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Does The Enforcement Of Annulled Foreign Arbitral Awards In The United States Come Down To Normative Judgments?

Tue, 2017-12-12 22:25

David Bastian

Several recent circuit-level decisions have shown that U.S. courts are willing to review a foreign court’s annulment of an arbitration award to determine whether the annulment conflicts with U.S. public policy. This exercise inherently involves normative judgments and leads to the question of whether U.S. courts may be “out of their depth” in making such determinations.

When an arbitral tribunal issues an award abroad, issuance of the award is often followed by a race to the courthouse – the prevailing party seeks enforcement of the award, whereas the losing party seeks annulment. Frequently, this race takes place in the state where the award was made (primary jurisdiction) as well as in the courts of other states (secondary jurisdictions). The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention” or “Convention”) is intended to streamline the enforcement process by mandating enforcement of a foreign arbitral award unless one of several enumerated circumstances is present, in which case, enforcement is discretionary.

Notwithstanding the Convention’s “pro-enforcement bias,” the issue of whether to enforce a foreign arbitral award becomes more complex when the award is annulled by a court in the primary jurisdiction. When this happens, U.S. courts are “constrained by the prudential concern of international comity”[1] and accordingly, will not second guess the primary jurisdiction’s annulment of the award unless the annulment offends the “most basic notions of morality and justice.”[2] As the words “morality” and “justice” suggest, however, U.S. courts are asked to make normative judgments as to the primary jurisdiction’s annulment. Two recent circuit-level decisions, Corporación Mexicana v. Pemex (Pemex) and Getma v. Republic of Guinea (Getma) out of the Second and D.C. Circuits, respectively, demonstrate how the public policy exception inevitably requires American courts to assess a foreign judiciary’s fitness and impartiality to adjudicate its own enforcement proceeding, thereby making a normative judgment as to whether a foreign award is worthy of enforcement in the United States.

PEMEX and GETMA

Pemex involved a contract between Corporación Mexicana (Commisa), a Mexican subsidiary of a U.S. construction corporation, and a subsidiary of Pemex, a state-owned enterprise of the Mexican government. After a dispute arose, Pemex administratively rescinded the contract and the case was submitted to arbitration. As the arbitration proceedings were ongoing, the Mexican Congress amended the statute of limitations for actions arising under public contracts from ten years to 45 days. In addition, the Congress passed a statute prohibiting any dispute related to the administrative rescission of a contract from being submitted to arbitration. Shortly thereafter, the arbitral tribunal found Pemex in breach of contract and awarded Commisa $300 million in damages.

Commisa requested confirmation of the award in the Southern District of New York. At the same time, Pemex successfully challenged the award in a Mexican court. Because the Mexican court, as the primary jurisdiction, annulled the award, the Second Circuit was not required to enforce it under Article V(1)(e) of the New York Convention. The Second Circuit held that the Mexican court’s annulment of the award was “repugnant to fundamental notions of what is decent and just” in the United States, and accordingly enforced the award. The Second Circuit reasoned that the annulment violated certain fundamental legal norms: “the vindication of contractual undertakings,” “the repugnancy of retroactive legislation,” “the need to ensure legal claims find a forum,” and “the prohibition against government expropriation without compensation.”

In Getma, the Republic of Guinea terminated a long-term concession agreement with Getma International, a French company. Guinea terminated the contract shortly after it elected a new president two years after the parties entered into their agreement. The parties submitted their dispute to arbitration subject to the rules of the Common Court of Justice and Arbitration (“CCJA”). The CCJA fixed the arbitrators’ fees at €61,000, however, after over a year of proceedings, the arbitrators requested €450,000. The CCJA denied the arbitrators’ request for higher fees and warned that any private arrangement with the parties for increased fees could jeopardize the validity of the award. The tribunal awarded Getma €39 million and Getma paid its share of the tribunal’s asking price.

Not surprisingly, the CCJA annulled the award. Getma then sought to enforce the invalidated award in the United States. The D.C. Circuit held that Getma was unable to carry its burden of showing that the CCJA’s decision to annul the award was “repugnant to fundamental notions of what is decent and just” in the United States. Although the D.C. Circuit viewed the annulment as “harsh,” the circumstances did not warrant direct contravention of the primary jurisdiction’s judgment. Consequently, the award was not enforced.

 NORMATIVE POLICING

Under Pemex and Getma, the extension of comity appears to depend on the primary jurisdiction’s compliance with fundamental American legal norms. However, the wisdom of this approach is questionable. The Supreme Court has cautioned that extraterritorial application of U.S. laws could lead to “clashes between our laws and those of other nations” as well as a concomitant state of “international discord.”

Pemex criticized the elements of unfairness that permeated the Mexican annulment proceedings, including: (i) statutory changes that retroactively eviscerated legal avenues of relief; (ii) Pemex’s status as an instrumentality of the Mexican government; and (iii) the court’s questionable reliance on a 1994 Mexican Supreme Court decision to justify its annulment order. Hinting at what it may have seen as collusion, the Second Circuit stated that the fact that Pemex’s subsidiary “is part of the government that promulgated the law [that withdrew arbitrability of Commisa’s claim] does not help at all.” This view was later reaffirmed in Thai-Lao Lignite v. Lao People’s Democratic Republic, where the Second Circuit described the circumstances of Thai-Lao as “far less suspect and therefore more worthy of presumptive recognition, than the circumstances surrounding the proceedings in Pemex.”[3]

Getma, on the other hand, takes a more restrained approach. Unlike Pemex, Getma did not involve the appearance of collusion between local legislative and judicial bodies to deny the claimant a legal remedy. Moreover, the dispute in Getma was “quintessentially foreign” in nature and therefore, may have provided less of an incentive for an American court to intervene. The D.C. Circuit found that the annulment was not fundamentally unfair because Getma was on notice that it was jeopardizing the validity of its award by agreeing to increased arbitrators’ fees. Nevertheless, the D.C. Circuit reviewed the CCJA’s annulment order for allegedly “tainted” proceedings because a member of the CCJA’s panel had discussed the case with the Guinean Minister of Justice before issuing the annulment order. Ultimately, Getma did not involve the same level of sovereign overreach by the Republic of Guinea that would have justified disregarding considerations of comity. The question remains, however, whether U.S. courts are properly equipped to review such issues at all, especially in cases where U.S. interests are not implicated.

The public policy exception inherently places U.S. courts in the position of acting as de-facto umpires to a foreign court’s annulment order. However, it is difficult to delineate the outer bounds of permissible conduct by a foreign sovereign when assessing the enforceability of an annulled arbitral award. For instance, why was the claimant’s annulled arbitral award in Getma less deserving of enforcement than the invalidated award in Pemex? The only way to answer this question is to review the local court’s annulment order and to determine whether it complied with “basic notions of morality and justice.” Although Pemex based its holding on the violation of certain laudable principles, it is questionable whether U.S. courts are equipped to admonish foreign judicial or legislative bodies for their perceived violation of such principles.

Judging another sovereign’s handling of an investment in its own territory as “suspect” and reviewing a foreign court’s compliance with American standards of “morality” or “decency” may be perceived as normative policing by U.S. courts. One year before Pemex was decided, Judge José Cabranes of the Second Circuit wrote that “[t]he application of U.S. laws extraterritorially directly contradicts the principles of self-governance and self-determination.” After Pemex, U.S. courts may be wise to heed this cautionary sentiment and avoid further extensions of the public policy exception when asked to enforce annulled foreign arbitral awards.

[1] Corporación Mexicana De Mantenimiento Integral, S. De R.L. De C.V. v. Pemex–Exploración Y Producción, 832 F.3d 92, 106 (2d Cir. 2016).

[2] Getma International v. Republic of Guinea, 862 F.3d 45, 49 (D.C. Cir. 2017) (internal citation omitted).

[3] Thai-Lao Lignite (Thailand) Co., Ltd. v. Government of the Lao People’s Democratic Republic, 864 F.3d 172, 187 (2d Cir. 2017).

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Third-Party Funding In International Arbitration: To Regulate Or Not To Regulate?

Mon, 2017-12-11 21:57

Marc Krestin and Rebecca Mulder

Linklaters

On 1 September 2017, the ICCA QMUL Task Force on Third-Party Funding published its Draft Report for Public Discussion on Third-Party Funding in International Arbitration. The Task Force has developed principles with the aim of providing guidance to parties, counsel, arbitrators and national courts when facing third-party funding related issues arising in different contexts. Furthermore, and even more notably, the Task Force indicated that the report may be useful for regulatory bodies and arbitral institutions that seek to address issues relating to third-party funding in international arbitration.

It is undisputed that over the past years third-party funding has become increasingly popular in both international commercial and investment arbitration. This has given rise to a number of concerns and potential issues. Although third-party funding has a considerable upside – improving access to justice is an oft cited advantage – it also carries certain risks and challenges, for example, those relating to conflicts of interest, disclosure and (security for) costs. The recent expansion of third-party funding in international arbitration and ongoing debates on this topic have spurred notable developments with regard to its regulation, both on a national and an international level.

Latest developments in third-party funding regulation

Singapore

On 10 January 2017, the Singapore Parliament passed the Civil Law (Amendment) Act (Bill No. 38/2016), which entered into force in March 2017. The Act amends Singapore law to permit third-party funding for international arbitration and related court proceedings under certain conditions, with further regulations prescribing specific eligibility requirements for funders. Until then, third-party funding was prohibited in Singapore and currently, the funding of state court litigation is still restricted.

In anticipation of the newly adopted legislation in Singapore, the 2017 Investment Arbitration Rules (effective as of 1 January 2017) of the Singapore International Arbitration Centre (SIAC) grant an arbitral tribunal the power to order disclosure of the existence of a funding arrangement entered into by one of the parties to the proceedings, the identity of the third-party funder involved and further details on the third-party funder’s involvement and interest in the outcome of the case.

On 31 March 2017, SIAC also issued a Practice Note on Arbitrator Conduct in Cases Involving External Funding. This note includes standards of practice and conduct providing arbitrators with guidance on questions relating to independence and impartiality, disclosure and costs.

Hong Kong

Hong Kong has approved third-party funding of arbitrations seated in Hong Kong by adopting the Arbitration and Mediation Legislation (Third Party Funding)(Amendment) Bill 2016 on 14 June 2017. This development is similar to the amendment of the law of Singapore, in the sense that the new national legislation aims at regulating previously prohibited third-party funding in international arbitration.

On 31 August 2017, the China International Economic and Trade Arbitration Commission Hong Kong Arbitration Center (CIETAC) released its Guidelines on Third Party Funding in Arbitration. These guidelines set out certain principles of practice and conduct which parties and arbitrators are encouraged to observe in respect of actual or anticipated arbitration proceedings administered by CIETAC in which there is or may be an element of third-party funding.

Hong Kong and Singapore are the first countries to explicitly regulate third-party funding in international arbitration on a state level. Although it should be stressed that the reason for this is strongly linked to the fact that prior to these legislative changes third-party funding of legal proceedings was altogether prohibited in these two states (based on the common law doctrines of maintenance and champerty), the new legislation does more than merely allowing third-party funding in prescribed cases. The new Singapore and Hong Kong laws make mandatory the disclosure of the existence of third-party funding and the identity of the funder involved. Such rules on a national level are entirely new in the world of arbitration.

Multilateral treaties and agreements

In the field of investment arbitration, the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union dated 14 September 2016 contains explicit provisions on third-party funding. The Transatlantic Trade and Investment Partnership (TTIP), which is currently available in proposed form only, also includes rules on third-party funding. Finally, the International Centre for Settlement of Investment Disputes (ICSID) is currently working on a way to address third-party funding in arbitrations conducted under the ICSID Rules of Procedure for Arbitration Proceedings (Arbitration Rules), 2006.

Considering these recent developments in third-party funding in international arbitration, a broader trend towards regulating third-party funding may be expected for the near future.

The Netherlands: a good example of self-regulation?

In the Netherlands, third-party funding has gained traction over the past few years, both in court litigation as well as in (international) arbitration. There has been a notable increase of companies that specialise in the financing of claims entering the Dutch market. The Netherlands is considered an attractive jurisdiction for mass claim disputes. Cartel damage litigation has typically been an area where third-party funding is commonly used. Cases in which damages are suffered as a result of price fixing or abuse of a dominant position in the market by the accused party are attractive for third-party funders. In such cases, the relevant competition authority has usually already imposed a fine, which facilitates proving the damages suffered.

Dutch law does not explicitly address third-party funding. Although the Dutch Ministry of Justice has considered certain legal issues arising from third-party funding, it has not proposed any specific legislation in this regard. This means that (potential) issues arising from the involvement of a third-party funder are to be dealt with under the more general provisions of Dutch law. For example, a threat to the independence and impartiality of an arbitrator as a result of the involvement of a third-party funder with which arbitrator has some sort of relationship, should be addressed by the more general provisions on independence and impartiality of the arbitrator as can be found in the Dutch Code of Civil Procedure. Likewise, potential conflicts of interest between lawyers and their clients on the one hand, and the third-party funder on the other, are currently addressed through the general rules of conduct for lawyers.

The absence of specific regulation of third-party funding in the Netherlands has to our knowledge not led to any major issues in the Dutch legal practice up to this moment. In the very few published cases in which third-party (litigation) funding has been considered, the Dutch courts have dealt rather liberally with the issue, applying general legal principles. At least for now, there seems to be no need for specific regulation in the Netherlands.

To regulate or not to regulate?

The question remains whether further regulation of third-party funding would be a step in the right direction. While 71 per cent of the respondents to the 2015 Queen Mary International Arbitration survey believe that third-party funding is an area that requires further regulation, we are of the opinion that regulating third-party funding, at least on a national level, may not necessarily be the best way forward.

First of all, domestic rules and regulations are likely to be inconsistent among jurisdictions, opening the door to forum-shopping with parties selecting a governing law that is favourable or even silent on the matter. Second, there is a risk of over-regulating, thereby effectively restricting the use and application of third-party funding more than is necessary. Third, it is virtually impossible to address all issues and concerns with a single set of clear and binding rules; the issues associated with third-party funding may differ from case to case, from one jurisdiction to another and are bound to change over time, as will be the way in which third-party funding is practised and the way in which it is perceived. There is no ‘one size fits all’ and flexibility is key.

This leaves us with the roles arbitral institutions and international guidelines can play, which in our view may be more effective in this context. Institutional arbitration rules have a broader applicability than domestic laws and are more specifically designed for the arbitral process. International guidelines are generally non-binding and offer greater flexibility. The 2014 IBA Guidelines on Conflicts of Interest were the first to address third-party funding to provide practitioners with guidance, and not without success. We would therefore propose not to opt for a highly fragmented system of national laws regulating third-party funding, but to further develop a set of non-binding guidelines on which practitioners can rely when being confronted with issues of third-party funding in international arbitration.

Finally, we should not forget that the ongoing debate on third-party funding has given rise to more awareness of its potential risks than ever before. As long as the key players in international arbitration – users, counsel, arbitrators and institutions alike – are conscious of the potential issues associated with third-party funding, they can act upon those. It may not be necessary to further regulate third-party funding if there is a common understanding thereof and generally accepted guidelines which can be relied upon in practice.

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Towards a Post-Arbitration Age: The European Commission’s Fast-Track Reform of Investment Dispute Settlement

Mon, 2017-12-11 01:06

Anne-Karin Grill and Sebastian Lukic

Schoenherr

The European Commission (“EC”) has recently taken another step in its efforts to replace the traditional investor-state-dispute-settlement (“ISDS”) mechanism which underlies the approximately 1,400 bilateral investment agreements in force between EU Member States and third countries. On 13 September 2017, the EC issued, based on Article 218(3) of the Treaty on the Functioning of the European Union (“TFEU”), a Recommendation for a Council Decision authorising the EC to open negotiations on behalf of the European Union for an international convention establishing a multilateral court for the settlement of investment disputes (the “Recommendation”).1) Recommendation for a Council Decision authorising the opening of negotiations for a Convention establishing a multilateral court for the settlement of investment disputes dated 13 September 2017, COM (2017) 493 final. jQuery("#footnote_plugin_tooltip_2765_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2765_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

With the Lisbon Treaty (Article 207 of the TFEU) foreign direct investment (“FDI”) became part of the common commercial policy of the European Union, which lies within the EU’s exclusive competence. Recently, in the context of the free trade agreement with Singapore, the Court of Justice of the European Union (“CJEU”) has clarified that the competence regarding ISDS in relation to both FDI and non-direct investment is shared between the EU and its Member States, insofar as they are required to act as respondents in certain disputes.2)Opinion 2/15 dated 16 May 2017, para 285 et seqq. jQuery("#footnote_plugin_tooltip_2765_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2765_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The EC has long considered FDI a “new frontier for the common commercial policy.”3) Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions – Towards a comprehensive European international investment policy, dated 7 July 2010, COM (2010) 343 final, p 4. jQuery("#footnote_plugin_tooltip_2765_3").tooltip({ tip: "#footnote_plugin_tooltip_text_2765_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Indeed, shortly after the entry into force of the Lisbon Treaty, the EC started its efforts to develop a consistent, unified and effective investment policy. In 2010, the EC published the communication “Towards a comprehensive European international investment policy”,4) Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions – Towards a comprehensive European international investment policy, dated 7 July 2010, COM (2010) 343 final. jQuery("#footnote_plugin_tooltip_2765_4").tooltip({ tip: "#footnote_plugin_tooltip_text_2765_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); which explored the characteristics of a new investment policy genuinely established by the European Union. The communication also identified the need for more transparency, consistency, predictability and an appeal system in ISDS. Remarkably, while the EC invoked the need for reforms of the traditional ISDS system, it still considered acceding to the ICSID Convention. In this respect, the EC even noted the need for an amendment of the ICSID Convention to allow the accession of the European Union.5) Ibid, p 10. jQuery("#footnote_plugin_tooltip_2765_5").tooltip({ tip: "#footnote_plugin_tooltip_text_2765_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Yet, given the public outrage that erupted in the context of the EU’s trade negotiations with the US and, more generally, the global controversy over the legitimacy, consistency and transparency of ISDS following high-profile investment cases (e.g. Vattenfall AB and others v Federal Republic of Germany, ICSID Case No ARB/12/12), the EC’s views on ISDS seem to have changed considerably. The EC’s strategy has shifted from promoting reforms within the framework of the existing ISDS system to pushing for a replacement of the ISDS system by a formal court system.

