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“Do You Know the Land Where Lemon Blossom Grows?” – Journey into the Italian Arbitration Rules on Interim Measures

Wed, 2020-02-26 02:00

Goethe’s famous journey along the Italian peninsula left humanity a collection of verses that still make him the most notorious German author worldwide. Amongst others, he expressed his fascination for the country in these few lines: “Do you know the land where lemon blossom grows? / Amid dark leaves the golden orange glows. /A gentle breeze drifts down from the blue sky, / still stands the myrtle, and the laurel high. / Might you know it?”1)Wolfgang von Goethe, Wilhelm Meister’s Apprenticeship (1975-1976). jQuery("#footnote_plugin_tooltip_7805_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7805_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

An arbitration practitioner would not need to come from afar to discover that in the Italian legal landscape the rules on interim relief in arbitration proceedings set it apart from most of the existing national regulations and institutional rules. In the spirit of Goethe’s travels, this post will compare the Italian legal framework with the German one – another civil law jurisdiction in the heart of Europe. Developments are nonetheless taking place in the Italian legal regime and the new CAM Rules represent a welcome step forward to make Italy more attractive as an arbitral seat.

 

Introduction: An “Antique Island” Resting on the Foundations of State Courts’ Imperium

The expression “antique island”2)Paolo Biavati, Spunti Critici sui Poteri Cautelaridegli Arbitrati, Convegno A.I.A. –Rivistadell’Arbitrato, Rome, 3 December 2012, Rivistadell’Arbitrato No. 2 (2013) pp. 329-346. jQuery("#footnote_plugin_tooltip_7805_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7805_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); has been used to refer to this facet of Italian arbitration law. Italian arbitration law in principle reserves the power to order interim measures to state courts (Article 818 Italian Code of Civil Procedure (c.p.c.) Book IV, Title VIII) – a rarity in the world of international arbitration. As held by the Cassation Court in 1962 (decision No. 597 of 24 March 1962), the power of arbitrators to decide a dispute does not extend to adopting provisional measures. If historically the raison d’être of the prohibition lies in state courts’ prerogative to use “police power” or “imperium”, other jurisdictions have long moved on. In Germany, for example, although enforcement remains the prerogative of state courts, arbitral tribunals can order interim relief (c.f. section 1041 German Code of Civil Procedure or “ZPO”).3)Albert Henke, Le Misure Cautelari nell’ Arbitrato Commerciale Internazionale, Rivista di Diritto Processuale, No. 5 (2012) pp. 1207-1230. jQuery("#footnote_plugin_tooltip_7805_3").tooltip({ tip: "#footnote_plugin_tooltip_text_7805_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

New Developments: An Island Moving Towards Other Emerged Lands

The most recent amendments to Italian arbitration law signal that Italy is more and more embracing the trends emerging in the international arbitral practice. In 2006, Decree No. 40 modified, inter alia, Articles 818 and 832 c.p.c. The new wording of Article 818 c.p.c. provides for exceptions established by law to the prohibition for arbitral tribunals to issue interim measures. From a systematic point of view, the amendment to Article 818 c.p.c. serves the purpose of coordinating the code’s discipline with the reform to the Italian corporate law of the same year, which introduced the possibility for arbitral tribunals in arbitration proceedings on corporate law matters (so-called “arbitrato societario”) to order the suspension of the effects of a corporate deliberation (“sospensione dell’efficacia della delibera assembleare”, cf. Article 35 of Decree No. 5 of 2003) – an express recognition of the arbitral tribunal’s power to order this form of interim relief. The scholarship has pointed out that the legislator decided not to expressly refer to Article 35 of Decree No. 5 2003 in Article 818 c.p.c., leaving the door open to further exceptions.4)See fn 2 supra. jQuery("#footnote_plugin_tooltip_7805_4").tooltip({ tip: "#footnote_plugin_tooltip_text_7805_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In addition, Article 832 c.p.c. includes a renvoi to institutional arbitration rules. The last paragraph of Article 832 c.p.c., in particular, establishes that to the extent the parties agree on institutional arbitration and the institution declines to administrate the arbitration proceedings, the provisions regulating arbitration under the c.p.c. apply. On the basis of this wording, it is argued a contrario that the provisions of the c.p.c. on arbitration, including Article 818 c.p.c., do not apply insofar as the institution administers the arbitration.5)Ibid. jQuery("#footnote_plugin_tooltip_7805_5").tooltip({ tip: "#footnote_plugin_tooltip_text_7805_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

A Step Forward: Article 26 CAM Rules 2019

On 1 March 2019, the new CAM Rules entered into force and introduced a series of novel provisions, including Article 26 on Interim or Provisional Measures. The 2010 version of the CAM Rules only included a sentence under Article 22 (Powers of the Arbitral Tribunal) providing that “[t]he arbitral tribunal may issue all urgent and provisional measures of protection, also of anticipatory nature, that are not barred by mandatory provisions applicable to the proceedings”. Article 26 of the CAM Rules 2019 now incorporates this provision and further establishes that “in any case”, unless the parties agreed otherwise, the arbitral tribunal has the power, at the request of a party, to adopt “any determination of provisional nature with binding contractual effect upon the parties” (emphasis added). Therefore, by agreeing in the arbitration agreement to refer the resolution of disputes to arbitration, the parties undertake to comply with the arbitral tribunal’s decision and any violation thereof results in a breach of the arbitration agreement.

Aligning even more with recent trends in institutional arbitration, Article 44 CAM Rules now allows for the appointment of an emergency arbitrator for “measures and determinations provided by Art. 26” prior to the confirmation of the arbitrators.

 

Arbitral Tribunals and Interim Relief Beyond Italian Borders: The Example of Germany

As highlighted above, state courts and arbitral tribunals usually have concurrent jurisdiction to order interim relief. It is in this respect interesting to cite the example of Germany, another civil law jurisdiction sharing common origins with the Italian legal order.

In Germany, the concurrent jurisdiction of arbitral tribunals to order interim relief remained disputed until the 1998 reform of the ZPO. But under the current regime, arbitral tribunals have the express power to grant interim relief. Arbitral tribunals may issue, inter alia, orders to freeze assets, to maintain the status quo or to enjoin a party from calling on a bank guarantee, pre-judgment attachment and preliminary injunctions. Still, German courts maintain the power to order interim measures, regardless of whether the seat of the arbitration is in Germany or abroad. And they have exclusive powers regarding enforcement. According to case-law, German courts assess whether there is a valid arbitration agreement. German courts can recast measures to ensure they comply with certain requirements pursuant to section 1041(2) ZPO and repeal or amend measures in case, for example, of change of circumstances according to section 1041(3) ZPO. It bears noting that some authors consider that the order of the emergency arbitrator should also be enforceable like a decision on interim measures.6)Jan Schaefer, § 1041 – Interim Measures of Protection, in Karl-Heinz Böckstiegel, Stefan Michael Kröll and Patricia Nacimiento, Arbitration in Germany (Kluwer Law International 2015) pp. 226-237; Gerstenmaier in FS Elsing 153, 157. jQuery("#footnote_plugin_tooltip_7805_6").tooltip({ tip: "#footnote_plugin_tooltip_text_7805_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Considerations on Arbitral Tribunals’ Power to Order Interim Relief: Parties’ Rights and Guarantees of Due Process

Interim relief is instrumental to adjudicatory bodies’ power to decide the merits of a dispute. Interim relief avoids that the legal effects of a decision on the merits are nullified by circumstances materializing while the dispute is pending, and which require emergency intervention. When the parties agree to resolve disputes by arbitration, they refer the entirety of the dispute to the jurisdiction of arbitral tribunals. Indeed, they remain free to provide otherwise in the arbitration agreement. But in the absence of any reservation, the parties should have the right to request interim relief before arbitral tribunals, especially considering that their right to apply to state courts remains untouched (cf. for e.g. Article 28(2) ICC Rules and Article 25.3 DIS Rules).7)See for example fn 2 and fn 3 supra. jQuery("#footnote_plugin_tooltip_7805_7").tooltip({ tip: "#footnote_plugin_tooltip_text_7805_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Further, the arbitral tribunals’ power to order interim relief contributes to arbitration’s efficiency and expeditiousness. It reflects party autonomy and is a practical implementation of the principle of freedom of contract. Additionally, Article 17H UNCITRAL Model Law provides that an interim measure issued by an arbitral tribunal shall be binding on the parties and enforceable upon application to competent courts. The imperium of state courts remains unaffected. Most of the time enforcement is not even necessary because the parties voluntarily comply with the arbitral tribunal’s interim order.8)See for example fn 2 and fn 3 supra. jQuery("#footnote_plugin_tooltip_7805_8").tooltip({ tip: "#footnote_plugin_tooltip_text_7805_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Moreover, a party forced to apply to state courts for interim relief faces a series of hurdles. State court judges deal with a wide range of disputes and necessarily lack the specialisation of arbitral tribunals. They are also not used to deal with substantive and procedural rules of different jurisdictions or with documents in foreign languages. Most importantly, due process is guaranteed also when interim relief is sought before an arbitral tribunal by procedural safeguards – in the case of Italy by the guarantees under Articles 24 and 111 of the Constitution.9)See for example fn 2 and fn 3 supra. jQuery("#footnote_plugin_tooltip_7805_9").tooltip({ tip: "#footnote_plugin_tooltip_text_7805_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Concluding Remarks

New developments in the Italian legislation on interim relief in arbitration proceedings would be welcome and any further steps in this direction encouraged. After all, Italy is embracing more and more alternative forms of dispute resolution (ADR) with Decree n. 28 of 2010 and Legislative Decree n. 132 of 2014 in application, inter alia, of Article 81 TFEU and secondary provisions of EU law. If the rather strict rules on interim relief in domestic arbitration would be eased, Italy could become an even more attractive venue for arbitration. This would serve the interests of a country historically open to and economically strong in international trade.

Against the backdrop of the big steps already made towards encouraging ADR methods and incentivising international arbitration, a question comes to mind: could we soon know Italy as the country where interim relief by arbitral tribunals blossoms?

 

References   [ + ]

1. ↑ Wolfgang von Goethe, Wilhelm Meister’s Apprenticeship (1975-1976). 2. ↑ Paolo Biavati, Spunti Critici sui Poteri Cautelaridegli Arbitrati, Convegno A.I.A. –Rivistadell’Arbitrato, Rome, 3 December 2012, Rivistadell’Arbitrato No. 2 (2013) pp. 329-346. 3. ↑ Albert Henke, Le Misure Cautelari nell’ Arbitrato Commerciale Internazionale, Rivista di Diritto Processuale, No. 5 (2012) pp. 1207-1230. 4. ↑ See fn 2 supra. 5. ↑ Ibid. 6. ↑ Jan Schaefer, § 1041 – Interim Measures of Protection, in Karl-Heinz Böckstiegel, Stefan Michael Kröll and Patricia Nacimiento, Arbitration in Germany (Kluwer Law International 2015) pp. 226-237; Gerstenmaier in FS Elsing 153, 157. 7, 9. ↑ See for example fn 2 and fn 3 supra. 8. ↑ See for example fn 2 and fn 3 supra. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Unilateral Option Clauses to Arbitration: The Debate Continues

Tue, 2020-02-25 00:27

Introduction1)Kevin is a member of BCLP’s International Arbitration and Construction Disputes team in London. He is due to be admitted as a Hong Kong solicitor and currently has no right to practice as a solicitor in England & Wales or Hong Kong. jQuery("#footnote_plugin_tooltip_9549_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9549_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In this year’s Willem C. Vis International Commercial Arbitration Moot (the “2020 Vis Moot”), arbitration practitioners and academics will look in depth at the validity of unilateral option clauses (“UOCs”). UOCs allow one party some element of choice whilst the other party is bound to resolve a dispute in a specific forum. UOCs can be important in international transactions, particularly in finance transactions where financial institutions may wish to retain flexibility in forum selection.

Whether UOCs should be recognised as valid and enforceable is not a settled question. National courts in different jurisdictions have in varying degrees upheld or refused to enforce UOCs. The courts in common law jurisdictions have generally upheld the validity of UOCs. In unfriendly jurisdictions, UOCs may be invalidated in their entirety or in part. Parties can mitigate this risk by designating a UOC friendly governing law and seat of arbitration. However any resulting arbitral award may not be enforceable in jurisdictions that consider UOCs to be against public policy. The risk in using UOCs therefore remains latent.

The conflict between two principles of international arbitration, party autonomy and equality of treatment, lies at the heart of this debate. This blog sets out (a) an overview of the characteristics of UOCs in the context of the principles of party autonomy and equality of treatment; (b) the positions in England, Hong Kong and Singapore; and (c) an overview of potential equality concerns.

 

A. Unilateral Option Clauses, Party Autonomy and Equality Of Treatment

A UOC preserves flexibility for just one party to elect a forum that it deems appropriate for resolution of a particular dispute. For example, in international finance transactions, a financial institution might be entitled to elect for: (a) national courts in jurisdictions with a default or summary judgment mechanism for a straightforward debt claim; or (b) arbitration seated in New York Convention jurisdictions to facilitate recovery of monies and assets in other New York Convention jurisdictions. In essence, a UOC mitigates the risks inherent in international commercial transactions for one party by allowing that party to make an informed election of a dispute resolution forum after a dispute arises.

From the party autonomy perspective, a UOC is a part of the parties’ bargain, a reflection of their respective bargaining power and, especially for sophisticated parties, the resulting commercial compromise that they have contracted into willingly.

From the equality of treatment perspective, by providing just one party with choices around dispute resolution forum, a UOC is inherently imbalanced. However there are always imbalanced clauses in a commercial contract. Obviously, the principle of equality of treatment cannot have the effect of rendering all such clauses invalid. Public policy or other considerations in some jurisdictions may dictate that certain types of ‘one-sided’ provisions around access to dispute resolution procedures are unfair. Where is the line to be drawn?

 

B. Positions in England, Hong Kong and Singapore

Under English law, UOCs are generally valid and enforceable. In Mauritius Commercial Bank v Hestia Holdings Limited and another [2013] EWHC 1328 (Comm), Popplewell J considered the argument that UOCs infringe the principle of equal access to justice and held:

43… If… the true intention of the parties expressed in the [UOC] is that MCB should be entitled to insist on suing or being sued anywhere in the world, that is the contractual bargain to which the court should give effect. The public policy to which that was said to be inimical was “equal access to justice” as reflected in Article 6 of the ECHR. But Article 6 is directed to access to justice within the forum chosen by the parties, not to choice of forum. No forum was identified in which the Defendants’ access to justice would be unequal to that of MCB merely because MCB had the option of choosing the forum.  (Emphasis added).

