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Could Some European Countries Initiate A State-To-State Investment Arbitration Against Switzerland For Abruptly De-Pegging The Swiss Franc From The Euro?

Sun, 2017-10-08 00:18

Danilo Ruggero Di Bella

In the 2000s, mortgages in Swiss Franc (CHF) were very popular among consumers in Central, Eastern and Southeastern Europe for the acquisition of both private and commercial properties, as the CHF was a stable and reliable currency and offered lower interest rates than loans in Euro or in local currencies. When on 15 January 2015 the Swiss National Bank (SNB) suddenly decided to de-peg the CHF from the Euro, the move took by surprise the world central banking system, a market where slow and predictable decisions are of the essence. As a result of the de-pegging, the CHF drastically surged and considerably appreciated against the Euro and all the region’s currencies, making the CHF mortgages far more expensive to repay for hundreds of thousands of Central, Eastern and Southeastern European borrowers with incomes in local currency (in some cases, the principal sum as well as the monthly repayments owed doubled or even tripled up), thus throwing countries like Romania, Poland, Croatia, Montenegro, Serbia, and Bosnia-Herzegovina into a financial turmoil. Borrowers in these countries – struggling to repay the CHF mortgages – began pressuring their respective governments to artificially fix those loans at a lower exchange-rate.

Consequently, many of these countries implemented or consider implementing a forced conversion of the CHF loans into loans denominated either into national currency or in Euro, at historical exchange rates (meaning prior to 15 January 2015), to allow population to repay the installments of those loans. Namely, Croatia and Montenegro passed a law to this effect. Whereas Poland and Romania – that at first wanted to adopt a forced conversion bill from CHF to zlotys and lei at the expense of the banks – got cold feet fearing the reaction of German, Austrian and Italian banks.

Indeed, should any of these States enact a law forcing the conversion of housing loans made in CHF into the local currency or Euro at the currency fluctuation on the day these loans were disbursed, banks will suffer capital losses amounting to billions of Euros. That is why the drafting of these loan conversion acts is shaking the financial sector and investment arbitrations are looming against these States either to repeal or to compensate for these regulatory measures, being the first of these arbitrations already launched against Croatia and Montenegro. Arguably, foreign banks invoking bilateral investment treaties may well claim the breach of the FET standard, because of the retroactive effect of these measures converting the CHF loans at the exchange-rate they were originated at the expenses of the lenders, thus threatening the principle of legal certainty and, accordingly, impairing investors’ legitimate expectations.

Luckily enough, these counties might turn the tables on Switzerland by resorting to the same instrument wherefrom the problems seem to come, in other words, by commencing one or multiple State-to-State investment arbitrations. Before exploring this exciting avenue, it is necessary first to understand what a currency peg is and the implications of its snap termination.

A currency peg takes place when a government fixes its currency’s value to that of another country. By pegging the exchange-rate between countries, such monetary policy serves the purpose of creating a stable trading environment, which allows for accurate long-term predictability for business planning, especially in the import-export sector (whose operators will be able to know beforehand exactly what exchange-rate to expect, accordingly reducing uncertainties inherent to international transactions). A government achieves a currency peg by committing its central bank to either buy or sell its own currency on the open market to maintain the fixed exchange-rate, which has been previously set. The SNB introduced the exchange-rate peg in 2011 holding the CHF at 1.20 to the Euro, by promising to buy unlimited quantities of foreign currencies, thus forcing down its value to foster exports.

To any investment arbitration practitioner, the elements surrounding the pegging of a currency to another – i.e. the creation of stable trading conditions built upon the commitments of a state’s organ to ensure a predictable climate favorable to the operation of enterprises and to the flow of capitals and goods – should already ring a bell as they depict the recurring backdrop of a FET violation, where such elements stop being upheld by the State in question. Elements and evidence in support of a FET violation in this case are:

the breach of specific representations made on 18 December 2014 by the president of the SNB, Thomas Jordan, who reaffirmed SNB’s commitment to the minimum exchange-rate of CHF 1.20 per Euro by continuing to enforce it with the utmost determination (just for breaking his promise the month after, on 15 January 2015);

the breach of another (more specific) rule of international law that comes into play through Art. 31.2.c of the VCLT, videlicet Art. IV of the Articles of Agreement of the International Monetary Fund that imposes upon the Contracting Parties (like Switzerland) the obligations to promote economic stability through a monetary system that does not produce erratic disruptions (like the one at end), and to notify the Fund promptly of any changes in its exchange-rate policy.1)In this regard, see also the Decision No. 5712-(78/41) of the IMF of 23 March 1978 concerning art. IV of the IMF Agreement and emphasizing the importance of a prior notification to the Fund of all changes in the peg. Please see Erik Denters and Annamaria Viterbo (2015), International Monetary Fund (IMF), Second Edition, Wolters Kluwer jQuery("#footnote_plugin_tooltip_4690_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4690_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });;

an interview of the Managing-Director of the IMF – that may well serve as a witness/expert deposition as to the breach of the IMF Articles – where Ms. Lagarde states that she had not been notified about the CHF/Euro de-pegging ahead of time, which she found “a bit surprising” (by using a euphemism).

a study of 2009 conducted under the auspices of the SNB on the CHF lending across Europe, proving that the SNB was aware of the widespread use of the CHF loans all over Europe, so it could not be unaware of the dire spill-over effects of an offhand revaluation.

As to the attribution of the wrongful conduct, attribution under art. 4 of the Articles on State Responsibility of the SNB’s action to the Swiss State should be no problem as the Swiss Constitution devotes article 99 to the SNB itself, making it arguably a full-fledged State organ.

Romania, Poland, Croatia, Montenegro, Serbia, and Bosnia-Herzegovina have all concluded a BIT with Switzerland providing for an FET provision and a dispute settlement provision between the Contracting Parties to the treaty regarding its interpretation and (more importantly for our purposes) its application. Such a State-to-State dispute settlement provision, whose scope covers the application of the BIT itself, means that it will encompass divergences concerning the compliance of the actions or measures taken by the Contracting Parties with the terms and purposes of the BIT.2)UNCTAD, 2003, Dispute settlement: State–state, 14. jQuery("#footnote_plugin_tooltip_4690_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4690_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Hence, each one of these States may effectively invoke the international responsibility of Switzerland by giving notice to the Swiss government of its arbitration claim, wherein it alleges that Switzerland violated, under the applicable BIT, the obligation to afford FET with respect to the Claimant-State and its actual and potential investors by abruptly de-pegging the CHF from the Euro and, accordingly, thwarting friendly-investments constant conditions. To be clear, what constitutes a FET violation is not having de-pegged the CHF, but how such action was taken, videlicet without any prior notice to the Fund and, if this wasn’t enough, by issuing a misleading statement – just few weeks before the de-pegging occurred – where the SNB assured that it would have kept the CHF pegged to the Euro at 1.20. The failure to notify in time the Fund about the de-pegging, prevented other central banks’ governors from taking the necessary steps to avoid or mitigate the damages. Each Claimant-State may also be free to enact a forced conversion law whereby it converts the CHF-denominated loans into local currency and labels such act as a countermeasure against the internationally wrongful act committed by Switzerland to shield itself from international liabilities and the threat of foreign banks.

In the arbitration claim, every Claimant-State should pursue a declaratory relief3)See Nathalie Bernasconi-Osterwalder, State–State Dispute Settlement in Investment Treaties, October-2014, The International Institute for Sustainable Development,7-8. jQuery("#footnote_plugin_tooltip_4690_3").tooltip({ tip: "#footnote_plugin_tooltip_text_4690_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, asking for satisfaction as form of reparation, modeled after Mexico’s claim in the 2000 NAFTA case Mexico v. United States of America, because in that way the Claimant-State would not have to prove that a particular national investor or investment had been affected by the sudden CHF/Euro de-pegging. Instead, it should simply tackle the measure or action adopted by the Respondent-State that it deems in violation of the BIT, i.e. the abrupt CHF/Euro de-pegging itself4)See Mexico v. United States, Final Report of the Panel, February 6, 2001, para. 292 jQuery("#footnote_plugin_tooltip_4690_4").tooltip({ tip: "#footnote_plugin_tooltip_text_4690_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });. By doing so, every problem concerning the territoriality requirements of a specific impaired investment would be avoided. Further, the Claimant-State could always reason its position by maintaining that such an abrupt revaluation of the CHF against the Euro, as well as, its currency is harmful for a stable economic environment per se.

Finally, it would be a unique opportunity for the whole system of investment arbitrations because it would be probably the first time that an investment arbitration be deployed to justify a regulatory measure adopted by several States (the forced loans conversion act), rather than undermining States’ regulatory powers. In this way, some of the harsh criticisms regarding the legitimacy of investment arbitrations could be softened.

The views expressed in this article are those of the author and DO represent those of the law firm Bottega DI BELLA.

References   [ + ]

1. ↑ In this regard, see also the Decision No. 5712-(78/41) of the IMF of 23 March 1978 concerning art. IV of the IMF Agreement and emphasizing the importance of a prior notification to the Fund of all changes in the peg. Please see Erik Denters and Annamaria Viterbo (2015), International Monetary Fund (IMF), Second Edition, Wolters Kluwer 2. ↑ UNCTAD, 2003, Dispute settlement: State–state, 14. 3. ↑ See Nathalie Bernasconi-Osterwalder, State–State Dispute Settlement in Investment Treaties, October-2014, The International Institute for Sustainable Development,7-8. 4. ↑ See Mexico v. United States, Final Report of the Panel, February 6, 2001, para. 292 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: Arbitrators as Lawmakers
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Digesting the AG Wathelet Opinion in Case C-284/16 Slowakische Republik v Achmea BV. Is it A Trap?

Sat, 2017-10-07 05:24

Ivaylo Dimitrov

I. Introduction

On 19 September 2017 the Advocate General (AG) to the Court of Justice to the European Union (CJEU) Melchior Wathelet delivered his long-awaited Opinion in Case C-284/16 Slowakische Republik v Achmea BV. As already explained in another post, Bundesgerichtshof (“German Federal Court of Justice”) requested a preliminary ruling from the CJEU on the compatibility of certain provisions of the 1991 BIT between the Kingdom of the Netherlands and the Czech and Slovak Federal Republic (“BIT”) with EU law. The case before the German Federal Court of Justice arose out of the efforts of Slovak Republic to set aside the Frankfurt-seated UNCITRAL Award in Achmea B.V. v. The Slovak Republic, UNCITRAL, PCA Case No. 2008-13 (formerly Eureko B.V. v. The Slovak Republic). In his shockingly firm Opinion, the AG concluded that the BIT, and specifically its dispute resolution mechanism, are not incompatible with the EU law and do not run afoul of Articles 344, 267, and 18 Treaty of Functioning of the European Union (“TFEU”). As acknowledged in the Opinion, the outcome of the case is of “fundamental” importance” and outreaches the particularities of the dispute at hand given the (i) uncertain future of the numerous intra-EU BITs, (ii) volume and importance of the current intra-EU investor-state disputes, and (iii) complicated political implications of the ongoing clash over the future of investment disputes in general and the European participation therein. Indeed, the position of the AG appears to be in a stark contrast to the view of the European Commission (EC) and its notorious efforts to dissolve the intra-EU ISDS. What is more, the Opinion was issued shortly after:

II. Positives of the Opinion

The AG Opinion is extremely interesting and gives the international community of lawyers and practitioners food for thought. Further, many of the conclusions of the AG deserve support:

1. No discrimination

The AG concludes that the BIT (Art. 8) is sound with the prohibition on the discrimination under Art. 18(1) TFEU by way of comparison with bilateral double taxation conventions. According to the CJEU case law (C-376/03), the latter are not discriminatory whereas the benefits which they grant are “an integral part thereof and contribute to the overall balance”. On the basis of this, the AG concluded that Art. 18(1) TFEU does not contain an MFN clause and does not prevent Member States from affording treatment to nationals of another Member State which is not afforded to national of a third Member State. Art. 18(1) TFEU provides equal treatment compared to nationals of the respective Member State (national treatment) (AG Opinion, para. 67-75). Apart from clarifying the scope and the meaning of Art. 18 TFEU, these arguments of the AG recognise the lex specialis character of reciprocal rights and obligations established by bilateral intra-EU treaties whereas those rights and obligations lay at the core of the treaty regime.

2. No violation of Art. 344 TFEU

The AG’s primary argument with regard to the question whether disputes referred to in Art. 8 of the BIT do not violate Art. 344 TFEU (monopoly of dispute settlement) as such disputes do not even come under Art. 344 TFEU since they do not represent disputes between Member States or between Member-States and the Union. Referring to Opinion 2/13 CJEU (Accession of the Union to the ECHR), the AG determined that disputes involving individuals are outside of the scope of the provision (AG Opinion, paras. 146-153).

Alternatively, even if Art. 344 TFEU applies, the investor-State disputes do not concern the interpretation or application of the EU Treaties. First, the jurisdiction of the arbitral tribunal is confined to rulings on breaches of BIT, and, second, the BIT legal rules are not the same as those of the EU Treaties. The AG makes the important finding that the scope of the BIT is wider than the EU treaties the BIT contains rules which have no equivalent in EU law and are not incompatible with it.

III. Is it A Trap? The international nature of the arbitral tribunals

Notwithstanding the positive sides of the Opinion, it should be accepted with some caution. Its careful reading reveals some arguments which are troublesome and inconsistent. In answering the second question of the preliminary request, namely whether Art. 267 TFEU (the preliminary reference procedure) precludes the application of the ISDS provision of the BIT, the AG makes the conclusion that the arbitral tribunal is common to the Member States parties to the BIT and is permitted to request preliminary rulings. Applying the CJEU case law test, the tribunals are considered courts under Art. 267 TFEU. The AG goes even further by determining that they are “…required — and if they failed to do so their awards would be null and void on the ground that they would be contrary to public policy — to respect the principles set out by the Court … including, in particular, the primacy of EU law over the laws of the Member States and over every international commitment given between Member States…” (Emphasis added). (AG Opinion, para. 134).

1. Possible political goals

If adopted, such opinion would possibly lead, as observed by Nikos Lavranos, to an “Europeanisation” of investment-State arbitration and would be integrated by the EU, which would be a diplomatic way to achieve the EC goals. This goal might be reaffirmed if one considers other passages from the Opinion. In arguing that the BIT does not undermine the allocation of powers within the EU and the autonomy of the EU legal system, the AG concludes that the awards made by the arbitral tribunals cannot avoid review by national courts and, if required, requesting preliminary rulings from the CJEU. Realizing that this principle applies only to UNCITRAL arbitrations conducted on the territory of a Member State, the AG merely points out that in the Achmea case Art. 8 of the BIT does not refer to ICSID.

2. Legal incorrectness

Some of the proposed views does not stand legal scrutiny from the perspective of public international law.

First and foremost, it is legally incoherent to regard investment arbitral tribunals as courts or tribunals of the Member States. It might be beneficial to consider them as such only for the purposes of Art. 267 TFEU. However, this may not be supported given the independent international status of the investor-State arbitral tribunals. The powers conferred to the arbitral tribunals stem exclusively from the treaty regime established by the parties (See Electrabel S.A. v. The Republic of Hungary, (ICSID Case No. ARB/07/19) Decision on Jurisdiction, Applicable Law and Liability, para. 4.112).

Secondly, if ICSID tribunals are required to make references for preliminary rulings each time they need to apply a question of EU law (See Art. 267 TFEU), they would effectively be placed under the supremacy of the CJEU. Admittedly, abitral tribunals have long accepted unique nature of EU law and that it should be applied both as national law and also as international treaty law. (See Blusun S.A., Jean-Pierre Lecorcier and Michael Stein v. Italian Republic (ICSID Case No. ARB/14/3), Award, para. 278). However, conflicts between international legal rules which have the same hierarchical power and regulate the same subject-matter is a complex question and cannot be ab initio resolved in favour of EU law based on the internal supremacy alleged by AG.

3. Inconsistency

Apart from the foregoing, the AG Opinion demonstrates some inherent inconsistencies. Giving a negative answer to the second question, the AG determined that the arbitral tribunals participate in the dialogue between courts and, where necessary, are required to request preliminary ruling. However, in his analysis of the third question, the AG argues that disputes resolved by the arbitral tribunals constituted under the BIT do not concern questions of interpretation or application of EU Treaties and are thus are not incompatible with Art. 344 TFEU. While the AG puts those arguments in further alternative, whether an investor-State dispute concerns interpretation or application of EU law is a matter of fact and cannot be automatically changed dependent on the alternatives construed.

IV. Conclusion

The AG Opinion in Achmea is certainly a breakthrough in the intra-EU ISDS saga. The analysis of the AG has many positive traits and views which should, in the author’s opinion, be adopted by the CJEU in its decision. Still, one should be careful and consider the overall effect of the proposed solutions which promises to be far-reaching.

The author holds a position of Research Assistant at the LCIA. Opinions expressed in this article are the author’s own and do not, in any way, reflect the view of the LCIA.

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Cybersecurity In International Arbitration – A Necessity And An Opportunity For Arbitral Institutions

Fri, 2017-10-06 00:17

Claire Morel de Westgaver

Bryan Cave LLP

Cybersecurity bears particular significance to the realm of international arbitration. In addition to the ambient cybersecurity risks faced by each participant in international arbitral proceedings, the need to share information between the parties, the tribunal and the institution for the resolution of a dispute increases the likelihood that data will be lost or breached. Arbitral institutions may be uniquely positioned to address cybersecurity risks in a consistent and sustainable way. Doing so provides an opportunity for arbitral institutions to advocate for institutional arbitration (as opposed to ad hoc arbitration) and to differentiate themselves from the competition by attracting cybersecurity conscious users through innovation.