Devising a new investment dispute resolution mechanism

The EC’s move towards the establishment of a court mechanism for investment dispute resolution goes back to March 2014, which saw a public consultation on investment protection and ISDS. Since then, the EC has – quite contrary to the aspirations expressed back in 2010 – engaged in promoting fast-track reform:

– In May 2015, also in the context of the then ongoing trade negotiations with the US, the EC published the concept paper “Investment in TTIP and beyond – the path for reform” which called for a “profound reform of the traditional approach to investment protection and the associated ISDS system” and, accordingly, aimed at “moving from current ad hoc arbitration towards an Investment Court.”6) Concept paper “Investment in TTIP and beyond – the path for reform” dated 5 May 2015, p 1. jQuery("#footnote_plugin_tooltip_2765_6").tooltip({ tip: "#footnote_plugin_tooltip_text_2765_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

– In October 2015, the EC published the communication “Trade for all”, which again highlighted the EC’s endeavours “to build consensus for a fully-fledged, permanent International Investment Court.”7) Communication Trade for all – Towards a more responsible trade and investment policy, COM (2015) 497 final dated 14 October 2015, p 22. jQuery("#footnote_plugin_tooltip_2765_7").tooltip({ tip: "#footnote_plugin_tooltip_text_2765_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

– In November 2015, the European Union published a reformed approach on investment protection and investment dispute resolution for the Transatlantic Trade and Investment Partnership with the US, which not only envisaged the establishment of an investment court system, but also the replacement of the bilateral investment court system upon the entry into force of an international agreement providing for a multilateral investment tribunal.8) European Union’s proposal for Investment Protection and Resolution of Investment Disputes, tabled for discussion with the United States and made public on 12 November 2015. jQuery("#footnote_plugin_tooltip_2765_8").tooltip({ tip: "#footnote_plugin_tooltip_text_2765_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

– In August 2016, the EC launched an impact assessment for a multilateral reform of the investment dispute settlement system, including the establishment of a multilateral investment court.9) Impact Assessment on the Establishment of a Multilateral Investment Court for investment dispute resolution dated 1 August 2016. jQuery("#footnote_plugin_tooltip_2765_9").tooltip({ tip: "#footnote_plugin_tooltip_text_2765_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

– In October 2016, the European Union, its Member States and Canada agreed on a Joint Interpretative Instrument on the Comprehensive Economic and Trade Agreement (“CETA”) noting that “CETA moves decisively away from the traditional approach of investment dispute resolution and establishes independent, impartial and permanent investment Tribunals, inspired by the principles of public judicial systems in the European Union and its Member States and Canada.”10) Joint Interpretative Instrument on the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and its Member States dated 27 October 2016, p 6. jQuery("#footnote_plugin_tooltip_2765_10").tooltip({ tip: "#footnote_plugin_tooltip_text_2765_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

– In December 2016, the EC together with Canada published a non-paper on the establishment of a multilateral investment dispute settlement system.11) Establishment of a multilateral investment dispute settlement system dated 13/14 December 2017, a non-paper published by the EC and the Government of Canada. jQuery("#footnote_plugin_tooltip_2765_11").tooltip({ tip: "#footnote_plugin_tooltip_text_2765_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

– In January 2017, in the context of an informal ministerial meeting at the World Economic Forum in Davos, the Trade Commissioner Cecilia Malmström called for the “[creation of] a single international dispute settlement system; a system that should not only get the balance right between the interests of states and investors, but also be seen as legitimate by ensuring independence, accountability and transparency.”12) “In Davos, discussing investment disputes”, a blog post published by Commissioner for Trade Cecilia Malmström on 19 January 2017. jQuery("#footnote_plugin_tooltip_2765_12").tooltip({ tip: "#footnote_plugin_tooltip_text_2765_12", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

– In February 2017, in a speech delivered during a stakeholder event in Brussels, Ms Malmström again expressed antipathy towards the traditional ISDS system observing that “ISDS is old-fashioned and […] far from perfect.”13) “Reforming investment dispute settlement”, Speech by Commissioner for Trade Cecilia Malmström, Stakeholder event Brussels, 27 February 2017. jQuery("#footnote_plugin_tooltip_2765_13").tooltip({ tip: "#footnote_plugin_tooltip_text_2765_13", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

– In May 2017, a reflection paper of the EC observed that investment disputes “should no longer be decided by arbitrators under the so-called investor-state dispute settlement.”14) Commission Reflection Paper on Harnessing Globalisation dated 10 May 2017, COM (2017) 240, p 15. jQuery("#footnote_plugin_tooltip_2765_14").tooltip({ tip: "#footnote_plugin_tooltip_text_2765_14", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

– In September 2017, the EC issued its Recommendation paving the way towards the establishment of a multilateral investment court (the “MIC”).15) Recommendation for a Council Decision authorising the opening of negotiations for a Convention establishing a multilateral court for the settlement of investment disputes dated 13 September 2017, COM (2017) 493 final. jQuery("#footnote_plugin_tooltip_2765_15").tooltip({ tip: "#footnote_plugin_tooltip_text_2765_15", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The EC appears to be taking a two-step approach. The first step was completed with the inclusion of investment court systems in bilateral trade and investment agreements. This is the case, for example, in CETA and the EU-Vietnam Free Trade Agreement. The most recent Recommendation of the EC forms part of the second step, which is the formal establishment of a MIC system.

A convention establishing a MIC system

The Recommendation of 13 September 2017 sets out the process towards the conclusion and implementation of an international instrument (the “Convention”) establishing a MIC system. The Convention will deal only with procedural matters. In turn, the applicable law will be subject to the respective investment agreement. The Convention will allow the European Union, the EU Member States, and third parties to submit to the jurisdiction of the MIC disputes arising under agreements to which they are or will be parties. However, as a footnote in the Recommendation shows, disputes arising from intra EU-BITs as well as disputes between an investor of a Member State and a Member State under the Energy Charter Treaty will be outside the scope of the Convention. Regarding the individual characteristics of the new investment dispute settlement mechanism, the Recommendation underlines, inter alia, that:

– the multilateral court system should be a two-tier system with a tribunal of first instance and an appeal tribunal competent to review decisions rendered by the first instance tribunal on the grounds of manifest errors of facts and errors of law;

– members of the MIC should be appointed for a fixed period of time with security of tenure and all necessary guarantees of independence;

– any proceeding conducted before the MIC should be transparent and include the right of third parties to file third-party interventions; and

– the MIC’s decisions should benefit from an effective international enforcement regime.16) Annex to the Recommendation for a Council Decision authorising the opening of negotiations for a Convention establishing a multilateral court for the settlement of investment disputes dated 13 September 2017, COM (2017) 493 final, p 2 et seq. jQuery("#footnote_plugin_tooltip_2765_16").tooltip({ tip: "#footnote_plugin_tooltip_text_2765_16", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

As regards the negotiation process as such, the Recommendation highlights that the negotiations shall be conducted under the auspices of the United Nations Commission on International Trade Law (“UNCITRAL”).17) Ibid, p 2. jQuery("#footnote_plugin_tooltip_2765_17").tooltip({ tip: "#footnote_plugin_tooltip_text_2765_17", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Outlook

The EC is determined to devise a new framework for the resolution of international investment disputes that is (i) permanent, (ii) independent and legitimate, (iii) predictable in delivering consistent case law, and (iv) allows for appeals.18) Recommendation for a Council Decision authorising the opening of negotiations for a Convention establishing a multilateral court for the settlement of investment disputes dated 13 September 2017, COM (2017) 493 final, p 2. jQuery("#footnote_plugin_tooltip_2765_18").tooltip({ tip: "#footnote_plugin_tooltip_text_2765_18", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

These objectives are not only supported by national governments. The establishment of a multilateral investment system will likely be corroborated by the UNCITRAL Commission which, on 10 July 2017, adopted a broad mandate for its Working Group III which implies identifying (i) concerns regarding ISDS, (ii) whether reforms are desirable in light of the identified concerns, and (iii) if reform is indeed desirable, developing and recommending any relevant solutions.19) Report of the United Nations Commission on International Trade Law, Fiftieth Session (3–21 July 2017), A 72/17, para 264. jQuery("#footnote_plugin_tooltip_2765_19").tooltip({ tip: "#footnote_plugin_tooltip_text_2765_19", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); It would therefore not come as a surprise if the UNCITRAL Commission supported the EC’s proposal of establishing a multilateral investment dispute settlement mechanism.

In negotiating the envisaged Convention, the EC will have to safeguard that the new instrument is compatible with the legal order of the European Union. While there is no doubt that “an international agreement providing for the creation of a court responsible for the interpretation of its provisions and whose decisions are binding on the institutions, including the Court of Justice, is not, in principle, incompatible with EU law,”20) Opinion 2/13 dated 18 December 2014, para 182. jQuery("#footnote_plugin_tooltip_2765_20").tooltip({ tip: "#footnote_plugin_tooltip_text_2765_20", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); the EC will have to ensure that the Convention has “no adverse effect on the autonomy of the EU legal order.”21) Ibid, para 183. jQuery("#footnote_plugin_tooltip_2765_21").tooltip({ tip: "#footnote_plugin_tooltip_text_2765_21", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In particular, it will be crucial that the Convention does not adversely affect the powers of the CJEU, bearing in mind the CJEU’s exclusive competence to provide final and authoritative interpretation of European law.

In this respect, helpful guidance is forthcoming: on 6 September 2017, i.e. precisely one week before the EC issued its Recommendation, Belgium requested the CJEU to provide its opinion on the compatibility of the CETA Investment Court System with (i) the CJEU’s exclusive competence to provide the final interpretation of European Union law, (ii) the general principle of equality and the requirement of practical effect of EU law, (iii) the right of access to the courts, and (iv) the right to an independent and impartial judiciary. Without doubt, the CJEU will weigh in heavily when it comes to the EC’s ambitions to reform – in the self-proclaimed “historic” manner – the world of investment dispute settlement.

References   [ + ]

1, 15. ↑ Recommendation for a Council Decision authorising the opening of negotiations for a Convention establishing a multilateral court for the settlement of investment disputes dated 13 September 2017, COM (2017) 493 final. 2. ↑ Opinion 2/15 dated 16 May 2017, para 285 et seqq. 3. ↑ Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions – Towards a comprehensive European international investment policy, dated 7 July 2010, COM (2010) 343 final, p 4. 4. ↑ Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions – Towards a comprehensive European international investment policy, dated 7 July 2010, COM (2010) 343 final. 5. ↑ Ibid, p 10. 6. ↑ Concept paper “Investment in TTIP and beyond – the path for reform” dated 5 May 2015, p 1. 7. ↑ Communication Trade for all – Towards a more responsible trade and investment policy, COM (2015) 497 final dated 14 October 2015, p 22. 8. ↑ European Union’s proposal for Investment Protection and Resolution of Investment Disputes, tabled for discussion with the United States and made public on 12 November 2015. 9. ↑ Impact Assessment on the Establishment of a Multilateral Investment Court for investment dispute resolution dated 1 August 2016. 10. ↑ Joint Interpretative Instrument on the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and its Member States dated 27 October 2016, p 6. 11. ↑ Establishment of a multilateral investment dispute settlement system dated 13/14 December 2017, a non-paper published by the EC and the Government of Canada. 12. ↑ “In Davos, discussing investment disputes”, a blog post published by Commissioner for Trade Cecilia Malmström on 19 January 2017. 13. ↑ “Reforming investment dispute settlement”, Speech by Commissioner for Trade Cecilia Malmström, Stakeholder event Brussels, 27 February 2017. 14. ↑ Commission Reflection Paper on Harnessing Globalisation dated 10 May 2017, COM (2017) 240, p 15. 16. ↑ Annex to the Recommendation for a Council Decision authorising the opening of negotiations for a Convention establishing a multilateral court for the settlement of investment disputes dated 13 September 2017, COM (2017) 493 final, p 2 et seq. 17. ↑ Ibid, p 2. 18. ↑ Recommendation for a Council Decision authorising the opening of negotiations for a Convention establishing a multilateral court for the settlement of investment disputes dated 13 September 2017, COM (2017) 493 final, p 2. 19. ↑ Report of the United Nations Commission on International Trade Law, Fiftieth Session (3–21 July 2017), A 72/17, para 264. 20. ↑ Opinion 2/13 dated 18 December 2014, para 182. 21. ↑ Ibid, para 183. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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A Beacon in the American South: International Business Disputes in an Era of Receding Globalism

Sat, 2017-12-09 17:46

Christopher Campbell

On the heels of a year that has seen the rise of populist nationalism, skepticism of multilateral trade agreements and calls to tighten in some ways the flow of people across borders – perhaps most visibly in the United States and across Europe, but with manifestations elsewhere – many communities saw a retreat from international collaborations. For some, these developments represent a much-needed course correction to protect national security and address macro-economic trends that have hurt workers. Others see them as harbingers of the demise of the post-World War II global world order. These notions set the table for the 6th Annual Conference of the Atlanta International Arbitration Society (AtlAS), held in Atlanta, Georgia, on 22 & 23 October 2017, discussing “International Business Disputes in an Era of Receding Globalism.

On 22 October, the conference opened at the Atlanta Center for International Arbitration and Mediation of Georgia State University, with a panel discussion focusing on perspectives from several countries regarding international arbitration. The panel featured speakers from the United States, United Kingdom and Canada and was co-hosted by the ICC Young Arbitrators Forum and the AtlAS Young Practitioners Group.

Thereafter, the main events of the afternoon were the tertulia discussions — debates aiming to discuss theoretical and practical approaches within a more relaxed informal context — that were hosted by advocates, academics, and institutional personnel from around the world. The sessions, which were conducted in two consecutive hour-long blocks and spanned through several rooms, examined various topics:

  1. Transparency, privacy and confidentiality in international arbitration,
  2. Party selection of arbitrators versus institutional selection in international arbitration,
  3. The “Americanization” of international arbitration? Discovery? Advocacy styles?,
  4. The impact of gender diversity in international arbitration.

These discussions were held with the conference theme in mind, and the hosts pushed attendees to answer topical questions regarding how decreasing globalism might change each of these genres of discussion.

As a host for the first panel, [1. I would like to humbly thank the Atlanta International Arbitration Society for their invitation to lead this discussion and for featuring my article We Want to Be in the Room Where it Happens: A Demand for Practical Transparency in International Commercial Arbitration] namely “Transparency, privacy and confidentiality in international arbitration”), there were several major conclusions that I observed. First, when inquiring whether international arbitration needs greater transparency, one must first distinguish international commercial arbitration and investor-State dispute resolution. Clearly, there are many reasons why private parties, whom have agreed to commercial arbitration, would desire transparency in one sense, yet disfavor greater transparency in others. For example, parties may desire organizational insight into how institutions operate, while those same parties likely would not encourage transparency into the substance of the proceedings. On the other hand, when matters of public interest are at stake, as may be more-typically the case in investor-State dispute resolution, the attendees seemed to unanimously agree that greater transparency was a good thing for such proceedings. Professor Andrea Bjorkland of McGill University observed that investor-State disputes brought under the North American Free Trade Agreement offer a high level of transparency as to the pleadings, exhibits, memos, and awards, that may provide a useful model for citizen-friendly transparency for other regimes that utilize investor-State dispute resolution.

Second, Professor Bjorkland highlighted, both during this discussion and a subsequent panel, the advent of the Mauritius Convention on Transparency. Although the convention has twenty-six signatories, only three of those have ratified the treaty; Canada, Mauritius and Switzerland. The treaty aims to provide States and regional economic integration organizations with an efficient mechanism that extends the scope of the Transparency Rules already existing under UNCITRAL to investment treaties concluded before April 2014. The hope is that this convention will help ensure that both public interest in such arbitrations and the interest of the parties to resolve disputes are taken into account in a fair and efficient manner. However, it is of course important to note that mechanisms to create this greater transparency may be costly and inconvenient for the parties involved.

Finally, with regard to this tertulia, it is humorous to note that while both sessions eventually agreed that greater transparency in commercial arbitration–in terms of award formation and other stages of dispute resolution–was a positive development, every attendee thought that such transparency should begin with other disputes and not their own.

The conference shifted focus to its major theme on the second day, October 23, during which panel discussions theorized how international arbitration might evolve to meet changing perceptions toward globalism. Because of the pertinent and broad nature of the conference’s topic, there were many take-aways to note, however, here are some that resonated most with me:

  1. Supremacy of Arbitration. Panelist and attendees alike apparently agreed that international commercial arbitration is still the most predominant way of resolving disputes worldwide, and its evolution is somewhat of trial-and-error process. Discovery, Third Party funding and other issues of this process will ultimately respond to clients’ demands more broadly.
  2. Necessity. While perception of globalism may change, the practical realities do not. Clients worldwide still demand dispute resolution in a neutral, efficient manner, and no national court system currently provides a more satisfactory manner than commercial arbitration.
  3. Perception. Mostly U.S. panelists, with others joining, expressed frustration with the knowledge level of laypersons, and even of some clients, regarding the operation of arbitration. Notably, poor reporting from U.S. media has extrapolated from negative aspects of Consumer Arbitrations across the entire practice area. Panelists encouraged AtlAS and other arbitral centers to undertake educational campaigns to combat misinformation.
  4. Gender and Minority Representation. All present agreed that in order for international arbitration to grow there needed to be more robust and genuine discussion around both: i) greater representation of women, and racial minorities on arbitration panels and within institutions, and ii) less tolerance for discriminatory behavior or rhetoric. One attendee suggested a substantive rule change that would require equal representation of women, and another proposed more programs explicitly granting access to under-represented minorities. However, one panelist pointed out that, especially in commercial arbitration—notwithstanding counsel and institutions’ role in advising clients to consider arbitrators from different and diverse backgrounds—these determinations were ultimately made by parties/clients, not the institutions.
  5. Competition. As competition increases among arbitral centers, the centers with the best and accommodations will succeed. Relevant accommodations include not only substantive rules and means for housing and resolving the dispute, but also support from regional judiciary in supporting arbitral proceedings — or in the case of the U.S., the ability for parties, witnesses and others to gain access to the venue at all. During both informal and formal discussion, panelists observed that other venues in North America, namely Canada, were advertising their arbitral venues as viable alternatives in light of recent political instability and practical access to venues in the United States.

