with thousands of our peers and international commercial arbitration experts from around the world, we could truly feel the significance of the Vis Moot. Eric Bergsten, the father of the Vis Moot and the man who crafted the arbitration problem for the first 20 years of the moot’s existence had succeeded in creating something truly special – a devilishly complex and challenging moot that would bring together over 340 schools from across 65 countries. Because of his vision and passion, we will forever be connected to many of the world’s brightest arbitration minds and the 2,000 students who shared in this experience with us. And the Vis management, made up of Stefan Kröll, the new mad genius behind the problem, Christopher Kee and Patrizia Netal have found a way to capture the magic that our own Vis alumni refer to while recounting their experiences.

The final round against O.P. Jindal Global University flew by, and once again we were left unsure as to which team would prevail. While we nervously awaited the final results, we were overjoyed to learn our teammate Natalie Kolos was awarded the Martin Domke Award for top individual oralist and Chloe Waindand and Emily Bradley received honourable mentions in the same category. It was not long before Mr. Carlos Forbes, the President of the CAM-CCBC and an arbitrator on the final tribunal, climbed the stage to announce the winners. His speech was short and sweet. With a huge smile, he announced the University of Ottawa had won. For the next several hours, students and coaches from around the world would congratulate us and shake our hands. The level of support and congeniality we experienced was exceptional.

Our victory represented a record breaking third win for the University of Ottawa – the most wins by any university in the Moot’s history. This level of success exemplifies how seriously the University of Ottawa and its faculty take mooting and oral advocacy in general. Our university consistently performs well in both domestic and international moots, thanks in part to its excellent coaches. Our coaches, Prof. Daimsis and James Plotkin, a member of the Vis 2015 winning team, pushed us harder than any of us had ever been pushed before. Prof. Daimsis also brought in a great number of guest arbitrators to ensure we considered the problem from every possible angle. Lord Hacking, a leading figure in arbitration for over 35 years, came all the way from London, England, to help in our training. Prof. Daimsis and Mr. Plotkin’s dedication to the Vis and our success inspired us and brought out the best in every team member.

Winning the Vis Moot was a rewarding end to the six months of hard work and dedication we have put into this arbitration problem. But what truly made us winners was not achieving our goal of winning the final, but what we became in getting there. The Vis Moot has had a profound impact on each and every one of us in different ways and has taken us all from ordinary law students to fierce advocates ready to embark on what will surely be exciting and successful careers in law.

Throughout the year, our coaches reminded us that the Vis is so much more than just a moot. Participating in the Vis, according to Prof. Daimsis, is a transnational accreditation. This explains how students from our faculty have ended up in the world’s leading law firms, specifically in their arbitration departments. And the common thread linking all our alumni is the Vis moot.

From all of us on the Ottawa team, thank you to everyone who helped make this dream possible and thank you to all those in the Vis community who contributed to this once in a lifetime experience.

More from our authors:

The post The Vis Moot Is Much More Than Who Wins appeared first on Kluwer Arbitration Blog.

The Western Front: New Arbitration Rules for the Supreme Court of Western Australia

Fri, 2017-05-05 23:24

Elizabeth Macknay, Stewart McWilliam, Christopher Hicks and Timothy Goyder

Herbert Smith Freehills

Introduction

Western Australia has many of the hallmarks of an arbitral hub: from a stable liberal democracy, a reliable and predictable judiciary, and very low rates of corruption, to offices of numerous national and international law firms, world-standard business hotels (albeit only a recent arrival), and an efficient international airport (again, only of late, but better late than never). The capital, Perth, is a short flight from south Asia, and situated in the most populous time zone on the planet. Sitting at the base of an enormous corridor of economic activity, Perth ought, in theory, be a favoured venue for international arbitration.

It is no secret, though, that Western Australia, like all Australian jurisdictions, has lagged the rest of the developed world in its uptake and acceptance of international arbitration as a form of dispute resolution. It remains the case that most commercial disputes concerning Western Australian projects are resolved by litigation, not arbitration.

However, recent economic drivers, and an increasingly ‘arbitration friendly’ Supreme Court, may herald an increase in international arbitrations that are either seated in Western Australia or involve Western Australian companies.

Economic drivers affecting international arbitration

During the global resources boom in the mid-2000’s, minerals-rich Western Australia was a hotbed of exploration and project development. Over this period, the State saw a substantial increase in inbound investment, as money rushed into Western Australia to fund the construction of some of the most significant resources and energy projects in the world. While empirical evidence is difficult to come by, it is logical to suspect that many of the contracts struck during this period contain agreements to arbitrate.

The mining construction boom has passed, and many projects have now entered, or are entering, the production phase. But with projects facing cost pressures associated with global economic stagnation over the past decade, the spectre of disputation looms large. And with so many sophisticated international companies active in the jurisdiction, there is likely to be a growing volume of arbitrations with some connection to Western Australia. This, among other things, prompted the foundation of the Perth Centre for Energy and Resources Arbitration to deal with new opportunities for Perth-seated arbitration.

Fortunately, the Supreme Court of Western Australia recognises, and is supportive of, this development. It has recently implemented new court rules to streamline and clarify the process for parties seeking the support of the Supreme Court in aid of arbitration. Additionally, recent decisions of the Supreme Court have signalled that Western Australia is a safe seat for commercial arbitration.

New Arbitration Rules

The Supreme Court (Arbitration) Rules 2016 (WA) (Rules) substantively came into force on 3 January 2017. The Rules apply to both international arbitration governed by the International Arbitration Act 1974 (Cth) (IAA) and domestic arbitration governed by the Commercial Arbitration Act 2012 (WA). The Rules set out the processes by which parties can apply to the Court to, among other things:

(a) stay court proceedings commenced notwithstanding the existence of a valid arbitration agreement (Rule 6);
(b) grant provisional relief in aid of an arbitration (Rule 12);
(c) facilitate arbitration processes (for example, by issuing subpoenas to third parties in respect of documentary evidence) (Rules 9-11); and
(d) enforce or set aside an arbitral award or another procedural order (Rules 7 and 13-14).

All proceedings subject to the rules are referred to the Commercial and Managed Cases List, and, specifically, a separate Commercial Arbitration List, currently managed by the Chief Justice of the Supreme Court.1)This designated list existed prior to the enactment of the Rules, pursuant to Practice Direction 4.1.2.3 of the Consolidated Practice Directions of the Supreme Court of Western Australia. jQuery("#footnote_plugin_tooltip_8431_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8431_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Rules also provide designated court forms for use in proceedings related to Commercial Arbitration.

The Rules are similar to the rules adopted in other Australian jurisdictions, and are a continuation of the measures adopted by both Commonwealth and State governments following a review of Australia’s arbitration framework. This review, which commenced in 2008, was designed to improve the effectiveness and efficiency of the arbitral process in Australia. In large part, this was achieved by the adoption of uniform legislation, based on the Model Law, in each state and territory to govern commercial arbitration, and amendments to the IAA. At the time of writing, the Commonwealth government has just proposed further reforms to the IAA that would make the enforcement of foreign awards easier in Australia.

Practical Judicial Support

In addition to the practical architecture of the new Rules, the Western Australian Supreme Court has recently made clear in a number of decisions that Western Australia is an ‘arbitration-friendly’ jurisdiction. The Court has issued a number of recent decisions staying court proceedings and upholding the validity of arbitration agreements.2)See Samsung C&T Corporation v Duro Felbuera Australia Pty Ltd [2016] WASC 193; Roy Hill Holdings Pty Ltd v Samsung C&T Corporation [2015] WASC 458. jQuery("#footnote_plugin_tooltip_8431_2").tooltip({ tip: "#footnote_plugin_tooltip_text_8431_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Further, the Chief Justice has, in recent years, endorsed the principle, set out in the English authority of A v B [2007] EWHC 54, that a party successful in applying for a stay of proceedings due to the existence of a valid arbitration agreement should ordinarily be awarded indemnity costs.3)Pipeline Services WA Pty Ltd v Atco Gas Australia Pty Ltd [2014] WASC 10 [18]; KNM Process Systems SDN BHD v Mission New Energy Ltd formerly known as Mission Biofuels Ltd [2014] WASC 437(S). jQuery("#footnote_plugin_tooltip_8431_3").tooltip({ tip: "#footnote_plugin_tooltip_text_8431_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); While this principle has not been universally accepted by judges of the Court,4)Australian Maritime Systems Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2016] WASC 52 (S); Roy Hill Holdings Pty Ltd v Samsung C&T Corporation [2015] WASC 458 (S). jQuery("#footnote_plugin_tooltip_8431_4").tooltip({ tip: "#footnote_plugin_tooltip_text_8431_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); it is another sign of an increasingly pro-arbitration judiciary in Western Australia.

This being said, the Court continues to preserve its own jurisdiction to award interim relief, notwithstanding the existence of an arbitration agreement (or to refuse relief in support of an existing or pending arbitration) unless there is clear and unequivocal contractual language which would require that deference to the arbitral process. In the recent case of CPB Contractors Pty Ltd v JKC Australia LNG Pty Ltd [2017] WASC 112, which considered an application to restrain the defendant from calling on certain bank guarantees, the Court both:

(a) refused the application for a stay of interim injunction proceedings pending arbitration made by the defendant (because of an express carve out in the relevant arbitration agreement for urgent injunctive relief); and
(b) in any event, did not grant the injunctive relief5)The decision is currently on appeal to the Court of Appeal, and a temporary injunction has been granted pending the outcome of the appeal, see: CPB Contractors Pty Ltd v JKC Australia LNG Pty Ltd [2017] WASCA 85. jQuery("#footnote_plugin_tooltip_8431_5").tooltip({ tip: "#footnote_plugin_tooltip_text_8431_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); (to prevent a call on the bank guarantees) sought by the plaintiff as it did not accept, among other things, the plaintiff’s argument that the defendant should be restrained from calling on the bank guarantees (which they were contractually permitted to do) until the arbitration process had run its course.

Conclusion

Both the introduction of the Rules and the Court’s recently expressed disposition to supporting and endorsing the arbitral process make clear that Western Australia is an arbitration-friendly jurisdiction. In the coming years, as more arbitrations are likely to take place in Western Australia, practitioners should be confident that the Court system will be supportive of the arbitration process.

References   [ + ]

1. ↑ This designated list existed prior to the enactment of the Rules, pursuant to Practice Direction 4.1.2.3 of the Consolidated Practice Directions of the Supreme Court of Western Australia. 2. ↑ See Samsung C&T Corporation v Duro Felbuera Australia Pty Ltd [2016] WASC 193; Roy Hill Holdings Pty Ltd v Samsung C&T Corporation [2015] WASC 458. 3. ↑ Pipeline Services WA Pty Ltd v Atco Gas Australia Pty Ltd [2014] WASC 10 [18]; KNM Process Systems SDN BHD v Mission New Energy Ltd formerly known as Mission Biofuels Ltd [2014] WASC 437(S). 4. ↑ Australian Maritime Systems Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2016] WASC 52 (S); Roy Hill Holdings Pty Ltd v Samsung C&T Corporation [2015] WASC 458 (S). 5. ↑ The decision is currently on appeal to the Court of Appeal, and a temporary injunction has been granted pending the outcome of the appeal, see: CPB Contractors Pty Ltd v JKC Australia LNG Pty Ltd [2017] WASCA 85. 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:

The post The Western Front: New Arbitration Rules for the Supreme Court of Western Australia appeared first on Kluwer Arbitration Blog.

Improper Deliberations in International Arbitration as a Ground for Annulment

Fri, 2017-05-05 00:30

Claire Morel de Westgaver and Brian Kotick

Bryan Cave LLP

The obligation for an arbitral tribunal to deliberate before rendering an award is at the heart of the arbitral process. In fact, parties typically agree to submit their disputes to a panel of three arbitrators for the purpose of ensuring objectivity, well thought decisions and equal treatment. Deliberation is so fundamental to the arbitral procedure that its absence, or abuse, could form the basis of annulment proceedings. This is what happened in the Puma case, in which the Spanish Supreme Court recently held that a party to an annulled award was entitled to recover arbitrator fees paid to two arbitrators on the basis that by excluding the third arbitrator from the deliberations they had been reckless and engaged their liability under section 21 of the Spanish Arbitration Law (Judgment of the Spanish Supreme Court, 102/2017).

Most leading arbitration rules are virtually silent on the requisite formalities, if any, of deliberations. Arbitration rules routinely address their confidential nature and sometimes specify that they may take place at a place different from the seat of the arbitration, but they do not generally include provisions relating to the timing (Article 15.10 of the LCIA Rules being an exception) or the conduct of the deliberations. Certain arbitration regimes address the possibility of a decision rendered by a truncated tribunal, including in the event that an arbitrator refuses to participate in deliberations and/or sign an award. Yet, aside from arbitrators’ overarching obligation to be impartial and fair, arbitration rules and statutes tend to remain silent on any duties of arbitrators to conduct the deliberations in a specified manner.

As a result, the standard a court should apply when faced with an arbitral tribunal that does not properly deliberate is far from clear. It has been argued that deliberation is an implied right of the parties derived from their right to be heard and their right to equal treatment. Others have suggested that it is an arbitrator’s duty based on international public policy, since its absence would result in a decision not taken by the arbitral tribunal but by one or two individuals abusing their power.

In the Puma case, the arbitral award was set aside on the basis that Mr. Santiago Gastón de Iriarte, the arbitrator appointed by Puma AG RDS (“Puma”), had not participated in the final deliberation. After several meetings between all three arbitrators, the deliberations regarding damages to be paid by Puma broke down. Two days after the last of these meetings, and with knowledge that Mr. Gastón was travelling, the remaining two arbitrators met, without summoning Mr. Gastón, and rendered an award on terms on which Mr. Gastón did not agree. The parties were notified of the award that same day.

In its decision of 15 February 2017, the Spanish Supreme Court affirmed the ruling of the Provincial Court of Appeal of Madrid, finding that the deliberations had been conducted contrary to the principle of arbitral collegiality. The Supreme Court held that a violation of the principle of collegiality was a violation of the right to a fair trial (Article 24 of the Spanish Constitution) and constituted a ground for annulment for public policy (section 41.1(f) of the Spanish Arbitration Law). The Court came to this conclusion after confirming that the non-participation of the third arbitrator was not the result of purposeful delay, obstruction or intervention in the decisive final discussion in which the final award was to be rendered (which under most arbitration regimes would have allowed a truncated tribunal to issue an award).

The Court stated that deliberation and voting “operates as a means of internal control of its members […]. In other words, it is not the case of that, once the possibility of the majority has been envisaged, or by the agreement of those who support a particular proposal or decision, the participation of the remaining members can be rejected ‘ad limite’, since they have the right and obligation to know […] the internal reasons that justified the decision and final vote”.

The issue of improper deliberations, as discussed in the Puma case, is not a novel one. In Sweden, for example, the absence of a proper deliberation on contentious issues has been relied upon as a ground for annulment as early as 1924 (see Årsbackaträvaruaktiebolag v. E. Hedberg, NJA 1924 p. 569). More recently, the award in Czech Republic v. CME was challenged, though unsuccessfully, on the basis of the alleged exclusion of an arbitrator from the deliberations (Svea Court of Appeals, Case no T 8735-01).

In France, the Court de Cassation considered the principle of collegiality in a similar context in the case of Papillon Group Corporation vs. Arab Republic of Syria and Others decided in 2011. In this case, the Court de Cassation held that given that the Paris Court of Appeal had found that a collegial meeting had taken place and that the third arbitrator had had an opportunity to voice his opposition through a dissenting opinion, the presumption that the arbitral award was rendered after deliberation had not been refuted by the challenging party. As such, the Court de Cassation held that the Paris Court of Appeal was right in concluding from these elements that there had not been any violation of the principle of collegiality described by it as “suppose[ing] that every arbitrator has the right to debate any decision with his colleagues” (Decision n° 706, F-D, R 09-17.346, 29 June 2011).

Without more guidance on the manner in which they should be conducted, deliberations are left exposed to abandonment or abuse. This consequence is exacerbated by the confidential nature of deliberation which makes the occurrence of an impropriety more difficult to establish. In this context, the rising demand for more transparency in international arbitration might lead arbitral institutions to become more inclined to promote a more formal and transparent deliberation process. However, one may legitimately wonder whether doing so would thwart inevitable – often frivolous – challenges and thereby better protect the integrity of the arbitral process. Or, on the contrary, whether a more regulated approach to deliberations would open the door to yet more undue scrutiny over arbitrators and their awards, which in turn could negatively impact the decision-making process and arbitrators’ independence.

More from our authors:

The post Improper Deliberations in International Arbitration as a Ground for Annulment appeared first on Kluwer Arbitration Blog.

Machine Arbitrator: Are We Ready?