Why is international arbitration a target for hackers?

First, as a neutral forum for the resolution of commercial and investment disputes, international arbitration often involves parties that are themselves prominent targets of cybersecurity attacks, e.g. multi-national groups, governments or state entities, public figures and NGOs. Second, although the level and scope of confidentiality is variable, arbitration offers the possibility to resolve disputes behind closed doors. Disputes submitted to international arbitration generally require evidence of facts which are not in the public domain and which may have the potential to influence politics and financial markets. Third, international arbitration involves actors from different jurisdictions that operate from a variety of settings. Parties are typically represented by large and often cross-border teams. In-house lawyers, counsel and arbitrators tend to travel extensively and work from multiple places including hotels, airport lounges or private home offices. These factors enhance the risk of being hacked by electronic means as well as social engineering and theft of physical data.

Analysis of the structure of international arbitration provides insight as to how cybersecurity risks may arise and which of its stakeholders may be best equipped to adequately address these risks.

Law firms

Law firms (including barristers’ chambers) are depositories of their clients’ data and documents. Communications that a law firm has with its clients are generally covered by privilege and/or a duty of confidentiality. With arbitrators often being associated with a law firm, such firms may also be privy to communications between members of a tribunal. The content of deliberations, including draft awards, is particularly prone to cyberattacks because they may contain confidential facts and also information which may give rise to insider trading.

Law firms are a prominent target for hackers. A 200 law firm study released by LogicForce (a cybersecurity consulting firm) found that all of them had been subjected to hacking attempts. In the context of arbitral proceedings in particular, in Libananco v Republic of Turkey (ICSID ARB/06/8), Turkey admitted to have intercepted Libananco’s correspondence with its counsel and third parties, albeit as part of a separate criminal investigation. In spite of their exposure and their resources, law firms are nonetheless not (yet) adequately prepared to cope with these risks. The LogicForce survey revealed that 40% of firms were actually unaware of the hacking attempts until the study was conducted and corresponding investigations made. Further, 95% of firms were not fully compliant with their own data governance and cybersecurity policies and only 23% had an adequate cyber-attack insurance policy in place.

While law firms have control over their communications with clients as well as witnesses and experts, their channels of discourse are relatively limited compared to arbitral institutions. Law firms do not have any control over participants other than by agreeing protocols with the opposition (not always possible or appropriate) or seeking directions from the tribunal.


Unlike judges, arbitrators are private practitioners. Arbitrators may operate in contexts with varying degrees of cybersecurity (e.g., law firms and universities); or they may be independent from any firm or organisation. In the former case, arbitrators are typically subject to data security processes and policies over which they may not have any control and which may not be adapted to their role of arbitrator. In the latter case, arbitrators have a higher level of freedom and flexibility but they may not have any sophisticated IT support.

Under most rules and legal systems, arbitrators and tribunals have the power to make necessary orders for the protection of confidential information and documents. Arguably arbitrators’ wide procedural powers include the ability to make orders for the storage, use and transfer of data generated and produced in a given arbitration. In this regard, recommendations and protocols as to how cybersecurity risks may be tackled by parties and tribunals are a positive development and should be welcomed by the international arbitration community. However, if adopted by a tribunal, such measures would be limited in scope and enforceability. Further, whilst some arbitrators may have a strong grasp of cybersecurity issues, one needs to recognise that as a group arbitrators are not IT experts. As such, relying on them to improve cybersecurity may not be sustainable or in any event sufficient.

Arbitral institutions

As the depository of sensitive data, institutions are highly exposed to cybersecurity risks, including in terms of reputation management and compliance with the rapidly evolving regulations. In July 2015, the website of the Permanent Court of Arbitration in The Hague was hacked during a hearing of a sensitive maritime border dispute between China and the Philippines. The website was implanted with a malicious code that posed a data breach risk to anyone who visited a specific page devoted to the dispute. Despite this modern threat and the risks involved, many arbitration institutions continue to rely upon relatively insecure storage and communication systems. Notably institutional rules tend to be silent on cybersecurity and allow communications and transfer of data between the parties and the tribunal by any electronic means. In addition, many arbitral institutions use unencrypted email and commercially available cloud data repositories.

Yet, the permanent nature of arbitral institutions allows them to regulate by way of revisiting their arbitration rules and policies. Institutions could introduce mandatory filing and communication systems under which data would be transmitted exclusively through an internet-based secured platform, moving away from sharing external drives, hard copies and emails with sensitive attachments. Such platform could include separate areas only accessible to tribunal members for the storage and sharing of draft awards for example, and could be equipped with multi-factor authentication, as well as functions preventing users from editing, printing, downloading or emailing certain classes of documents. Such tools are already available on the market and often used by parties and tribunals, albeit on an ad hoc basis.

Institutions may take the view that gaining more control over the flow of data generated and produced as part of arbitral proceedings may result in further risks and liabilities. Yet, given their role in the arbitration process and the liabilities to which they are already exposed, devoting resources to cybersecurity may be seen by institutions as a long term investment, not only in terms of hedging existing risks but also business development. Arbitration users will become increasingly cybersecurity conscious and advanced security may help arbitration institutions to stand out from the increasingly fierce competition.

*The author is grateful to David Zetoony (Bryan Cave partner) for his advice and to Yeon-Ho Son (Bryan Cave trainee-solicitor) for his assistance.

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Let’s talk about arbitration

Thu, 2017-10-05 02:00

Joel Dahlquist Cullborg and Brian Kotick

Information dissemination is the flavor of the decade. Processing information with our busy lives has become harder than ever and companies are hard at work to ensure knowledge reaches as many people around the globe as possible. These efforts are not without their threats. The rise of what might be called the “fake news” movement has placed established news outlets in an existential crisis in which even the basic facts are questioned.

Arbitration, too, has been sucked into the “fake news” whirlpool resulting in critics questioning the value of the field that has existed for centuries. The arbitration community must adapt the means it disseminates its message by breaking down loaded concepts and utilizing technology so as to reach a wider audience.

One means of information dissemination that has not penetrated the field of arbitration is podcasts. We have seen the use of online audio and video recordings of adjacent fields, such as international law. In this regard, the United Nations Audiovisual Library of International Law has been a reputable source of information on cutting-edge issues. But outside of our field, the podcast format has exploded over the last handful of years and has become a major platform for politics, arts, literature, drama, and comedy. Arbitration-specific content has been limited, however.

“The Arbitration Station” is a new, weekly podcast that covers new developments in both commercial and investment treaty arbitration. It is run by young arbitration enthusiasts who believe the best way to understand arbitration is to talk about it in a more informal setting. We hope to provide an alternate outlet for those interested in staying connected and to generate dialogue with the wider audience.

Each episode is about an hour long and usually covers three distinct issues: two substantive issues in arbitration and a third, more light-hearted discussion intended to engage members of the arbitration community.

So far, six episodes have been released:

  1. “The Inaugural” – administrative secretaries, tribunal deliberations and PhD programs;
  2. “The Bourne Arbitration” – third party funding, diversity in arbitration and espionage tactics in arbitration;
  3. “The Machine Arbitrators” – appointing authorities, the EU’s role in investment arbitration and the automation of arbitration;
  4. “The Languages” – res judicata, emergency arbitration and important languages in arbitration;
  5. “The Costs” – costs in international arbitration and proper etiquette at an arbitration conference; and
  6. “The Redfern Schedule” – Place of arbitration, document production and arbitration in pop culture.

The podcast can be accessed via the website, iTunes or Soundcloud.

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Legitimacy and International Arbitration: An Alternate View

Wed, 2017-10-04 00:06

S.I. Strong

Over the last few years, legitimacy has become a hot topic in international arbitration. Although the investment regime has borne the brunt of the attack, commercial proceedings have also suffered from criticism. The range of voices questioning the propriety of arbitration has been at times quite diverse and has included journalists, judges, governments and human rights advocates as well as parties themselves.

To its credit, the arbitral community has not ignored these concerns but has instead responded with a series of public and private reforms. For example, demands for increased transparency have been answered in the investment realm by the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration and the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration and by the Case Law on UNCITRAL Texts (CLOUT) project and ArbitratorIntelligence in the commercial realm.

Practitioners and policymakers are not the only ones interested in the integrity of the arbitral process. Academics have also sought to address concerns about the legitimacy of international arbitration, primarily in the form of an ever-increasing number of empirical studies relating to the nature and quality of arbitral procedures. Although these studies strongly suggest that international arbitration can indeed be considered a legitimate form of dispute resolution, critics of arbitration tend to ignore or downplay this data.

Recent years have seen a rise in the number of people who refuse to recognize the veracity of scientific data, leading to concerns about how policy debates can realistically proceed. The problem in the arbitral realm is to some extent exacerbated by the fact that lawyers are trained to believe that the best form of persuasion is through content-based arguments. This preference for “hard evidence” has led the arbitral community to respond primarily to external criticism by addressing the merits of the dispute. This approach often reflects the underlying belief that erroneous policy positions are generated by an incorrect or incomplete understanding of the relevant facts. However, as discussed in my forthcoming article, empirical research by political scientists Brendan Nyhan and Jason Reifler has shown that pervasive misconceptions about objectively identifiable facts often do not arise as a result of information deficits. Instead, mistaken beliefs are often caused or perpetuated by a variety of other factors.

One of the most important elements of Nyhan and Reifler’s research is the discovery that political misperceptions are significantly affected by people’s preexisting worldviews. In fact, Nyhan and Reifler found that “[d]irectionally motivated reasoning – biases in information processing that occur when one wants to reach a specific conclusion – appears to be the default way in which people process (political) information.”

This conclusion is supported by research conducted by social scientists in other fields. For example, psychologists interested in the decision-making process have found that “cognitive distortions” often arise as a result of implicit or unconscious biases. One of the most well-established phenomena involves the status quo bias, which reflects an emotional preference for the established legal or social norm, regardless of the rationality of that preference. Not only has the status quo bias been empirically proven, it also appears to provide a potential explanation for why critics of international arbitration refuse to recognize the validity of empirical research suggesting that international arbitration is at least as good as (if not better than) international litigation in resolving cross-border commercial and investment disputes.

Adherents of the law and economics movement will recognize that the effect of the status quo bias is in many ways analogous to the effect of legal defaults. Indeed, economists have shown that defaults tend to assert a psychological pull in the direction of the established norm, regardless of the rationality of that particular position. Because litigation operates as the default in dispute resolution, judicial procedures can be considered to reflect the status quo. This suggests that international arbitration will always suffer, at least to some extent, from an unconscious bias in favor of litigation, particularly among those who are unfamiliar with international arbitration.

What does this mean for the arbitral community? First, it suggests the need to educate the legal and policymaking communities about the effect that unconscious biases can have on discussions about the legitimacy of international arbitration. This is not to say that some criticisms of the procedure are not valid, it is simply to recognize that comparisons between litigation and arbitration are affected by certain factors that do not reflect optimum or rational decision-making.

Second, this analysis suggests that it may be necessary or at least useful to “reset” cultural expectations about the status quo by adopting new defaults regarding international dispute resolution. This initiative could be implemented through treaties or legislation that establish arbitration as the legal default in international commercial matters or through judicial rules (such as those establishing a strong version of negative competence-competence) that would create a presumption in favor of arbitration. Various commentators, including Gary Born, Gilles Cuniberti and Jack Graves, have proposed these types of measures, and it may be time to give those proposals some serious thought.

Third, the issues identified in this post suggest a possible need to rethink how the arbitral community communicates with other segments of society. Traditionally, law and policymakers have relied on a point-counterpoint approach to legal debate, but scholars like Nyhan and Reifler have shown that that style of argument can actually exacerbate pervasive political misconceptions. These findings raise significant questions as to what types of communication will actually prove persuasive to those who hold different viewpoints. To answer that question, it may be necessary to consult with experts in communications theory to identify alternative means of discussing the legitimacy of international arbitration, as I argue in my recent article.

This is obviously a very complex subject, and this post has only touched very briefly on a few of the relevant points. However, it is hoped that this discussion has demonstrated how interdisciplinary research can help the arbitral community overcome certain recursive problems in the field.

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Investor-State Resolution: A Snapshot of Cambodia

Mon, 2017-10-02 23:30

Sokyana Chan

The year 1993 saw a significant political transition in Cambodia through the adoption of democratic principles and free market economy. Since then, many legal reforms have been made in order to attract foreign direct investment, and one of which is providing a legal framework for protecting the investment. To date, the Kingdom has signed a total of 24 bilateral investment treaties (“BITs”) amongst which half have entered into force (see, here). These enforceable BITs are exclusively concluded with countries in East and Southeast Asia, the European Union, Switzerland and Russia.

The investor-State dispute resolution clause under the BITs that are currently in force generally covers a broad range of disputes that can be submitted to international arbitration. The Cambodia-China BIT is the exception that provides limited recourse to investment arbitration.

All of the BITs stipulate a two-tier dispute settlement. The first tier is an obligation to settle the dispute amicably through negotiations or consultations. Most of the BITs require a 6-month waiting period with the exception of the BITs concluded with Thailand, the Netherlands and Japan in which the cooling-off period is reduced to 3 months. The majority of the BITs employ the term “shall” for amicable settlement while others (i.e. BITs concluded with France, the Netherlands, Switzerland and Thailand) use a softer tone. It is important to note that investment arbitration case law does not have a consensus as to whether amicable settlement has to be satisfied before a dispute can be brought to an international arbitration. Nevertheless, it has been upheld that this obligation is exempted if it is futile to engage in such negotiations or consultations (see e.g., Ambiente v. Argentina, ICSID Case No. ARB/08/9, Decision on Jurisdiction and Admissibility, 8 February 2013; Ethyl Corporation v. Canada, UNCITRAL, Award on Jurisdiction, 24 June 1998).

Upon the satisfaction of the first-tier obligation, an investor may submit the dispute for adjudication. Two approaches are used in these BITs. Half of the BITs prefer a folk-in-the-road-provision approach in which an investor has to choose either the court of the Host State or an international arbitration for submitting the dispute. The other half provide exclusive recourse to investment arbitration. The majority of the BITs offer options, at the investor’s choice, between arbitration under ICSID Arbitration Rules and ad hoc UNCITRAL Arbitration Rules. The Cambodia-Croatia and the Cambodia-Netherlands BITs further include the ICC in these options. None of the BITs require the exhaustion of local remedies as a precondition for arbitration.

There is no limit as to the category of disputes that can be submitted for judicial or arbitral adjudication as long as these disputes have arisen out of a protected investment under a BIT. On the contrary, the Cambodia-China BIT provides a limited scope for recourse to international arbitration. The BIT favours the adjudication of investment disputes by the court of the Host State. Under Article 9(3) of the BIT, an investor may resort to an ad hoc arbitration for only “a dispute involving the amount of compensation for expropriation” and if it has not been litigated before a competent national court. The use of such language can be problematic in term of interpretation. The exact language is found in Article 8(3) of the China-Laos BIT, and the Tribunal in Sanum v. Laos (UNCITRAL, PCA Case No. 2013-13, Award on Jurisdiction, 13 December 2013) interpreted this clause to encompass all claims relating to expropriation. Such broad interpretation was rejected by the decision of the High Court of Singapore in 2015. The Court took a restrictive approach by limiting the Tribunal’s jurisdiction to only claims for “compensation for expropriation”. It should be noted that the Court’s decision was later struck down by the Court of Appeal of Singapore the following year. Another important aspect of the Cambodia-China BIT is that Article 9(8) further imposes each of the parties to bear its own costs with respect to the legal fees of its counsel and the appointed arbitrator, and all other costs to be shared equally. This provision is an attempt to discourage an investor from submitting a frivolous claim to arbitration.

No BIT provides a statute of limitation for bringing a claim before a competent court or arbitration. The Cambodia-Japan BIT is the only exception in which a claim cannot be submitted after three years from the date an investor has suffered the loss or damages from the breach of any rights under the BIT.

There has been no investment claim so far against Cambodia that is brought under the existing BITs. However, Cambodia Power Company (CPC) v. Kingdom of Cambodia and Électricité du Cambodge (EDC) (ICSID Case No. ARB/09/18, Decision on Jurisdiction, 22 March 2011) is the first and only investment case against the Kingdom that was brought pursuant exclusively to a contractual dispute settlement clause. The ICSID Secretary General registered this case in September 2009, and the jurisdictional ruling was made in March 2011.

The case concerns a dispute over the construction and operation of a power plant in Cambodia brought by CPC, a Cambodian-registered company wholly owned by a Delaware corporation, against Cambodia and EDC for the alleged breach of contractual obligations. Since there was no Cambodia-US BIT, the case was brought to the ICSID arbitration on the basis of:

– three series of agreements and the amendments concluded between Cambodia, EDC and CPC from 1996 to 1998 providing recourse to ICSID arbitration for disputes arising out of the agreements when Cambodia became a party to the ICSID Convention;
– Cambodia ratified the ICSID Convention in December 2004; and
– the case was initiated after the entry into force of the ICSID Convention in Cambodia.