The position is the same under Hong Kong and Singaporean law; UOCs are generally valid and enforceable.2)See decision by the Hong Kong Court of Appeal ([2001] 3 HKC 580) and decision by the Singapore Court of Appeal ([2017] SGCA 32). jQuery("#footnote_plugin_tooltip_9549_2").tooltip({ tip: "#footnote_plugin_tooltip_text_9549_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Both Hong Kong and Singapore have adopted the UNCITRAL Model Law on International Commercial Arbitration (“ML”) which sets out in Article 18 the principle of equality of treatment: “The parties shall be treated with equality and each party shall be given a full opportunity of presenting his case.”3)Please note that in Hong Kong Article 18 ML is substituted with Section 46(2) & 46(3) of Part 7 ‘Conduct of Arbitral Proceedings’ of the Arbitration Ordinance CAP. 609. Section 46(2) reads: “The parties must be treated with equality.” jQuery("#footnote_plugin_tooltip_9549_3").tooltip({ tip: "#footnote_plugin_tooltip_text_9549_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Article 18 of the ML is contained in ‘Chapter V. Conduct of Arbitral Proceedings’ and, therefore, can be said to apply only to treatment and conduct during arbitral proceedings. This seems to be the understanding of Hong Kong and Singaporean courts as their judgments on UOCs do not generally turn to the question of equality of treatment or Article 18 ML. In Wilson Taylor, Sundaresh Menon CJ recognised that there is a ‘lack of mutuality’ with UOCs but held in [13] that: “[o]n the weight of modern Commonwealth authority… neither of these features[, including the ‘lack of mutuality’,] prevented the court from finding that there was a valid arbitration agreement between the present parties.”

 

C. Potential Equality Concerns

Common law courts have generally upheld UOCs by proceeding on the basis that the scope of the relevant principle of equality only extends to treatment or conduct within the forum or during the proceedings. However, the use of UOCs can nonetheless remain problematic in jurisdictions where the relevant principle of equality of treatment is broad in scope or multifaceted.

 

Equality Concerns in Russia

In Russia, the Supreme Commercial Court in CJSC Russian Telephone Company v Sony Ericsson Mobile Telecommunications Rus LLC held that a UOC to arbitration violated the principle that parties to a dispute should have equal rights to present their cases. The Russian Supreme Commercial Court appears to have relied upon a principle of equal access to justice similar to that set out in Article 6 of the ECHR. This would be in stark contrast to the English Mauritius Commercial Bank case mentioned above. Unfortunately, the Russian Supreme Commercial Court did not provide any reasoning for its holding.

The Sony Ericsson decision lacks clarity and further Russian decisions on UOCs have been inconsistent. In 2018, in its Digest, the Russian Supreme Commercial Court held that UOCs violated the principles of competitiveness and equality of the parties; Russian courts will therefore deem UOCs to have given each party equal right to elect a forum. Although the Digest does not have any official precedential value, it provides valuable guidance to the approach Russian courts would take with respect to UOCs.

 

Equality Concerns in France

In France, the French Supreme Court in Mme X v Banque Privée Edmond de Rothschild held that a UOC is ‘potestative’ and therefore invalid.4)Please note that the French Supreme Court in this decision and further decisions on UOCs also applied the Brussel I Regulation and the Lugano Convention. Arbitration agreements and therefore UOCs to arbitration are outside the scope of the Lugano Convention, Brussel I Regulation and its successor, Recast Brussels Regulation. jQuery("#footnote_plugin_tooltip_9549_4").tooltip({ tip: "#footnote_plugin_tooltip_text_9549_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); A ‘potestative’ condition is one where satisfaction of the condition is completely within the power of just one party. However it is difficult to see how UOCs impose a condition. UOCs only require disputes to be resolved in a forum selected by the entitled party. There’s no condition imposed upon the other party’s performance of the contract.

The French Supreme Court further clarified in 2015 that UOCs that can objectively identify competent forums are valid and enforceable under French law. The UOC in that case allowed the entitled party to commence proceedings in (a) France, where the other party is registered; or (b) any other jurisdictions within which the entitled party suffered a loss.

Internationally, the validity and enforceability of UOCs remain uncertain. In addition to the above two examples, courts in China, Japan, India and some states in the US have invalidated UOCs for a variety of concerns: equality, mutuality, unconscionability and public policy.

Parties must keep that uncertainty in mind. Parties entering into a UOC should ensure that the UOC: (a) is governed by the law of a UOC-friendly jurisdiction; and (b) provides for UOC friendly jurisdictions and seats of arbitration. Further, parties should also consider where potential arbitration awards may be enforced. In some jurisdictions, relevant principles of equality may rise to the level of public policy under Article V(2)(b) of the New York Convention. This may bar enforcement of the award in that jurisdiction.

 

Conclusion

Despite their widespread adoption in international commercial transactions, UOCs’ validity and enforceability remain uncertain internationally. In some jurisdictions, courts appear to have held UOCs to be invalid and unenforceable as a matter of law. This seems at odds with international commercial reality, especially with respect to complex and negotiated transactions entered into by sophisticated parties.

It is also worth reviewing the practice and jurisprudence in investment arbitration. Consent to arbitration as contained in investment treaties is the bedrock of investment arbitration. The operation of such arbitration agreements is conceptually similar to that of UOCs. Consent to arbitration in an investment treaty is a ‘standing offer to arbitrate’. The foreign investor accepts the state’s offer to arbitrate by filing for arbitration. In other words, the foreign investor can elect to either pursue its claims in the national courts of the state (or other available forums) or through investment arbitration. Some such consents to arbitrate provide that a foreign investor’s election of one forum is a waiver of the right to proceed in the other. UOCs are different in form but have the same substantive effect. If UOCs are invalid and unenforceable as a matter of law because they are imbalanced, the same considerations should apply to consents to arbitration in investment treaties. Of course, that would be an absurd result.

With the spotlight from the 2020 Vis Moot, this debate will continue. New insights may surface following the competition. In any case, as with all dispute resolution and arbitration clauses, a problem users of UOCs should be alive to is poor drafting. In addition to requirements specific to particular jurisdictions, UOCs should set out in clear terms: (a) when and how the entitled party can elect; and (b) the consequences to any parallel proceedings once an election has been made. It will remain prudent for parties to keep the above issues in mind and seek specialist legal advice when entering into and electing under UOCs.

 

For further information on UOCs in India and the UAE, see here and here, respectively

 

*BCLP have long supported and participated in the Vis Moot. BCLP have previously sponsored the Vis East Moot in Hong Kong. Carol Mulcahy from the London office, Glenn Haley from the Hong Kong office and Ryan Reetz from the Miami office will take part in the 2020 Vis Moot as arbitrators. Glenn was involved in the founding of the Vis East Moot as Chairman of the East Asia Branch of CIArb and is recognised by the Vis East Moot as a ‘Star Arbitrator’.

References   [ + ]

1. ↑ Kevin is a member of BCLP’s International Arbitration and Construction Disputes team in London. He is due to be admitted as a Hong Kong solicitor and currently has no right to practice as a solicitor in England & Wales or Hong Kong. 2. ↑ See decision by the Hong Kong Court of Appeal ([2001] 3 HKC 580) and decision by the Singapore Court of Appeal ([2017] SGCA 32). 3. ↑ Please note that in Hong Kong Article 18 ML is substituted with Section 46(2) & 46(3) of Part 7 ‘Conduct of Arbitral Proceedings’ of the Arbitration Ordinance CAP. 609. Section 46(2) reads: “The parties must be treated with equality.” 4. ↑ Please note that the French Supreme Court in this decision and further decisions on UOCs also applied the Brussel I Regulation and the Lugano Convention. Arbitration agreements and therefore UOCs to arbitration are outside the scope of the Lugano Convention, Brussel I Regulation and its successor, Recast Brussels Regulation. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Kabab-Ji: Determining The Governing Law For The Arbitration Agreement Under English Law, The Emerging Focus On The Express Choice Of The Parties

Mon, 2020-02-24 02:00

Introduction

Whenever the court is confronted with the task to determine the governing law of an arbitration agreement on the basis of knowing only (1) the stipulated governing law of the main contract and (2) the seat, a three-folded test will be applied. It enquires into (i) express choice, (ii) implied choice and (iii) closest and most real connection (Sulamérica CIA Nacional De Seguros SA & Ors v Enesa Engenharia SA & Ors [2012] EWCA Civ 638 at para 25).

Usually, the court (and the lawyers) will directly resort to the second and third stage, as with the observations in Arsanovia Ltd & Ors v Cruz City 1 Mauritius Holdings [2012] EWHC 3702 (Comm), para 22, noting that the lawyer ‘felt unable in light of authority to contend at first instance that the parties made an express choice’. This seems to be a well-established approach as it was applied in cases such as Sulamérica, and has also been analysed in the literature.1)See, e.g., Tan Sri Dato’ Cecil Abraham, Aniz Ahmad Amirudin & Daniel Chua Wei Chuen, Interaction of Laws in International Arbitration: An Asian Perspective, in Neil Kaplan QC and Michael Moser (eds.), Jurisdiction, Admissibility and Choice of Law in International Arbitration (Kluwer, 2018). jQuery("#footnote_plugin_tooltip_6755_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6755_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); When determining the implied choice of the parties, there is a rebuttable presumption that the law of the main contract applies, since the ‘fair’ and ‘natural inference is that the parties intended the proper law chosen to govern the substantive contract to also govern the agreement to arbitrate’.2)Sulamérica at paras 11 and 26; see also the Singaporean position. jQuery("#footnote_plugin_tooltip_6755_2").tooltip({ tip: "#footnote_plugin_tooltip_text_6755_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This shows the high relevance of the law governing the substantive contract in the court’s opinion. Its pertinence is further reinforced by a recent case discussed below where the court found it to be the express choice of the parties after taking into account other contractual terms.

 

The Emerging Focus on the Express Choice

However, in the recent English Court of Appeal case of Kabab-Ji SAL (Lebanon) v Kout Food Group (Kuwait) ([2020] EWCA Civ 6), the Court applied a less usual approach by focusing on the first stage of the Sulamérica test – i.e. on the express terms. This decision was previously discussed on the blog from the perspective of the Court’s findings on “no oral modification” clauses.

On the facts, the arbitration was expressly designated to be in Paris, and the main agreement on development was stated to be governed by English Law (Para 1). On its face, there was not an explicit clause providing for the governing law of the arbitration agreement. The arbitrators concluded that the governing law is French Law, and found that the defendant (‘KFG’) was a party to the arbitration agreement (Para 3). Under section 103(2)(a) and (b) of the English Arbitration Act 1996, KFC challenged the enforcement of the award in England and Wales (Para 5). It was undisputed that the law governing the validity of the arbitration agreement governs the question of whether KFG became a party to the arbitration agreement (Para 10).

Three clauses of the main contract are particularly relevant. In simplified terms, Art. 1 of the main contract provides that ‘This Agreement consists of’ all the terms listed therein. Art. 14 provides that the dispute is to be settled by arbitration in Paris. Art. 15 provides that ‘This Agreement’ shall be governed by English law.

It was held that since Art. 1 states that ‘This Agreement’ includes all the terms of the agreement, it would also include Art. 14 (the arbitration clause). Additionally, Art. 15 further states that ‘This Agreement’ would be governed by English law. As such, this would cover also Art. 14 (Para 62). This constitutes an express choice of the parties. The Court, thus, saw no need to determine whether there was an implied choice (Para 70).

The Court also expanded on the proper understanding of the concept of ‘separability’, which does not denote that the arbitration clause has to be interpreted in isolation from other clauses. Instead, ‘[t]he rationale of separability is that it ensures that the dispute resolution procedure chosen by the parties survives the main agreement becoming unenforceable for example because of fraud or misrepresentation’ (Para 66).

Whilst having a different focus from the conventional cases like Sulamérica and C v D ([2007] EWCA Civ 1282), this approach of focusing on the express choice is not entirely new. In the less-discussed case of Arsanovia, it was also stated that:

When the parties expressly chose that “This Agreement” should be governed by and construed in accordance with the laws of India, they might be thought to have meant that Indian law should govern and determine the construction of all the clauses in the agreement which they signed including the arbitration agreement (para 22).

The profound implication is that the parties do not have to argue on the implied choice or the close-connection issue. The second, especially the third, stage could create a lot of room for arguments on various factors that the court would usually take into account in the absence of an express choice. The factors would include, for example, the place of contracting, the place of performance, the nature of the subject matter and the place of business of the parties.3)See, e.g., Sulamerica at [10]; Simon Greenberg, Christopher Kee, and J. Romesh Weeramantry, International Commercial Arbitration: An Asia-Pacific Perspective (Cambridge University Press, 2011) at 111; England Coast Lines Ltd. Hudig & Veder Chartering NV [1972] 1 All ER 451. jQuery("#footnote_plugin_tooltip_6755_3").tooltip({ tip: "#footnote_plugin_tooltip_text_6755_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Parties inevitably would feel obliged to dwell on each factor with lengthy arguments. The resolution process could get very complicated if a complex factual matrix is involved (e.g. business projects involving multiple jurisdictions to similar extents, or multiple equally important parties from different jurisdictions). It has even been noted that the ‘closest connection’ test cannot feasibly be applied at all when it involves ‘complex business relationships with a multitude of sub-contracts’.4)Christiana Fountoulakis, Set-off Defences in International Commercial Arbitration: A Comparative Analysis (Bloomsbury Publishing, 2010) at 186. jQuery("#footnote_plugin_tooltip_6755_4").tooltip({ tip: "#footnote_plugin_tooltip_text_6755_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In any event, it can often be very difficult to weigh among equally persuasive factors. Furthermore, the adjudication of these contextual factors inevitably involves subjective and discretionary evaluation, potentially leading to different conclusions by different judges, who accord different weight to different factors. These could lead to uncertainty for the parties as it would prove hard to predict the conclusion.5)Jeffrey Waincymer, Procedure and Evidence in International Arbitration (Wolters Kluwer, 2012) at section 13.5.3; Emmanuel Gaillard and John Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration (Wolters Kluwer, 1999) at 434. jQuery("#footnote_plugin_tooltip_6755_5").tooltip({ tip: "#footnote_plugin_tooltip_text_6755_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

By contrast, focusing on the first stage – the express terms of the contact – is an objective process and arguably simpler. The arguments concentrate solely on the semantics and drafting. Most importantly, this case demonstrates that the issue of interpretation is unlikely to be a complicated one. This is because, as long as there is a ‘This Agreement includes all the terms’ clause, the court could easily find an express choice, which would reduce any potential room for arguing on the proper interpretation. This would provide more certainty, as any suggested implied choice ‘cannot overcome the clear effect of the express terms’ (Para 68). Moreover, this would save the parties’ time and resources by eliminating the need for lengthy and convoluted arguments.

The conclusion reached by this straightforward approach is persuasive since the parties’ adoption of an inclusive definition of ‘This Agreement’ (as covering the arbitration agreement/clause) logically and powerfully accounts for the lack of a direct and separate clause for the governing law of the arbitration agreement. However, if this is not the actual intention, parties should now be advised to be extra careful when drafting an all-encompassing ‘This Agreement includes all terms’ clause.