Wed, 2017-05-03 17:30

José María de la Jara, Alejandra Infantes and Daniela Palma

A group of lawyers has been coveted in recent years by the most prestigious law firms. They are supposed to predict results more accurately than Gary Born, create more persuasive stories than Stanimir Alexandrov and even issue better awards than Gabrielle Kauffman-Kohler. Their names are Watson, Ross, Lex Machina and Compas – they are Machine Learning Systems (“MLS) with natural language capability and the capacity to review thousands of decisions in merely seconds.

Computer systems are constantly evolving and their use by lawyers has grown steadily. For example, DRExM has been recently used in Egypt to resolve construction disputes, as it has the ability to recommend the most suitable dispute resolution technique, depending on the nature of the dispute, the evidence and the relation between the parties.

In this scenario, it is important to ask whether technology might replace arbitrators in the near future. In order to perform such evaluation, we will resort to the legal framework of several countries from Latin America, as well as the provisions of the UNCITRAL Model Law. Then, we will explore whether MLS would perform better than humans do. Finally, we will turn to the crystal ball to predict which discussion might lay in the arbitration market of the future.

Are parties able to appoint Machine Learning Systems as arbitrators?

Naturally, none of the revised arbitration laws expressly forbids the appointment of a computer as an arbitrator. Instead, every provision regarding the validity of the arbitration agreement only defines it as the submission of a dispute to the arbitrators. In turn, the definitions of “arbitral tribunal” only state that parties may appoint a sole or a plurality of arbitrators. Thus, based on this circular argument, both an arbitration agreement referring the dispute to a Machine Learning System arbitrator and the composition of a tribunal by such machine would be valid.

However, the Arbitration Acts from Peru (art. 20), Brazil (art. 10), Ecuador (art. 19) and Colombia (art. 7 – domestic arbitration) include specific references to arbitrators as “people” or require them to act by themselves. For example, the Peruvian Arbitration Act states that “any individual with full capacity to exercise his civil rights may act as an arbitrators”.

In contrast, legislation from Chile, Colombia (international arbitration) and Mexico, as well as the Model Law, do not contain a specific reference to arbitrators as “people” nor require them to be in capacity to exercise their civil rights. Arguably, this legal loophole would enable users to designate a computer as an arbitrator in these countries.

Despite of that, legal status of MLS might change in the future. For example, members of the European Parliament have proposed to provide legal status to robots, categorizing them as “electronic people” and holding them responsible for their acts or omissions. This kind of regulation would open new doors, arguably allowing parties to appoint computers, even in countries that require “people” arbitrators.

Furthermore, even if parties were not allowed to appoint computers as arbitrators, that does not mean they cannot agree to use them. Even if arbitration laws do not apply, courts should still enforce such agreements as a matter of contract law.

Besides these normative considerations, we believe the appointment of machine arbitrator could be held back based on a supposed breach of international public order. According to Gibson, this concept evolves continually to meet the needs of the political, social, cultural and economic contexts. However, change takes time.

Hence, one might argue that an award rendered by machine arbitrators should be set aside for defying the international public order, as it lacks key human characteristics such as emotion, empathy and the ability to explain its decision.

Would machine arbitrators perform better?

Even though technology has evolved dramatically in the last years, a MLS is still not able to accurately read, predict nor feel emotions. In our view, the lack of emotional processing would be a great handicap for a machine arbitrator. To illustrate this point, let us review what happened to Elliot, one of Antonio Damasio’s patients.

Elliot had a tumor the size of a small orange. Even though the operation was successfully performed, Elliot’s family and friends noticed something strange in his behavior after the procedure.

Before deciding where to eat, Elliot scrupulously scanned the menu of each restaurant, where he would sit, the lighting scheme and attended each establishment to verify how full it was. Elliot was no longer Elliot. Although his IQ had remained intact, he had the emotional life of a mannequin. Without emotion he was unable to make decisions.

In sum, emotions are critical for humans. This would be a great handicap for machine arbitrators. As explained by Allen, computers can’t spontaneously feel emotions, because they can’t recognize nor understand cues as facial expression, gestures, and voice intonation. In turn, machines can’t convey information about their own emotional state by using appropriately responsive cues.

In this sense, Nappert and Flader state that “failure to give proper recognition to the parties’ emotional reactions arguably hampers the arbitrators’ understanding of the case as it discounts the part played by the parties’ emotions in the circumstances leading up to the dispute”.

Emotions act as a source of information, cause of motivation and influence information processing by coloring our perception, memory encoding and judgments. Without them, our decisions are not human.

Also, specific emotions as anger play an important role in legal decision making. As explained by Terry Maroney, anger generates a predisposition towards fighting against injustice. Thus, angry arbitrators are prone to feel an intense desire to repair an unfair situation, even if that means taking more risks to fix the current scenario.

Moreover, Machine Learning Systems also lack empathy. That is, the ability to understand the intentions of others, predict their behavior, and experience the emotion they are feeling.

This emotional intelligence trait requires the development of metacognition; meaning, thinking about thinking, thinking about feeling and thinking about other thoughts and feelings. However, this feature hasn´t been achieved by computers yet.

Empathy is crucial in arbitration. As Frankman explains, arbitrators need to put themselves on the parties’ shoes to understand their hopes, struggles, expectations and assumptions. It is only after this cognitive exercise that arbitrators are ready to fully understand the dispute and reach an award.

Furthermore, Machine Learning Systems are not yet able to explain their own decisions. This could be a problem, even where unreasoned awards are allowed if agreed (e.g. Perú). For example, computers would not be able to issue final judgements regarding a preliminary decision subject to an appeal for reconsideration. Arguably, this could feed resistance against machine arbitrators, based on due process.

Notably, the European Union’s General Data Protection Regulation – which takes effect on May 2018 – forbids automated decisions regarding profiling if the algorithms cannot be later explained to its users (“right to an explanation”). According to Burrel, this will create several problems, as corporations might try to conceal information from public scrutiny, access to codes will probably be not simple enough for ordinary citizens and, specially, there will be a mismatch between the mathematics involved in machine learning and the demands of human-scale reasoning and style of interpretation.

In sum, machines are limited. In our view, an emotionless arbitrator without empathy and the ability to explain itself would not be able to fully understand the drama of the parties, their intent and the provided meaning besides the written text of the contract and documents.

Having said that, we do believe MLS could assist arbitrators. For example, HYPO is a computer that could guide arbitrators in the search for precedent, explaining similarities and differences between cases and even suggesting possible arguments that could be used for the resolution of the dispute. In such cases, the system would not make the decision, but only act as a guide for arbitrators. In this scenario, it would still be up to the human arbitrators to attribute intent and meaning to the evidence.

Final remarks

The arbitration legal framework was not designed to expressly forbid nor allow the appointment of computers as arbitrators. As technology evolves, the time to amend our laws might come sooner than expected.

Therefore, we encourage arbitration practitioners to discuss what would change if machine arbitrators are appointed. How would the standard of conflicts of interests apply? Would it be possible to appoint a computer in a panel with two human arbitrators? How would they deliberate?

Technology will no doubt eventually catch up and provide solutions. Prehistoric lawyers who try to cling to tradition and suppress innovation will remain at the middle of the evolutionary chain. Hence, it is up to the arbitration community to express its needs for empathetic arbitrators that are able to explain and feel their decisions. After all, as Sydney Harris said, “the real danger is not that computers will begin to think like men, but that men will begin to think like computers”.

* The authors would like to acknowledge and thank Christopher Drahozal, Sophie Nappert and Miguel Morachimo for their assistance and contribution to this work.

More from our authors:

The post Machine Arbitrator: Are We Ready? appeared first on Kluwer Arbitration Blog.

Kluwer Mediation Blog – April Digest

Wed, 2017-05-03 03:41

Anna Howard

From conciliation applications in Germany, the use of mediation for companies under judicial reorganization in Brazil, the recent INADR International Law Student Mediation Tournament at the University of Strathclyde in Scotland, to transformative teaching in Shanghai, the broad coverage of topics continues on the Kluwer Mediation Blog. Why not have a look at the summary of the April posts below…

In Did They Teach You This in Law School?, following his recent attendance at the American Bar Association Dispute Resolution Conference, John Sturrock identifies a top ten list of themes which are fairly critical for modern lawyers.

In What Would You Do With … A River At The Table?, drawing on the recent granting of full legal personality to the Whanganui River in New Zealand, Ian Macduff considers the granting of legal rights and moral status to the environment. Ian then explores how to ensure that, in mediation, all those whose interests and rights are at stake are present or represented.

In Transformative Teaching and Training – and Mediation, Greg Bond shares his recent experience of working in Shanghai with undergraduate students from a Chinese university and a German university. Greg explores the variety of ways in which this experience was transformative for both the students and the teacher.

In Your Good Faith Counts – Conciliation Applications in Germany, Krzysztof Nowak and Innhwa Kwon provide a detailed examination of recent German cases on the suspension of the limitation period following an application for conciliation.

In Settling Well, drawing on Michael Leathes’ recent book, Negotiation: Things Corporate Counsel Ought to Know But Were Not Taught, Michael McIIwrath argues that dispute lawyers (both internal and external lawyers) need to invest time into understanding more about negotiation.

In Cooperation with a Competitor, Charlie Irvine explores the challenge faced by young mediators in the recent INADR International Law Student Mediation Tournament at the University of Strathclyde: not only do students act as mediator, advocate and client, but they must co-mediate with a student from another team. In simple terms, the students are being asked to cooperate with a competitor. Charlie identifies the fascinating implications of such cooperation with competitors.

In Movie Mediation Musings – Arrival, Joel Lee identifies useful lessons that mediators can draw from the movie Arrival.

In Is Mediation a Business?, in the first of a series of blogs on the business of mediation, Stephen Walker discusses whether mediation is a business.

In Corporate Recovery, Mediation and Master Chef, Andrea Maia considers the use of mediation in Brazil for companies under judicial reorganization.

In ICC Mediation Competition 2017: In Conversation With The Finalists, Bill Marsh and Anna Howard reflect on, and share, their interview with the finalists of the ICC Mediation Competition 2017.

In Mediation For All Or Mediation At All: How To Make A Living Out Of Mediation?, Virginia Vilches considers how to make a living out of mediation and considers a recent project to implement mediation in El Campo De Gibraltar in Spain.

In Should Mediation Be Free?, Sabine Walsh considers whether mediation should be free, and the meaning of “free”, questions which arise from the current debate in Ireland on its new draft mediation law.

In A New Seat At The Mediation Table? The Impact Of Third Party Funding On The Mediation Process (Part 2), Geoff Sharp and Bill Marsh share their thoughts on the impact third party funding has on the mediation process.

More from our authors:

The post Kluwer Mediation Blog – April Digest appeared first on Kluwer Arbitration Blog.

Trade Wars and Commodity Arbitration

Tue, 2017-05-02 02:00

Ivan Kasynyuk and Dmitry Koval

Throughout the modern history of mankind, trade wars accompanied almost every military or political conflict between hostile states, ready to take the most radical actions for the sake of the victory. This is not surprising as trade directly affects the economy and, accordingly, the ability of the country to fight and resist successfully.

Unfortunately, in order to understand what “trade war” means, we do not have to look into the past, but we just need search in the latest news. As before, such actions nowadays constitute an integral part of any international conflict: trade blockades, sanctions, import duties, quotas and licenses, preferences and many other “weapons” are actively used by world players for their own purposes. Of course, the least “guilty” participants of the market – producers and trading companies of both countries – suffer the most from such conflicts. These players are blatantly forced to incur huge losses as a result of all sorts of restrictions and prohibitions, which often are fatal for their business.

The sphere of commodity trading is particularly at risk, as it is always likely that circumstances preventing contract execution will appear during a significant period of time between the moment of the conclusion of the contract and its execution. The probability of the ban can sometimes be foreseen, as in the cases with the adoption of mirroring sanctions. However, such events have the tendency to occur suddenly, especially given an ongoing armed conflict and the political situation. What can be done in this case?

Import duty

To illustrate, it might happen that goods are sold in April and are to be delivered in September, but official authorities of a buyer’s country introduce additional duties for the import of goods. Who should bear such losses? Is it possible to refuse to supply or to take the goods?

Let us take as example the recent case of the introduction of import duties on the import of Russian products to Turkey and, in particular, the duty on corn and wheat which was established at 130%, and considering that the sale of corn of Russian origin took place in February with subsequent delivery in May.

First of all, it is worth paying attention to the contract concluded between the parties. As a general rule, the parties explicitly determine the buyer to be the party responsible for the import of the goods and for all the formalities associated with the import, including the payment of taxes and duties in the country of import. If the contract is silent, majority of grain and oil commodities contracts incorporate standard contract forms developed by Grain and Feed Trade Association (“GAFTA”) and Federation of Oils, Seeds and Fats Associations (“FOSFA”), which expressly state that all import duties, taxes, levies, etc., present or future, in country of destination, shall be for buyers’ account. If the contract does not incorporate any standard contract form, the parties should refer to any specific rules regulating their obligations under the contract. Most of such transactions are carried out by sea on the basis of CIF or FOB in accordance with the international rules of Incoterms, according to which taxes, duties and other official fees, as well as customs formalities payable upon importation of goods, are paid by the buyer.

Moreover, such contracts tend to incorporate English Law by implication from a standard form or an express agreement. Under the general rule, English law consider such duties as business risks, which do not release the responsible party from performing contractual duties.

That is, under the conditions described above, payment of the import duty on Russian wheat introduced by Turkey will lie with the buyer and will not release it from the obligation to take and pay for the delivered goods.

Import ban

And, what is the case if the authorities of the buyer’s country prohibit the import of goods completely? Is the buyer’s refusal to take the goods due to force majeure circumstances reasonable in this case? The answer is not so clear and it depends on many factors.

Let us take as example a case under the Rules of Arbitration of FOSFA concerning a ban on import of agricultural products in the country of destination. A large agro-holding company (“Seller”) concluded a contract with agro-industrial company (“Buyer”) for the delivery of goods for import and further processing on the territory of the Buyer. According to the contract, the Seller should have delivered the goods on the DAF terms (Incoterms 2000). The place of delivery was the border between the states of the parties and the governing law of contract was English law.

The contract had a force majeure clause that ambiguously interpreted the consequences of imposing import restrictions and the Buyer’s responsibility for not obtaining an import license and other official permits necessary for the import of goods into the territory of his country. Soon after the contract was concluded, the Buyer reported on the governmental restrictions on imports of goods from the Sellers’ country and referred to the force majeure circumstances, making the execution of the contract impossible. Despite the official prohibition, the Seller refused to accept the Buyer’s notification of force majeure and proceeded to fulfill its obligations. During the next several months, the Seller repeatedly notified the Buyer about its readiness to deliver the goods and asked the latter to provide documentary instructions, without which further execution of the contract by rail was impossible. The Buyer confirmed that it could not take the goods, justifying its position by the onset of force majeure circumstances. In the meantime, the price of goods had significantly decreased, making the contract extremely unfavorable for the Buyer. By the end of the delivery period stipulated in the contract, the Buyer had terminated the contract, under the force majeure clause. In response, the Seller considered the Buyer to be in default. As the price for the goods decreased, the Seller demanded compensation for the difference between the contract price and the market price, to which the Buyer objected, arguing the force majeure circumstances and referring to the frustration doctrine under the English law which provides for an exemption from liability. Eventually, the case was submitted to the FOSFA arbitration at the request of the Buyer.

The Seller’s position consisted of two key arguments. Firstly, according to DAF terms, the obligation to obtain a license to import goods in the territory of the Buyer’s country rested on the Buyer, while the Seller’s duty was limited to the delivery of the goods to the borders between the states and did not imply importation into the territory of the Buyer’s country. Secondly, any restrictions on the import of goods into the territory of the Buyer’s country are not force majeure circumstances either within the framework of the contract concluded, including under the DAF terms, or in accordance with English law. In particular, restrictions on import of goods do not fall under the frustration doctrine referred to by the Buyer, as this circumstance did not prevent the Buyer from lawfully performing its contractual obligations, namely, accepting the goods at the contracted place of delivery.

The Tribunal observed that the ban on import had no effect on the fulfillment of the contractual obligations by either the Seller or the Buyer: the Seller could deliver the goods and the Buyer could accept them at the border between the states. At the same time, the import of goods to the Buyer’s country was not the responsibility of the Seller, who was responsible only for export while the Buyer had the obligation to import the goods. Consequently, the ban on imports was not a force majeure circumstance either under the contract, or under English law. Finally, the Tribunal decided that the Buyer could not refer to the ban on the import of goods and refuse to fulfill its contractual obligations. Having terminated the contract, the Buyer itself infringed the contract and therefore must compensate the Seller for the losses incurred as a result of the Buyer’s non-fulfillment of the contract.