The Tribunal found that it had no jurisdiction rationae personae over EDC because EDC was not an agency of Cambodia within the meaning of Article 25(1) of the ICSID Convention for two reasons. Firstly, Cambodia had not communicated the designation of EDC as its agency to the ICSID as required by Article 25(1) of the ICSID Convention. Secondly, Cambodia was not estopped from denying EDC as its agency. The Tribunal did not consider that the clause promising to designate EDC as an agency of Cambodia for the purpose of the ICSID Convention was an unequivocal and clear statement because such promise was conditional upon the future conduct of Cambodia’s ratification of the ICSID Convention, which did not happen at the time of concluding the agreements. The Tribunal further stated that CPC did not rely on such statement or suffer any detriment because CPC could initiate ICC arbitration against EDC as provided for in the agreements.

Nevertheless, the claims against Cambodia were within the jurisdiction of the Tribunal. In the absence of a BIT, the claims were allowed to be made under customary international law that provided minimum protection to an investment despite the parties’ agreement on English law as the governing law. The Tribunal did not find any indication from the agreements excluding the application of customary international law.

The award was rendered in April 2013. Though the decision has not been published, it has been reported that the Tribunal ruled in favour of the State. This case provides an important consideration for the approach used by Cambodia for arbitrating an investor-State dispute that operates outside a BIT regime. It also serves as a model for designing a dispute settlement clause in an investment contract with Cambodia that is not covered by a BIT.

In 2016, China and Japan represented a total of 50% of all investment in Cambodia (see, here). Since BITs concluded with these countries have entered into force, the investors are guaranteed recourse to investor-State arbitration. Other countries such as the United States, Vietnam, and India are also amongst the top investing countries in Cambodia. Yet, no BIT concluded with these countries has been ratified. The possibility for investors from these countries to settle a dispute with Cambodia through arbitration depends on whether an investment contract provides a possibility for investor-State arbitration as in the case that has been discussed earlier. In the absence of such provision, an investment dispute may be settled under the exclusive jurisdiction of the Cambodian court.

It can be concluded that Cambodia’s BITs that are currently in force generally provide a favourable condition for an investor to initiate investment arbitration for disputes arising out of a protected investment. With the exception of the Cambodia-China BIT, there is no complicated procedure, such as the exhaustion of local remedies, for submitting a dispute to an arbitral tribunal, or any limitation on the type of disputes that can be arbitrated. To date, twenty additional BITs have been either signed or are being negotiated with countries from Asia to North America, (see, here). It is interesting to see if Cambodia will use a different approach for investor-State dispute settlement in its future BITs.

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Switching Arbitral Seats: Musical Chairs in the Asia-Pacific

Sun, 2017-10-01 20:51

Elizabeth Macknay, Stewart McWilliam, Matthew Di Marco and Georgina Stevens

Herbert Smith Freehills

Singapore and Hong Kong are now considered to be amongst the top arbitration seats in the world, rivalling the long-established seats of London, Paris and Geneva. Perpetuating their dominance in the region, parties to contracts in the Asia-Pacific often choose either of these seats by default with no consideration of alternatives. This is underpinned, to an extent, by the perception that only Hong Kong and Singapore are able to provide certain benefits to parties to an arbitration. However this is not always the case. Australia, Korea and Malaysia are examples of alternative seats in the region which, in the following key aspects, are competitive with Hong Kong and Singapore.

1. Ample choice of legal counsel

Parties do not need to choose Hong Kong or Singapore as the seat to have ample choice of legal counsel. Australia, like Hong Kong and Singapore, has seen a proliferation of international law firms in the last decade, leaving parties with an abundance of options to engage counsel.

In our experience, parties engaging in transactions with Malaysian government-linked entities are likely to see such entities pushing to use the Kuala Lumpur Regional Centre for Arbitration (KLRCA) and to adopt Malaysian law. This may have assisted the development of the expertise of the local legal market. For example, a large local firm acted for MISC Berhad in its successful USD$254.45m claim against Shell in a KLRCA arbitration this year. In addition, in recent times, the Malaysian government has looked to develop the strength of Kuala Lumpur as an arbitral seat, with a number of foreign law firms recently being allowed to open offices, including Trowers & Hamlins opening in 2015 and Herbert Smith Freehills in 2017. In addition, Malaysia’s Legal Profession Act 1976, has been amended so that from June 2014, non-Malaysian qualified lawyers and foreign arbitrators have been able to appear in Malaysia-seated arbitral proceedings.

Local firms are also well experienced in Korea, benefitting from the increased case load of the Korean Commercial Arbitration Board (KCAB) in recent times. Whilst the “Big Five” Korean law firms dominate the legal market, there has been an increase in boutiques and new firms being established. Further, similar to Malaysia, Korea’s legal market has been liberalised to foreign entrants, with Herbert Smith Freehills being one of the first foreign law firms to receive approval from the Korean Ministry of Justice to open an office in Seoul and now having one of the largest arbitration practices of any of the international law firms on the ground in Korea.

Even if a party appointed counsel from outside of any of these locations, this should not be a weighty consideration, as the cost of flying counsel to the seat for a substantive hearing is likely to be a fraction of the overall cost of an arbitration. Indeed, both Korea and Malaysia are transport hubs in Asia, with world class international airports, flight networks covering most major cities in the world and relatively few visa restrictions on temporary visitors, meaning that bringing lawyers, arbitrators, witnesses and experts into the country from all over the world is now relatively straightforward.

2. Contemporary arbitration framework – legislation and rules

Each of Australia, Korea and Malaysia has contemporary frameworks governing international arbitrations, whether rules or governing legislation.

The main institution in Australia, the Australian Centre for International Arbitration (ACICA) amended its procedural rules last year to include new provisions to keep in step with developments in Hong Kong and Singapore, and ensure that ACICA’s rules continue to reflect contemporary best practice. Similarly, the federal government has introduced a bill to parliament that would amend the International Arbitration Act 1974 (Cth), which governs all international arbitration proceedings in Australia. The amendments aim to both address uncertainties in Australia’s arbitration landscape and keep Australia in line with leading arbitral jurisdictions (for more information on the bill see here).

The KCAB recently revised its procedural rules, like ACICA, to ensure KCAB keeps pace with innovations being implemented around the world. In addition, the Korean government also updated the legislation that governs international arbitrations in Korea.

Malaysia introduced new arbitration legislation in 2005, which it further amended in 2011, to align many aspects of its legislative framework with the UNCITRAL Model Law. The result, coupled with the removal of restrictions on foreign arbitrators and lawyers participating in arbitral proceedings seated in Malaysia in 2014, has been a noticeable increase in KLRCA’s annual case load. This went from 10-20 cases annually for the years prior to 2010, to 62 cases registered with KLRCA in 2016 (see Thompson Reuters Practical Law, “Arbitration procedures and practice in Malaysia: overview” by Rabindra S Nathan, and KLRCA 2016 Annual Report, page 16). This ensures a more experienced secretariat, and the choice to appoint any arbitrator the parties choose, but with institution fees around 20% cheaper than HKIAC or SIAC. KLRCA also released revised rules in May 2017.

3. Ability to handle complex disputes

The ability of an institution to handle multi-party and multi-contract disputes is important. Each of ACICA, KCAB and KLRCA has mechanisms to deal with consolidation and joinder.

Alternative seats preferable in appropriate circumstances

The above considerations demonstrate that, at least in some key aspects, Australia, Korea and Malaysia are competitive with Hong Kong and Singapore. Further to this, in the appropriate circumstances, those seats may even be a preferable choice. In our view, there are at least three scenarios in which this may arise.

Location of client, witnesses and documents

First, a significant portion of the work in an arbitration is not carried out at the seat but usually where the client, its witnesses and documents are located. The efficiencies, both in terms of costs and timing, of choosing a seat where these are located, are significant.

A recent example is the ongoing AUD$1.9b dispute between Chevron, CPB Contractors and Saipem over the construction of a jetty for a liquefied natural gas project in Western Australia. As reported by GAR, Chevron commenced the arbitration against CPB Contractors and Saipem SA under a clause that provides for ad hoc arbitration under UNCITRAL rules seated in Perth, Australia. Given that the client, most of the witnesses, documents and, assuming local law governs the contract, Australian counsel are likely to be located in Australia, there were obvious practical advantages, cost savings and efficiencies to the parties in selecting Perth rather than Hong Kong or Singapore.

Neutral seat

Secondly, if either party is from Hong Kong or Singapore, it may be a negotiation sticking point as to whether the choice of seat should be in Hong Kong or Singapore. Rather than maintaining its position on the choice of seat at the risk of losing leverage on other issues, Australia, Korea or Malaysia may be a neutral solution for the contracting party. For example, a service provider from Singapore and a principal from Hong Kong may resist an arbitration seated in Singapore or Hong Kong, but may consider Australia, Korea or Malaysia a neutral seat.

Expertise in particular disputes

Thirdly, certain institutions and practitioners in a seat may offer expertise relevant to the disputes that may arise under a contract. For example, the KLRCA has particular expertise in administering sharia law disputes, which is part of a broader goal to establish Malaysia as an Islamic finance hub. As part of its repertoire of procedural rules, it has rules that are sharia law compliant and suitable for the arbitration of disputes arising from agreements based on sharia law – being the ‘i-Arbitration Rules’.

Similarly, Australia has a specialist arbitration centre in Perth – the Perth Centre for Energy & Resources Arbitration (PCERA). PCERA was launched in November 2014 and aims to capitalise on Western Australian’s expertise in the energy and resources sectors.

In Korea, there is considerable knowledge in the arbitration community that has developed as a result of Korean clients being involved in international projects for many years. There are many lawyers in Korea, for example, specialised in EPC construction contracts, the renewable energy sector, computer gaming and consumer projects – all sectors that are booming in Asia and that, in time, no doubt will lead to disputes which will most likely be resolved by arbitration.


For good reason, Hong Kong and Singapore have cemented themselves as premier regional and global arbitral seats. The Asia-Pacific is, however, a large region with a booming arbitral market. For the reasons discussed above, Australia, Korea and Malaysia have demonstrated that they are viable arbitral seats, which should be given serious consideration by parties who may arbitrate in the region. In the right circumstances, and for the right parties, those seats might be preferred over their more established neighbours.

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The Portuguese Arbitration Day in Beijing – Why Portuguese matters in “One Belt, One Road” Programme

Sat, 2017-09-30 19:35

José Miguel Júdice

With Manuel Castelo-Branco, Carlos Aguiar, Francisco Prol, Paula Costa e Silva, Carlos Alberto Carmona, Duarte G. Henriques, Sofia Vale, João Ribeiro-Bidaoui, and João Vilhena Valério

The massive programme of investments that will take place under the “One Belt, one Road” (OBOR) initiative of the People’s Republic of China leaves no one indifferent.

With the aim of connecting Asia, Europe and Africa along five different routes of investment and promotion of cooperation, the OBOR initiative will liaise 68 countries with China, spanning from economies as diverse as Uzbekistan, Poland, Nepal, Ethiopia, Albania and Afghanistan. Out of these 68 beneficiary countries, only one is a member of the “CPLP” (the Portuguese-Speaking Countries Community): East Timor.

It has already been stated by Chinese authorities that the OBOR initiative will pump around USD 990 billion into the various countries, at a pace of USD 150 billion a year. To be sure, although Portugal and other Portuguese-speaking countries are not yet covered by the OBOR initiative, it has been reported that the Chinese and the Portuguese Governments have already started negotiations to make Portugal a member of this partnership with China. This will, of course, mean that every other Portuguese-speaking country will benefit immensely from this partnership.

The OBOR program will generate many investments where the Portuguese-speaking countries can be involved and actively engaged. Investments do not always unfold as desired and can ultimately lead to cross-border disputes. When it comes to international disputes, there is little doubt that arbitration is the best mechanism to handle them if a settlement (through mediation, negotiation, or other alternative means to resolve disputes) is not possible.

For these reasons, it is imperative that those who are involved in the dispute resolution arena can understand the differences between the Chinese and the Portuguese-speaking countries’ legal settings related to arbitration.

With this general background in mind, the China Arbitration Week, with the generous support of CIETAC, hosted the first “Portuguese Arbitration Day” in Beijing this last 18 September.

With the aim of conveying to the participants the best picture of the Portuguese-Speaking countries’ arbitration landscape, the “Portuguese-Speaking Delegation” presented two panels. The first panel, moderated by Rita Assis Ferreira (PLMJ), was devoted to the most important topics of arbitration in Portugal. The second panel, moderated by João Vilhena Valério (BeecheyArbitration), followed suit to approach the arbitration setting in Brazil, Angola, and Iberia, the latter from a Portuguese-speaking practitioner viewpoint. The session was concluded with an intervention by João Ribeiro-Bidaoui (Head of the UNCITRAL Regional Centre for Asia and the Pacific) on the “Implementation of UNCITRAL standards in Portuguese-speaking jurisdictions”.

The following are the highlights of each of their interventions. Rita Assis Ferreira opened the floor of the discussion referring to the fundamental perspectives of the Chinese/Portuguese-speaking countries’ jurisdictions concerning dispute resolution, and particularly arbitration. Manuel Castelo Branco addressed the topic of Cross-Border Disputes, Cultural Aspects of China-Portuguese Arbitration and Institutional vs Ad Hoc Arbitration. In turn, Paula Costa e Silva’s presentation focused on the intricacies and the issues arising from disclosure and conflicts of interest of arbitrators and from the impartiality and independence required from each decision maker. Carlos Aguiar addressed the current topic of resolving corporate disputes using arbitration and the latest developments of Portugal in this respect, including the new draft bill on “Arbitration in Corporate Disputes”. In concluding the works of this panel, Duarte G. Henriques spoke about arbitration in intellectual property disputes.

All the presentations focused on crucial aspects of the interplay between China and Portugal, with particular relevance to aspects of institutional and ad hoc proceedings, arbitrability requirements, and legal facets of all these subject-matters.

As to the second panel, João Vilhena Valério opened the discussion highlighting that Portuguese ranks sixth in the list of most widely spoken languages in the world, with around 250 million current speakers. He added that China has firmly taken a decision to ‘go global’ and, in that context, it has been investing in countries where Portuguese is officially spoken. He then invited the members of the panel to shed light on the challenges and opportunities that arbitration faces in their relevant jurisdictions.

Firstly, João Ribeiro-Bidaoui, from UNCITRAL, provided an overview of legislative developments on international commercial arbitration among the Portuguese-speaking jurisdictions, with reference to the standards by the United Nations Commission on International Trade Law. Then, Carlos Alberto Carmona, from Brazil, referred to the growing investments of Chinese companies in his country, specially in the sectors of energy, infrastructure, ports and transportation. China is today the most important partner of Brazil and several companies have been incorporated to develop business all over the country. As it is natural in the life of the companies, there will be some quarrels and the best way to solve disputes is arbitration. Carmona highlighted some important aspects of Brazilian domestic an international arbitration, showing how convenient it is to choose Brazil as the venue for the dispute. He concluded his presentation demonstrating how friendly Brazil is to arbitration, even when the State (directly or indirectly) is involved in the dispute. Sofia Vale, from Angola, stressed that China has been one of the most important business partners for Angola for the past 15 years, with trade flows amounting to more than USD 15 billion in 2015, also ranking as the largest foreign investor in Angola over the past year. Sofia then proceed to explain the Angolan legal framework applicable to different sectors, and more particularly to the arbitration setting, also addressing the major challenges for the development of arbitration in this African country. Lastly, Francisco Prol, from Spain, focused on the topic of the Iberian Peninsula as a bridge between China and Latin America.

The foregoing headlines of the public event coupled with the considerations about the historical cooperation and long-standing relationships between the People’s Republic of China and the Portuguese-Speaking countries, particularly Portugal, evidence that Portuguese-speaking jurisdictions have a lot to learn from China’s arbitration practice, especially in what the institutional perspective is concerned. But also that China can benefit immensely from the experience that the Portuguese-speaking countries’ arbitration setting may provide to China when implementing the vast and long investment programme of “One Belt, One Road”. Again, given that the Portuguese is the sixth most spoken language in the world, there is little doubt that sooner or later a dispute arising in the context of the “OBOR” programme will have Portuguese as the language of the proceedings, and likely one of the legal systems where the Portuguese is the official language will be called upon as the law applicable to the merits of the dispute.

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How Effective are ICSID Provisional Measures at Suspending Criminal Proceedings before Domestic Courts: The English Example?

Fri, 2017-09-29 23:52

Emilie Gonin (Assistant Editor for Africa)

Since the first application for provisional measures suspending criminal proceedings in Tokios Tokelés v. Ukraine (ICSID Case No. ARB/02/18, Order No. 3, 18 January 2005), the number of applications before ICSID tribunals for these types of measures has steadily increased. Recent applications have been widely commented on in the arbitration community, including in this blog.

A question more rarely discussed is that of the effect of those measures before the domestic courts dealing with the criminal proceedings. It has arisen twice in less than a year before the same English court, giving rise to two hardly compatible – if not contradictory – judgments, Albania v. Francesco Becchetti and Mauro de Renzis (unreported) and Romania v. Bodgan-Alexander Adamescu (unreported). In the Becchetti judgment, Westminster Magistrates’ Court gave effect to the arbitral tribunal’s measures and stayed the extradition proceedings against Messrs Becchetti and de Renzis whereas in the Adamescu judgment, it refused to do so.

These judgments illustrate how domestic courts deal with the contemporary tensions between respect for state sovereignty and respect for decisions made by investment treaty tribunals.

The Becchetti judgment: Investment Treaty Arbitration 1 – 0 Criminal Proceedings

The Becchetti judgment relates to the enforcement of the Order on Provisional Measures which arose in the context of the Hydro S.r.l and others v. Albania arbitration (ICSID Case No. ARB/15/28, Order on Provisional Measures, 3 March 2016) (the “PMO”).