Furthermore, several panelists noted that Atlanta was an exceptional venue because of its lower cost compared to other American cities, ease of airport access, and to one of its city mantras “Too busy to hate,” which Atlanta practitioners hoped would allow this city to become a Sanctuary City for International Arbitration.

In summation, conference was a quality culmination of discourse regarding international arbitration, and a rallying cry that U.S. practitioners, especially those in Atlanta and in the American South, will not flee from the ever-increasing international battlefield.

 

 

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Third-Party Funding: Enforcement as a Cornerstone in the Funding Calculus

Fri, 2017-12-08 23:19

Ylli Dautaj, Bruno Gustafsson and Alban Dautaj

Introduction

This short note briefly touches upon two enforcement issues pertaining to third-party funding in international arbitration, one more ventilated than the other. It is hoped that our comments on these issues will be perceived as an insightful contribution to an already ignited debate, with the caveat that we provide for a discussion rather than trying to settle an unsettled and partly unchartered territory. First, we shed light on a so far undiscussed “access to justice” issue—that is, when states hide behind the shield of sovereign immunity, and thereby indirectly and negatively affect the funding calculus.1)See Chapter 3: “Litigation Funding in International Arbitration”, in Jonas von Goeler, Third-Party Funding in International Arbitration and its Impact on Procedure, International Arbitration Law Library, Volume 35 (Kluwer Law International; 2016) p. 101, discussing why investor-state arbitration cases may be more attractive for a funder than commercial ones, e.g. because of the ability to demand higher costs for capital provided due to special legal and financial expertise, such as in enforcement and vis-á-vis obstacles pertaining to sovereign immunity. jQuery("#footnote_plugin_tooltip_7726_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7726_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Second, we highlight the issue of enforcing funded awards in countries where the practice of external funding of arbitral claims is against the law.

Third-party funding plays an increasingly important role in international arbitration. The eminent Tribunal in Giovanni Alemanni v. The Argentine Republic, ICSID Case No. ARB/07/8, Decision on Jurisdiction and Admissibility, 17 November 2014, opined as follows: “the practice [of third-party funding] is by now so well established both within many national jurisdictions and within international investment arbitration that it offers no grounds in itself for objection.”(page 128) We agree, and the number of business entities involved in funding arbitration claims illustrates this point. The involvement comes from various actors, and the amounts of funding are in the millions and the possible rewards huge as well. These factors are illustrative of a new order where parties with limited liquid funds have recognized third-party funding as a dexterous – and in some cases vital – means to access justice. Simultaneously, salient entrepreneurs have discovered what has turned out to be a highly viable business model.

While the fierce emergence of third-party funding in international arbitration has hardly escaped any practitioner, the legal doctrine vis-à-vis third-party funding is still very much in its developing stage, and there is a significant number of important legal issues that may prove to play crucial roles in arbitral proceedings involving external funding around the world.

Execution issues affecting third-party funding in investor-state arbitration

“The acceptance and growth of third-party funding in common law jurisdictions has, in general, been driven by a desire to improve access to justice for the impecunious litigant.”2) Jonathan Wood and Daniel Hemming, ‘Third-Party Funding of Litigation: A Perspective on the International Landscape’ (Who’s Who Legal, 2014) jQuery("#footnote_plugin_tooltip_7726_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7726_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Third-party funding, in international arbitration, has also been perceived as a means of accessing justice. In this latter context, “access to justice” refers to all tools and resources available to a party when defending or enforcing a legal right.3)See Chapter 3: “Litigation Funding in International Arbitration”, in Jonas von Goeler, Third-Party Funding in International Arbitration and its Impact on Procedure, International Arbitration Law Library, Volume 35 (Kluwer Law International; 2016) pp. 75-76. jQuery("#footnote_plugin_tooltip_7726_3").tooltip({ tip: "#footnote_plugin_tooltip_text_7726_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); No doubt, third-party funding can promote equality of arms and enhance the overarching principles of procedural fairness and justice. However, the concepts are open-ended and invite all sorts of counter-arguments; however, for the purposes of this brief note, we assume that the right to litigate is a way of accessing justice.

When the third-party funder decides – “calculates” – whether to fund or not, the funder is primarily focusing on: (1) the merits of the case, (2) the benefit-cost analysis (quantum), and (3) the enforceability of the award, including execution. It is in light of this calculus that a third-party funder, well-aware of the execution intricacies in light of sovereign immunity, factors in the history of non-complying states, and decides that an otherwise strong case on the merits and quantum may, nevertheless, fall short of funding due to a potential impossibility in executing the assets. In short, an investor that might need to litigate, and might even have a meritorious claim, might still not get funding because “rogue states” have a history of hiding behind the shield of sovereign immunity, and thus hindering their “access to justice.” This is not purely a question of litigation, but also one of leverage in settlement negotiations.

The difficulty vis-á-vis sovereign immunity and the execution of ITA awards arise from the intersection (and distinction) between waivers of immunity from jurisdiction, on the one hand, and waivers of immunity with respect to execution, on the other hand.4)Andrea K. Bjorklund, Arbitration and National Courts: Conflict and Cooperation: Sovereign Immunity as a Barrier to the Enforcement of Investor-State Arbitral Awards: The Re-Politicization of International Investment Disputes, 217. jQuery("#footnote_plugin_tooltip_7726_4").tooltip({ tip: "#footnote_plugin_tooltip_text_7726_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); “The result is that the holder of an unpaid ICSID Convention award can seek enforcement in the courts of any ICSID Convention country, but its ability to recover will be limited by municipal laws on sovereign immunity.”5) Ibid 211. jQuery("#footnote_plugin_tooltip_7726_5").tooltip({ tip: "#footnote_plugin_tooltip_text_7726_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The question of sovereign immunity is an important one in selecting the forum for enforcement in cases being brought against a State or a governmental agency.6) Redfern, Alan and Hunter, Martin, International Arbitration (Oxford University Press 2009), 629. jQuery("#footnote_plugin_tooltip_7726_6").tooltip({ tip: "#footnote_plugin_tooltip_text_7726_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); When a state invokes sovereign immunity vis-á-vis located assets, the investor is left in the dark, trying to locate commercial assets and often leaving no stone unturned. However, this is costly and time-consuming. In this respect, Professor. Schreuer opined that:

“[A]llowing plaintiffs to proceed against foreign States and then to withhold from them the fruits of successful litigation through immunity from execution may put them into the doubly frustrating position of having been lured into expensive and seemingly successful lawsuits only to be left with an unenforceable judgment plus legal costs.”7) Christopher Schreuer, ”State Immunity: Some Recent Developments (1998), 125. jQuery("#footnote_plugin_tooltip_7726_7").tooltip({ tip: "#footnote_plugin_tooltip_text_7726_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

This is probably a risky situation that a third-party funder might want to avoid, unless they are funding for enforcement purposes (either alone or in conjunction with the arbitration). States that misuse or abuse sovereign immunity can, therefore, hinder investors from “accessing justice” by way of getting funding, thus preventing the investors from realizing assets. Of course, this discussion is fundamentally based on the idea that third-party funding is at all an important or welcomed aspect of investor-state arbitration. Another argument can also be made that it should not be a feature of investor-state arbitration, as opposed to international commercial arbitration.

Enforcing third-party funded awards and public policy

A number of important risks related to the recognition and enforcement of funded arbitral awards were raised by Ben Knowles and Paul Baker in “Enforcing a funded award in an anti-funding environment.”8) Global Arbitration Review, “Enforcing a funded award in an anti-funding environment” (19 August 2017). jQuery("#footnote_plugin_tooltip_7726_8").tooltip({ tip: "#footnote_plugin_tooltip_text_7726_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Focus in the article was directed on enforcement of awards rendered in arbitrations involving third-party funders in countries where funding is impermissible. It cannot be ruled out that courts in such countries develop a tendency to refuse enforcement of funded awards. As for countries bound by the New York Convention, the question ought to be raised whether such an action would even be allowed. The authors of the mentioned article emphasize the valid point that signatory countries may not refuse enforcement of arbitral awards, save upon a few narrow grounds. The only potentially applicable ground that could merit such refusal of enforcement is public policy, and it remains to be seen whether any of the countries engaging in skepticism towards third-party funding will develop any case law in this regard. In our opinion, the worldwide increase of third-party funded arbitrations is unlikely to stagnate any time soon, and as the practice becomes an increasingly natural feature of international arbitration proceedings, it would seem reasonable that states act accordingly by refraining from unwarranted counteracting measures.

Concluding Remarks

By hiding behind sovereign immunity and complicating the realization of assets, rogue states are not only affecting the enforcement (and execution) stage but, due to the need for litigation funding, perhaps also the investor’s access to justice. Maybe it is time to look into some of Professor Bjorklund’s proposed amendments regarding issues with sovereign immunity once again, viz., making changes to (1) international laws; (2) domestic laws; and (3) asking home states for assistance and perhaps multilateral pressure.9) See Andrea K. Bjorklund, Arbitration and National Courts: Conflict and Cooperation: Sovereign Immunity as a Barrier to the Enforcement of Investor-State Arbitral Awards: The Re-Politicization of International Investment Disputes. jQuery("#footnote_plugin_tooltip_7726_9").tooltip({ tip: "#footnote_plugin_tooltip_text_7726_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

We think that third-party funding is here to stay, that domestic public policy should not be used to denounce a transnationally accepted practice. It is hoped that this area of arbitration will not be one were scholars and practitioners will be left in the dark, arguing in the abstract, with the former promoting ethics and the latter hiding behind “freedom of contract” to remain untouched and unknown. A consensus has to be reached, primarily one that strikes a fair balance between – but never infringes on – business efficiency and good lawyerly conduct.

References   [ + ]

1. ↑ See Chapter 3: “Litigation Funding in International Arbitration”, in Jonas von Goeler, Third-Party Funding in International Arbitration and its Impact on Procedure, International Arbitration Law Library, Volume 35 (Kluwer Law International; 2016) p. 101, discussing why investor-state arbitration cases may be more attractive for a funder than commercial ones, e.g. because of the ability to demand higher costs for capital provided due to special legal and financial expertise, such as in enforcement and vis-á-vis obstacles pertaining to sovereign immunity. 2. ↑ Jonathan Wood and Daniel Hemming, ‘Third-Party Funding of Litigation: A Perspective on the International Landscape’ (Who’s Who Legal, 2014) 3. ↑ See Chapter 3: “Litigation Funding in International Arbitration”, in Jonas von Goeler, Third-Party Funding in International Arbitration and its Impact on Procedure, International Arbitration Law Library, Volume 35 (Kluwer Law International; 2016) pp. 75-76. 4. ↑ Andrea K. Bjorklund, Arbitration and National Courts: Conflict and Cooperation: Sovereign Immunity as a Barrier to the Enforcement of Investor-State Arbitral Awards: The Re-Politicization of International Investment Disputes, 217. 5. ↑ Ibid 211. 6. ↑ Redfern, Alan and Hunter, Martin, International Arbitration (Oxford University Press 2009), 629. 7. ↑ Christopher Schreuer, ”State Immunity: Some Recent Developments (1998), 125. 8. ↑ Global Arbitration Review, “Enforcing a funded award in an anti-funding environment” (19 August 2017). 9. ↑ See Andrea K. Bjorklund, Arbitration and National Courts: Conflict and Cooperation: Sovereign Immunity as a Barrier to the Enforcement of Investor-State Arbitral Awards: The Re-Politicization of International Investment Disputes. 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: Compendium of International Commercial Arbitration Forms
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Kluwer Mediation Blog – November News

Fri, 2017-12-08 02:21

Anna Howard

Ireland’s new mediation law, a strategy for the implementation of mediation within the Ukrainian court system, the lessons emerging from the Global Pound Conferences, developments in Online Dispute Resolution… these are just a handful of the topics which were addressed on the Kluwer Mediation Blog in November. Below you’ll find a very brief summary of last month’s posts on the blog. We invite you to take a look.

In “What The Parties Really Want – Interview 1 – Rebecca Clark”, Bill Marsh shares the first of a series of interviews with experienced business users about what they really want from mediators and mediation. Rebecca Clark, now a full-time mediator, and formerly a large-scale user of mediation, offers her user perspective on a number of key issues including what she looks for from, and in, a mediator; how she selects a mediator; and what mediators can do better.

In “Et Voila! Ireland’s Mediation Act 2017”, Sabine Walsh provides a detailed review of Ireland’s new Mediation Act which was signed into law on 2nd October 2017. Sabine examines the provisions which could be controversial or problematic to implement and shares her predictions of the impact which this new Mediation Act might have.

In “(*) What A Feeling!”, drawing on a recent panel discussion on artificial intelligence and dispute resolution which Andrea Maia co-chaired at the 2017 International Bar Association Annual Congress in Australia, Andrea explores the extent to which artificial intelligence might be able to replace the role currently carried out by mediators.

In “Perspectives on Dispute Resolution”, Joel Lee shares his recent interview with the Singapore International Dispute Resolution Academy (SIDRA) in which he explores, amongst other issues, his thoughts on the top three global trends that are shaping the field of negotiation and dispute resolution; how negotiators and dispute resolution practitioners can position themselves well for the future; and what makes a person a really good mediator.

In “Strategic Approach to Mediation: Lessons From Ukraine”, Tatiana Kyselova summarises the results of her research, carried out jointly with the National Association of Mediators of Ukraine, on a strategy for the implementation of mediation within the Ukrainian court system. Tatiana shares the lessons learnt during the process of developing this strategy, the full text of which can be found here.

In “The Mediation Bug. The Bucerius Law School Hamburg Mediation Competition, And Is The Next Generation Becoming A Generation of Mediators?”, Greg Bond interviews some of the students who took part in the recent Bucerius Law School Mediation Competition. The students share their motivations behind organising the competition and reflect on what they have gained from participating in the competition and, more broadly, from studying mediation.

In Digital Justice: Between Enthusiasm and Caution, Ian Macduff responds to the diverse perceptions of, and responses to, the role of digital technologies in dispute resolution. With the aim of normalising the emerging world of digital technologies in dispute resolution, Ian identifies the main threads in the development of ODR and the drivers behind those developments. Ian also proposes an original way to think about developments in digital justice.

In What Have We Learned From The Global Pound Conferences, Thomas Stipanowich provides his review of the published data from the Global Pound Conferences. Thomas identifies a number of general impressions about current dispute resolution practice and several tantalizing prospects for future evolution which emerge from the data.

In “Restoring Autonomy To The Clients – A Mediator’s True Calling”, John Sturrock reflects on a recent mediation to explain what mediation can, if properly utilised, provide: “a unique forum for facilitating conversations, creating opportunities and providing context for the key players to take responsibility.” As John notes, this seems to be the true calling of mediators.

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b-Arbitra 2017

Wed, 2017-12-06 16:05

Annet van Hooft and Jean-François Tossens

It is with great pleasure that we present to you this first issue of b-Arbitra 2017.

You will note that we have acquired a new cover, and what is more: a new publisher: Wolters Kluwer. We are very excited about our new cooperation, which we consider fits well with our aim to be a first-class journal on international arbitration in Belgium and beyond. The journal will continue to be distributed in hard copy to our subscribers. It will, however, also be accessible in digital form on Jura in Belgium and on the Kluwer Law Arbitration Database worldwide.

In the present issue, you will find both articles with an international focus and articles with a more local flavour. In their article ‘Splitting the bill of CEPANI arbitrations: the Belgian art of compromise?’, Werner Eyskens and Morgan Bonneure present the findings of their empirical study of CEPANI awards, explain the cost allocation trends revealed by those awards and describe a number of tools to improve the predictability of the costs of arbitration proceedings.

Françoise Lefèvre, Peter Callens and Guillaume Croisant, address the subject of the legality of third-party funding mechanisms under Belgian law; while Hamid Gharavi shares his experience of third-party funding in investment arbitrations. Both contributions resulted from the successful CEPANI colloquium on Third Party Funding that took place on 9 March 2017. You will find the introduction to this colloquium, written by Didier Matray and Sigrid van Rompaey, in our section “documents”. This introduction raises many very interesting questions that could be the subject of future articles. We are planning to publish further contributions from speakers at the CEPANI colloquium on Third Party Funding and Ethics (Dirk Van Gerven, Arie Van Hoe) and on Third Party Financing in International Arbitration (Christopher Bogart) which will provide the funder’s perspective.

Finally, Ben Giaretta shares his experience of acting as emergency arbitrator and provides invaluable practical advice, regardless of the rules you are operating under.
Our case law for this issue is decidedly Belgian and of great interest: we publish the decision of the Brussels Court of First Instance of 27 October 2016. This case is not yet commented on, as it is still subject to appeal.

We also have two annotated cases, one from the Brussels Court of First Instance of 23 February 2017 with a note from Maarten Draye regarding the time limit for rendering an arbitral award and one from the Belgian Court of Cassation of 26 October 2015, with a note of Herman Verbist, concerning an ICC award and raising a similar (but slightly different) issue.

We close with a book review of the collection ‘Le principe du contradictoire en arbitrage: actes du colloque organisé par Francarbi le 2 décembre 2016’ by Christophe Devue.

We hope you consider the various contributions to be of interest. Please do not hesitate to share your comments, suggestions or contributions with us.

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NZ Renounces ISDS: Deja Vu?

Tue, 2017-12-05 20:51

Amokura Kawharu and Luke Nottage

New Zealand now officially opposes investor-state dispute settlement (ISDS), thanks to the election of a new centre-left Labour-led coalition government that took office in October 2017. In a post-Cabinet press conference on 31 October, Prime Minister Jacinda Adern announced that: “We remain determined to do our utmost to amend the ISDS provisions of TPP. In addition, Cabinet has today instructed trade negotiation officials to oppose ISDS in any future free trade agreements.” Adern is also reported to have described ISDS as a “dog”.

This announcement followed the unexpected (and close) electoral victory over the more centre-right National Party, which had governed for three terms. The National Party had actively promoted free trade agreements (FTAs), including ISDS-backed commitments. Earlier Labour Governments had also promoted FTAs, notably with China (in force from 2008, and also containing ISDS provisions). That FTA has been accompanied by a four-fold increase in goods exports from New Zealand to China, while China has risen to become New Zealand’s ninth largest source of foreign investment. Overall, China now ranks as New Zealand’s second-largest trading partner.