In sum, this case vitally confirms and reinforces the emerging focus on paying adequate attention first to the question of whether there is an express choice. This marks a sway from the usual practice/assumption to directly skip to the implied choice and/or close-connection enquiries under the Sulamérica test. Lawyers should now carefully check whether there is a ‘This Agreement includes’ clause, which is a fairly common one. This development is very welcomed as the focus on the express choice, by simple reference to whether such clause exists, provides straightforward guidance to determining the applicable law. To some, this may be a more preferable approach than the ‘vague criterion of “closest connection”’.6)Joachim G. Frick, International Arbitration Law Library: Arbitration in Complex International Contracts (Wolters Kluwer, 2001) at 60; Tony Cole and Pietro Ortolani, Understanding International Arbitration (Routledge, 2019) at section 5.2. jQuery("#footnote_plugin_tooltip_6755_6").tooltip({ tip: "#footnote_plugin_tooltip_text_6755_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

References   [ + ]

1. ↑ See, e.g., Tan Sri Dato’ Cecil Abraham, Aniz Ahmad Amirudin & Daniel Chua Wei Chuen, Interaction of Laws in International Arbitration: An Asian Perspective, in Neil Kaplan QC and Michael Moser (eds.), Jurisdiction, Admissibility and Choice of Law in International Arbitration (Kluwer, 2018). 2. ↑ Sulamérica at paras 11 and 26; see also the Singaporean position. 3. ↑ See, e.g., Sulamerica at [10]; Simon Greenberg, Christopher Kee, and J. Romesh Weeramantry, International Commercial Arbitration: An Asia-Pacific Perspective (Cambridge University Press, 2011) at 111; England Coast Lines Ltd. Hudig & Veder Chartering NV [1972] 1 All ER 451. 4. ↑ Christiana Fountoulakis, Set-off Defences in International Commercial Arbitration: A Comparative Analysis (Bloomsbury Publishing, 2010) at 186. 5. ↑ Jeffrey Waincymer, Procedure and Evidence in International Arbitration (Wolters Kluwer, 2012) at section 13.5.3; Emmanuel Gaillard and John Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration (Wolters Kluwer, 1999) at 434. 6. ↑ Joachim G. Frick, International Arbitration Law Library: Arbitration in Complex International Contracts (Wolters Kluwer, 2001) at 60; Tony Cole and Pietro Ortolani, Understanding International Arbitration (Routledge, 2019) at section 5.2. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Artificial Intelligence, A Driver For Efficiency In International Arbitration – How Predictive Coding Can Change Document Production

Sun, 2020-02-23 02:14

In the last few years, the international arbitration community has started to engage in discussions on the digital transformation of dispute resolution and on artificial intelligence (also on this blog). Scholars and arbitration practitioners have been speculating on how artificial intelligence might be used in arbitral proceedings and the potential impact it might have on the arbitral process from an administration of justice perspective. So far, these discussions have almost exclusively focussed on the (immediate and distant) future rather than the present. Very little has been said about the current state of affairs of artificial intelligence tools used in international arbitration.

One of the artificial intelligence tools presently used in dispute resolution is predictive coding. Predictive coding is a form of supervised machine learning tool that takes human review-based data input about document relevance and applies it to a larger document population. With predictive coding, relevant or responsive documents are identified by an algorithm. Predictive coding has been in use in English court litigation for a number of years, with BCLP acting in Brown v BCA Trading Ltd [2016] EWHC 1464 (Ch) – the first contested application to use predictive coding. Its use is also permitted in the U.S. courts, some of which have recognised that the results of predictive coding review are statistically superior to a traditional manual review (Moore v Publicis Groupe 11 Civ 1279 (ALC) (AJP) II Civ 1279 (ALC) (AJP) (US District Court SDNY, 24 February 2012).

In contrast, the extent to which predictive coding is used in arbitral proceedings, and how it should be used is unclear. The 2018 Queen Mary survey indicated that 5% of respondents use artificial intelligence, including data analytics and technology assisted document review, frequently, and 3% always use it. Yet, the use of predictive coding is rarely discussed among the parties or with the tribunal at any stage of the proceedings and there are currently no rules or best practice guidance on this subject. For example, the IBA Arb 40 Guide on Technology Resources for Arbitration Practitioners does mention predictive coding as part of its list of different software tools available for document review. However, it does not address the question of whether predictive coding can be used in arbitration and if so, under what conditions, including in terms of permission and disclosure to the other parties and the tribunal.

This blog post discusses how predictive coding is likely to impact document production in international arbitration and what guidance is required regarding its use, any disclosure obligations and case management.

 

How does predictive coding work?

The process starts with setting parameters and identifying documents that will form the sample set of documents to be reviewed. This sample is generally reviewed by a senior lawyer with good knowledge of the case. The human reviewer codes the documents, ‘relevant’ or ‘not relevant’, or for document requests, ‘responsive’ or ‘not responsive’, which in turn trains a predictive formula (algorithm).

The algorithm is applied to the entire review set of documents either continuously or upon completion of the sample set’s review. Relevant or responsive documents are identified by the algorithm and ranked in order of relevance/responsiveness. Further documents may be reviewed by the senior lawyer to improve the algorithm. These include documents flagged by the tool as being the subject of inconsistent treatment by the algorithm on the one hand, and by the human reviewer on the other. The human review continues until an acceptable confidence and response score is reached. At this stage, documents identified by the algorithm as irrelevant/non-responsive are randomly sampled for quality control.

 

The drive for efficiency

Arbitration rules and arbitration laws do not address either artificial intelligence, or accepted means to search documents requested by the other side and/or ordered by the tribunal. Aside from the duty of good faith reflected in certain arbitration regimes, there is not a clear test to determine whether a party has met its obligation to search documents. However, most of the major institutional rules and arbitration laws encourage tribunals and parties to conduct arbitrations in an efficient and cost-effective manner. This implicitly includes the use of electronic tools: the use of which is encouraged by a number of guidelines including the ICC Commission Report for Managing E-Document Production and the CIArb Protocol for E-Disclosure in Arbitration. The idea that responsive documents should be searched efficiently is also reflected in Article 3.3(a)(ii) of the IBA Rules on the Taking of Evidence in International Arbitration (the “IBA Rules”).

 

Why use predictive coding in international arbitration?

Predictive coding is potentially more efficient than a manual search terms-based review. Members of the legal team only need to review documents identified by the algorithm as relevant/responsive (and a random sample of irrelevant/non-responsive documents for quality control). This is instead of needing to manually review documents located in the files of certain custodians, between certain date ranges, or filtered through search terms. A study in 2011 demonstrated the significant cost savings for using predictive coding technology over manual review as “the technology-assisted reviews require, on average, human review of only 1.9% of the documents, a fifty-fold savings over exhaustive manual review”.

Predictive coding generally achieves a higher level of consistency and therefore a lower risk of error (both of which can be determined from the outset). Most of the time, predictive coding is used in conjunction with keyword searches. Since less documents are reviewed by a human, the human-based review is generally carried out by a single lawyer, rather than a group of different lawyers. This not only makes the exercise less costly but limiting human review to one or a small number of more experienced reviewers, also impacts consistency and quality.

Some studies have actually concluded that predictive coding tends to be more accurate than manual review. An empirical survey in 2010 revealed that the performance of two computer systems (by two different providers) was at least as accurate as that of human review.

 

Quantifying risk

Some arbitration practitioners have expressed concerns about using predictive coding to search documents responsive to document requests made by another party. The concern relates to responsive documents being searched through an algorithm rather than manual review. Indeed, document production obligations are typically sanctioned by virtue of ethical rules, to which algorithms and software are not bound. This raises the question of who would be responsible for a mistake made by an algorithm.

It is certainly possible that a particular algorithm may wrongly identify a document as relevant/responsive or, more problematically, miss a relevant/responsive document. The accuracy of an algorithm and the risk of errors actually form part of any predictive coding tool. Statistics about recall rate, accuracy and the potential for errors can be run at different stages of the review. While these statistics indeed reflect a risk of error, they offer the party using predictive coding the benefit of understanding and quantifying that risk. If the use of predictive coding is shared with the other side, this benefit can be shared with them and the arbitral tribunal. This is not something that is possible with a traditional search term or human-based review.

Traditional review methods do also involve risks of errors, but these risks are simply not considered or quantified. Human mistakes rarely come to light in arbitral proceedings and the risk associated with human error may therefore be understated. This may distort general perceptions when comparing artificial intelligence with human intelligence in the context of document review. Search terms-based reviews also have a significant potential for mistakes. Some requests for documents are very difficult to capture through search terms. For example, search terms may not successfully draw documents relating to abstract or negative concepts, such as unfair prejudice or the presence or absence of control of one entity over another. Predictive coding is particularly suitable for these types of document requests.

 

Disclosing, agreeing and ruling on predictive coding

Whether predictive coding will be required in a particular arbitration might not be clear until document requests are exchanged. This does not mean that predictive coding cannot, or should not, be raised prior to or as part of the case management conference. At that stage, the parties could agree, and/or arbitrators could order, that a party intending to use predictive coding should disclose this to the other side and/or seek permission from the tribunal. Disclosure would ensure that the other party and the tribunal have a chance to ask questions and satisfy themselves that predictive coding was used in an appropriate manner. This would also avoid an argument that the use of predictive coding and/or failure to disclose its use constitutes a procedural irregularity and a ground for challenge. Such an argument may be raised at a later stage in the proceedings, or even following an award being rendered, which would reverse the use of predictive coding as a costs-saving measure to a costs-wasting measure. Engaging in discussions early about this issue could protect against those later arguments, or at least make the process more defensible.

Any disclosure of and/or permission for the use of predictive coding may equally have an impact on whether costs associated with it are recoverable as part of the winning party’s costs.

If predictive coding is used and appropriate disclosure is made, there will likely be discussions about how many documents should be reviewed manually and the accuracy level of the algorithm as both of these factors have a bearing on the extent of the risk that relevant documents may be missed. Parties using predictive coding should also be prepared to report on the number of documents manually reviewed for the purpose of training the algorithm. If the parties are unable to reach an agreement, the arbitral tribunal will need to rule on these issues as part of its overarching power to deal with procedural and evidentiary matters.

 

Conclusions

It is ultimately the decision of an individual party to consider whether they might want to use this tool. However, parties, counsel and arbitrators should be aware of its existence and application in the context of arbitral proceedings. Besides the interesting policy considerations arising from the development of artificial intelligence, practitioners may want to increase their practical understanding of predictive coding as they will likely need to address this new area in the future. This may be to ensure that an order to produce documents will, or has been, complied with, or to advance or oppose an application seeking permission to use predictive coding. Further, given the constant increase of documents in international arbitration and the undeniable costs-saving element to predictive coding, counsel will increasingly be expected to use predictive coding and advise clients on how to use it strategically.

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Revival Of The Yukos Awards Against Russia Following The Decision Of 18 February By The Court Of Appeal In The Hague

Sat, 2020-02-22 02:00

Introduction

On the 18th of February, the Court of Appeal in The Hague reversed the lower court’s decision annulling the awards rendered against the Russian Federation in Veteran Petroleum Ltd., Yukos Universal Ltd. and Hulley Enterprises Ltd. cases. The awards are thus revived. Notwithstanding the global notoriety and public controversy, the identity of the protagonists, and the amount at stake, the Court of Appeal’s approach was fundamentally legal: based on a close analysis of the Dutch Code of Civil Procedure, Article 1065 and the Energy Charter Treaty (the “ECT”). The Court engaged in a detailed analysis of the Law of Treaties – the Vienna Convention on the Law of Treaties. It acknowledged the premise that States promulgate investment treaties to lower the cost of capital. A signature means a consent to being bound. One observes that states sign on willingly but resist being held accountable under those treaties when they violate them. The Court levels the playing field in times when there is a dire need for a reminder that international law is a valuable resource of the global community.

 

The Yukos case

On 20 April 2016, the District Court in The Hague rendered its judgment annulling the awards rendered against Russia in excess of 50 US billion in July 2014. The District Court had held that on the basis of Art. 1065(1)(a) DCCP there was no valid arbitration agreement and with that there was no jurisdiction for the PCA tribunal under the ECT. The Russian Federation had signed the ECT but had not ratified it.

 

Conclusions of the Court of Appeal

The Court of Appeal concluded that there was a valid arbitration agreement and that the tribunal had jurisdiction under the ECT, which the Russian Federation signed on 17 December 1994. As of that moment it was bound unless the application violated Russian Law of fundamental importance, which according to the Court of Appeal was not the case here (paras 4.3.2., 4.3.4).1)Vienna Convention on the Law of Treaties, Articles 25, 46. jQuery("#footnote_plugin_tooltip_3339_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3339_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Russian Federation will be filing an appeal with the Supreme Court.

Relying on Articles 31 and 32 of the Vienna Convention on the Law of Treaties (the “VCLT”), the Court of Appeal emphasizes the primacy of the text and interprets the ECT on the basis of good faith. The Court refers to Art. 39 ECT and Art. 44 ECT on the entry into force of the treaty: the treaty will not enter into force until the State has deposited an instrument of ratification, acceptance or approval (para 4.3.1). On behalf of the Russian Federation, O.D. Davydov, at the time Deputy Chairman of the government of the Russian Federation had signed the ECT on the 17 December 1994. On the 16 August 1996, the treaty was submitted to the Duma for approval. That approval never took place; and the Russian Federation never deposited an instrument of ratification, acceptance or approval. The ECT thus never entered into force as per the requirements set forth in Art. 44 of the ECT (para 4.3.2). The Court then crucially refers to Art. 45(1) ECT – the Limitation Clause – that provides that each State that signed the treaty will apply the treaty in a provisional way, “to the extent that such provisional application is not inconsistent with its constitution, laws or regulations” (para 4.3.3). The Court held that this type of application is accepted in international law and codified in Art. 25 VCLT and that there are no additional requirements for the application of Art. 26 ECT (consent to arbitration) (para 4.3.4).2)See also Article 46 of the VCLT, which is of particular relevance in the United States. jQuery("#footnote_plugin_tooltip_3339_2").tooltip({ tip: "#footnote_plugin_tooltip_text_3339_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The Court refers to Art. 1065(1)(a) of the Dutch Code of Civil Procedure (DCCP) that provides that an arbitral award can be annulled if there is no valid arbitration agreement. It was important for the Court to distinguish between the question whether there is a valid arbitration agreement on the one hand and the tribunal’s own assessment of its jurisdiction on the other hand. The Court reminds us of the final judicial authority as to whether there is a valid arbitration agreement (para 4.3.4).