This arbitration was commenced by three corporate claimants and four individual claimants, including Messrs Becchetti and de Renzis, who all had a direct or indirect ownership interest in the corporate claimants. They alleged that the tax treatment they received in relation to their investments (i.e. a hydroelectric plant in Kalivaç, a waste management facility and a TV station) was in breach of the bilateral investment treaty between Italy and Albania.

The Claimants’ application for interim measures was made following the commencement by Albania of a number of administrative and criminal proceedings against them. These included criminal proceedings for tax evasion, money laundering and falsification of documents which, in turn, formed the basis for the issuance of arrest warrants for the extradition of Messrs Becchetti and de Renzis from the UK to face criminal proceeding in Albania.

The Claimants applied for a number of measures, including that the tribunal order Albania to “take all actions necessary to suspend the extradition proceedings currently pending” against Messrs Becchetti and de Renzis until issuance of the final award in the arbitration proceedings. The tribunal granted this measure in the PMO recommending that Albania suspend the extradition proceedings.

When Albania sought their extradition from the UK, Messrs Becchetti and De Renzis relied on the PMO to request the withdrawal of the arrest warrants, which would end the extradition proceedings. Albania argued that it was not able to withdraw the warrants, essentially on technical domestic law grounds relying on documents which were found to be unreliable. It asked for the suspension of the extradition proceedings sine die.

The District Judge was deferent to the decision of the arbitral tribunal. She found that the extradition proceedings could not continue because it would be a breach of the PMO which is an international law obligation. She also referred to the rationale given by the arbitral tribunal for the PMO, namely preservation of the integrity of the proceedings and the possibility for Messrs Becchetti and De Renzis to run their businesses.

She refused to adjourn the case sine die, as she considered this would be an abuse of process because Messrs Becchetti and De Renzis would be on bail, subject to bail conditions, for an indefinite period of time, which would be an infringement on their liberty for an unspecified amount of time. The PMO recommended the suspension of the extradition proceedings until the final award was issued and it was unknown when this would be.

The PMO was therefore very effective before the English domestic courts.

This being said, the reach of this decision is to be nuanced, in that the Judge’s analysis was somewhat superficial. She did not conduct any analysis as to what type of international obligation the PMO was and how it was incorporated into domestic law. She did not address the potentially conflicting international obligations arising out the ICSID Convention and the extradition agreement between the UK and Albania. This is partially the result of Albania’s recognition of the binding nature of the order and the fact that it only asked for a suspension of the proceedings sine die.

The Adamescu judgment: Investment Treaty Arbitration 0 – 1 Criminal Proceedings

The rematch between ICSID provisional measures and extradition proceedings took place in the context of the proceedings for the extradition of Mr Adamescu to Romania.

At the time when the arbitration was commenced, proceedings for the extradition of Alexander Adamescu from the UK to Romania were already ongoing. Alexander Adamescu is the son of the late Dan Adamescu, a media and insurance tycoon, who died in custody while serving a four-year prison sentence for bribing judges to influence insolvency proceedings relating to his companies. Alexander Adamescu, was facing extradition to be tried in Romania on the same charges as his father.

The arbitration was commenced by a Dutch corporate Claimant, Nova, a group then chaired by the late Dan Adamescu (Nova Group Investments, B.V. v. Romania, ICSID Case No. ARB/16/19). According to publicly available information, Nova alleges that actions of the country’s Financial Supervising Authority in relation to the liquidation of Astra Asigurări, a vehicle for its investments in Romania, and the pressure exercised by Astra’s liquidator on other entities within the Nova group, including România Liberă (a centre-right newspaper critical of the government) breach the Netherlands Romania bilateral investment treaty.

Together with its request for initiation of arbitral proceedings, Nova filed a request for provisional measures, including a request that the tribunal order Romania to suspend extradition proceedings against Alexander Adamescu.

Nine month later (on 29 March 2017), the tribunal granted the provisional measure requested by Nova. It “recommend [ed] … that Romania withdraw (or otherwise suspend operation of) the transmission of the [European Arrest Warrant] … by the Romanian Ministry of Justice and associated request for extradition submitted to the Home Office of the UK …. and refrain from reissuing or transmitting this or any other [European Arrest Warrant] or other request for extradition for Alexander Adamescu related to the subject matter of this arbitration until the Final Award in this case is rendered.”

The measure was essentially founded on the fact that Alexander Adamescu was a key witness in the arbitration, in particular since the death of his father in custody. The tribunal considered that the measure was urgent and proportionate even though the extradition proceedings pre-dated the arbitration filling.

Mr Adamescu sought to rely on the provisional measure to argue that it was an abuse of process for Romania to continue with the extradition proceedings.

The Judge in Westminster Magistrates’ Court refused to give effect to the measure and held that there was no abuse of process in this case.

The District Judge sought to distinguish this case from the Becchetti judgment on the basis that (i) Romania is an EU Member State and accordingly there is more comity which means the threshold for a finding of abuse of process is higher; (ii) unlike the Albanian authorities, Romania has not attempted to mislead the Court through unreliable documents; (iii) unlike Messrs Becchetti and de Renzis, Mr Adamescu is not a party to the arbitration; (iv) Albania sought an order for adjournment sine die whereas Romania submits that the extradition proceedings should continue.

In spite of the Judge’s attempt to distinguish his judgment from the Becchetti judgment, in at least two respects, the Adamescu judgment appears directly to contradict the Becchetti judgment.

First, unlike the Judge in Becchetti, the Judge in Adamescu seemed to consider the question of integrity of the arbitral proceedings almost exclusively from the point of view of Romania. He referred to Quilborax v. Bolivia, (ICSID Case No. ARB/06/2) explaining that Bolivia chose not to comply with the provisional measure in respect of the criminal proceedings which did not seem to have impacted the proceedings or have “any adverse consequences for the government.”

He referred to Mr Adamescu’s role as a witness but noted that he had already given evidence before the arbitral tribunal during the hearing relating to the provisional measures and would have the opportunity to do so before the full extradition hearing due to take place from 27th November to 1st December 2017. Whilst this highlights the Judge’s lack of familiarity with arbitration proceedings (in particular, the extent of the evidence, the manner in which arbitration lawyers work with their client, the length of the proceedings and of the hearing itself), it is understandable for a District Judge specialising in extradition where, on average, hearings last only one or two hours.

Secondly, and perhaps more importantly, contrary to the Judge in Becchetti, the Judge in Adamescu did not consider that he was bound to give effect to the provisional measure. He held that ICSID provisional measures only extended to parties to the arbitration and were not binding on a domestic court. He made a distinction between provisional measures and final awards, noting that provisional measures are binding but only final awards are enforceable. He found that an ICSID tribunal is permitted to issue provisional measures but must give proper consideration to comity. In reaching this conclusion, the Judge appeared to rely on an article adduced by Romania in which the author, Daniel Kalderimis, was critical of the lack of comity arising out of “world-wide orders pre-empting the decisions of other courts or tribunals.”

The Judge failed to address the expert evidence of Judge Schwebel which was adduced by Mr Adamescu, indicating that non-respect of the provisional measure by Romania constituted an internationally wrongful act.

Yet, on the international plane, by allowing Romania to commit an internationally wrongful act, the UK could also be found to be in breach of its own obligations to give effect to a treaty it is party to, the ICSID Convention.

As for the domestic plane, the ICSID Convention has been incorporated into English law in its entirety. One would have expected the Judge to address how the obligation to give effect to the ICISD Convention was affected by his decision to disregard an order made by an ICSID tribunal.

This being said, the two judgments are merely first instance judgments, which means that the dice are yet to be finally cast on effect of ICSID provisional measures suspending criminal proceedings in England.

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Jurisdictional Decision Finding that an FAI Arbitration Clause in a Draft Agreement was Valid and Binding on the Parties

Thu, 2017-09-28 23:56

Mika Savola


It is not unusual that parties to FAI arbitration proceedings raise various jurisdictional objections before the Finland Arbitration Institute (“FAI”) and, provided that FAI will nonetheless allow the arbitration to proceed, subsequently also before the arbitral tribunal. Such objections come in all shapes and sizes. For example, respondent may dispute the existence of an arbitration agreement on the grounds that the main contract in which the alleged arbitration cause is embedded is merely a draft which was neither finalized nor accepted by the parties and which is therefore not binding on them. The following case from the recent FAI practice serves as an example of how an arbitral tribunal seated in Finland addressed this question under Finnish law.

Background of the dispute

An Irish company A had entered into negotiations with a Finnish company B with a view to signing a business contract. During the negotiations, the parties had exchanged various drafts of the agreement, all of which contained an arbitration clause providing for arbitration under the FAI Arbitration Rules (“FAI Rules”). The clause read as follows: “Any dispute, controversy or claim arising out of or relating to this Agreement, or the breach, termination or validity thereof shall be finally settled by arbitration in accordance with the Arbitration Rules of the Finnish Central Chamber of Commerce.”

Once a dispute arose between the parties, A commenced FAI arbitration proceedings against B. In its answer to A’s request for arbitration, B raised a jurisdictional plea, contending that there was no valid and binding arbitration agreement as the parties had never signed and accepted the alleged main agreement in which the purported arbitration clause was inserted. On the other hand, B also noted that, in the event that FAI allowed the arbitration to proceed, B agreed with A’s proposal that there should be a three-member arbitral tribunal and that the seat of arbitration should be Helsinki, Finland.

Applying the prima facie jurisdictional test set out in Article 14 FAI Rules, FAI was satisfied that there may exist a valid FAI arbitration agreement binding on the parties, thereby allowing the arbitration to proceed and constituting a three-member arbitral tribunal as agreed by the parties. As B upheld its jurisdictional objection before the arbitral tribunal, the latter chose to determine the question of jurisdiction by issuing a separate jurisdictional decision at the outset of the proceedings. In its decision, the arbitral tribunal found that there was a valid and enforceable arbitration agreement binding on the parties. Below is a summary of the reasons for the arbitral tribunal’s decision.

Reasons for the arbitral tribunal’s decision

(i) It is a well-established and fundamental principle of law that an arbitration agreement is a separate and independent agreement even when incorporated into a contract. Further, the validity and enforceability of an arbitration agreement is not dependent on the validity or enforceability of the underlying contract meant to be covered by the arbitration agreement.

(ii) It follows from Section 3 of the Finnish Arbitration Act (967/1992; “the Act”) that a valid and enforceable arbitration agreement may exist even in the absence of a contract signed by both parties. The Act does, however, impose a requirement that an arbitration agreement must be in writing. According to Section 3, it may be formed by correspondence, or by exchange of telegrams or telex messages, or documents exchanged in another corresponding manner. Also a mere reference to a document containing an arbitration clause is sufficient to conclude a valid arbitration agreement.

(iii) A submits that it has sent the draft agreement containing the above-quoted arbitration clause to B for signing, but B failed to sign and return it to A. However, B never objected to the arbitration clause, and both parties have since then acted in accordance with the terms of the draft agreement.

(iv) A also submits that on [date], B’s officer Ms. X sent an email to the officers of A, as well as to other officers of B, proposing that an arbitration clause be incorporated into the draft agreement. The wording of the arbitration clause proposed by Ms. X was identical with the one that A had originally suggested to B.

(v) Furthermore, on [date], Ms. X sent to the officers of both companies by email a slightly revised draft agreement, which contained yet again an arbitration clause of similar wording.

(vi) In light of the evidence produced to the arbitral tribunal, both parties have – allegedly by ordinary mail, and in any case by email (constituting “in another corresponding manner” in the meaning of Section 3 of the Act) – exchanged messages expressing their willingness to agree on an arbitration agreement of identical wording. Neither party has raised any objections.

(vii) Based on this documentary evidence, and applying Section 3 of the Act, a valid and enforceable arbitration agreement has been formed between the parties.

(viii) lt is, however, another issue whether or not the claims to be made and the relief sought in these proceedings are covered by the arbitration agreement so formed (scope of the arbitration agreement). Such objections may be raised first once A has submitted its Statement of Claim with sufficient specification. Once so submitted, B may raise objections that any of the claims made are not within the scope of the arbitration agreement.


In the above-cited case, the arbitral tribunal determined the validity of the arbitration clause on the basis of the law of the seat of arbitration, i.e. Finnish law. It is well-known that the choice-of-law question is approached differently in different jurisdictions. At the risk of oversimplification, in civil law countries, the law of the seat is typically decisive in this regard, whereas in many common-law jurisdictions, the validity of an arbitration clause is generally determined not by application of lex arbitri but by the law governing the underlying contract.

It also appears that arbitral tribunals and courts in different countries address differently the issue of whether, and under what conditions, an arbitration clause in a draft agreement may be deemed binding on the parties. For example, in its recent judgment in BCY v BCZ [2016] SGHC 249, the High Court of Singapore ruled (in contrast to the sole arbitrator appointed by the ICC Court in the preceding ICC arbitration proceedings) that an arbitration clause in an unexecuted draft Sale and Purchase Agreement (“SPA”) was not valid and enforceable under New York law, which was the governing law of the (draft) SPA and which both the sole arbitrator and the High Court also found to govern the (purported) arbitration agreement. According to the High Court, there was no objective evidence of the parties’ mutual intention to be bound by the arbitration agreement in the absence of a properly executed underlying SPA, considering that a party is entitled to make any amendments to the contract, including the arbitration agreement, before it is signed.

The case BCY v BCZ has been previously commented upon in the Kluwer Arbitration Blog by Khushboo Shahdadpuri. As noted by the author, despite the outcome of the Singapore High Court’s judgment, each case will turn on its own merits, and there may well be circumstances that would reflect parties’ intention to be bound by the arbitration agreement independently of, and/or prior to, the underlying contract. In fact, in a recent decision concerning the validity of an arbitration clause in a draft contract, the Swiss Supreme Court came to a different conclusion than the Singapore High Court in BCY v BCZ (Swiss Supreme Court, 4A_84/2015, February 18, 2016). The facts of that case can be briefly summarized as follows (see also comment by Tavernier Tschanz).

The seller had asked the buyer to sign a “frame contract” for their business relationship. The draft contract provided that it was governed by Swiss law and that any disputes in relation to the contract shall be finally resolved in accordance with the Swiss Rules of International Arbitration. In the course of their negotiations, the parties exchanged modified versions of the draft contract; in the last two versions, the arbitration clause remained unchanged. However, the parties never signed a final contract, and the buyer refused to pay to the seller the advance payment as required by the terms of the draft contract.

Once the seller launched arbitration proceedings against the buyer, the latter raised a jurisdictional objection for lack of a valid arbitration agreement. The sole arbitrator appointed by the Court of the Chamber of Commerce of the Canton of Ticino found that, although the underlying contract was not signed by the parties, a valid and binding arbitration agreement had nevertheless come into existence. The buyer challenged the jurisdictional award, but the Swiss Supreme Court sided with the sole arbitrator: it held that the parties had validly agreed on an arbitration agreement during the negotiations of their main contract, regardless of the fact that they had ultimately failed to sign a final main contract. While noting that a mere exchange of draft contracts containing an arbitration clause would not normally suffice to constitute an arbitration agreement binding on the parties, the Supreme Court went on to state that there are certain “additional qualified circumstances” that can still confer jurisdiction upon an arbitral tribunal to resolve claims based on the underlying (draft) contract. According to the Supreme Court, these include (i) instances where the parties have previously concluded several contracts containing the same arbitration clause; (ii) the parties’ objectively understandable interest to opt for arbitration (e.g., neutral forum/language and confidentiality); and (iii) the exchange of drafts establishing the parties’ common will to enter into an arbitration agreement (e.g., where the arbitration clause remains unchanged in subsequent drafts), irrespective of the outcome of the negotiations regarding the main contract.

Final remarks

The above-stated serves to illustrate that the question of the validity and binding effect of an arbitration clause in a draft agreement remains a “hot topic” in international arbitration. It defies easy answers, and will depend on case-specific circumstances. Such circumstances will require careful analysis and assessment of the arbitral tribunal and – should the tribunal’s positive jurisdictional award be challenged – of competent state courts.

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Sketching the Setting Aside of Arbitral Awards in Serbia

Wed, 2017-09-27 22:52

Tanja Šumar and Vanja Tica


For many doing business in Serbia, the local legal framework, including for arbitration, is the great unknown. However, a short introduction to this legal culture should suffice to reveal that when it comes to arbitration-related matters, Serbian laws are not so different from those in countries hosting some of the most popular arbitral seats.

In fact, one might find the Serbian legal framework on arbitration to be very familiar, having been transplanted from the 1985 UNCITRAL Model Law on International Commercial Arbitration.

Chiefly in that regard, the Serbian Arbitration Act (2006) largely reflects the solutions offered in the UNCITRAL Model Law, from its basic principles, to the more specific provisions on arbitral proceedings and recourse against the award.

In particular, when it comes to challenging an arbitral award rendered in Serbia (if Serbian procedural law was applied to the arbitration proceedings), the only recourse envisaged is setting aside.

The Serbian Arbitration Act adopted the UNCITRAL Model Law’s general pro-enforcement tendency and provided for much of the same grounds (limited in number and scope) for setting aside, with only one additional ground to be proven by the applicant, i.e. that the award was based on a false witness or expert testimony, counterfeit documents or criminal acts by arbitrators or parties, as established in a final and binding criminal court judgment.