However, bipartisan support over FTAs and foreign investment had begun to fray when the National Government signed the Korea FTA in 2015 and the TPP in February 2016. During inquiries into ratification, Labour parliamentarians raised concerns about whether these agreements allowed sufficient host state regulatory space, for example for New Zealand to introduce new types of restrictions over purchases by foreigners of residential property (the market for which has been booming). Some questions were also raised about ISDS, reflecting broader public concerns (as can be seen in our analysis of New Zealand newspaper reports here).

As in countries like Japan and Korea, recent public concerns over ISDS may have reflected New Zealand’s love-hate relationship with the United States. It was then a driving force behind the TPP negotiations, but also a major attraction for New Zealand since an FTA with the US had long been a top trade priority.

In 2015, and shortly after the parliamentary select committee report on the Korea FTA was issued, the populist New Zealand First party (led since 1993 by former National Party politician Winston Peters) tabled the “Fighting Foreign Corporate Control Bill” which would have precluded governments from agreeing to ISDS provisions in future treaties. At the time, the Labour Opposition was prepared to support the Bill through to the select committee stage so as to enable focussed scrutiny of ISDS, although it was unlikely to have backed the legislation any further since it was contrary to Labour’s view of the Executive’s prerogative to negotiate treaties. In the event, the Bill was defeated at its first reading.

In this October’s general election, Labour took 46 seats in Parliament (out of 120) while National took 56, thus needing New Zealand First to form a coalition government. New Zealand First eventually decided to join with Labour, citing closer alignment with Labour on the role of capitalism in society, and perhaps sensing a mood for change. Policy-wise, there is reasonable alignment between New Zealand First and Labour on controls over foreign investment and immigration.

Against this political backdrop, it is unsurprising that the new Labour-led government declared soon after taking office that it would legislate stricter controls over foreign investment in residential land. Specifically, the new government proposes to add residential housing to New Zealand’s foreign investment screening regime. Presumably, it is treating residential housing as a new class of “sensitive land”, and will rely on an exemption in its FTAs that allows New Zealand to maintain its screening regime with respect to the current categories of screened investment (including sensitive land). The one exception is its FTA with Singapore, which confines sensitive land to non-urban land. The government accepts it will need to negotiate a solution with Singapore. Australian investors will be excluded from the new measure.

It is also unsurprising that the new government made the announcement regarding ISDS, set out at the outset of this blog post. What is rather more surprising is what the New Zealand government then seems to have done, in reaching agreement in principle for a ‘TPP11’ agreement at the APEC Leaders’ meeting on 11 November in Vietnam, now that the Trump Administration has withdrawn US signature from the TPP. The renamed Comprehensive and Progressive Agreement for Trans Pacific Partnership (CPTPA, which we sometimes abbreviate as “C3PO”!) reportedly will commit New Zealand and the remaining 10 other signatories, including Japan (with which it still has no bilateral FTA), to ISDS provisions, but their application to investment agreements and investment authorizations will be suspended. In New Zealand’s case however, investment authorizations were already excluded from ISDS by virtue of Annex 9-H of the original TPP text.

To confirm the extent of the changes to the ISDS-related provisions, we will need to await the public release of the final text of C3PO, which is undergoing ‘legal scrubbing’ by officials based on the 11 countries’ agreement in Vietnam. New Zealand may also approach countries other than Australia, with which it had already proposed through an exchange of letters to exclude ISDS bilaterally (consistently with their other bilateral and regional agreements), to seek similar treatment. Even once such revised agreements are signed off, signatory countries will need to go through national procedures for ratification, which may be complicated or at least take time.

However, at this stage it seems that New Zealand has proven agreeable to quite limited changes to the TPP provisions on ISDS. Those were not renegotiated, for example, to add an appellate review mechanism. This is despite future agreement on such a mechanism being envisaged in TPP Article 9.23(11), and despite an appellate review being increasingly advocated by those unhappy about inconsistencies in rulings from traditionally-structured one-tier ISDS tribunals.

Given these developments with the TPP, what will happen now with the ongoing ‘ASEAN+6’ negotiations for the Regional Comprehensive Economic Partnership (RCEP, which we sometimes call “R2D2”)? The danger for New Zealand is that if it insists on removing ISDS in this proposed regional FTA (it was included in a leaked 2015 draft investment chapter that we analyzed here), counterparties insistent on ISDS commitments may force New Zealand to leave the pact. They may hope that National will get back in power so that New Zealand can then sign the treaty, including ISDS commitments.

There are clear parallels with the situation in Australia from 2011-2013. The centre-left Gillard Labor Government was in coalition with the more leftist Greens, which later proposed an Anti-ISDS Bill 2015 (eventually voted down by both the new Liberal Coalition Government and the by-then Labor Opposition). The Gillard Government adopted a recommendation (by majority) from the Australian Government’s Productivity Commission 2010 trade policy review report to eschew ISDS in future FTAs. Consequently, until it lost power in 2013, the Gillard Government was unable to conclude major FTAs with countries like China and Korea that had strongly pressed for ISDS.

The difference now for New Zealand is that major FDI exporting countries negotiating RCEP, which have strong interests in ISDS protections, already have ISDS through existing FTAs (namely with China, Korea, and Singapore via earlier FTAs as well as AANZFTA) or will obtain ISDS if CPTPP comes into force (namely Japan). Australia is the other big FDI exporter into New Zealand, but their particularly closely linked economies, polities and legal systems arguably make this a special case for excluding ISDS protections anyway.

India may also push for ISDS in RCEP based on its 2016 Model BIT, even though ISDS is heavily circumscribed through a lengthy exhaustion of local remedies requirement. India apparently agreed to omit ISDS altogether in its recent investment facilitation agreement with Brazil (with a longer-standing aversion to ISDS). As for the Southeast Asian countries negotiating RCEP, a recent JWIT Special Issue shows how most are comfortable with – but not strong proponents of – ISDS (except Singapore), while Indonesia is reconsidering its position in light of some recent high-profile claims.

Overall, given this complex new situation domestically in New Zealand and for RCEP negotiations, we think it is time for New Zealand – and indeed Australia, where the current Coalition Government has just lost its majority – to rethink its approach more generally towards investment treaties. Specifically, we have written to leaders in both New Zealand and Australia recommending a shift towards introducing an EU-style two-tier investment court model in lieu of traditional ISDS, as a compromise way forward. Stay tuned for more!

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Recent Developments in the PRC: A Change in Tide for Arbitration?

Mon, 2017-12-04 19:40

Holly Blackwell

YSIAC

There have been a number of recent developments in Chinese judicial practice. These include the first known enforcement of foreign court judgments in China on the basis of reciprocity,1)References to the enforcement of foreign court judgments are generally intended to include recognition and enforcement of those judgments. jQuery("#footnote_plugin_tooltip_4881_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4881_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); as well as China’s signing of the Hague Convention on Choice of Court Agreements (“Hague Convention”). While these developments are welcome, they are unlikely to ignite a shift from arbitration to litigation as the preferred forum for China-related dispute resolution. More likely, they demonstrate a continued commitment to promoting the rule of law and the integration of China into the global economy, from which users of litigation and arbitration both benefit. They may also provide comfort to a party compelled to litigate in a foreign court, perhaps due to a pathological arbitration clause or no arbitration clause at all, that a favorable judgment may be enforceable in China.

Recent developments concerning the enforcement of foreign court judgments in China

In China, foreign court judgments are enforceable pursuant to international treaties or on the basis of reciprocity. To date, China has concluded an estimated 33 bilateral treaties concerning the mutual enforcement of foreign court judgments, as well as arrangements with Hong Kong, Taiwan and Macau. China has not entered into bilateral enforcement treaties with some of its largest trading partners such as Australia, Germany, Japan, Singapore, the US, or the UK. At present, there is no binding international convention like the New York Convention that would require China to recognize and enforce foreign commercial court judgments with few exceptions. In the absence of a binding treaty, litigants must rely on the principle of reciprocity to enforce foreign court judgments in China. Until recently, there was no report of a foreign court judgment being enforced in China on the basis of reciprocity. This has changed with the recent enforcement of US and Singapore court judgments on the basis of reciprocity.

In Liu Li v Tao Li and Tong Wu (2015) E Wuhan Zhong Minshang Waichuzi No 26, the Wuhan Intermediate Court in Hubei Province enforced a monetary judgment from the Los Angeles Superior Court in California. Given the absence of a binding enforcement treaty between the US and China, the Wuhan court cited the case of Hubei Gezhouba Sanlian Industrial Co Ltd v Robinson Helicopter Co Inc 2009 WL 2190187 (CD Cal 2009), in which a federal court in California had enforced a Hubei High Court judgment, and enforced the Los Angeles judgment on the basis of reciprocity.

The Liu Li case was preceded by Kolmar Group AG v Jiangsu Textile Industry (Group) Import & Export Co Ltd (2016) Su 01 Xie Wai Ren No 3, in which the Nanjing Intermediate People’s Court in Jiangsu Province enforced a monetary judgment from the Singapore High Court. Like the US, there is no binding enforcement treaty between Singapore and China. The Nanjing court cited the case of Giant Light Metal Technology (Kunshan) Co v Aksa Far East Pte Ltd (2014) SGHC 16, in which the Singapore High Court had enforced a judgment from the Suzhou Intermediate Court in Jiangsu Province, and likewise enforced the Singapore judgment on the basis of reciprocity. The Kolmar case was the first known Singapore court judgment to be enforced in China and is believed to be the first foreign court judgment enforced in China solely on the basis of reciprocity.

China has taken a further step toward the enforcement of foreign court judgments by joining the EU, Mexico, Singapore, and the US, among others, as a signatory to the Hague Convention. China has not yet ratified the Hague Convention. Once ratified, China commits to enforce civil and commercial judgements from the courts of other contracting states pursuant to exclusive jurisdiction clauses in favor of those courts.

Potential impact of these developments on judicial and arbitral practice in China

While these developments provide insight into how a Chinese court may treat an application to enforce a foreign court judgment and certain types of foreign arbitral awards, they also demonstrate the uncertainty surrounding the enforcement of foreign court judgments in China.

First, the Liu Li and Kolmar cases demonstrate that a party seeking enforcement on the basis of reciprocity will need to establish de facto reciprocity between China and the foreign state. That is, the party will need to demonstrate that the foreign state has already enforced a Chinese court judgment, the failing of which could result in refused enforcement. This was indeed the result in two prior cases in which Chinese courts refused to enforce Japanese and Australian court judgments given the absence of proof of de facto reciprocity.2)Gomi Akira v Dalian Fari Seafood Ltd (Application of Gomi Akira (Japanese Citizen) to Chinese Court for Recognition and Enforcement of Japanese Judicial Decision), (1996) 1 Supreme People’s Court Gazette 29; Letter of Reply of the Supreme People’s Court on Request for Instructions Re Application of DNT France Power Engine Co Ltd for Recognition and Enforcement of Australian Court Judgment, (2006) Min Si Ta Zi No 45 jQuery("#footnote_plugin_tooltip_4881_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4881_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In June 2015, however, the Supreme People’s Court issued the Several Opinions of the Supreme People’s Court on Providing Judicial Services and Safeguards for the Construction of the “Belt and Road” by People’s Courts (“Belt & Road Opinions”) which permit a Chinese court to take the first step in establishing reciprocity. The Belt & Road Opinions do not extend this discretion to a court faced with enforcing a judgment from a country beyond the Belt & Road or a country with which China has no binding treaty or de facto reciprocal relationship.

Second, it is unclear how broadly Chinese courts will construe the reciprocal relationship between the US, Singapore, or other foreign states with whom a reciprocal relationship may be established. The Liu Li and Kolmar cases involved the mutual enforcement of judgments from the same regions: the Liu Li case involved judgments from California and Hubei Province; the Kolmar case involved judgments from Singapore and Jiangsu Province. It is unclear whether a Chinese court would interpret the reciprocal relationship more broadly to enforce judgments from courts beyond these regions.

Third, the Hague Convention is still limited in its application. While China has signed the Hague Convention, there is still no timeline for its ratification. By comparison, the US signed the Hague Convention in 2009 but has yet to ratify it. Even when ratified, the Hague Convention has limited territorial reach, as least for now. Unlike the New York Convention, which extends to more than 150 countries, the Hague Convention extends to only 30 countries (excluding many key Belt & Road countries).

Further, the Hague Convention applies only to civil and commercial disputes where parties from contracting states have agreed to the exclusive jurisdiction of the foreign court whose judgment is sought to be enforced. Whether a Chinese party would agree to submit to the exclusive jurisdiction of a foreign court at the contracting (or any) stage is unclear, particularly when investing in developing countries. The same may be true of a foreign party faced with acquiescing to the exclusive jurisdiction of a Chinese court.

Moreover, currently there is no legislative or judicial guidance on the procedure for enforcing foreign court judgments in China. Unlike the framework for foreign arbitral awards, there is no system for higher court reporting if a lower court is inclined to refuse enforcement of a foreign court judgment. By contrast, if a lower court is inclined to refuse enforcement of a foreign arbitral award, it must report to the higher court and ultimately to the Supreme People’s Court for approval. This system has reduced the risk of local protectionism and increased the likelihood of enforcing foreign arbitral awards in China.

Finally, the Liu Li and Kolmar cases did not involve substantial monetary judgments (approximately USD 250,000 and USD 350,000 respectively). Whether a judgment of a substantial sum awarded against a prominent private or state-owned company would encounter the same ease of enforcement is unclear. The limitations discussed above may provide a basis for a lower court to decline enforcement.

These developments are nevertheless notable. They signal an increased openness of the Chinese judiciary and an increasingly liberal approach to the enforcement of foreign court judgments. Further, the Liu Li and Kolmar cases both involved the enforcement of default judgments against Chinese parties, which may signal that an increased willingness of a Chinese court to enforce a default arbitral award, provided adequate notice and an opportunity to participate was given.

The Liu Li case also demonstrates that a Chinese court would be expected to abstain from review of case merits when tasked with enforcing a foreign court judgment. During the enforcement proceeding, Mr Liu sought post-judgment interest in addition to monetary damages and pre-judgment interest awarded by the Los Angeles court. The Wuhan court considered this to be an issue concerning case merits and refused the request for post-judgment interest. Similar treatment would be expected when enforcing a foreign arbitral award in China.

Concluding remarks

Foreign arbitral awards have benefited from increased enforcement in China in recent years. It is unlikely that the ease of enforcement and other recognized benefits of arbitration will give way to a notable increase in the use of foreign courts to resolve China-related disputes. However, parties that find themselves before foreign courts, particularly in countries that have enforced Chinese court judgments and countries on the Belt & Road, now have the benefit of knowing that enforcement of a foreign court judgment against assets and parties in China, while still challenging, may not be futile.

Many thanks to Ma Xiao, Associate at King & Wood Mallesons, for his assistance in preparing this article.

References   [ + ]

1. ↑ References to the enforcement of foreign court judgments are generally intended to include recognition and enforcement of those judgments. 2. ↑ Gomi Akira v Dalian Fari Seafood Ltd (Application of Gomi Akira (Japanese Citizen) to Chinese Court for Recognition and Enforcement of Japanese Judicial Decision), (1996) 1 Supreme People’s Court Gazette 29; Letter of Reply of the Supreme People’s Court on Request for Instructions Re Application of DNT France Power Engine Co Ltd for Recognition and Enforcement of Australian Court Judgment, (2006) Min Si Ta Zi No 45 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: Compendium of International Commercial Arbitration Forms
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Recognition of Summary Procedures under the ICC Rules: Considerations, Comparisons and Concerns

Mon, 2017-12-04 06:00

Kartikey M. and Rishabh Raheja

On 30 October 2017, the ICC Court announced yet another measure to tackle the twin problems of time and costs in arbitration, through the immediate disposition of manifestly unmeritorious claims commonly known as summary determination. The ICC Court implemented this measure in the form of an update to its Practice Note to Parties and Arbitral Tribunal on the Conduct of Arbitration (the “Practice Note”), and has thus joined other institutions like the Singapore International Arbitration Centre (“SIAC”) and the Stockholm Chamber of Commerce (“SCC”) in explicitly recognising the arbitral tribunal’s power of summary determination. However, as we describe below, the ICC’s procedure for summary determination − while possibly inspired by its counterparts − varies in some key aspects, thus warranting further analysis.

 

Background

 

Barring the ICSID rules, there has been some reluctance among institutions in recognising tribunals’ power to dispose claims in a summary manner. In fact, a 2007 ICC Task Force report on “Evidence, Procedure and Burden of Proof” advised against the recognition of the power of summary dismissal in the ICC Rules, concluding that “[it is] likely a summary judgment vehicle would not work in the ICC context and culture”. This was followed by the conspicuous absence of a provision on summary dismissal in the ICC rules of 2012 and 2017.

 

However, tribunals and courts dealing with the ICC rules have affirmed this power as inherent in a tribunal’s decision-making capacity (see ICC Case No. 11413 (2001) and ICC Case No. 12297 (2003)). The English High Court in Travis Coal v. Essar Global [2014] EWHC 2510 (Comm) also cited Article 22 of the ICC rules in upholding an ICC tribunal’s power to deal with the case before it by way of summary determination – an aspect that has been endorsed by many arbitration practitioners dealing with ICC rules.

 

More recently, the tide has tilted heavily in favour of expressly recognizing this power under the rules of various institutions due to the increasing dissatisfaction of parties with the length and costs of institutional arbitration, particularly in the context of straightforward and low-value claims. Thus, in August 2016, the SIAC introduced a new set of rules with provisions on summary dismissal, with the SCC following suit on 01 January 2017, followed by the SIAC once again − in its Investment Arbitration Rules. Thus, the express recognition of this power by the ICC comes as no surprise, and foreshadows more such measures in the procedures of other institutions, with the HKIAC too now contemplating the possible introduction of summary dismissals.

 

Features

 

The summary determination procedure under the ICC rules − like its SIAC and SCC counterparts − contemplates the disposition of both claims and defences that are manifestly unmeritorious upon the application of either party. This is much broader than the the ICSID rules, which only provides for the summary disposition of claims, and not defences. Further, unlike the ICSID rules which contain a deadline for the making of such an application, the ICC, SIAC, and SCC rules either provide no specific deadline for submitting a summary determination application or state that it should be filed ‘early’ and ‘as promptly as possible after the filing of the claims or defences’. Further, tribunals under the ICC, SIAC, and SCC Rules may consider relevant circumstances and deny a hearing on such applications by way of either an order or award.