“In the first place, in this case it is about a purely legal argument, that is the explanation of the Limitation Clause ….” (para 4.4.6).3)The Limitation Clause of the ECT (Article 45(1)) provides that provisional application is only allowed to the extent that it does not violate ‘the Constitution, Laws and Regulations’. jQuery("#footnote_plugin_tooltip_3339_3").tooltip({ tip: "#footnote_plugin_tooltip_text_3339_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The Court holds that the treaty applies provisionally and quotes the following of the Preamble of the ECT:

“Wishing to implement the basic concept of the European Energy Charter initiative which is to catalyze economic growth by means of measures to liberalize investment and trade in energy.”

and Art. 2 ECT (Purpose of the Treaty):

“This Treaty establishes a legal framework in order to promote long-term cooperation in the energy field, based on complementarities and mutual benefits, in accordance with the objectives and principles of the Charter.” (paras 4.5 and 4.5.23)

The Court takes a firm pro-investor stance in its reasoning, relying on the provisions of the ECT that refer to stimulating investment in the energy sector, by creating stable and transparent investment conditions. From the fact that the treaty must be applied conditionally, it follows that the Contracting States accepted to comply with those obligations to establish conditions for investment immediately upon the signing of the treaty (para 4.5.26).4)Articles 13, 14, 10 ECT. jQuery("#footnote_plugin_tooltip_3339_4").tooltip({ tip: "#footnote_plugin_tooltip_text_3339_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In the case at hand, the Court holds that the provisional application of Art. 26 ECT does not violate constitution, laws or regulations of the Russian Federation (para 4.6.1). The Court holds that Article 26 ECT provides for international arbitration under the UNCITRAL Rules for violations of ECT provisions. It does not accept Russia’s argument that such international arbitration cannot exist in parallel with the legal provisions that were referenced by the Russian Federation (para 4.7.37). The Court agrees with the claimants that the LFI 1991 and the LFI 1999 provide for the possibility of international investment arbitration (and thus they confirm that international investment arbitration does not violate Russian law) which is then enlivened by the investment treaty in this case Art. 26 ECT: hence Art. 26 does not violate Russian law in the sense of the Limitation Clause (paras 4.7.56-58). Thus there was no basis to set aside the Yukos awards pursuant to Art. 1065(1)(a) DCCP.

The Russian Federation had also argued ‘unclean hands’: enforcement of the Yukos Awards would lead to violation of public policy with respect to fraud, corruption and other serious irregularities. Therefore, enforcement would justify and preserve fraudulent, corrupt and illegal activities, thus violating fundamental principles of public policy (Art. 1065(1)(e)) – and also invalidate the arbitration agreement (para 9.8.1). The Court dismisses these claims, referring to its earlier considerations in the decision (paras 5.1.11.1- 5.1.11.9). The Court holds that the illegal acts were not relevant for granting the claims in the arbitration because (i) only an illegal act at the time of investing would be relevant for protection under the ECT and (ii) the alleged illegal acts were committed by others, not Hulley and (iii) the shares were in Yukos legally (para 9.8.7).

 

Final remarks

National laws do protect parties from injustices that at times can occur in arbitration, a form of checks and balances that contribute to the legitimacy of international arbitration. This case has received global attention beyond the legal community. It goes to the core of treaty protection that States create in order to attract foreign direct investment and lower the cost of capital.

 The Court’s pro-investor stance is re-assuring. The court attributed a great amount of importance to the purpose of the ECT and applied it in good faith. Under the VCLT, a treaty must be interpreted on the basis of its text but in conjunction with context and purpose. The Court reminds States why they sign on to treaties: there is a self-interest: attracting investment. Especially State delegations in the WG-III of UNCITRAL, that looks at the reforms in ISDS, would do well to remember they created those treaties for their own benefit. Even though the ECT and other treaties provide for international tribunals to deal with disputes, its safety net in this case was found in the jurisdiction of the Dutch court; in this case to ensure there was a valid arbitration agreement, proper composition of the tribunal, and compliance with due process. All the while the WG-III’s envisions reforms that would broaden the claims of sovereignty to an extent the drafters of the New York Convention could never have imagined and review by an Appellate Mechanism where practical constitution and functioning are yet to see the light of day. In the meanwhile, for this monumental case, after this week’s decision, the enforcement actions will be picked up at full speed, whilst we await the undoubtedly intense unfolding of the cassation procedure.

References   [ + ]

1. ↑ Vienna Convention on the Law of Treaties, Articles 25, 46. 2. ↑ See also Article 46 of the VCLT, which is of particular relevance in the United States. 3. ↑ The Limitation Clause of the ECT (Article 45(1)) provides that provisional application is only allowed to the extent that it does not violate ‘the Constitution, Laws and Regulations’. 4. ↑ Articles 13, 14, 10 ECT. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Kabab-Ji: The Effect Of No Oral Modification Clauses On Non-Signatories Of Arbitration Agreements Under English Law

Fri, 2020-02-21 02:00

On 20 January 2020, the Court of Appeal delivered its judgment in Kabab-Ji SAL (Lebanon) v. Kout Food Group (Kuwait) [2020] EWCA Civ 6. This post will focus on the Court’s findings on “no oral modification” (“NOM”) clauses and the impact that such clauses have on whether non-signatories to a commercial contract can be bound by an arbitration agreement.

The case arose out of a dispute between the parties under a Franchise Development Agreement (“FDA”). The FDA was entered into by the appellant (“KJ”), a Lebanese company, and Al Homaizi Foodstuff Company (“AHFC”), a Kuwaiti company. The FDA contained two provisions which effectively constitute NOM clauses: Article 17, which prohibited any waiver of any term or condition of the Agreement without signed in writing, and; Article 26, which provided that the FDA could only be amended or modified by a written document executed by a duly authorised representative of both parties. The FDA also contained an entire agreement clause and a provision stating that the rights granted under it were intended to be strictly personal in nature and could not be assigned or transferred without prior written approval of the counterparty.

Following a corporate reorganization, AHFC became a subsidiary of the respondent (“KFG”). A dispute arose under the FDA which the appellant referred to arbitration in Paris pursuant to Article 14 of the FDA. For reasons that remain unclear, that arbitration was commenced only against KFG, not AHFC, giving rise to the issues described in this post.

 

The Arbitration

In the arbitration award (KJ’s application to bifurcate having been rejected), the majority (Professor Dr Mohamed Abdel Wahab and Mr Bruno Leurent) concluded that under English law a novation ‘by addition’ could be inferred by conduct, adding KFG as a further party to the franchise arrangement. The dissenting arbitrator, Mr Klaus Reichert S.C., concluded, contrary to the Majority, that under English law KFG never became a party to the FDA, meaning that it owed no obligation to KJ to arbitrate any dispute. Mr Reichert held at paragraph 66 of his dissenting opinion that KJ had “clearly sued the wrong party”.

Having ruled that KFG was bound by the FDA under the principle of novation, the tribunal found in favour of KJ in respect of the substantive dispute. The award was then ordered ex parte by Popplewell J to be enforced as a judgment on 7 February 2019.

 

High Court

In March 2019, Sir Michael Burton in the English High Court heard cross-applications by KJ and KFG. KJ, as the award creditor, was seeking an adjournment of enforcement pursuant to s.103(5) of the Arbitration Act 1996 pending resolution of a challenge by KFG to the award. The award had been made on 11 September 2017 and the challenge was due to be heard by the Paris Court of Appeal in February 2020. KJ also sought security under s.103(5) for its award debt of USD$6.7m. KFG was applying for the enforcement order to be set aside.

With reference to paragraphs [103] and [106] of Dallah Real Estate v. The Ministry of Religious Affairs [2010] UKSC 24, the parties agreed that the Court was bound to revisit the question of the tribunal’s ruling on jurisdiction, with the effect that the application would amount to a complete re-hearing on the point.

On the question of whether KFG had become a party to the FDA and thereby to the arbitration agreement in spite of the NOM clause, Sir Michael Burton referred to Articles 17 and 26 of the FDA, as well as the entire agreement and exclusivity provisions and the Supreme Court’s ruling in Rock Advertising v MWB Business Exchange [2018] UKSC 24 that no oral modification clauses are enforceable. In light of these, he concluded that it would be “extremely difficult” for KJ to rely upon some actions or statements as constituting implied consent or conduct capable of amounting to an agreement to the joinder of KFG to the FDA. In respect of the novation arguments advanced before the tribunal in arbitration, English law does not recognize the concept of novation by addition and any novation would in any event be an amendment of the contract and therefore subject to the NOM provisions in the FDA.

As suggested by Lord Sumption at [16] of Rock, KJ would in such circumstances need to establish an estoppel arising from unequivocal representations by KFG that the transfer of the rights and obligations under the FDA was valid. Unless KJ could produce evidence to establish such an estoppel, Sir Michael Burton held that KJ had not become a party to the FDA or, consequently, the arbitration agreement. In the circumstances, he resolved to adjourn KJ’s enforcement and stay its judgment until after the outcome of the hearing in Paris.

 

Court of Appeal

The Court of Appeal similarly found that, following Rock, the NOM clauses in the FDA prevented an oral or conduct-based modification of the contract that had the effect of binding KFG under the FDA or the arbitration agreement. However, the Court disagreed with the judge’s decision to adjourn the enforcement of the award. Flaux LJ held that, on the material that had been put before the High Court, KFG did not have a real prospect of successfully establishing the estoppel necessary to bind KFG to the FDA, and there was no more than a remote prospect that further evidence would be produced. As such, the Court of Appeal refused the enforcement and recognition of the Award as a judgment.

 

Good Faith Obligations

The FDA provided that English law as the governing law of the contract could be supplemented by principles of law generally recognized in international transactions insofar as such principles did not contradict the strict wording of the agreement. In reliance on this, counsel for KJ argued that the UNDROIT principles concerning good faith, inconsistent behaviour and modification (see Articles 1.7, 1.8, 2.1.1 and 2.1.18) should apply in conjunction with a good faith duty at Article 2 of the FDA (which required the Parties to act in good faith in carrying out and interpreting the agreement) to override the formality of the NOM Clauses. It was noted by the High Court that the tribunal had relied on the UNIDROIT principles in its conclusory paragraphs on jurisdiction.

Unsurprisingly, the Court of Appeal found at [74] that there was little difference between the UNIDROIT approach and the English approach through the doctrines of estoppel, and that even if the UNIDROIT principles did enunciate some broader test for preclusion than the doctrine of estoppel as summarized in Rock, the fact that the FDA only applied such principles insofar as they did not contradict the strict wording of the agreement meant that they could not override the express NOM provisions. In respect of the good faith provision within the FDA, the Court found that this applied to the parties to the contract and could not join a party to the contract, nor could it dilute the strict wording of the NOM clauses.

 

Conclusions

The decisions of the High Court and Court of Appeal in Kabab-Ji show that, in the absence of a strong estoppel case, it will be difficult to establish that a non-signatory is bound by a contract which contains a NOM clause. Good faith obligations, whether contractual or under the UNIDROIT principles, are unlikely to alter this analysis.

However, there may be some hope for parties who wish to pursue arbitration in such circumstances.

First, neither the High Court nor the Court of Appeal was satisfied by the evidence advanced by KJ that an estoppel arose. However, in circumstances where a party asserting estoppel is able to demonstrate that it has relied on unequivocal representations to the effect that the other party will be bound by the relevant contract, NOM clauses will not prevent modification of a contract to join a third party and bind it to a commercial agreement.

Second, Sir Michael Burton noted at [21] of his judgment in the High Court that the matters on which KJ relied related to the conduct of the parties with regard to the FDA so no argument had been advanced that KFG had become a party to the arbitration agreement otherwise than by becoming a party to the FDA. English courts have favoured a restrictive approach to the doctrine of separability in cases such as Sulamerica [2012] EWCA Civ 638 (where the Court of Appeal noted at [26] that the purpose of the concept was “not to insulate the arbitration agreement from the substantive contract for all purposes”) and it is difficult to see how a separable arbitration agreement could apply to a dispute that does not arise under the underlying contract. However, the judge’s comment implies that there may be circumstances in which an English court would be willing to find that the words or conduct of non-signatories would be sufficient to consent to the arbitration clause as a separable agreement from the underlying contract, whether by the operation of an estoppel or otherwise.

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Micula Case: The UK Supreme Court Rules That The EU Duty Of Sincere Co-operation Does Not Affect The UK’s International Obligations Under The ICSID Convention

Thu, 2020-02-20 05:58

In a decision likely to enthuse investors willing to enforce intra-EU ICSID awards in the UK, the UK Supreme Court unanimously held yesterday that the UK’s enforcement obligations under the ICSID Convention could not be affected by the EU duty of sincere co-operation (in this case, the question of whether the award obtained by the Micula brothers against Romania constitutes state aid prohibited under EU law is pending before the CJEU), as the UK’s ratification of the ICSID Convention preceded its accession to the EU.

 

Background

As further developed in a previous post, an ICSID tribunal constituted under the 2002 Sweden-Romania BIT ruled in 2013 that Romania impaired the Micula brothers’ investments by repealing certain incentives offered to investors in disfavoured regions. Romania repealed these incentives in 2005, in view of its accession to the EU, in order to eliminate domestic measures that could constitute state aid incompatible with the acquis communautaire.

Following partial payment of the c. €178 million award by Romania, the European Commission ruled in 2015 that such payment constituted illegal State aid. It precluded any further payment by Romania and ordered it to recover the partial payment that had been made. This decision was quashed by the General Court in June 2019, on the basis that the award recognised a right to compensation for the investors existing before Romania’s accession to the EU and thus that the Commission was precluded to apply EU state aid rules to this situation. This allowed the court to avoid discussing the relationship between EU law and intra-EU investment arbitration, by ruling that “in the present case, the arbitral tribunal was not bound to apply EU law to events occurring prior to the accession before it, unlike the situation in the case which gave rise to the judgment [in the Achmea case]” (para. 87). The General Court’s decision was appealed by the Commission before the Court of Justice on 27 August 2019.

In parallel, the Micula brothers lodged applications for recognition and execution of the arbitral award before national courts. In the UK, they were granted the registration of the award in 2015, under the Arbitration (International Investment Disputes) Act 1966 (implementing the ICSID Convention in the UK). In 2017, the High Court stayed the enforcement proceedings pending the state aid proceedings before the CJEU, because, among others, the question of whether EU state aid law would preclude enforcement was discussed before the General Court. The stay was confirmed by the EW Court of Appeal on 27 July 2018, although it ordered Romania to provide security in the sum of £150m. Both limbs of this decision were appealed before the Supreme Court, respectively, by the Micula brothers (against the stay) and by Romania (against the security).

The position of the UK courts was in line with the view adopted by most of the EU domestic courts seized by the Micula brothers. Interestingly, in March 2019, the Brussels Court of Appeal made a preliminary ruling reference to the CJEU, requesting guidance on the interplay between the Member States’ apparent contradictory obligations under EU State aid rules and the ICSID convention.

 

UK Supreme Court’s decision

On the face of it, the UK Supreme Court was indeed faced with a question that has become central in the relationship between EU law and intra-EU investment arbitration since the Achmea case: should it give more weight to the EU duty of sincere co-operation (aiming at preserving the effectiveness of EU law) or to the UK’s international obligations under Article 54 of the ICSID Convention (pursuant to which “each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State”)? An interesting question for the supreme court of a state having just left the Union…

In yesterday’s decision, the Supreme Court first conceded that “the existence of a pending appeal to the Court of Justice with a real prospect of success is, in itself, sufficient to trigger the duty of cooperation and, subject to the further grounds of appeal considered below, requires the grant of a stay so as not to undermine the effect of the Commission Decision, should it be upheld” (para. 56). The Supreme Court also agreed with the Court of Appeal that UK courts have the power to stay execution of an ICSID award in limited circumstances (in accordance with the rules applicable to domestic final judgments). However, awaiting a final decision at EU level would exceed that power because “the Court of Appeal made use of powers to stay execution granted by domestic law in order to thwart enforcement of an award which had become enforceable under the ICSID Convention” (paras. 84).