Likewise taking after the UNCITRAL Model Law, the time window for the unsuccessful party to apply for setting aside under the Serbian Arbitration Act is relatively narrow: three months from receiving the award. Interestingly, the same also applies in cases where the applicant wishes to argue the additional ground for the setting aside of the award. Since this particular ground can only be relied upon if the applicant is in possession of a final and binding criminal court judgment, meeting the three-month deadline may become difficult.

Regardless, in the overall spirit of the Serbian Arbitration Act, court practice also adopts a pro-enforcement bias.

For example, violations of public policy, one of the most frequently invoked grounds, has been interpreted restrictively, as violations of fundamental principles of justice on which the legal system rests or violations of those domestic norms which protect the most basic values of our legal system. Additionally, courts hold that this ground may not be invoked where Serbian substantive law was applied in the underlying arbitration.

Furthermore, although non-arbitrability as a ground for setting aside has not yet been widely discussed in Serbian state court practice, the existing court rulings give rise to some basic considerations. In general, an arbitrable dispute is a pecuniary dispute concerning rights which the parties can freely dispose of, except for those that fall under the exclusive jurisdiction of the Serbian state courts. Exclusive jurisdiction of the Serbian state courts, a rare occurrence as it is, has been mostly discussed in terms of real property rights, insolvency proceedings, privatisations, intellectual property rights and specific corporate matters. Still, a relatively young national arbitration system may find it a tough challenge, despite the nicely wrapped setting aside mechanism, if the unsuccessful party tries to re-argue the merits of the underlying case or to sway the court to interpret the setting aside grounds beyond, or even contrary to, their intended meaning.

However, for all the well-tested UNCITRAL Model Law solutions implemented in the Serbian Arbitration Act, there is a drawback: The setting aside procedure may, and almost always will, go through several court instances.

Owing to the lack of specific provisions for this type of court proceedings, setting aside is a standard litigation in Serbia. The first instance court judgment regarding the application for setting aside of an arbitral award can be brought before an appellate instance, which may return the case for retrial, but even the decision on remand is susceptible to a separate appeal. The dissatisfied party may further resort to extraordinary legal remedies, in some cases even bringing the case to the Supreme Court of Cassation.

This does not align well with the general rule that domestic arbitral awards are, by law, equal to final and binding domestic court judgments. Final and binding court judgments are subject only to extraordinary legal remedies as per the Serbian Code of Civil Proceedings, and judges are familiar with the legal standards applicable under such remedies because they have to a large extent been applying the same provisions for decades. Final arbitral awards are subject only to setting aside, which is in essence an extraordinary legal remedy, but the real difference between the “regular” extraordinary legal remedies and setting aside is not only in the judges’ familiarity with the applicable standards.

Indeed, when a court judgment is challenged through extraordinary legal remedies, the decisions on the remedies pursued are not further susceptible to challenge in an appeal or extraordinary legal remedies of their own. These decisions are final. Yet, when a final arbitral award is challenged in a set-aside procedure, the court’s decision is not final, but is effectively treated as a common first instance litigation judgment.

However, the general pro-enforcement bias still outweighs this potential difficulty. Setting aside does not affect the enforcement of the final arbitral award. The winning party may move for enforcement before the public bailiff, obtain a decision on enforcement, and even receive the funds awarded to it, all while the setting aside procedure is pending. There are not many ways for the unsuccessful party, the enforcement debtor, to disrupt enforcement, and these are subject to stringent conditions. Until the arbitral award is set aside with a final and binding effect (i.e. if the setting aside has been upheld in the second instance), it is, indeed, a solid enforcement title.

Ultimately, although some obstacles were noted in the Serbian Arbitration Act, they should not be so hard to remove. Amendments to the Arbitration Act could be enacted to provide for a different deadline for submission of the application arguing the one additional ground for the setting aside, and for a limitation of the set-aside procedure to only one court instance. Such amendments also could be the opportunity to further improve the existing legal framework and reflect the developments in the UNCITRAL Model Law of 2006, such as elaboration on arbitral interim measures.

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Finality v. International Comity – Enforcement of Awards annulled in the Primary Jurisdiction

Tue, 2017-09-26 22:20

Brunda Karanam

The finality of an award is a key feature and attraction of arbitration as a method of dispute resolution. When an award is annulled at the seat, however, enforcing courts in secondary jurisdictions must decide between enforcing the award or honoring the seat-court’s nullification. This issue assumes significance in light of the recent judgment of the US Court of Appeals for the Second Circuit in Thai-Lao Lignite (Thailand) Co., Ltd. v. Laos No.14-597 (2d Cir. 2017).

Article V (i)(e) of the New York Convention provides that “the recognition and enforcement of the award may be refused if the award …..has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.” The use of the word “may” suggests a discretion granted to the courts, where recognition and enforcement of a nullified award is sought. Courts in the United States have applied varying interpretation of this language.

In Chromalloy Gas Turbine Corp. v. Egypt, 939 F.Supp. 907 (D.D.C. 1996), the US District Court for the District of Columbia recognized an award rendered in Egypt, despite the fact that the award had been annulled by an Egyptian court. The US Court read the discretionary standard of Article V, along with the mandatory standard in Article VII of the New York Convention, which requires that “the provisions of the present Convention shall not… deprive any interested party of any right he may have to avail himself of an arbitral award in the manner and to the extent allowed by law… of the country where such award is sought to be relied upon..” However, the court did not analyse in detail, whether the “right” referred to in Article VII survived the annulment of the award in the seat. The court considered this to be a case of first impression, and reasoned that recognizing the seat’s annulment of the award would be contrary to the US pro-arbitration public policy. The court also ruled that “comity does not and may not have the preclusive effect upon U.S. law” and concluded that the award was valid under US law.

The US Court of Appeals for the Second Circuit applied a different interpretation, however, in Baker Marine (Nig.) Ltd. v. Chevron (Nig.) Ltd., 191 F. 3d 194 (2d Cir. 1999). There, the Second Circuit recognized Nigerian courts’ judgments setting aside an arbitral award, on the ground that “no adequate reason was shown for refusing to recognize” them. The court in Baker Marine also cautioned against forum shopping, stating that “a losing party will have every reason to pursue enforcement actions in every country until a court is found which grants enforcement.” Subsequent cases reaffirmed Baker Marine. See Spier v. Calzaturificio Tecnica, S.p.A., 71 F.Supp.2d 279, 288 (S.D.N.Y. 1999) (stating that “when a competent foreign court has nullified a foreign arbitration award, United States courts should not go behind that decision absent extraordinary circumstances”); TermoRio v. Electranta, 487 F.3d 928 (D.C. Cir. 2007) (declining to enforce an award nullified by a Colombian court because the arbitrators’ procedures had violated Colombian law, the law governing the arbitration).

In Pemex Corporacion Mexicana De Mantenimiento Integral v. Pemex Exploracion Y Produccion, 962 F. Supp. 2d 642 (S.D.N.Y. 2013) (as affirmed by the Second Circuit), the United States District Court of New York declined to recognize an award-nullification by the Eleventh Collegiate Court on Mexico, on the ground that the nullification “…violated basic notions of justice” by applying a law retroactively to favour a state enterprise over a private party. As discussed previously on this blog, the court in Pemex harmonized Chromalloy, Baker Marine and TermoRio by ruling that Chromalloy still holds the field, as both Baker and TermoRio also opined that a court should not recognize a nullification that conflicts with fundamental notions of fairness. The court distinguished Baker and TermoRio on the ground that neither involved a retroactive application of law.

In the recent ruling of Thai-Lignite, the Second Circuit upheld the district court’s decision to vacate its earlier judgment of enforcing the award. The motion to vacate the judgment under Rule 60(b)(5) of the Federal Rules of Civil Procedure was granted, as the award was set aside by the courts in the seat. The petitioners in Thai-Lignite began enforcement actions in the US, UK and France only after the limitation period of challenging the award in Malaysia had expired. In August 2011, the US District Court for the Southern District of New York enforced the award. After the expiry of the limitation period to challenge the award in its seat (the time to file an appeal had expired in early February 2010, and the application to set aside the award was made only in October 2010), Laos (the respondent in the arbitration proceedings) moved the Malaysian court for an extension of time to challenge the award, and the award was annulled in 2012. Laos explained that it was unaware of the deadline. While reversing the judgment of the Malaysian High Court, the Court of Appeal of Malaysia found it appropriate to grant extension of time for a foreign sovereign, owing to the lack of knowledge of Malaysian law. The award was annulled on the ground that the tribunal exceeded its jurisdiction and that the tribunal had co-mingled the claims. The award was annulled almost a year and a half after the US District Court entered judgment to enforce the award.

After the US district court vacated its initial decision to enforce the award, the petitioners in Thai Lignite appealed the decision to the Second Circuit.

In rejecting the petitioners’ challenge, Second Circuit observed that while Article V(1)(e) of the New York Convention grants discretion to the court to enforce an award that has been annulled in its primary jurisdiction, “it does not say that the enforcement of the award must be refused.” Based on TermoRio and Pemex, the Second Circuit held that the scope of discretion granted is “constrained by the prudential concern of international comity.” As mentioned earlier, in TermoRio, it was held that a decision of the court annulling an award in the primary jurisdiction must be given effect to, unless it offends the public policy of the state in which enforcement is sought. Pemex expanded the scope of discretion by stating that US courts may refuse to recognize a foreign court’s nullification “to vindicate fundamental notions of what is just and decent.” The court in Thai Lignite had to decide between its own previous judgment granting enforcement of the award and the UK court’s decision enforcing the award on one hand, and the Malaysian court’s decision annulling the award on the other. The court observed that Article III of the NY Convention suggests that “a court should apply its procedural rules for vacating judgments to its judgments enforcing awards” and that Rule 60(b) is one such rule of procedure.

This judgment assumes significance on account of two main issues: (i) Application of Rule 60(b) to arbitral awards annulled in the primary jurisdiction and (ii) Enforcement of awards annulled in the primary jurisdiction. Thai Lignite unequivocally establishes that Rule 60(b) applies to judgments entered under the New York Convention. It further confirms that Article V(1)(e) considerations may be readily incorporated into Rule 60 (b) analysis. Thus, an analysis under Rule 60(b) is also subject to public policy, fundamental notions of justice and prudential concern for international comity.

As discussed previously on this blog, though Thai Lignite affirmed the reasoning in Pemex, it did not enforce an annulled award (unlike in Pemex). The court differentiates the two scenarios – in Pemex, the laws of the foreign jurisdiction were amended retroactively, leaving the claimant without a remedy; but in Thai Lignite, the dispute would be re-arbitrated. The court further notes that the circumstances in Thai Lignite were “far less suspect” so as to not offend the fundamental notions of justice. The court agreed with the district court’s reasoning that equity demands that deference be given to the decision of the primary jurisdiction (Malaysian court judgment) annulling the award over the English judgment enforcing the award.

When considering a seat’s annulment of an arbitral award, courts in a secondary jurisdiction must decide between (i) a pro-arbitration approach recognizing the finality of an award and (ii) international comity of recognizing the judgment of a court in a primary jurisdiction annulling the award. In Thai Lignite, the court makes clear that an annulment in the primary jurisdiction should receive deference, in the interest of international comity. This is subject to exceptions of public policy, and fundamental notions of justice and fairness, as discussed here. In light of the outcome in Thai-Lignite, the need to select a pro-arbitration seat, with a non-interventionist judiciary, is paramount.

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FIDIC Construction Contracts and Arbitration: The Role of Dispute Adjudication Boards and the Importance of Governing Law

Tue, 2017-09-26 02:05

Alexandros Tsirigos, Evi Georgiadi and Tasos Kollas

An illustrative case study

FIDIC’s standard forms of contract are widely used by parties of different nationalities as a contractual benchmark for the implementation of large scale construction projects worldwide. A special feature of FIDIC forms of contract is its built-in dispute resolution process through adjudication by a Dispute Adjudication Board (DAB).

One of the key perceived advantages of FIDIC forms of contract is that contracting parties are generally familiar with their standardized terms and value the legal certainty which their anticipated uniform application across jurisdictions offers. With respect to the DAB mechanism in particular, it is generally considered by market players as a success story in terms of promoting the efficient and cost effective resolution of disputes.

Nonetheless, a recent ICC award, the fourth of a series of ICC awards preceded by six DAB decisions during a 10-year old dispute regarding an infrastructure project in Romania, could cast doubts on the efficacy of the FIDIC DAB mechanism. This case also comes as a useful reminder that the effect of the governing law of the contract should not be underestimated, even in the FIDIC standardized contractual context.

The Key Matters in Dispute – Legal and Policy Issues in the Spotlight

The circumstances of the protracted dispute between the Contractor and the Employer were typical for similar construction projects. Delays in the project completion gave rise to a series of disputes involving the Contractor’s claims for Extension of Time for Completion (EOT) and additional payment and respective Employer’s counterclaims for delay damages. Following a longtime “battle” involving six DAB decisions, two ICC arbitrations, and numerous local court enforcement proceedings, the Parties resorted to a third ICC arbitration to resolve remaining open issues.

The key issue in dispute was whether the Contractor was entitled to claim back the major part of the delay damages imposed under the Contract1)Sub-Clause 8.7 of the FIDIC Contract (FIDIC Conditions of Contract for Construction (First Ed. 1999 Red Book)). jQuery("#footnote_plugin_tooltip_9642_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9642_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, considering that the Contractor had timely completed the major part of the Works, although no partial Taking Over certificates had been issued, as provided under the Contract2)Sub-Clause 10.2 of the FIDIC Contract jQuery("#footnote_plugin_tooltip_9642_2").tooltip({ tip: "#footnote_plugin_tooltip_text_9642_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });. An important point is that various contractual aspects regarding extension of time, partial taking-over and delay damages had been previously addressed in a number of DAB decisions and other ICC arbitrations, raising issues of res judicata potentially barring contractual claims.

A set of interesting legal questions were raised in this case touching upon the interpretation of certain FIDIC contract provisions, including:

  • Does the failure to issue a Notice of Dissatisfaction3)Sub-Clause 20.4 of the FIDIC Contract. jQuery("#footnote_plugin_tooltip_9642_3").tooltip({ tip: "#footnote_plugin_tooltip_text_9642_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); in relation to a DAB decision ruling on the date of the Taking-Over of the Works4)Sub-Clause 10.1 of the FIDIC Contract. jQuery("#footnote_plugin_tooltip_9642_4").tooltip({ tip: "#footnote_plugin_tooltip_text_9642_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); preclude the referral to arbitration of a claim for the pro rata reduction of delay damages to account for the use of parts of the Works5)Sub-Clauses 8.7. and 10.2 of the FIDIC Contract. jQuery("#footnote_plugin_tooltip_9642_5").tooltip({ tip: "#footnote_plugin_tooltip_text_9642_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });?
  • Assuming that a party is contractually barred under FIDIC Contract provisions from bringing to arbitration a claim in the aforementioned context, would it nevertheless be entitled to invoke in arbitration the respective provisions of applicable law?

Perhaps more importantly, though, the fact that the Parties had to go through numerous dispute resolution proceedings, whereby practically none of the six DAB decisions issued were complied with voluntarily by the Parties, raises the broader policy question whether the FIDIC DAB procedure remains an effective tool for the timely and cost-effective resolution of construction disputes.

Key Facts of the Dispute in a Nutshell

The original Time for the Completion was in May 2007. During the Project Implementation various disputes arose between the Parties, including those in relation to delays in the execution of Works. The Contractor initiated the first ICC arbitration, claiming EOT and additional cost, in 2006, at a time when the Works were still in progress and no DAB was yet in place. The Parties later decided to suspend the first ICC arbitration proceedings and agreed to set up the DAB.

At that time, the Contractor’s claims for EOT and additional cost were still pending, while the major part of the Works had been completed and used by the Employer. However, the Engineer refused to issue a Taking-Over Certificate pursuant to the Contract6)Sub-Clause 10.1 of the FIDIC Contract. jQuery("#footnote_plugin_tooltip_9642_6").tooltip({ tip: "#footnote_plugin_tooltip_text_9642_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });.

The Contractor referred, inter alia, the matter of issuance of the Taking-Over Certificate7)Sub Clause 10.1 of the FIDIC Contract. jQuery("#footnote_plugin_tooltip_9642_7").tooltip({ tip: "#footnote_plugin_tooltip_text_9642_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); to the DAB for adjudication. The DAB decided that the Taking-Over Certificate should be deemed issued as of January 2009. No Party submitted a Notice of Dissatisfaction against that DAB decision.

Nonetheless, the Contractor’s initial claims for EOT and additional cost had still not been finally resolved and the first ICC proceedings were resumed. First a partial and then a final ICC award was issued in 2009, awarding a 7-month EOT for Employer’s Risk Delay Events and compensation for additional cost.

In the meantime, the Parties referred to the DAB several other matters, including new claims of the Contractor for additional EOT and cost and counterclaims of the Employer for delay damages. Respective DAB decisions were issued, against which both Parties gave Notices of Dissatisfaction. A second ICC arbitration award was handed down in January 2014 awarding to the Contractor a further 9-month EOT and compensation for Employer’s Delay Risk Events.
In July 2015, the Contractor initiated a third ICC arbitration claiming, inter alia, that the major part of the delay damages had been determined by the Engineer in the breach of the Contract and should be reduced proportionately to the value of the parts of the Works which had been completed and were being used by the Employer at the time of the (extended) Time for Completion.8)see Sub-Clauses 8.7 and 10.2 of the FIDIC Contract. jQuery("#footnote_plugin_tooltip_9642_8").tooltip({ tip: "#footnote_plugin_tooltip_text_9642_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The matter of pro rata reduction of delay damages had been previously rejected by the DAB on procedural grounds, based on the fact that the date of the Taking-Over Certificate had been irrevocably fixed in a previous DAB decision (“First DAB Decision”), against which no Notice of Dissatisfaction had been given. Hence, that First DAB Decision had become final and binding for the Parties and the matter could not be revisited in the context of a posterior DAB decision (“Second DAB Decision”).9)Sub-Clause 20.4 of the FIDIC Contract. jQuery("#footnote_plugin_tooltip_9642_9").tooltip({ tip: "#footnote_plugin_tooltip_text_9642_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The legal basis of the Contractor’s claim in this third ICC referral was two-fold.