 

Leaving aside the above similarities, there are some key differences. First, is the form of recognition of the tribunal’s summary determination power. Whilst the SIAC and SCC have introduced provisions on summary dismissal, the ICC Court has identified this power as forming part of a tribunal’s broad case-management powers under Article 22 of the Rules – a proposition endorsed by Travis Coal and some ICC tribunals (see above). Moreover, the fact that this procedure is not explicitly stipulated in the Rules, emphasizes the tribunal’s inherent power − and responsibility − to dispose of disputes in the most efficient and appropriate manner possible, thus highlighting the adaptiveness of the ICC’s summary dismissal procedure.

 

Second, the flexibility of the summary determination process − right from the application through to the award. The Practice Note stipulates neither any application formalities nor any procedural deadlines, stating instead that the tribunal “shall adopt the procedural measures it considers appropriate, after consulting the parties… and shall decide the application as promptly as possible.” On the other hand, the SIAC Rules requires an elaborate application process and a decision on the outcome of the summary application to be rendered by the tribunal within 60 days of the application (unless the Registrar extends this period due to exceptional circumstances). Fixing a deadline undoubtedly makes the SIAC procedures more attractive to clients as it prioritises the expeditious dismissal of manifestly unmeritorious claims in all scenarios. To others, however, a deadline could appear rigid as it fails to account for the peculiarities of each case, thus undermining the tribunal’s discretion and, possibly, even the wishes of the party applying for early dismissal. It is here that the ICC rules may be seen as preferable for its flexibility. The SCC procedure takes a similar approach to the ICC.

 

Third, there appears to be a difference among the three institutions in the scope of matters that can be determined summarily. The SCC rules authorises applications for summary determination to be made on “issues of jurisdiction, admissibility or the merits”. The SIAC rules allows applications for the early dismissal of claims and defences that are “manifestly without legal meritor “manifestly outside the jurisdiction of the tribunal.” Whereas, the ICC rules allow applications on claims and defences that “are manifestly devoid of merit or fall manifestly outside the arbitral tribunal’s jurisdiction.” Thus, on a plain reading, the SCC rules appears to contemplate the widest scope of matters that could form the basis of a summary dismissal− merits, jurisdiction, and admissibility. Meanwhile, the SIAC and ICC summary dismissal procedures have a conspicuous absence of issues concerning ‘admissibility’. It remains to be seen whether tribunals constituted under these rules would read the terms ‘merits’ and ‘jurisdiction’ expansively to accommodate matters of admissibility. It also remains to be seen whether the SIAC summary procedure will apply solely to issues of ‘legal merit’ as it specifies, or whether the term is interpreted more broadly to accommodate issues of factual merit as well.

 

Last, is perhaps the most crucial point of comparison between the ICC, SIAC, and SCC procedures− enforceability. Summary determination may raise due process concerns. Thus, in order to prevent the risk that this poses to summary awards, the ICC, SIAC, and SCC procedures require tribunals to grant the parties a fair and reasonable right to object to summary dismissal.

 

Where the ICC differs from its other counterparts is that it provides for expeditious scrutiny of orders and awards rendered under the summary determination process – “in principle within one week of receipt by the Secretariat”. The ICC Court’s duty to scrutinize the awards has been established as an important safeguard for checking the form of the award and even ensure that an award does not fall foul of ‘due process’ concerns. A detailed scrutiny mechanism on the lines of the ICC is absent in the SIAC and SCC Rules.[1]

 

Whilst the ICC summary procedure tries to placate any enforcement concerns by providing for scrutiny of summary awards, it cannot be said that such awards will be free of such concerns per se. For example, some users may perceive the summary procedure as a backdoor entry of truncated proceedings even in situations where the parties have chosen the full arbitral process by opting out of the ICC Expedited Rules. The Rules contemplate a remedy to this situation in Article 22 itself, which requires the tribunal to ensure that the procedure adopted by it is “not contrary to any agreement to the parties”. Although the summary dismissal procedure is technically not contrary to an agreement to opt out of the Expedited Rules, tribunals will be well-advised to examine the parties’ intentions in opting out before allowing such applications, lest they face challenges for exceeding their authority and the scope of the arbitration agreement.

Important differences can be summarized as follows:

 

  ICC SIAC SCC ICSID Summary disposition of Claims and Defences Claims and Defences Claims and Defences Claims Time limit for application As promptly as possible after filing of claims or defences No No No later than 30 days after the constitution, and in any event before the first session Application may pertain to Merits and jurisdiction Legal merits and jurisdiction Merits, Jurisdiction and Admissibility Legal Merits Time Limit for Award As promptly as possible 60 days No At its first session or promptly thereafter Form of Decision Award/Order, reasons as concise as possible Award/Order, summary form Award/Order Award Scrutiny of Award Yes, within one week In select cases Not applicable* No

 

Conclusion

The procedure under the ICC rules for summary determination aims to promote flexibility and efficiency in arbitration. Although, it may pose some concerns in relation to enforcement, such problems can be safely avoided by appropriate application of Article 22 of the ICC rules and the Practice Note by tribunals depending on the facts of each case. With regard to the question of which institution’s summary dismissal procedure is better suited, the answer is, much like the ICC rules, adaptable− depending on the expectations of the parties and the circumstances of the case.

[1]               SIAC has its own scrutiny mechanism but as a matter of practice, draft awards are typically only referred to the SIAC court (unlike the ICC) if they present complex or novel issues, see John Savage and Simon Dunbar, SIAC Arbitration Rules, Rule 28 (The Award), in Loukas A. Mistelis (ed), ‘Concise International Arbitration’ (Kluwer Law International, Second Edition, 2015) p. 811.

* The SCC does not have a scrutiny process equivalent to ICC but when the SCC Secretariat identifies obvious miscalculations or similar mistakes, then it usually notifies the arbitral tribunal, see Öhrström, SCC Rules at p. 847, available here.

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Old Issues, New Horizons: Third-Party Funding in Morocco

Sat, 2017-12-02 22:56

Othmane Saadani and Julia Joseph-Louisia

Young ICCA

Third-party funding has become a subject of major discussion over the past few years. It is clear that third-party funding is here to stay, and thus the question today is not whether it is going to grow, but rather where the opportunities are likely to be.

Third-party funding: Definition and objectives

Third-party funding is an arrangement between those who are party (or may be party) to contentious proceedings and funders who undertake to pay the legal costs of the proceedings, in return for a share of the proceeds, in the event the funded party’s claims are successful and result in compensation. Third-party funders will therefore bear the financial risk of potentially unsuccessful claims, insufficient compensation, or even difficulties in enforcement. In addition, this mechanism concerns not only the claimant but also the respondent in the proceedings, which might eventually make well-founded counterclaims. The need for this financial solution increased substantially with the 2008 economic crisis, as seemingly worthy claims lacked funding due to the economic downturn.

Such funding mechanisms have become more and more common in arbitration proceedings, as they can give access to justice to claimants with meritorious claims but lacking sufficient financial resources. Third-party funding is particularly interesting for claimants in emerging economies, which play a major role in international commerce. The Kingdom of Morocco is a good example in which multinational companies regularly insert arbitration provisions in their transaction documents when dealing with small to mid-size companies, but may not always have the financial capacity to pursue costly, but meritorious claims.

Third-party funding in arbitration proceedings in Africa and Middle East: A lack of regulation

Many African and Middle Eastern countries do not have any prohibition against funding litigation and arbitration. Moreover, arbitration is more and more common in the continent as evidenced by the last ICSID Caseload Statistics, in which Middle Eastern and African countries represent no less than 26% of all the cases registered or administered by ICSID as of June 30, 2017, under the ICSID Convention and Additional Facility Rules.

More specifically regarding the use of third-party funding in arbitration proceedings, many international arbitral institutions around the world, such as the ICC in its Commission Report on Decisions in Costs in International Arbitration published in 2015, acknowledge this tool and have taken steps to promote its use. Regarding its regulation, many demand the implementation of at least some guidelines on the subject. In this context, a draft Report for Public Discussion of the ICCA-Queen Mary Task Force on Third Party Funding in International Arbitration was published on September 1, 2017 and remained open for public comment until October 31, 2017.

The sole obstacle remaining could pertain to the regulation of the seat of arbitration. If the latter’s legislation does not prohibit third-party funding, in the near future, regulation will come, inevitably, to eliminate malpractices that have already been witnessed in other jurisdictions. Concurrently, the Dubai International Financial Centre (DIFC) Court has been leading in this regard and has formally adopted a Practice Direction on March 14, 2017 (PD 2/2017) providing for the recognition of the legitimacy of funding arrangements. These developments bring legitimacy to third-party funding in arbitration proceedings, and will likely spark a renewed interest in favor of third-party funding in the region.

This is not the case in other countries within the region, and until this time comes, the playing field is untested and unexplored by funders. The good news is that, while some domestic laws limit or even prohibit third-party funding, for most African or Middle Eastern countries, third-party funding is not restricted by domestic legislation. For example, in the Kingdom of Morocco, funding may be provided by anyone and the arbitral tribunal has no ground to question the origin of the funding to the proceedings. While a codification of Moroccan arbitration laws is currently ongoing and at the consultation phase, some members of the Moroccan arbitration community are taking this opportunity in order to call for the recognition of third-party funding and the enshrinement of an adapted framework to enable this practice.

Third-party funding in Morocco: The growing opportunities

In Morocco, third-party funders will increasingly turn their attention towards arbitration. The lack of regulation discussed above is one of the reasons why third-party funding in arbitration, especially in Morocco, will be in the spotlight in the near future.

The Kingdom of Morocco is a contracting state to the New York Convention and is also one of the first countries that signed and ratified the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention), which entered into force in the country on June 10, 1967. The first ever arbitration claim administered by an ICSID tribunal was introduced against the Kingdom of Morocco in 1972 (Holiday Inns S.A. and others v. Morocco – ICSID Case No. ARB/72/1).

Moreover, investors can rely on more than fifty Bilateral Investment Treaties (BITs) signed by the North African state, currently into force, and providing for arbitration to settle the disputes arising between the country and foreign investors. There is also a notable evolution with respect to future cases from Morocco: the Kingdom is becoming one of the most important investors in the African continent. Therefore, third-party funders should consider a foreseeable caseload coming from Moroccan investors in the continent. “[W]hen analyzing case law in Morocco we see that the Moroccan Courts are arbitration friendly”, according to Emmanuel Gaillard who spoke at the last Casablanca Arbitration Days of November 2017, sponsored by Casablanca Finance City (CFC), a financial and services hub set up by the Moroccan government.

The absence of regulation concerning third-party funding for the moment should not be seen as an impediment. To the contrary, as third-party funding in Morocco is not different from third-party funding elsewhere in the world, it should be seen as a fertile ground entirely exploitable to fund appealing claims. Therefore, now is the time to invest in Morocco, not only for equity investors, but also for third-party funders of arbitration cases searching for a gateway to the African market.

CFC can be a strategic host for third-party funders wishing to set foot in Africa and to conduct business in a country already investing economically and politically in the continent. CFC is particularly interesting because it has created a major ecosystem for international law firms, financial and services institutions and has already began to rival other international financial centers for leadership, particularly as a source of investment in Africa.

As major progress has been made in regulating enforcement and arbitration, third-party funders have an opportunity and should be encouraged to embrace the emerging needs of funding for arbitration proceedings in the region. Not doing so would be wasting tremendous opportunities in a market recognized for its rapid growth for the past decade. In addition, the parallel developments endorsing the use of third-party funding for claims heard before the DIFC court also suggest that the use of funding will continue to grow in the region, providing increased opportunities for third-party funding in African and Middle Eastern markets.

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NAFTA Negotiations: Are U.S. Energy Companies Being Left to Their Fate?

Fri, 2017-12-01 23:49

Enrique Jaramillo

On the campaign trail, and throughout his term in office, President Trump has not been shy to express his discontent with the North American Free Trade Agreement (NAFTA), vowing he will either renegotiate it or “tear it up.” As a result, in August 2017, the United States, Canada, and Mexico (the Parties) officially began renegotiation talks in Washington D.C.

The United States, whose main goal is to reduce its goods trade deficits of about $63 billion and $12 billion (2016) with Mexico and Canada, respectively, has lately been focusing on NAFTA’s dispute resolution mechanisms. The Trump Administration now aims at eliminating Chapter Nineteen, which allows the private sector to challenge antidumping and countervailing duty rulings. It has also proposed to allow Parties to opt in-on a voluntary basis-to the dispute resolution system established in NAFTA Chapter Eleven, which allows foreign investors to challenge government actions in violation of international law.

Either terminating or renegotiating NAFTA has the potential to affect several sectors of the U.S. economy. Some of the most affected companies, for example, would be those exporting natural gas to Mexico, who because NAFTA requires national treatment for trade in natural gas, benefit from a provision in the Natural Gas Act (NGA) exempting them from certain public interest and environmental reviews.

A review of all potential effects, however, would turn out to be too great an enterprise for this article. The following sections, consequently, will focus only on the implications to American energy companies doing business in Mexico.

NAFTA and the Energy Industry

Under NAFTA, the Parties are required to grant national treatment to goods of another Party, and are prohibited from imposing border taxes on such goods.

NAFTA Chapters Six and Eleven are particularly relevant to this article because they address the energy industry, and the protection of investments. Chapter Six mandates Parties to award national treatment to energy goods coming from other Parties, and generally restricts the imposition of export taxes or any measure restricting imports.

Chapter Eleven, on the other hand, contains several substantive provisions protecting a company’s investment by, for example, requiring fair and equitable treatment, and ordering fair compensation for nationalized property. It also gives companies from one of the Parties the prerogative to initiate arbitration against the government of the other Parties, and establishes that awards issued by Chapter Eleven Arbitral Tribunals are final and directly enforceable, meaning that such awards must be enforced by local courts as if they were final judgments of a court of that Party.

It is worthwhile to notice, however, that Mexico excluded certain Oil and Gas (O&G) activities, such as exploration and exploitation, from the scope of NAFTA (Mexico’s Reservation).

The End of an Era: Mexico’s Energy Reform

The Reservation stemmed from Mexico’s tradition of resource nationalism. This sentiment was expressed in Mexico’s Constitution, which established that “in the case of petroleum[] and . . . hydrocarbons no concessions or contracts will be granted. . . .” and that “the Nation shall carry out the exploitation of [hydrocarbon] products. . . .”

In 2013, however, Mexico engaged several reforms directed at allowing the participation of the private sector in the Energy industry (“Energy Reform”). The Energy Reform allows private investors to participate in O&G activities by bidding for certain contracts, i.e., service contracts, production-sharing, profit-sharing, and licenses.

The current legal framework has, unsurprisingly, boosted American investments in Mexico. The bidding rounds for O&G contracts in Mexico have been quite a success. By 2016, bidding rounds had already secured an investment of $7 billion, which is expected to increase to $40 billion, once the final round is concluded. So far, over twenty-six international oil companies have applied for the bidding rounds, including several U.S. companies, e.g., Chevron, ExxonMobil, and Anadarko.

A Degeneration of French Law: Mexico’s Rescisión Administrativa

Although the Energy Reform has been undoubtedly beneficial for the industry, there is one piece of legislation that might make investors lose sleep. Under the Mexican Hydrocarbons Law of 2014, the Government is entitled to resort to what is known as rescisión administrativa, which grants it the power to rescind exploration and exploitation contracts with private investors without paying any compensation. Domestic law also removes any dispute arising from such a rescission from the scope of international arbitration, thereby providing Mexican Federal courts with exclusive jurisdiction.

The rescisión administrativa, which can be triggered by limited circumstances, e.g. an unauthorized transfer of interest, has rather severe consequences, for example, the reversion of the contractual area to the Mexican government, including all assets used for the development of the corresponding fields. In other words, the expropriation of investors’ rights and assets, without any kind of compensation.

The risk of expropriation is particularly relevant for energy companies doing business in Latin America. The very Petróleos Mexicanos (PEMEX), for example, is the result of the expropriation of large foreign oil investments. Another good example is the case of Argentina, which, in 1992, privatized State-owned YPF only to renationalize it again ten years later.

Rescisión administrativa, however, is not a product of the relatively new Hydrocarbons Law. It was already established in pre-reform legislation, such as in the Public Works Law of 2009. It is based on the French law institution of the contrat administratif, as used in Mexico and in various Latin American countries. One relevant difference among such jurisdictions, however, is that French law imposes indemnification obligations on the Government, whereas the Mexican law does not, hence producing fertile ground for investment arbitration. The COMMISA case is an example of the kind of disputes that may arise in this scenario.

COMMISA, a subsidiary of the American company KBR, contracted with PEMEX for the construction of two offshore platforms in the Gulf of Mexico. Disagreements surged between the parties leading to arbitration and to PEMEX applying rescisión administrativa to the contract. Although an ICC tribunal ruled in favor of COMMISA in Mexico, the claimant could not enforce the award because it was annulled by Mexican courts, claiming that the decision was contrary to Mexican law. The award was eventually recognized by a U.S. court, claiming, among other things, that rescisión administrativa was akin to expropriation without compensation and, hence, “repugnant to United States law.” This recognition, however, turned out to be a rather pyrrhic victory because PEMEX does not have sufficient assets in the U.S. on which COMMISA can enforce the award. Eventually, KBR started NAFTA proceedings against Mexico but the case was dismissed for non-compliance with the treaty’s requirement to waive other remedies.

Fear Not, For NAFTA is Here

NAFTA has the potential to shield American energy companies from the rescisión administrativa of their exploration and exploitation contracts because NAFTA Articles 1110 and 1120 prohibit expropriation without compensation, and grant such companies access to international arbitration tribunals, respectively. These provisions trump the Hydrocarbons law because, under both Mexican law and the Vienna Convention, Mexico cannot invoke its internal law as justification for its failure to perform a treaty.