The position of the arbitral tribunal under the FOSFA rules shows that impossibility to import will not discharge the contract under the doctrine of frustration. The intention for the goods to be processed in Buyer’s state was indeed the reason why the Buyer concluded the contract; however, the impossibility for such purpose to be achieved was not a sufficient ground to discharge the Buyer from its contractual obligations. The decision generally follows the line adopted by English courts in cases with similar circumstances. (See Congimex Companhia Geral de Commercio Importadora & Exportadora S.A.R.L. v. Tradax Export S.A [1983] 1Lloyd’s Rep. 250 and Bangladesh Export Import Co Ltd v. Sucden Kerry S.A. [1995] 2 Lloyd’s Rep. 1) The parties clearly outlined the scope of their duties in the contract and did it in such a way that the import ban would not make the performance illegal. First, the parties agreed on the DAF Incoterms which specifically provides that the Seller’s obligation is to place the goods at the border between the parties’ states, cleared for export but not cleared for import. Second, the parties agreed to English law as the governing law, which provided adequate level of protection against import prohibitions, preventing the parties to use such circumstances in bad faith and escape from their respective contractual obligations.

Conclusion

Unfortunately, trade conflicts are part of the current trade and economic policy of many countries and they are an inherent risk factor, which must be taken into account when doing business with these countries. Mostly driven by political reasons, the states are always ready to introduce trade restrictions in order to harm the opponent as much as possible. Like any war, a trade conflict entails losses on both sides. In most cases, this practice becomes detrimental to both states, not only to the one introducing the ban, as the case presented above shows.

 

More from our authors:

The post Trade Wars and Commodity Arbitration appeared first on Kluwer Arbitration Blog.

Moldovan Supreme Court Recommends the ICCA Guide as an Interpretative Tool for the New York Convention

Mon, 2017-05-01 03:35

Corina Vodă

One of the goals of “ICCA’s Guide to the Interpretation of the 1958 New York Convention: A Handbook for Judges” – as stated by Neil Kaplan in the Guide’s introduction – is to assist judges around the world in “using the Convention in a way consistent with its letter and spirit”. It seems that the Moldovan Supreme Court of Justice is set to do just that: through an explanatory judgment dated 25 April 2016, it recommended lower courts to take into account the ICCA Guide when deciding on requests to recognise and enforce foreign arbitral awards. This development is remarkable at least for two reasons. First, it is apparently the first time a national court made reference to the ICCA’s New York Convention Guide and, second, it comes from a jurisdiction which, while considerably invested in crafting a modern and robust arbitration system, has so far been relatively unknown in the world of international commercial arbitration.

Going beyond merely directing lower courts to ICCA’s New York Convention Guide, the Moldovan Supreme Court of Justice has summarised the guiding principles courts should abide by when seized with a request to recognise and enforce a foreign arbitral award. These include, among others:

(i) the principle of presumption of validity of both the arbitration agreement and the related arbitral award,
(ii) a pro-enforcement approach when interpreting the New York Convention,
(iii) the prohibition of review on the merits, coupled with
(iv) the principle of restrictive interpretation of the grounds for refusal of recognition and enforcement.

While certain amendments to the Moldovan laws on arbitration and the Civil Procedure Code in 2015 were designed to align the language of the national legislation and the language of the New York Convention in order to exclude conflicts between these two legal sources, the Supreme Court of Justice – in its explanatory judgment – has recognised that contradictions and overlaps might still arise. Consequently, it offered a wide range of solutions:

(i) in case of overlaps between Moldovan law and the New York Convention, the latter will be applied with priority, except when Moldovan law is more favourable (a possibility also in line with Article VII(1) of the New York Convention);
(ii) in case the New York Convention does not regulate specific legal issues, Moldovan law will apply as supplementing the former; and
(iii) in case the New York Convention explicitly refers to national legislation, the latter will be applied.

Furthermore, the explanatory judgment pays special attention to (non-Moldovan) court practice referred to in the ICCA’s New York Convention Guide, directing Moldovan courts to consider it when interpreting Article V of the New York Convention. In addition, Moldovan courts are to take into account the UNCITRAL Secretariat Guide on the 1958 New York Convention as well as the International Law Association Recommendations on the Application of Public Policy as a Ground of Refusing Recognition or Enforcement of International Arbitral Awards.

It is to be noted that explanatory judgments of the Supreme Court of Justice are aimed at unifying Moldovan court practice and do not have any binding force per se. However, in practice they are factually binding, and they are regularly referred to by lower courts and especially by the Supreme Court of Justice itself.

The effort of the Supreme Court of Justice to harmonise local practice by drawing upon international standards needs to be viewed as part of a wider policy of the Republic of Moldova to promote alternative dispute resolution mechanisms. While the 2017 Doing Business Report of the World Bank shows a significant advance of the country in the position of “Enforcing Contracts”, court proceedings remain subject to criticism for their length and at times unpredictable outcome. It is in this context that Moldovan arbitration is starting to flourish. The beginning of this year alone has marked the launch of a new arbitral institution – Chisinau International Commercial Arbitration Court (CACIC) – operating under the aegis of the American Chamber of Commerce. It is also this year that Moldova is intended to make its debut in the ICCA Yearbook of Commercial Arbitration. These are exciting evolutions that showcase (yet again) that arbitration practice worldwide speaks the same language: that of the New York Convention.

More from our authors:

The post Moldovan Supreme Court Recommends the ICCA Guide as an Interpretative Tool for the New York Convention appeared first on Kluwer Arbitration Blog.

Charting a New Path to Commercial Arbitration: Sierra Leone to Accede to the New York Convention

Fri, 2017-04-28 03:37

Michael Imran Kanu

Sierra Leone’s inaugural Commercial Law Summit was held this March (2017) on the theme of facilitating responsible private sector development through improvements in commercial law justice (Hebert Smith Freehill and UK-Sierra Leone Pro-Bono Network, ‘Conference Pack’, 2017). The summit provided a distinctive opportunity for the main stakeholders in commercial law and justice to map out the reform priorities with respect to the promotion of responsible private sector development. Commercial arbitration was identified as one of the key areas to urgently address, given the apparent gap in terms of its insignificant and minimal use as a dispute resolution mechanism, thereby contributing to the slow private sector development. Arbitration is seen as an important tool to protect foreign investors and to promote foreign direct investments. One of the apparent lacuna in this regard is the country’s failure to ratify the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (‘New York Convention’ or ‘Convention’).

The Changing Political View and Judicial Approach to Commercial Arbitration

The impetus to chart a new path to commercial arbitration, especially international commercial arbitration, may have been largely externally influenced. For starters, the summit which pointed the spotlight on the issue was organized by foreign institutions (Hebert Smith Freehill LLP and UK-Sierra Leone Pro-Bono Network). Further, a seeming race to the top (to entice investors) appears to have been developing in the Mano River Union sub-region, as Sierra Leone’s neighbouring countries, Guinea and Liberia, have ratified the Convention (Convention Contracting States). The summit’s arbitration workshop participants proposed, as a matter of high priority, the establishment of a new legislative framework for domestic and international commercial arbitration and accession to the New York Convention. In their reaction speeches, the Chief Justice and Attorney-General & Minister of Justice respectively echoed the judicial and governmental commitments to purposively address and/or implement the proposals.

In the Justice Sector Reform Strategy and Investment Plan III for Sierra Leone, acceding to the New York Convention is a key national priority.1)Sierra Leone Justice Sector Reform Strategy and Investment Plan III (JSRSIP III), 14-15. jQuery("#footnote_plugin_tooltip_4128_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4128_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Judiciary’s Strategic Plan 2016-2021 talks of strengthening ADR as pro conflict resolution and court decongestion strategies.2) Sierra Leone Judiciary Strategic Plan 2016-2021, 18-19. jQuery("#footnote_plugin_tooltip_4128_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4128_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); These emerging policy indications defer from the prevalent judicial approach to commercial arbitration, anchored in the obsolete and/or inadequate Arbitration Act 1960 (‘Act’).3)See Arbitration Act 1960, Cap 25 of the Laws of Sierra Leone 1960. This Act was inherited from the 1950 English Arbitration Act (which has been revised in England in 1975 and 1996). The Act in Sierra Leone does not have the basic provisions to comply with the obligations in the Convention. It has no provisions for stay nor enforcement of foreign arbitral awards. jQuery("#footnote_plugin_tooltip_4128_3").tooltip({ tip: "#footnote_plugin_tooltip_text_4128_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Judicial intervention regarding commercial arbitration has mostly related to the determination of the validity of arbitration agreements. There is no recent example or case law dealing with attempts to enforce an arbitral award, whether domestic or foreign.

Based on the existing case law, there is a strong judicial resistance to accept parties’ intention to arbitrate their commercial disputes. However, this robust resistance is being positively influenced by governmental policy and creeping judicial activism. The courts of superior judicature in Sierra Leone4)The Constitution of Sierra Leone 1991, s 120(4), which provides that the superior courts of judicature ‘shall consist of the Supreme Court of Sierra Leone, the Court of Appeal and the High Court of Justice which shall be the superior courts of record of Sierra Leone’. jQuery("#footnote_plugin_tooltip_4128_4").tooltip({ tip: "#footnote_plugin_tooltip_text_4128_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); have unwaveringly endorsed the common law rule which prohibits parties from ousting the jurisdiction of the courts by contract (Kill v. Hollister (1746) 1 Wils. 129). This means the courts are not bound to accept parties’ agreement to arbitrate, because such agreements are deemed to be ouster of jurisdiction by contract, and hence not a bar to court actions. At the same time, where a valid arbitration agreement exists, section 5 of the Act gives the High Court discretion to stay judicial proceedings pending arbitration. However, when exercising their discretion under section 5, the courts have consistently upheld the abovementioned prohibition on contractual ouster of jurisdiction rule. In the leading Court of Appeal case of Kabia v. Kamara (1967/68 ALR SL CA, 455) Sir Bankole-Jones in giving the court’s opinion, which is still the statement of the law, stated:

I interpret [the arbitration] clause as being merely an agreement between the parties to refer certain matters to arbitration. I think it has for a long time been the law that a mere agreement between the two parties to arbitration cannot be pleaded in bar of an action brought in respect thereof Scot v. Avery. [The arbitration clause] in my opinion is nothing more than a contract to refer. It may be the ordinary arbitration clause but it is certainly not a submission for the arbitrator is neither chosen nor appointed. The learned Trial Judge was therefore right in holding that [the] clause was not a bar to the action.5)Kabia v. Kamara (1967/68 ALR SL CA, 455, 459. See Scott v Avery 10 ER 1121 (1856); 25 LJ Ex 308; 5 HLC 811. jQuery("#footnote_plugin_tooltip_4128_5").tooltip({ tip: "#footnote_plugin_tooltip_text_4128_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Therefore, the restrictive interpretation and application of section 5 of the Act has provided little scope for arbitration to flourish. Firstly, the section has a strict waiver rule according to which any procedural step taken after filing an appearance to a judicial action is deemed to be a waiver of the intention to arbitrate.6)The law has been further obfuscated by the Court of Appeal’s decision in Ogoo and Another v Huawei Technologies Limited and Another (CIV. APP 31/2010 [2012] SLCA 01), where it held that the failure to submit to arbitration in accordance with the terms of an agreement is not an irregularity but a question of jurisdiction. jQuery("#footnote_plugin_tooltip_4128_6").tooltip({ tip: "#footnote_plugin_tooltip_text_4128_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Secondly, the discretion to grant an application for stay of proceedings has been disproportionately limited by the courts. In this line, judges routinely and wrongly refer to the restrictive forum non conveniens standards in the English cases of The Eleftheria ((1969) 2 All ER 641) and Spiliada Maritime Corp v. Consulex Ltd. ((1986) 3 All ER 843) adopted in Sierra Leone in A. P. Moller v. Hadson Taylor & Co (C.A. 6th March 1990) as the criteria to determine applications for stay of proceedings pending arbitration (Technoscavi v. Civil Engineering Company and Another (CC 424/2007 (2007) SLHC 40)).

In Attorney General and Ministry of Justice v. Cape Management and Entertainment (CC 352/07 (2007) SLHC 31), the High Court rejected an application for a stay of proceedings pending arbitration on the grounds, inter alia, that the bare reference clause was insufficient since a terminated contract having an arbitration clause could not be held to be valid. In the aforementioned Kabia v. Kamara case, Sir Bankole-Jones held that a party is estopped from relying on an arbitration clause after wholly repudiating the container contract. This approach clearly rejected the separability doctrine. The same principle was applied by the High Court in Riga Shipyards v. Owners and/or Persons Interested in the Vessel M/V Redcat (CC 105/2012). This conservative judicial approach limited the use of arbitration to resolve commercial disputes.

An opposite stance, however, could be gleaned from recent court decisions. In 2013, in Courtville Investment v. Sierra Leone Transport Authority (FTCC: 059/13 (2013) SLHC 59), Chief Justice Charm, then judge, stayed the court proceedings and referred the dispute to be resolved by arbitration as initially agreed by the parties. In Madam Abi Haruna v. Delian Shengai Ocean Fishery Co. Ltd. (FTCC 122/15 (2015) SLHC 122), Sengu Koroma J. in determining whether a corporation agreement which provided for dispute resolution by the China International Economic and Trade Arbitration Commission (CIETAC) was valid, opined (obiter) that the doctrine of separability in the English Arbitration Act 1996, confirmed in the English Court of Appeal case of Habour Assurance Co. (UK) Ltd. v. Kansa General International Assurance Co. Ltd. ([1993] 3 ALL ER 897), was a mere restatement of a common law rule, and hence applicable in Sierra Leone. This view contradicts the binding reasoning in Kabia v. Kamara. Thus, although the view of Sengu Koroma J. is per incuriam, it, however, illustrates a creeping trend in courts’ practice to honour the agreement of parties to arbitrate their disputes.

A New Legislative Framework for Arbitration

Given the inadequacy of the Act and the demonstrable restrictive/conservative view of the courts on arbitration in Sierra Leone, a new legal framework is needed to implement the new governmental policy, and to comply with the obligations under the New York Convention when ratified. If the primary obligations under the Convention are to uphold a valid and binding arbitration agreement and for the recognition and enforcement of foreign arbitral awards, then the new law in Sierra Leone has to provide for the same. The Law Reform Commission has produced an advanced copy of the Arbitration Bill, which if passed will repeal the present statute. Although the intent here is not to analyze the bill, it must be said that its basic framework provides the basis to bolster commercial arbitration and accession to the Convention. The bill, if and when enacted, will mainstream commercial arbitration in Sierra Leone for good.

Conclusion

Arbitration has risen to become the dispute resolution mechanism of choice for international commerce. In international investment circles, the quest for neutrality and security of investments put States under some unseen pressure to reform their regulatory framework to allow for resolution of commercial disputes based on parties’ autonomy. The seeming pressure from investors is nudging the Government of Serra Leone towards urgent reforms on the one hand; and on the other hand, the emerging judicial activism is slowly eroding the restrictive principles and providing the impetus for judicial deference towards arbitration in Sierra Leone. The enactment of the Arbitration Bill will certainly chart a new path in commercial arbitration (domestic and international) in Sierra Leone, with hopes for a consequent accession to the New York Convention.

References   [ + ]

1. ↑ Sierra Leone Justice Sector Reform Strategy and Investment Plan III (JSRSIP III), 14-15. 2. ↑ Sierra Leone Judiciary Strategic Plan 2016-2021, 18-19. 3. ↑ See Arbitration Act 1960, Cap 25 of the Laws of Sierra Leone 1960. This Act was inherited from the 1950 English Arbitration Act (which has been revised in England in 1975 and 1996). The Act in Sierra Leone does not have the basic provisions to comply with the obligations in the Convention. It has no provisions for stay nor enforcement of foreign arbitral awards. 4. ↑ The Constitution of Sierra Leone 1991, s 120(4), which provides that the superior courts of judicature ‘shall consist of the Supreme Court of Sierra Leone, the Court of Appeal and the High Court of Justice which shall be the superior courts of record of Sierra Leone’. 5. ↑ Kabia v. Kamara (1967/68 ALR SL CA, 455, 459. See Scott v Avery 10 ER 1121 (1856); 25 LJ Ex 308; 5 HLC 811. 6. ↑ The law has been further obfuscated by the Court of Appeal’s decision in Ogoo and Another v Huawei Technologies Limited and Another (CIV. APP 31/2010 [2012] SLCA 01), where it held that the failure to submit to arbitration in accordance with the terms of an agreement is not an irregularity but a question of jurisdiction. 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:

The post Charting a New Path to Commercial Arbitration: Sierra Leone to Accede to the New York Convention appeared first on Kluwer Arbitration Blog.

