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The Path for Online Arbitration: A Perspective on Guangzhou Arbitration Commission’s Practice

Sun, 2019-03-03 21:00

Chen Zhi

In recent years, the combination of arbitration and technology has raised great concerns among international arbitration community. Much discussion has centred on online arbitration and use of artificial intelligence in arbitration.

In China, the rapid growth of electronic business (including but not limited to internet consumer applications and mobile financial services) has posed challenges to traditional arbitral procedures. Further, to overcome difficulties under current arbitral legislation framework which has been seen by some to be rigid, centralized and too similar to the judicial process, several arbitration institutions in Mainland China have endeavored to introduce the latest technology to make arbitral proceeding more flexible, efficient and time-effective. China Guangzhou Arbitration Commission (“GZAC”) is one such institution.

 

GZAC and Online Arbitration

GZAC was one of the first seven arbitration institutions founded after the enactment of 1994 Arbitration Law. It was founded shortly after on August 29, 1995.

In 2007, GZAC commenced its study on online arbitration. Seven years later, it launched an unprecedented project to transform itself into an online arbitration institution. Dozens of experienced IT engineers were retained and assigned into groups to develop the online arbitration system. Unlike other institutions which have generally chosen to cooperate with third party service providers, GZAC employed its own technical team, IT engineers and programmers dedicated to developing GZAC’s online arbitration system.

On September 24, 2015, GZAC organized China Internet Arbitration Alliance, gathering more than 100 entities including arbitration institutions, universities, enterprises and social groups to promote online arbitration. On October 1, 2015 GZAC issued its first Online Arbitration Rules, which was the first set of arbitral rules in Mainland China with specific reference to how an arbitration can be run online. In October 2016, a new system named Arbitration Cloud Platform 1.0 was released. The Arbitration Cloud Platform 1.0 was one-stop online service for arbitration conducted entirely online including case filing, delivery of materials, constitution of tribunal, holding the hearing, examining evidence, drafting and rendering of an award, etc.. In 2017 and 2018, the Arbitration Cloud Platform was upgraded to a newer version.

Compared with the traditional arbitration, my view is that GZAC’s online arbitration is more cost-effective and efficient because: (i) it is paperless; (ii) time limit for answer, constitution of tribunal has been vastly narrowed for the wide use of electronic delivery; (iii) documentary-only arbitration is by default but even if a hearing is needed, it is also more convenient to arrange an online conference; and (iv) in 2018, Arbitration Cloud Platform 2.0 allows for cases with similar scenario and same legal issues to be filed, managed and decided on batches, under which an award can be generated automatically and dispatched after the approval of tribunal.

Since then, the caseload of GZAC has skyrocketed. In 2017, it accepted 89,530 cases, among which 70,079 follow the online arbitration process entirely. In 2018, the number of online arbitrations handled by GZAC increased to 166,634 with the total dispute sum of RMB 9.5 billion (approximately USD 1.4 billion).

 

New Challenges, New Chances

With great success come new challenges. At the very beginning, some local courts declined to enforce awards rendered in the online arbitration process for various reasons. For example, several courts had rejected award enforcement by applying 2012 Civil Procedure Law which has vastly narrowed down the use of electronic delivery. Those courts held that GZAC failed to “appropriately notify” the respondent1)For example, in 2018 Xiang 08 Zhi No. 55(September 20,2018), Zhangjiajie Intermediate People’s Court of Hunan Province opined that delivery of arbitral award was not compatible with Civil Procedure Law, and hence refused to enforce an online award by GZAC. jQuery("#footnote_plugin_tooltip_2047_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2047_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, and hence vacated the award on breach of due process basis.

Fortunately, the situation has changed. On February 23, 2018, the Supreme People’s Court issued a specific judicial interpretation concerning enforcement of arbitral award (Provisions of the Supreme People’s Court on Several Issues Concerning the Enforcement of Arbitral Award referred to as “Enforcement Provisions”). Article 14(2) of Enforcement Provisions arguably gives judicial recognition of the validity of notice provisions stipulated in arbitration rules2)Article 14 does not specify online arbitration. It uses the general heading of “arbitration rules” but online arbitration rules fall within the scope of “arbitration rules”. jQuery("#footnote_plugin_tooltip_2047_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2047_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, even though such a measure is technically incompatible with Civil Procedure Law and other regulations. However, I think it is still premature to say that electronic delivery has been entirely legitimised because on one hand, Enforcement Provisions are not binding in setting aside proceedings. Hence, sufficient engagement and dialogue between competent courts and arbitration institutions is still necessary to ensure the effectiveness and enforcement of an award rendered in an online arbitration.

Another challenge is the competition brought by other dispute resolution fora. In 2017, China established its pilot Internet Court in Hangzhou. In 2018, Internet Courts of Beijing and Guangzhou were formed with the strong support from the Chinese government. Apart from the courts, e-commerce giants such as Alibaba, Jingdong, etc. have also established their own online dispute resolution system to cope with the simple and small claims. This came about because of Article 63 of E-Commerce Law which came into effect on January 1, 2019 and has empowered e-commerce operators to build their own dispute resolution system.

Against this backdrop, GZAC launched two initiatives in 2018. First is the proposed revision of GZAC’s Online Arbitration Rules, which: (i) broadened the scope of application of online arbitration, under which GZAC and the tribunal are vested with the power to decide on the appropriateness of the case for resolution by online arbitration; (ii) introduced new technologies into arbitral proceedings, for instance, the rules require tribunals to examine the authenticity of electronic signature while being conscious of the common use of technologies such as time-stamp and block-chain technologies. The appointing authority may also decide on the arbitrator appointment by referring to big data results; and (iii) incorporated some of the latest thinking in international arbitration such as making sole arbitrator as the default number of arbitrator. The revised rules have been released in draft format and are now in the consultation process with the public.

Second, on 28 September 2018, GZAC, along with its partners, has released a new e-commerce platform named Dashizhiyue Intellectual Transaction Platform, a B2B supply-chain platform providing a one stop service for storage of transaction records, storage of evidence, legal advice, identity of parties and determination of the dispute. It is noteworthy that the transaction records and related materials would have been stored by the third party service providers before any dispute commences hence it will be not necessary for parties to furnish evidence themselves. Dashi dispute resolution platform would be able to automatically collate the relevant evidence and forward them to parties after the commencement of the dispute resolution proceeding.

 

The Future of Online Arbitration in China

The decentralization, in-territoriality and ubiquity are inherent features of online transaction and these may well require more than the traditional dispute resolution mechanism. The traditional way to run an arbitration may satisfy such requirements, but is far from enough in my view.

I see much in the future of Online Arbitration, but there is still much to do. First of all, arbitration institutions and practitioners should deepen their cooperation to make China a more arbitration-friendly jurisdiction. In 2019, the establishment of China Arbitration Associate which has long been suspended is likely to restart. This will be a good chance to make the voice of arbitration society more influential. Second, a successful online arbitration mechanism requires support from law firms, technical corporations, e-commercial operators and governmental sectors. Last, arbitration institutions in Mainland China should provide more efficient, convenient and user-friendly online service.

Moving forward from online arbitration, institutions in Mainland China like GZAC are likely to explore unchartered waters like artificial intelligence arbitration. With the help of most advanced technologies, the AI arbitrator can learn, automatically review and decide a case. It is not likely that AI arbitrator will operate without the need for a human but it can enhance the efficiency and quality of arbitration.

References   [ + ]

1. ↑ For example, in 2018 Xiang 08 Zhi No. 55(September 20,2018), Zhangjiajie Intermediate People’s Court of Hunan Province opined that delivery of arbitral award was not compatible with Civil Procedure Law, and hence refused to enforce an online award by GZAC. 2. ↑ Article 14 does not specify online arbitration. It uses the general heading of “arbitration rules” but online arbitration rules fall within the scope of “arbitration rules”. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Approaches to Arbitration in Australia and Singapore

Sun, 2019-03-03 01:00

Cameron Ford and Andrew Foo

The different approaches to arbitration between courts in Australia and Singapore have been illustrated in two cases in the last 2 years – KVC Rice Intertrade Co Ltd v Asian Mineral Resources Pte Ltd [2017] SGHC 32 and Hursdman v Ekactrm Solutions Pty Ltd [2018] SASC 112. The Singapore approach typified by KVC is to give judicial support to arbitration and take a pragmatic, commercial, common-sense, approach. The Australian attitude can be far more legalistic, ignoring practical realities and the desirability of encouraging arbitration.

Of course, not every purported arbitration agreement should be enforced. If a clause is truly defective, the arbitral award obtained thereunder may be unenforceable under the laws of the enforcing state.1) Nigel Blackaby et al, Redfern and Hunter on International Arbitration (Oxford University Press, 5th Ed, 2009) at [4.43]. jQuery("#footnote_plugin_tooltip_6989_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6989_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

The Singapore approach

Singapore’s approach has been noted on this blog, and was articulated by the Court of Appeal in Insigma Technology Co Ltd v Alstom Technology Ltd2) Insigma Technology Co Ltd v Alstom Technology Ltd [2009] 3 SLR 936 at [31]. jQuery("#footnote_plugin_tooltip_6989_2").tooltip({ tip: "#footnote_plugin_tooltip_text_6989_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });:

…where the parties have evinced a clear intention to settle any dispute by arbitration, the court should give effect to such intention, even if certain aspects of the agreement may be ambiguous, inconsistent, incomplete or lacking in certain particulars…so long as the arbitration can be carried out without prejudice to the rights of either party and so long as giving effect to such intention does not result in an arbitration that is not within the contemplation of either party.

In KVC, the court enforced a bare arbitration clause that said:

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.

The clause did not specify the place of arbitration, mechanism for constituting the tribunal, or the applicable arbitration rules.

Nonetheless, the court held that the clause was a valid arbitration clause which was capable of being performed, and that the court could assist with appointing arbitrators to ensure the parties’ intentions for arbitration were not defeated. The court said at [71]:

…a Singapore court would be prepared to step in to directly appoint an arbitrator, provided the dispute had some connection with Singapore…such a decision could be justified either on the basis of contract law…with the appropriate use of implied terms…or as an exercise of the court’s inherent jurisdiction to prevent injustice.

This, the judge said, was “consistent with Singapore’s public policy (which includes strong support for the smooth functioning of international arbitration) and jurisprudence (which recognises the common law right…of access to justice, including the maxim ubi jus ibi remedium3) “Where there is a right there is a remedy”. jQuery("#footnote_plugin_tooltip_6989_3").tooltip({ tip: "#footnote_plugin_tooltip_text_6989_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });)”.

As previously discussed on this blog, the Singapore courts find many friends in adopting a pro‑arbitration policy, including the Swedish courts and the Swiss courts.

 

The Australian approach

Compare that approach with that in Hurdsman which, while admittedly dealing with a different aspect of arbitration agreements, perhaps illustrated the underlying philosophy. The court in Hurdsman refused to enforce the following clause:

28.3         If the parties have been unable to resolve the Dispute within the Initial Period, then the parties must submit the Dispute to a mediator for determination in accordance with the Rules of the Singapore International Arbitration Centre (Rules), applying South Australian law, which Rules are taken to be incorporated into this agreement.

28.4         A party may not commence court proceedings in respect of a Dispute unless it has complied with this clause 28 and until the procedures in this clause 28 have been followed in full, except where:

28.4.1     the party seeks injunctive relief in relation to a Dispute from an appropriate court where failure to obtain such relief would cause irreparable damage to the party concerned; or

28.4.2     following those procedures would mean that a limitation period for a cause of action relevant to the issues in dispute will expire.

The problematic word was the reference to a mediator rather than an arbitrator. The contract in question followed a memorandum of understanding (MOU) which stipulated ‘arbitration in accordance with the rules of the Singapore International Arbitration Centre (SIAC)’.

However, the court held that it was not obvious on the face of the agreement that the word ‘mediator’ was intended to be ‘arbitrator’, that the agreement was neither one to arbitrate or mediate, and that the submission to the jurisdiction of South Australian courts would have no work to do if Clause 28.3 were an agreement to arbitrate.

It is not difficult to imagine how this clause would have been dealt with in Singapore.

First, the clear arbitration agreement in the MOU strongly suggests the parties intended for arbitration. No reason was suggested why the parties would change their minds between the MOU and the contract.

Second, the words ‘for determination’ following ‘mediator’ strongly indicate arbitration over mediation. There is nothing a mediator determines; whereas arbitrators determine disputes by delivering an award. Curiously, the judgment makes no mention of this phrase.

Third, the reference to ‘the Rules of the [SIAC]’ strongly indicates arbitration. This is because the SIAC publishes rules for arbitration, not mediation.

Fourth, contractual submission to courts is not a contraindication of arbitration. Such clauses still have work to do where arbitration is validly chosen. It is common for parties to submit to the jurisdiction of named courts, while stating that disputes are to be resolved by arbitration. The MOU itself contained submission to the courts of South Australia, “subject to arbitration“.  Where that occurs, submission to jurisdiction indicates the seat of the arbitration and hence the courts which would supervise the arbitration by appointing arbitrators, granting interim measures, etc.4) Jeffrey Waincymer, Procedure and Evidence of International Arbitration (Wolters Kluwer 2012) at [3.5]. jQuery("#footnote_plugin_tooltip_6989_4").tooltip({ tip: "#footnote_plugin_tooltip_text_6989_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Fifth, while the right to commence court proceedings to avoid the expiration of limitation periods sat more comfortably with the clause being a mediation agreement (since commencing arbitration typically satisfies limitation concerns), this arguably reflects parties’ ignorance of arbitration. Here, under the principle of effective interpretation, the courts should salvage the true intentions of parties, even if distorted by infelicitous drafting.5) Insigma v Alstom [2009] 3 SLR(R) 936 at [39]. jQuery("#footnote_plugin_tooltip_6989_5").tooltip({ tip: "#footnote_plugin_tooltip_text_6989_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The court’s decision effectively sanctioned a violation of the parties’ agreement, by allowing the plaintiff to pursue court proceedings without first commencing either mediation or arbitration. Perhaps this flows from the defendant dropping its contention to replace ‘mediator’ with ‘arbitrator’ in Clause 28.3.

In contrast, in another Singapore decision, the Singapore court said it would be prepared to replace the word ‘umpire’ in an arbitration clause with the word ‘president’ (BNP v BNR [2018] 3 SLR 889).

The court said this would give effect to the parties’ intention for arbitration and “make such an arbitration workable and feasible”.

The court ultimately dismissed the challenge against the tribunal’s jurisdiction, which was made on the basis that while the clause provided for the third arbitrator to “act as an umpire”, the third arbitrator was acting as president.

Based on KVC and BNP, it seems a Singapore court would uphold the clause in Hurdsman as a workable arbitration agreement.

 

Conclusion

Professor Waincymer has proposed on this blog that a court hearing an application to stay court proceedings in favour of arbitration should “simply ask whether a reasonable tribunal hearing all evidence could find validity”. He submits that this fits the deferential approach courts should adopt, pursuant to the UNCITRAL Model Law and New York Convention.

Professor Waincymer’s proposal may have made a difference in Hurdsman.

This is because  in Hurdsman, there was “some ambiguity” in the clause: the court noted it was “neither this nor that…not quite an arbitration agreement and not quite a mediation agreement”.

However, the court did not, it appears, have the benefit of seeing witnesses cross-examined, or a full body of relevant material. This is not surprising. As Professor Waincymer notes:

…presentation and testing of detailed evidence via contemporaneous documents and cross-examination of witnesses would not be the norm…there would invariably be reluctance to allow a full hearing with cross-examination, or allow for the generation of a full body of relevant material evidence …

The court was therefore tasked with deciding the matter without a full appreciation of the facts.

Under Professor Waincymer’s approach, the court may well (a) have accepted that a reasonable tribunal hearing all the evidence (unlike the court, which only heard some evidence) could find that the clause was a valid arbitration agreement, and (b) therefore granted a stay in favour of arbitration.

However, until Professor Waincymer’s approach is accepted, parties should beware the different levels of scrutiny their dispute resolution clauses may face in different courts.

Parties should seek appropriate early advice, to avoid unnecessary skirmishes and unpredictable decisions. Such ‘fights over where to fight’ are like being stuck on a disrupted Tube service – time‑consuming, but largely avoidable, if you had only planned your route more carefully.

 

Clifford Chance Asia is a Formal Law Alliance in Singapore between Clifford Chance Pte Ltd and Cavenagh Law LLP.  The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of Clifford Chance, nor those of its clients.

References   [ + ]

1. ↑ Nigel Blackaby et al, Redfern and Hunter on International Arbitration (Oxford University Press, 5th Ed, 2009) at [4.43]. 2. ↑  Insigma Technology Co Ltd v Alstom Technology Ltd [2009] 3 SLR 936 at [31]. 3. ↑ “Where there is a right there is a remedy”. 4. ↑ Jeffrey Waincymer, Procedure and Evidence of International Arbitration (Wolters Kluwer 2012) at [3.5]. 5. ↑  Insigma v Alstom [2009] 3 SLR(R) 936 at [39]. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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A Comparison of the IBA and Prague Rules: Comparing Two of the Same

Sat, 2019-03-02 02:05

Sol Argerich

On December 2018, the Prague Rules on the Efficient Conduct of Proceedings in International Arbitration (“Prague Rules”) were released. (For related posts on the Prague Rules on Kluwer Arbitration Blog click here, here, here, and here.)

The Prague Rules aim to increase efficiency and reduce costs in arbitral proceedings. The project arose from a general dissatisfaction with both the costs of arbitration and the length of proceedings. Drafters believe that one of the causes of this is that, generally, tribunals are not sufficiently proactive in providing cost efficient and time-saving procedures.

The drafters proposed the Prague Rules as an alternative to the well-known and commonly adopted IBA Rules on the Taking of Evidence in International Arbitration (“IBA Rules”). The note following provides an analysis of the main differences (and similarities) between the IBA Rules and the Prague Rules.

Application

The Prague Rules are intended as a framework providing guidance to conduct effective arbitration proceedings. They do not replace institutional rules which govern arbitral procedure and are only applicable upon the parties’ agreement or at the arbitral tribunal’s own initiative after consultation with the parties and, even then, only to the extent to which the parties have agreed (see Prague Rules, Article 1). In practice, although unlikely, a tribunal could apply the Prague Rules without party consent under Article 1.2.