  • First, as a matter of contract, the Contractor argued that the claim for a pro rata reduction of delay damages did not fall within the scope of the final and binding First DAB Decision but was a different claim premised on the provisions of the Contract.10)Sub-Clauses 10.2, 8.7 and 3.5 of the FIDIC Contract. jQuery("#footnote_plugin_tooltip_9642_10").tooltip({ tip: "#footnote_plugin_tooltip_text_9642_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });
  • Second, as a matter of law, the Contractor’s claim was independently founded on Romanian applicable law and, in specific Article 1070 of the Civil Code (1864) providing for the pro rata reduction of a contractual penalty in case of partial performance.

The Decision of the Sole Arbitrator

In January 2017, the arbitral award was issued. As regards the issue of delay damages, the Sole Arbitrator reached the following conclusions:

  • The Sole Arbitrator rejected the Contractor’s primary contractual claim, ruling that the application of the provisions of the Contract would involve reopening the final and binding First DAB Decision.11)Sub-Clause 10.2 of the FIDIC Contract. jQuery("#footnote_plugin_tooltip_9642_11").tooltip({ tip: "#footnote_plugin_tooltip_text_9642_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Sole Arbitrator considered that, in the given circumstances, the “matter in dispute” was in essence the same, given that both the Contractor’s DAB referral and the First DAB Decision centered on a broad consideration of the provisions of the Contract.12)Sub-Clauses 10.1 and 10.2 of the FIDIC Contract. jQuery("#footnote_plugin_tooltip_9642_12").tooltip({ tip: "#footnote_plugin_tooltip_text_9642_12", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Thus, the Contractor was barred from referring the matter to arbitration, given that it had not submitted a Notice of Dissatisfaction to the First DAB Decision.
  • However, the Sole Arbitrator accepted the Contractor’s secondary legal basis and reduced the delay damages amount by applying Article 1070 of the Romanian Civil Code. The Sole Arbitrator considered that the amount of delay damages provided for under the Contract was excessive under the given circumstances and should be reduced in light of the partial performance of the Contractor’s obligations.

Interestingly, albeit ruling that the Contractor’s contractual claim did not fall within Tribunal’s jurisdiction, the Sole Arbitrator relied on the applicable law provisions as a means of granting the requested relief.

Lessons Learned

The manner in which the dispute was resolved in the recent ICC award offers an educative insight in the way arbitrators tend to apply FIDIC contractual provisions in combination with applicable law.

Lesson 1 – Parties should be cautious to adhere to the FIDIC dispute resolution provisions prior to referring disputes to arbitration.

In the case at hand, the Contractor was precluded from having its contractual claim be examined on its merits in arbitration because it had failed to give a Notice of Dissatisfaction to a DAB decision which had ruled on a matter closely connected with – but separate from – the issue in dispute. The bottom line: when in doubt about whether a matter falls within the scope of the DAB decision or not, it would be prudent to timely give a Notice of Dissatisfaction in order to be on the safe side.

Lesson 2 – The importance of applicable law should not be underestimated.

This case is a useful reminder of the importance of the governing law, even within the standardized FIDIC contractual context. The Sole Arbitrator partially granted the Contractor’s claim for deduction of delay damages as a matter of law, even though it had previously ruled that the Contractor was contractually precluded from raising such a claim.

Other than the case specific lessons learned, this case raises concerns regarding the effectiveness of the FIDIC DAB procedure and its interplay with arbitration. Although the DAB decisions were swiftly issued at a relatively low cost, practically none of them was complied with voluntarily by the Parties. In fact, one of the Parties sought and partially succeeded in arbitration, invoking applicable law provisions, to essentially revise a final and binding DAB decision several years after the issue in dispute first arose. The lack of time limit under FIDIC for bringing claims to arbitration following a DAB decision undermines the effectiveness and finality of the DAB process, resulting in time and cost inefficiencies, and may need to be revisited.


The FIDIC forms of contract are and will undoubtedly continue to be a very useful tool for parties of different nationalities seeking a familiar and business friendly contractual environment regulating construction projects. One of the most favorably commented aspect of FIDIC contracts relates to its dispute settlement process through the DAB. Far from negating the efficiency of this dispute resolution tool, this recent ICC award is a useful case study shedding light on legal issues typically encountered in this context and provides food for thought regarding ways of potentially enhancing the existing FIDIC dispute resolution mechanism.

References   [ + ]

1. ↑ Sub-Clause 8.7 of the FIDIC Contract (FIDIC Conditions of Contract for Construction (First Ed. 1999 Red Book)). 2. ↑ Sub-Clause 10.2 of the FIDIC Contract 3, 9. ↑ Sub-Clause 20.4 of the FIDIC Contract. 4, 6. ↑ Sub-Clause 10.1 of the FIDIC Contract. 5. ↑ Sub-Clauses 8.7. and 10.2 of the FIDIC Contract. 7. ↑ Sub Clause 10.1 of the FIDIC Contract. 8. ↑ see Sub-Clauses 8.7 and 10.2 of the FIDIC Contract. 10. ↑ Sub-Clauses 10.2, 8.7 and 3.5 of the FIDIC Contract. 11. ↑ Sub-Clause 10.2 of the FIDIC Contract. 12. ↑ Sub-Clauses 10.1 and 10.2 of the FIDIC Contract. 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: Arbitrators as Lawmakers
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Colombian Supreme Court Draws on the Different Standards of Review when Challenging the Independence and Impartiality of an Arbitrator in Domestic and International Arbitration

Sun, 2017-09-24 20:30

Raul Pereira de Souza Fleury

On July 12, 2017, the Colombian Supreme Court issued a decision on the enforcement of the arbitral award rendered in the ICC case (No. 16088/JFR/CA) Tampico Beverages Inc. v. Productos Naturales de la Sabana S.A. Alquería, seated in Santiago de Chile. The decision provides for an interesting differentiation of the standard of review to be applied when analyzing the independence and impartiality of an arbitrator, depending on whether the arbitration is domestic or international.


Background of the case

The case concerned a trademark license agreement concluded in 2001 that went sour and was terminated by Tampico in 2009.  Tampico initiated the ICC arbitration to declare the termination of the license contract and seek damages for the illegal commercialization of its trademark. The arbitral tribunal found in favor of Tampico in relation to the termination of the contract but declined to grant any damages. However, the tribunal ordered Alquería to pay for the arbitrators’ fees and for Tampico’s legal defense costs. After a failed attempt by Alquería to set aside the award in Chile, Tampico filed an exequatur with the Colombian Supreme Court to recognize and enforce the ICC award in Colombia.


The Supreme Court’s standard of review                    

One of Alquería’s arguments to deny the recognition and enforcement of the arbitral award was grounded on the fact that Tampico’s party-appointed arbitrator and its counsel were also related in an ICSID arbitration but with different roles: Tampico’s counsel was an arbitrator and its party-appointed arbitrator was counsel; a circumstance that was not disclosed and that according to Alquería, amounted to a public policy violation.

From the outset, the Supreme Court indicated that the situation described by Alquería could be reprehensible from an ethical standpoint and even violate mandatory domestic legal provisions.  However, such situation did not amount to a ground to stop the recognition of a foreign arbitral award because it did not violate Colombia’s international public policy. The Supreme Court indicated that the Colombian General Code of Procedure establishes fourteen grounds for the challenge of a judge, grounds that are incorporated by reference in article 16 of the Colombian Arbitration Act (Law No. 1563) (“CAA”) related to domestic arbitration. Article 75 of the CAA, which relates to international arbitration, prescribes a different provision for the challenge of an arbitrator, without listing specific grounds: “[a]n arbitrator may be challenged only if circumstances exist that give rise to justifiable doubts as to his impartiality or independence, or if he does not possess the qualifications agreed by the parties.”

Therefore, the Supreme Court concluded that this differentiation evidences that “the standard for impartiality that integrates the international public policy cannot be inferred from the current list established in the local procedural statutes; it must be adopted on the basis of reasonable criteria.” Under this premise, the Supreme Court went on to rely on international authorities rather than domestic ones. As such, it stated that in this context of international interpretation, the 2014 IBA Guidelines on Conflicts of Interest in International Arbitration reflects the practice in the arbitral community, indicating that these guidelines are frequently used by arbitral institutions and that in 2015, the ICC conducted a survey which showed that 106 of 187 cases in which the independence and impartiality of an arbitrator were at stake, the IBA Guidelines were used to decide such issues.

Relying on the IBA Guidelines as a non-binding but authoritative source of soft law, the Supreme Court concluded that none of the situations listed in the Guidelines that could affect an arbitrator’s independence and impartiality were met in the present case. Moreover, it added that international arbitrators form a reduced guild, where it is usual for them to coincide in different processes. Thus, there could only be a threat to their objectivity when the relationship transcends the professional field and passes to the personal one. This last reference to an “arbitrators’ guild” strongly resembles the situation described by Prof. Emmanuel Gaillard in his article “Sociology of International Arbitration,” where he describes how the world of international arbitration became a “recognized area of institutional life” that is still a “solidaristic model,” meaning that a small number of occasional players act in different capacities, which explains how arbitrators and counsels often alternate in those roles in different arbitration proceedings.

In conclusion, the Supreme Court found that nothing in the applicable law and in the IBA Guidelines compelled Tampico’s party-appointed arbitrator to communicate to the parties the existence of the ICSID arbitration in which he was counsel and therefore, there was no violation of Colombia’s international public policy. Moreover, the Supreme Court recalled that the disclosure requirements established in the domestic arbitration chapter of the CAA were not replicated in the international arbitration chapter and thus, one cannot infer the application of the same standards, for that was not the intention of the lawmakers, drawing a clear line between the standard of review for domestic and international arbitration.


The pro-enforcement stance

In addition to the reasoning indicated above, the Supreme Court also relied in the pro-enforcement principle established by the New York Convention (“NYC”), explaining that the notion of public order must be analyzed in light of this principle to avoid extensive interpretations and limit the application of the public order objection to the minimum. It recognized that this restrictive interpretation was the internationally accepted one since Parsons Whittemore Overseas Co Inc v. Société Générale de l’Industrie du Papier (the RAKTA case), in which the Court of Appeals for the Second Circuit reasoned that “[e]nforcement of foreign arbitral awards may be denied on [the basis of public policy] only where enforcement would violate the forum state’s most basic notions of morality and justice.”

In light of this principle, the Supreme Court reasoned that when in doubt, one must decide in favor of the recognition and enforcement of a foreign arbitral award. The violation of the public order must be manifest in order to deny the recognition and enforcement, a circumstance that was missing in the present case, since the lack of disclosure of the ICSID case did not violate essential values of the Colombian state.


Final words

The decision of the Colombian Supreme Court is certainly welcomed to aid and guide the review of an arbitrator’s independence and impartiality in international arbitration proceedings seated in Colombia, as well as the recognition of the evermore-important IBA Guidelines on Conflicts of Interest in International Arbitration.

In addition, the clear differentiation of the dual system of international and domestic arbitration enshrined in the CAA warrants that pure local laws and regulations will not intervene in the enforcement of foreign arbitral awards in Colombia.

Finally, the decision reiterates the well-established rule that challenges grounded on the violation of public policy must be analyzed restrictively, an interpretation that furthers the safeguarding of the NYC’s pro-enforcement nature and purpose.

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Yukos and the Provisional Application of the GATT: An (im)perfect Analogue?

Wed, 2017-09-20 20:01

Odysseas Repousis

The 1947 General Agreement on Tariffs and Trade (GATT) is often portrayed as one of the longest lived provisionally applied international treaties.  The GATT was signed in October 1947 as a temporary/“stopgap measure” that would later operate under the auspices of the International Trade Organization (ITO), the third pillar of the Bretton Woods system (with the other two being the IMF and the World Bank).  At least that was the plan.  However, the ITO was never established.  This led to the provisional application of the GATT for forty-seven years, i.e. until the World Trade Organization (WTO) was established in 1994.  The instrument through which the provisional application of the GATT was made possible was the Protocol of Provisional Application (PPA).

The PPA provided that Part II of the GATT (which includes a series of substantive protections, including various non-discriminatory standards) would apply provisionally on or after 1 January 1948 “to the fullest extent not inconsistent with existing legislation”. Now this stipulation sounds familiar.  In fact, this was a ‘limitation clause’ similar to that found in Article 45(1) of the Energy Charter Treaty (ECT), which provides for the provisional application of the ECT “to the extent that such provisional application is not inconsistent with” a signatory’s “constitution, laws or regulations”.

Readers will recall that the tribunal in the Yukos cases found that while this ‘limitation clause’ permitted a renvoi to the municipal law of the host State [290], it did not allow for a “piecemeal” application of the limitation clause.  The ECT either applied as a whole or it did not (“all-or-nothing”) [313-329].  On that basis, the Yukos tribunal determined that since the principle of provisional application was not inconsistent with Russian law there was nothing under Russian law preventing the application of the ECT on a provisional basis [330-338].  In the alternative, the tribunal determined that even if the piecemeal approach was followed, the provisional application of the investor-state arbitration clause in Article 26 of the ECT was not inconsistent with Russian law [370-392].

Conversely, the Hague District Court embarked on a piecemeal application, focusing specifically on the compatibility of ECT’s provisional application insofar as the investor-state arbitration clause was concerned (Article 26) [5.33].  On that basis, the District Court found that since investor-state arbitration was not expressly authorised under Russian law, it followed that investor-state dispute settlement could not operate on a provisional basis, i.e. absent ratification of the ECT [5.65-5.66].

At the heart therefore of the Yukos debate is whether the provisional application of ECT’s investor-state arbitration clause is consistent with Russia’s “constitution, laws or regulations”.  The Yukos tribunal and the Hague District Court arrived at opposite conclusions by examining the same provisions of the Russian Federal Law on International Treaties (FLIT) and the Law on Foreign Investments (FIL) of 1991 and 1999.

What neither the Yukos tribunal nor the Hague District Court did was to formulate a test or standard of review applicable to ‘limitation clauses’.  To begin with, it may be debatable whether such an exercise would have been permissible.  Still, one needs to delimit the boundaries of ‘inconsistency’ or else the application of ‘limitation clauses’ becomes a wholly subjective exercise.

An analogue can be found in the GATT, where the contracting parties determined that a measure would be caught by the ‘limitation clause’ only if “the legislation on which it is based is by its terms or expressed intent of a mandatory character – that is, it imposes on the executive authority requirements which cannot be modified by executive action”.  This standard of review was subsequently applied by several GATT Panels.  For example, in Canada – Import, distribution and sale of alcoholic drinks by provincial marketing authorities, a GATT Panel determined that the measure in question was not caught by the ‘limitation clause’ because “by its terms, enabled [Canada] to authorize Canadian brewers to sell beer but it did not mandatorily require it to do so and that Canada had not claimed that the Act, by its terms or expressed intent, prevented the liquor board from withdrawing the authorizations granted” [5.9].  In other words, under the GATT’s PPA, if the legislation –in force on the date of signature– on which a measure was based was mandatory, in the sense that it imposed on the executive authority requirements which could not be modified by executive action (but for which legislative action was required), then the provisional application of the GATT would be considered “inconsistent with existing legislation”.  Therefore, if the measure in question violated the GATT, but such measure was mandatory in the afore-mentioned sense, it would be caught by the ‘limitation clause’ and the GATT would be inapplicable.

If one were to apply the GATT standard of review in the context of Yukos, then the question could be whether the relevant Russian statutes, specifically the FLIT and FIL, impose on the executive an obligation not to accept the provisional application of an investor-state arbitration clause, or otherwise prevent the executive from agreeing to provisionally apply an investor-state arbitration clause (by delegating, for example, this power to the legislative).  Either way, under the GATT standard, the terms or expressed intent of the legislation at issue must specifically proscribe executive action.

In this respect, the FLIT provides that the decision to sign a treaty rests with the executive (Article 11).  Article 23(1) provides that “[a]n international treaty or a part thereof may, prior to its entry into force, be applied by the Russian Federation provisionally if the treaty itself so provides or if an agreement to such effect has been reached with the parties that have signed the treaty”.  In turn, Article 23(2) provides that “[d]ecisions on the provisional application of a treaty … shall be made by the body that has taken the decision to sign the international treaty according to the procedure set out in Article 11 of this Federal Law”, i.e. the executive.  Moreover, Article 6(1) provides that “[c]onsent of the Russian Federation to be bound by an international treaty may be expressed by means of: signature of the treaty”.