Current Issue of the Journal of International Arbitration

Wed, 2017-04-26 17:43

Maxi Scherer

Issue 34, Volume 2 contains:

Michael W. Bühler & Pierre R. Heitzmann, The 2017 ICC Expedited Rules: From Softball to Hardball?

Abstract: The 2017 ICC Rules of Arbitration, in force since 1 March 2017, have adopted new provisions for expedited procedures with the objective of having final awards issued by sole arbitrators six months after the first case management conference. These new provisions apply whenever the value of the claims in question is under U.S.$2 million. Users of ICC arbitration can opt in to or opt out of the expedited procedures provisions, partially or totally, regardless of the amount in dispute. The decision to institutionalize expedited procedures is an implicit admission that the objectives of the 2012 Rules have not been met when it comes to improving the time- and cost-efficiency of ICC arbitrations. The new provisions offer users dissatisfied with increased time and costs of arbitration an alternative to expedite the resolution of their disputes under the ICC Rules. While this offer is not novel in the landscape of international arbitration, it is to be welcomed, although it entails new challenges for users, arbitrators, as well as the ICC Court and its Secretariat. In practice, expedited procedures may increase due process challenges by dissatisfied litigants, before and after awards are issued. For these reasons, more than before, selecting a pro-arbitration seat will be important.

Michael Polkinghorne & Sven-Michael Volkmer, The Legality Requirement in Investment Arbitration

Abstract: Many investment treaties require foreign investments to be made or owned ‘in accordance with’ or ‘in conformity with’ the laws of the host State. Some treaties incorporate this ‘legality requirement’ in the definition of investment, whereas in other treaties it can be found in substantive provisions on investor protection. This article explores three specific issues with respect to the legality requirement in investment arbitration: what is the source of the legality requirement, what is its scope, and is legality a jurisdictional or a merits issue?  The article provides an overview of the answers that arbitral tribunals have given based on a selection of awards.

Andrzej Olaś, May International Arbitral Tribunals Declare Laws Unconstitutional? An International and a Polish Perspective on the Issue of Dealing with Unlawful Laws

Abstract: This article focuses on the issue of the international arbitral tribunals’ authority to disregard supposedly applicable statutory provisions of a given national law, which it deems to be non-compliant with relevant constitutional norms from the perspective of the Polish constitutional and arbitration law. Due to the fact that, in recent years, the present issue attracted a significant attention from the international academia, the analysis of the article begins with the report of various positions adopted by some of the leading international scholars on the matter in question. This initial study provides a firm basis for further exploration of this issue in light of the Polish law, which is preceded by a brief summary of the fundamental constitutional principles and notions underpinning the contemporary Polish legal order. Such critical analysis drives the author to a conclusion that there are no sufficiently persuasive arguments which would justify barring international arbitrators from applying the Polish substantive law in its entirety, including denying application of provisions violating the Constitution, which will supersede other normative acts. Conversely, the exercise of such arbitral review amounts to a basic duty of arbitrators (integral part of their mandate to resolve a dispute in accordance with the Polish law as the applicable substantive law of a dispute) rather than their discretionary authority.

Irene Han, Rethinking the Use of Arbitration Clauses by Financial Institutions

Abstract: In 1995, this journal published an article considering the use of arbitration clauses in the area of banking and finance, which was observed to be “practically non-existent” at the time. In the two decades that have followed, financial institutions have gradually increased their use of arbitration clauses. However, arbitration has yet to become the norm in resolving international financial disputes, and there is a gap between the use of arbitration in the field of banking and finance and in the general commercial sphere. This article explores the justifications provided for this gap – in particular, financial institutions’ traditional preference for litigation – to argue that many of these justifications are in fact misconceived. The article also highlights fundamental characteristics of arbitration that make it highly appropriate for use in the financial context. In particular, four widely used financial transactions are identified as being highly suited to arbitration. The article then considers two case studies of current efforts being made to promote the use of arbitration clauses. Finally, three suggestions are proposed to further facilitate the increased use of arbitration clauses by financial institutions.

Maxim Osadchiy, Emergency Relief in Investment Treaty Arbitration: A Word of Caution

Abstract: Emergency interim relief – a procedure widely available in commercial arbitration – is now being put to use in investment treaty cases. Five documented cases of emergency interim relief in the investment treaty context are known today. The article discusses these cases and uses them as a basis for assessing some of the issues that are likely to arise with the application of emergency interim relief in future investment treaty cases. The article argues that emergency interim relief in its current form, an instrument developed with commercial arbitration in mind, may not be entirely suitable for investment treaty arbitration, due to the unique features of the latter. While acknowledging the utility of emergency interim relief in investment treaty arbitration, the article suggests that the existing rules regarding emergency interim relief and the treatment of emergency relief applications by emergency arbitrators could be changed to adequately take into account challenges unique to investment treaty arbitration.

Adam J. Weiss, Erin E. Klisch, and Joseph R. Profaizer, Techniques and Tradeoffs for Incorporating Cost- and Time-Saving Measures into International Arbitration Agreements

Abstract: Empirical research reveals that users of international arbitration view undue time and cost as international arbitration’s worst attributes. This article offers some potential solutions to combat this increasing dissatisfaction, focusing on a prophylactic approach in which parties are encouraged to negotiate and incorporate cost- and time-saving measures directly into the arbitration clause of their underlying contract.
In the early stages of a commercial relationship, parties operate behind a “veil of ignorance,” a concept derived from modern social philosophy in which members of a nascent society are prevented from knowing what position they will occupy in that society. Without the knowledge of how the future society’s rules and policies might affect them personally, each participant will be naturally inclined to promote, agree to, and implement rules and policies that are fair and advantageous to all. Likewise, if parties to a nascent commercial relationship address cost- and time-saving techniques during the earliest stages of that relationship, they will be incentivized to agree to a dispute resolution framework that reduces time and costs more effectively than if they sought to implement those measures after a dispute has arisen.
This article discusses several suggested measures designed to increase the economy and efficiency of international arbitration, along with a discussion of the respective tradeoffs and practical limitations of including those measures in the parties’ arbitration agreement.

Paul Comrie-Thomson, A Statement of Arbitral Jurisprudence. The Case for a National Law Obligation to Publish International Commercial Arbitral Awards.

Abstract: The confidentiality attaching to arbitral proceedings and awards remains of uncertain scope globally and is a matter of continuing debate. The weight of opinion appears, however, to be shifting in favour of greater transparency. As part of this trend, a number of scholars and commentators have made a strong case for the sanitized publication of arbitral awards by arbitral institutions. This article goes a step further and makes the case for a national law obligation to publish awards. It does so on the basis that there are significant public interests in the making available of certain information contained within arbitral awards which arbitral institutions have little or no incentive to provide. The article proposes a “statement of arbitral jurisprudence”—an annual publication by a state of the purely legal elements of decisions of arbitral tribunals seated in that state—as an appropriate mechanism. The statement of arbitral jurisprudence would achieve a careful balance in facilitating access to information that meets these public interests without discouraging the use of arbitration.

Toms Krūmiņš, Arbitration in Latvia: A Cautionary Tale?

Abstract: This article endeavours to explore the thorny development of arbitration in Latvia. Having started off on the wrong foot in the 1990s, the arbitration environment in Latvia is still far from being perfect. Contrary to its neighbouring Baltic states, Latvia has continuously ignored the possibility of adopting the UNCITRAL Model Law and currently deals with the adverse consequences of an ill-functioning arbitration system, rather than provides for appealing and efficient arbitration environment. All the more, by introducing disproportionately strict qualification requirements for arbitrators and still not providing a mechanism for challenging arbitral awards, the recently adopted 2015 Law on Arbitration is a severe disregard of fundamental international arbitration principles and standards.

Paschalis Paschalidis, The Future of Anti-Suit Injunctions in Support of Arbitration After the EU Court of Justice’s Judgment in the Gazprom Case

Abstract: By its judgment of 10 February 2009 in Allianz and Generali Assicurazioni Generali (C‑185/07, EU:C:2009:69), the EU Court of Justice declared anti-suit injunctions issued by Member States’ courts in support of an arbitration contrary to the Brussels I Regulation if proceedings between the same parties and on the same matter had been commenced before the courts of a Member State. However, in its judgment of 13 May 2015, Gazprom (C‑536/13, EU:C:2015:316), the Court ruled that the said Regulation posed no obstacle to the recognition and enforcement of such injunctions when issued by arbitral tribunals. Since then, the Brussels I Regulation (recast) has come into force. Its recital 12 removes the foundation on which the Court based its judgment in Allianz and Generali Assicurazioni Generali, paving the way for Member States’ courts to issue anti-suit injunctions in support of arbitrations.

More from our authors:

The post Current Issue of the Journal of International Arbitration appeared first on Kluwer Arbitration Blog.

200 Billion Reasons for Keeping NAFTA

Tue, 2017-04-25 22:30

Carlos Alvarado

NAFTA on the tightrope

One of President Donald Trump’s most frequent campaign promises was to “eliminate” the North American Free Trade Agreement (“NAFTA”), which he described as “the worst trade deal maybe ever signed anywhere, but certainly ever signed in this country.” He then softened his tone and stated that he would renegotiate the treaty, but tweeted “I will renegotiate NAFTA. If I can’t make a great deal, we’re going to tear it up.”  So far, however, President Trump’s “great deal” seems to be a long way from terms that Mexico would consider to be acceptable. Mexico has already stated that it is not in a rush to renegotiate NAFTA and made clear that it will not accept any deal just to preserve the treaty.

Whether NAFTA is “eliminated” or subjected to renegotiation, its survival is at stake. The impact that NAFTA’s termination would have for trade for the U.S., Canada and Mexico, regionally and even globally, has been extensively discussed. However, it is important to also consider NAFTA’s Chapter Eleven (“Chapter Eleven”) and the potential effect on investment protection.
U.S. FDI in Mexico

Chapter Eleven regulates the treatment of investments by offering substantive protections (Section A) and provides a mechanism for settling disputes that arise from Section A (Section B), which gives access to investors to investment arbitration directly against a host State. Investors from the three members of NAFTA benefit from Chapter Eleven; however, the largest category of investments made in reliance upon Chapter Eleven is made up by U.S. investors in Mexico.

The U.S. is the biggest investor in Latin America and the Caribbean, with total Foreign Direct Investment (“FDI”) of US $404 billion in 2014 (compared to only US $60 billion of investment from Canada), and Mexico is one of the biggest recipients of such investment. From 1999 to early 2016, Mexico received a total of US $436 billion of FDI and almost US $200 billion (45%) of such FDI inflows came from the U.S.

U.S. FDI into Mexico still seems to be increasing. In 2015 US $15.7 billion of FDI in Mexico came from the US, 103% more than in 2014. Among other megadeals, the U.S.’s AT&T and Owens-Illinois Inc. recently invested around US $4.5 billion in Mexico through the acquisitions of Grupo Iusacell and Vitro, respectively. FDI in Mexico is also expected to increase as result of its recent Energy Reform, which opened the energy sector to private investment. All of those investments are, in principle, protected by NAFTA.

In addition to substantive protections, investors under NAFTA also have a right to resort to investment treaty arbitration.  NAFTA is the second most invoked treaty in investment arbitration disputes, after the Energy Charter Treaty (“ECT”). In 2016, 4% of the new cases registered or administered by ICSID were brought under NAFTA. This is a high number considering that NAFTA only has three signatories, in contrast with the ECT, which has more than 50 signatories. The U.S. also has the highest proportion of claimants, with 138 claims as of the end 2015 (known cases).

 

Survival clauses

Survival clauses are provisions that, upon the termination of an investment treaty, extend the effects of the treaties or certain parts of it, typically for periods of 5 to 25 years. For instance, the UK Model BIT 2008 states that “in respect of investments made whilst the Agreement is in force its provisions shall continue in effect with respect to such investments for a period of twenty years after the date of termination”; or the US Model BIT 2012 provides “For ten years from the date of termination, all other Articles shall continue to apply to covered investments established or acquired prior to the date of termination…”. Investments made under a treaty (based in these models) during such treaties’ validity will be protected for 20 and 10 years, respectively, after the treaties’ termination.

An OECD study of more than 2000 investment treaties found that 97% of these contain survival clauses (with an average survival period of 12.5 years). This is not surprising: it grants investors the certainty that their investments made in a foreign country will be protected for at least that minimum period, regardless of the political agendas of the host and home States’ regimes.

 

What about NAFTA?

If a renegotiation of NAFTA was to fail, President Trump would need to make good on his promise of “eliminating” NAFTA.  Article 2205 of NAFTA allows to any of its parties to withdraw from it, and the treaty would remain in force for the remaining signatory parties. A member State only needs to provide written notice of withdrawal to the other two member States and six months later, such member State would no longer be part of NAFTA.

Unluckily for NAFTA investors, NAFTA is one of the 3% of investment treaties that do not contain a survival clause. Chapter Eleven’s effects would not be extended after the termination or withdrawal of the treaty. Therefore, six months after serving notice of withdrawal on Canada and Mexico, the U.S. would no longer be part of NAFTA and U.S. FDI in Mexico would no longer be protected under Chapter Eleven.

As soon as any U.S. withdrawal from NAFTA became effective, all the U.S. existing investments in Mexico (around US $200 billion), together with all new FDI inflows coming from the U.S. to Mexico, would no longer enjoy the substantive protections granted by NAFTA (e.g. national treatment, most favoured nation treatment, minimum standard of treatment, fair and equitable treatment, full protection and security, non-discriminatory treatment, no expropriation without compensation). Moreover, U.S. investors would no longer have access to investment treaty arbitration and the international approach therein used against Mexico. In the event of any violation by the host State of applicable Mexican legislation, the affected investor would be obliged to litigate and seek relief from the Mexican courts.

If President Trump’s administration wants to keep U.S. investors in Mexico happy, he will definitely need to think carefully about NAFTA.  Chapter Eleven will be certainly a relevant part of the negotiations between NAFTA’s three signatories, but if President Trump is really ready for leaving NAFTA, he should have a plan B for protecting the more than US $200 billion invested by U.S. investors in Mexico. In the meantime, do not be surprised if notices of intent of arbitration under NAFTA’s Article 1119 from U.S. investors to Mexico increase significantly, in order to gain the benefit of NAFTA’s substantive protections and anticipate establishment of jurisdiction of an investment arbitration panel.

*The views and opinions expressed on this blog are solely those of the author and do not necessarily represent Hogan Lovells’ views or opinions.

More from our authors:

The post 200 Billion Reasons for Keeping NAFTA appeared first on Kluwer Arbitration Blog.

State Immunity from Enforcement in The Netherlands: Will Creditors be Left Empty-Handed?

Mon, 2017-04-24 22:07

Sebastiaan Barten and Marc Krestin

Linklaters

In the context of investor-state dispute resolution in The Netherlands, the Yukos case has recently captured the spotlight in the global arbitration arena and beyond. While much of the attention has been focused on the setting-aside proceedings and the issue of jurisdiction of the arbitral tribunal, the case also raises interesting questions regarding the enforcement of arbitral awards against a states’ assets and the principle of state immunity.

Following the adoption of the so-called “Yukos Law” in Belgium and similar legislation in France regarding the attachment of foreign states’ assets, the Dutch Supreme Court has recently shed new light on the scope of state immunity from enforcement in The Netherlands. In its judgment of 30 September 2016, the Dutch Supreme Court ruled that assets of foreign states located in the Netherlands cannot be subject to attachment and enforcement, unless those assets are used for non-governmental purposes. It is the attachment creditor that bears the burden of proof in this respect. This applies to both conservatory attachments and measures in satisfaction of a judgment or award.

In its judgments of 14 October 2016 (published here and here), the Dutch Supreme Court confirmed this general presumption of sovereign immunity from enforcement of judgments and arbitral awards against a state’s assets. It also made clear that a possible waiver of state immunity must be made expressly and cannot be implied from the general provisions contained in bilateral or multilateral arbitration agreements between state parties.

The sovereign immunity defence – customary international law

The doctrine of state immunity under Dutch law has been primarily shaped by case law and international conventions. The legal basis for the sovereign immunity defence is laid down in a single provision of the General Provisions Act of 1829, which incorporates standards of customary international law into the Dutch legal system of enforcement measures.

In line with the International Court of Justice ruling in Jurisdictional Immunities of the State, Dutch case law has developed along the lines of Article 19 of the UN Convention on Jurisdictional Immunities of States and their Property (the “UN Convention”), most of which – although not yet in force and not yet ratified by The Netherlands – is considered to be customary international law.

Consequently, the Dutch Supreme Court ruled that the three exceptions to sovereign immunity of a foreign state‘s assets listed in Article 19 of the UN Convention are applicable under Dutch law. In summary, this means that assets of a foreign state may only be attached:

i. with the express consent of the state;
ii. if the state has allocated or earmarked property for the satisfaction of the claim; or
iii. where it has been established that the property is specifically in use or intended for use by the state for other than government non-commercial purposes.