The IBA Rules, on the other hand, provide that they may be adopted in whole or in part by the parties and tribunals. There is no specific provision for the tribunal adopting the IBA Rules of its own initiative.

Key differences

The key underlying difference between the IBA Rules and the Prague Rules is that while the IBA Rules were intended to create a level playing field in international arbitration, it is commonly believed that they are more aligned with common law. In contrast, the Prague Rules openly adopt a more inquisitorial approach more in line with the civil law tradition. This below illustrates, by way of comparative charts, the four main issues addressed by the Prague Rules:

1. A Proactive Arbitral Tribunal: Arbitrators should be active both in the taking of evidence and in fact finding to speed up proceedings.

In sum, the Prague Rules contain unequivocal provisions on how the tribunal should be active. Yet, the IBA Rules also encourage the tribunal to adopt a proactive attitude.

2. Document production: The drafters of the Prague Rules criticise the current IBA-style practice of document discovery arguing that it is highly time and cost consuming. The Prague Rules, following the civil law style, limit document production.

3. Number of witnesses: Another proposed solution to reduce the duration of arbitral proceedings under the Prague Rules is that the tribunal will have the final say regarding the number of witnesses to be heard throughout the proceedings. While under the IBA Rules, the tribunal has no say over this matter.

4. Examinations of witnesses: Despite the criticism of the cross-examination of witnesses in arbitration, the drafters of the Prague Rules retained the cross-examination process in the new Rules. However, provisions that tend to avoid lengthy hearings were included. The Prague Rules even suggest not having a hearing, and when possible, resolving the dispute on a document basis only (Article 8.1).

Innovations

The Prague Rules included two other provisions that are not addressed in the IBA Rules and may not be familiar to common law practitioners:

    1. ‘Iura Novit Curia’ principle (Article 7). This maxim demands for proactive arbitrators who are able to spot and determine the applicable law on their own initiative and thus apply provisions that were not set out by the parties. This requires prior consultation with the parties; furthermore, the tribunal must seek the parties’ views on those legal provisions it intends to apply.
    2. Assistance in Amicable Settlement (Article 9). Unless the parties object the tribunal may assist the parties in reaching an amicable settlement. This alternative dispute resolution mechanism can be used at any stage of the proceedings. Where that no agreement is reached, the arbitrator who acted as mediator may (a) continue as an arbitrator (parties’ written consent is required) or (b) terminate his/her mandate.

Even though common law practitioners may not be familiar with this mechanism, it is interesting to note that it is used in other jurisdictions, specifically Asia. Similar provisions are contained in the HKIAC Rules 2018 (Article 13.8) and in the China International Economic and Trade Arbitration Commission (Article 47).

Conclusion

On the whole, even when there are some differences in procedures under the two sets of rules, the Prague Rules do not present a radical change. However, these changes and innovations could have an impact on the costs and the duration of the proceedings.

Will the Prague Rules yield better results overall? We will have to wait for the Prague Rules to be put into practice in order to fully analyse their impact on international arbitration.

 

This post is an expression of the author´s personal opinion, the views expressed here do not reflect Clyde & Co’s position.

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Reflections on Default Number of Arbitrators under Expedited Procedure Rules

Thu, 2019-02-28 21:00

Wei Sun

In this post, I will compare and discuss the expedited procedure rules (“EP Rules”) used by various arbitral institutions in deciding on a default number of arbitrator(s) for such expedited procedure.

A core concern of Article V(1)(d) of the New York Convention is how to weigh between party autonomy and institutional control in arbitration proceedings. Arbitration practitioners may recall the failed attempt by Noble Resources International Pte. Ltd. (“Noble Resources Case”) to enforce a SIAC award a few years back.

That award was rendered under the old SIAC Arbitration Rules’ EP Rules though. In its Arbitration Rules 2016, SIAC made a detailed regulation on EP Rules by adding two new sub clauses [Rule 5.3 and Rule 5.4]. In particular, Rule 5.3 stipulates that “By agreeing to arbitration under these Rules, the parties agree that, where arbitral proceedings are conducted in accordance with the Expedited Procedure under this Rule 5, the rules and procedures set forth in Rule 5.2 shall apply ‘even in cases where the arbitration agreement contains contrary terms.’”1)Rule 5.2(b) prescribes that “the case shall be referred to a sole arbitrator, unless the President determines otherwise” jQuery("#footnote_plugin_tooltip_4431_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4431_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Under the 2016 Rules, the sole arbitrator is the default in expedited procedure, and parties are deemed to accept the default if they choose SIAC, whose arbitration rules refer to the application of the EP rules if certain conditions are met, albeit their agreement otherwise.

In my view, this approach is a bit too hardline: when parties choose a certain set of arbitration rules, they have to accept all of them, without any deviations by agreeing otherwise. This might be detrimental to party autonomy, which is considered the foundation of arbitration, and the flexibility of arbitration procedure, which is a key factor of arbitration’s success as an internationally preferred method of dispute resolution.

Similarly, the newly revised 2017 ICC Arbitration Rules achieve effectively the same result. The relevant provisions provide that “The court may, notwithstanding any contrary provision of the arbitration agreement, appoint a sole arbitrator.” [Article II Appendix VI of the ICC’s EP Rules]. In particular, Article 30 of the ICC Rules provides that “By agreeing to arbitration under the Rules, the parties agree that this Article 30 and the Expedited Procedure Rules set forth in Appendix VI (collectively the ‘Expedited Procedure Provisions’) shall take precedence over any contrary terms of the arbitration agreement”.2)Also, in a press release dated 4 November 2016, ICC stated that “Under the Expedited Procedure Rules, the ICC Court will normally appoint a sole arbitrator, irrespective of any contrary term of the arbitration agreement.” jQuery("#footnote_plugin_tooltip_4431_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4431_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

As a contrast, the 2018 HKIAC Rules has opted for a different approach. The HKIAC rules provide that “the case shall be referred to a sole arbitrator, unless the arbitration agreement provides for three arbitrators.” [Article 42.2(a)]. Also, “If the arbitration agreement provides for three arbitrators, HKIAC shall invite the parties to agree to refer the case to a sole arbitrator. If the parties do not agree, the case shall be referred to three arbitrators.” [Article 42.2(b)].

Similar to the HKIAC Rules, the CIETAC Rules provides that “Unless otherwise agreed by the parties, a sole-arbitrator tribunal shall be formed in accordance with Article 28 of these Rules to hear a case under the Summary Procedure.” [Article 58]

The above institutional rules demonstrate two different approaches to the procedure of expedited proceeding: SIAC and ICC seem to treat the procedures in EP Rules superior than the arbitration agreement while HKIAC and CIETAC put more emphasis on party autonomy. Although it is unknown whether the Noble Resources Case will be recognized by the Chinese Court if the 2016 SIAC Arbitration Rules applies, Chinese courts attach importance to party autonomy. In Noble Resources Case, the court put a lot emphasis on party autonomy, holding that the parties’ particular agreement on a procedural matter is superior to the provisions in the arbitration rules. It is therefore suggested for foreign arbitrators and arbitration institutions to be cautious about parties’ agreement, especially when the party expressed its concerns on the special arrangement on procedural matters during arbitration proceedings.

References   [ + ]

1. ↑ Rule 5.2(b) prescribes that “the case shall be referred to a sole arbitrator, unless the President determines otherwise” 2. ↑ Also, in a press release dated 4 November 2016, ICC stated that “Under the Expedited Procedure Rules, the ICC Court will normally appoint a sole arbitrator, irrespective of any contrary term of the arbitration agreement.” function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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The Future of ISDS: Can’t See the Wood or the Trees

Thu, 2019-02-28 02:00

Maarten Draye and Emily Hay

On 22 November 2018, the Belgian Ministry of Foreign Affairs, Foreign Trade and Development Cooperation hosted a High Level Event on the Reform of Investment Protection. Distinguished panellists from arbitral institutions, international organisations, academia, civil society, arbitration users and legal practitioners presented diverse views on the need for reform of the system of investor-State dispute settlement (“ISDS”), the progress of current reform efforts, and the potential multilateral investment court (“MIC”). These insightful contributions surveyed the many and varied perspectives from which to view the current state of ISDS, and its future. At the end of the day, however, the distinct impression was that the various stakeholders in this debate are talking at cross-purposes, making it difficult to see either the wood or the trees.

Status of Current Reform Initiatives

A first wave of reforms is undertaken by ICSID. Meg Kinnear, Secretary-General of ICSID explained that the fourth comprehensive reform of the ICSID arbitration rules is well underway. The proposed amendments were published in August 2018, and are open for comment by States and the public until 28 December 2018. A vote on the amendments to the rules is expected in 2019 or 2020.

In order to keep ICSID’s procedural rules fit-for-purpose, there is a range of proposed reforms, including:

  • a new provision for consolidation or coordination of like cases;
  • an obligation to disclose the existence and source of third party funding;
  • strong provisions in favour of greater transparency of awards, decisions, and orders, including deemed consent and the publication of excerpts; and
  • the availability of expedited procedures, anticipated to be useful in particular for small and medium enterprises.

The reform proposals are based on ICSID’s day-to-day experience in the management of cases, which puts it in a unique position to know what works and what does not. See more details on the proposed reforms here.

In parallel, UNCITRAL has tasked its Working Group III to study ISDS reform. Anna Joubin-Bret, Director of the International Trade Law Division at UNCITRAL, reported that at its thirty-sixth session in November 2018, Working Group III completed the second phase of its mandate, reaching consensus that reform is desirable to address concerns about the current system of ISDS. These concerns fall into three broad categories:

  • lack of consistency, coherence, predictability and correctness of arbitral decisions by ISDS tribunals;
  • concerns about arbitrators and decision makers, including lack of independence and impartiality, limitations in challenge mechanisms, lack of diversity, and qualifications; and
  • concerns regarding the costs and duration of proceedings.

The next and third phase of the work of Working Group III will be to discuss and determine what reforms should be developed to address the specific concerns. Due attention will be given both to concerns based on facts, as well as concerns based on perception. See the draft report of the thirty-sixth session of Working Group III here.

Ms. Joubin-Bret emphasised that this Working Group is a government-led process. This reflects the fact that it was States who initiated the design of the current system, and in her view they should be the ones to reform it.

Which Reforms, Why and How?

According to some stakeholders in civil society who voiced their objections during the event, the question should not be what reforms to undertake, but whether we should rather abolish the system of investor protection altogether. The concerns of these groups are more existential and question why investors should receive favoured treatment. Their assertion that investors are offered protection which is not available in other areas such as human rights, climate, labour rights, etc., may very well be on point. It risks, however, throwing away the baby with the bath water.

While it is difficult to measure the immediate impact of bilateral investment treaties on the levels of foreign investment, Patrick Baeten, Deputy GC at Engie, pointed out that investors want certainty and will always look at the level of investment protection when investigating long-term commitments. He predicted that, failing adequate protection (regardless of its form), investment gaps would not be filled, or at least not at the same cost. Moreover, many speakers, including James Zhan, Senior Director of Investment and Enterprise at UNCTAD, pointed out that the current discussion on reform should not be limited to ISDS or other issues of procedure, but also include substance. Treaties can be revised to include obligations for investors which can be enforced by host States.

For those who accept that investment protection should continue to exist in one form or another, there remains a great variance in opinions on the level of reform to ISDS necessary. For some practitioners, the system is imperfect but with some self-regulating tweaks could be sufficiently improved. Others propose largely maintaining the current system, but adding an appeal mechanism to address issues of consistency, predictability and correctness. Those in favour of a more dramatic rethink may support an MIC, or some form of court with international jurisdiction in combination with recourse to domestic courts. Reference was made to the recent report by the IBA on “Consistency, efficiency and transparency in investment treaty arbitration”, which details some of the challenges facing ISDS and proposes solutions to foster the legitimacy of the system.

In her keynote speech, European Commissioner for Trade Cecilia Malmström expressed the EU’s view that the MIC is the only option on the table that can effectively address these concerns. According to the EU, only a permanent body to resolve investment disputes can create predictability and consistency, bring about the necessary expertise in the system, effectively address costs and duration, and assure equal representation. The EU plans to put forward this idea at the multilateral level during the next phase of UNCITRAL Working Group III’s discussions.

Does an MIC Address the Concerns Raised?

At the time of the conference, no detailed proposals for an MIC had been made public. It was therefore unclear what form the court would take, whether it would be an independent institution in its own right, or whether it would make use of the secretariat and facilities of other institutions which already exist. It was further unknown what kind of judges would sit on the court, how they would be appointed, and what rules would govern their service.1)Meanwhile, on 18 January 2019, the EU submitted two papers containing concrete reform proposals to UNCITRAL. jQuery("#footnote_plugin_tooltip_7392_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7392_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Even speaking in general terms, many speakers doubted whether an MIC could address the concerns with the current ISDS system that have been identified. The speakers therefore advocated that, at this stage, full consideration should be given to all potential reform options, and to measure those options against the objectives sought to be achieved. Professor Loukas Mistelis of Queen Mary University pointed out that, if an MIC is created, one option could be to maintain the current system of ISDS, with the MIC to function as an appellate body.

A further question lingers over the feasibility of bringing an MIC into existence in the current global climate, in which multilateralism already faces serious challenges, and a number of other multilateral efforts in the economic sphere have stalled or are dysfunctional.

Again recalling the importance of substantive standards, several contributions also highlighted that while proposed reforms to ISDS are mainly procedural, the importance of the nature and wording of standards of treaty protection should not be underestimated. Mr. Zhan of UNCTAD pointed out that the overwhelming majority of ISDS cases are brought under old generation treaties. In this connection, Professor Bernard Hanotiau of Hanotiau & van den Berg commented that divergent treaty wording, some of which is unclear or inconsistent with other treaties, is often the very reason why ISDS tribunals reach different interpretations of treaties in different cases.

Conclusion

This event illustrated once more how divided different participants in the debate are on the issue of ISDS, and more generally, on investor protection. At the same time, it demonstrated the need for a continued exchange of views in pursuit of solutions that cater to diverse stakeholders.

Civil society groups question the existence of an entitlement to investor protection itself. This approach does not seem to be shared by most lawmakers. However, the EU, one of the main political forces in the debate at UNCITRAL, has made it clear that it sees an MIC as the only way forward.

Meanwhile, practitioners acknowledge to varying degrees that change is necessary, but point out that an MIC will likely fail to address many of the concerns with ISDS. Indeed, it may create new ones. At this stage, it seems doubtful that such technical remarks will fall on fertile soil, since the idea of an MIC which has been planted by the EU appears cultivated in large part on political ideology.

While States are legitimately in the driver seat of ISDS reform, discussions between experts and lawmakers must continue, in order to benefit from the input of those with daily experience of legal practice and procedure. In this way, every potentially viable variety of tree will be given due consideration before a decision is made whether to replant the forest entirely, or whether to seek better results through forest management.

References   [ + ]

1. ↑ Meanwhile, on 18 January 2019, the EU submitted two papers containing concrete reform proposals to UNCITRAL. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Should Arbitral Institutions Have Diplomatic Immunity?

Wed, 2019-02-27 01:00

Christine Sim (Assistant Editor for Southeast Asia)

In November 2018, the former director of the Asian International Arbitration Centre (AIAC) in Kuala Lumpur resigned from his role after being arrested on suspicions that he paid past and present ministers bribes to renew his role at the AIAC.

His lawyer argued before Malaysian courts that, by virtue of his role at AIAC, he is protected by diplomatic immunity under Malaysia’s 1992 International Organisations (Privileges and Immunity) Act and the Vienna Convention on Diplomatic Relations (18 April 1961) (Vienna Convention). As a result, he cannot be arrested, detained or subject to criminal jurisdiction in Malaysia. He was detained for investigations briefly, but released, not subject to bail on 21 November 2018.

Are arbitral institutions and their officers entitled to diplomatic immunity?

 

Legal Regime for Diplomatic Immunity of Arbitral Institutions

Under international law, the question whether an international organization enjoys diplomatic immunity depends on treaties with the host State and customary international law.1) Josef L. Kunz, ‘Privileges and Immunities of International Organizations’ American Journal of International Law, vol. 41, No. 4 (Oct., 1947), pp. 828-862; Michael Wood, ‘Do International Organizations Enjoy Immunity under Customary International Law?’ in Immunity of International Organizations (Brill, 2015), pp 29-60. jQuery("#footnote_plugin_tooltip_5379_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5379_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Under the Vienna Convention, immunity from criminal jurisdiction is complete. But the Vienna Convention does not apply to international organizations. As provided in the Commentary:

‘Apart from diplomatic relations between States,there are also relations between States and international organizations. […]However, these matters are, as regards most of the organizations, governed by special conventions.’

Under domestic law, States have enacted legislation regarding diplomatic immunity for international organisations. In Malaysia, the applicable law cited by Rajoo is the Malaysian 1992 International Organisations (Privileges and Immunity) Act. In the United States, the 1945 International Organizations Immunities Act applies to protect international organizations and their officers from U.S. search and seizure laws.

The Permanent Court of Arbitration (PCA) has a treaty with the Netherlands concerning their headquarters. It provides that the PCA shall be immune from legal processes and its property shall be inviolable. The PCA also has several Host Country Agreements, providing privileges and immunities to its staff, adjudicators and participants in PCA-administered proceedings. The International Chamber of Commerce (ICC) Court of Arbitration is part of the ICC, a non-governmental business organization, organized under the laws of France. It does not have the same treaties setting out diplomatic immunity protections as the PCA.

According to the AIAC, it was established under the Asian African Legal Consultative Organization (AALCO), an international organization comprising 47-member states from across the region, and that:

“Formed pursuant to the host country agreement between Malaysia and AALCO, the AIAC is a not-for-profit, non-governmental international arbitral institution which has been accorded independence and certain privileges and immunities by the Government of Malaysia for the purposes of executing its functions as an independent, international organization.”

 The extent to which officers of arbitral institutions are protected by diplomatic immunity depends on the same legal framework above.

Officers of arbitral institutions perform a great variety of roles, including registering the case, appointing arbitrators, making procedural decisions, facilitating the hearing, drafting or editing the award, and promoting the arbitral institution to users.