A very similar situation was discussed in the case of Occidental Petroleum Corporation and Occidental Exploration and Production Company v. Republic of Ecuador, ICSID Case No. ARB/06/11, Award (October 5, 2012). As Mexican legislation, the Ecuadorian Hydrocarbons Law provided for caducidad in cases of unauthorized transfers of interest in petroleum contracts. Occidental, nevertheless, farmed-out a 40% economic interest in its contract without the required approval, which led to the termination of such contract. An ICSID tribunal ruled in favor of Occidental deciding that, although appropriate under Ecuadorian law, caducidad was a measure tantamount to expropriation and contrary to Ecuador’s obligation to provide fair and equitable treatment to foreign investors.

Granted, Mexico´s energy reform has given birth to a number of opposing opinions as to whether Mexico’s Reservation is still in force or not, which, in turn, casts some doubts as to whether NAFTA protects American energy investments in the southern nation. It is worth to notice, nevertheless, that under NAFTA Article 1108, Parties are not allowed to include NAFTA Article 1110 in their reservations. Consequently, even if Mexico’s Reservation were still in place, a strong argument can be made claiming that the treaty prevents the Mexican Government from expropriating U.S. investments without being required to pay any sort of compensation.

Caveat Investors!

The Parties are currently in a race against time, which they do not seem likely to win. Not much consensus has been reached so far, yet they intend to conclude negotiations prior to Mexico’s 2018 presidential election. The rush is produced, among other things, by an eventual victory of current front-runner Lopez Obrador, who has been characterized as a populist socialist, making the survival of NAFTA even less likely.

In the face of Mexico’s rescisión administrativa, as well as the legal and political uncertainty as to NAFTA’s applicability and continuity, companies investing in Mexico are well advised to carefully structure their investments, taking into account other investment protection treaties that give them the assurances that, at this time, NAFTA cannot.

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Consolidation Of Arbitrations – Where Is India Headed?

Fri, 2017-12-01 03:20

Anchit Oswal

Multi-party arbitrations arising out of multiple agreements between multiple parties containing different arbitration clauses give rise to complex issues to be answered by arbitral tribunals and Courts. While negotiating an agreement, parties rarely take into consideration the impact on the dispute resolution mechanism because of subsequent agreements with new parties. In a multi-party multi-agreement scenario, parties often seek a composite reference of all the disputes arguably arising out of a single transaction. Request for joinder of parties is also often made to avoid multiplicity of proceedings and to keep costs of arbitration under control.  In the absence of an express agreement allowing consolidation,  the tribunals and courts are called upon to decipher the intention of the parties and the permissibility of such consolidation under the applicable law before ruling on the possibility of consolidation.

This post endeavours to analyse the Indian position on consolidation of arbitrations.

Typically, three scenarios may be envisaged:

  1. Multi-contract, multi-party international arbitration;
  2. Multi-contract, multi-party domestic arbitration; and
  3. Multi-contract, multi-party having some contracts between a foreign party and a domestic party and others between two domestic parties bringing it under the domain of both – international arbitration as well as domestic arbitration.

The above three scenarios could further fall into three sub-categories:

  1. Agreements with same/ similar arbitration clauses;
  2. Agreements with substantially different arbitration clauses; and
  3. Agreements with arbitration clauses in only some of the agreements.

Indian Supreme Court has answered issues around joinder/consolidation of arbitrations in a few cases. The question of consolidation of disputes and a common reference to arbitration in the context of multiple domestic parties arose before the SC in Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya; (2003) 5 SCC 531 (Sukanya Holdings). In Sukanya Holdings, the SC held that when the subject matter of dispute may be covered under arbitration as well as a suit and if there are non-signatory parties involved in the list, the Court cannot bifurcate the cause of action and therefore cannot make a partial reference to arbitration.  Before the 2015 amendments to the 1996 Act, the SC has held that a civil court exercising such power cannot refer a suit to arbitration, unless all the parties to the suit agree for such reference (See Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd, (2010) 8 SCC 24).

In P.R Shah, Shares and Stock Brokers Private Limited v. B.H.H Securities Private Limited and Others; (2012) 1 SCC 594 (PR Shah), the question arose whether a single arbitration is permissible in respect of member and non-member under the bye-laws and regulations of the Bombay Stock Exchange. SC, interestingly, held that if A had a claim against B and C and if A had an arbitration agreement with B and A also had a separate arbitration agreement with C, there is no reason why A cannot have a joint arbitration against B and C. The SC further observed that when A has a claim jointly against B and C, and when there are provisions for arbitration in respect of both B and C, there can be a single arbitration.

In the case of Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc.; (2013) 1 SCC 641 (Chloro Controls), the Indian counterpart filed a suit and sought an injunction against two non-signatories. The Indian counterpart inter alia relied on Sukanya Holdings to contest that parties ought not to be referred to arbitration since there are non-signatory parties involved in the dispute.

The SC held that shareholders’ agreement is the mother agreement and all other agreements were to facilitate implementation of the mother agreement and that multiple agreements are part of one composite transaction. Further, the SC observed that signatories to these multiple agreements are all related companies and the interests of these companies are not averse to the interest of the joint venture company.  The Court held that even a non-signatory party can be referred to arbitration subject to proving that it is claiming through or under the party signatory to the arbitration.

Recently in M/s Duro Felguera S.A. v. M/s Gangavaram Port Limited (GPL) (2017 SCC OnLine SC 1233) (Duro), the SC was called upon to rule in cases of multi-contract, multi-party having some contracts between a foreign party and a domestic party and some contract between two domestic parties bringing the disputes under the domain of international arbitration as well as domestic arbitration. Duro, argued that each agreement is a sperate agreement containing a standalone arbitration clause and the parties had no intention to consolidate arbitrations. It resisted consolidation by arguing that if a holistic reference is made it would amount to clubbing of international and domestic arbitration and in such a case, FGI, the Indian subsidiary of Duro may lose the opportunity of challenging the award under Section 34(2A) of the 1996 Act, arguably a wider provision, available only in a domestic arbitration.

The SC distinguished Chloro Controls judgment on facts holding that in the said judgment the words “under and in connection with” appearing in the arbitration clause in the principal agreement was broad to cover the third parties under the arbitration agreement contained in the mother agreement. SC did not refer to PR Shah in the Duro case.

The SC held that since there a mix of domestic as well as international arbitrations, a ‘composite reference’ of disputes will not be proper. The SC constituted six separate arbitral tribunals with common arbitrators. Out of the six, two tribunals to arbitrate disputes under as international arbitral tribunals and other four as domestic arbitral tribunals.

The judicial block created by Sukanya Judgement in referring non-signatories to arbitration has been done away with by the 2015 Amendments to 1996 Act. Post-2015 Amendments, in a domestic arbitration, even a non-signatory party, who is claiming through or under the signatory party can seek reference of disputes to arbitration. However, what remains to be tested is the scenario wherein a non-signatory moves the court/arbitral tribunal to be impleaded as a party on the strength of 2015 Amendments. Such a non-signatory may argue that if a non-party can seek reference of disputes to arbitration, it can also be a part of the arbitration as a necessary party, subject to satisfying the “through and under” test. The reverse proposition, i.e., compelling a non-signatory in a domestic arbitration, to take part in arbitration and its impact on enforcement of the resultant award, post the 2015 amendments remains to be tested.  Further, the issue of allowing/ refusing a non-signatory party to an arbitration if decided by a Court may operate as res judicata and may therefore not impact enforcement of the resultant award. However, if such a determination is done by an arbitral award, it is likely that the Court deciding the enforcement/ objection to the resultant award may take a contrary view to that taken by the arbitral tribunal. The issue of whether two Indian parties can opt for a foreign-seated arbitration may arise and will be required to be answered by the SC in view of the conflicting judgments of High Courts on the issue.

The adjudicating authority dealing with the request to consolidate arbitrations may be called to answer multiple side issues before ruling on the such a request. Questions that may arise are:

  1. Whether there is an express clause permitting consolidation?
  2. Whether there is an implied consent of parties for consolidation?
  3. The permissibility of request to consolidate would be decided as per which law?
  4. Whether all the disputes are covered under the arbitration agreement?
  5. Who would be a ‘party’ to arbitration?
  6. Whether all the parties are signatories to the arbitration agreement?
  7. Whether the arbitration clause is incorporated by reference into another agreement?
  8. Whether non-signatories can be compelled to arbitrate?
  9. Is there a novation of the original agreement due to subsequent agreements?
  10. Whether the disputes are categorised as a domestic arbitration or an international arbitration or both?
  11. Whether the interests of all the parties, including the right to confidentially, cost sharing, etc., would be protected if consolidation is ordered?
  12. Whether consolidation would be against the public policy of India?

Further, consolidation of arbitrations may not bode with other concepts like confidentiality, party autonomy, and consensuality. Therefore, the forum adjudicating the request to consolidate arbitrations may have to answer some of the above questions before allowing a party to be joined in an arbitration or refusing to consolidate arbitral proceedings. The best shot for a party seeking consolidation will be by establishing express or implied agreement for the same. Alternatively, if the party can satisfy the court with respect to the test laid down in PR Shah, consolidation may be possible. Insofar as cases where there is a mix of domestic and international arbitration, consolidation may be difficult as has been held in the Duro case. However, where there are multiple agreements, all in the domain of international arbitration, essentially flowing from a main/ mother agreement, parties can seek consolidation on the strength of Chloro Controls judgment.

The views expressed are those of the author only.

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Reminder: The 2018 Queen Mary and White & Case International Arbitration Survey

Wed, 2017-11-29 16:38

Adrian Hodiș

In a previous blog post from October 27, 2017, the launch of the 2018 QMUL and White & Case International Arbitration Survey was announced.

Since it was launched, hundreds of respondents have completed the online questionnaire and a significant number of arbitration users have been interviewed. On behalf of the QMUL School of International Arbitration and our partner in this endeavour, White & Case LLP, Professor Stavros Brekoulakis and I wish to thank all of those who have already participated in our research.

For those of you who are yet to take, or to finish completing, the survey, there is still time to get involved! The online questionnaire can be accessed until Sunday, 17 December 2017.

For all the relevant information about the survey, as well as for the link to the online questionnaire, please access the following webpage: http://www.arbitration.qmul.ac.uk/research/2018/index.html.

If you have any queries or would like to participate in a short interview, please contact me at [email protected] All input will be kept confidential.

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ISDS in NAFTA – and ISDS alternatives

Tue, 2017-11-28 23:07

Catherine H. Gibson (Assistant Editor for North America)

Debates about the propriety of investor-state dispute settlement (ISDS) were revived by a recent letter by U.S. academics, which urged the abandonment of ISDS in the renegotiated North American Free Trade Agreement (NAFTA). This letter repeated arguments that are familiar from prior ISDS debates, such as that ISDS “grants foreign corporations and investors rights to skirt domestic courts” and that ISDS permits suits against sovereign governments which will be decided by “tribunals of three private-sector lawyers.” Such anti-ISDS sentiments do not enjoy unanimous support in the United States, however, as both pro- and anti-ISDS statements were submitted in response to the U.S. government’s June 2017 request for comments on the NAFTA renegotiation. Moreover, particularly in light of the support that ISDS enjoys, it is clear that curtailing or eliminating ISDS in NAFTA will not actually end disputes between investors and host states, but rather simply channel those disputes through alternative mechanisms.

Previous comments on ISDS in NAFTA renegotiation

Calls for the abandonment or curtailment of ISDS, similar to those made in the recent letter, were made by a number of groups in June 2017, in response to the Administration’s request for comments on the NAFTA renegotiation. For example, a June 2017 comment from the Center for Tobacco Control Research and Education at the University of California, San Francisco called for the elimination of ISDS, citing the negative effects of NAFTA claims against the United States, as well as non-NAFTA claims related to tobacco plain-packaging laws. In a joint statement, several members of congress also called for the elimination of ISDS in NAFTA, and opined that “NAFTA’s Chapter 11 makes it less risky and cheaper for U.S. firms to relocate offshore by guaranteeing privileged treatment for firms in Mexico and Canada and by providing for the enforcement of these new rights through the Investor-State Dispute Settlement (ISDS) mechanism.” Finally, a number of individuals also submitted comments critical of ISDS in connection with the Administration’s request for comments on the NAFTA renegotiation. For example, Phila Back of Kutztown, Pennsylvania described ISDS as “elevating foreign corporations to the status of sovereign nations” and stated that ISDS provides “a huge incentive for corporations to off-shore production or the corporation itself by means of inversion.”

A number of others submitting comments regarding the renegotiation of NAFTA have favored ISDS, however. In its June 2017 submission, the National Association of Manufacturers (NAM), for example, emphasized the importance of ensuring that ISDS is broadly available to “all industries” and for “all core violations and contract rights.” Comments by the Securities Industry and Financial Markets Association (SIFMA) similarly called for “[e]nhancing the investor protections in the investor-state dispute settlement mechanism” of NAFTA, and in particular “ensur[ing] that the financial sector has the same broad coverage of investor protections, and ISDS as the enforcement mechanism, as afforded to other sectors.” The American Petroleum Institute also wrote favorably about ISDS, and suggested incorporating into the modernized NAFTA provisions of the 2012 U.S. Model BIT. In an August 2018 letter to U.S. NAFTA negotiators, leaders of various U.S. business associations similarly emphasized the “critical importance” of ISDS in NAFTA and stated that ISDS “upholds the same fundamental due process and private property guarantees protected by [the U.S.] Constitution, and it obligates other countries to uphold these precepts as well.”

As these comments make clear, a number of U.S. stakeholders continue to support ISDS, even as others criticize the mechanism in a manner similar to the letter recently prepared by law professors. Updated NAFTA negotiating objectives released by the U.S. government in November 2017 do not provide clear guidance as to the position of the U.S. negotiators on the issue, however, and state the the U.S. supports “meaningful procedures for resolving investment disputes,” which will “ensur[e] the protection of U.S. sovereignty and the maintenance of strong U.S. domestic industries.”

ISDS Alternatives

Even if anti-ISDS views were to prevail, and ISDS was eliminated or curtailed in the renegotiated NAFTA, disputes would continue between investors and the foreign states that host their investments. For U.S. investors, a number of alternative mechanisms exist under U.S. law that, in certain circumstances, could be applied to permit government retaliation for acts that harmed U.S. investors and their investments. Such ISDS alternatives include, among other avenues, Section 301 of the U.S. Trade Act of 1974 and Section 337 of the Tariff Act of 1930.

Under Section 301 of the Trade Act of 1974 the U.S. government may investigate whether a foreign country has denied rights under a U.S. trade agreement or violated a trade agreement, or whether a foreign country has engaged in conduct that is unreasonable or discriminatory, as well as burdensome or restrictive to U.S. commerce. Section 301 investigations may be initiated either by third-party petitions or by the U.S. government itself, and the statutory timeline for the completion of an investigation is typically 12 months. If a violation of Section 301 is found, U.S. law permits unilateral retaliation in response to the offending conduct. Although Section 301 has been used infrequently in recent years, the current U.S. Administration has already initiated a Section 301 investigation into China’s policies related to technology transfer, intellectual property, and innovation. In a recent interview, the U.S. Trade Representative described Section 301 as a very effective tool that the Administration was willing to use.

Another alternative avenue that American investors could use to air their grievances, if ISDS were eliminated or curtailed, is Section 337 of the Tariff Act of 1930. Section 337 declares unlawful “unfair methods of competition and unfair acts” in importation which have the threat or effect of destroying or substantially injuring an industry in the United States, preventing the establishment of a U.S. industry, or restraining or monopolizing U.S. trade and commerce. Section 337 investigations most often involve allegations of patent infringement, but can also concern claims of false designation of origin; copyright, trademark, or trade dress infringement; or other unfair acts. Section 337 investigations may be initiated by private parties and include discovery and trial proceedings before an administrative law judge and review by the U.S. International Trade Commission (ITC). If a Section 337 claim is successful, the remedies imposed may include exclusion orders that stop offending imports from entering the United States, and cease and desist orders against named importers and others engaged in unfair acts that violate Section 337.

Although these alternatives for airing investment disputes are not the same as ISDS—and notably would not permit claims against the U.S. government—these mechanisms could serve as alternative bases to resolve disputes between U.S. investors and other governments and impose retaliatory actions, should ISDS eliminated from NAFTA or other U.S. agreements. Moreover, the existence and use of such tools under U.S. law could spark the enactment or pursuit of similar policies by other governments, leading to further expansion of ISDS alternatives for resolving disputes.

*             *             *

In brief, criticism of ISDS in NAFTA is neither new nor unanimous, and comments of U.S. stakeholders have been both pro- and anti-ISDS. Moreover, even if ISDS were eliminated or curtailed in the renegotiated NAFTA, numerous alternative avenues exist for the airing of disputes that might otherwise go to ISDS. Accordingly, the elimination of ISDS in NAFTA would merely shift the framing of such disputes, rather than eliminating their existence particularly as numerous organizations have emphasized the value of such dispute settlement mechanisms.

 

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A Model for Business and Human Rights through International Arbitration under the Bangladesh Accord: The 2017 Decision on Admissibility Objection in Industrial Global Union and Uni Global Union

Mon, 2017-11-27 21:28

Diane A. Desierto

ITA

The first publicly available decision issued under the international arbitration process provided for under the Accord on Fire and Building Safety in Bangladesh (‘Bangladesh Accord’) (note that Roger Alford previously summarized the Bangladesh Accord’s dispute resolution clause here) was issued through the 4 September 2017 Decision on Admissibility Objection in Industrial Global Union and Uni Global Union (Permanent Court of Arbitration Case No. 2016-36). This Decision rejected the respondents’ (certain global fashion brands) objection to jurisdiction and admissibility, thus permitting the claims brought by both unions against the respondents to remediate their facilities to ensure fire and building safety as provided for in the Bangladesh Accord, and to provide hazard pay for workers.