The Supreme Court considered that this conclusion was not affected by the EU duty of sincere cooperation, as it was inapplicable in the case at hand by virtue of Article 351 TFEU, according to which “the rights and obligations arising from agreements concluded before 1 January 1958 or, for acceding States, before the date of their accession, between one or more Member States on the one hand, and one or more third countries on the other, shall not be affected by the provisions of the Treaties”. As the UK joined and implemented the ICSID Convention before its accession to the EU on 1 January 1973, the duty of sincere co-operation enshrined in Article 4(3) TEU could not affect the UK’s obligation to enforce the award under Articles 54 of the ICSID Convention. The stay had therefore to be lifted.

The Supreme Court did not discuss this aspect, but it should be noted that the UK ratified the Energy Charter Treaty in 1996, i.e. after its accession to the EU. However, ICSID awards may be rendered under Article 26 ECT, similarly to what is provided for by the dispute resolution mechanism of the 2002 Sweden-Romania BIT.

The Supreme Court rebutted Romania’s argument that Article 351 TFEU was not applicable to intra-EU situations, holding that “while it is correct that in order for article 351 TFEU to apply relevant obligations under the prior treaty must be owed to a non-member state, that does not impose an additional requirement that the particular dispute before the court must relate to extra-EU activities or transactions […]. It is clear that the specific duties in articles 54 and 69 of the ICSID Convention are owed to all other Contracting States. The Convention scheme is one of mutual trust and confidence which depends on the participation and compliance of every Contracting State” (paras. 100 and 104).

The majority view of the Court of Appeal was that a stay was required in the UK because the applicability of Article 351 TFEU was an issue before the General Court and there was thus a clear risk of conflicting decisions. By contrast, the Supreme Court held that such risk would be “both contingent and remote”, because (i) questions as to the existence and extent of obligations under prior treaties, in the context of article 351 TFEU, are not reserved to the EU courts; (ii) in the State aid proceedings, what is at stake is the potential conflict between EU law and the responding state’s (here, Romania) obligations under Article 53 of the ICSID Convention, as opposed to a third state’s (here, the UK) enforcement obligations under Article 54 of that convention; and (iii) the General Court did not rule on the question of Romania’s obligations under the ICSID Convention (while the pending appeal to the Court of Justice is limited to those grounds on which the General Court decided the application). The Supreme Court added that the preliminary reference made by the Brussels Court of Appeal was not relevant since Belgium was already an EU Member State when it ratified the ICSID Convention (paras. 111-117).

Finally, the Supreme Court envisaged the possibility for the European Commission to bring infringement proceedings against the UK because of its decision, but considered that there would be “no realistic prospect of success in disputing the existence” of the obligations owed by the UK to non-member states under the ICSID Convention and that “the principle of comity and the two-way application of the principle of sincere co-operation would be likely to lead the Court of Justice to leave the interpretation of the Convention, to which the EU is not a party, to the domestic courts of the United Kingdom as a Contracting State” (para. 116).

Several commentators considered that the UK could become a fertile ground for the enforcement of intra-EU awards upon its withdrawal from the EU. The Supreme Court’s decision, rendered during the transition period, appears to go in that direction, at least for ICSID awards.

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How Do You Deal With Data Protection And Cybersecurity Issues In a Procedural Order?

Wed, 2020-02-19 04:30

It would be difficult not to have encountered at least one arbitration event in the past year where data protection or cybersecurity was discussed. As these discussions become more frequent, one may wonder: what are the practical implications of data privacy and cybersecurity on the actual conduct of international arbitrations?

This was what the Singapore Branch of the Chartered Institute of Arbitrators (CIArb) sought to imagine in a unique competition organised a few months back. Armed with a detailed hypothetical fact scenario, competitors were asked to draft a Procedural Order (PO) providing directions on data protection and cybersecurity measures to be implemented in the conduct of the arbitration.

 

The Fact Problem

The problem was set against the backdrop of a rather unique set of ‘facts’. Party A was a US-incorporated company financially backed by an imaginary EU member state, State C. Party A entered into a contract with Party B, a Singapore-incorporated software company. Pursuant to the contract, Party A funded Party B to develop an application, to be deployed on wearable devices, which collected health data from citizens of State C. To that end, Party B set up a branch in State C and its servers for the project were sited there. The personal data of citizens of other EU states were supposed to be excluded. The agreement was governed by Singapore law and provided for UNCITRAL arbitration seated in Singapore.

The dispute arose when Party A claimed that Party B’s servers were hacked by a state-linked actor. Party A sought discovery of documents against Party B while Party B contended that granting discovery would amount to a breach of EU’s General Data Protection Regulation (GDPR). The Tribunal was requested to decide in a PO, among other things, whether: (1) discovery would be a breach of the GDPR and (2) cybersecurity measures for the arbitration should be ordered.

 

Does the GDPR apply to an arbitration seated outside the EU?

The first question likely to be asked in a PO is which data protection laws apply. When, as in the CIArb competition, both the lex arbitri and substantive governing law were not the law of an EU member state, the question as to whether the GDPR nevertheless applies is not straightforward.

One possible approach is to consider if the GDPR is mandatory law. However, the issue of whether, and what, mandatory laws apply in international arbitration is itself fraught with some difficulty. In the CIArb competition, the parties expressly stated in their dispute resolution clause that discovery was subject to any applicable mandatory law.

Even if one takes the view that the GDPR is mandatory law, the next question is whether the activities in the arbitration fall within the scope of the GDPR. The GDPR applies to all matters that fall within its (a) material scope and (b) territorial scope. The former is concerned with the type of activities. According to Article 2(1) of the GDPR, its material scope extends to all “processing of personal data wholly or partly by automated means”. This is a wide definition and it is conceivable that the parties and the tribunal in an arbitration would end up processing personal data; not least during document production and review. This is reinforced by one of the recitals in the GDPR which states that it was intended to apply to “out of court procedures”. That being said, at least one tribunal has thought otherwise. In June 2019, a tribunal in the NAFTA arbitration of Tennant Energy v Canada  decided that the arbitration did not fall within the material scope of the GDPR.

The territorial scope relates to the actors in the arbitration. In that regard, the GDPR applies to any data controller or processor established in the EU, as well as to one outside the EU if he/she offers goods or services to data subjects in the EU. The following actors in an arbitration could potentially fall within the territorial scope of the GDPR:

  • Parties to the arbitration – any party that does business in the EU and collect data there, even if they are based outside the EU
  • Arbitrators – as discussed in this previous blog post, arbitrators residing in any EU member state appear to fall within the territorial scope of the GDPR
  • All the stakeholders to an arbitration if administered by an institution based in the EU.

 

What are the implications if the GDPR is found to apply?           

If the GDPR is found to apply to the arbitration, there are at least two implications. First, data processing is prohibited unless one of the grounds in Article 6(1) of the GDPR is found to apply. Arguably, the most relevant is Article 6(1)(f): processing that is necessary for the legitimate interests of the data controller.

Second, there are restrictions on the transfer of personal data outside of the EU. There must either be grounds for derogation under Article 49 of the GDPR, or there must be appropriate safeguards which comply with Article 46.

Therefore, to comply with the GDPR, a tribunal would likely have to set out in the PO whether data transfer is allowed and if so, whether any safeguards are to be implemented. This is by no means easy as there are very few resources targeted at helping international dispute resolution ensure compliance with the GDPR. One of the few resources currently available is the Working Document 1/2009 on pre-trial discovery for cross border civil litigation. While it pre-dates the GDPR, this EU document discusses some of the principles relevant to balancing discovery with data protection obligations. Further, and more updated, guidance should soon be available as the ICCA-IBA Joint Task Force on Data Protection in International Arbitration is expected to issue a Draft Roadmap on data protection in international arbitration imminently.

 

Cybersecurity

Cybersecurity in international arbitration is a real concern given the growing frequency of cyberattacks. The consequences of a cyberattack on an arbitration could be severe given that sensitive commercial and personal data may be involved in an arbitration.

Presently, cybersecurity standards in international arbitration are primarily being driven by soft law, the most prominent of which is the Protocol on Cybersecurity in International Arbitration prepared jointly by ICCA, the NYC Bar Association and CPR. Launched in late 2019, the Protocol provides the principles and process for establishing cybersecurity measures in an international arbitration, as well as sample measures.

 

Practical measures

Besides deciding whether data protection and cybersecurity measures should be in place, it is possible for the PO to also set out suggested best practices which parties can take to ensure compliance. A well-regarded resource is the Sedona Conference’s International Principles on Discovery, Disclosure & Data Protection in Civil Litigation which comes with an accompanying draft protocol that addresses data privacy issues, among others. Kathleen Paisely, working group member for the Protocol on Cybersecurity in International Arbitration, has helpfully proposed an adaptation of this protocol for international arbitration. Among other things, the protocol identifies and sets out principles regarding:

  • The data controllers and processors
  • Categories of data that are to be processed
  • Legal basis for processing data
  • How data transfers are to be regulated
  • Data minimisation measures
  • Cybersecurity

 

Conclusion

As the need for data protection and cybersecurity in international arbitration becomes more accepted, attention will shift to the practical measures that can be taken to achieve these objectives. There is as yet no widely-accepted method of implementing these measures. It is hoped that as the practice of a tribunal addressing data protection and cybersecurity measures becomes more common, more guidance and consensus will be built.

 

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Delay and Damages in Construction Contracts: A Report from the 4th SCL-CIArb-India International Conference on Construction Law & Arbitration

Tue, 2020-02-18 00:00

A 3-day International Conference on Construction Law & Arbitration was held in December 2019 in New Delhi, co-hosted by the Society of Construction Law-India and the Chartered Institute of Arbitrators-India. During the course of their presentations, the panelists discussed various topics ranging from trends in construction law in the context of arbitration across global jurisdictions to approaches to cross-examination and the role of quantum experts in construction arbitration.

Considering that almost 68% of all construction law disputes pertain to delay, this post focuses on the panel discussion addressing the issue of delays in construction contracts, its treatment by arbitrators, and courts entertaining challenges from arbitral awards. This panel was chaired by Hon’ble Dr. Justice S. Muralidhar, Judge, Delhi High Court and also consisted of Mr. David Brynmor Thomas QC, Mr. Anirudh Krishnan, Mr. Sundra Rajoo, Mr. Mohan Pillay, Mr. Philip Lane Bruner.

 

Concurrent Delays and Consequences

Mr. David Brynmor Thomas QC focused his presentation on the vexed issue of ‘concurrent delays’ in construction contracts and its treatment across various jurisdictions. The different approaches followed by arbitrators and courts across different jurisdictions are as under:

i. Malmaison approach: In the context of an appeal against an interim arbitration award, the Technology and Construction Court (TCC), United Kingdom (UK) in Henry Boot Construction Ltd. v. Malmaison Hotel, [1999] 70 Con LR 32 adopted this approach. This approach holds that if there are two concurrent causes of delay, one of which is a relevant event beyond the control of the contractor (say extremely inclement weather), and the other is not (say shortage of labour of the contractor), then the contractor is entitled to an extension of time for the period of delay caused by the relevant event, notwithstanding the concurrent effect of the other event; but is not entitled to recover any time-related costs. According to Mr. Brynmore, this principle is also followed under Swiss law and is reflected in Article 44 of the Code of Obligations of the Swiss Civil Code.

ii. Apportionment approach: The Scottish Courts in City Inn v. Shepherd Construction Ltd., [2010] CSIH 68 declined to follow the Malmaison approach, and laid down the apportionment approach. Under this approach, where there are two competing causes of delay, neither of which is dominant, the delay should be apportioned between the contractor and the employer, based on the relative culpability of each of the factors in causing delays. This approach is also followed in other jurisdictions, such as in Hong Kong and the United Arab Emirates (“UAE”). In Hong Kong, the High Court in Hing Construction Co Ltd v Boost Investments Ltd., [2009] BLR 339 expressly approved and followed the City Inn judgment of the Scottish Courts. Similarly, Articles 287, 290 and 291 of the UAE Civil Code embody the principle that the liability for the delay ought to be apportioned between the parties in accordance with their respective degrees of fault.

It is noteworthy that while the Malmaison approach has been consistently upheld by English courts, yet there have been various decisions of the English courts factually distinguishing this approach. One of the examples in which the English courts have chosen to distinguish the Malmaison approach is Saga Cruises v. Fincantieri, [2016] EWHC 1875 (Comm.) (English High Court). In Saga Cruises, it was held that a contractor should not be entitled to the benefit of an employer’s delay event if it was already in delay and the employer’s event had no actual impact on the completion date.

It may thus be concluded that while various jurisdictions view concurrent delays differently, arbitrators/courts in the same jurisdiction may still apply settled principles of law differently, depending on the facts and wording of each particular extension of time (“EOT”) clause.

 

Powers οf Arbitrators to Read in Exceptions to ‘Exclusionary Clauses’ – An Indian Law Perspective

The presentation of Mr. Anirudh Krishnan  has to be viewed against the backdrop that Indian government contracts provide the Government with an upper hand to set the terms of a contract while dealing with contractors. This results in widely-worded exclusionary clauses, i.e. even if there is delay attributable to the employer, no liability for damages can be affixed on the contractor. Thus, it was imperative that the courts empower arbitrators to carve out exceptions to such clauses in order to avoid undue advantage to the employer on account of its own delay. These exceptions were broadly laid down in the following judgments:

i. General Manager, Northern Railways v. Sarvesh Chopra, AIR 2002 SC 1272 (Supreme Court of India (SC)): A contractor (the non-defaulting party) would be entitled to claim damages provided that at the time of acceptance of ‘extension of time’ for performance of the contract, the contractor gives notice of his intention to claim damages for the delay.

ii. N. Sathyapalan v. State Of Kerala, (2007) 13 SCC 43 (SC): If a delay is attributable solely to the employer, and is also significant, then a contractor would be entitled to damages, notwithstanding an exclusionary clause.

iii. Asian Techs Ltd. v. Union of India, (2009) 10 SCC 354 (SC): Exclusionary clauses would not be binding on any judicial authority, and would only prohibit the employer from entertaining any claim made by the contractor.

iv. Simplex Concrete Piles v. Union of India, CS(OS) No. 614A/2002, judgment dated 23.02.2010 (Delhi High Court): Any exclusionary clause itself is contrary to law and the public policy of India, and therefore, any such clause would be void ab-initio.

Moreover, under section 54 of the Indian Contract Act, 1872, if a defaulting party has derived `any advantage under a contract, the party in breach cannot retain the benefit and would have to compensate the non-defaulting party.

It is relevant to note that the Supreme Court of India in Central Inland Water Transport Corporation v. Brojo Nath Ganguly, AIR 1986 SC 1571 had held that the courts will not enforce and will strike down an unfair and unreasonable contract/clause entered into between parties who are not equal in bargaining power (followed in Pioneer Urban Land & Infrastructure Ltd. v. Govindan Raghavan, Civil Appeal No. 12238 of 2018, judgment dated 02.04.2019).