No distinction between conservatory and executorial measures

One of the aspects that was heavily debated among the signatories to the UN Convention was whether the ‘commercial purposes exception’ should also be available with regard to conservatory measures against a state’s assets. The consensus reached is reflected in Article 18 of the UN Convention, which rules out the possibility of levying conservatory attachments on a state’s assets without the state’s prior express consent.

However, the Dutch Supreme Court has expressed the view that the distinction made between conservatory and executorial measures in the UN Convention does not reflect international customary law and consequently does not apply under Dutch law. Provided that a creditor succeeds in proving that the state’s targeted assets in The Netherlands are intended to be used for commercial purposes, the Dutch courts will permit conservatory attachment of those assets.

Presumption of immunity

The presumption of immunity as confirmed by the 2016 Dutch Supreme Court decisions puts creditors to the challenge of proving that the foreign state’s targeted assets are intended to be used for non-governmental (i.e. commercial) purposes. Creditors should not expect to receive any assistance from the Dutch courts in meeting this challenge. The Dutch Supreme Court has held that the state party is under no obligation to disclose any information regarding its assets, nor are states required to appear in the proceedings and put forward a sovereign immunity defence.

The Dutch Supreme Court has not gone as far as to exclude so-called ‘mixed funds’ from attachments, e.g. funds of a state held in a Dutch bank account for governmental as well as commercial (or other) purposes. In order to attach ‘mixed funds’, however, a creditor will need to demonstrate the extent to which the funds are intended to be used for a non-governmental purpose.

Pre-attachment judicial review

Any party who wishes to attach assets in The Netherlands will have to use the services of a bailiff. Bailiffs are under a statutory obligation to submit a report to the Dutch Ministry of Justice as soon as they receive instructions to attach assets of a foreign state which may be in violation of the Dutch State’s international obligations.

The Dutch Ministry of Justice has the power to prevent the attachment of assets, or render an attachment which has already been levied null and void, until the creditor has demonstrated in court proceedings initiated against the Dutch State that the relevant assets are not covered by sovereign immunity. As a result of the confirmed presumption of immunity, the Dutch Ministry of Justice may be inclined to challenge virtually any attachment intended to be levied against a foreign state’s assets.

This results in a system of pre-attachment judicial review similar to those introduced in Belgium and France, albeit that in The Netherlands the executive branch of government essentially determines whether such judicial review should take place.

No implied waivers

An exception to the presumption of sovereign immunity exists if the investor can demonstrate that the state has waived its right to invoke such defence. Unlike the UK State Immunity Act 1978, which contains an arbitration exception to state immunity, there is no general rule under Dutch law which provides that a state is taken to have waived its immunity defences by entering into an arbitration agreement with a private party.

In accordance with the UN Convention, the Dutch Supreme Court found in one of its 14 October 2016 rulings that express consent from the state is required for a waiver of immunity to be effective. More specifically, it found that neither Article 10(2) of the Energy Charter Treaty 1994, which provides that “Each Contracting Party shall ensure that its domestic law provides effective means for the assertion of claims and the enforcement of rights with respect to Investments, investment agreements, and investment authorisations”, nor Article 26(8), which provides that “…Each Contracting Party shall carry out without delay any such award and shall make provision for the effective enforcement in its Area of such awards” could be interpreted as an express waiver of state immunity.

Both provisions deal only with the enforcement of arbitral awards within the territory of one of the contracting states involved in the dispute, not third party states. Many bilateral investment treaties contain similar provisions, which are thus unlikely to be interpreted as express waivers of immunity in relation to measures of constraint against a state’s assets in The Netherlands.

Comment

Although some authors have advocated to limit the scope of state immunity in an era of free trade and foreign investments, the 2016 decisions of the Dutch Supreme Court seem to follow a recent international trend towards absolute state immunity from enforcement against a state’s assets.

One thing is certain: if it was not already an uphill battle to enforce arbitral awards against foreign states in The Netherlands, it now certainly is a mighty mountain to climb. It will be challenging for creditors to prove that the state’s assets they wish to attach serve commercial rather than governmental purposes, especially because states have no obligation to assist in adducing any evidence in that respect. An upside for creditors seeking enforcement in The Netherlands is that – contrary to some other jurisdictions – the commercial purposes exception also applies to conservatory attachments.

Investors are therefore advised to seek a waiver of immunity from enforcement when contracting with states. It is important to ensure that the waiver is express and specific, and that it is effective not only under the domestic laws of the state party involved, but also under the laws of jurisdictions in which enforcement proceedings may be pursued.

More from our authors:

The post State Immunity from Enforcement in The Netherlands: Will Creditors be Left Empty-Handed? appeared first on Kluwer Arbitration Blog.

Where Angels Fear to Tread: The Availability of Disclosure in Support of an Application to Remove a Tribunal

Sun, 2017-04-23 22:44

Richard Power

Clyde & Co.

The recent decision in P v Q [2017] EWHC 148 (Comm) provided, for the first time, guidance on how a Court will approach an application for disclosure in support of an application to remove Arbitral Tribunal members under s.24 Arbitration Act 1996.

Background

The Claimant had brought an application to remove two wing members (the “Co-Arbitrators”) of an Arbitral Tribunal under s.24(1)(d)(i) Arbitration Act 1996 (“AA 1996”).1)Judgment was handed down on this application on 9 February 2017 and is reported at 2017 EWHC 194 (Comm) jQuery("#footnote_plugin_tooltip_1349_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1349_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Claimant had previously applied before a specialised LCIA Division (appointed by the LCIA Court) for dismissal of the entire Tribunal, based on the arbitrators’ alleged failure to appropriately conduct the arbitral proceedings by delegating their roles to the Tribunal Secretary. Further, serious doubts were raised as to the Chairman’s impartiality. This application culminated in the removal of the Chairman but not the Co-Arbitrators, and so the Claimant applied to Court for their removal.

In support of that application, the Claimant applied for disclosure of various documents from the Co-Arbitrators, including “instructions, requests, queries or comments from the Co-Arbitrators (or from [the Chairman] to which the Co-Arbitrators were copied) to the Secretary” and all communications sent or received by the Co-Arbitrators which related to the role of the Secretary and/or the tasks delegated to the Secretary.

The principles governing the disclosure application

The Claimant contended that the governing principles were those in respect of specific disclosure pursuant to CPR 31.12, from which the Court derived its power to make the order sought. Provided the documents were relevant, the Court had discretion to order disclosure, to be exercised in accordance with the overriding objective.

The Defendants argued that given that the material sought was especially sensitive (being akin to documents relating to Judge’s deliberations); the nature of the s.24 proceedings; and the policy considerations reflected in sections 1, 33, and 40 of AA 1996, disclosure should only be granted in “rare and compelling cases” where there was a strong prima facia case on the merits of the s.24 challenge, and disclosure was strictly necessary for the fair disposal of the s.24 application.

Popplewell J acknowledged that there was no existing case law on such an application. He held that the following principles should govern an application for disclosure of a Tribunal’s materials:

Principle 1 – real prospect of success

Popplewell J declined to impose a merits threshold which was higher than the default position on “normal” interlocutory applications. He reasoned that the relevance and nature of the material sought, and the merits of the removal application, could be taken into account in the exercise of the Court’s discretion. The correct test was that which would have to be established if facing a summary dismissal, i.e. namely that the s.24 application has a real prospect of success.

Given the Claimant’s failure to fulfil the necessary criteria laid down under Principles 2 and 3 (see below), Popplewell J did not consider it necessary to express his views on whether this test was satisfied in the current case.

Principle 2 – strict necessary

Popplewell J held that the documents sought in the disclosure application must be “strictly necessary for the fair resolution” of the s.24 application, for the following reasons:

This is the test generally applicable in interlocutory proceedings.
Perhaps more significantly, the arbitral context (and the overriding objective) requires cases be resolved without unnecessary delay or expense and with minimal Court intervention. Popplewell J commented that the s.24 process is an intrusion by the courts into the arbitral process (especially where, as here, the arbitral institution has already considered and ruled on the question) and an order for disclosure would likely delay the resolution of the dispute, enforcement of the award and increase the costs.
Where disclosure is sought in litigation from non-parties, the test is one of necessity. While the Co-Arbitrators were technically parties to the s.24 application, their position was analogous to non-parties.

Popplewell J held that the documents sought were not strictly necessary, pointing out that s.24 and s.68 AA 1996 claims are regularly concluded without disclosure, as are recusal applications to judges.

Principle 3 – factors affecting the exercise of discretion

Popplewell J held that in exercising its discretion, the Court will have regard to the overriding objective and all the circumstances of the case. In particular, given the arbitral context:

disclosure in support of Arbitration Claims will usually be inimical to the principles of efficient and speedy finality and minimal Court intervention which underpin AA 1996;
where an arbitral institution has the power to grant disclosure and has declined to do so, the Court will not normally order disclosure;
the Court will not normally order disclosure of documents which the parties have expressly/implicitly agreed with each other and/or the Tribunal should remain confidential; and
it will only be in the very rarest of cases, if ever, that arbitrators (who are in a position analogous to the judiciary) will be required to give disclosure of documents; it would require the most compelling reasons and exceptional circumstances for such an order to be made.

On the facts, Popplewell J held the case was neither wholly exceptional nor rare. Moreover, the documents sought would amount to disclosure of the confidential deliberations of the Tribunal, which would be impermissible under the principles applying to disclosure of a Judge’s deliberations and under the parties’ agreement on confidentiality in Article 30.2 of the LCIA Rules.

Conclusion

The theme throughout Popplewell J’s judgment is that the Court will respect its role in the context of arbitral proceedings of supporting Tribunals and arbitral institutions, and the principle of party autonomy, with minimal intervention. This is as laudable as it is clear.

Practically speaking, it is apparent that a Claimant is unlikely to obtain disclosure from the Tribunal in support of an s.24 application, meaning that he will face considerable (if not insurmountable) evidential difficulties.

In the circumstances, parties should give serious consideration as to whether to bring a removal application under s.24 AA 1996, given the unavailability of disclosure, the reluctance of Courts to intervene in the arbitral process, and the damage it will do to relations with the Tribunal.

References   [ + ]

1. ↑ Judgment was handed down on this application on 9 February 2017 and is reported at 2017 EWHC 194 (Comm) 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:

The post Where Angels Fear to Tread: The Availability of Disclosure in Support of an Application to Remove a Tribunal appeared first on Kluwer Arbitration Blog.

Taming the “Mercantile Adventurers”: Third Party Funding and Investment Arbitration – A Report from the 14th Annual ITA-ASIL Conference

Thu, 2017-04-20 23:32

James Egerton Vernon

ITA

In his 2014 Assenting Opinion on a security for costs motion in RSM v. Saint-Lucia, arbitrator Dr. Gavin Griffith Q.C. described third-party funders as “mercantile adventurers” and associated their activities with “gambling” and the “gambler’s Nirvana: Heads I win and Tails I do not lose.” This was no voice in the wilderness. The increasingly prevalent role of third-party funding (“3PF”) in international arbitration has raised concerns with many stakeholders that it will fuel a rise in frivolous claims. In particular, the role of 3PF in investment arbitration raises unique concerns for policy-makers because, ultimately, a State’s taxpayers will be liable for satisfaction of any award favoring the claimant. For their part, funders, and the claimants and law firms with which they generally collaborate, decry as unfounded the criticism of Dr. Griffith and those of his ilk, and note that their careful screening of claims acts as an effective filter for any unmeritorious action. Funders, after all, have a nakedly capitalist motivation; what do they stand to gain from supporting claims unlikely to turn them a profit?

These starkly divergent views have led to similarly contrasting opinions as to how, if at all, 3PF in international arbitration should be regulated. Calls for regulation have historically embraced two extreme options. At one end of the spectrum a “do not ask, do not tell” approach – viz. no regulation at all. At the other “a total ban on 3PF.” How, then, should the arbitral community proceed in the face of such a fractious debate?

The answer came in 2014 when the International Council for Commercial Arbitration and London’s Queen Mary School of Law formed a joint taskforce on “Third-Party Funding in International Arbitration” (the “Task Force”) co-chaired by three leading arbitration academics, Profs. Catherine Rogers, William (Rusty) Park and Stavros Brekoulakis. The Task Force’s aim is to “systematically study and make recommendations regarding the procedures, ethics, and related policy issues relating to third-party funding in international arbitration.” A working draft of the Task Force’s findings was presented, for discussion purposes, at the 14th Annual ITA-ASIL Conference on Third-Party funding, held in Washington, D.C. on 12 April 2017 (the “Draft Report”).

Proceedings commenced with a keynote from Professor Park, in which he highlighted four “musketeers” (viz. issues) identified by the Task Force as needing to be addressed:

First transparency, without which the very legitimacy of the arbitral process risks being undermined.

Second privilege. While in the U.K. and the U.S. common interest privilege would likely cover a claimant and funder working together on a case, this may well not be the case in civil law jurisdictions.

Third the issue of costs. To what extent should the existence of 3PF be taken into account in allocating costs in an increasingly “loser pays” legal environment? Should it be a factor when considering whether to grant an order on security for costs?

Fourth and finally (or as Professor Park put it, the “d’Artagnan” issue of the musketeers of 3PF), the question of definitions. Who or what exactly is a third party funder?

Thereafter two prestigious panels consisting of commercial funders and representatives from the worlds of academia and public policy entered into a lively discussion of the issues raised in the Draft Report. Below, with a focus on the role of 3PF in investment arbitration, I detail five key take-aways.

1. 3PF in Investment Arbitration: ‘Relatively Widespread’

While the generally-confidential nature of 3PF and the consequent lack of publicly-available empirical evidence has militated against certainty, it has been the accepted wisdom in recent years that 3PF is becoming increasingly prevalent in investment arbitration. The Eurogas v. Slovak Republic tribunal confirmed as much when it described 3PF, in a 2015 Procedural Order, as “a common practice” in investment arbitration. It was thus particularly instructive to be provided, at the conference, with hard data confirming that:

• In the 2015 Queen Mary and White & Case International Arbitration Survey “39% of the respondent group” “[had] encountered [3PF] in practice.” This “suggest[ed] that its use is relatively widespread.
• 3PF has been used by claimants in at least 19 investor-state arbitrations.
• In the 2013 Queen Mary / PwC Arbitration Survey49% of respondents reported having used discounted hourly rates with … a success fee …”.
• Contingent or conditional fee agreements have been used by claimants (and at least one respondent) in at least 10 investor-state arbitrations.
• Investment tribunals have awarded success fees in both ICSID (Siag v. Egypt – ordering payment of $6.9m in legal fees, of which $3.2m was a success fee) and UNCITRAL (Khan Resources v. Mongolia – awarding claimants $6m to pay their counsel’s contingent legal fees) arbitrations.

2. Issue 1: Uncertainty Remains – What is 3PF in Investment Arbitration?

As Professor Park noted in his opening comments, the definition of 3PF – who or what exactly is a third-party funder? – is key. Ensuring this definition is both accurate and fair is crucial if any proposed regulations are to be effective. As one prominent voice from the funding community recently noted, regulations based on too narrow a definition could result in a situation where “it is proposed that [a funder’s] 5% interest in a matter should be disclosed, but a creditor’s 10% interest need not be.”

While the Task Force members acknowledged that the definition of 3PF is contentious, and that there remained much debate on this even within Task Force’s subcommittee on definitions, the Draft Report adopted the following Working Definition:

The term ‘third-party funder’ refers to any natural or legal person who is not a party to the dispute but who enters into an agreement either with a disputing party, an affiliate of that party, or a law firm representing that party: a) in order to provide material support or to finance part or all of the cost of the proceedings, either individually or as part of a selected range of cases, and b) such support or financing is provided either through a donation or grant or in return for remuneration dependent on the outcome of the dispute.

While scholars and funders have provided their own varying suggestions as to what the definition of 3PF should encompass (and the issue of how after-the-event insurance should be categorized remains especially contentious), states have also been responsive to this issue. The Draft Report notes, for example, that the revised Comprehensive Economic and Trade Agreement, ratified by Canada and the E.U. in October 2017, includes the following definition of 3PF:

Third party funding means any funding provided by a natural or legal person who is not a disputing party but who enters into an agreement with a disputing party in order to finance part or all of the cost of the proceedings either through a donation or grant, or in return for remuneration dependent on the outcome of the dispute.

The treaty further provides for disclosure of “the name and address of the third party funder.” Similar provisions are contained in the (as yet unratified) E.U.-Vietnam Free Trade Agreement, as well as the French and Slovak Model Bilateral Investment Treaties. The E.U. has, further, put forward specific language defining and addressing 3PF to be included in its Transatlantic Trade and Investment Partnership with the U.S.