For those looking at various alternatives and models of reform current investor-State dispute settlement mechanisms, this Decision lends unique insights into the possible antecedent functional role of an intermediate standing ‘Steering Committee’, a committee of seven members, composed of three representatives from trade union signatories, three representatives from company signatories, and a representative chosen by the International Labour Organization as “a neutral chair and independent advisory member” (Bangladesh Accord, Article 1, Governance). In Industrial Global Union and Uni Global Union, the Tribunal notably acknowledged the unique hybridity of public interests and private concerns in arbitrations under the Bangladesh Accord:

“In the Tribunal’s view, this case cannot be characterized either as a classic ‘public law’ arbitration (involving a State as a party) or as a traditional commercial arbitration (involving private parties and interests), or even as a typical labor dispute. A number of features distinguish the Accord from such characterizations, including (a) the creation of the Accord in the wake of the Rana Plaza tragedy; (b) the number of signatories to the Accord (over 200 as at the date the arbitrations commenced; (c) the number of supplier factories affected by the Accord (over 1600); (d) the number of workers in the Ready-Made Garment industry protected by the Accord (over 2 million); (e) the involvement of international organizations in the negotiation and governance of the Accord (including the ILO); (f) the involvement of States and State entities in the negotiation and oversight of the Accord (including the government of Bangladesh); (g) the involvement of Bangladeshi and non-governmental organizations as witnesses to the Accord and in an advisory capacity; and (h) the public nature of the Accord itself and many associated documents, as well as detailed information about factory remediation under the Accord. These factors give rise to a genuine public interest in the Accord, including on the part of other stakeholders who would have a direct interest in its interpretation.” (Industrial Global Union and Uni Global Union 2017 Decision, paras. 93-94).

The respondents in Industrial Global Union and Uni Global Union had argued, in gist, that the claims were inadmissible because the deadlocked Steering Committee (with the ILO representative repeatedly declining to cast a vote) did not produce a “majority decision”, which, in their view, is the only Steering Committee decision that can be “appealed to a final and binding arbitration process” (Bangladesh Accord, Article 3, Dispute Resolution).
The arbitral tribunal rejected this interpretation through a textual and structural reading of the Bangladesh Accord, finding in the cases before it that the Steering Committee nevertheless went through the required “deliberative process(es) and arrived at a ‘decision’ for each charge within the meaning of Article 5 [of the Accord]”. (Decision, para. 57.) The tribunal stressed:

“…At this point, there is nothing further that the Claimants could do to pursue their petition except to refile it with the Steering Committee. But that body has already given it the consideration contemplated in Article 5. Hence, the only way to release the petition from Steering Committee limbo would be for one of the union or brand representatives – presumably here, one of the union representatives – to ‘cross the floor’ and vote to reject it, which would then produce the majority vote that the Respondents contend is the condition to invoking arbitration. The Accord signatories could not have intended to promote that kind of gamesmanship as the only way to access arbitration in the event of an evenly divided Steering Committee. Equally, they could not have intended to deny a claimant access to arbitration in the event of a tie but make it available if the claimant lost by a majority or unanimous vote.” (Industrial Global Union and Uni Global Union 2017 Decision, para. 61. Emphasis added.)

The Tribunal further clarified that the role of the Steering Committee, while technical in allowing interested stakeholders the first chance of examining the subject-matter of alleged violations of safety standards in the Accord, was ultimately preliminary and not at all intended to be fully exhaustive on fact-finding:

“…By providing for initial consideration of a petition by industry representatives on an Accord-established body (the Steering Committee), by a process that would generally be expected to take a limited amount of time (21 days), the Accord provided for a serious examination in the first instance by actors with knowledge of, and a stake in the success of, the Accord, but one that fell short of a full-blown arbitral proceeding. If that limited process did not result in a disposition, either by amicable agreement or by acceptance by the unsuccessful party of the rejection or acceptance of the petition, that party had a right to pursue arbitration, with all the rights and procedures that a right to arbitration would carry. The purpose of the initial procedure before the Steering Committee is neither achieved nor compromised in any way by the circumstance whether the Steering Committee vote is in favor of the petitioner or respondent, or as here, an equal vote. Here, the Claimants did not secure from the Steering Committee the relief they sought, and it matters not that the result followed from a majority vote against them or an equal vote…

…Here, considering the non-legal, industry-based character of the first level of decision-making, there is every reason to believe that the Accord signatories considered that the ‘arbitration’ to which that initial decision could be ‘appealed’ would involve the full fact-finding and law-deciding authority of standard arbitral processes.” (Industrial Global Union and Uni Global Union 2017 Decision, paras. 60 and 63. Emphasis added.)

There is certainly some policy significance to considering a preliminary, stakeholder-driven, and non-legal procedure, such as that before a standing body (the Steering Committee) created under an agreement involving States, companies, and labor unions, recognizing the interfaces of public interests and private concerns before resort to arbitration. This model recalls early proposals by the United Nations Conference on Trade and Development to embed dispute prevention policies in investment contracts, well before the institution of formal investor-State arbitration procedures. It has the additional virtue of deliberately engaging specialized international organizations such as the International Labour Organization (ILO), especially for the technical determination of international labor safety standards and company accountability practices prescribed in the Bangladesh Accord. Moreover, by widening the scope of the Accord to State and non-State stakeholders as partners in ensuring consistent fire and building safety practices of supply chain operators such as those in garment manufacturing in Bangladesh, the Accord recognizes both the private and the public functions of international arbitration, in contrast to frequent criticisms of the current investor-State arbitration system, which to date, only marginally provides for inputs from non-disputing parties through amicus submissions, (and which are often all too dependent on obtaining the prior consent of the parties to their amicus participation).

The Industrial Industrial Global Union and Uni Global Union 2017 Decision stands in contrast to the recent Urbaser v. Argentina arbitral award. Urbaser has been hailed in various quarters for having recognized international human rights norms as part of the fabric of international laws regulating the conduct of States and that “international law accepts corporate social responsibility as a standard of crucial importance for companies operating in the field of international commerce” (Urbaser v. Argentina award, para. 1195). However, the Urbaser award still fell short of crucially operationalizing international human rights law in the foreign investment contract, at least enough to allow human rights stakeholders to have a meaningful part in the investor-State dispute settlement process. Indeed, the Urbaser tribunal ultimately denied the counterclaim filed by Argentina that was anchored on alleging the investors’ breach of the right to water, stressing that “the mere relevance of this human right [to water] under international law does not imply that [the investor and its shareholders] were holding corresponding obligations equally based on international law. No human rights obligation to provide access to water existed on the part of the claimants before they entered into the concession..” (Urbaser v. Argentina award, para. 1212). Bruno Simma and I proposed, several years ago, that there should be some space to involve international specialized organizations such as the Committee on Economic, Social, and Cultural Rights, in the technical fact-finding and determinations of human rights impacts arising from the conduct of investors and host States in foreign investment transactions. To date, investor-State arbitrations hardly refer to reports of such international specialized organizations, but routinely engage independent financial experts for damages valuations. It is certainly baffling that, to this day, investor-State arbitral tribunals do not seek assistance from specialized international organizations, at least to illuminate on issues of quantification of damages asserted by investors, especially where they may also have been corresponding human rights impacts to local populations of host States from the acts of investors.

While the Urbaser decision illustrates the practical limits of broadly recognizing human rights norms in investor-State arbitration and how to achieve the meaningful broader participation of all public and private stakeholders in the enforcement of all legal norms (public and private) governing foreign investment, it is at least promising that a new model may have feasibly arisen for the meaningful participation of specialized international organizations and non-State stakeholders under the Bangladesh Accord, as seen through the lens of the 2017 Decision on Admissibility Objection in Industrial Union and Uni Global Union. The future of investment treaty and investor-State dispute settlement reform may well be recognize the full universe of actors, stakeholders, and participants in foreign investment contracts.

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What Have We Learned from the Global Pound Conferences?

Mon, 2017-11-27 05:29

Thomas J. Stipanowich

ITA

In the forty years since new visions and challenges for the administration of American justice were offered at the 1976 Pound Conference, a Quiet Revolution has altered the landscape of public and private dispute resolution around the world. (See Living the Dream of ADR)

Recently, a series of day-long meetings styled as the Global Pound Conferences, conducted in cities worldwide, offered diverse stakeholders an opportunity to register perspectives on the current state and future of commercial dispute resolution. Each gathering brought together in-house lawyers and clients, external lawyers and consultants, providers of dispute resolution services, educators, government servants and others in order to elicit perspectives and encourage dialogue on dispute resolution, public and private.

The prime artefacts of the “Global Pound” are recorded perceptions of 2,878 individuals polled during conferences at one of twenty-eight venues, or who responded to an online poll. These individuals were mainly dispute resolution professionals, outside counsel, consultants, educators and other individuals who derive a livelihood from the resolution of conflict. However, fifteen percent identified as “parties”—commercial users of dispute resolution services; in reality, they were primarily in-house counsel. Though business clients and corporate counsel are notoriously difficult to convene or poll, their perspectives as users and consumers of dispute resolution services are naturally of exceptional value.

In the interest of efficiency and simplicity, the organizers took some shortcuts in polling. Participants were lumped into five broad groupings, which meant that the responses of public judges were lumped together along with those of private arbitrators and representatives of provider organizations under the umbrella of “adjudicative providers.” Those playing multiple roles, including dispute resolution professionals or institutions engaged in adjudicative as well as non-adjudicative activities, were required to self-identify by a single primary activity.

Some of the questions and answers were subject to multiple interpretations, or so broadly framed as to embrace a range of possible circumstances. Respondents were limited to ranking their top three choices among a range of answers, and to rank those choices in order of priority; it was not possible to accord equal rank to selected responses.

Despite these limitations, the Global Pound Conference poll leaves us with a number of general impressions about current dispute resolution practice, and raises several tantalizing prospects for future evolution. As you read the following summary, please be aware that in tabulating results for each question, respondents’ top-ranked answers were accorded 3 points, their second-ranked answers were given 2 points, and third choices were given 1 point. The published data for each question lists answers in order of the total number of points they received. In addition, each answer received a “percentage ranking” based on the percent of the total possible points that a particular answer received.

1. Efficiency and cost-effectiveness are a primary concern in commercial dispute resolution, and will drive future policy-making.

According to Pound participants, efficiency—that is, the time and cost entailed in resolving a dispute outcome—was the most influential factor in choosing among dispute resolution processes (with a 61% ranking for the entire group, and 65% for “parties” (mainly in-house counsel). Financial or time constraints were the primary obstacle or challenge faced by parties in the resolution of disputes (with a 59% ranking). In addition, reduced costs and expenses (with a 50% ranking among all respondents and 49% for commercial parties) ranked first among the perceived achievements of mediation or conciliation.

Participants expected demand for increased efficiency of dispute resolution processes, including through technology, to have the most significant impact on future policy-making in commercial dispute resolution. This factor received a 64% ranking among all participants and 65% among parties. (However, reflecting an abiding tension among the priorities of commercial parties, 52% of those polled saw the demand for certainly and enforceability of outcomes as a key influencer in the future.)

2. Party control is a priority.

Next to reducing costs and expenses, permitting parties to retain control over the outcome was viewed as the important result of mediation and conciliation (as reflected in the votes of 46% of all participants, and 38% of business parties / in-house counsel). Control over process and outcome is a common theme of comments by corporate counsel.

3. Improved or restored relationships are often a goal.

Although the poll indicated that parties tend to come to dispute resolution wanting damages or or injunctive relief, a sizable minority (a 28% of all participants, and 33% of parties) indicated that parties may be looking to mend or end a relationship. Relational concerns were sometimes an important factor in selecting dispute resolution processes; thirty-nine percent of participants thought improved or restored relationships were among the most likely achievements of mediation or conciliation.

4. Advice from counsel, guidance from dispute resolution providers and educational programs are all potential sources of information on process choices.

Insufficient knowledge of available options for the resolution of commercial disputes is another primary obstacle or challenge for participants (with a 52% ranking among all those polled). Lawyers, external and in-house, were most often viewed as having responsibility to ensure parties understand process options and their potential consequences; external lawyers received a 59% ranking, in-house lawyers 55%. “Lawyer advice” was also a key factor in the selection of dispute resolution options, with a 58% ranking among all participants, and 46% among parties. More cynically, the group identified the impact on costs and fees lawyers can charge as among the top three influences on lawyer advice-giving (with a 40% ranking). The view that the primary role of lawyers was “working collaboratively with parties to navigate the process” predominated with a 60% ranking.

When asked what role parties involved in commercial disputes envisioned for providers of dispute resolution services, sixty-one percent of participants indicated that parties prefer to “seek guidance from the providers regarding optimal ways of resolving their dispute.” The question lacks clarity, however, and the “guidance” referred to might refer to mediators’ affirmative directions on dispute resolution options, a “fleshing out” of arbitration procedures facilitated by arbitrators, or even menus of procedural options on websites of institutional providers.

When asked which methods would be most effective in improving parties’ understanding of their options for resolving commercial disputes, most participants (64%) pointed to educational programs in business or law schools or the broader business community.

5. Outcomes reflect an interplay between rule of law, consensus/party interests, and general concepts of fairness.

Participants indicated that the top three factors determining the outcome of a commercial dispute were consensus (based on the parties’ subjective interests) (63% ranking), findings of fact and legal or other norms (58% ranking), and general principles of fairness (49% ranking). These diverse determinants arguably reflect, or explain the common resort to, approaches in which parties move back and forth between adjudication and negotiation during the course of resolving a dispute—exemplified by Mark Galanter’s term “litigotiation.”

6. The most effective approaches may rely on multiple processes.

Pound participants viewed combinations of adjudicative and non-adjudicative processes, such as mediation and arbitration or mediation and litigation, as the most effective process option. (It was ranked by 49% of participants and 50% of parties). This is perhaps a reflection of the common practice of negotiating (with or without a mediator) against the backdrop of adjudication. Combinations of approaches were also perceived as one of the highest priorities for the future by 50 percent of commercial parties and 45% of all participants.

7. Pre-dispute or pre-escalation processes, collaboration and conflict prevention are emerging trends in managing commercial conflict.

Along with combinations of adjudicative and non-adjudicative processes, business parties viewed “pre-dispute or pre-escalation processes to prevent disputes” as the most effective process for addressing commercial disputes. (50% of parties identified each approach.) Commercial parties saw these approaches as the top priority for the future (55%), as did participants generally (51%).

Participants expected “greater emphasis on collaborative instead of adversarial processes” and “changes in corporate attitudes to conflict prevention” to be the most significant influences on the future of commercial conflict resolution (with rankings of 57% and 51%, respectively.)

8. Governments and ministries of justice have the greatest potential to influence change; outside counsel are most resistant to change.

Participants viewed governments and ministries of justice as most likely to influence change in commercial dispute resolution (41% ranking)—a logical choice given the importance the leading role governments and court systems have played in promoting mediation. Although commercial parties / in-house counsel, outside counsel and adjudicative providers each ranked themselves as potentially the most influential stakeholders, it should be noted that corporate counsel are often in a particularly advantageous position to influence process choices (including consensual private approaches) on the company and transactional level.

Participants perceived external lawyers (67%) and adjudicators (judges and arbitrators) (39%) as most resistant to change.

Conclusion

It remains to be seen how much influence the Global Pound Conferences will have on the pace or direction of change. However, the extant data from GPC polling offer considerable fodder for discussion and debate regarding trends in conflict management.

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Arbitration of Labor Disputes in India: Towards a Public Policy Theory of Arbitrability.

Sat, 2017-11-25 16:12

Smaran Sitaram Shetty

In India, the Arbitration and Conciliation Act, 1996 does not address the question of which categories of disputes are capable of resolution by arbitration, and those that are not. Instead, this question has arisen before and been decided by Indian courts, in a variety of different contexts. In recent times, Courts have determined arbitrability claims in the context of fraud (see here and here), disputes arising out of and implicating trusts and disputes concerning shareholder and intellectual property litigation. Despite the consistent attention the issue of arbitrability in India has generally received, there has been little commentary on the specific issue of whether labor and industrial disputes are arbitrable under the Arbitration and Conciliation Act, 1996. This issue warrants specific commentary for two reasons. First, two High Courts have been faced with this very question and have independently arrived at the conclusion that industrial and labor disputes are not arbitrable. Second, these judgements call into question the rising practice of inserting arbitration clauses in employment agreements and are therefore instructive for practitioners.

 

In this post I first begin by discussing the cases that have dealt with and decided the arbitrability of labor disputes. I argue that these cases reach the right conclusion. I also address the potential these cases have for theorizing about arbitrability, that departs from the dominant paradigm currently used to address that question.

 

  1. Captain Prithvi Malhotra and Rajesh Korat

 

The arbitrability of labor disputes first arose in Kingfisher Airlines v. Captain Prithvi Malhotra and others (“Captain Prithvi Malhotra”). This case arose out of various labor recovery proceedings instituted by pilots and other staff members of the now defunct Kingfisher Airlines. The proceedings were instituted before the specially empowered labor courts for recovery of unpaid wages and other salary benefits. In these proceedings, Kingfisher Airlines contested the jurisdiction of the labor court by relying on the arbitration clause in the employment agreements. To that end, Kingfisher filed an application invoking Section 8 of the Arbitration and Conciliation seeking reference to arbitration in terms of the employment agreements. The labor court rejected the application and retained jurisdiction over the proceedings.

 

Kingfisher thereafter moved the Bombay High Court to challenge the correctness of the order passed by the labor court. The Bombay High Court affirmed the order of the labor court and held that labor disputes were not arbitrable under the Arbitration and Conciliation Act, 1996. The Court holds that the inquiry is not solely whether the claim being urged is in personem or in rem (as was held by the Supreme Court in Booz Allen & Hamilton v. SBI Home Finance), but whether the resolution of the claim has been exclusively reserved for adjudication by a particular court or tribunal for public policy reasons. The Court holds that the resolution of labor and industrial disputes has been reserved for resolution before the judicial fora constituted under the Industrial Disputes Act, 1947. By drawing upon the preamble of the Act as well as the scheme of resolution of labor disputes, the Court holds that strong public policy reasons support such a conclusion.

 

The Court in Captain Prithvi Malhotra also goes further than merely determining the arbitrability of labor disputes. It examines the scheme of the Industrial Disputes Act, 1947 and concludes that the Act provides for a unique process for arbitration of collective labor claims. It therefore concludes that if there were to be adjudication of labor and industrial claims outside of the courts and tribunals constituted under the Act, the reference to and resolution by arbitration would have to be governed by the specific provisions of the Industrial Disputes Act, 1947 (and the attendant rules made thereunder) and not the Arbitration and Conciliation Act, 1996. The Court therefore concludes two crucial issues: claims under the Industrial Disputes Act, 1947 are not arbitrable under Arbitration and Conciliation Act, 1996 and by extension, where it is arbitrable, it must be in conformity with the requirements and procedure under the Industrial Disputes Act. It is therefore important to remember that labor and industrial claims are not per se non-arbitrable, but are instead only arbitrable in the manner and to the extent permitted by the Industrial Disputes Act, 1947.