Generally, the diplomatic immunity enjoyed by the arbitral institution would extend to the officer when he acts on behalf of the institution. The key requirement is that the arbitral institution’s officer was acting within the scope of his role and in the exercise of his functions. But what happens when the officer is accused of corruption or bribery?

 

Corruption and Bribery in Arbitral Institutions

 Suspicions of corruption and bribery raise the temptation to lift diplomatic immunity for international organizations.

In such cases, there is a delicate balance between the need to investigate corruption and bribery and giving the international organization space to conduct activities that may be against the interests of a host State. For arbitral institutions, this includes the freedom to issue awards directly against the host State.

On the one hand, corruption suspicions should be investigated effectively. Allegations of corruption can seriously tarnish the reputation of the arbitral institution, its panel of arbitrators and affect the respect for its awards in enforcement proceedings around the world.

On the other hand, the ability of a State to create obstacles in the way of a tribunal’s work, interfere with legal proceedings and gain access to confidential information, simply by starting a corruption investigation, poses a significant risk to the sanctity of due process.

The balance may be shifted if the arbitral institution’s treaty with the host State requires that the institution respects domestic laws. For diplomats, Article 41(1) of the Vienna Convention provides:

Without prejudice to their privileges and immunities, it is the duty of all persons enjoying such privileges and immunities to respect the laws and regulations of the receiving State.

When should an arbitral institution’s officer be prosecuted for corruption? If an officer of an arbitral institution was not serving in his official capacity when committing the acts of corruption, he should not be entitled to diplomatic immunity.

Whether an official acted outside his official capacity in each instance would depend on the court’s interpretation of the facts. For instance, if a court finds that the arbitral institution’s officer was acting only in his interest by offering or soliciting bribes, it may be possible to conclude that he was not performing the institutional functions. However, there may be factual situations where it would be far more difficult to distinguish between the institution’s officer’s official duties and acts performed for only in his own interest. This difficulty is reflected in the debate currently before the International Law Commission on expressly excluding corruption and bribery from diplomatic immunity.

 

Should arbitral institutions and their officers enjoy diplomatic immunity?

First, the rationale for granting diplomatic immunity to international organizations is to enable them to fulfil their functions independently, by preventing member states and, particularly, the host State from exerting undue influence.2) Philippa Webb, ‘The Immunity of States, Diplomats and International Organizations in Employment Disputes: The New Human Rights Dilemma?’ (2016) 27 (3) European Journal of International Law 745–767p 762. jQuery("#footnote_plugin_tooltip_5379_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5379_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); It is particularly important, that international organizations that sit in judgment of States enjoy the highest form of protection from State interference. If arbitral institutions were vulnerable to interference from their host State’s criminal investigations, these institutions would find it difficult to administer cases against State-related parties.

Second, we may draw parallels to arbitrators being granted immunity from liability under arbitration rules.3) See Asif Salahuddin, ‘Should arbitrators be immune from liability? Arbitration International, Volume 33, Issue 4, 1 December 2017, Pages 571–581. jQuery("#footnote_plugin_tooltip_5379_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5379_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Arbitrators enjoy civil immunity so that they may sit in judgment of a State or State-related party in a neutral manner. Similarly, arbitral institutions and their officers should be free from the criminal or civil interference or other influences of that State.

Third, the officers of arbitral institutions need to be granted diplomatic immunity in order to carry out their duties. Especially in the case of investor-State arbitration, the officers of the arbitral institution cannot be subject to interference from the host State. The Secretariat of the International Centre for the Settlement of Investment Disputes (ICSID) would find it very difficult to do their jobs if they were vulnerable to investigations and detention by a respondent State. The ICC Court of Arbitration would have difficulty exercising certain key functions, such as appointing arbitrators and deciding on consolidation of arbitration proceedings, if its members were subject to the constant threat of investigations by State authorities. When an arbitral institution’s officers are conducting adjudication-related activities, especially against a State, these functions should be protected by diplomatic immunity.

These compelling justifications are akin to arguments regarding diplomatic immunity for State diplomats. If diplomats are not granted immunity, they would be vulnerable to interference by host States, frustrating important diplomatic functions of negotiations, representation and secrecy of communications with their home State. But many have pointed out that the latitude granted to diplomats has led to abuse of diplomatic immunity, and in recent years, people have started calling for such abuse to stop by restraining the scope of diplomatic immunity.

Could the institution be found responsible? In the context of a State’s diplomat, a corrupting State could be held responsible as a matter of State responsibility for the actions of its corrupting diplomat.4) See Draft articles on Responsibility of States for Internationally Wrongful Acts, with commentaries (2001), footnote 150 jQuery("#footnote_plugin_tooltip_5379_4").tooltip({ tip: "#footnote_plugin_tooltip_text_5379_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

To conclude, the question whether an arbitral institution and its officers are entitled to diplomatic immunity in cases or corruption will depend on the presence of host State treaties and domestic laws on diplomatic immunity. However, arbitral institutions and host States should consider amending their treaties and domestic laws to expressly exclude corruption and bribery from diplomatic immunity.

References   [ + ]

1. ↑ Josef L. Kunz, ‘Privileges and Immunities of International Organizations’ American Journal of International Law, vol. 41, No. 4 (Oct., 1947), pp. 828-862; Michael Wood, ‘Do International Organizations Enjoy Immunity under Customary International Law?’ in Immunity of International Organizations (Brill, 2015), pp 29-60. 2. ↑ Philippa Webb, ‘The Immunity of States, Diplomats and International Organizations in Employment Disputes: The New Human Rights Dilemma?’ (2016) 27 (3) European Journal of International Law 745–767p 762. 3. ↑ See Asif Salahuddin, ‘Should arbitrators be immune from liability? Arbitration International, Volume 33, Issue 4, 1 December 2017, Pages 571–581. 4. ↑ See Draft articles on Responsibility of States for Internationally Wrongful Acts, with commentaries (2001), footnote 150 function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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The Trajectory of International Arbitration in Latin America and Current Trends in ISDS

Tue, 2019-02-26 02:19

Ana Toimil Cervantes and Alexander David Barnes

Young ITA

On 7 February 2019, Young ITA Talks Mexico conference addressing investor-state dispute settlement (“ISDS”) in Latin America was organized at Greenberg Traurig S.C.’s Mexico City office.1) While the content and subject-matter of this report stem from the discussions at the #YoungITATalks event, the views and analysis expressed herein are those of the authors. jQuery("#footnote_plugin_tooltip_8138_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8138_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The panellists, including leading practitioners and government officials, discussed the development of and approaches to international arbitration and ISDS in Latin America, and how these are influenced by divided global political stances.

Traditionally, Latin America has been renowned for its scepticism of and disengagement with ISDS. After the famous “Tokyo No” meeting in 1964, all Latin American countries voted against the ICSID Convention. Brazil, the largest economy in Latin America, has still never signed the ICSID Convention, and controversially it also did not ratify the BITs it had entered into. Indeed, in Brazil it is considered unconstitutional to provide investment protections to foreign investors that do not exist for Brazilian investors.

Until recent times, this Latin American posture against foreign investor protections was in clear contrast to the one adopted in Europe and the U.S., which have always been considered strong proponents of ISDS. The very origin of treaty-based ISDS was the result of the lobbying of European-based multinational companies for protection against the expropriation of their assets in the developing world. Kabir Duggal, of Arnold & Porter LLP, opined that a significant degree of the Latin American apathy for ISDS was due to the broadly-held view that the US and EU dominated the system to the exclusion of developing states.

Moving into the early 1990s, however, most Latin American countries showed some signs of softening their stances towards ISDS and started entering trade agreements with investment protections and BITs. Ecuador, for instance, entered into 26 of the 29 BITs in its history from 1993 to 2002.

Various recent events have, however, raised concerns about the new course that not only Latin American countries are taking, but also Europe and the U.S.

In Europe, the Achmea decision of the European Court in 2018 and the subsequent termination of all intra-EU BITs have caused significant upheaval. The EU now proposes a multilateral investment court, but it remains far from clear whether this will come to fruition. Brazil, Chile and India have each already rejected the proposal, and it has attracted strong criticism in academic circles and among many stakeholders. The US, too, in coordination with its increasingly inward-looking policies, has left the TPP and is presently replacing NAFTA with the new USMCA. The latter is particularly flavoured with the current US regime’s desire to keep investment domestic, as it provides for no ISDS between Canada and the US and a differentiated scope of investment protections between Mexico and the US, which are indeed less favourable provisions for foreign investors than the ones under NAFTA.

In Latin America, we have seen the denunciation of the ICSID Convention by Bolivia (2005), Ecuador (2009) and Venezuela (2012), and both Ecuador and Bolivia have torn up their BITs. Of the aforementioned 29 Ecuadorian BITs, according to Investment Policy Hub, only three remain in force. Dra. Blanca Gomez de la Torre, of González, Peñaherrera & Asociados, observed that, as of today, the Ecuadorian government’s sole option (under their Constitution) is to individually agree investment contracts with investors. The denunciation of ISDS mechanisms has also been accompanied by more restrictive reforms to the mechanisms that remain in force. For instance, the New Bolivian Arbitration Act, enacted in 2015, allows foreign investment only in certain public sectors and orders that all investment arbitrations be seated in Bolivia.

While certain stakeholders consider the present climate to represent an ongoing withdrawal from ISDS and a regression to the Calvo doctrine, Imad Khan, of Hogan Lovells, expressed a more optimistic outlook regarding its future in Latin America. Rather than a withdrawal from ISDS, he considered that states are engaging in a ‘renegotiation’ of it. He noted that because most BITs were entered in the 1990s, it makes sense for states to now redefine the rights, obligations and remedies of investors to better suit them in 2019. This viewpoint finds support in the fact that Chile, Mexico and Peru recently entered CPTPP, and also that both Ecuador and Bolivia have recently drafted Model BITs. He also noted that in the discussions regarding the proposed amendments to the ICSID Rules, Argentina and Costa Rica have been active in suggesting reforms to limit legal fees that investors may incur and to increase transparency requirements for proceedings, respectively.

It is also worth noting that not all Latin American states have gone about such remodelling of their ISDS landscapes. Mexico, more so than most, has recently demonstrated no shortage of support for ISDS. Hugo Romero, of the Mexican Ministry of Economy, stressed that in negotiating USMCA Mexico gave the protection of FDI a high priority and that it continues to view ISDS as valuable in contemporary treatymaking. This is reflected in the ISDS provisions it played a role in negotiating in CPTPP and USMCA, and that in August 2018 Mexico finally ratified the ICSID Convention.

All of this suggests that many Latin American states are seeking to improve the system, not to reject ISDS altogether.

Nevertheless, globally there has been a recent reduction in investor protections. Aside from a growing tide of nationalism, the second panel of the Young ITA Talk suggested that reductions in investor protections also have something to do with changing attitudes among states to the effects that having such protections have.

Patrick Pearsall, of Jenner & Block LLP, observed that when ISDS came to prominence the prevailing attitude was that such protections provide guarantees for foreign investors that positively engender FDI. 30 years on, he says this so-called ´Washington Consensus’, has eroded, and that they are now wise to the fact that the existence of a lucrative opportunity (oil, gas, etc.) is what overwhelmingly draws investment. ISDS protections are no longer seen as key. The example of Brazil offers credence to that view. Despite its general aversion to protecting foreign investors with ISDS mechanisms, as recently as 2017 Brazil received USD 62.7 bn in FDI, becoming the state with the world’s 7th highest FDI inflow (World Investment Report, 2018

Kate Brown, of DLA Piper, however, explained that while investor protections do not lead investors to positively decide to invest, the cost of investment is much higher if protections are not provided for. In that sense, their lacking is only a good reason to decide not to invest in a given state. Mr. Pearsall also noted that without investment treaties governments would instead face the reality of engaging in “gunboat diplomacy” – which was common before ISDS was created.

In this respect, a possible radical change is coming for ISDS system instead of a disappearance from it. Mr. Pearsall suggests that this is likely to consist in the system shifting away from the private sector to become a truly public international law system. This change will, he says, be triggered by states’ influence on the system, resulting from their increasing sophistication on the area.

When this will happen and the features that this changed-ISDS system will have remain to be seen. For now, stakeholders have more questions than answers.

 

References   [ + ]

1. ↑ While the content and subject-matter of this report stem from the discussions at the #YoungITATalks event, the views and analysis expressed herein are those of the authors. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Arbitration in Colombia: A Recent Ruling Confirms the Country is an Arbitration Friendly Forum

Sun, 2019-02-24 22:05

Felipe González Arrieta

During the last years, Colombia has been taking steps forward towards the consolidation of the country as an attractive forum for international arbitration.1)For a more detailed analysis, see: F. González Arrieta; “Arbitration in Colombia: Two Steps Forward and one Backwards” TDM 5 (2016), www.transnational-dispute-management.com; available at: www.transnational-dispute-management.com/article.asp?key=2382 jQuery("#footnote_plugin_tooltip_8154_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8154_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Within this context, the Supreme Court of Justice (the “Court”), Colombia’s highest judicial body in civil and commercial matters, has issued a recent ruling on an annulment action dated 19 December 20182)See Consorcio Ferrovial – Sainc v. Carbones del Cerrejón Ltd., Corte Suprema de Justicia [Supreme Court of Justice], Sala de Casación Civil [Civil Chamber], 19 December 2018, Ruling No. SC5677-2018, M.P. Margarita Cabello Blanco. jQuery("#footnote_plugin_tooltip_8154_2").tooltip({ tip: "#footnote_plugin_tooltip_text_8154_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, which has reaffirmed all of these efforts.

In 2012, Cerrejón, a multinational mining company with operations in Colombia, and Ferrovial-Sainc (“CFS”), an international construction consortium, entered into a contract for the construction of marine works and structures. After some disputes arose within the performance of the contract, CFS initiated an ICC arbitration, with seat in Colombia and Colombian law applicable to the merits. CFS claimed that the contract had terminated and sought damages. Cerrejón filed a counterclaim asking the tribunal to find that the contract had not ended, that CFS had abandoned the works, that a limitation of liability clause was null, and that it was entitled to damages. In 2017, the tribunal issued its award dismissing all the claims brought by CFS and awarding Cerrejón all the damages it sought, approximately in the amount of US$ 40 million.

CFS then moved to have the award annulled based on the following grounds under the Colombian Arbitration Act (Law 1563 of 2012): (i) it was unable to present its case , because the arbitral tribunal had allegedly incurred in nine evidentiary omissions; (ii) the award contained decisions beyond the scope of the arbitration agreement, since the tribunal did not rule in accordance with Colombian law, as provided by the arbitration agreement; (iii) the procedure was not in accordance with the arbitration agreement, since a written witness statement was not excluded, even though such witness did not appear at the hearing, which, in its opinion, was contrary to Procedural Order No. 1; and, (iv) the award was contrary to Colombian international public policy, as the alleged omissions of evidence had led to a de facto defect (“vía de hecho”)3)In Colombia, in order for an award or a judgement to be subject to a writ for the protection of fundamental rights (“tutela”), a de facto defect (“vía de hecho”) is needed. jQuery("#footnote_plugin_tooltip_8154_3").tooltip({ tip: "#footnote_plugin_tooltip_text_8154_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, which, in international arbitration, would amount to a violation of Colombian international public policy.

In its ruling, the Court started its analysis by pointing out that Colombia, within the international arbitration framework, has adopted the most recent trends including Law 1563 of 2012, which is by and large based in the UNCITRAL Model Law. As such, the grounds for annulment are to be construed narrowly and, pursuant to article 107 of Law 1563, the Court may not enter into the merits of the dispute or into the evidentiary analysis of the tribunal. In this vein, the Court then defined the general scope of each of the grounds alleged by CFS as follows:

  1. A party was unable to present its case (Art. 108(1)(b), Law 1563 of 2012): this ground seeks to protect the right of the parties to be heard, to be treated equally and of due process. The Court clarifies, however, that the breach of due process, under this ground, must be substantial, this is, the alleged breach must be ostensible, flagrant, manifest and unreasonable, in addition to having a direct impact in the decision. As such, according to the Court, simple discrepancies or disagreements that may arise with the decision of the arbitral tribunal must be differentiated, since the latter is not enough to annul the award. Finally, the Court reminded the parties that the annulment judge may not, at any time, qualify the evidentiary analysis or motivation of the arbitral tribunal.
  2. The award contains decisions beyond the scope of the arbitration agreement (Art. 108(1)(c), Law 1563 of 2012): it refers to resolved claims which are out of the scope of the arbitration agreement. Therefore, the study of said ground must be based on an objective comparison between the arbitration agreement and the decisions embodied in the final award. However, the Court held that, based on this ground, one cannot seek to disqualify the merits of the reasoning made by the arbitrators or the considerations that served as motivation of the award, since this would correspond to an appeal rather than to an annulment action.
  3. The procedure was not in accordance with the arbitration agreement (Art. 108(1)(d), Law 1563 of 2012): this ground may be alleged when the arbitrators disregard, unjustifiably, the procedural guidelines established by the parties, provided that such omission is consistent throughout all the proceeding or that it is so serious that it may undermine due process. According to the Court, such irregularity has to be brought to the attention of the arbitral tribunal who has to reject such claim first, or else it is understood that the parties have waived their right to object.
  4. The award was contrary to Colombian international public policy (Art. 108(2)(b), Law 1563 of 2012): this ground seeks to protect the fundamental and guiding principles of the national legal system, such as the social and political order of the State, public liberties, or the right to have a procedure with full guarantees and respect of due process. Likewise, the Court emphasized that, unlike international instruments such as the New York Convention and the UNCITRAL Model Law, in Colombia the concept of public policy is that of “international public policy”, which restricts even more such concept and provides a more international vision, in accordance with current worldwide trends.

Once the Court reminded the parties what should be the general understanding of the previous grounds, it stated that the recourse filed by CFS was in fact an appeal in disguise which sought to reopen the merits of the dispute. As such, this alone would be enough to reject it. However, the Court entered into the analysis of each of the allegations made by the moving party finding, inter alia, that: (i) the tribunal ruled based on a comprehensive assessment of all the available evidence; (ii) the award did not contain decisions beyond the terms of the arbitration agreement and the tribunal ruled in accordance with Colombian law; (iii) the arbitration procedure was in accordance with the agreement of the parties; and, (iv) the award was not contrary to Colombia’s international public policy.