Mr. Philip Lane Bruner, Esq. also echoed the sentiments of Mr. Krishnan and shared his experience that courts seeking justice would not ordinarily permit an employer to get away without compensating the contractor on account of its delay.

 

Time is of the Εssence in Construction Contracts

While there is no gainsaying in stating that time is of the essence in construction contracts, Mr. Sundra Rajoo shed light on the practice in the UK to have standard contractual terms in construction contracts requiring the work to be carried out ‘regularly and diligently’. In such cases, an obligation is cast upon the contractor to proceed with the works continuously with appropriate physical resources in accordance with the contractual requirements as to time, sequence and quality of work. Any delay in progress may also entitle either party to suspend or terminate the contract. However, if there are certain clauses in the contract which make issuance of a notice as a pre-condition to invoking claims related to adherence of time schedule (as is the case with various clauses in the FIDIC standard contract), such clauses would be read to be mandatory, before any claim may be made qua the breach of the term. Failure to strictly abide by the notice clauses may result in the employer being completely discharged from his liability. It may, however, be noted that this principle is not universal in nature and different jurisdictions treat notice requirements differently.

 

Foreseeability of ‘Ground Conditions

Mr. Mohan Pillay thereafter focused his presentation on the foreseeability of ground conditions by a contractor, and the expected due diligence/ independent assessment to be carried out by such contractor at the time of bidding to be able to assess the nature and scope of work, failing which the contractor would not be entitled to damages. To buttress his submissions, Mr. Pillay relied upon the judgment of the English TCC in Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar, [2014] EWHC 1028 (TCC). In Obrascon, it was held that an experienced contractor must make its own assessment of all available data and come to its own conclusions, rather than to ‘slavishly’ accept the information from the employer. Failure to carry out an independent assessment of grounds conditions would disentitle a contractor from claiming damages, and would entitle the employer to terminate the contract for delay on the part of the contractor attributable to ground conditions.

 

Consequences of Delay – Nature of the Types of Claims

Subsequently, Mr. Bruner highlighted that loss may be claimed by the employer/contractor under the following non-exhaustive heads on account of delay:

i. Employers: Damages for extended financing and project administration costs, extended use of facilities by contractor, loss of profits;

ii. Contractors: Additional cost of labour and field supervision, extended equipment and tool financing costs, extended overheads, lost profits on the contract & on other contracts.

However, the grant of damages is actually dependent on the fulfillment of the twin test of ‘beyond control of the party’ and ‘unforeseeable’ factors leading up to delays. In an American case Mundy v. New York, 27 N.Y.S. 469 (1894), it was held that while a flood was outside the control of the party, the flood delay was inexcusable because similar flooding had occurred previously and was thus foreseeable. These principles also form the basis of the UNIDROIT principles and are thus, universally accepted.

 

Conclusion

While on a normative level, it may appear that there is a disparity in the approaches of various jurisdictions on issues pertaining to construction contracts, a closer examination would reveal that the niche rules applicable to them are in principle uniformly applied by courts/arbitrators across jurisdictions.

 

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Challenges To The Appointment Of An Arbitrator: What Is The Effect Of Non-Disclosure?

Sun, 2020-02-16 23:00

The award in Serafín García Armas and others v. Venezuela (PCA Case No.2013-3) (administered under the 1976 UNCITRAL Rules) was released in April 2019. This post refers to two decisions by Mr. Hugo Siblesz on challenges brought by Venezuela to the claimants’ appointment of Prof. Guido Tawil as party-appointed arbitrator. Mr. Siblesz was acting in his capacity as Secretary-General of the PCA and was appointed by the parties to rule on the challenges. The first decision (Decisión Sobre La Recusación Contra El Prof. Guido Santiago Tawil) was published on 8 May 2013, the second, by the same name, was released on 12 February 2018 but has only recently been made public.

Examined together, these decisions provide an insight into the handling of challenges to the appointment of an arbitrator – a topic that was the focus of the recent English Supreme Court case of Halliburton v Chubb (UKSC 2018/0100).

 

The 2013 Decision

The claimants appointed Prof. Tawil in late 2012. Soon after, his appointment was challenged by the respondent, Venezuela, on several grounds, including that (i) he had an apparent pre-disposition against states, (ii) was at risk of pre-judging the case as a result of having been involved in similar cases involving foreign investors and sovereign expropriation; and (iii) had a certain affinity with the cause of foreign investors. The challenge was framed as being to Prof. Tawil’s impartiality, not his independence. The respondent also alleged that the fact of Prof. Tawil having worked with Freshfields, counsel for the claimants, in a previous investment case and his failure to provide his declaration of impartiality and independence at the time of the challenge gave rise to justifiable doubts as to his impartiality.

Mr. Siblesz rejected the challenge. First, the circumstances surrounding the return of the declaration of impartiality and independence were disputed and Mr. Siblesz found that Prof. Tawil’s clear intention was to disclose all relevant issues. Second, the respondent had failed to establish any connection between the investment cases (beyond the fact that they concerned sovereign expropriations) or proof that the information obtained in previous investment cases was capable of influencing the tribunal’s handling of points that might arise in the present case. Third, Mr. Siblesz held that there could be no presumption of bias on the basis that Prof. Tawil had previously been involved in similar cases and acted for foreign investors (at ¶64): “although there may in certain cases be a risk that an arbitrator identifies with the interests of parties that he has represented as an advocate, one cannot presume that this is the case.”

 

The 2018 Decision

In late 2017, the respondent challenged the claimants’ appointment of Prof. Tawil for a second time. This challenge was brought on the basis that Vanessa Giraud, a former employee of D’Empaire Reyna (the Venezuelan firm acting as co-counsel for the claimants), had been hired by M&M Bomchil, an Argentinian firm in which Prof. Tawil was a partner and head of the arbitration group. Ms Giraud worked for D’Empaire Reyna between 2014 and 2017. The firm was contracted as local counsel in the arbitration at the beginning of 2016.

The respondent argued that Prof. Tawil’s failure to disclose these circumstances was either intentional, or so serious that it should be treated as intentional. Moreover, the respondent alleged that his professional experience was such that he could not reasonably have considered that the situation should not be disclosed. In the circumstances, Venezuela argued that his conduct objectively and reasonably gave rise to a fear of a lack of independence or impartiality.

The respondent argued that a continuing obligation of disclosure on arbitrators was embodied in Articles 9 to 12 of the 1976 UNCITRAL Rules. Venezuela argued that whilst this continuing obligation was not explicit, it was indicated in the preparatory notes and was consistent with disclosure requirements in other arbitral tribunals and with underlying policy considerations. The respondent also pointed to the IBA Guidelines on Conflicts of Interest in International Arbitration and the approach of the Paris courts (Paris being the seat of the arbitration), which is also that an arbitrator comes under a continuing duty to disclose details relevant to his or her independence and impartiality (see Sociétés Columbus v. Société AGI).

As a result, in the respondent’s view, Prof. Tawil had an obligation to disclose any situation that would objectively give rise to doubts about his impartiality or independence as soon as that situation arose, and, in failing to disclose the link with Ms. Giraud, he had failed to comply with this obligation.

Mr. Siblesz also rejected this challenge. Mr. Siblesz held that while Ms. Giraud’s move from D’Empaire Reyna to M&M Bomchil could in principle have triggered an obligation on the part of Prof. Tawil to disclose that circumstance, there was no clear proof that Prof. Tawil had been aware of Ms. Giraud’s move. Even if Prof. Tawil had been aware of the hiring of Ms. Giraud and had failed to disclose this, there was no evidence of the exceptional requirements under which a lack of disclosure alone would give rise to justifiable doubts having been satisfied. Instead, any such lack of disclosure appears to have been inadvertent or the result of an honest exercise of discretion on the part of Prof. Tawil.

 

How to approach non-disclosure

The Claimants referred in their 2018 challenge to Total v Argentina (ICSID Case No, ARB-04-01, Decision on the Proposal to Disqualify Teresa Cheng, 26 August 2015) in support of the notion that the non-disclosure of a fact that one party considers should have been disclosed can never in itself be sufficient for the challenge to be successful.

The significance of this point is questionable: as suggested in argument in Halliburton, an omission will not be considered in a vacuum and consideration of a non-disclosure necessarily involves consideration of the facts surrounding it. Mr. Siblesz’s reference to the ‘exceptional requirements’ under which a lack of disclosure alone would give rise to justifiable doubts demonstrates this ambiguity: discussion of the effect of a lack of disclosure ‘alone’ or ‘in itself’ is artificial.

In addition, both decisions referred to the principle that Art. 10.1 of the 1976 UNCITRAL Rules constitutes an objective standard and that any doubt as to the independence or impartiality of an arbitrator must be justified from the perspective of an informed, fair and reasonable third party. In the 2018 challenge, the claimants also cited the explanatory notes to the 2004 IBA Guidelines on Conflicts of Interest, which state in the notes to general standard 3 that “the two tests (objective test for disqualification and subjective test for disclosure) are clearly distinct from each other.”

This distinction, which was presumably highlighted in argument because it can be seen to undermine the notion that a failure to disclose can automatically give rise to an appearance of bias, is of limited force: references to the ‘eyes of the parties’ in the IBA Guidelines and to ‘justifiable doubts’ in the 1976 UNCITRAL Rules demonstrate that the arbitrator’s subjective assessment will be measured against an objective or quasi-objective standard. Nevertheless, the difference between the two tests does emphasise the manner in which the deciding authority must undertake a holistic assessment of the severity of any non-disclosure rather than seeking to draw conclusions from the omission itself: any failure to disclose must be examined in its context.

This reasoning was borne out in Mr. Siblesz’s decision, where he stated (with reference to Baker and Davis’ The UNCITRAL Rules in Practice: The Experience of the Iran-United States Claims Tribunal) that the importance of any omission to disclose matters giving rise to a conflict depended on the circumstances of the case, including (i) whether the omission was the result of an honest exercise of discretion, (ii) whether the facts that were not disclosed raised obvious questions about impartiality and independence, and (iii) whether the non-disclosure is an aberration by a conscientious arbitrator or part of a pattern of circumstances raising doubts as to impartiality.

 

Halliburton v Chubb and the development of arbitrator challenges

Halliburton v Chubb is an English Supreme Court case on the question of whether an arbitrator may accept appointments in multiple references relating to overlapping subject matters with a single common party without giving rise to an appearance of bias and without disclosure.

Many of the issues raised in the Garcia Armas challenges are interlinked with those discussed in Halliburton. The Court of Appeal in Halliburton ([2018] EWCA Civ 817 at [95]) found that, where a relevant circumstance has not been disclosed, the question for the court is whether “the non-disclosure, taken together with any other relevant factors would have led the fair-minded and informed observer, having considered the facts, to conclude that there was in fact a real possibility that [the arbitrator] was biased.” In the Supreme Court, the appellant argued for a more robust standard to reflect the international pro-disclosure consensus. As intervenors, the ICC, LCIA and CIArb also submitted that there should be an objective standard higher than that postulated by the Court of Appeal. By contrast, the respondent proposed a holistic analysis on the totality of the material; in determining whether justifiable doubts exist, it is necessary to examine the ‘quality’ of the non-disclosure (i.e. “whether it was inadvertent, innocent or deliberate”) along with the circumstance that is not disclosed. It was also argued that a court should consider whether harm was caused by the non-disclosure, albeit that this involved the use of hindsight.

It remains to be seen whether the Supreme Court will affirm the kinds of holistic assessments argued for by the respondent and upheld in Garcia Armas. However, insofar as the Garcia Armas decisions are an indication of current international practice, they are arguably consistent with a determination based on an examination of the facts of the particular case, rather than the application of broad presumptions.

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The Dispute Resolution Mechanism that Could Lead to the Snap Back of Iranian Sanctions

Sun, 2020-02-16 01:00

Amid the celebrations that accompanied the conclusion on 14 July 2015 of the Joint Comprehensive Plan of Action (JCPOA) between the E3/EU+3 (China, France, Germany, Russia, the UK and the U.S., with the EU Commission) and Iran, few observers paid attention to the Dispute Resolution Mechanism (DRM) embedded in two paragraphs, ¶¶ 36 and 37, in the 104-page long treaty. Why should they? The JCPOA was rightly heralded as a tribute to multilateral diplomacy, crowning 12 frustratingly long years of roller-coaster meetings between the foreign ministers of France, Germany and the UK (the E3) and their Iranian counterpart (see prior posts here and here). All the elements of drama were met by adding the back-channel meetings secretively held in Muscat starting in 2013 between U.S. and Iranian envoys, leading to the happy denouement. Particularly complex in its multi-tiered conception, the DRM was thought better shelved in the museum of useless international law artifacts. You seldom bother to read the law on divorce when you are about to be wed. Interest was resurrected when the E3 foreign ministers published their joint statement on 14 January 2020, denouncing Iran’s breach of the JCPOA in freeing itself from the agreed restrictions on enrichment-related matters, and referring the breach to the DRM.

Unprecedented in the history of diplomacy, the five successive steps of the DRM involve some degree of circuitousness reflecting the tedious negotiation by skillful Iranian diplomats, with frequent about turns by their hierarchy seeking to keep a constant pressure.

  • The first step starts with a party to the JCPOA referring to the Joint Commission its claim that the other side is not meeting its treaty commitments. A standing body comprised of representatives of the E3/EU+2 (the U.S. withdrew from the treaty on 8 May 2018) and Iran, the Joint Commission meets on a quarterly basis or at the request of a participant to the JCPOA. It is coordinated by the EU High Representative for Foreign Affairs and Security Policy, and works subject to the UN rules of confidentiality. The Joint Commission would have 15 days to resolve the issue, but can extend that time period by consensus. The JCPOA does not indicate the number of extensions or their duration. The reference in the JCPOA to good faith efforts in carrying out the dispute resolution process comes handy to limit potential abuse. If a participant considers that the Joint Commission has not resolved the issue, that participant can refer that issue to the foreign ministers of the countries party to the JCPOA.
  • That would start the second step of the DRM. The ministers would have a further 15 days to resolve the issue, again extendible by consensus. As an alternative, or in parallel through a second step bis, a participant can refer the issue to an Advisory Board consisting of three members: one appointed by each participant in the dispute and a third independent member. The Advisory Board is expected to provide a non-binding opinion on the issue within 15 days.
  • At the term of this 15+15-day process, if the issue is not resolved, the Joint Commission gets a second chance to reconsider within five days its previous resolution in light of the opinion of the Advisory Board. At the end of this third step, an unsatisfied participant is entitled to cease performing its commitments under the JCPOA.
  • However, the DRM does not end at that stage; a fourth step starts, where the unsatisfied participant may notify the UN Security Council that it considers the issue to be a significant non-performance.
  • That notification triggers the final fifth step where the Security Council will have 30 days to vote on a resolution to continue the sanctions lifting, failing which all the old Security Council resolutions that had been terminated as a result of the JCPOA (1696 (2006), 1737 (2006), 1747 (2007), 1803 (2008), 1835 (2008), 1929 (2010) and 2224 (2015)) would be re-imposed by the end of the 30th day following the adoption of the Security Council’s sanction resolution, unless the Council decides differently. The EU would likely follow up with the restoration of its restrictive measures on Iran in the wake of those ordered by the Security Council.