This, however, remains the extent of state involvement to date. While it is thus possible to discern a relatively uniform E.U. approach to the definition of 3PF in investment arbitration, we remain none-the-wiser as regards the views of other major investor-state stakeholders such as the U.S., China, Africa and Latin America. This is thus an area where the conclusions of the Draft Report will be especially helpful.

3. Issue 2 – Conflicts of Interest

The issue of 3PF and potential conflicts of interest was a key theme throughout the conference, with potential conflicts identified as being those:

Between the arbitrator and the funder, including: where the arbitrator is a member of the investment advisory panel of a funder; where he or she serves as a consultant to the funder; where the same arbitrator is regularly appointed in cases financed by a particular funder; or where the arbitrator has acted as counsel or an expert in other proceedings financed by the same funder.

Between the attorney and the funder, including: the risk of a waiver of privileges (such as the attorney-client privilege) through disclosure to the funder during the due diligence process; “intermeddling” by the funder in the attorney-client relationship (e.g. through the funder attempting to influence the attorney in key strategic decisions); and the funder appointing one or more nominees to the board of the funded company.

Between the claimant and the funder, including: the funder “intermeddling” in the attorney-client relationship (e.g. by influencing the attorney in key strategic decisions); and through appointing directors to the board of the funded company.

Between the claimant and the contingent fee attorney, including: the possibility of discord when it comes to settlement; issues as to what is covered and not covered in the contingency arrangement (e.g. funding may be required for more than just legal fees); and the potential need to revise a contingent fee arrangement should the budget be exceeded and the claimant require additional funding from a funder.

4. Issue 3 – 3PF Can Adversely Affect the Conduct of Investors

A number of pertinent observations were also made regarding the influence the availability of 3PF may have on investors vis-á-vis host states, as follows:

• The object and purpose of a number of bilateral investment treaties is to advance sustainable development, a goal potentially at odds with the involvement of profit-driven funders.
• The availability of 3PF to fund an investment claim could adversely incentivize investors, in particular at a time when relations with the host state are beginning to deteriorate. Will the availability of funding weaken an investor’s resolve and render it more likely to abandon attempts to settle in favor of leaving and claiming damages? Does the availability of lost profits in investment claims perversely incentivize such behavior?
• While the counter-argument to the “adverse incentive” point is that it makes no sense for funders to fund frivolous cases, perhaps we should instead be considering whether the presence of 3PF enables more marginal, as opposed to frivolous, investment claims to be brought, and whether that, in turn, is a good thing.
• Finally, the research of two scholars (Chen & Abrams) into the effects of 3PF on Australian litigation was highlighted. This study confirmed not only that 3PF leads to more claims, but also that funders have tended to support cases raising novel issues. Funders can thereby enjoy an outsized influence over the development of the law in influential areas, which in turn warrants particular caution as concerns 3PF in investment arbitration.

5. Possible Solutions & Conclusion

While the aim of the Draft Report was limited to stimulating a preliminary debate (a goal which was certainly achieved at the conference), some potential solutions to the issues identified above were nevertheless discussed, all of which, interestingly, utilize existing arbitral tools:

• Conflicts of interest involving funders could be resolved through the careful application of the IBA Guidelines on Conflicts of Interest in International Arbitration;
Tribunals can order disclosure of the existence of a third-party funder (as they did in both Muhammet Ҁap v. Turkmenistan and South American Silver v. Bolivia); and
• As noted above, states can and some have included specific provisions pertaining to 3PF in their investment treaties.

In sum, the Draft Report marks but an initial step in a lengthy process, particularly as regards the role of 3PF in investment arbitration. As Prof. Franck noted in her closing remarks, there remains a great deal of work to be done. The Task Force will be revising the Draft Report and posting a version for formal public comment in July 2017, as well as organizing further public events.

The arbitration community will be monitoring these developments with a keen interest.

More from our authors:

The post Taming the “Mercantile Adventurers”: Third Party Funding and Investment Arbitration – A Report from the 14th Annual ITA-ASIL Conference appeared first on Kluwer Arbitration Blog.

Arbitral Institutions Are Doing Their Bit; What About The Other Players?

Thu, 2017-04-20 10:14

Andrew de Lotbinière McDougall and Fiona Candy

White & Case

White & Case’s recent research should provide some comfort to the arbitral community by showing that arbitral institutions are becoming increasingly flexible and responsive to users’ needs. Flexibility was in fact a characteristic which the 2015 survey conducted by White & Case with Queen Mary University of London established as being one of the most valuable ones in arbitration.

What proved to be positive in itself was the very data gathering process from the various institutions in that it revealed a growing willingness by the institutions to publish and share data, some of which up until now they had either been reticent to disclose or at least considered not relevant to disclose. Statistics regarding female arbitrator appointments, for instance, were only made available, if at all, from 2014. Given the apparent increased drive by institutions to please their users as well as the heightened competition amongst them all, it will be a safe bet to say that many more institutions will be publishing data on female appointments (as well as other issues) in the coming year and years.

The results of the research, put simply, show that (a) more parties are wishing to use expedited proceedings, a tool that is becoming more widely on offer by the institutions; (b) there is an increase in, even preference for in some cases, single member tribunals over three member tribunals, and (c) more female arbitrators are being appointed, at least by the institutions themselves.

These steps and attitudes displayed by the arbitral institutions no doubt have a positive impact on the arbitration process by recognising that parties are wishing to exercise more control in an effort to save time and costs. This however should not be considered in a vacuum; indeed, to gain the optimal benefit from this welcome move by institutions, the other players must co-operate and play their part as well.

Taking female arbitrator appointments, it is all very well that the institutions themselves are making impressive efforts to appoint females, but what about the appointments by parties and co-arbitrators which is lagging behind considerably? There is room for much improvement here. It is noteworthy that the Equal Representation in Arbitration Pledge has been signed by about 2,000 users, including individuals, lawyers, law firms, corporates and arbitral institutions but parties and co-arbitrators are not yet, in practice, appointing nearly as many female arbitrators as the institutions. Why is this so? Is it perhaps due to a mindset along the lines of “in the ideal world, it makes sense for more females to act as arbitrators but in my particular case, especially given it’s my money and my reputation at stake, I prefer to go with the known figures”? Maybe in part. What’s the solution? A start could be law firms providing more opportunities to women internally which could have a snowball effect with good female counsel being appointed as arbitrators. There is also probably room for counsel to better enlighten and educate clients as to the benefits (or at least lack of harm) of appointing female arbitrators. Perhaps a conscious change of mentality is required amongst co-arbitrators as well where they tell themselves that old habits should be broken and that they can really make a difference.

The rise in the use of sole member tribunals is also to be welcome in light of the obvious benefits of speed and cost. This though cannot be looked at in isolation of the circumstances of each case. This is where counsel and parties must carefully analyse the possible risk of losing out on quality, especially in a particularly complex and large case, when a sole member tribunal is appointed.

Similar concerns apply to expedited proceedings. It is applaudable that parties are optimising an ever increasing array of tools on offer by institutions to allow for expedited proceedings but again, this will not be appropriate in all circumstances. There is an argument that something is inevitably lost in the name of efficiency. To illustrate that expedited proceedings are not necessarily appropriate for all cases lies in the fact that the institutions will not necessarily accept all applications. What is appreciated in any event is that the parties have the choice and that after careful consideration with counsel, can opt for this procedure.

Finally, it would be amiss not to make mention of time and cost. The results of the research indicate that there is room for improvement by the institutions. To stop there though would be to ignore the fundamental role of parties, counsel and arbitrators. Much is also in their hands to maximise efficiency and minimise cost such as avoiding unnecessary delay tactics by parties and counsel and stronger case management by arbitrators.

More from our authors:

The post Arbitral Institutions Are Doing Their Bit; What About The Other Players? appeared first on Kluwer Arbitration Blog.

When Does a Tribunal Secretary Overstep the Mark?

Mon, 2017-04-17 23:23

Peter Hirst

Clyde & Co.

The use of tribunal secretaries in arbitration is a hotly debated topic. For some time now, the use of a secretary has been increasing in the interests of cost and time efficiency. For some however, there is a fear that arbitrators delegate their duties and for a ‘second’ or ‘fourth’ arbitrator to be involved in the decision-making process (contrary to the very ethos of arbitration). A recent decision of the English High Court gives lessons for parties and arbitrators when considering tribunal secretary appointments.

P v Q

In P v Q [2017] EWHC 194 (Comm) (handed down in February 2017 but published in anonymised form this week) the Hon. Mr Justice Popplewell in the English High Court considered an application (the removal application) under s24(1)(d)(i) of the Arbitration Act 1996 (AA 1996) to remove two co-arbitrators from their positions in an ongoing LCIA arbitration. Section 24(1) (d) (i) provides that a party to arbitral proceedings may (upon notice to the other parties, to the arbitrator concerned and to any other arbitrator) apply to the court to remove an arbitrator on grounds that he has refused or failed to properly conduct the proceedings.

The application was founded on conduct in three procedural decisions made by the tribunal relating to the sharing of documents between two related arbitrations, an application for a stay and production of documents. Concerns were particularly raised when an email from the chairman intended for the tribunal secretary was mistakenly sent to a paralegal at P’s solicitors containing a letter from P to the tribunal and asking for ‘Your [the secretary] reaction to the latest from [P]?’.

P had previously applied to the LCIA Court (which appointed an LCIA Division to determine the matter) for the removal of all three members of the tribunal. The LCIA Division had revoked the chairman’s appointment (though on different grounds relating to comments made at a conference), but refused to revoke the two co-arbitrators’ appointments.

In its application to the High Court, P complained that the arbitrators had:

• improperly delegated their role to the tribunal secretary by systematically entrusting the secretary with a number of tasks beyond that permissible under the LCIA Rules and LCIA Policy on the use of tribunal secretaries
• breached their mandate as arbitrators and their duty not to delegate by not sufficiently participating in the arbitration proceedings and the decision-making process
• negligently and/or innocently misrepresented to P the position as to the existence and/or nature and/or extent and/or effect of delegation of their roles to the secretary (this argument was put to the court but had not raised before the LCIA Division)

P also applied to the High Court for disclosure from the arbitrators of instructions, requests, queries or comments from the co-arbitrators (or from the chairman to which the co-arbitrators were copied) to the secretary. As well as all responses from the secretary to those emails and all communications sent or received by the co-arbitrators which related to either the role of the secretary of the tasks delegated to the secretary. This ‘disclosure application’ was refused.

As the disclosure application had been refused, P’s removal application was largely based on the comparable time recorded by the arbitrators and the secretary along with one ‘Misguided Email’ which was accidentally sent by the original chairman to a paralegal at P’s solicitors’ firm instead of the intended tribunal secretary.

Applications dismissed

Popplewell J dismissed the removal application finding that ‘there is no merit in any of the arguments, either singly or cumulatively, that the co-arbitrators failed properly to conduct proceedings’. He also held that no substantial injustice had been proven even if there had been merit in the claims made.

Claims on the merits

In considering the argument that the arbitrators improperly delegated their role, Popplewell J reviewed the time spent by the arbitrators on the case and their written evidence as to the work they had done on the interlocutory issues in question. He also drew on his own experience of arbitration and found that there could be no valid criticism of the manner in which they went about their adjudicatory functions in the way articulated in their letters. He found that it is entirely proper for co-arbitrators to consider submissions, leave it to the chairmen to prepare a draft of the decision consider the draft and approve or revise it as appropriate – such an approach avoids unnecessary delay or expense on procedural matters and is the way in which international arbitration panels commonly function. He noted that this was consistent with LCIA Art 14.3 which provides for the chairman to make procedural rulings alone with the consent of the co-arbitrators.

In reaching his conclusion, Popplewell J was keen to emphasise the court’s supervisory and non-interventionist role noting that ‘this court should be very slow to differ from the view of the LCIA Division’. He noted that the LCIA was the parties’ chosen forum, had considerable experience and was well placed to judge how much time was required for a co-arbitrator to properly consider interlocutory issues of the type in question.

Substantial injustice

The test of substantial injustice was the same as that for an appeal under AA 1996, s 68, namely that the arbitrator’s conduct goes ‘beyond anything that could reasonably be defended’ (Departmental Advisory Committee Report on the Arbitration Bill 1996). This places the burden on the applicant to show that the arbitrators’ failure caused the tribunal to reach a decision(s) which, but for the failure it might not have reached (Maass v Musin Events [2015[ 2 Lloyd’s Rep. 383; Terna Bahrain Holding v Al Shamsi [2012] EWHC (Comm) 3283). Popplewell J found no grounds for such a finding. He also noted that P’s professed loss of confidence in the tribunal could not constitute substantial injustice ‘absent some concrete or substantive prejudice’.

Tribunal secretary

Since the questions over the use of tribunal secretaries came to the fore in Yukos (Yukos Universal Limited v Russian Federation, UNCITRAL, PCA Case No AA. 227), the use of secretaries has been under greater scrutiny. In this decision, Popplewell J noted the ‘considerable and understandable anxiety in the international arbitration community that the use of tribunal secretaries risks them becoming the ‘fourth arbitrators”. He noted the divergent views among practitioners and commentators as to the appropriate use of tribunal secretaries, reviewing several sources of information on the role of tribunal secretaries including:

• Art 14 of the LCIA Rules 1998 (the rules applicable in this case1)Similar wording is at Article 14.5 of the LCIA Rules 2012 jQuery("#footnote_plugin_tooltip_9873_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9873_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });) which provide that unless otherwise agreed by the parties under Art 14.1, the tribunal shall have the widest discretion to discharge its duties permitted by the applicable law. The judge noted that in this case, the parties agreed to the appointment by the chairman of a secretary, they did not place any constraints on the tasks and functions which the secretary might perform and no agreement as to the limits of his permitted involvement in the process.
• The LCIA’s Notes for Arbitrators (29 June 2015) which are for guidance only, which provide at section 8 that subject to the parties’ express written agreement a tribunal may appoint a secretary ‘to assist it with the internal management of the case’. It states that the duties of the secretary should not, however conflict with those for which the parties have contracted with the LCIA nor constitute any delegation of the tribunal’s authority. (Note that unlike the HKIAC for example the LCIA has no formal guidelines on the use of tribunal secretaries).
• The LCIA’s Frequently Asked Questions which state that the LCIA has no objection in principle to the appointment of a secretary to the tribunal provided that the parties agree and subject to the usual conflict checks. It continues that administrative secretaries should confine their activities to such matters as organising papers for the tribunal, highlighting relevant legal authorities maintaining factual chronologies keeping the tribunal’s timesheets and so forth.
• The 2014 Young ICCA Guide on Arbitral Secretaries which provides that ‘it shall be the responsibility of each arbitrator not to delegate any part of his or her personal mandate to any other person, including an arbitral secretary’. The guide (commentary to Art 1(5)) acknowledges the risk of ‘dilution in mandate’ but states that there is significant acceptance in the arbitration community that this is a risk outweighed by the benefits inherent in the use of arbitral secretaries and that to minimise the risk tribunals must ensure that they maintain tight control over the tasks entrusted to the arbitral secretary and provide close oversight of their responsibilities. The guide provides that with appropriate direction and supervision by the tribunal, the secretary’s role may go beyond the purely administrative and may include handling and organising correspondence, submissions and evidence on behalf of the tribunal, requesting questions of law, researching discrete questions relating to factual evidence and witness testimony and drafting appropriate parts of the award.

Popplewell J surmised that ‘the safest way to ensure that the secretary does not become a ‘fourth arbitrator’ is for the secretary not to be tasked with anything which involves expressing a view on the substantive merits of an application or issue’. His key message was that the use of tribunal secretaries must not involve any member of the tribunal abrogating or impairing their non-delegable and personal decision-making function. This requires each member of the tribunal to bring their own personal and independent judgment to bear on the decision in question, taking account of the rival submissions of the parties; and to exercise reasonable diligence in going about discharging that function. Popplewell J clarified however that soliciting or receiving views from a tribunal secretary would not of itself demonstrate a failure to discharge the arbitrator’s personal duty to perform the decision-making function and responsibility themselves.

Be clear as to the secretary’s role and remit

While no party would make an application to remove arbitrators lightly, this case demonstrates the difficulties of such an application both in terms of the ability to obtain potential evidence and to demonstrate that the tribunal has breached its duty and substantial injustice has been caused. Questions as to the role of tribunal secretaries in the abstract, and the influence of secretaries within a case, will most likely continue for some time. Parties and arbitrators should be alive to the rules and guidance on the role of tribunal secretaries including the guidance now given in this decision and address any concerns and parameters with the tribunal at the outset of any tribunal secretary appointment.

References   [ + ]

1. ↑ Similar wording is at Article 14.5 of the LCIA Rules 2012 function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors:

The post When Does a Tribunal Secretary Overstep the Mark? appeared first on Kluwer Arbitration Blog.