On the other hand, the 1991 FIL provides that:

Investment disputes, including disputes over the amount, conditions and procedure of the payment of compensation, shall be resolved by the Supreme Court of the RSFSR or the Supreme Arbitrazh Court of the RSFSR, unless another procedure is established by an international treaty in force in the territory of the RSFSR. [Article 9]

Similarly, the 1999 FIL provides that:

A dispute of a foreign investor arising in connection with its investments and business activity conducted in the territory of the Russian Federation shall be resolved in compliance with the international treaties of the Russian Federation and federal laws in a court, an arbitration court or international arbitration (arbitration tribunal). [Article 10]

Arguably, the above provisions do not clearly determine whether provisional application of an investor-state arbitration clause is inconsistent with Russia’s “constitution, laws or regulations”.  At the same time, if one were to accept the GATT standard of review, it is likely that the above provisions would fall short of establishing an obligation preventing the executive from agreeing to provisionally apply an investor-state arbitration clause.

However, as the complexity of life teaches us, analogies may not always be apposite.  After all, in the context of GATT’s provisional application, what was at stake was measures affecting trade in goods –not investor-state dispute settlement, and the contracting parties had themselves formulated a standard of review applicable to the PPA’s ‘limitation clause’.  Still, GATT’s standard of review of ‘limitation clauses’ could prove to be an analogue the courts and tribunals engaged in the Yukos saga may want to weigh in on.  Likewise, the GATT jurisprudence may prove to be attractive to the International Law Commission’s work on the topic of ‘provisional application of treaties’, which has recently turned its mind to the Yukos saga, but pushed away any conclusions as “premature” [65].


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India Secures Ex-parte Ad-interim Injunction Restraining Vodafone BIT Arbitration

Tue, 2017-09-19 16:22

Ashutosh Kumar and Anjali Anchayil

The long-standing tax dispute between India and the Vodafone, also previously discussed in here,  recently entered new territory when India secured an ex-parte ad-interim injunction restraining the continuation of one of two bilateral investment treaty (“BIT”) arbitration proceedings initiated against it by the Vodafone group.

A judge of the Delhi High Court granted this injunction on 22 August 2017 (I.A.9460/2017 in CS(OS) 383/2017) at the very first hearing of a civil suit filed by India against Vodafone Group PLC and Vodafone Consolidated Holdings Ltd. (the “Vodafone Entities”).


In April 2014, Vodafone International Holdings B.V. (the “Dutch BV”) initiated arbitration proceedings (the “First Arbitration”) under the India-Netherlands Bilateral Investment Promotion and Protection Agreement (the “India-Netherlands BIPA”). The dispute arose as a result of India’s efforts to impose tax liability on the Dutch BV for its alleged failure to deduct tax in relation to the indirect acquisition of an Indian company by the Dutch BV. Subsequently, in January 2017, the Vodafone Entities, as parent companies of the Dutch BV, initiated separate arbitration proceedings (the “Second Arbitration”) in relation to (broadly) the same dispute under the India-United Kingdom Bilateral Investment Promotion and Protection Agreement (“India-UK BIPA”).

In response, India filed a civil suit against the Vodafone Entities seeking declaratory and injunctive reliefs in relation to the Second Arbitration. India asserted that: (i) both arbitrations were based on the same cause of action and sought identical reliefs; (ii) the Second Arbitration constituted an abuse of law relying on the recent award in Orascom TMTI v. Algeria (ICSID Case No. ARB/12/35, 31 May 2017), where an ICSID arbitral tribunal had applied the doctrine of abuse of rights to decline jurisdiction over one of multiple parallel BIT arbitration proceedings; (iii) disputes in relation to tax demands were beyond the scope of BIT arbitration proceedings as taxation was a sovereign function and tax disputes could only be raised before domestic courts; and (iv) laws passed by the Indian Parliament could not be the subject of adjudication in BIT arbitration proceedings.

The injunction

The court granted an ex-parte ad-interim injunction restraining the Vodafone Entities from pursuing the Second Arbitration. It relied on the following conclusions: (i) the principles of Indian law applicable to anti-suit injunctions (see Modi Entertainment Network v. WSG Cricket Pte. Ltd., (2003) 4 SCC 341) were also applicable to anti-arbitration injunctions, and accordingly, an arbitration could be restrained by an injunction if such arbitration was “oppressive or vexatious”; (ii) prima facie there was a duplication of parties and reliefs in the two BIT arbitration proceedings; (iii) prima facie India was the “natural forum” to resolve the disputes raised by the Vodafone Entities; (iv) prima facie the Vodafone Entities and the Dutch BV constituted one economic entity/corporate group with common management and shareholders; (v) prima facie the filing of two BIT arbitration proceedings in such circumstances was an abuse of the process of law and created a risk of parallel proceedings and conflicting decisions; and (vi) prima facie it would be inequitable, unfair and unjust to permit the Vodafone Entities to prosecute the Second Arbitration.


The court noted the overlap between the two BIT arbitration proceedings and recognised the abuse of the process of law which would result as a direct consequence. The grant of an interim injunction in such circumstances was clearly justified. However, the decision suffered from certain procedural and analytical lacunae, which provide cause for concern. These lacunae are briefly noted below.

  • Lack of urgency justifying an ex-parte order

The ex-parte ad-interim injunction was granted under Order XXXIX of the Code of Civil Procedure, 1908 (the “CPC”). While Order XXXIX of the CPC permits a court hearing a civil suit to grant an ex-parte injunction, recourse to an ex-parte injunction is permissible only “where it appears that the object of granting the injunction would be defeated by delay”. In addition, a court granting an ex-parte injunction must “record the reasons for its opinion that the object of granting the injunction would be defeated by delay”. However, from a reading of the decision, it appears that no circumstances were cited by India to satisfy the above condition and the court did not record any reasons for its opinion to such effect. In fact, as the Second Arbitration appears to have not progressed beyond the appointment of arbitrators, there was no apparent urgency justifying an ex-parte order. This procedural lacuna may be relevant in any appeal against the ex-parte ad-interim injunction.

  • Tribunal being the more appropriate forum for relief

Although the court considered the award in Orascom TMTI v. Algeria, it did not acknowledge the implicit point that the more appropriate forum for relief in relation to parallel BIT arbitration proceedings would be the arbitral tribunal in the Second Arbitration. The arbitral tribunal would likely be better placed to assess the scope of the two BIT arbitration proceedings and the likelihood of parallel proceedings and conflicting decisions. In addition, by permitting the arbitral tribunal to decide this issue, the court would give due regard to the kompetenz-kompetenz principle. Accordingly, before granting an ex-parte ad-interim injunction, the court should have considered whether India should be directed to move an application before the arbitral tribunal in the Second Arbitration to seek an appropriate order declining jurisdiction. However, from a reading of the decision, it appears that this issue was not considered by the court. This analytical lacuna is another cause for concern. While the jurisdiction of the court to grant an injunction is not in doubt, the court appeared to disregard the more appropriate forum for relief and the kompetenz-kompetenz principle.

  • Lack of clarity as to the scope of BIT arbitration proceedings

India argued that disputes in relation to tax demands were beyond the scope of BIT arbitration proceedings as taxation was a sovereign function, and also that laws passed by the Indian Parliament could not be adjudicated in BIT arbitration proceedings. These arguments challenged the jurisdiction of the arbitral tribunals in the two BIT arbitration proceedings, and did not have any relevance to whether these BIT arbitration proceedings were “vexatious or oppressive”.

While the court did not specifically address these arguments, it seemed to see some merit in them as it prima facie held that India was “the natural forum for the litigation of the [Vodafone Entities’] claim against [India]”. This conclusion (although prima facie in nature) indicated a lack of clarity as to the scope of BIT arbitration proceedings. While Indian courts have certainly had limited experience in deciding issues relating to BIT arbitration proceedings, to not recognise that state action (including legislation) can potentially be challenged in BIT arbitration proceedings with reference to independent standards of protection guaranteed under BITs is a serious analytical lacuna. However, it is quite likely that the court will ultimately recognise this aspect as it deals with the civil suit further.

  • Application of principles applicable to anti-suit injunctions

The court granted an ex-parte ad-interim injunction by applying principles of Indian law applicable to anti-suit injunctions – specifically the principles laid down by the Supreme Court in Modi Entertainment Network v. WSG Cricket Pte. Ltd., (2003) 4 SCC 341. However, the application of these principles in the context of anti-arbitration injunctions was specifically rejected by a Division Bench of the Delhi High Court in McDonald’s India Private Limited v. Vikram Bakshi, (2016) SCC OnLine Del 3949, which is binding precedent for the court. Thus, the court appears to have applied incorrect principles to decide on the grant of the ex-parte ad-interim injunction. However, because BIT arbitration proceedings are substantially different from commercial arbitration proceedings (which were also the subject of the decision of the Delhi High Court in McDonald’s), it is arguable that principles applicable to anti-arbitration injunctions should not apply to BIT arbitration proceedings.


The ex-parte ad-interim injunction is likely to provide some respite to India. However, the procedural and analytical lacunae in the decision of the court leave it vulnerable to challenge. Therefore, this victory may only be short-lived. In any event, this civil suit is likely to test and redefine the contours of the law governing anti-arbitration injunctions in India – particularly in respect of BIT arbitration proceedings.

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Challenges to the Legitimacy of International Arbitration: A Report from the 29th Annual ITA Workshop

Tue, 2017-09-19 00:34

Michelle Grando


The 29th Annual Workshop of the Institute for Transnational Arbitration (“ITA”), which took place on 14-15 June 2017 in Dallas, focused on a timely subject of much importance to the future of international arbitration, namely, the “Challenges to the Legitimacy of International Arbitration.” The event was co-chaired by Caline Mouawad (King & Spalding), Jeremy K. Sharpe (Shearman & Sterling), and Jarrod Wong (McGeorge School of Law).

The tone of the workshop was positive and constructive, starting from the keynote speech delivered by Gary Born (WilmerHale). Gary Born demonstrated through historical references spanning more than two hundred years that the current criticisms of international arbitration are not new. Yet, international arbitration continues to exist and has become more widespread. Born argued that ultimately the success of international arbitration lies in the fact that it is an expression of individual rights such as the right to contract and the right to form relationships with others that are widely recognized and considered fundamental to any healthy society. He noted that States have not been able to come up with a better alternative, and concluded that it is difficult to imagine the world without international arbitration.

Following the keynote address, the speakers identified several challenges to the legitimacy of international arbitration, including issues regarding the decision-makers, the conduct of counsel, the efficiency of the proceedings, and domestic court oversight, among others. These issues are addressed in turn and are followed by concluding considerations about whether the existing criticisms indicate that international arbitration is in crisis.


One of the characteristics of international arbitration is the right of the parties to choose the decision-makers. While this characteristic is often presented as one of the main advantages of international arbitration, it has also given rise to criticism. In particular, critics have raised questions about the legitimacy of an award issued by privately appointed arbitrators.

The discussion during the workshop revealed that the right to nominate arbitrators actually enhances the legitimacy of the process in many ways. In particular, party-appointed arbitrators play an important role in ensuring that the tribunal considers the evidence and arguments presented by the parties that appointed them. Apart from ensuring that the award accurately takes into consideration the views of the parties, this enhances the likelihood that the losing party will accept the award and comply with it. It was noted that this reflects the view not only of private parties, but also of many states.

The speakers agreed, however, that it is necessary to adopt and enforce strong conflict rules; procedural controls on appointments so that the parties do not abuse the right to nominate arbitrators (e.g., by nominating arbitrators that are unfit or forcing their nominee to resign in order to delay the proceedings); and rules of ethics to ensure that arbitrators act diligently and impartially. Jan Paulsson suggested that the legitimacy of party-appointed arbitrators might also be strengthened if the parties were to agree on the President of the tribunal first and then nominate the other two arbitrators with her/his input.

Conduct of counsel

While the parties’ counsel play a fundamental role in international arbitration, due to their diversity of backgrounds and legal cultures they are not always guided by the same values and ethical principles. The lack of a binding uniform code and a global authority to enforce it make the regulation of counsel conduct challenging in practice, raising questions about the legitimacy of international arbitration.

The subject of regulation of counsel conduct has been widely discussed in the last few years, and there seems to be an emerging consensus about the need to regulate and sanction counsel for unethical conduct. The speakers argued that the standards should focus on objective issues such as, for instance, the filing of futile challenges to arbitrators and arbitrator conflicts caused by the appointment of new counsel during the proceedings. This is, in fact, the approach adopted by the two most well-known guidelines, the IBA Guidelines on Party Representation in International Arbitration and the LCIA’s General Guidelines for the Parties’ Legal Representatives.

No general consensus, however, has been reached yet as to who should be the regulator – options include national bar associations, courts at the seat of arbitration, arbitral institutions, and a global ethics counsel. The preference of the speakers was for arbitral institutions to take the role of adopting standards. This is a reasonable approach, as it would allow for greater experimentation and refinement of the standards over time. The LCIA has pioneered this route with the adoption of its Guidelines in 2014. Under the LCIA rules, however, the application of the standards is left to international tribunals (see Article 18.6). According to the representative of the LCIA, the enforcement of the standards is better left to tribunals because counsel conduct is a due process issue.

Efficiency of the proceedings

International arbitration has come under attack for being costly and slow. In the 2015 Queen Mary/White & Case International Arbitration Survey, the survey respondents indicated that the cost (68%), lack of insight into arbitrators’ efficiency (39%), and lack of speed (36%) were among the worst characteristics of international arbitration. Against this backdrop, the workshop provided an opportunity to discuss options to increase the efficiency of the proceedings.

One option that was considered was the use of bifurcation and motions for summary judgment. The speakers agreed that these procedures can increase efficiency if the issue in question is discrete and its early resolution can dispose of the case or a significant part of it. However, when the issue is connected with other aspects of the case, bifurcation and motions for summary judgment might actually lead to inefficiencies such as repeat presentation of the same evidence and multiple appearances of the same witnesses. The most important aspect to ensure that bifurcation and motions increase efficiency is for the parties and the tribunal to discuss and establish clear ground rules at the outset of the proceedings. Rule 41(5) of the ICSID Arbitration Rules was cited as an example of a procedure for summary judgment that has worked well.

The panelists also explored ways to deal with the perceived problem that arbitral tribunals are taking too long to issue their awards. In this regard, in 2016, the ICC announced that it would reduce the fees paid to arbitral tribunals that fail to submit a draft award within three months of the last substantive hearing or the last substantive post-hearing submission. Depending on the length of the delay, the reductions can vary from 5% to 20% or higher. Other options discussed at the workshop included having institutions and parties ask more questions about how much time the arbitrators have available for the drafting of the award before appointing or confirming their appointment; and creating a reporting mechanism requiring arbitrators to report to the parties on their progress periodically after a certain amount of time has passed. As regards the latter, there was consensus among the speakers that shame might provide a strong incentive for arbitrators to render the award in a timely manner.

Domestic court oversight

It has been argued that the arbitral process is too autonomous from domestic law and domestic court oversight. In light of this, the speakers considered whether courts should exercise more oversight over the arbitral process. It was noted that States have defined the respective roles of national courts and arbitral tribunals through instruments such as the New York Convention, the ICSID Convention, and domestic laws. Therefore, it is for States to change the existing balance through legislation or treaties if a more active role for the courts is deemed appropriate. The panelists were skeptical about this because most domestic courts do not have the resources, time, and technical expertise necessary to exercise greater oversight. In fact, this is one of the reasons why many States have embraced arbitration in the first place and why it has become popular.

Ultimately, as one of the speakers noted, giving courts a more active role over the arbitration process would blur the line between arbitration and litigation. It would be contrary to the very idea of having arbitration as an alternative method of dispute resolution. It would also be contrary to the expectations of the users of international arbitration, who in the 2015 Queen Mary/White & Case International Arbitration Survey observed (64% of the respondents) that one of the most valuable characteristics of international arbitration is “avoiding specific legal systems/national courts.”

Is international arbitration in crisis?

While it is undeniable that international arbitration has been the subject of criticism from certain corners, in particular as regards the investor-state system, the opinion of the workshop participants and available data indicate that international arbitration is not in crisis and about to disappear.

Major institutions such as the ICC and ICSID continue to report solid or record numbers of arbitrations filed. 157 States are now parties to the New York Convention and 153 States are parties to the ICSID Convention. While some States such as Ecuador, Bolivia, India, South Africa, and Indonesia have terminated various BITs with investor-state arbitration provisions, the overwhelming majority of States, including States that are notorious critics of investor-state arbitration, such as Venezuela, has not withdrawn from the investor-state arbitration system. Moreover, States increasingly provide for arbitration in contracts with private parties or in investment legislation. This includes States that have been notoriously skeptical of investor-state arbitration, such as Brazil.

If anything, criticisms have contributed to the health of the system. Arbitral institutions have revised their rules and practices to increase the efficiency and fairness of the arbitral process. These include the LCIA in 2014, the ICC in 2015 and 2017, the ICDR in 2014, and SIAC in 2016. ICSID is currently in the process of amending its Arbitration Rules for the fifth time. Professional associations such as the International Bar Association have revised and adopted guidelines addressing relevant subjects such as conflicts of interest and counsel conduct. All this activity shows the vibrancy of international arbitration. As long as the arbitral community does not become deaf to relevant criticisms, international arbitration will not become irrelevant. It will continue to be a legitimate – and the most effective – way of resolving international disputes.

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Lesotho sets aside award before the Singapore High Court

Mon, 2017-09-18 06:00

Darius Chan


In a 172-page judgment, the Singapore High Court in Kingdom of Lesotho v Swissbourgh Diamond Mines (Pty) Limited [2017] SGHC 195 (Lesotho), set aside an investor-state arbitration award rendered against Lesotho after an extensive review of international investment jurisprudence.

This is the second investor-state matter that has confronted the Singapore courts following Sanum Investments Ltd v Government of the Lao People’s Democractic Republic [2016] 5 SLR 536.