In addition to being complex, the DRM is also uncertain. This is due both to prolongations that may be decided by each body entrusted with the successive DRM steps and to the contingency of the voting process within the Security Council where a majority of 9/15 is required for the resolution, even where the Permanent 5 abstain from using their veto power. Unlike arbitral panels, none of the bodies that are entrusted with the successive stages of the DRM are neutral as they comprise the very parties to the JCPOA, including the party that referred the other party in breach to the DRM. While the Advisory Board might offer minimal neutrality if the third member appointed from a neutral country acts as an umpire, it only renders non-binding opinions. But then there is little point in seeking further comparison either with the Iran-U.S. Claims Tribunal established on 19 January 1981 in the Algiers Declarations, or with the U.N. Compensation Commission established pursuant to Security Council resolution 687 (1991) after the first Gulf War. The first, an arbitral system, and the second, a quasi-arbitral one, comprised neutral panels empowered to render binding decisions. The DRM is but a diplomatic channel, established as an official framework to keep an open dialogue between the participants before the matter is brought back before the U.N. Security Council.

Regardless of the merit of Iran’s arguments in relation to the frustration of the JCPOA, it is required to go through the tiered process set out in the DRM. Multi-tiered dispute resolution mechanisms are commonplace in international treaties and in contracts alike. They require the parties either to negotiate in good faith to resolve their dispute, to participate in mediation or conciliation proceedings, or to abide by other procedural steps prior to initiating arbitral or court proceedings. They aim to spare the parties the time and cost of proceedings if the dispute could be resolved amicably. Non-compliance with the tiered process may lead to the preclusion of the defaulting party’s bringing subsequent proceedings. If arbitrators or judges disregard the noncompliance by a party with the preliminary steps to bringing its action, their decision could be annulled. Being required to go through a tiered dispute system is not meant to lead to a dead-end. Where the participant evidences its good-faith efforts to exhaust those stages being met by frustrating, dilatory means by the other party, fairness requires to consider the obligation as being met and the matter ripe to move to the next phase. Iran has done none of that. Its successive announcements starting in May 2019, and culminating on 5 January 2020, that it would cease meeting an increasing number of its commitments under the JCPOA amounts to remedying a wrong through one’s own chosen means, outside established legal processes. This goes counter both to Iran’s agreed undertaking in the JCPOA and to elementary rule of law considerations.

For now, Iran’s reaction consists of denying the legal basis for the reference by the E3 to the DRM. Iran would need more cogent arguments in law to challenge the JCPOA. They could possibly revolve around the alleged frustration of the treaty because of the other participants’ nonperformance, or its freeze until all participants reciprocally resume the performance of their respective undertakings. There is an arguable case that the U.S. withdrawal from the treaty outside the international law process devised for that purpose and its restoring its sanctions on Iran may amount to a breach. However, the JCPOA is a multilateral treaty in which Iran affirmed that it will under no circumstances ever seek, develop or acquire any nuclear weapons. That statement was embedded in Security Council Resolution 2231 (2015) that issued the JCPOA as an international law instrument. Importantly, that statement was made to the benefit of, and relied upon by, the E3/EU+3 (now 2) and is not affected by the U.S. withdrawal from the treaty. There cannot be any plausible argument of Iran that the EU has breached its undertakings under the JCPOA as all of the EU restrictive measures against Iran have been terminated.

Understandably, Iran feels frustrated that the economic relief it expected of the JCPOA has not materialized. The EU has allowed Belgian-based SWIFT, the world’s leading provider of secure financial messaging services, to disconnect Iranian banks of its network on 12 November 2018. This in effect prevents Iran from making or receiving payments through normal banking channels with a disastrous impact on its population and its trade. Similarly, French-incorporated INSTEX, a special purpose vehicle initially established by the E3, later joined by Belgium, Denmark, Finland, the Netherlands, Norway and Sweden, aiming to facilitate trade between Europe and Iran, is far from the comprehensive payment netting mechanism that some have imagined. The fear of U.S. secondary sanctions, contrasted with the relative comfort that a breach of the EU Blocking Regulation is unlikely to result in any meaningful sanctions by the member states of their own economic operators, have resulted in virtually no use of INSTEX so far. Absent entries recorded on the credit column of the offset account, no equity will be available for INSTEX’s Iranian counterpart STFI to pay Iranian potential exporters to the EU. INSTEX is not even licensed as a bank in France. It is little more than a Meetic-type database proposing to match European exporters/importers with their Iranian counterparts. While the EU can certainly do more to rebalance the deal after the U.S. withdrew, it can hardly be faulted for not meeting Iran’s expectations where no undertakings feature to that effect in the JCPOA. In any event, for those potential arguments to be admissible, Iran needs to put them forward within the DRM itself.

In parallel to starting a DRM process, Iran could contemplate seeking an advisory opinion on the state of the JCPOA from the International Court of Justice, the principal judicial organ of the United Nations. Because the advisory procedure is only available to international organisations, it could be contemplated that the International Atomic Energy Agency (IAEA) petitions the ICJ for an opinion since the IAEA is mandated in the JCOA to monitor and verify the application of the treaty. Iran knows well the road to the ICJ. On 13 February 2019, the Court ruled that Iran’s claims against the U.S. for its violation of the 1955 Treaty of Amity between the two countries by imposing sanctions on Iran are admissible. The ICJ is still to rule on the merits, but at least Iran has abided by the dispute resolution mechanism in its amity treaty with the U.S. It must do the same under the DRM. A positive opinion by the ICJ can but enhance its chance if the matter is referred to the Security Council. Hopefully, common sense will prevail before that ultimate escalation.

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Kluwer Mediation Blog: December 2019 and January 2020 digest

Sat, 2020-02-15 23:31

the money’s not about the money…The key to settlement lay not in the realm of calculation and rationality but in the more opaque social world of face, punishment, justice and emotion.” Charlie Irvine in Not about the money?

The end of 2019 and the start of 2020 offered a rich variety of posts on the Kluwer Mediation Blog. Topics addressed include: ICSID’s draft rules for investor-state mediation; the Global Pound Conference’s recently released Miami report; the path, and those who have shaped the path, of the Global Pound Conference; Greece’s recent law on mandatory initial mediation sessions; challenges in the transplantation of mediation in Ukraine; pre-school leadership in conflict resolution; and the design of a sustainable mediation public policy in Romania. Below is a short summary of, and link to, each post published on the Kluwer Mediation Blog in December 2019 and January 2020 . We hope you find this helpful.

 

In Singapore case note: enforceability of settlement agreements, Nadja Alexander and Shou Yu Chong draw on the Singapore High Court case of Law Chau Loon v Alphire Group Pte Ld [2019] [2019] SGHC 275 to identify general legal principles to consider when a settlement agreement is drafted. Nadja and Shou Yu share key learning points for mediators and lawyers representing clients in mediations in which Singapore law may be applicable to enforcement.

 

In Tracking the path through the GPC and acknowledging the footsteps along the way, Alan Limbury reflects on the path, and those who have shaped the path, leading to the Global Pound Conference Series conducted in 2016-2017 in 28 cities around the world. Alan notes that the results already reported from the GPC Series identify education as key to facilitating change, shifting the focus of education from increasing awareness of the various dispute resolution processes to providing practical and skill-based training. Alan also identifies challenges which he has encountered in efforts to increase such education.

 

In How can you make the pie bigger in a finite world? Charlie Woods explores the meaning of productivity, including the recent attention on resource productivity, and whether increased prosperity means having more or better things. Charlie then identifies the contribution which mediators can make in the search for positive sum games in a world with restricted resources.

 

In Not about the money? Charlie Irvine draws on recent mediation cases to examine the meaning of money in disputes. Charlie concludes that “sometimes the money is not about the money”, noting that the key to settlement was not found in the realm of calculation and rationality but rather in the social world of face, punishment, justice and emotion.

 

In Mediation, strategic trust and the seven elements, Joel Lee explores the interconnection between the Seven Element Framework and the Strategic Trust Framework. Joel explains that the Seven Element Framework stems from the Harvard Negotiation Programme and provides a way to prepare for, navigate through, analyse and measure progress in resolving a conflict. The Strategic Trust is a framework which distinguishes strategic trust from emotional trust. Joel identifies ways in which the interconnection between these two frameworks can assist mediators to assist parties in their dispute negotiations.

 

In Designing sustainable mediation public policies, Constantin-Adi Gavrila and Christian Radu Chereji provide an overview of the development of mediation in Romania and then explain the purpose and design of the “Mediation – effective public policy in the civic dialogue” project. Constantin-Adi and Christian explain the analysis which resulted in a public policy paper containing clear recommendations for the steps to be taken in order to improve the current system and to make mediation one of the mainstream methods of dispute resolution in Romania.

 

In Questions of perspective, some thoughts on the year ending, Greg Bond reflects on the benefits of a resource and solutions focused approach to issues, both in mediation and more broadly in larger social and political issues. Greg identifies what we can do in order to focus on ways forward to address these issues, including asking ourselves what unites us and not what divides us.

 

In We can each make a difference in 2020, John Sturrock draws on two contrasting literary works, Manual for Spectrum Agents (Haynes Publishing) and The Boy, the Mole, the Fox and the Horse (Penguin books) to identify how we might address future global threats and challenges. Drawing on Manual for Spectrum Agents, John questions what we could do to move towards an idea of common purpose at world government level. Drawing on The Boy, the Mole, and the Fox and the Horse, John argues that the aspiration of mediators must continue to be to each make a difference, in big or small ways.

 

In Global Pound Conference Miami report released, Rick Weiler provides a summary of the recently released GPC Miami report. Rick explains that the report looks at the needs, wants and expectations of parties using commercial dispute resolution in Miami and divides those users into three groups by level of experience or sophistication. Rick identifies the report’s section on obstacles and challenges as perhaps the most interesting, with these obstacles and challenges being categorised as “easy”, “difficult” and “impossible” to overcome.

 

In A preview of ICSID’s new investor-state mediation rules, Frauke Nitschke summarises the latest draft of ICSID’s rules for investor-state mediation, which were published in August 2019. Frauke outlines the scope of these rules and their key features, including initiation of the mediation, appointment of the mediator/s, conduct of the mediation, and the confidentiality of the mediation. ICSID aims to submit the rules for approval in 2020, and Frauke sets out the next steps in the process.

 

In Kindergarten and conflict – Pre-school leadership in conflict resolution, Rosemary Howell identifies a number of specialised conflict resolution programmes which are revolutionising how children engage with and resolve conflict. These include child-centric programmes across Europe, the US and Australia. Rosemary identifies the key elements of these programmes which include reflecting on how others see things, encouraging collaborative problem solving, sharing positive narratives and scrutinising the positive value of kindness.

 

In A neuro-linguist’s toolbox – self-care and improvement: working with physiology, Joel Lee continues his series of posts on “A neuro-linguist’s toolbox”. In this latest post in the series, Joel starts to explore the topic of self-care and personal improvement for mediators. In particular, Joel considers how to work with physiology to further self-care and improvement, including the way in which we hold our bodies, how we can use our breath and the activation of the peripheral vision response.

 

In Conciliation with a mediation touch – 10 years of consumer conciliation for public transportation in Germany, Greg Bond outlines the recent achievements of Germany’s ten-year old Conciliation Body for Public Transportation and explains the key characteristics and innovations of the Conciliation Body. Greg also shares with readers the wish identified by the director of the Conciliation Body, Dr Christof Berlin, at its recent birthday event.

 

In Greece: Institutionalizing mediation through mandatory initial mediation session (Law 4640/2019), Vassiliki Koumpli examines Greece’s recent Law 4640/2019 which now constitutes the sole legal instrument regulating mediation in Greece. Vassiliki explains that Law 4640/2019 essentially repeats and enhances the pre-existing legal framework concerning the requirement of a mandatory initial mediation session for a broad category of cases, which was suspended until the enactment of this new law. Vassiliki considers the key aspects of Greece’s new mandatory mediation scheme.

 

In It’s the putting it right that counts, Ian Macduff draws on a recent event in New Zealand politics and Maori-Crown restorative relations to reflect on the possibility of a long-term, multi-generational process of recognition, reconciliation and repair. Ian explains that on 19th December 2019 the Rua Kenana Pardon Bill was signed into law and identifies the key significance of this event, including that it was the first time a Bill has been signed into law on a marae, or Maori meeting ground, and the event brought some closure to an injustice committed by British soldiers 103 years earlier.

 

In Citizens Assembly- and kindness, John Sturrock shares his recent experience of facilitating a session at Scotland’s Citizens Assembly, describing the Assembly’s own “conversation guidelines” which include the call to be kind and supportive to each other. John identifies that the courageous thing to do is to be rigorous about issues and robust on problems, while remaining respectful and courteous towards the individuals involved, whoever they may be and however they might act.

 

In Mediation capture Tatiana Kyselova draws on recent experience in Ukraine to illustrate how the transplantation of mediation to contexts which are institutionally and culturally different from the West may bring some unexpected surprises. Tatiana explains the recent attempted capture of mediation in Ukraine and the Ukrainian mediation community’s efforts to prevent its capture.

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Indian Supreme Court Strikes Down Automatic Stay Provisions for Good

Fri, 2020-02-14 23:25

The automatic stay provisions in the Indian arbitration regime have been a matter of a long debate. At first blush, the automatic stay seems like the perfect protection mechanism for any award debtor; however, it often puts the award creditor in a difficult spot. Arbitral awards rarely go unchallenged in India. The automatic stay provision enables a party to use arbitration to effectively delay the settlement of legal rights or access to justice. In essence, the provision not just runs afoul of the objects and purpose of arbitration, but also runs the risk of promoting litigation at the expense of arbitration.

Pursuant to Section 36 of the Arbitration and Conciliation Act, 1996 (‘1996 ACA’), on the filing of a setting aside application under Section 34, the arbitral award could be enforced only after the Section 34 petition was rejected. Consequently, any challenge to an award of the arbitral tribunal rendered it unexecutable. In light of the same, in the case of National Aluminum Company Ltd. v. Pressteel & Fabrications Ltd. and Anr, the Supreme Court interpreted Section 34 of the 1996 ACA to allow for an automatic stay of an arbitration award on the filing and pendency of an application for setting aside of an award.

With the Arbitration and Conciliation Amendment Act 2015 (‘2015 ACA’), Section 36 of the 1996 ACA was amended, which did away with the automatic stay provisions. Accordingly, the award debtor was required to make an application seeking a stay. However, there was persistent ambiguity among various High Courts in India over the applicability of the 2015 ACA provisions.