It is especially noteworthy the analysis made by the Court when it examined the allegation in the sense that the procedure was not in accordance with the arbitration agreement since the tribunal had allegedly taken into account a witness statement of a witness who had not appeared at the hearing. In this vein, the Court noted that the parties agreed to ICC Arbitration and, based on such rules, agreed, in Procedural Order No. 1, that all evidentiary matters would be governed by the IBA Rules on the Taking of Evidence in International Arbitration (the “IBA Rules“).

The Court pointed that, according to the IBA Rules, documents are an independent source of evidence, with an autonomous regulation, different from witness statements. In this respect, the Court noted that the allegations made by CFS were not regarding the probatory value given by the tribunal to the witness statement itself, but rather to the contemporaneous documents and letters that such witness had signed during the performance of the contract. Therefore, the fact that the witness did not appear at the hearing did not annul or exclude from the record those contemporaneous documents or letters that said witness had signed, as they constituted a different source of evidence that had nothing to do with its witness statement. The importance of this analysis is that the Court, in a prior ruling regarding the recognition in Colombia of a foreign award, had already used another soft law instrument, the IBA Guidelines on Conflicts of Interest in International Arbitration, in order to assess whether an international arbitrator had the duty to disclose the appointment of one of the party’s counsel, in another unrelated arbitration in which said arbitrator was, in turn, counsel for one of the parties.

From this specific ruling and prior case law, both within the context of annulment and recognition proceedings4)To date, there are ten different decisions within recognition of foreign awards proceedings and three within international awards annulment proceedings. jQuery("#footnote_plugin_tooltip_8154_4").tooltip({ tip: "#footnote_plugin_tooltip_text_8154_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, one may identify the following trends regarding the Court’s position towards international arbitration – all of which reflect that Colombia is giving steps in the proper way as an arbitration friendly seat:

  1. The only grounds to annul or decline the recognition of an international award are those provided for in Law 1563 of 2012, which mirror the UNCITRAL Model Law and the New York Convention, and are to be construed narrowly.
  2. The Court must take into account the most recent international trends in its analysis using, for example, soft law instruments such as the IBA Rules or the IBA Guidelines.
  3. National judges are prohibited from entering into the merits of the dispute or the analysis made by arbitral tribunals.
  4. The Court is pro-recognition and pro-arbitration and such principles must guide its study.
  5. The concept of public policy is that of international public policy and, as such, is restricted to those fundamental and guiding principles of Colombia’s legal system.
  6. For an award to be annulled or its recognition denied, the procedural irregularity has to be so serious as to effectively undermine due process. Specifically, as to an irregularity related to the procedure, such objection has to be raised before the arbitral tribunal or else the right to object is waived.

Despite the fact that the general prospect is positive, a couple of things still that have to be resolved before being able to fully list Colombia as an arbitration-friendly forum. For instance, the possibility for a party to file a writ for the protection of fundamental rights (“acción de tutela”) against an arbitral award. This, however, should be the subject of another post.

References   [ + ]

1. ↑ For a more detailed analysis, see: F. González Arrieta; “Arbitration in Colombia: Two Steps Forward and one Backwards” TDM 5 (2016), www.transnational-dispute-management.com; available at: www.transnational-dispute-management.com/article.asp?key=2382 2. ↑ See Consorcio Ferrovial – Sainc v. Carbones del Cerrejón Ltd., Corte Suprema de Justicia [Supreme Court of Justice], Sala de Casación Civil [Civil Chamber], 19 December 2018, Ruling No. SC5677-2018, M.P. Margarita Cabello Blanco. 3. ↑ In Colombia, in order for an award or a judgement to be subject to a writ for the protection of fundamental rights (“tutela”), a de facto defect (“vía de hecho”) is needed. 4. ↑ To date, there are ten different decisions within recognition of foreign awards proceedings and three within international awards annulment proceedings. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Summaries and Issues in the ICC Terms of Reference: The Right Level of Case Management

Sun, 2019-02-24 05:05

Marco Paoletti

What are Terms of Reference in the ICC Rules of Arbitration, and what are they for?

Article 23(1) of the 2017 ICC Rules provides

“As soon as it has received the file [of a new dispute] from the Secretariat, the arbitral tribunal shall draw up, on the basis of documents or in the presence of the parties and in the light of their most recent submissions, a document defining its Terms of Reference”.

These include such basic details as the parties’ names and contact details. But more substantively, Articles 23(1) (c) and (d) require:

“a summary of the parties’ respective claims and of the relief sought by each party, together with the amounts of any quantified claims and, to the extent possible, an estimate of the monetary value of any other claims” …

and

“unless the arbitral tribunal considers it inappropriate, a list of issues to be determined” …

Finally, the Terms of Reference include such further details as the source of the tribunal’s power to decide ex aequo et bono, where relevant. But it is the substantive elements listed above – the summary of claims and list of issues  – that concern us here.

Note that the tribunal drafts the Terms of Reference. The parties may sign their approval, and in any event the ICC gives its own imprimatur. It is, on its face, a reversal of party autonomy, or at least an outsourcing of autonomy by the parties’ own choice to incorporate the ICC Rules. The rules are there to keep things moving. If the parties do not keep things moving, the ICC will step in.

This is not a novelty; it was present at the creation of the ICC Rules in 1923.1)It existed at least as early as the 1927 Rules. Article 14(d) stated: “When the arbitrators or arbitrator have or has been appointed, the Court of Arbitration shall draw up a form of submission to arbitration which shall contain … Terms of reference, statement of the case, indication of the points at issue to be determined …” Appropriately, that requirement is now incumbent on the tribunal, not the ICC. jQuery("#footnote_plugin_tooltip_9440_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9440_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); French law of the interwar period only permitted referral of current disputes to arbitration (a condition then common, and still preserved in certain Latin American jurisdictions). Terms of Reference allowed parties to construe arbitration agreements for future disputes as compromis for current disputes, in order to appease a requirement of French law.

So much for its historical origins; what of its current utility? The relative size of the Rules may give the impression that the ICC imposes more administrative layers on, and permits less party autonomy in, arbitrations under its auspices. Between Terms of Reference and institutional scrutiny of awards, the ICC seems to reserve to itself a role in proceedings so unlike the polite distance of most arbitral institutions. Yet, a brief examination of some of the more useful case management habits of common law courts offers useful comparisons with this hallmark of ICC arbitration. Civil law jurisdictions would doubtless offer equally useful analogies, but I speak from the experience of working in a common law court. Some of these insights may present a retrospective justification for this residually French aspect of ICC arbitral procedure.

Common Law Perspectives

Working in an Australian State Supreme Court, I witnessed several measures which the court took – not heavy-handedly, but with the parties’ managed cooperation – to improve the process of litigation.

First, the Court invited parties to prepare a list of issues agreed between the parties. Ideally, this was a series of “yes” or “no” questions that followed in a logical sequence. This was a proved strategy for forcing parties to reasonably agree on issues, and even abandon those legal arguments that deserve no consideration at trial, let alone at judgment. And because the questions aligned in a logical sequence, they revealed what did not need answers, depending on the answers to prior questions.

A second step – sometimes decisive – was to instruct the parties to attend a judicial mediation immediately after opening submissions on the first day of trial. This was the peak moment of the parties’ self-consciousness: they had been forced to state their case clearly, and their arguments crystallised in open court. The strength of the jurisprudence behind them was on fuller display than when the claim was first drawn, and each party had a proper grasp of the factual matrix, and the legal analysis that the other side would apply to it.

The common feature of these processes is that they force parties to perspicuously and exhaustively state the nature and measure of their case. This, in turn, is intended to make the parties apply an honest introspection to their own positions in fact and law. What is our legal argument? Does it apply to the facts? Are we even able to adequately prove these facts? This introspection, in turn again, is intended to ensure either that the parties take one more chance to mediate or otherwise settle their dispute; or if that is still not possible, that they proceed with efficiency and certitude.

Whatever latitude the oratory of barristers may seem to enjoy, common law courts generally discourage parties from raising substantive arguments in oral hearings that were not already foreshadowed in the statement of claim, just as a party in ICC arbitration can only do so at the tribunal’s (usually hesitant) discretion under Article 23(4). The twin function of this reluctance is to keep the curial or arbitral process in manageable bounds, and to avoid surprises.

Case Management, Whether You Like It or Not

The ICC Terms of Reference also keep order in the arbitration, and do so early enough to stop problems before they branch out and multiply (much like the procedural steps recommended in a recent Guide for In-House Counsel, also drafted by the ICC). In this respect they are similar to the common law procedural habits just described, i.e. they are not identical processes, but they achieve an identical purpose. They allow the tribunal to state matters clearly, and the parties’ cases reach that peak point at which they may either settle or progress efficiently. But there is one salutary difference: The Terms of Reference set reasonable parameters around the parties without compromising procedural flexibility, which is what makes international arbitration attractive . Used properly, the Terms of Reference may do for arbitration what the most prudent judicial supervision does for common law litigation. After all, Article 21 of the ICC Rules explicitly preserves the parties’ right to determine the arbitral procedure.

Moreover, arbitral awards need every measure available to them to be made impermeable to future challenge and thus to uphold the enforceability regime on which international arbitration so depends. If the arbitration agreement turns out to have been insufficiently clear on what the scope of the tribunal’s jurisdiction should be, the Terms of Reference can set these down with the benefit of hindsight, since they would be drafted with respect to the case at hand and not just to disputes generally arising out of the contract.

Thus the arbitrators’ own account of the issues – as hopefully agreed by the parties – will leave a more detailed description of the tribunal’s scope on the face of the record. This virtually eliminates a dissatisfied party’s ability to resist enforcement of an award by speciously invoking the New York Convention Article V(1)(c) prohibition on decisions dealing with “a difference not contemplated by or not falling within the terms of the submission to arbitration”. The Terms of Reference preserve the advantages of a general arbitration agreement, but further endow it with the advantages of a compromis in which those “terms of submission” are articulated in greater detail than any agreement to arbitrate future disputes.

Conclusion

But why ICC Terms of Reference? Why not choose other rules that let the parties draw up their own lists of issues? The mistake is to confuse helpful regulation with unhelpful straitjacketing.  The former may indeed rescue an arbitration from delays, volte-faces and challenges, which less detailed rulebooks may inadvertently encourage. The latter might arise if the tribunal misunderstands the issues at stake: but that would indicate a bigger problem with the tribunal, for which the ICC Rules can hardly be blamed.

We could even say that the most elastic arbitral rules – those that entrust crucial aspects of procedure and management to sensible agreement between the parties – are benefits that have to be earned by probity and experience. Where parties have long experience and an established relationship, they can be more readily trusted to resolve disputes by the avowedly flexible UNCITRAL Rules, or even by ad hoc arbitration. But where the parties are new to each other’s business and their aptitude at resolving disputes is untested, they may come to appreciate the more visible guiding hand of the ICC, like that of a commercial judge described above.

References   [ + ]

1. ↑ It existed at least as early as the 1927 Rules. Article 14(d) stated: “When the arbitrators or arbitrator have or has been appointed, the Court of Arbitration shall draw up a form of submission to arbitration which shall contain … Terms of reference, statement of the case, indication of the points at issue to be determined …” Appropriately, that requirement is now incumbent on the tribunal, not the ICC. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Res Judicata: An Analysis for the Sake of Public Policy

Sun, 2019-02-24 00:44

Selin Ece Tekin

The principle of res judicata is a universal principle recognized by the legal systems of all civilized nations. The res judicata principle should be applied by arbitral tribunals as the arbitral tribunals are alternative to the courts and when an award is enforced it becomes a part of the legal order of the country where it is enforced.1) Silja Schaffstein, The Doctrine of Res Judicata before International Arbitral Tribunals, Geneva, 2012, pp. 193-194, ¶ 583-584. jQuery("#footnote_plugin_tooltip_8580_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8580_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The reflection of this doctrine in international arbitration is that where the matter in dispute has already been decided by a national court or by an earlier arbitrator, it should be barred by law as the existence of two enforceable awards on the same issue, between the same parties would be contrary to procedural public policy.

Although the res judicata doctrine is not codified in some countries’ laws, it is established and recognized by case law. For instance, under Article 190(2)(e) of the Swiss PIL, if the award is incompatible with public policy it is a reason for annulment.2)Geisinger E./Voser N., International Arbitration in Switzerland, 2nd Edition, 2013, p. 255. jQuery("#footnote_plugin_tooltip_8580_2").tooltip({ tip: "#footnote_plugin_tooltip_text_8580_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Not every violation of the mandatory laws of a country constitutes a violation of public policy, but rather only a violation of the fundamental rules of a country’s legal system.  The only case where a violation of procedural public policy was affirmed until 2013 under Swiss Law concerned an award that disregarded the fundamental procedural principal of res judicata.3) Arroyo M., Chapter 2, Part II: Commentary on Chapter 12 Swiss PIL, Article 190, Finality, challenge: principle, in Manuel Arroyo (ed), Arbitration in Switzerland: The Practitioner’s Guide, Wolters Kluwer, 2013, p. 245. jQuery("#footnote_plugin_tooltip_8580_3").tooltip({ tip: "#footnote_plugin_tooltip_text_8580_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Therefore, under this doctrine, a tribunal should be barred from deciding in the event there is a final, conclusive and binding judgment or arbitration award regarding the same cause of action, with the same claims and between the same parties.

This principle was recognized in a Swiss Federal Supreme Court Decision rendered in 2001 (4P.37/2001) where the Supreme Court held that two contradicting decisions on the same subject matter between the same parties both of them enforceable within a specific legal order would be contrary to public policy.

Similarly, on 13 April 2010, the Swiss Federal Supreme Court (Decision 4A_490/2009) explained the obligation of an arbitral tribunal in respect of res judicata and emphasized that an arbitral tribunal sitting in Switzerland violates procedural public policy if it renders an award without taking into account the res judicata effect of a prior award or judgment between the same parties.

Four years later, the Swiss Federal Supreme Court held, in a decision dated 27 May 2014 (4A_508/2013), that an award issued by an international arbitral tribunal seated in Switzerland that disregards the preclusive effect of an earlier state court judgment or arbitral award violates the principle of res judicata, and breaches procedural public policy within the meaning of Article 190(2)(e) of the Swiss PIL. The Federal Court also stated that if in such a case the arbitral tribunal must hold the request inadmissible.

There are divergent views as to what constitutes the “subject matter of a dispute”. Some of the scholars suggest that it is comprised of the legal rule relied upon by a party as the legal basis of the claim. Some scholars defined it as the relief sought in the parties’ submissions and others suggest that the subject matter of a dispute comprises both the parties’ claims and the set of facts relied upon in support of the claims.

The Swiss Federal Court defined it as facts relied upon in support of the claim without reference to legal grounds, where it emphasized that the identity must be understood from a substantive and not grammatical point of view and that the res judicata effect extends to all the facts existing at the time of the first judgment, whether or not they were known to the parties, stated by them, or considered as proof by the first court. The Court concluded that A new claim, no matter how it is formulated, will have the same object as the claim already adjudicated even if it appears to be its opposite or if it was already contained in the preceding action, such as a claim decided on the merits in the first litigation and presented as a preliminary issue in the second. ” 

Another condition for res judicata is “being capable of enforcement”. As correctly described by the scholars, the logic behind this is that if the award does not meet the conditions for the enforcement, there would not be any risk for two enforceable conflicting decisions. In other words, a foreign judgment can never have effects in a country’s law that would not equally be available to a country’s domestic judgment. Therefore, the arbitral tribunals should carefully analyze whether the foreign state court judgment or foreign arbitral award meet the conditions of recognition as per the place of arbitration’s law.4)Voser N. (Partner) and Raneda J., ‘Recent Developments on the Doctrine of Res Judicata in International Arbitration from a Swiss Perspective: A Call for a Harmonized Solution’ (2015) 33 ASA Bulletin, Issue 4, pp. 742–779. jQuery("#footnote_plugin_tooltip_8580_4").tooltip({ tip: "#footnote_plugin_tooltip_text_8580_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

It is accepted by Swiss scholars and by the Federal Court decisions that an arbitral tribunal with its seat in Switzerland may decide itself on the recognition of the foreign judgment subject to Article 25 and 27 of Swiss PIL or award as a preliminary issue before determining the res judicata effect in accordance with Art. 29(3) of the Swiss PIL.5)Voser N.  and Girsberger D., ‘Chapter 5: Conditions of Admissibility’, International Arbitration: Comparative and Swiss Perspectives (3rd edition, Kluwer Law International. jQuery("#footnote_plugin_tooltip_8580_5").tooltip({ tip: "#footnote_plugin_tooltip_text_8580_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In particular, the final International Law Association Committee (ILA) Report on Res Judicata and Arbitration identified the requirements for the application of the res judicata doctrine between arbitral tribunals. One of the requirements is a prior award that is final and binding and capable of recognition in the country where the arbitral tribunal of the subsequent arbitration proceedings has its seat. Where a request for recognition or enforcement has already been brought at the arbitral seat, the arbitral tribunal may deem it appropriate to await the enforcement court’s decision. However, where no such request has been brought, the arbitral tribunal have to determine whether the prior judgment was issued by a court that had jurisdiction in the international sense in accordance with Article II (3) of the New York Convention on the Enforcement and Recognition of Foreign Arbitral Awards and is capable of recognition at the arbitral seat.6)Silja Schaffstein, “The Doctrine of Res Judicata before International Arbitral Tribunals”, Geneva, 2012, pp. 193-194, ¶ 583-584. jQuery("#footnote_plugin_tooltip_8580_6").tooltip({ tip: "#footnote_plugin_tooltip_text_8580_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In a recent decision of the German Federal Court of Justice (Bundesgerichtshof Beschloss) of October 2018, the Court decided that a violation of res judicata not only occurs when a tribunal disregards that it is bound by the res judicata effect of an award or judgment rendered in a separate proceeding, but also where a tribunal incorrectly assumes to be bound by a decision or award rendered in a separate proceeding. The Court held that the underlying idea of this decision is due process, as one may be prevented from bringing a claim which it is entitled to pursue in court or arbitration in violation of German public policy under the German Code of Civil Procedure Section 1059(2).