Similar to Sanum, the dispute in Lesotho had no connection to Singapore other than the fact that, with the benefit of parties’ submissions, the Tribunal in Lesotho had decided on Singapore as the seat of arbitration.



In Lesotho the investors contended that their mining leases in Lesotho, a member of the Southern African Development Community (SADC), had been unlawfully expropriated between 1991 to 1995.

The SADC was established by the SADC Treaty.  Under the SADC Treaty, a regional tribunal was established to hear disputes regarding adherence to and interpretation of the SADC Treaty.  In 2006, SADC signed a Protocol on Finance and Investment which granted protections to investors.  Under Annex 1 to the Protocol, investors could commence international arbitration against signatory States if the dispute arose after 16 April 2010.  The precise scope of the arbitration agreement in Annex 1 to the Protocol extended to “disputes between an investor and a State Party concerning an obligation of the [State] in relation to an admitted investment…after exhausting local remedies”.

In June 2009, the investors commenced a claim before a SADC tribunal constituted under the SADC Treaty and a Protocol on Tribunal in the SADC.  However, that SADC tribunal was dissolved by resolution at a summit of the SADC before the claim could be heard.

In response, the investors commenced arbitration against Lesotho in 2012, this time before the Permanent Court of Arbitration (PCA) under Annex 1 to the Protocol.  The investors alleged that Lesotho had breached its obligations under the SADC Treaty after 16 April 2010 by contributing to or facilitating the shuttering of the SADC tribunal, without providing alternative means of recourse.

By a majority, the PCA Tribunal rendered an award in favour of the investors, and directed the parties to constitute a new tribunal to hear the expropriation claims.  Lesotho applied to the Singapore courts to set aside the award on the basis that the PCA Tribunal lacked jurisdiction and/or the award exceeded the scope of the submission to arbitration.


Singapore High Court’s decision

The Singapore High Court, applying a de novo standard of review, set aside the award in its entirety under Art 34(2)(a)(iii) of the Model Law. Among other things:

  • The Court disagreed with the Tribunal that the investors’ right to submit disputes to the SADC tribunal qualified as an “investment” under Annex 1.
  • The Court disagreed with the Tribunal that the dispute before the PCA Tribunal involved an “obligation of the [State] in relation to” the investors’ right to submit disputes to the SADC tribunal.
  • The Court disagreed that the investors had exhausted local remedies.



 There are at least three take-away points for readers.

  1. The first point concerns whether Lesotho had invoked the correct grounds to set aside the award. The Court, following a previous decision, held that Art 16(3) of the Model Law does not apply to an award that deals with the merits of the dispute, however marginally.   Additionally, the Court rejected the investors’ reliance on various textbooks for the proposition that Art 34(2)(a)(iii) of the Model Law is only applicable in cases concerning excess of jurisdiction (rather than the absence of any jurisdiction at all).

The Court clarified that any argument concerning the existence and validity of the arbitration agreement belonged to the specific province of Art 34(2)(a)(i).  On the other hand, any argument concerning the scope of the Tribunal’s jurisdiction, as in the present case, belonged to the province of Art 34(2)(a)(iii).


  1. The second point concerns the definition of “investment”. Readers will immediately appreciate that the question of what qualifies as an “investment” has attracted much ink in foreign investment law jurisprudence.  Typically, “investment” is defined to mean “every kind of asset, including ”.  In this case, the Court placed significant weight on how the definition of “investment” was narrower; an “investment” means “the purchase, acquisition or establishment of productive and portfolio investment assets, and … includes ”.

Readers will also recall the case of White Industries Australia Limited v India, where the Tribunal, citing Mondev v USA, Chevron Corporation v Ecuador and Frontier Petroleum Services v Czech Republic, held that awards made by tribunals arising out of disputes concerning investments made by investors represent a “continuation or transformation of the original investment”.  Such awards “constitute part of the investor’s original investment”, being a crystallisation of its rights.

By dint of reasoning, the investors’ argument in this case was that the mining leases created a bundle of rights which were protected, and that bundle included “secondary rights to seek remedies”.  The majority of the Tribunal in Lesotho accepted the investors’ argument.  However, the Court was not persuaded, reasoning that the purported “secondary right” was not reciprocal with the investors’ contractual obligations under the mining leases; the investors’ right of recourse to the SADC Tribunal arose much later in 2001 when the Protocol on Tribunal in the SADC entered into force.

Yet, at the same time, the Court observed that it does not matter whether an “investment” arose before or after the entry into force of Annex 1 to the Protocol.  If that were the case, it is suggested here that, even if the investors’ right of recourse to the SADC Tribunal arose only in 2001, that would not ipso facto preclude that “secondary right” from forming part of the bundle of rights, that would, in turn, qualify as an “investment” for the purpose of the Annex 1 to the Protocol.


  1. The third point concerns the exhaustion of local remedies. Applying Articles 14 and 15 of the ILC Draft Articles on Diplomatic Protection on the basis that they are reflective of customary international law, the Court held that the local remedies to be exhausted must be reasonably available to provide effective redress.  In the Court’s view, whether local remedies have been exhausted ought to be referenced with reference to the shuttering dispute, and not the underlying expropriation claim.

The Court accepted that Lesotho’s domestic courts recognise a tortious claim for pure economic loss, known as an “Aquilian” action. However, although Lesotho identified an Aquilian action as a potential remedy, in the words of the Court “what is less clear or even unclear is whether such an [Aquilian] action is available in a case such as this”.

 Consequently, what is noteworthy for readers is that, this issue was ultimately decided based on the burden of proof.  The investors bore the burden of establishing that they had exhausted local remedies.  To discharge this burden, the investors had to, in the words of the Court, adduce “evidence positively demonstrating” that an Aquilian action is unavailable or ineffective with reference to the shuttering dispute.  With the Court recording that the investors had acknowledged that no steps had been taken in Lesotho’s legal system regarding the shuttering dispute, this would have been a tall order.

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Public Consultation Paper on Proposed Amendments to the 2013 HKIAC Administered Arbitration Rules

Sat, 2017-09-16 22:51

Joe Liu


The HKIAC Rules Revision Committee (the “Committee”) is considering amendments to the current version of the HKIAC’s Administered Arbitration Rules, which came into force on 1 November 2013 (the “2013 Rules”).

The 2013 Rules, while maintaining the “light touch” approach of the 2008 Administrated Arbitration Rules, made important contributions to international arbitration by introducing unprecedented provisions on multi-party and multi-contract arbitrations (including joinder, consolidation and single arbitration under multiple contracts). The 2013 Rules have been well-received by users and are widely recognised as one of the market-leading sets.

Considering that the number of arbitrations brought under the HKIAC Administrated Arbitration Rules has grown significantly since 2013, and the 2013 Rules have been working well in practice, the Committee does not contemplate a wholesale revision. However, drawing upon HKIAC’s experience implementing the 2013 Rules for almost four years, and in light of the latest arbitration developments in Hong Kong and globally, the Committee nevertheless considers that certain amendments might usefully be made.

This Consultation Paper outlines the major amendments proposed by the Committee at this stage, which include the following:

Online Document Repository

Provide for use of secured online repositories to store any written communications submitted in an arbitration upon all parties’ agreement. Add provisions to recognise written communications uploaded to the online repository as an alternative means of service. The Committee seeks views on whether this should be a repository established and maintained by HKIAC, or whether the Rules should permit the parties to use their own online repositories (e.g. by using systems hosted by one party’s law firm), upon all parties’ agreement and subject to HKIAC’s approval. See Articles 2.1(c), 2.2 and 2.3.

Alternative Means of Dispute Settlement (e.g. “Arb-Med-Arb”)

Include a provision to allow expressly parties to pursue other means of dispute settlement after the commencement of the arbitration and resume arbitration upon a party’s request. Stipulate that an arbitrator or emergency arbitrator may not participate in the other dispute settlement process if he or she may be privy to ex parte communications with any party, except with the express consent of all parties. See Article 13.9.

Multilingual Procedures

Introduce a set of default procedures on the conduct of arbitral proceedings in two or more languages, such as the language(s) to be used by the arbitral tribunal, the parties and other participants at hearings and conference calls, as well as the language(s) of all written communications. See Article 15.4 and Schedule 5.

New Grounds for Joinder

Introduce new grounds to permit the joinder of (i) an additional party that is not bound by the arbitration agreement giving rise to the arbitration, provided that all parties, including the additional party, expressly agree; and (ii) an additional party that is bound by a different arbitration agreement under the Rules, provided that a common question of law or fact arises, the rights to relief claimed arise out of the same transaction or a series of related transactions, and the arbitration agreements are compatible. See Article 27.1(b) and (c).

Expanded provisions for single arbitration under multiple contracts

Add a provision permitting parties to commence a single arbitration under multiple contracts, even where there is not complete identity of parties to each relevant contract. This would allow a claimant to commence one arbitration to resolve disputes arising under, for example, a head contract and related sub-contracts. See Article 29.

Concurrent Proceedings

Incorporate a provision to state expressly that the same arbitral tribunal and (possibly) different arbitral tribunals may hear multiple proceedings at the same time, or one immediately after another, or suspend any of those proceedings until after the determination of any other of them, in situations where a common question of law or fact arises and the arbitrations have not been consolidated under the Rules. See Article 30.

Third Party Funding

Add a new provision on disclosure of third party funding (“TPF”) and amend the confidentiality provisions to allow disclosure of information to a third party funder, having regard to the TPF amendments to the Arbitration Ordinance (Cap. 609). The Committee seeks views on whether an express provision should be added to allow the arbitral tribunal to award costs of third party funding as part of costs of arbitration? See Articles 34.1(d), 44 and 45.3(e).

The Committee seeks views on whether express provisions should be introduced in relation to the following:

Investment Treaty Arbitrations

Whether HKIAC should issue a set of rules suitable for both international commercial and investment treaty arbitration, with provisions applicable to investment treaty arbitration possibly contained in a new schedule. The Committee invites views on what provisions should be included.

Early Determination Procedure

Whether a procedure should be introduced to allow the arbitral tribunal to determine one or more issues of fact or law in a preliminary or a separate phase, and in a summary fashion.

Please click here for a copy of the Rules which incorporates all proposed amendments. If you wish to obtain a track-change copy of the Rules reflecting amendments to the 2013 Rules, please send a request to [email protected]
Users are invited to submit comments on the proposed amendments to [email protected] by Monday, 2 October 2017. The Committee then intends to consult further before making a final decision as to the timing and form of any amendments to the Rules.

HKIAC Rules Revision Committee, Current Members: Nils Eliasson (Chair), Matthew Gearing QC, Cameron Hassall, Briana Young, Sarah Grimmer, Joe Liu.

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Is India losing the Litmus Test on Investor Protection by Preventing Vodafone from Invoking Arbitration under UK-India BIT?

Fri, 2017-09-15 16:47

Sumit Rai

India’s dispute with Vodafone has been one of its most publicized and long pending disputes with a foreign investor. Despite attempts at conciliation, parties remain locked in international arbitration under the relevant BIT. It may not be hyperbole to suggest that India’s approach to this dispute effectively defines its attitude to investor protection, at least so is the perception Therefore, when it recently chose to obtain an ex-parte injunction against Vodafone from starting an arbitration under UK-India BIT from a domestic municipal court (Delhi High Court), it came as a surprise to many.

The Delhi High Court decision is far from being the last word on the issue. It is capable of being modified by the same court after hearing Vodafone’s objections. Yet, the order has attracted substantial attention and for good reasons.

Three questions immediately arise: first, is India’s action to move a domestic court to restrain arbitration under an international treaty in bad faith? Second, under what jurisdictional basis did the Delhi High Court entertain such action? Third, does the Orascom award hold that multiple claims by companies in a vertical structure under different treaties against same State measure will always be an abuse of rights?

Before considering this, a short recap of what led to this dispute. Vodafone (Netherlands) bought a Cayman Island entity of Hutchison (Hong Kong) group, in order to acquire controlling interest in the Indian entity Hutchison – Essar Ltd. The entire transaction was outside India and did not involve transfer of shares of any Indian entity. As the Indian tax statute then stood, it did not specifically provide that if the effect of a transaction was change in control of an Indian entity, it would be taxable in India. The Indian Supreme Court in January 2012 rejected the Indian government’s contention that the text of the statute as it then stood could be interpreted to include such a tax demand.

To overcome this decision, India amended the statute to bring such transactions within the tax net and made it retrospective in application. Considering this to be in breach of India’s commitment under India-Netherlands BIT, Vodafone (Netherlands) notified disputes in April 2012 and invoked arbitration in April 2014. Subsequently, in June 2015, Vodafone (UK) sent a notice of dispute under the UK – India BIT and invoked the arbitration January 2017.

In the arbitration under Netherland – India BIT, India had raised a preliminary jurisdictional objection. In June 2017, the tribunal decided to consider the issue with the merits of the case. Soon thereafter, Indian government filed a suit before the Delhi High Court, seeking a declaration and permanent injunction against Vodafone (UK) from initiating arbitration under the India – UK BIT. From information available in public domain, it seems India contends that Vodafone (UK) seeks to claim the same reliefs arising out of the same cause of action (i.e. the same measures) with respect to which Vodafone (Netherlands) is already engaged in an arbitration with India. Therefore, the duplication of claim amounts to abuse of process and is oppressive and vexatious.

There may be valid grounds for the India to contend, even successfully, that Vodafone’s action of initiating multiple arbitration at multiple times under different treaties with respect to the same measures is an abuse of rights. But, India cannot legitimately contend that this is an issue that is capable of being determined by an Indian court. It would be absurd to suggest that a State can commit to resolving all disputes with foreign investors by a specific dispute resolution mechanism under international treaties and then seek to restrain the invocation of such right by recourse to its domestic courts. If nothing else, such act would be in breach of its good faith performance of international treaty, contrary to the principle enshrined in Article 26 of the Vienna Convention.

It is not as if India would have no remedy. It would be an issue fully capable of being addressed in the arbitration itself. It is well established that an arbitral tribunal has the competence to determine its own jurisdiction – including any issues of abuse of such jurisdiction. Additionally, there might be a remedy available through the court of the seat of arbitration, as selected under Article 18.1 of UNCITRAL Rules, 2010.

As to the basis to exercise jurisdiction, the Delhi High Court merely observes that Indian courts have “natural jurisdiction” to adjudicate the disputes in question. Seen strictly from a municipal law point of view, it may not sound very strange for an Indian court to prima facie suggest that it would be the ‘natural court’ for resolution of a tax demand raised by Indian authorities. The issue in question is, however, not a municipal law dispute – it is a claim for breach of an international investment treaty – rooted in public international law.

To block access to arbitration under such treaty, which itself is an international law guarantee by the State, by invoking municipal legal principles of the State party is problematic to say the least. If this was permissible, would it not be the very antithesis of an investor protection treaty – allowing the State party to prevent access to arbitration under the treaty by moving its domestic court? Application of common law principles relating to anti-suit injunction by the Delhi High Court is itself erroneous in the present case, let alone the fact that in the final analysis, even the threshold prescribed by those principles are not likely to be met in the present case. One of the fundamental principles of international law, as provided in Article 27 of the Vienna Convention, is that a State cannot invoke its domestic law to justify breach of a treaty. India cannot reason that the Delhi High Court action is valid under its laws (if it is eventually so held to be). It will still fail the test of meeting its international law obligations, particularly that of good faith observance of treaties.

This brings us to the award in Orascom TMT Investments S.a.r.l v. Algeria. India has placed reliance on it to convince the Delhi High Court that its request for injunction is well founded in investment treaty jurisprudence. The Orascom award has been interpreted to suggest that invoking multiple treaties at multiple times with respect to the same measures by vertically structured corporations is of and by itself an abuse of rights. It is difficult to derive such a wide proposition from the Orascom award.

It is true that the last sentence of paragraph 543 of the Orascom award records what appears to be a widely worded proposition and capable of being misread. However, when read in context and as a whole – as any judicial determination must be read – what Orascom establishes is far from this. The award expressly notes that abuse of right in the investment jurisprudence has previously only been considered in situations where an investment was restructured to attract BIT protection after a dispute arose. Orascom, therefore, is the first award to consider the issue in case of multiple actions from vertically structured entities.

In its analysis, the Orascom tribunal does not simply find that as a matter of law raising multiple claims under multiple treaties amounts to abuse of right resulting in the rejection of claim. It painstakingly considers each claim, with the assistance of extensive fact and expert evidence, to determine that they overlap with the claims made under a previous settled arbitration. It is only after such factual determination that the tribunal finds Orascom’s actions to be in abuse of the right to invoke arbitration.

Therefore, what Orascom establishes is that multiple claims under multiple treaties at different times by companies in a vertical chain might amount to an abuse of the right to invoke arbitration under the investment treaty. It also, in the process, shows that to arrive at such a conclusion, it might become necessary to consider the claims in detail, including with the assistance of relevant evidence. It cannot be read as an authority to support an action to restrain the very invocation of the arbitration in which such question ought to be decided.

Vodafone now has time until end of October to respond to the injunction and raise its objections. While it could be a valid strategic call to refuse to appear on grounds that it would not voluntarily submit to the jurisdiction of Indian courts, it will be a difficult choice given it operates a massive telecom operations in India and cannot simply ignore an Indian court’s order – even one that may appear to be without jurisdiction. This dispute is India’s litmus test in its approach to investor protection and this new innings that it has been ill advised to start will be closely watched – and to its disadvantage.



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