Rome Wasn’t Built in a Day: Progress Report on the Creation of a UNCITRAL Convention on Enforcement of Conciliated Settlement Agreements

Sun, 2017-04-16 23:40

Michael Stimakovits

Schoenherr

Over the past few decades, alternative dispute resolution (“ADR”) has become the preferred method of conflict management in the commercial world. Contemporary trends in dispute resolution aim at consolidating ADR in this position by finding an appropriate way to enforce settlement agreements resulting from mediation/conciliation or in the course of judicial or arbitral proceedings.

A topic at the heart of this discussion is whether a legal framework for enforcement of international settlement agreements harmonised at the international level should be established. Many scholars, researchers and practitioners have participated in the discourse of the international professional community (see, for example, in 2015 in The UNCITRAL Convention on Enforcement of Conciliated Settlement Agreements – An Idea Whose Time Has Come?)

The door to establish an enforcement mechanism for settlement agreements reached through international commercial conciliation is not only open, but in fact the United Nations Commission on International Trade Law (UNCITRAL) Working Group II (Dispute Settlement) has already taken the first steps through it. In July 2014, the UNCITRAL agreed that Working Group II would put the issue of enforcement of settlement agreements resulting from international commercial conciliation on its agenda. Since then, it has been gathering twice a year to draw up the provisions of the legal framework for such an instrument. Of course, Rome wasn’t built in a day, and neither will this legal framework for enforcement of settlement agreements.

At the Vienna Arbitration Days this past February, Natalie Yu-Lin Morris-Sharma, Chairperson of Working Group II shared her insights on the development of a conciliation convention and/or model provisions as a legal framework for the enforcement of settlement agreements. The aim of these tools is to bolster the general application of mediation and to provide for a proper enforcement regime of settlement agreements resulting from it. In fact, an effective enforcement mechanism would allay one of the parties’ biggest fears about tedious settlement negotiations: the prospect of a costly case and lengthy litigation or arbitration if one party fails to abide by the settlement terms. Moreover, according to Ms Morris-Sharma, the scope of application of the conciliation convention would not be confined to settlement agreements with mere monetary implications (ie settlement payments), but would also apply to other forms of settlement agreed between the parties (eg return of goods exchanged under the preceding contract).

It was also explored in Vienna whether with the prospect of enforcing settlement agreements resulting from mediation or ADR in general, consent awards might become obsolete. Having an enforcement regime for settlement agreements at one’s disposal would mean that a settlement agreement does not necessarily have to be in the form of a consent award to be enforceable. Accordingly, there might be no demand to “shape” settlement agreements as consent awards. Given this, the new legal framework could further strengthen the importance of ADR in international dispute settlement.

In the course of its latest session held in New York from 6–10 February 2017, Working Group II presented its “compromised proposal” with “a uniform text on enforcement of international commercial settlement agreements resulting from conciliation” (the latest Report of Working Group II (Dispute Settlement) is available here), and resumed its deliberations on the preparation of an instrument for enforcing international settlement agreements resulting from conciliation (the “instrument”). In this context, Working Group II also touched upon settlement agreements concluded in the course of judicial or arbitral proceedings.

Working Group II reiterated its common understanding that settlement agreements resulting from judicial or arbitral proceedings but not recorded as judicial decisions or arbitral awards (consent awards) should certainly fall within the scope of the instrument. The same holds true for settlement agreements reached with the mere involvement of a judge or an arbitrator in the conciliation process.

It was also proposed and examined whether to exclude settlement agreements approved by a court, or which have been concluded before a court in the course of proceedings, and which are enforceable in the same manner as a judgment, or recorded as an arbitral award.1)Draft provision 1(3): this instrument does not apply to settlement agreements: (a) approved by a court, or (b) that have been concluded before a court in the proceedings, either of which are enforceable in the same manner as a judgment, or (c) recorded and enforceable as an arbitral award. jQuery("#footnote_plugin_tooltip_2789_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2789_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In this way, possible gaps or overlaps with existing and future conventions such as the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958), the Convention on Choice of Court Agreements (2005), and the 2016 Preliminary Draft Convention on Judgments, under preparation by the Hague Conference on Private International Law could be avoided.

Some members of Working Group II raised concerns that this proposal might create another gap, if it did not provide that a settlement agreement recorded as an arbitral award but not enforceable as an arbitral award would fall under the scope of the instrument: for example, the denial of enforcement of a consent award refused under the New York Convention due to the lack of an underlying dispute. Another question was whether the assessment of enforceability should be subject to (i) the law of the state where the settlement agreement was recorded as a judgment (the originating state) or (ii) in accordance with the law of the state where enforcement was sought. Working Group II affirmed that it should be the law of the originating state, since it would be in accordance with the approach adopted in the 2016 Preliminary Draft Convention on Judgments under preparation.

As a consequence, however, parties might be deprived of the opportunity to enforce a settlement agreement in cases where it was recorded as a judgment or an arbitral award, but the state where enforcement is sought does not permit enforcement under those regimes. Therefore, settlement agreements recorded as a judgment or an arbitral award should be expressly included in the text of the final instrument so as to fall within its scope of application, all the more so as it is common in many jurisdictions for parties to request the court to record a settlement agreement.

Working Group II also expressed a need to clarify in the instrument that settlement agreements concluded before a court in the course of proceedings but not recorded as judgments would fall under the scope of the instrument to the extent that they were not enforceable in the same manner as a judgment. According to the reasoning of Working Group II, the instrument should not apply to settlement agreements approved by a court, or which have been concluded before a court in the course of proceedings, and which are enforceable in the same manner as a judgment, or recorded as an arbitral award (since they would already be subject to other conventions – see above).

From the above it is clear that (i) mediated settlement agreements resulting from freestanding mediations, (ii) settlement agreements resulting from judicial or arbitral proceedings but not recorded as judgments or arbitral awards, and (iii) settlement agreements reached with the involvement of a judge or an arbitrator would be within the scope of a conciliation convention.

Apparently, only settlement agreements reached with third-party assistance should be subject to a convention on the enforcement of settlement agreements resulting from international commercial disputes. But why should only these settlement agreements be privileged and benefit from an internationally available enforcement process? In fact, both mediated settlement agreements and those resulting from unassisted (private settlement) negotiation are subject to the rules of contract law. Accordingly, some jurisdictions understandably object to the different treatment of these settlement agreements for the purpose of enforcement. Perhaps there is still room for discussion about the inclusion of settlement agreements resulting from unassisted negotiations, ie negotiations that have been conducted exclusively between the parties involved.

With its “compromise proposal” Working Group II has created a sound basis for an effective enforcement regime for settlement agreements. Although many details still require further consideration by the working group members, considerable progress has already been made. It is only a matter of time before settlement agreements resulting from international commercial conciliation are enforceable under a uniform regime. Irrespective of whether this will come in the form of a convention or supplementary model law provisions, it will further bolster mediation and ADR in general and thus lead to a global trend in dispute resolution.

References   [ + ]

1. ↑ Draft provision 1(3): this instrument does not apply to settlement agreements: (a) approved by a court, or (b) that have been concluded before a court in the proceedings, either of which are enforceable in the same manner as a judgment, or (c) recorded and enforceable as an arbitral award. 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:

The post Rome Wasn’t Built in a Day: Progress Report on the Creation of a UNCITRAL Convention on Enforcement of Conciliated Settlement Agreements appeared first on Kluwer Arbitration Blog.

Settling Well

Wed, 2017-04-12 23:04

Michael McIlwrath

Savvy litigators often tell their clients that “a bad settlement always beats a good litigation”. That may be partly because there is embarrassingly scant guidance in the literature, or even in the world’s law schools, on how lawyers can help their clients settle well rather than badly.

I recently had the honor of writing the forward to Michael Leathes’ new book, Negotiation: Things Corporate Counsel Need to Know But Were Not Taught. For those who do not know him, Michael could be considered the godfather of commercial mediation in Europe. A long-time in-house corporate counsel with several leading companies, he’s one of the co-founders of the International Mediation Institute, and the reason many younger (but now senior) corporate dispute lawyers have developed a special affinity with mediation.

In my private correspondence with Michael when he was writing his book, I argued that he should not limit the focus to corporate, in-house counsel, because dispute lawyers generally would benefit from his views. But Michael believes that in-house lawyers are the ones who ultimately call the shots and drive changes, and that is where he kept his focus.

While I was unable to convince Michael to change his mind, I still wish to plead the case that dispute lawyers of all types need to invest time into understanding more about negotiation. I offer as evidence this passage from his book on how opening offers contributed to a good settlement result of a large arbitration. The lesson is particularly relevant because so many counsel (external and internal) are reluctant to make a first move when trying to settle, wrongly assuming they should always let the other side go first.

In the early 1980s, I was a member of a small corporate negotiation team that met with representatives of the revolutionary Iranian Government. The meeting took place in Austria, and at the insistence of the Iranians the location was their Consulate in Vienna. I recall the magnificent tall ceiling, silk wallpaper and a huge portrait of Grand Ayatollah Khomeini surveying the French-polished antique table with a steely gaze. The aim of the negotiation was to resolve a claim that my company had filed with the Iran-US Claims Tribunal in The Hague, established in 1981 in the wake of the Hostage Crisis in 1980 and the seizure of Iranian assets, to recover the value of our expropriated Iranian operating company.

As the meeting was taking place on territory of the Revolutionary Government of Iran, we were cordially invited to present our arguments first. We began with an anchor, a copy of an audit report of our subsidiary’s operations that had been routinely prepared during the final months of our ownership by one of the large international accounting firms. The audit had assessed the net worth of the subsidiary at X million, and on top of that we claimed loss of the net present value of future income from the subsidiary’s operations. The Iranian negotiators politely listened to our explanation, but did not open the audit report, which lay untouched before them on the table. When we had finished, the lead Iranian negotiator, with some ceremony, discarded his unopened copy of our audit, and passed to us a document in Persian that he said was an audit by the Ministry of Finance of the Revolutionary Government. He simply remarked that this audit, carried out more recently, indicated that our former subsidiary that the Government had since “inherited” had a negative net worth of Y, and that we should be the ones providing compensation by leaving the Iranian Republic with a costly liability.

The negotiation on that day did not progress. Some time later, the case settled close to our audit-backed claim [instead of continuing to litigate] our claim in The Hague. Anchors that lack the force of credibility, or are less robust than those presented by the other party, generally weaken your position.

For that reason, many negotiation specialists point to a natural human reluctance to “shoot first”. For example, in their book, The First Move: A Negotiators Companion (2010), professors Alain Lempereur and Aurélien Colson, suggest that most people prefer not to be the first to drop an anchor. They give two risk-related reasons for this. First, the danger of being overly optimistic and therefore appearing unreasonable to the other party. Secondly, the opposite, by being overly pessimistic and having their proposal snapped up by the other party, leaving potential value on the table. By encouraging the other party to be first to drop an anchor, so the argument goes, there is at least a prospect that you may be pleasantly surprised and able to react accordingly.

If all parties feel this way about anchoring, and no one is willing to anchor first, a standoff ensues.

Although this instinctive hesitation to drop the first anchor is explainable, it is risk-averse, and you need the confidence to overcome it. My rule is that negotiators should try to anchor as soon as they have gathered sufficient information to enable them to state a claim that is as far above their [worst case] as it is possible to get while retaining genuine credibility for their anchored claim. This emphasizes the importance of pre-negotiation preparation in order to greatly reduce the first-to-anchor risks, and secure the leverage and persuasive benefit of getting the other party to negotiate from your anchor, not theirs.

Where the other party beats you to it, and drops an anchor that is nowhere near your own perception of reasonableness, think fast how to respond. You could challenge them to justify their anchor, but that can cause them to retrench and become unwilling to move away from it, which can lead to deadlock. Another response is immediately to table your best possible anchor and explain your justification for it, stimulating a discussion on your rationale rather than theirs. Alternatively, change the subject and move the discussion away from the unreasonable anchor.

Guidance like this is invaluable for all lawyers who advise the decision-makers. At the end of the day, company managers and corporate clients are all the same people. Seeing opportunities to settle before they do, and helping them get there successfully, can generate longer, more lasting relationships than relatively good results delivered after hard-fought, expensive, time-consuming arbitrations and court proceedings. (And that’s assuming you get a good result!)

To further support my case, I would like to share a story Michael himself told me many years ago, about what he once did after being irritated by an article about a dispute he had read while flying from London to Asia. The article quoted a prominent outside counsel of a national company boasting about how the costs of the case would make the other side, a key partner of his client, miserable. When Michael landed, he called the reception desk of the national company and asked to speak with the general counsel. When he was put through, he introduced himself as a fellow corporate counsel with no relationship with either of the parties and said he was shocked by what he had read.

The general counsel did not hang up. Instead, he agreed to have lunch, where they discussed the case and the strategy. Shortly after this, Michael was able to help convene the parties to identify a mediator and settle their dispute. He and the general counsel struck a relationship that led to their future cooperation in setting up mediation facilities in the country, and collaboration on other projects with a public interest.

And on that, I rest my case, Mr. Leathes.

More from our authors:

The post Settling Well appeared first on Kluwer Arbitration Blog.

Iraq May Have Energy, But Can It Meet Agility with Resilience?

Wed, 2017-04-12 02:00

Noor Kadhim (Assistant Editor for the Middle East)

Three decades, two wars, one occupation, and multiple democratic elections later, I found myself back in my country of birth, Iraq, in April 2017. I was invited to Baghdad by the Iraq Energy Institute (IEI) as a speaker at the 2017 Iraq Energy Forum (IEF), under the patronage of the Iraq government and the Iraq Ministries of Oil and Finance. The IEI is a non profit advisor to the Iraqi government on energy matters. Given the high proportion of foreign investors’ interests in Iraq’s mineral resources and the state’s recently assumed international and contractual obligations under international bilateral and multilateral treaties for the protection of investments, it was a decisive moment at which to address an audience composed mainly of international oil companies, banks and government ministers on the legal risks of investing in Iraq.

And some investors don’t waste time when they get burned. One year after Iraq’s ratification of the 1965 Washington Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (ICSID Convention), there are now two claims against Iraq. Hot on the heels of the pending claim by telecommunication company Agility Public Warehousing Company K.S.C.(Agility) against Iraq under the Kuwait-Iraq bilateral treaties of 1964 and 2013, I have learned that a new case has just been filed against the state in the same sector, this time by a different Arab investor under two treaties. The name of the company cannot be disclosed, but will likely appear on ICSID’s site in due course if it is accepted. The floodgates have been opened; it remains to be seen whether other well-advised investors will know how to navigate through them.

A week before the IEF, a colleague and I conducted workshops on investment arbitration for Iraqi postgraduate business students as part of an annual diploma course, the Iraq Public Policy and Leadership Programme at the American University of Sharjah (currently sponsored by Crescent Petroleum). There, we sought to impress that there is a big difference between business confidence and legal confidence. I repeated this at the IEF, because it cannot be stressed enough. Business confidence is to do with having faith in the mechanics and economics of a project and those involved. Legal confidence is about having confidence in the regulatory framework surrounding the project and the ability to enforce one’s rights if unexpected or unpalatable events happen. Lawyers should not be there to add more red tape and prevent you carrying out projects, but to assist you to get things done. If they’re not, then you had better change your lawyer.

All developing countries with exploitable mineral wealth have different legal, cultural, and political structures. But they share one thing in common: the need to reassure foreign investors that the legal terrain is safe enough for them to enter and invest. As we know, these are long term projects in which there are a lot of sunk costs, the rewards for which will only be gained years later. Reduced security drives up expectations of return. Less legal risk equals greater negotiating power for Iraq. Iraq has recognised this and has embarked on a course of reassuring investors through a sort of international treaty signing bonanza in recent months, with the the Convention Establishing the Multilateral Investment Guarantee Agency (MIGA Convention) and the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (New York, 2014) (Mauritius Convention on Transparency) now activated. But this course can lead to problems of its own for Iraq, whose accountability is now triggered. Advising on dispute resolution is not just about fighting fires when differences arise. More often than not, and often in Iraq’s case, it is about preparing for the battle and getting your ducks in a row, before a dispute crystallises.

Iraq’s largest source of wealth is its oil resources

It is a well-known fact that since the 1950s, mineral wealth has been crucial to Iraq’s development. Iraq is the fourth largest oil exporter and holds the fifth largest oil reserves. Yet we cannot ignore the cracks that are appearing. One of these is the emergence of competition from Iran, the unlocking of energy in North America through advanced extraction technologies, the reduced influence of OPEC, and the effect of falling oil prices. In addition, Iraq’s oil wealth could be much better exploited in a sustainable way. Poor governance has led to a situation of dependence on oil. According to the most recent World Bank report, Iraq’s reliance on oil revenues translates to 58 percent of the country’s GDP, 99 percent of its exports, and more than 90 percent of central government revenue in 2015.