Notwithstanding the arbitral tribunals’ duty to carefully analyse whether they are bound by a previous award or court decision, the arbitrators’ decision as a result of this analysis may be taken to the court for its review during the annulment. In fact, this was the case in the Boxer Capital Corp. v. JEL Investments Ltd7)Boxer Capital Corp. v. JEL Investments Ltd., 2015 Carswell BC 96, 379 D.L.R. (4th) 712. jQuery("#footnote_plugin_tooltip_8580_7").tooltip({ tip: "#footnote_plugin_tooltip_text_8580_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); decision of the British Columbia Court of Appeal where the court was asked to examine arbitrator’s decision on not being bound by the earlier award of a previous arbitrator or the decision of the judge who heard an appeal from that earlier award. The Appeal Court decided that this is not purely a questions of res judicata but in fact it is a review of the arbitral tribunal’s decision. The Appeal Court held that the court could only interfere with the tribunals jurisdiction when there is a complete loss of jurisdiction or a clear breach of a law as a result of the arbitrator’s erroneous decision.

In other words, the court should respect the arbitrator’s decision on the applicability of the res judicata doctrine. However, the arbitrators should conduct their analysis diligently when assessing the conditions of res judicata and limiting their powers accordingly as their incorrect decision as to be bound by an earlier award or judgment would also violate public policy.

 

 

References   [ + ]

1. ↑ Silja Schaffstein, The Doctrine of Res Judicata before International Arbitral Tribunals, Geneva, 2012, pp. 193-194, ¶ 583-584. 2. ↑ Geisinger E./Voser N., International Arbitration in Switzerland, 2nd Edition, 2013, p. 255. 3. ↑ Arroyo M., Chapter 2, Part II: Commentary on Chapter 12 Swiss PIL, Article 190, Finality, challenge: principle, in Manuel Arroyo (ed), Arbitration in Switzerland: The Practitioner’s Guide, Wolters Kluwer, 2013, p. 245. 4. ↑ Voser N. (Partner) and Raneda J., ‘Recent Developments on the Doctrine of Res Judicata in International Arbitration from a Swiss Perspective: A Call for a Harmonized Solution’ (2015) 33 ASA Bulletin, Issue 4, pp. 742–779. 5. ↑ Voser N.  and Girsberger D., ‘Chapter 5: Conditions of Admissibility’, International Arbitration: Comparative and Swiss Perspectives (3rd edition, Kluwer Law International. 6. ↑ Silja Schaffstein, “The Doctrine of Res Judicata before International Arbitral Tribunals”, Geneva, 2012, pp. 193-194, ¶ 583-584. 7. ↑ Boxer Capital Corp. v. JEL Investments Ltd., 2015 Carswell BC 96, 379 D.L.R. (4th) 712. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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A Model Clause for a New Kind of Final Offer Arbitration in International Commercial Arbitration: the “Final Draft Award” Arbitration

Fri, 2019-02-22 21:01

Guilherme Rizzo Amaral, Danilo Ruggero Di Bella and Bruno Guandalini

A recent post discussed the upsides and downsides of the so-called Final Offer Arbitration (“FOA”)  also known as Baseball Arbitration. In short, in an FOA, instead of crafting an award from scratch, the arbitral tribunal simply has to pick either party’s final offer on the claims and elevate it to the final award, usually without making any changes or additions. Some institutional rules, however, do allow tribunals to provide supplementary reasons to justify their choice.

This post will build on the advantageous features of the FOA, whilst mitigating the risks inherent to such a streamlined type of arbitration. The resulting proposal will be supported alongside a purpose-built framework, comprising a procedure and a prêt-à-porter arbitration clause.

 

Weighing up risks and rewards towards a viable solution

One of the risks commonly associated with the use of FOA is the lack of reasoning in the resulting award. This limits itself to a choice between one of the parties’ final offers regardless of its adherence to the law or the facts relevant to the case. An award lacking reasoning jeopardizes the whole arbitral proceeding and opens the resulting award to challenges on three different fronts:

(1) failure to rule on the dispute in its entirety;

(2) failure to show that the losing party was given the chance to present its case; and

(3) very simply, lack of reasoning itself.

Some FOA proceedings circumvent this risk by demanding that arbitrators provide reasons for having selected one party’s offer over another. A good example are the ICDR/AAA Final Offer Arbitration Supplementary Rules, which state that: “[t]he tribunal’s award shall be reasoned, stating the rationale for its selection of one party’s final offer over that of the other party or parties”.1)6. Award  “The arbitral tribunal shall be limited to choosing only one of the final offers submitted by the parties. The tribunal’s award shall be based solely thereon, plus any interest, costs, or fees to be awarded pursuant to the governing arbitration rules, applicable law, or the agreement of the parties. The tribunal’s award shall be reasoned, stating the rationale for its selection of one party’s final offer over that of the other party or parties. jQuery("#footnote_plugin_tooltip_5374_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5374_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

While this specific type of FOA protects the award from any challenges stemming from the lack of reasons, it also encourages parties to engage in virtuous conducts, given that their chances of winning the case are proportional to the reasonableness of their requests. And yet, this type of FOA does not make the most out of its potential, especially in terms of increased efficiency, promptness and party control over the final award.

An alternative to the FOA would conversely direct the parties not to make final offers, but rather to submit entire draft awards. Under this setting – which could be named “Final Draft Award Arbitration” (“FDAA) – the tribunal would be presented with each party’s full-blown award proposal. The full-blown award proposal means that while the tribunal would be authorized to amend the parties’ reasoning, it would still be bound by the actual conclusion (decision) advanced by the prevailing award on the claims. In other words, the chosen draft award’s reasons would be persuasive, yet its conclusion would be binding on the arbitral tribunal.

There are many aspects that would make the FDAA more appealing overall than the classic FOA. It would increase the parties’ control over the proceedings as the parties would draft the award’s conclusions as well as its reasons. Ultimately, it would be more time efficient in the issuance of the final award, which, under this mechanism of ‘reverse-scrutiny’ may require only a few adjustments by the tribunal.

 

Whole Package FDAA or Issue-by-Issue FDAA?

More often than not, arbitrations present a multitude of claims and/or disputed issues at stake. In a traditional FOA setting, the question that arises is: would it be possible for arbitrators to pick-and-choose between the parties’ offers and then combine them to issue a mixed award? This possibility exists and is known as an issue-by-issue FOA. It is different from the classic whole package FOA, in which the arbitral tribunal must choose a single offer made by one of the parties and encompassing all claims.

At first glance, a whole package FOA would force arbitrators to choose between extreme positions, which might seem inefficient. Thus, by the same token, the issue-by-issue FOA would allow arbitrators to build a more convenient global solution by choosing more reasonable offers for each claim or issue.

On the other hand, the issue-by-issue FOA comes with at least two downsides. Firstly, it allows arbitrators to form their own package, giving way to compromised awards and ‘split-the-baby’ decisions, not to mention the possibility of Frankenstein like awards. Secondly, and most importantly, parties may propose more extreme – and inefficient – solutions to issues to which they have stronger claims in order to “abandon” weaker ones. In other words, the wrong incentives might compromise the success of the FOA in the issue-by-issue setting.

In the proposed FDAA, however, as arbitrators are allowed to modify or add reasons to the chosen draft award – being bound solely to the draft award’s conclusion on the claims – the use of the whole-package feature is even more compelling; given that the right incentives are in play along with the possibility to adjust the reasoning of the award.

 

The FDAA in action

Our proposal would be for the FDAA procedure to mirror a regular arbitration procedure until the closing of the proceedings (parties’ submissions and production of evidence). Following the closing, instead of presenting final submissions on the merits of the arbitration, each party would submit a draft award to the arbitral tribunal. The tribunal would then have to choose between one of the submitted awards in its entirety (unless it is an issue-by-issue FDAA, in which case the tribunal could choose different chapters from each award).

In any case, the arbitral tribunal would be bound solely to the actual conclusion (i.e. decision on the claims) of the chosen draft award. The tribunal could change the draft award’s reasoning as it sees fit.

Before issuing its final award, the arbitral tribunal would also be authorised to notify the parties either to clarify any of the draft awards or to correct a clerical, computational or typographical error, or any errors of similar nature contained in the draft award.

Some national arbitration laws (such as the English Arbitration Act, Section 69) allow the parties to appeal to the court on a question of law arising from an award. The choice for an FDAA would necessarily be considered a waiver of such an appeal and an exclusion of such court’s jurisdiction because in an FDAA procedure the arbitral tribunal has no control of the correctness of the parties’ draft award conclusions or of their adherence to the law. Hence, one should be mindful of the possible need to address this issue when drafting institutional rules, terms of reference or arbitral agreements providing for FOA (in most cases, the choice for institutional rules that preclude the right to appeal suffices).

 

A Model FDAA Clause

Ideally, the FDAA procedure should be detailed in the institutional rules. This would not only simplify the arbitration agreement – which could plainly refer to the “FDAA rules” of a given institution – but also allow for a more thorough explanation of the procedure.

Another option would be for the parties to agree on adopting the FDAA in the outset of the arbitration (such as in the Terms of Reference in an ICC arbitration) or the first procedural order issued by the arbitral tribunal.

Both solutions depend upon future and uncertain circumstances. With the exception of the ICDR/AAA, no main arbitral institution has specific FDAA procedures detailed in its rules yet, and there is no way to guarantee that parties would spontaneously agree to that once an arbitration initiates.

For these reasons, we suggest the adoption of a model FDAA clause that could be used in contracts immediately. The clause follows the whole package feature and is inspired on the ICC model clause and it reads as follows:

A – Final Draft Award Arbitration (“FDAA”)

A.1. All disputes arising out of or in connection with the present contract will be submitted to the [name of institution] and will be finally settled by a Final Draft Award Arbitration (“FDAA”) under the Rules of Arbitration of the [institution] by an arbitral tribunal composed of 3 (three) arbitrators appointed in accordance with said Rules.

A.2. After the closing of the proceedings, the arbitral tribunal will notify the Parties to submit their respective draft awards. Once such awards have been received, the arbitral tribunal will choose one award and disregard the other. When issuing the final award, the arbitral tribunal is strictly bound by the conclusion of the chosen draft award regarding the parties’ claims, only being allowed to change or complement its reasoning. Before issuing its final award, the arbitral tribunal may ask any of the parties to clarify its draft award, as well as to correct a clerical, computational or typographical error, or any errors of similar nature contained in the draft award.

A.3. The FDAA proceeding will also be observed in the event of a partial award.

References   [ + ]

1. ↑ 6. Award  “The arbitral tribunal shall be limited to choosing only one of the final offers submitted by the parties. The tribunal’s award shall be based solely thereon, plus any interest, costs, or fees to be awarded pursuant to the governing arbitration rules, applicable law, or the agreement of the parties. The tribunal’s award shall be reasoned, stating the rationale for its selection of one party’s final offer over that of the other party or parties. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Topical Issues in ISDS: Review of Recent Developments in the European Union

Fri, 2019-02-22 17:05

Munia El Harti Alonso

The CERSA (CNRS- University Paris II Panthéon-Assas) organized its third event in a series of seminars on selected topics in international investment law and investor-state dispute settlement (ISDS) (for the report of the first seminar, see here). The seminar on Topical issues in ISDS: EU Investment Law was held in Paris on 7 February 2019 and moderated by Professor Catharine Titi (CERSA). Practitioners Paschalis Paschalidis (Shearman & Sterling, Paris), Amy Roebuck Frey (King & Spalding, Paris), Professor Marc Bungenberg (Saarland University, Germany) and investment treaty negotiator Andre von Walter (European Commission DG TRADE) gathered to discuss the latest reforms in investment dispute resolution in the European Union.

 

1. The Comparison of Investment Protection Standards under EU Law and International Investment Law

Paschalis Paschalidis recalled that the traditional view shared amongst many arbitral tribunals was that EU law covered admission of investment, and once investment was past that stage there was no form of protection. This is no longer true. A recent example is the CJEU judgment Joined Cases C-52/16 and C-113/16 (rendered on the same day as Achmea) concerning expropriation usufructuary rights over agricultural lands by the government of Hungary and grounded on free movement of capital. EU law also provides post-investment protections and certain comparable provisions such as FET, but it does not apply yet to every aspect of state activity, as there are still pockets of significant Member States sovereignty in areas of taxation, criminal law and sovereign debt (see the Greek PSI).

Amy Roebuck Frey considered that EU law, from an investment treaty point of view, is sometimes viewed as a risk largely due to a lack of understanding. While it is overly simplistic to equate “legitimate expectations” under EU law with the substantive protections developed under investment treaty case law (the latter includes broader protections), she suggested there should be more studies to see if, on the whole, investors and investments are given equivalent protections in the two legal orders of EU law and international investment law.

Marc Bungenberg further remarked that the Micula case was already paradigmatic of a shock of cultures between EU law and international investment law. The material standards of protection and enforcement in EU law, even if the European Commission argues the EU upholds high standards, will depend on the Member States will and the functioning of their respective judicial systems.

 

2. The Achmea Judgement and its Consequences for Intra-EU Bilateral Investment Treaties, Energy Charter Treaty (ECT) and ICSID Arbitrations

Paschalis Paschalidis indicated that on 28 January 2019 in the ICSID Sodexo v. Hungary case, another arbitral tribunal ruled out on an objection based on Achmea. It reached the same conclusion as in UP and C.D  v. Hungary. Concerning the Dutch-Slovak BIT at issue in Achmea, EU law was applicable via two doors: domestic law of the host state and international law. arbitral tribunals, such as the ones in Blusun v. Italy and Electrabel v. Hungary, also accepted EU law’s quality as international law.

Amy Roebuck Frey argued that Article 26.6 of the ECT does not refer to domestic law but to “applicable rules and principles of international law”, which is why some tribunals have decided that EU law is not international law for the purposes of that provision. Article 16 of the ECT on Conflict of Treaties, providing that the most favorable treaty applies, may prove difficult for the CJEU to reconcile with its reasoning in Achmea, as Article 16 is binding on the CJEU, the EU being a member of the ECT.

Even in the context of intra-EU BITs, we cannot say with complete accuracy that all such treaties fall within Achmea. It is worth noting that, following Achmea and the declarations of certain EU Member States, a  Swedish court in Micula considering enforcement efforts did not dismiss the case on jurisdictional grounds.

2.1. The Implications of the Political Declarations Signed by the EU Member States in Brussels Regarding the Consequences of the Achmea Judgement

Amy Roebuck Frey was critical of the Member States’ Joint Declaration underlining rationale of attempting to end pending cases. From a legal perspective, only BITs containing similar wording to the BIT in Achmea should be terminated, since the CJEU only addressed those treaties. She posited that the declaration of the other 5 Member States referring to intra-EU BITs “such as those issued in Achmea” is consistent with that view. In any case, in principle, neither intra-EU BITs nor the ECT can be amended by issuing a declaration; the treaties themselves provide the means for amendment.

Paschalis Paschalidis understands that several, if not all, Member States do not treat these declarations as treaties. Regardless of their status as treaties or not, the interesting question is whether these declarations constitute “subsequent agreements” in the sense of Article 31.3.a of the Vienna Convention on the Law of Treaties (VCLT).

2.2. The Tension Between Member States’ Positions in the Recent Declarations and the Fundamental Right of Legal Certainty for EU Investors/Survival clauses

Amy Roebuck Frey commented that if the EU Member States amend the ECT, the VCLT provisions on modification may also apply. Interestingly, Italy one of the signatories of the political declaration has previously withdrawn from the ECT and yet has emitted a declaration on the survival clause. It is not clear that a contracting party can take any step to modify a treaty after its withdrawal from that treaty has taken effect.

3. The Experience with Opinions of the Advocate General of the EU and Opinion 1/17

Marc Bungenberg explained that in 70% of the cases the Court follows the opinion of the AG. Paradigmatically, the more important the case, the less likely is that the Court will follow the AG, such as in the emblematic case Van Gend en Loos, as well as in Achmea, Portugal/Council in regard to the direct applicability of WTO Law or the accession of the EU to the ECHR (Opinion 2/13).

Opinion 1/17 of AG Bot, which declares CETA’s ICS mechanism to be compatible with EU law, it comes in a politically charged context. The approach of AG Bot is interesting, but it does not indicate finally what is to come.

4. The EU Transition from ad hoc ISDS Arbitral Tribunals to a Permanent and Two Layered Investment Court System (ICS)

Andre von Walter explained the project for the creation of a multilateral investment court (MIC) – or a plurilateral court – that could lead to a multilateral court. Asked why the EU decided to move away from investment arbitration, he noted that the EU Member States’ governments, most EU citizens and policy makers do not feel comfortable when arbitration is applied to a vertical public law relationship as it is the case for treaty-based investment disputes; that the classic features of arbitration applied to public law disputes are perceived as problematic along with the limited review mechanisms of the current ISDS system. The creation of a MIC would bring more coherence and predictability. Commercial arbitration and State-to-State arbitration are in different situations, but for treaty disputes between individuals and states, the EU does no longer negotiate arbitration systems.

4.1 Method of Appointment of Adjudicators by States and Ensuring Independence under the ICS

Andre von Walter explained that many crucial questions arise with regard to the methods of selection and appointment of adjudicators. In the EU’s view, the mandate of the adjudicators of any future investment court should be non-renewable, forbid double-hatting and provide guarantees of full independence. The adjudicators should above all have a public international law experience and could come from Justice, Academia, legal professions or other areas.

4.2. Multilateral Investment Court and State of Play of the ISDS Reform Negotiations Within UNCITRAL

Andre von Walter observed that the EU’s reform ideas have been channeled in the discussions in UNCITRAL. There has been an appetite to work multilaterally on ISDS reform, so the two tracks were combined in Working Group III (WG III). The mandate of WG III is articulated in three steps: identifying concerns about the ISDS regime, considering whether reform is desirable in regard to those concerns, and what can be the options of reform in a third step. The Documents provided on the website of DG TRADE set out the EU’s proposals for the third stage of the mandate. Systemic reform is important. The current state of play at UNCITRAL appears to be a delicate balance between different types of reform.

Finally, Marc Bungenberg discussed in detail concrete options in relation to the institutional set-up of a multilateral investment court. He stressed the need to focus on the rule of law, reduced costs, transparency considerations, consistency in the case law and the enforcement of MIC decisions. In this respect, he drew on his recent monograph, co-authored with August Reinisch, “From Bilateral Arbitral Tribunals and Investment Courts to a Multilateral Investment Court”, which presents the first comprehensive study of the feasibility of establishing a MIC.