 

A similar question arose five years later in Rajesh Korat v. Innoviti (“Rajesh Korat”) before the Karnataka High Court. In this case, when an application for reference to arbitration was made before the labor courts, the application was allowed and parties were referred to arbitration in terms of the arbitration agreement (in contrast to Captain Prithvi Malhotra where the labor court rejected the application and retained jurisdiction).

 

The reasoning in Rajesh Korat greatly resembles the reasoning in Captain Prithvi Malhotra. The Court concludes that there are strong and compelling public policy reasons to ensure that labor and industrial disputes are exclusively resolved by courts and tribunals under the Industrial Disputes Act. In Rajesh Korat, the Court goes slightly further in concluding that the Industrial Disputes Act is a self-contained code, and to that extent the Arbitration and Conciliation Act, does not have any application to matters governed by the Industrial Disputes Act. Although it does not expressly address this question, Rajesh Korat impliedly endorses the proposition that any arbitration of labor disputes would have to be in conformity with the procedure under the Industrial Disputes Act, 1947 and not the Arbitration and Conciliation Act, 1996.

 

  1. Evaluating Captain Prithvi Malhotra and Rajesh Korat

 

Captain Prithvi Malhotra and Rajesh Korat are both decided correctly and they independently reach the right conclusion. Both decisions examine the nature and larger scheme of the Industrial Disputes Act and pay close attention to the various categories of judicial and quazi-judicial fora established under the Act. After undertaking this analysis both decisions correctly conclude that labor and industrial claims are non-arbitrable under the Arbitration and Conciliation Act, 1996, and where they can be submitted to arbitration, such reference and resolution must be in compliance with the procedure under the Industrial Disputes Act.

 

Importantly, both decisions are attentive to the asymmetry in bargaining power inherent in labor disputes. In large part the Industrial Disputes Act (and labor legislation generally in India), are meant to address this issue. Part of this remedial function is achieved through the creation of specialized courts and tribunals under the Industrial Disputes Act, 1947. A closer reading of both Captain Prithvi Malhotra and Rajesh Korat would reveal that the Court was persuaded in large part by the consequences of relegating labor disputes to private arbitral tribunals.

 

If these cases were decided the other way and labor disputes were held to be arbitrable, it would mean that individual and collective labor disputes would have to be resolved by way of private arbitration where employers would potentially have the sole authority to appoint arbitrators, employers could refuse to participate in the appointment process forcing employees to follow the procedure under Section 11 of the Act and/or could also have the power to designate arbitral institutions, which would beyond the reach and means of industrial workers. In sum, the Courts seem convinced that holding labor disputes to be arbitrable would place undue burdens on aggrieved workers in accessing and thereafter participating in private arbitral proceedings under the Arbitration and Conciliation Act, 1996. The public policy arguments for holding these categories of disputes non-arbitrable, is then both compelling and on the face of it, accurate.

 

Beyond the correctness of these decisions, lie important lessons for practitioners. Increasingly, employment agreements are being reduced into writing and have arbitration clauses for settlement of disputes that arise out of the employment relationship. These decisions should then educate practitioners about the perils of such a trend and the reality that these agreements are unlikely to be enforced if the employers seek to compel arbitration.

 

  1. Theorizing arbitrability

 

In view of the Arbitration and Conciliation Act’s silence as to the issue of which disputes are capable of private arbitration, it is helpful to think through a possible theory of arbitrability. This is especially useful in the Indian context where the legal and regulatory landscape continues to develop, and question of whether certain kinds of disputes and claims are arbitrable are likely to continue to arise well into the foreseeable future.

 

In light of the Supreme Court’s decision in Booz Allen & Hamilton, the primary paradigm of thinking about arbitrability has been the characterization of claims involved. Simply put, Booz Allen & Hamilton tells us that where the claim is in the nature of a right in rem, such claims are not amenable to arbitration under the Arbitration and Conciliation Act, 1996. However, where the claim is characterized as a right in personem, such a claim may be arbitrable. Although this formulation is helpful starting point (and has in fact been used by subsequent judgements to decide arbitrability claims), it does not help us develop a robust understanding of arbitrability.

 

It is for this reason that the decisions in Captain Prithvi Malhotra and Rajesh Korat are helpful. They collectively advance the proposition that even where the claim in question is a right in personem, it would be still rendered non-arbitrable in view of public policy reasons expressed in the statute that otherwise regulate the exercise of the claimed right whether it be in personem or in rem. This is an interesting and compelling understanding of arbitrability, one that focusses our attention not only on the nature of the claims or the relationship between the parties, but also the consequences for allowing private arbitration. It allows us to examine whether the statutory framework of legislation either exhibits or has inherent within it, certain limitations to private arbitrations and potential reasons for such legislative policy choices.

 

To be sure, I do not argue that these decisions present a holistic and comprehensive theory of arbitrability. Instead, they help only partly in diversifying our understanding of arbitrability and pushing our understanding from the holding in Booz Allen & Hamilton. In fact, a complete and exhaustive theory of arbitrability may be both illusive and undesirable.

 

[Disclosure – the author was involved in the Rajesh Korat v. Innoviti case. Any views expressed here are solely personal and do not reflect the views of the counsel or the parties to the case.]

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How do You Tax the Costs of International Arbitration Proceedings?

Fri, 2017-11-24 21:33

Colin Liew

YSIAC

Introduction

Section 10 of the Singapore International Arbitration Act (“IAA”), allows a party to challenge an arbitral tribunal’s determination of its jurisdiction. Section 10(7) further provides that, where the Court rules under section 10 that the tribunal has no jurisdiction, it may make an order as to the costs of the arbitral proceedings.

I was recently involved in a case where, upon a successful challenge to the tribunal’s jurisdiction under section 10, the Court made an order under section 10(7) of the IAA for the costs of the arbitration to be “taxed by the Registrar of the Supreme Court if not agreed”.

The subsequent taxation proceedings were far from straightforward and threw up a number of issues which have yet to be fully resolved by the courts.

How are the costs of the arbitration to be taxed?

The precise procedure to be adopted by the Registrar of the Supreme Court (the “Registrar”) in taxing the costs of the arbitration is not stated in the IAA, but is left to the Rules of Court (the “Rules”). Although the position is not entirely clear, it appears that the procedure for taxing the costs of the arbitration is regulated by Order 59 of the Rules (pursuant to Order 59, rules 2(1) and 12(1)(c)).

To what extent is taxation in the Registrar’s discretion?

Typically, subject to the provisions of Order 59, the amount of costs to be allowed in taxation is in the discretion of the Registrar, which is to be exercised having regard to the principle of proportionality as well as all the relevant circumstances: Order 59, rule 31(1) read with paragraph 1(2) of Appendix 1 to Order 59.

This is similar to how arbitrators are expected to approach the issue of costs under various institutional rules. For instance, Article 38(5) of the International Chamber of Commerce Arbitration Rules provides that, in making decisions as to costs, the tribunal “may take into account such circumstances as it considers relevant”.

However, in taxation proceedings, the application of the principle of proportionality can result in significant sums being taxed off a Bill of Costs (“Bill”). Indeed it is quite possible for a successful litigant’s party and party costs to be taxed down by more than 75%.

Such drastic discounts have been justified on the basis that there is a public interest in controlling the costs of litigation in order to ensure adequate access to justice: Lin Jian Wei v Lim Eng Hock Peter [2011] 3 SLR 1052 at [77].

By contrast, there is no similar public interest in controlling the costs of private arbitration: VV v VW [2008] 2 SLR(R) 929 (“VV”) at [31]. Perhaps as a result, in practice, successful parties in arbitration tend to recover a larger proportion of their costs as compared to successful parties in litigation.

Hence, where an order is made by the Court under section 10(7) of the IAA that the costs of the arbitration are to be taxed by the Registrar, it is not obvious that the procedure prescribed by Order 59 of the Rules is well-suited to this exercise, since it is predicated upon the different principles which apply in a taxation of litigation costs.

For instance, given that international arbitration practitioners are not necessarily regulated by the Legal Profession Act, it is possible for the Registrar to be confronted with a Bill containing legal fees of a quantum or nature that would not typically be permitted in taxation, e.g. contingency fees.

The issue is even more complicated if the tribunal has already assessed the reasonable costs of the arbitration. Although in theory the tribunal’s assessment has no legal effect since it was, ex hypothesi, made without jurisdiction, in practice the Registrar has no realistic basis upon which to disagree with the tribunal’s assessment.

This then begs the question of whether an order under section 10(7) of the IAA that the costs of the arbitration be taxed serves any useful purpose, if the reality is that the Registrar will not second-guess the tribunal’s assessment of reasonable costs.

Indeed, given that the costs of the taxation proceedings themselves are frequently heavily taxed down in “Section 2” of the Bill, the only result of such an order appears to be to unjustly penalise a party who successfully invokes section 10 of the IAA.

Costs in a different currency?

Taxation of the costs of the arbitration is even less helpful when those costs have been incurred in a foreign currency, as they were in my case. Not only is it then difficult for the Registrar to determine whether such costs are reasonable, of the more fundamental issue is whether and how costs can be dealt with in a foreign currency.

Damages can of course be ordered in a foreign currency, and there appears to be some authority that so can costs: Elkamet Kunststofftechnik GmbH v Saint-Gobain Glass France SA [2016] EWHC 3421 (Pat) at [11].

However, as a matter of procedure, in taxation the Bill must be accompanied by a summary which, like the eventual Registrar’s Certificate, is composed electronically through the eLitigation platform (Paragraph 95(1) and (4) of the Supreme Court Practice Directions), which only permits the inclusion of figures in Singapore Dollars.

As such, I had to submit the costs of the arbitration, although incurred in a foreign currency, for taxation in Singapore Dollars, which raised the issue of the appropriate date of conversion.

In theory, the date of conversion ought to be the date on which the costs were incurred, but this was impracticable given that different costs were incurred on different dates. A more convenient date was the date of the tribunal’s award, but the date of the order under section 10(7) of the IAA seemed more principled, since that was the date my client’s entitlement to the costs of the arbitration crystallised.

Having said that, the reasonable costs which the successful party is entitled to are not finally quantified until the taxation hearing, and on that basis the date of conversion arguably ought to be the date of the taxation. However, this presents a problem if the taxation hearing is part-heard (as it was in my case): it seems unacceptable that a party’s recoverable costs should fluctuate based on exchange rate movements in the intervening period.

Conclusion

As successful jurisdictional challenges under section 10 of the IAA have been rare, the practical implications of an order under section 10(7) of the IAA that the costs of arbitration proceedings be taxed have not yet been fully worked out.

However, it seems likely that section 10 of the IAA will be resorted to with greater frequency, and with more success. If section 10(7) of the IAA is to provide an effective means of providing for the costs of the arbitration proceedings, it will be necessary for the courts to explain exactly how the taxation of such costs is to work.

For further comments on the topic, please see the September 2017 issue of the Singapore Law Gazette.

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Come in, Let’s Arbitrate: The Rise and Rise of Arbitration in Nigeria

Fri, 2017-11-24 02:23

Adebayo Adenipekun

Arbitration practice is on the rise in Nigeria. On the 3rd of November, 2017, the Nigeria Branch of the Chartered Institute of Arbitrators (UK) inducted 219 Associates, 58 Members and 20 Fellows into the branch. The branch also boasts a burgeoning class of Chartered Arbitrators. The expectation is that the number of inductees will continue to go up yearly (associate inductees were only 69 in the year 2010). A number of things are responsible for a pick in the pace of interest in arbitration some of which are discussed here.

Increase in the number of qualified practitioners: Although arbitration is not specific to legal practice, its practice in Nigeria is dominated by the legal profession. With legal practice being so broad as to include so many subsets that are not dispute-related, only a small percentage of legal practitioners take an interest in arbitration. However, the number of legal practitioners qualifying annually to join the bar is also on the rise. In the year 2017, 1,393 practitioners were admitted to the Nigerian bar in July with a set of 4,285 set to be called to the bar in December. Last year, 2,257 were admitted to the bar in July while 4,178 reportedly were called to the bar in November. Even if the percentage of practitioners who take an interest in arbitration stays fixed, the numerical number will continue to rise as practitioners qualify in astronomical growth.

A rise in specialised arbitration law firms and practitioners: Nigeria boasts a pool of highly skilled arbitration lawyers and arbitrators. Law firms have more and more skilled and seasoned arbitrators and arbitration practitioners in their ranks. Furthermore, many Nigerian law firms boast an array of seasoned arbitration practitioners who have international arbitration training, experience and placements such as Members of the Permanent Court of Arbitration, Presidents of the Nigerian Institute of Chartered Arbitrators (NICA), members of the Chartered Institute of Arbitrators (UK), Judges of the LCIA, etc. on staff in major Nigerian metropolises (such as Abuja, Lagos, Port Harcourt and Ibadan). There are also arbitral associations (such as the Maritime Arbitrators Association of Nigeria) which focus mainly on arbitration in specialised fields. An increase in the number of local arbitration experts has the effect of keeping arbitrations local – as opposed to the days when arbitrations on Nigerian disputes were resolved overseas by foreign counsel and with marginal involvement of local lawyers. Such practitioners also increasingly advise clients to include and invoke arbitration clauses in their transactions.

Increasing commercial activity: Although the media may not project that narrative, Nigeria is doing big business and the time to do big business in Nigeria is now. With a major Lagos-Ibadan Expressway project valued at $838m, a Lagos-Ibadan light rail project valued at $1.488bn, a Dangote refinery project with an estimated cost of $12b, and the Mambilla power project estimated to cost $5.79bn, to name a few, investment in Nigeria is on the up-and-up. As is usual, investments come with an attendant risk of disagreement and considering the need to urgently resolve disputes and return to the project, investors recognise arbitration as the way to go.
Rise of Arbitration institutions and Associations: Nigeria has a considerable cluster of arbitration institutions. Nigeria has the MAAN, the Chartered Institute of Arbitrators, the NICA, the Lagos Regional Centre for International Commercial Arbitration (LRCICA), the International Chamber of Commerce, the Lagos Court of Arbitration (LCA) and the International Centre for Arbitration and Mediation Abuja (ICAMA). These institutions not only provide trainings, sensitisations, workshops and lectures in arbitration, they serve as repositories of directories of seasoned and competent arbitrators to the ends of which they are often designated in many agreements as first/default arbitrator appointers. Institutions like the LCA, LRCICA and ICAMA further provide venues, registrars and support personnel for arbitral references.

Legal framework supportive of arbitration: Nigeria has (arguably) a judicial system that understands the reasoning behind arbitration and the need to let arbitration thrive upon the terms of arbitrators and users. The Arbitration and Conciliation Act (ACA), the federal law on arbitration, although not a very modern law, captures the basics of arbitration and provides sufficient material for smooth arbitration practice – provided the parties cooperate. Its schedule also contains a domestication of the New York Convention. Lagos State has the Arbitration Law of 2009 which is widely credited as being an adoption of modern arbitration trends and an improvement on the provisions of the ACA.

A recent exciting development is the enactment, on the 30th of October, 2017, of the Oyo State Multi-Door Courthouse Law, 2017 (the Oyo Law). That law has not been assented to by the Governor of Oyo State, but it is expected that it will in the coming days – the state’s Attorney-General (who is a part of the Governor’s Executive Council) was on hand to witness and hail the bill’s passing and has disclosed that a building has already been identified and earmarked to house the Oyo State Multi-Door Courthouse (OYSMDC) in the immediate. By the Oyo Law, the OYSMDC will be an independent and non-profit body. The OYSMDC has the mandate to apply arbitration to disputes referred to it by the Court or any dispute resolution organisation or which come to it “by way of walk-in”. Commercial transactions without arbitration clauses can thus be referred by the Court to arbitration per the Oyo Law. The OYSMDC is also empowered to render assistance to ad hoc references as well as maintain a panel of suitably qualified arbitrators. To ensure qualitative service delivery, the OYSMDC is to be supervised by a Board whose Chairman is to be a respectable and renowned professional of at least 20 years’ practical experience in a chosen field while its Chief Executive Officer must possess a minimum of 10 years’ post-call experience. The Law requires the Chief Judge to designate ADR Judges and Magistrates to give support to the OYSMDC and parties who neglect to appear before the OYSMDC may be summoned before any of these Judges who may then issue directives. To preserve the mandate of the OYSMDC over disputes submitted to it, the Oyo Law prohibits Judges and Magistrates in Oyo State from assuming the role of mediator during Pre-Trial Conferences. The OYSMDC is required to keep hard and virtual records. The OYSMDC is tax exempt and unless fraud is involved, OYSMDC panel members are immune from suit in relation to arbitrations they conduct.

The value of the Oyo Law is unquantifiable. Firstly, the Oyo Law lays the foundation for the establishment of a Court of Arbitration in Oyo State. Secondly, it serves as a reasonable precursor to the enactment of an Oyo State arbitration law which mirrors or surpasses Lagos’. The establishment of an arbitration Court in Oyo State and the enactment of an arbitration law will firmly cast Oyo State as the winsome dispute resolution hub it is currently shaping up to be. Already, Oyo State provides a convenient alternative to Lagos as an arbitration venue – Oyo State is just two states away from Lagos and about 2 hours away by interstate road travel. The Expressway (already being utilised) and Light rail projects mentioned above which connect Lagos to Ibadan, the capital of Oyo State will open the state up for persons to work in Lagos but live in Ibadan and vice versa (this is already the case and many practitioners have thriving interstate practices). To add to its desirability, while Ibadan is the largest city in Africa with a size of 3,080 square kilometres comparable to Lagos’ 999.6 square kilometres, it houses only 3.5m people compared to Lagos’ 9m. Ibadan thus has less population density, larger and less-expensive land mass, and sparse vehicular gridlocks. It is also more affordable to live in, house arbitrators, counsel, witnesses and support staff in and it presents choice arbitration venues that are intimate, tucked away from the bustle of Lagos and are less pricey than those in Lagos – and yet, parties can maintain their proximity to Lagos, which they may cherish for any number of reasons such as access to an international airport or their corporate headquarters.

Arbitration in Nigeria is around for the long haul spreading to fresh territories and is increasingly taking on dynamic colorations just as disputes continue to shift shape. Investors can come in and arbitrate.

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