The Iraqi Investment Law of 2006 (as amended)

Before turning to the international regime as it applies to Iraq, we start with the country’s own national laws. Before Saddam Hussein’s overthrow in 2003, non-Iraqi foreigners were not allowed to invest directly in Iraq through shareholding or direct control of Iraqi-incorporated companies. This changed when foreign direct investment was permitted after 2003. Unsurprisingly, while many other laws did not receive much attention, after the upheaval of the political regime in Iraq, the laws that were updated and amended by the Bremer administration included the investment laws. The aim was to align these laws with Iraq’s commitment to make necessary reforms to improve its business climate, making it more attractive to foreign investors.

Applying on a federal level, the Iraq Investment Law 2006 (as amended) (IIL) is the domestic law that regulates foreign investment in everything except the petroleum and banking and insurance sectors in Iraq. These are two important carve-outs. However, it is not inconceivable that the IIL will be updated in future to include these sectors, at the pressure of the oil companies, banks and insurance companies. Apart from this restriction, the scope of the IIL is wide: the definition of investment under Article 1 is “the investment of capital in any economic or service activity or project that results in a legitimate benefit for the country”. Under Article 10, foreign investors are to have the same rights and privileges as Iraqi nationals. This provision, independently of any contract the public sector may have signed with a foreign investor or anything contained in a generic bilateral treaty, gives a foreign investor a basis in Iraqi law for the expectation that the investment will be treated fairly and without discrimination.

Iraqi bilateral investment treaties

What happens if the nature of a dispute falls outside the scope of the IIL (such as petroleum disputes) or the IIL does not contain adequate protection (for instance, the weak dispute resolution mechanism the IIL is known to have)? We can, if we meet certain relevant criteria, turn to bilateral investment treaties for financial recourse.

As far as I am aware, there are two bilateral investment treaties in force between third states and Iraq: with Kuwait and Japan. Possibly also Jordan; the status is unclear. A recent article by a Dubai-based international law firm incorrectly referred to others (Germany and Belarus) having been ratified by both state parties but upon further verification these treaties are still dormant. In relation to the German BIT, upon enquiry, the German Ministry of Justice earlier this week confirmed that “the treaty did not come into force after the responsibilities for all trade and investment agreements were taken over by the European Commission“. The government communication also confirmed that while Germany was re-authorized to ratify the treaty by the European Commission (as the negotiations pre-dated the Lisbon treaty), the ball was now in Iraq’s court to decide whether certain amended clauses (which needed to be brought in line with EU requirements) were acceptable. The same is likely to be true of the other BITs that Iraq has signed with European countries, including France, Italy, Belgium and others, according to the Chairman of Iraq’s National Investment Commission (NIC), who is the delegate of the Iraqi cabinet in this area. We shall have to wait and see.

Before the ICSID Convention was ratified, treaties were disused because the method of enforcement was uncertain, with Iraq having neither ratified the New York Convention nor the ICSID Convention. Iraq’s ratification of the ICSID Convention has unlocked the power of the investment treaty protections, for better or for worse. The filing of a claim between the Kuwaiti subsidiary of Agility, a telecommunication company, and Iraq at ICSID earlier this year under the 2013 Kuwait BIT should have come as no surprise. At the time of writing, as mentioned above, I understand that there is a second claim to be filed at ICSID by another company, under different treaties. With other treaty ratifications on the horizon, there will be more claims down the line. There is expected to be a halt in the current ‘signing spree’ of treaties at the government level. But the awareness might have come too late. Deferment is only a temporary remedy, akin to trying to slow the spread of cancer.

Do bilateral investment treaties in fact attract foreign direct investment (FDI)?

Before the year 2000, investment treaties were thought to be relatively innocuous and likely to be used in only rare circumstances. By the end of 2010, this was no longer the case: treaty arbitration was becoming a commonly used tool for dispute settlement. Further, even if investors want to continue a business relationship, arbitration can be threatened to show they do in fact mean business.

As I outlined in a previous KAB post, it is surprising that Iraq ratified the ICSID Convention, or signed the various treaties it has, rather than taking what is likely to be the less economically impactful and more commercially advantageous route of entering into the New York Convention of 1958. Recent statements from the Chairman of the NIC have revealed that it is likely to have been in some part because of external investor pressure. However, it remains the case that there is no evidence that investment treaties attract FDI, or significantly more FDI such as to justify their onerous implications for host states. On the contrary, in fact. In 2003, the direct relationship BITs enjoyed with increasing investment flows was called into serious question with a study released by a World Bank economist. The study suggested that any effect of BITs in attracting investment into developing countries was at best minimal, and more likely did not exist. This was confirmed by later studies. There are many examples of countries with large FDI inflows and few, if any, BITs. Brazil, for instance, has been attracting FDI for years and it has never been a member of ICSID. The benefits of treaties from the Iraqi government perspective are, therefore, questionable and should be re-evaluated.

Why is the ICSID Convention important in Iraqi cases?

The usual investor protections guaranteed under Iraq’s investment treaties (such as expropriation, FET, MFN and full protection and security) can now be given real force by international tribunals constituted under ICSID. They used to be dogs with a bark and no bite, because the courts of Iraq (where most of Iraq’s assets are located) have get out of jail free cards under its arbitration law, from enforcing large awards against Iraq. ICSID takes the keys of enforcement away from the State courts and into a private sphere in which arbitral awards cannot be appealed, and can only in very limited cases be annulled by an ad hoc ICSID committee.

It matters if Iraq does not comply with an award because there will be singeing consequences at the levels of the International Monetary Fund and the World Bank, under whose auspices ICSID functions. Iraq relies heavily for support on these institutions. IMF loans are important for Iraq, as well as the World Bank Iraq Trust Fund. Although it is now classed by the World Bank as a middle income country who borrows, and therefore no longer qualifies for International Development Agency aid, or the International Reconstruction Fund Facility of $1 billion, as it used to, there are still some grants that Iraq can access where it can justify it for specific World Bank projects, through other ad hoc trust funds. Therefore, politically and diplomatically, non-compliance with an ICSID award will have repercussions for Iraq’s relationship with these entities.

Negotiation of future treaties with Iraq

Given Iraq’s ratification of the ICSID Convention, and the importance of the substantive protections under bilateral investment treaties, the negotiation and drafting of future Iraqi bilateral treaties is extremely important. Treaty arbitration is a matter about which Iraq cannot afford to be complacent. Similarly, investors with potential claims are well advised to seek advice on their options from lawyers who are both culturally connected with the region and experts in the specialist issues concerned. Shrewd and well-advised foreign investors will increasingly start to capitalise on the benefits of treaty arbitration in all manner of cases under which a project could conceivably fall under the scope of the definition of ‘investment’. Whether these claims will succeed or fail may come down to a simple matter of language, and words said here and there.

More from our authors:

The post Iraq May Have Energy, But Can It Meet Agility with Resilience? appeared first on Kluwer Arbitration Blog.

How Should “Bare” Arbitration Clauses Be Enforced By The Courts?

Mon, 2017-04-10 22:32

Darius Chan

YSIAC

In K.V.C. Rice Intertrade Co Ltd v Asian Mineral Resources Pte Ltd [2017] SGHC 32, the Singapore High Court enforced so-called “bare” arbitration clauses, i.e., clauses that specify neither the place of arbitration nor the means of appointing arbitrators.

In Singapore, the President of the SIAC Court of Arbitration is designated as the statutory appointing authority under Section 8(2) of Singapore’s International Arbitration Act (IAA) and Article 11(3) of the Model Law. Critically, Article 11(3) applies only if the place of arbitration is Singapore. This case is noteworthy because the Court considered that, even when the place of arbitration is unclear or not yet determined, the IAA nevertheless allows the President of the SIAC Court to act as the statutory appointing authority.

While the ultimate pro-arbitration ruling will not come as a surprise to readers, it is not an easy decision. This note briefly highlights two select issues which may have affected the outcome of the case:

(a) Does Article 11(3) of the Model Law apply when there is no agreement that Singapore is the place of arbitration?

(b) What condition should the Court have applied when granting a stay in favour of a “bare” arbitration clause?

Facts

The case involved two contracts for the sale and purchase of rice. Under each contract, the sellers were different, but the buyer was the same. Each of the two contracts contained an arbitration clauses. Both arbitration clauses are similar. The arbitration clause in the first contract reads as follows:

The Seller and the Buyer agree that all disputes arising out of or in connection with this agreement that cannot be settled by discussion and mutual agreement shall be referred to and finally resolved by arbitration as per Indian Contract Rules.

The arbitration clause in the second contract reads as follows:

The Seller and the Buyer agree that all disputes arising out of or in connection with this agreement that cannot be settled by discussion and mutual agreement shall be referred to and finally resolved by arbitration as per Singapore Contract Rules.

Disputes arose between the sellers and buyer. Initially, both sellers proposed ad hoc arbitration in Singapore with a sole arbitrator. The buyer refused to cooperate. This led to the sellers commencing litigation before the Singapore courts. The buyer applied for a stay of proceedings in favour of arbitration under section 6 of Singapore’s International Arbitration Act (IAA).

The Court observed that the enforcement of “bare” arbitration clauses would give rise to practical difficulties over how the arbitral tribunal would be appointed.

Decision

The Court’s decision can be summarised as follows:

First, the effect of Article 11(3) is that the President of the SIAC Court cannot act in a case where it is clear that the place of arbitration is not Singapore. However, it does not necessarily follow that the President of the SIAC Court is powerless to assist in cases where the place of arbitration is unclear or not yet determined.

Second, notwithstanding the silence in the IAA and Model Law, there is a prima facie case that, even when the place of arbitration is unclear or not yet determined, the President of the SIAC Court can still act as the “statutory appointing authority”.

Third, before the President of the SIAC Court exercises his statutory powers, he needs to be satisfied that there is a prima facie case that Article 11(3) applies, viz Singapore is the place of arbitration.

Fourth, considering the arbitration clauses at hand, the President of the SIAC Court can form a prima facie view that his powers of appointment under Article 11(3) applies.

Fifth, even if the President of the SIAC Court declines to appoint the arbitrators for whatever reason, the Singapore court retains “residual jurisdiction” to ensure that the arbitration under both arbitration clauses proceed notwithstanding any deadlock between the parties on the appointment of arbitrators.

Before the Court, the buyer’s position was that, the President of the SIAC Court can appoint the arbitrator in the absence of mutual agreement. The Court ultimately ordered a stay but on a condition. The condition was that the buyer will raise no objections to the President of the SIAC Court’s jurisdiction to appoint an arbitrator under Article 11(3) of the Model Law in the event that the parties cannot reach agreement on the appointment.

Further, if the President of the SIAC Court declines to make an appointment, either party may apply for further orders or directions as part of the Court’s “residual jurisdiction”.

Comments

A. Can Article 11(3) of the Model Law apply when there is no agreement on the place of arbitration?

In the Court’s view, the travaux suggests that the answer is yes.

In this writer’s view, the travaux can be read differently. Where the place of arbitration has not been determined, such as the case at hand, Article 11(3) arguably does not apply—this is left to domestic laws. Unlike countries such as England and France, there is no other provision in Singapore’s IAA empowering the President of the SIAC Court to act as the appointing authority.

As the Court recognised, the travaux states that “the prevailing view was that the model law should not deal with court assistance to be available before the determination of the place of arbitration”. The USSR and United States representatives in particular expressed the view that “the case where the place of arbitration had not yet been agreed upon should remain outside the scope of the Model Law”.

In a paragraph not cited by the Court, the travaux records that “[i]n the subsequent discussion concerning the territorial scope of application of the model law, the Commission decided not to extend the applicability of articles 11, 13, 14 to the time before the place of arbitration was determined”. (Report of the UNCITRAL on the work of its 18th Session, 3-21 June 1985, UNCITRAL, Yearbook Volume XVI, U.N. Doc. A/CN.9/SER.A/1985, paragraph 111)

B. Should a different condition have been imposed by the Court in granting the stay?

Ultimately, the Court enforced the arbitration clauses under a condition that the buyer will raise no objections to the SIAC President’s jurisdiction to appoint an arbitrator under Article 11(3) of the Model Law in the event that the parties cannot reach agreement on the appointment.

There are a number of difficulties. First, it is doubtful whether Article 11(3) is applicable in the first place. Second, it is unclear how Article 11(3) should be applied because Article 11(3), on its terms, requires clarity on the number of arbitrators. It is further unclear on what basis the Court assumed that the Tribunal(s) in this case should comprise a sole arbitrator. If that assumption was based on section 9 of the IAA read with Article 10 of the Model Law, section 9 and Article 10 arguably applies only if the place of arbitration is Singapore—which has not yet been determined in this case.

Given the difficulties surrounding the applicability and application of Article 11(3), it is arguable the Court could have enforced the arbitration clauses on the facts of this case without having to invoke Article 11(3). Neither was it necessary to find that the Court enjoys some kind of “residual jurisdiction” not otherwise expressed in the IAA.

The Singapore apex court in Tomolugen Holdings Ltd and another v Silica Investors Ltd [2015] SGCA 57 held that, a court hearing a stay application under the IAA should grant a stay in favour of arbitration if the applicant can establish a prima facie case, inter alia, that:

(a) there is a valid arbitration agreement between the parties to the court proceedings; and

(b) the arbitration agreement is not null and void, inoperative or incapable of being performed.

In a case where the arbitration clause is a typical “model” arbitration clause commended by major arbitral institutions, an applicant seeking a stay likely does not have to do much more than show the existence of that clause in a contract signed by both parties.

However, in a case where the arbitration clause is a “bare” arbitration clause, the applicant seeking a stay could be asked how the “bare” arbitration clause could be capable of being performed. After a position is taken by the applicant on that issue, assuming all other requirements for a stay are met, a stay could be granted on the condition that the applicant abide by the position it had taken before the Court.1)The Singapore High Court in Dyna-Jet Pte Ltd v Wilson Taylor Asia Pacific Pte Ltd [2017] 3 SLR 267 highlighted there may be a potential inconsistency on the burden of proof articulated in Tomolugen and an earlier decision of the Singapore apex court in Tjong Very Sumito v Antig Investments Pte Ltd [2009] 3 SLR(R) 732. In Tjong Very Sumito, the Singapore apex court earlier held that the burden is on the party resisting the stay to show that the arbitration agreement is incapable of being performed. According to the High Court in Dyna-Jet, the party resisting the stay must establish that “no other conclusion on this issue is arguable”. Even if the legal burden may ultimately rest on the party resisting the stay, it would not be inconsistent for the applicant to articulate its position on how the “bare” arbitration clause could be capable of being performed. jQuery("#footnote_plugin_tooltip_9731_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9731_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

For instance, in the present case, the buyer took the position that the clause was capable of being performed because the President of the SIAC Court could appoint the arbitrator. There appears to have been no dispute between the parties that any arbitral tribunal under each of the clauses shall comprise a sole arbitrator. Given these particular facts, the Court could have ordered a stay on the condition that the buyer will consent should the seller(s) propose that the parties appoint SIAC as the appointing authority to appoint a sole arbitrator for each of the two clauses.

Major arbitral institutions, such as SIAC and ICC, offer their services as appointing authority for ad hoc arbitrations upon the agreement of the parties and upon the payment of certain fees to the institution. Such powers of appointment can be consensual and not statutory in nature. Any appointment by the President of the SIAC Court would be based on the consensual subsequent agreement of the parties, and not pursuant to Article 11(3) of the Model Law.

An additional benefit of this approach is that the President of the SIAC Court would not be left with the unenviable task of having to determine whether his statutory powers under Article 11(3) apply, and if so, how he should apply Article 11(3) when there is no clarity on the number of arbitrators in the first place.

The writer is grateful to Nicholas Poon for his thoughtful input on an earlier draft. All errors are the writer’s alone.

References   [ + ]

1. ↑ The Singapore High Court in Dyna-Jet Pte Ltd v Wilson Taylor Asia Pacific Pte Ltd [2017] 3 SLR 267 highlighted there may be a potential inconsistency on the burden of proof articulated in Tomolugen and an earlier decision of the Singapore apex court in Tjong Very Sumito v Antig Investments Pte Ltd [2009] 3 SLR(R) 732. In Tjong Very Sumito, the Singapore apex court earlier held that the burden is on the party resisting the stay to show that the arbitration agreement is incapable of being performed. According to the High Court in Dyna-Jet, the party resisting the stay must establish that “no other conclusion on this issue is arguable”. Even if the legal burden may ultimately rest on the party resisting the stay, it would not be inconsistent for the applicant to articulate its position on how the “bare” arbitration clause could be capable of being performed. 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:

The post How Should “Bare” Arbitration Clauses Be Enforced By The Courts? appeared first on Kluwer Arbitration Blog.