In conclusion, the discussion of these recent developments and open questions reveal that international investment law in the European Union is a vibrant field with still many pending issues. The near future will show how these questions and issues will be resolved.

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Arbitration in Kyrgyzstan: Evolution and Next Steps Ahead

Thu, 2019-02-21 21:00

Hannepes Taychayev and Natalia Alenkina

Arbitration in Kyrgyzstan

Historically, arbitration in the Kyrgyz Republic is one of the least studied in Central Asia. Not much attention has been paid to the study of the law and practice of arbitration in the country. One of the recent books on the Law and Practice of International Arbitration in the CIS Region wholly neglects the country while giving sufficient attention to other former Soviet republics such as Russia, Ukraine, Kazakhstan, and the other states in the Commonwealth of Independent States.

In the same way as its neighbors in Central Asia, the legal foundation of Kyrgyzstan has been inherited from the Soviet Union. In the USSR arbitration as a private dispute settlement mechanism based on consent of the parties, alternative to state judicial system was limited. However, Article 162 of the Constitution of the Kyrgyz Soviet Socialist Republic (1978) guaranteed the citizens of the Soviet Kyrgyz Republic to settle commercial disputes between enterprises, institutions and organizations through state run arbitration courts. Here it is important to distinguish between arbitration, as an independent institution of civil self-governance for dispute resolution, where parties by mutual agreement submit a dispute to an arbitral tribunal that renders a binding decision and a system of Arbitration Courts (Arbitrazh Courts) which are part of a judicial system of a state.

Arbitration as a semi-independent private dispute settlement institution found its way in to the Constitution of independent Kyrgyzstan. Article 85 of the 1993 Constitution of the Kyrgyz Republic gave fundamental significance to the institution of arbitration. The Article empowered local bodies of self-administration to establish arbitration tribunals who had the power to rule on disputes between two private parties where the parties agreed so. Their power to entertain cases were limited to issues pertaining to property and family matters. The decisions of the arbitration tribunals were binding unless they contradicted to the law of the Republic. Interestingly enough Article 79 the Constitution of 1993 identified arbitration tribunals along with Arbitrazh Courts and other courts of the country to be part of the judicial system. This in effect made it an institution of first instance within the judicial system, not an independent institution of civil self-governance for dispute resolution.

At present arbitration is recognized as independent from the judicial system. Article 58 in a chapter on Citizenship and the Rights and Duties of a Citizen of the Constitution states:

For extrajudicial settlement of disputes arising from civil legal relations, citizens of the Kyrgyz Republic are entitled to establish arbitration courts. The order of establishment and functioning of arbitration courts shall be determined by law.” (non-official translation)

Besides the legal norms laid down in the Constitution arbitration are regulated by the Law of the Kyrgyz Republic No. 135 of July 30, 2002 “On Arbitration Courts in the Kyrgyz Republic” and Civil Procedure Code No.14 of January 25, 2017.

Prospects for further development of arbitration

Despite the large body of law on the subject matter, the way the arbitration has been defined in the Constitution, coupled with further prospects of development of the institution of arbitration, gives one grounds to think that there is not a clear understanding of the role and function of arbitration as an institution. Any attempt to extend the functions and the role of arbitration beyond the fields it has originally been designed for could compromise the positive image of arbitration as an institution.

The government of Kyrgyzstan in its development plan “Strategy on Sustainable Development of the Kyrgyz Republic 2018 – 2040” proposes to institutionalize arbitration as a mechanism for improving the access to justice. The Plan reckons that corruption has virtually penetrated into all fields of activity of the State, hence becoming the major impediment for development. For this reason, inter alia, it aims at easing the load on the judicial system of the country by delivering all civil disputes to commercial arbitration tribunals and arbitration courts while the judicial system will focus on dealing with criminal cases only. The role of the commercial arbitration tribunals will be to examine the merits of civil disputes and render an award that will be reviewed by courts of general jurisdiction.

Further, for the purposes of improving the business environment in the country, the government is proposing to develop a system of dispute settlement between entrepreneurs and administrative state bodies in the International Arbitration Court of Kyrgyzstan. The proposition is based on the assumption that the existing mechanism of dispute settlement between state bodies and the business community cannot adequately address the issues arising between the two. The new dispute settlement mechanism is to be designed in a way to address the needs of both the domestic and the international business community in their disputes between the State bodies of Kyrgyzstan. According to the Ministry of Economy of Kyrgyzstan compared to the existing mechanism the new one is going to be quick since it will allow disputes to be settled with recourse to a single legal authority with no possibility of appealing the decision. It will be more efficient, confidential and will allow choice of applicable law, place and language of the proceedings. The new legislation is to expand arbitrable disputes arising from State’s exercise of its administrative functions such as taxation and customs.

However, we are of the opinion that further development of arbitration in Kyrgyzstan should not be in expanding competencies of arbitral tribunals beyond the inherent functions they were designed for and contrary to constitutional provisions. Next steps ahead should be focused on improving the cooperation between judicial and arbitral bodies. One way to achieve this would be to analyse judicial practice by courts in the supervision and supporting of arbitral bodies and thereafter provide training for judges based on the best international practices in the field.

Concluding remarks

From its establishment in 1993 to present day the institution of arbitration in Kyrgyzstan has gone through many changes. It has developed from being part of the judicial system into an institution of civil-self-governance. However, the proposed changes by the Kyrgyzstan government not only clashes the judicial system of the country with arbitration but also creates a high degree of uncertainty as for the institutional identity of the institute of arbitration in Kyrgyzstan.

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Investment Arbitration: A Case for Incremental, Iterative, Progressive, and Prioritized ISDS Reform

Thu, 2019-02-21 02:12

Mercy McBrayer

Chartered Institute of Arbitrators (CIArb)

At the heart of the debate surrounding Investor-State Dispute Settlement (ISDS) Reform is UNCITRAL Working Group (WG) III.  Until two years ago, WG III was dedicated to discussing issues surrounding online dispute resolution.  But in 2017, in response to several significant awards against states in investment arbitration and corresponding public outcry, the WG III was re-tasked to examine the ISDS system and determine if it was desirable for the states to embark on a regime of reform to the system.

In order to provide a centralized compendium on information on the areas of potential reforms being discussed by WG III, the Chartered Institute of Arbitrators (CIArb) has launched a collection of discussion papers providing detailed information of the issues put forward in the discussions in WG III.  As an official observer organization of WG III, CIArb is perfectly placed to provide perspective on the discussions to our 17,000-strong membership and to the wider arbitration practice.  The purpose of CIArb’s ISDS Discussion Papers is to inform readers of the various arguments put forward by the WG III-member states and observers regarding the topics that have arisen.  The intent is not to persuade, but rather to inform stakeholders in ISDS.  The views offered in the papers are not necessarily reflective of any position taken by the CIArb.  Rather, they are a report of the views that the CIArb delegation observes are present in the discussions.

The key criticisms of ISDS have crystalized in recent years into three distinct categories: Efficiency, Decisions, and Decision-Makers.  The CIArb ISDS Discussion Papers are broken into these three areas, which the WG III has accepted as overarching themes in the debate.  In the discussion of efficiency, the papers offer views of the member states’ criticisms of the increasing time and cost of ISDS disputes while also noting the necessity that the parties themselves create for lengthy, expensive proceedings.  Solutions to these issues such as third-party funding of disputes, proposed expedited rules, strengthened security for costs and interim measures procedures, requiring pre-dispute settlement, and creating rules for bifurcation of proceedings have all been put forward.  In the area of decisions, states have expressed a high level of concern over the consistency, predictability, and valid legal interpretation of instruments.  With these issues have come suggestions of review mechanisms for awards and the establishment of multi-lateral investment courts, along with concerns over transparency and the role of third parties in proceedings.  Finally, the discussion of decision-makers centres around ways to ensure the impartiality and independence of arbitrators in investment arbitration. This includes standards of disqualification, methods of appointment, challenge procedures, and conflicts of interest.  WG III has also discussed whether a code of conduct, training requirements, certifications, or rostering should be put in place for arbitrators.  The lack of diversity of arbitrators in ISDS on many levels is also an area of serious concern to many states.

A common thread running throughout the discussions in all areas is the idea that each proposal or possible solution put forward raises its own set of problems and counter arguments as a result.  Many reforms that have been put forward have the potential to affect other aspects of the system significantly, even if unintentionally.  Most often, the concept of party autonomy, historically a defining element of arbitration, is the first to be forfeited.  This is followed closely by the concept of confidentiality.  Many states see these sacrifices as acceptable.  In light of this, the sole position that CIArb has taken to this point is that a comprehensive analysis of the broad implications that any change will have on the system must be undertaken before any proposed reform is implemented. The ISDS system forms a critical component of the global trade and investment system and, therefore, changes to the system have far-reaching effects that should be evaluated systematically and any reform must be incremental, iterative, progressive, and prioritized. Hence, it is evolution, not revolution, that should be the reference point for any ISDS reforms undertaken by WG III. It is hoped that the Discussion Papers are a first step in just such an analysis.

CIArb’s event officially launching the Discussion Papers, “Evolution, Not Revolution: CIArb’s Work on Investor State Dispute Settlement (ISDS) Reform at UNCITRAL Working Group III”, hosted by Pinsent Masons LLP and structured as an engaging discussion, with the participation of Dr Paul Tichauer, Jean-François Le Gal, Dr Crina Baltag, V.V. Veeder, QC, Philp Bliss Aliker, Wolf von Kumberg, Mercy McBrayer, and Lewis Johnston, was an excellent opportunity to present the CIArb ISDS Discussion Papers and hear the opinion of the public. On efficiency, the panellists highlighted the fact that the new generation of international investment agreements, as well as the amended arbitration rules provide for effective solutions for addressing issues of costs and duration of ISDS proceedings. It was stated that a prudent and proper approach to the ISDS reform should not focus on speedy and cost-effective resolution as a goal in itself. Further, the panellists emphasized the increasing role of prevention policies, including the efficient implementation of ADR proceedings, along with educating the public on the advantages of such alternative mechanisms, especially in the context of the draft Singapore Convention on the International Settlement Agreements resulting from Mediation. With respect to decision-makers, the panellists confirmed the necessity of a code of ethics for arbitrators with meaningful sanctions, while emphasising certain consequences of the exclusion of party-appointed decision-makers. As to decisions, the panellists indicated that while there is a real concern, ultimately affecting the confidence in the system, certain mechanisms, such as interpretative statements of non-disputing treaty parties, can be employed in tackling this issue. It was also highlighted that while the current UNCITRAL WG III discussion is focused only on procedural aspects of the ISDS reform, a good number of issues are rooted in the lack of uniformity of the standards of treaty protection.

 

A similar event presenting developments in WG III work and updates to the Discussion Papers is planned for late summer 2019 and is expected to take place in Singapore.  CIArb invites feedback on the Discussion Papers from the broader arbitration community. The intention is for the Discussion Papers to continue to evolve as the WG III discussions progress.  Practitioners are invited to give feedback or to suggest inclusions to the CIArb directly.  The Discussion Papers can be found here and here.

 

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The Future of ISDS: Can’t See the Wood or the Trees

Wed, 2019-02-20 01:35

Maarten Draye and Emily Hay

On 22 November 2018, the Belgian Ministry of Foreign Affairs, Foreign Trade and Development Cooperation hosted a High Level Event on the Reform of Investment Protection. Distinguished panellists from arbitral institutions, international organisations, academia, civil society, arbitration users and legal practitioners presented diverse views on the need for reform of the system of investor-State dispute settlement (“ISDS”), the progress of current reform efforts, and the potential multilateral investment court (“MIC”). These insightful contributions surveyed the many and varied perspectives from which to view the current state of ISDS, and its future. At the end of the day, however, the distinct impression was that the various stakeholders in this debate are talking at cross-purposes, making it difficult to see either the wood or the trees.

Status of Current Reform Initiatives

A first wave of reforms is undertaken by ICSID. Meg Kinnear, Secretary-General of ICSID explained that the fourth comprehensive reform of the ICSID arbitration rules is well underway. The proposed amendments were published in August 2018, and are open for comment by States and the public until 28 December 2018. A vote on the amendments to the rules is expected in 2019 or 2020.

In order to keep ICSID’s procedural rules fit-for-purpose, there is a range of proposed reforms, including:

  • a new provision for consolidation or coordination of like cases;
  • an obligation to disclose the existence and source of third party funding;
  • strong provisions in favour of greater transparency of awards, decisions, and orders, including deemed consent and the publication of excerpts; and
  • the availability of expedited procedures, anticipated to be useful in particular for small and medium enterprises.

The reform proposals are based on ICSID’s day-to-day experience in the management of cases, which puts it in a unique position to know what works and what does not. See more details on the proposed reforms here.

In parallel, UNCITRAL has tasked its Working Group III to study ISDS reform. Anna Joubin-Bret, Director of the International Trade Law Division at UNCITRAL, reported that at its thirty-sixth session in November 2018, Working Group III completed the second phase of its mandate, reaching consensus that reform is desirable to address concerns about the current system of ISDS. These concerns fall into three broad categories:

  • lack of consistency, coherence, predictability and correctness of arbitral decisions by ISDS tribunals;
  • concerns about arbitrators and decision makers, including lack of independence and impartiality, limitations in challenge mechanisms, lack of diversity, and qualifications; and
  • concerns regarding the costs and duration of proceedings.

The next and third phase of the work of Working Group III will be to discuss and determine what reforms should be developed to address the specific concerns. Due attention will be given both to concerns based on facts, as well as concerns based on perception. See the draft report of the thirty-sixth session of Working Group III here.

Ms. Joubin-Bret emphasised that this Working Group is a government-led process. This reflects the fact that it was States who initiated the design of the current system, and in her view they should be the ones to reform it.

Which Reforms, Why and How?

According to some stakeholders in civil society who voiced their objections during the event, the question should not be what reforms to undertake, but whether we should rather abolish the system of investor protection altogether. The concerns of these groups are more existential and question why investors should receive favoured treatment. Their assertion that investors are offered protection which is not available in other areas such as human rights, climate, labour rights, etc., may very well be on point. It risks, however, throwing away the baby with the bath water.

While it is difficult to measure the immediate impact of bilateral investment treaties on the levels of foreign investment, Patrick Baeten, Deputy GC at Engie, pointed out that investors want certainty and will always look at the level of investment protection when investigating long-term commitments. He predicted that, failing adequate protection (regardless of its form), investment gaps would not be filled, or at least not at the same cost. Moreover, many speakers, including James Zhan, Senior Director of Investment and Enterprise at UNCTAD, pointed out that the current discussion on reform should not be limited to ISDS or other issues of procedure, but also include substance. Treaties can be revised to include obligations for investors which can be enforced by host States.

For those who accept that investment protection should continue to exist in one form or another, there remains a great variance in opinions on the level of reform to ISDS necessary. For some practitioners, the system is imperfect but with some self-regulating tweaks could be sufficiently improved. Others propose largely maintaining the current system, but adding an appeal mechanism to address issues of consistency, predictability and correctness. Those in favour of a more dramatic rethink may support an MIC, or some form of court with international jurisdiction in combination with recourse to domestic courts. Reference was made to the recent report by the IBA on “Consistency, efficiency and transparency in investment treaty arbitration”, which details some of the challenges facing ISDS and proposes solutions to foster the legitimacy of the system.

In her keynote speech, European Commissioner for Trade Cecilia Malmström expressed the EU’s view that the MIC is the only option on the table that can effectively address these concerns. According to the EU, only a permanent body to resolve investment disputes can create predictability and consistency, bring about the necessary expertise in the system, effectively address costs and duration, and assure equal representation. The EU plans to put forward this idea at the multilateral level during the next phase of UNCITRAL Working Group III’s discussions.

Does an MIC Address the Concerns Raised?

At the time of the conference, no detailed proposals for an MIC had been made public. It was therefore unclear what form the court would take, whether it would be an independent institution in its own right, or whether it would make use of the secretariat and facilities of other institutions which already exist. It was further unknown what kind of judges would sit on the court, how they would be appointed, and what rules would govern their service.1)Meanwhile, on 18 January 2019, the EU submitted two papers containing concrete reform proposals to UNCITRAL. jQuery("#footnote_plugin_tooltip_8922_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8922_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Even speaking in general terms, many speakers doubted whether an MIC could address the concerns with the current ISDS system that have been identified. The speakers therefore advocated that, at this stage, full consideration should be given to all potential reform options, and to measure those options against the objectives sought to be achieved. Professor Loukas Mistelis of Queen Mary University pointed out that, if an MIC is created, one option could be to maintain the current system of ISDS, with the MIC to function as an appellate body.

A further question lingers over the feasibility of bringing an MIC into existence in the current global climate, in which multilateralism already faces serious challenges, and a number of other multilateral efforts in the economic sphere have stalled or are dysfunctional.

Again recalling the importance of substantive standards, several contributions also highlighted that while proposed reforms to ISDS are mainly procedural, the importance of the nature and wording of standards of treaty protection should not be underestimated. Mr. Zhan of UNCTAD pointed out that the overwhelming majority of ISDS cases are brought under old generation treaties. In this connection, Professor Bernard Hanotiau of Hanotiau & van den Berg commented that divergent treaty wording, some of which is unclear or inconsistent with other treaties, is often the very reason why ISDS tribunals reach different interpretations of treaties in different cases.

Conclusion

This event illustrated once more how divided different participants in the debate are on the issue of ISDS, and more generally, on investor protection. At the same time, it demonstrated the need for a continued exchange of views in pursuit of solutions that cater to diverse stakeholders.

Civil society groups question the existence of an entitlement to investor protection itself. This approach does not seem to be shared by most lawmakers. However, the EU, one of the main political forces in the debate at UNCITRAL, has made it clear that it sees an MIC as the only way forward.

Meanwhile, practitioners acknowledge to varying degrees that change is necessary, but point out that an MIC will likely fail to address many of the concerns with ISDS. Indeed, it may create new ones. At this stage, it seems doubtful that such technical remarks will fall on fertile soil, since the idea of an MIC which has been planted by the EU appears cultivated in large part on political ideology.

While States are legitimately in the driver seat of ISDS reform, discussions between experts and lawmakers must continue, in order to benefit from the input of those with daily experience of legal practice and procedure. In this way, every potentially viable variety of tree will be given due consideration before a decision is made whether to replant the forest entirely, or whether to seek better results through forest management.

References   [ + ]

1. ↑ Meanwhile, on 18 January 2019, the EU submitted two papers containing concrete reform proposals to UNCITRAL. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Drrrrum-Roll Please….

Mon, 2019-02-18 23:52

Catherine A. Rogers

Arbitrator Intelligence

After years of research, development, data collection, analysis, and refinement, Arbitrator Intelligence (AI) is unveiling a Prototype of its forthcoming Arbitrator Intelligence Reports, or AI Reports.

The formal launch of the Prototype is scheduled March 1 at Vienna Arbitration Days, with a special London Launch of the Prototype on March 4 at 6:00pm at WilmerHale. This post previews the Prototype, and traces where we are going from here.

 

Launch of the Prototype

The Prototype, like the future AI Reports, is an interactive electronic document that presents sophisticated, multi-faceted data analytics regarding an individual arbitrator’s track record. The Prototype focuses on a fictional mid-career arbitrator named Diana Artemis and is based on mock data that we created for the Prototype.

After the formal launch of the Prototype, we will be organizing numerous other presentations both in physical venues around the world and through online webinars. The purpose of these events will be to obtain feedback on the Prototype to revise and refine our work as we begin production of AI Reports on actual arbitrators. If you are interested in organizing such a presentation, please contact [email protected].

 

The Data, Campaigns & Ambassadors

The mock data in the Prototype resembles actual data that we have collected on real arbitrators through our Arbitrator Intelligence Questionnaire or AIQ, which is completed by participants at the end of an arbitration. When we turn to AI Reports, the collected data will be analyzed to generate reports on actual arbitrators, as illustrated:

 

The AIQ collects information on a wide range of topics regarding arbitral proceedings (document production, jurisdictional rulings, interim relief), and the final award (substantive outcomes, timing, legal methodology, cost allocation, interest rates).

To date, Arbitrator Intelligence has collected over 600 AIQ responses that provide data on arbitrations that involved over 800 individual arbitrators.

Most of these AIQs are the product of two efforts:  Regional Campaigns and Cooperation Agreements with arbitral institutions.

 

Regional Campaigns

To raise awareness about Arbitrator Intelligence and to encourage parties, counsel, and third-party funders to complete AIQs, we have been organizing Regional Outreach Campaigns.

The first such campaign in Latin America was wildly successful, thanks to a truly amazing group of AI Ambassadors from the Region.  Throughout the Campaign and beyond, our Ambassadors have presented Arbitrator Intelligence in numerous venues, promoted its goals of transparency, accountability, and diversity, and inspired submission of approximately 150 AIQs.

We currently have another campaign under way in Central and Eastern Europe (CEE), with yet another group of outstanding Ambassadors. Based on preliminary results, this Campaign too promises to be highly successful.

Beyond Latin American and CEE, we receive almost daily new requests to bring campaigns to other regions.  Our next Women Arbitrator’s Campaign will be launched on March 8 on  International Women’s Day and in cooperation with ArbitralWomen. Another Campaign will also soon be launched in conjunction with the al-Tamimi law firm and directed collecting information about arbitrator in the Middle East/North Africa/Turkey.

 

Cooperation Agreements

In addition to Regional Outreach Campaigns, Arbitrator Intelligence also relies on relationships with arbitral institutions to encourage submission of AIQs.

Under Cooperation Agreements, arbitral institutions agree that, at the end of each arbitration, they will send emails requesting parties and counsel to complete an AIQ.  In exchange, Arbitrator Intelligence will provide institutions with free AI Reports, when they are ready.

The AIQ was launched in the summer of 2017 in conjunction with the Singapore International Arbitration Centre (SIAC), which was also the first arbitral institution to sign a Cooperation Agreement with Arbitrator Intelligence

Since that time, Arbitrator Intelligence has signed additional Cooperation Agreements with the Cámara de Commercio de Lima and the Arbitration and Mediation Center of the American Chamber of Commerce of Ecuador. We are currently in discussions with numerous other institutions around the world.

As we all know, one of the most important functions an institution provides is appointment of arbitrators. Free access to AI Reports will enable arbitral institutions, particularly smaller regional institutions, to consider a broader range of arbitrators based on more detailed data-based analysis.

 

*    *    *

We believe introduction of AI Reports will soon bring a multitude of benefits to international arbitration. But we need your help.

First, we hope to see you in Vienna, London, or elsewhere to benefit from your feedback on the Prototype.

Second, we need LOTS, LOTS, LOTS more AIQs! The more AIQs we have, the better and more quickly we will be able to produce AI Reports systematically and on a large number of arbitrators.  So please, contribute AIQs through upcoming Campaigns, in response to emails you may receive from arbitral institutions, or by visiting our website directly.

With your help, AI Reports on individual arbitrators will be available later in 2019 as an important new resource for appointment of international arbitrators.

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The Contents of Journal of International Arbitration, Volume 36, Issue 1, 2019

Mon, 2019-02-18 22:23

Maxi Scherer

We are happy to inform you that the latest issue of the journal is now available and includes the following contributions:

Annette Magnusson, ‘Foreword: The Story of the Stockholm Treaty Lab’ (2019) 36 Journal of International Arbitration, Issue 1, pp. 1–6

In 2015, the world community adopted the Paris Agreement and the Sustainable Development Goals, setting an ambitious agenda for curbing global warming and ensuring a sustainable future. It is broadly recognized that attaining these goals will require investments amounting to trillions of dollars across the globe: renewable energy plants must replace carbon-heavy ones; energy-efficient transportation will be needed to carry an increasingly mobile world population; sustainable agriculture and forest restoration must substitute unsustainable land use and deforestation; and climate-resilient infrastructures must be built where global warming and rising sea levels already put communities at risk. Much of the technology necessary to reduce climate change and its effects already exists – affordable solar energy, for example, and energy-efficient vehicles, and carbon capture and storage. Investments are needed to bring these existing technologies to meaningful scale around the world, beyond the borders of the countries that can readily afford them. Investments are also necessary to support innovation in areas where the current state-of-the-art technology is still not sufficient to effect the necessary change. In today’s globalized economic system, many of these investments are likely to be cross-border in nature. In other words, if the global climate-change goals are to be attained, a significant increase in ‘green’ foreign direct investment (FDI) must materialize. For several decades, international investment agreements have been used to increase FDI flows by incentivizing and protecting investments. But no international legal instrument exists that specifically encourages much-needed green investments.

Martin Dietrich Brauch, Yanick Touchette, Aaron Cosbey, Ivetta Gerasimchuk, Lourdes Sanchez, Nathalie Bernasconi-Osterwalder, Maria Bisila Torao Garcia, Temur Potaskaevi, Erica Petrofsky, ‘Treaty on Sustainable Investment for Climate Change Mitigation and Adaptation: Aligning International Investment Law with the Urgent Need for Climate Change Action’ (2019) 36 Journal of International Arbitration, Issue 1, pp. 7–35

The climate change mitigation and adaptation objectives set by the Paris Agreement under the United Nations Framework Convention on Climate Change (UNFCCC) and the broader Sustainable Development Goals (SDGs) under the Agenda 2030 create a need for an unprecedented shift from carbon-intensive to low-carbon investment projects. Investment and the legal regimes that govern it—including international investment law—are critical to this shift. To accelerate it, the authors propose the Treaty on Sustainable Investment for Climate Change Mitigation and Adaptation. One of the winners of the Stockholm Treaty Lab competition, the treaty has three building blocks: (1) encouraging Sustainable Investments; (2) discouraging Unsustainable Investments and eliminating new Unsustainable Investments; and (3) ensuring a just transition to sustainable and low-carbon economies and societies. It allows states to indicate, in schedules to the annexes of the treaty, which sectors will be defined as Sustainable or Unsustainable Investments. It protects and signals policy support for Sustainable Investments, while denying treaty-based procedural rights to Unsustainable Investments and committing states to agree on modalities and timelines for phasing out incentives for Unsustainable Investments, such as fossil fuel subsidies. It includes investor obligations and provides access to justice to individuals and communities through an accountability mechanism.

Paula Henin, Jessica Howley, Amelia Keene, Nicola Peart, ‘Innovating International Investment Agreements: A Proposed Green Investment Protocol for Climate Change Mitigation and Adaptation’ (2019) 36 Journal of International Arbitration, Issue 1, pp. 37–70

This article describes a proposal for a new Green Investment Protocol for the Encouragement, Promotion, Facilitation, and Protection of Investments in Climate Change Mitigation and Adaptation (‘Green Investment Protocol’ or ‘Protocol’), which aims to incentivize foreign investment in climate change adaptation and mitigation so as to help achieve the targets set out in the Paris Agreement.

Silke Noa Elrifai, Simon R. Sinsel, Maya Hennerkes, Hans Rusinek, ‘A Model Multilateral Treaty for the Encouragement of Investment in Climate Change Mitigation and Adaptation’ (2019) 36 Journal of International Arbitration, Issue 1, pp. 71–94

The Paris Agreement sets out to limit global warming to below 2°C, yet the pathway to reach that goal is unclear. This specifically applies to the mobilization of investment for climate change mitigation and adaptation. One way to mobilize foreign investments is to create a favourable investment climate with the help of multilateral investment treaties. In this article, a model treaty is proposed to considerably increase climate-friendly investments while maintaining regulatory flexibility for signatory states. Building on Design Thinking principles, key challenges for the success of such a treaty are identified and provisions are crafted incorporating feedback from twenty-five experts from finance, policy, and legal domains. The proposal addresses four key challenges: (1) define climate change mitigation and adaptation investments; (2) decrease the barrier of limited access to capital due to perceived and actual risks; (3) combat insufficient investor trust in long-term contracts; and (4) retain states’ ability to regulate. The treaty proposal addresses these challenges by proposing, inter alia, a definition for mitigation and adaptation investments that establishes a link to the Nationally Determined Contributions under the Paris Agreement, an innovative financing mechanism, a conversion of host country subsidies to investment grants, and a performance verification using latest distributed ledger technology.

Daniel Magraw, Leila Chennoufi, Krycia Cowling, Charles Di Leva, Jonathan Drimmer, Chiara Giorgetti, Young Hee Lee, Jan Low, Kendra Magraw, Steve Mccaffrey, Grace Menck Figueroa, Sergio Puig, Anabella Rosemberg, ‘Model Green Investment Treaty: International Investment and Climate Change’ (2019) 36 Journal of International Arbitration, Issue 1, pp. 95–134

Mitigating and adapting to the extraordinary threats posed by climate change will require dynamic responses across all elements of human society. Governments face urgent, unprecedented challenges in this regard, including with respect to regulating foreign investment. The international investment regime was not designed to take account of this reality, however, either substantively or with respect to the settlement of disputes. This article proposes a new approach to foreign investment regulation designed to rectify this systemic failure, in the form of an innovative bilateral investment treaty drafted by a multidisciplinary team of internationally renowned experts. The approach proposes a balanced, reciprocal set of obligations for both investors and host states consistent with the Paris Agreement. To incentivize transformation, moreover, the article argues for investment treaties that demand good governance by investors, establish sufficient policy space for host states (via a sectoral approach that specifically addresses areas such as climate change, water, agriculture, human rights, indigenous peoples and public health), and adopt a flexible, fair, accountable and transparent approach to dispute settlement, including enhanced standards for arbitrators and a Code of Ethics—among other innovations.

Christopher Campbell , Coimbra Trigo Ana, ‘A Vision for Green Foreign Direct Investment: Proposals for an Investor-State Collaborative Effort’ (2019) 36 Journal of International Arbitration, Issue 1, pp. 135–160

Time is of the essence. With each passing day, the options and alternatives available to the peoples of the world to stem the tide of man-made destruction to the Earth are steadily disappearing. The Stockholm Treaty Lab challenged professionals from various disciplines to imagine and design strategies to mitigate and reduce the detrimental impact of human beings upon the planet. This article reflects the culmination of thought processes and ideas of one the participating teams.

The team drafted a legal instrument within the currently existing U.N. infrastructure, and included a number of aspects advocating for its widespread adoption, seeking to incentivize parties with the power to effect environmentally sound change to be more active. Economists, business consultants, lawyers, and scientist sought to find solutions to three man-made issues, namely (1) food waste, (2) deforestation, and (3) lack of renewable energies. Each of these three categories represent a major exacerbating force upon climate change, yet are areas that could be drastically affected with cooperation among states and investors. Within each category, both general policies and specific solutions/incentives are outlined. Further, dispute resolution mechanisms and the imagined economic impact for investors financing these initiatives are discussed. It is the belief of the team that the problems considered by the article have little chance of being effectively addressed unless there is widespread cooperation, thus it is hoped that articles like this one can be the catalyst for that change.

José Rafael Mata Dona, ‘Stockholm Convention on the Use of Blockchain to Boost Climate Action’ (2019) 36 Journal of International Arbitration, Issue 1, pp. 161–170

This article examines an innovative junction between international investment law and climate change law with the potential to increase foreign investment in climate change mitigation and adaptation. In particular, it explores the use of Blockchain (1) as a climate change investment vehicle, (2) in the collection of evidence of emission reduction compliance and (3) in the implementation of a Carbon Tax. Finally, it analyses the possibility to incorporate those three Blockchain applications to the network of already existing International Investment Agreements (IIAs) and describes a new role arbitration can play in the resolution of new type of claims.

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“May” Means “Shall” in Georgia – Supreme Court of Georgia Upholds a Permissive ICC Arbitration Clause

Sun, 2019-02-17 21:00

Sophie Tkemaladze

“May” means “Shall” in Georgia! – this was the telephone message I received on January 18, 2018 from a colleague who had just been informed in the courtroom that the ICC arbitration clause he was relying upon was upheld by the Supreme Court of Georgia. I had been following this case [Supreme Court of Georgia Case #as-148-140-2017] since 2016 and kept my fingers crossed for the survival of the arbitration clause. The progress that was made in this case – from the “unfriendly” decision of the Batumi City Court in 2016 on to the “turning point” decision of the Kutaisi Court of Appeals in 2017 and ending gloriously with the final “pro-arbitration” statement of the Supreme Court of Georgia – is telling of the progress arbitration has made in Georgia over the last several years.

Court of First Instance

It all started with the claim lodged with the Batumi City Court in April 2015 on a matter, which under the contract between the parties, was subject to ICC arbitration. The clause read: “If within 30 (thirty) days since the beginning of […] negotiations the Purchaser and the Supplier have not managed to settle the dispute, either of the party is able to apply for the arbitration of law to the International Chamber of Commerce (ICC) to resolve the dispute. The arbitration will take place in Tbilisi, Georgia, the language will be English and will be subject to the ICC regulations.

Respondent, in its first statement of defense, brought up existence of the arbitration clause and requested the Court to terminate the proceedings and refer the parties to arbitration. In its surprising and scarce reasoning, Batumi City Court read the arbitration clause as referring to ICC Rules of arbitration, and found it insufficient to determine parties’ will to refer their disputes to a specific arbitration institution.

This reasoning is similar to the recent decision of the Supreme Court of the Russian Federation [No. A40-176466/17] affirming refusal to enforce an ICC Award on the basis that the arbitration clause only referred to the Rules of Arbitration of the ICC and not a specific arbitration institution. Unlike the Russian case, however, where the issue was raised at the enforcement stage and the reasoning was confirmed by the highest court, the issue in the Georgian case was raised in the context of article 8.1 of the Model Law (Article 9.1 of the Georgian Law on Arbitration) and, fortunately, it was only the Court of First Instance which erred in its finding. Batumi City Court found the arbitration clause invalid, proceeded with full review of the case and on July 15, 2016 rendered its decision on the merits.

Court of Appeals

Kutaisi Court of Appeals turned the approach towards arbitration clauses to a sensible angle. The Court analyzed provisions of the Law of Georgia on Arbitration (which is based on the UNCITRAL Model Law) vis-a-vis the language of the arbitration clause. It noted that the parties’ agreement was clear on their will to refer their disputes to arbitration under the ICC Rules and its administration. It held that choosing the place and language of arbitration was allowed under the legislation. Court of Appeals reversed the decision of the Batumi City Court, upheld the validity of arbitration clause and referred the parties to arbitration under the ICC Rules.

It is noteworthy that by this time Tbilisi Court of Appeals had considered a similar issue with respect to model GIAC (Georgian International Arbitration Center) arbitration clause, which likewise referred to the rules, rather than the institution itself. In its decision dated November 24, 2016 Tbilisi Court of Appeals explained why reference to the Rules of Arbitration was sufficient to find the will of the parties to refer their disputes to the administration of the respective institution. The Court even brought an example of the standard ICC clause in support of its argument and noted: “Model/standard clauses of some arbitration institutions make reference precisely to the Rules and not to the institution. For example, the model clause of the International Chamber of Commerce (ICC) […]”. Thus, both Courts of Appeals of Georgia have now ruled that reference to institutional Rules suffices to hold the respective arbitration clauses valid.

Supreme Court of Georgia

The saga continued as both parties appealed the decision of the Kutaisi Court of Appeals to the Supreme Court of Georgia. Claimant, among others, argued that the clause only granted parties the right to refer their disputes to arbitration. Such right, in Claimant’s view, gave the discretion, but could not oblige the unwilling party to go to arbitration and therefore, could not be the basis for the Court to decline its jurisdiction (this argument was never raised at earlier stages). Respondent appealed the decision on another ground: that the court did not grant them full costs of futile litigation (specifically, attorney’s fees) which Respondent had to incur at Batumi City Court.

In a long-awaited decision of the Supreme Court of Georgia, the Justices confirmed the finding of the Court of Appeals with respect to validity of the arbitration clause. In justifying the binding nature of the arbitration clause, the Supreme Court noted: “the agreement, pursuant to which either party is entitled to refer the dispute to arbitration, means that the arbitration agreement grants a right to either party to commence arbitration; however, if such right is exercised by either one of the parties, then both parties are obliged to submit to arbitration […].” The court further noted: “If the term of the contract gives more than one possibility of interpretation, it is generally reasonable to apply the interpretation which corresponds to the essence of the agreement; therefore, in the present case, the word ‘is able’ should be interpreted in such a way, that if such choice is exercised, the parties are obliged to refer the dispute to arbitration under the Rules of arbitration of the International Chamber of Commerce (ICC).

In addition, the Supreme Court reversed Court of Appeals’ decision with respect to the attorney’s fees. It emphasized that the Respondent from the outset tried to object to the jurisdiction of the Batumi City Court, however was forced to employ lawyers and defend its interests due to Claimant’s insistence on litigation. The Court stated that “[…] such costs should be reimbursed by the party whose actions have triggered these costs” and ordered the Claimant to reimburse full attorney’s fees incurred by Respondent in litigating the case in the court of first instance.

Conclusion

This decision of the Supreme Court reinforces the consensual nature of arbitration and the pro-arbitration spirit of the laws in Georgia. It also clarifies the standards of construction of the arbitration clauses. The reasoning of both Kutaisi Court of Appeals and the Supreme Court are particularly significant in this respect, as they send a clear message to lower courts (which are in charge of enforcing arbitration agreements under the New York Convention) that arbitration clauses must be construed with pro-enforcement spirit and upheld when parties’ intention to refer their disputes to arbitration is clear. Such intention is clear even when arbitration is stipulated as a right to be exercised by one of the parties. This is now the case law in Georgia as well (joining the approach of English, Singapore, Canadian courts).

It is not yet clear, how this decision will affect the practice of the Georgian courts with respect to unilateral option clauses (there is an established case law finding clauses calling for arbitration or litigation invalid). An approach in line with the reasoning of the Supreme Court would be to say that it equally applies to unilateral option clauses (provided it is a B2B context). Whether a clause refers solely to arbitration, as a right or an option, without noting litigation as another option, or whether it explicitly stipulates a choice between arbitration and litigation – in both cases the choice is between arbitration and litigation. In either case, providing for a possibility/an option of arbitration means that at the time of conclusion of the contract both parties acknowledged and agreed that either of them could opt for arbitration; as the Supreme Court stated, “[…] if such right is exercised by either one of the parties, then both parties are obliged to submit to arbitration […]”. The decision of the Supreme Court widens the door for such interpretation.

This decision sends yet another signal to the parties and their representatives: the party who “breaches” the arbitration agreement shall be responsible for the consequential costs of “futile” litigation.

The approach taken by the Supreme Court is particularly timely today when Georgia strives to prove itself as an “arbitration-friendly” jurisdiction and become an attractive seat for international arbitrations. If before we were talking about the progress we had made by adopting the UNCITRAL Model Law based legislation, organizing annual GIAC Arbitration Days in Tbilisi and declaring Government’s desire to promote ADR (the significance of all of which is not to be undermined!), the Supreme Court has acted and demonstrated that arbitration agreements shall be respected and enforced in Georgia.

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The Know How to Enforcing Foreign Arbitration Awards in South Africa

Sun, 2019-02-17 02:50

Danika Balusik

Hogan Lovells

Legislative Framework

 

After much anticipation, the South African International Arbitration Act 15 of 2017 (“new Act”) was welcomed by arbitration practitioners in December 2017. The intention of the new Act has been to incorporate the UNCITRAL Model Law as the cornerstone of the international arbitration regime in South Africa. The South African Arbitration Act 42 of 1965 remains applicable to domestic arbitrations.

 

One of the most significant changes in the new Act was the incorporation of the Recognition and Enforcement of Foreign Arbitral Awards Act 40 of 1977 (the “REFAA Act”) which was promulgated to give effect to the New York Convention, that was signed by South Africa in 1976. The REFAA Act recognised that a foreign arbitral award is binding between parties and is capable of being enforced by way of application to the court, to have the award made an order of the court. To avoid duplication of legislation, the REFAA Act has been repealed in its entirety and replaced by the new Act.

 

Procedure

 

The court application to have a foreign arbitral award made an order of a court is a fairly lengthy process. A Notice of Motion and Founding Affidavit is lodged by the Applicant (the party wanting to enforce the award) at a High Court in South Africa that has jurisdiction over the matter. Jurisdiction is usually determined with reference to the principal place of business or the location of the assets of the Respondent (the party against whom the award is being enforced). In terms of section 17 of the new Act, the application is required to be accompanied by the original foreign arbitral award and the original arbitration agreement in terms of which the award was made, both authenticated for use in the High Court, together with certified copies of the award and the agreement.

 

The application is issued by the Registrar of the High Court served on the Respondent by the Sheriff of the court. The Respondent can then elect to oppose the application or not. Should the Respondent elect to oppose the application, it is required to file a Notice of Intention to Oppose within the time period set out in the Notice of Motion (between 5 to 10 days). Thereafter, the Respondent is required to file an answering affidavit on the Applicant within 15 days of serving its Notice of Intention to Oppose. The Applicant will then be afforded an opportunity to file a Replying Affidavit, within 10 days of receipt of the Respondent’s Answering Affidavit.

 

In terms of the High Court Rules, an Applicant is entitled to make an application to the court on an urgent basis, in accordance with Rule 6(12) of the Uniform Rules of Court. In this instance, the time periods are reduced and general procedure applicable to applications is shortened. However, the Applicant would be required to motivate as to why the matter is urgent, for example, that the Respondent is in the process of disposing of all its assets in South Africa. Should the court find that grounds for urgency do not exist; the matter will be enrolled on the ordinary motion court roll.

 

Advantages and Pitfalls

 

When it comes to enforcing arbitration awards, time is of utmost importance. When a matter is placed on the ordinary court roll and the application is opposed, the hearing usually takes places approximately 4-6 months after the matter is enrolled – a pitfall with enforcement in South Africa. It is no secret that a successful party to arbitration wants to have the award enforced as soon as possible so as to receive what it is entitled to, and therefore a 4-6 month delay in enforcement can cause prejudice to the successful party. If the application is not opposed, the application can be heard approximately 1-2 months after the relevant time period has lapsed for the Respondent to serve its notice of intention to oppose.

 

When a party is considering opposing the enforcement of a foreign arbitral award, section 18 of the new Act is important and sets out the various grounds on which the enforcement of a foreign arbitral award will be refused. If a court finds that a reference to arbitration where the subject matter of the dispute is not permissible under the laws of South Africa or where the award is contrary to public policy, the court will refuse to recognise or enforce the foreign arbitral award.

 

Where a party against whom the award is sought to be invoked can prove (1) a party to the arbitration agreement had no capacity to contract, (2) the arbitration agreement is invalid under the law to which the parties are subjected to, (3) that he or she did not receive notice of the appointment of the arbitrator or the arbitration proceedings or was not able to present his or her case, (4) the award deals with disputes not contemplated by or falling within the terms of reference, (5) the arbitration procedure was not in accordance with the arbitration agreement or laws of the country in which the arbitration took place, or (6) the award is not yet binding on the parties or has been set aside or suspended by a competent authority, the court may refuse to recognise or enforce a foreign arbitral award.

 

There is currently no case law dealing with section 18 of the new Act, however, as the wording of section 18 mirrors that of section 4 of the REFAA Act, the below cases remain significant when dealing with refusal of recognition and enforcement of foreign arbitral awards. South African law recognises the principle of judicial precedent. It is very likely that case law decided upon with reference to the REFAA Act will still bear precedential value when deciding case law under the new Act.

 

In the case of Seton Co v Silveroak Industries Ltd (2000 (2) A 215 (T)), the Respondent opposed an application to have an award by a French arbitral tribunal for damages in favour of the Applicant recognised by the High Court, on the grounds that the award was tainted by a fraud committed on the tribunal by the Applicant. The Respondent contended that the South African High Court should refuse the enforcement of the award by virtue of the provisions of section 4(1)(a)(ii) of the REFAA Act in that it was contrary to public policy to recognise an award obtained through fraud. The Respondent conceded that it did not have evidence on the affidavit to substantiate the allegation of fraud, but that there was someone who, if subpoenaed to give viva voce evidence, would give the necessary evidence.

 

The court held that section 4(1)(a)(ii) of the REFAA Act provided that a court would only refuse to recognise a foreign arbitral award if on the face of the award and the arbitration agreement it was clear that the agreement was contrary to public policy. To successfully claim that the award was obtained under fraudulent means (and therefore against public policy), there ought to be no extraneous evidence to persuade the court that the agreement in question was an illegal agreement. The Respondent was required to approach the French court to have the award set aside on the grounds of alleged fraud and parallel to that, make an application for a stay of the Applicant’s application to have the arbitral award enforced, pending the outcome of the Respondent’s application to have the arbitral award set aside in France. The South African High Court found no reason not to recognise the award, and therefore the Applicant’s application for recognition and enforcement succeeded.

 

In Phoenix Shipping Corporation v DHL Global Forwarding SA (Pty) Ltd and Another (2012 (3) SA 381 (WCC)), Phoenix and DHL approached the Western Cape High Court for an order for the recognition and enforcement of a London arbitral award. Bateman Ltd resisted the application on the grounds that it was never a party to the agreement referred to in the request for arbitration, that the arbitrator had accordingly lacked jurisdiction over it, and that the enforcement of the award would, therefore, be contrary to public policy. DHL relied on the booking note, which provided that the parties submitted to London arbitration. DHL contended that the arbitrator had made an award against Bateman Ltd and that Bateman Ltd had failed to satisfy the arbitral award, which the court was then obliged to enforce.

 

The court held that the booking note issued by Phoenix did not, in South African law, constitute a binding contract of carriage for the transportation of Bateman Ltd.’s machinery in terms of which the parties submitted any dispute to arbitration. Arbitration is characterised by its consensual nature and there was nothing to suggest that there ever was a consensus (either between Bateman Ltd and DHL or between Bateman Ltd and Phoenix) to conclude a contract in terms of which the parties had agreed to submit to arbitration. Both the common law and the REFAA Act recognised the importance of an arbitration agreement as a prerequisite to the enforcement of the arbitral award. In this case, as a fact, there had not been a valid agreement concluded between DHL and Bateman Ltd, agreeing to arbitration in terms of either English law or South African law. DHL had accordingly failed to allege and prove a valid arbitration agreement. Absent an arbitration agreement, no arbitrator could claim jurisdiction to determine a dispute and an order for the recognition and enforcement of a foreign arbitral award, which on the face of it was invalid, would be contrary to the principles of public policy.

 

Whilst it may take some time to have a foreign arbitral award made an order of a court in South Africa, parties can be confident that the South African courts will continue to uphold the principles of public policy and remaining practical and impartial when deciding to recognise and enforce a foreign arbitral award.

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Libra v CODESP: Is Arbitration in the Brazilian Ports Sector Salvageable?

Fri, 2019-02-15 19:05

Gabriel Ferreira Labatut Simões

A long-term dispute between Libra Terminais S.A., Libra Terminais Santos S.A., two companies belonging to one of the major port operating groups in Brazil (“Libra”), and the Dock Companies for the State of São Paulo (“CODESP”) seems to have been concluded by a recent arbitral award. The dispute concerned a concession agreement of two terminals in the Port of Santos in São Paulo, Brazil. The historic award is the first decision based on controversial statutes regulating arbitration in the ports sector in Brazil. This decision can provide insights on the practical effects of these statutes and their contentious provisions.

Background

In 1995, Libra and CODESP signed a concession agreement for terminal T-37 (“T-37”) and adjacent areas in the Port of Santos (“T-37 Agreement”). In exchange for the concession, Libra would pay CODESP a monthly fee and would be obligated to expand and improve T-37’s infrastructure.

A few years later, in 1998, Libra and CODESP signed another concession agreement for terminal T-35 and adjacent areas (“T-35 Agreement”, together with the T-37 Agreement, “Concession Agreements”). Similar to the first agreement, Libra would have to pay a monthly fee to CODESP and make investments to expand and improve the terminal.

Soon after the conclusion of the T-35 Agreement, still in 1998, Libra requested CODESP to suspend the collection of the fee owed by Libra. According to Libra, CODESP had not fulfilled its obligations to renovate terminal infrastructure and ensure minimum depth of the waterway access to the Santos Port, which supposedly allowed Libra to stay the payments. Meanwhile, CODESP was attempting to collect the amounts owed by Libra for the concessions. These discussions lasted decades in Brazilian courts. From 1998 to 2015, the parties initiated more than 10 lawsuits, resulting in different outcomes. While Libra was successful in some of the claims, CODESP was successful in others. However, the dispute had no prospect of ending soon.

In 2015, new legislation regarding dispute resolution mechanisms in the ports sector enabled Libra and CODESP to opt for arbitration to resolve their dispute.

Ports sector dispute settlement legislation

The port concessions sector in Brazil is regulated by Statute No. 12.815 (“Ports’ Statute”). The Ports’ Statute was envisaged to modernise the port concessions sector in Brazil by amplifying private investment and improving competition and efficiency. In what was seen as a positive development at the time; the Ports’ Statute established that – public and private – parties in concession contracts could resort to arbitration to resolve disputes regarding their financial obligations. The caveat was that the Statute did not specify how the arbitration should be conducted.

Therefore, in 2015, soon after the enactment of the changes to the Brazilian Arbitration Act (previously discussed in this Blog), the Federal Government enacted Decree No. 8.465 (Port Arbitration Decree, or “PAD”). PAD regulated and expanded the provision of the Ports’ Statute that allowed use of arbitration to resolve contractual disputes in the sector.

In contrast with the Ports’ Statute, the PAD was not well received (see here, here and here). It seemed that the PAD was a well-intended project but poorly executed. It was seen as an attempt by the Federal Government to manage and engage in new practices of dispute resolution. For example, among the most criticised provisions, the PAD (i) established that all information regarding the arbitration should be publicised; (ii) added time consuming bureaucracy to the process of initiating an arbitration; and (iii) provided that arbitration could only be used to settle disputes regarding the reestablishment of the financial-economic equilibrium of a contract; only if the arbitration was based on a submission agreement and not on an arbitration clause.

Nonetheless, despite criticisms, in 2015, Libra and CODESP signed a submission to arbitration agreement relying on the mechanism provided for in the PAD.

Arbitration and Partial Award

Pursuant to the submission agreement, the Tribunal had the mandate to decide (i) whether CODESP breached its obligations under the Concession Agreements; (ii) which of the parties (CODESP or Libra)  was liable for the performance of the construction works on the public docks in front of T-37; (iii) whether the financial-economic equilibrium of the T-35 Agreement had been affected by CODESP’s actions; (iv) whether Libra was liable to pay the fee originally agreed between the parties in the Concession Agreements; and (v) parties’ liability regarding these issues.

The Terms of Reference were signed in September 2017 and, a year later, the Tribunal issued an Award. The Award dismissed all of Libra’s claims, accepted CODESP’s claims, and ordered Libra to pay the fee originally agreed by the parties, as well as penalties for breach of contract. The Tribunal decided the case through the strict application of the contractual terms and the relevant statutes. However, the true contribution of the Libra v CODESP arbitration award is that it provides valuable insight as to whether initial criticism regarding application of the PAD was justified.

Time consuming bureaucracy?

One of the main criticisms to the PAD is that, in theory, it increases bureaucracy for execution of submissions to arbitrate. PAD requests a case by case preliminary government assessment regarding the benefits of using arbitration in each particular dispute. The PAD also establishes that arbitrators and arbitral institutions should be contracted by direct negotiation, as opposed to public biddings. Although the former is swifter than the latter, it still entails a number of time-consuming administrative burdens.On the other hand, a positive aspect of the PAD is the time requirement to issue an arbitration award within 24 months, which seems to offset, at least partially, the additional bureaucracy.

In Libra v CODESP, the time requirements for issuance of the award seemed to balance out the additional bureaucracy imposed by the PAD. While CODESP had to go through the preliminary government assessment; submission to arbitration was signed by the parties in less than three months from the day that the PAD entered into force. In fact, the dispute was adjudicated in record time, as the Tribunal decided on the liability issues in no more than 16 months from the signing of the Terms of Reference, which is less than the average period of time for an arbitration to be decided in Brazil, and substantially faster than obtaining a final decision in court.

Publicity issues?

Another point of contention regarding the PAD is the protection of sensitive information (e.g. price formation, production methods, formulas) vis à vis the requirement that all information regarding the arbitration must be publicized.

Again, this did not seem to be an issue in Libra v. CODESP. Even though the Federal Government divulged most of the proceedings through a specific website, no sensitive information was published. This is especially important considering that the Tribunal granted Libra’s request to keep confidential certain documents containing information on its commercial practices. Therefore, it seems that the publicity requirement of the PAD is not incompatible with, and can accommodate, existing judicial protection to sensitive information.

Abuse of privileged condition?

The most glaring issue with the PAD is that it grants to the Public Administration the power to decide whether disputes regarding the financial-economic equilibrium of contracts can be submitted to arbitration. According to the PAD, these disputes can only be submitted to arbitration via submission agreements.  This means that public parties can decide, after the dispute has arisen, whether the dispute should be submitted to arbitration or referred to a national court, which clearly puts the Administration in a privileged position as a disputing party and can hinder the “parity of arms” principle.

Nonetheless, there is some reason for optimism; Libra v CODESP has pinned down better arbitration practices for public authorities as disputing parties. For example, it is all very common for state parties in Brazil to challenge the legitimacy of arbitration. However, in Libra v CODESP, the Administration refrained from these unnecessary (and generally unsuccessful) challenges, demonstrating willingness to submit to arbitration even when there was no contractual obligation to do so.

In fact, the Federal Government Attorney’s Office, for the first time in history, has created a department to deal exclusively with arbitration. The department will represent the Federal Government in arbitration proceedings and will be responsible for gathering and managing expertise in the area, which indicates that the government intends to continue to use arbitration to resolve disputes with private parties in the future.

Conclusion

Prior authors in this blog (see here and here) have correctly described Brazil as an arbitration-friendly jurisdiction. Indeed, it does not appear that the PAD, despite accurate and relevant criticism, can challenge that description.

Libra v CODESP has provided strong indications that the Public Administration in Brazil, despite resistance and poorly drafted legislation. Brazil is walking steadily towards fully embracing arbitration as an efficient (and legitimate) dispute resolution mechanism.

Nonetheless, one should not let excessive optimism be a blindfold, as Libra v CODESP does not answer all the problems with the PAD. One question that remains unanswered is whether the prerogatives granted to the Public Administration by the PAD will be abused, especially in cases where future prospects of prevailing on the merits of the dispute might not be so positive.

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