 

BCCI v Kochi – A temporary halt

The 2018 Indian Supreme Court case of BCCI v Kochi revolved around the interpretation of Section 26 of the 2015 ACA (for a previous analysis on the Kluwer Arbitration Blog, see here and here). Section 26 delineates the temporal scope of the 2015 ACA and has been the source of divergent interpretations by various High Courts. The confusion was whether Section 26 is prospective and applies to both arbitral proceedings initiated on or after the commencement of the 2015 ACA and even to court proceedings in relation to arbitral proceedings initiated on or after the 2015 ACA having come into force. Consequently, the accompanying problem, which fell for contemplation before the Court, was whether the amended Section 36 of the 1996 ACA would apply to enforcement proceedings in case a challenge to such awards was made under Section 34 of the 1996 ACA.

The BCCI v Kochi case read Section 26 to imply that the 2015 ACA as a whole was to apply prospectively (i.e., to arbitral proceedings commenced after October 23, 2015 – the date on which 2015 ACA came into force). This position, nonetheless, came with an exception. The Court posited that with respect to enforcement of domestic awards under Section 36 of the 1996 ACA, the 2015 ACA was to be applied retrospectively. This is because the right to obtain an automatic stay under Section 36 was not a vested one. Therefore, there would be no automatic stay of an award unless a separate application was successfully made for such a stay. In delivering the judgment, the Court took into account past recommendations made by this Court, including the suggestions of the 246th Law Commission Report. The Report recommended that the erstwhile Section 36 be substituted, as the automatic suspension of the execution of the award, as soon as a party seeks to challenge the award, defeated the objective of the alternate dispute resolution system to which arbitration belongs.

While one would have believed the BCCI v Kochi case to end the debate, the 2019 Amendment to the Arbitration and Conciliation Act, 2019 (‘2019 ACA’), brought the discussion back to the forefront. The 2019 ACA deleted Section 26 and introduced a new Section 87, which provides that (unless the parties agreed otherwise), the 2015 ACA amendments would apply prospectively — thus bringing back the provision of automatic stays.

 

The Saga Continues 

On November 27, 2019, the Supreme Court rendered a decision in Hindustan Construction Company v UOI (‘HCC Case’), which again did away with automatic stays. The petitioners (infrastructure companies) approached the Court, pointing that they were being forced into insolvency even after the Indian Government and other government-owned companies owed them over INR 6000 crores (approximately USD 850 million) pursuant to various arbitral awards. They argued that they were disabled from recovering the money due to the automatic stay provisions.

In this case, the Court struck down Section 87 as unconstitutional for being arbitrary and revived Section 26 of the 2015 ACA. The Court noted that the automatic stay provision was a “double-whammy” for firms in favor of whom arbitration awards were passed. Despite the arbitral award being in their favor, the creditors were not able to enjoy the fruits of the same, as the principal amount would be automatically stayed due to a Section 34 petition (challenging the award), which in turn takes years for final disposal.

As a consequence, the firm could become financially unhealthy and vulnerable to being declared insolvent under the Indian Insolvency Code. This retrospective resurrection of an automatic stay also results in payments already made under the amended Section 36 to award-creditors in a situation of no-stay or conditional-stay now being reversed.

Along with this absurdity, the Court noted that, on average, about six years are spent in defending these challenges. This delay defeats the very objective of the alternate dispute resolution system. The Supreme Court, therefore, brought back the position laid down by the BCCI v Kochi case, thus providing award creditors the immediate benefit of an award by way of security and not letting any automatic stay stymie the execution for several years.

 

Invalidity of automatic stay provisions: a welcome step?

Arbitration serves to foster profitable relationships by resolving disputes in a way that both parties regard as expeditious. Given that, disabling enforcement of the award after the entire process of arbitration is done renders the exercise pretty much futile. In fact, the automatic stay provision is often used by the award debtors to skirt away from their obligations and encourages them to file objections, howsoever pointless or frivolous. This delays the process of dispute resolution and runs antithetical to one of the most sacrosanct tenets of arbitration that is speedier resolution of disputes.

The interpretation of Section 34 of the 1996 ACA by the judiciary to provide for automatic stays was done with the intention of giving efficacy to the arbitration regime in India, an ironic result. This is particularly surprising because even under the much-criticized Arbitration Act of 1940, no provision was interpreted to provide for automatic stay of the award and the court had to explicitly order stay on awards. The introduction of automatic stay was a result of an incorrect interpretation by an earlier Supreme Court judgment and did not originally belong in the Indian arbitration framework.

To conclude, the application of amended Section 36 and the deletion of Section 87 now mirrors the pro-arbitration approach codified under the UNCITRAL Model Law. Article 36(2) of the same particularly refers to applications for setting aside or suspension of an award, in which the other party may provide appropriate security.  However, Section 36 was read to allow automatic stay of awards as soon as a setting aside petition was filed. With automatic stays now a thing of the past, this anomaly has also been resolved. Several arbitration awards, the enforcement of which was hitherto prevented by pending setting-aside applications, will now be executed with minimum judicial intervention. This would also ease the burden of Indian courts, as parties will be dissuaded from filing strategic setting aside applications. Further, it brings back the vested right of enforcement and binding nature of an arbitral award along with speedy determination and recovery of amounts contained therein. This is a welcome step in the Indian arbitration regime. It is hoped that arbitration will now be more universally and reliably used domestically over other forms of dispute resolution.

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Is Arbitration Contributing to the Revolution? 5th Edition of Casablanca Arbitration Days

Thu, 2020-02-13 19:00

Since 2014, the Casablanca Arbitration Days (CAD) have no doubt become one of the most attended arbitration-related events in Africa. Organized on 5-6 December 2019 at Kenzi Tower Hotel Casablanca by the Casablanca International Mediation and Arbitration Centre (CIMAC), this year marked the fifth edition of CAD under the topic ‘Investing and Doing Business in Africa: Is Arbitration Contributing to the Revolution?’ The CAD took off on an excellent note, on 4 December 2019 with three interesting side-events hosted by the Association of Young Arbitrators (AYA) for young arbitration practitioners in Morocco, Chartered Institute of Arbitrators and Accuracy. Some of the key points addressed during the Conference are discussed below.

 

Mapping Investment on the Continent: Actors and Sectors

The first panel was chaired by Dr Jalal El Ahdab (Partner, Bird & Bird) with Pascal Agboyibor (Founding Partner, Asafo & Co), Khaled Houda (Managing Partner, Houda Law Firm) and David Marty (Principal Legal Counsel, African Development Bank) as speakers. The session focused on the potentials in mining, agriculture and infrastructure in Africa and how the sectors can attract interests of foreign investors. This is due, in part, to the privatization drive by many African States that have adopted significant reforms which ultimately resulted in a better ranking in the World Bank’s Doing Business Report.

As far as the regulatory framework is concerned, bilateral and regional agreements are in force between countries in order to facilitate cross-border investment. According to the speakers, the emphasis is now on sustainable investment. Doing business in Africa is not a risk-free venture, so inevitably the question of dispute resolution arose in this panel. Mr Agboyibor and Mr Houda based on their experiences as legal counsels, regularly advise their clients to insert an arbitration clause in their agreements.

Providing insight from a development finance institution perspective, Mr Marty revealed that in many projects funded by the institution, arbitration has helped to mitigate or avoid risks. However, in his opinion, the threat of suspending any funding to countries for failure to observe their commitments was on many occasions a deterrent.

 

How to Protect Investment in Africa?

The second panel was moderated by Professor Mohamed Abdel Wahab (Founding Partner, Zulficar & Partners) with Professor Denis Mouralis (Aix-Marseille University), Eric Teynier (Founding Partner, Teynier Pic) and Benjamin Garel (Legal Counsel, ICSID) respectively as speakers.

Taking the floor, Professor Mouralis addressed the recent innovations observed in bilateral investment treaties drafting. Reflecting the ongoing debate about the ISDS reform, they introduced a balanced relationship between investors and State, in particular the Nigeria-Morocco BIT.

Whilst BITs remain one of the key instruments of investment protection, Benjamin Garel argued that in the specific African context, domestic investment law and State contracts are very often relied upon for investment protection purposes. Notably in 1984, the first ICSID arbitration case by virtue of domestic investment law involved an African State (Egypt) (the SPP case).

Based on his experience as both counsel and arbitrator, Mr Teynier touched upon the issue of investment protection in time of armed conflict -a relevant topic given the ongoing civil crises in some countries within the continent and is at the intersection of both international investment law and international humanitarian law. According to Mr Teynier, an important issue to determine is “responsibility”. Who is responsible when civilian turned themselves into belligerent and commit severe violations to investors’ rights? What happens when the central State is unable to control a significant portion of its territory? Relying on the International Law Commission’s (ILC) Draft Articles on Responsibility of States for Internationally Wrongful Acts, Mr Teynier advanced different scenarios and typical solutions based on his case experience. In one of those cases for example, the State suggested the reinstatement of the investor’s right for the project to be completed.

Although the focus was on arbitration during the conference, the author suggests parties will resort frequently to mediation and other less adjudicative dispute resolution mechanisms in the upcoming years. The recent adoption of the Singapore Convention thus provides a momentum for the development of mediation.

 

Chinese Investment in Africa

With massive investment in Africa, China has challenged the traditional former colonial powers in their investment strategy. The third panel, chaired by Nicolas Bourdon (Founding Partner, Accuracy), Jingzhou Tao (Partner, Dechert Beijing), retraced the origin of the Belt and Road Initiative (BRI) and the policy underlining it. Responding to the question whether there was any Chinese particularity when it comes to investment disputes, Mr Tao suggested three reasons differentiating Chinese investment disputes: First, the first-generation BITs whose wording only allows investors to sue States for compensation. Second, Chinese investors are often reluctant to have recourse to investment arbitration for purely domestic political constraints. Indeed, when dispute arises, diplomatic channel mechanism will be preferred over arbitration. As an example, for a Chinese state-owned entity to file a request for arbitration against a foreign State, a double level of authorization is required (Ministry of Commerce and Ministry of Foreign Affairs).Third, the context has evolved. We witnessed more investment arbitration brought by Chinese investors.

Providing a perspective from a Chinese company operating in Africa, Michael Sun (Legal Counsel MENA, Huawei) mentioned that, for small claims, negotiation and sometimes litigation will be preferred over arbitration. However, where the issues at stake are much bigger, the contract features very often ICC arbitration seated in Paris, Geneva, etc. To reduce or avoid what may be termed as an ‘offshoring’ of Chinese African-related disputes, initiative such as China-Africa Joint Arbitration Centre (CAJAC) has been launched. In Mr Tao’s opinion, CIMAC has a great role to play in particular for Chinese African-related disputes occurring in African francophone countries. In this regard, measures related to the facilitation of travel and visa should be implemented.

This author’s view is that the very existence of those above mentioned Sino-African arbitration bodies clearly suggests the Chinese-African relations in terms of dispute resolution will not bring an innovative feature, despite their common cultural preferences for mediation and negotiation.

 

The Role of the Regional Economic Communities

The fourth panel was chaired by Aicha Brahma (Partner, Brahma Avocats) with Mohamed Oulkhouir (Partner, CWA), Mamadou Konaté (Founding Partner, Jurifis Consult) and Amne Suedi (Founding Partner, Shikana Law Group) as speakers. Regionalization is firmly rooted in African integration efforts. Applying the saying “think global, act local”, the eight regional economic communities contribute to the concretization of African integration.

Aiming at unifying, facilitating trade and investment across Africa, AfCFTA finally entered into force despite nationalism resentment as indicated by Amne Suedi.

As far as OHADA is concerned, as recalled by Mr Konaté, its main function is the harmonization of business law, with the firm belief that it will bring legal certainty to potential investors. In terms of dispute resolution, the unified arbitration act (recently amended) has proven to be efficient 20 years after its adoption. The acting Secretary General of OHADA in a recent declaration called upon AfCFTA to fully integrate OHADA in the implementation of the agreement.

Touching upon ECOWAS, Mr Oulkhouir opined it was mainly tasked with facilitating cross border trade among western African countries. The project of including arbitration among the jurisdiction of the ECOWAS Court was discussed recently in Nigeria, after many years of hesitation.

The panel was unanimous that these efforts are to be encouraged, but we should remain aware of the risks of overlapping competences.

 

The Debate

A debate about the proliferation of arbitral institutions in the African context was definitely the high point of CAD.

Defending the position against proliferation, Domitille Baizeau (Partner, Lalive) recognizes it was an unavoidable consequence. We count today more than 70 arbitration centres in Africa; however, only one or a few of them are truly international arbitration centre. They are generally not always known in the arbitration community for they do not regularly publish statistics, reports, etc.

She suggested instead the regionalization or concentration of arbitral institutions. As an example, CIMAC may be turned into North African dispute resolution centre.

Being in favour of proliferation, Jacob Grierson (Partner, Asafo & Co) suggests it is a reaction to what he called the “offshoring of African-related disputes to foreign or western arbitral institution”. He referred to the recent call for more nationalism in terms of preferences of domestic arbitral institutions. In his opinion, arbitration is truly international where parties are able to resolve their disputes in an arbitration institution located on their continent. Encouraging such trend is Article 42(1) (d) of Pan African Investment Code.

In the same vein, the author would like to mention the approach adopted recently by Egypt and Cote-d’Ivoire in their domestic investment laws. Indeed, the new amendment of the 2018 Ivorian Investment Law designates the Court of Arbitration of Cote-d’Ivoire as the competent organ for the resolution of investment disputes. In Egypt, the Investment Law No. 72 of 2017 contemplates the establishment of ‘[An] Egyptian Arbitration and Mediation Centre’ (Article 91).

 

Update of the Moroccan Arbitration Legislation

Morocco is currently adopting a new standalone arbitration and mediation act detached from the current code of civil procedure containing a chapter on arbitration.

The latest Marrakesh International Justice Conference in October 2019 was the occasion for the highest authorities in Morocco to reaffirm their willingness to provide the country with a modern arbitration act meeting international best standards.

The last panel, chaired by Hassan Arab (Partner, Al Tamimi & Co), consisted of leading Moroccan practitioners – Professors Mohamed El Mernissi (University Hassan II), Tarek Mossadek (Partner, Mossadek Law Firm) and Bensalem Oudija (Director of the Legislation, Ministry of Justice) provided the audience with some insights on the bill currently before the Parliament. Among the novelties, the bill recognizes the validity of electronic arbitration agreement, and contains provision summoning third parties to produce document necessary for the arbitral proceeding.

Pending its adoption, a debate about the impossibility to seize State assets is currently drawing the attention of arbitration practitioners due to a provision (Article 9) contained in the 2020 Budget Act.

 

Conclusion

Casablanca Arbitration Days 2019 was again very successful and engaging. It confirmed its ambition of being a forum of debate about topical issues pertaining to Africa. The continent remains the preferred destination for investments, despite the risks future investors may encounter. As far as African States are concerned, they are very supportive of arbitration, while at the same time contemplating other forms of disputes resolution.

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The Judicial Tribunal Confirms DIFC Courts’ Proper Jurisdiction for Challenge of Awards Under the DIFC Arbitration Law and the Role of the DIFC Courts as a Conduit

Thu, 2020-02-13 02:00

In a ruling of 11 December 2019 (see Cassation No. 8/2019 (JT) – Al Taena: AF Construction Company LLC (formerly Al Futtaim Carillion – Abu Dhabi LLC v. Power Transmission Gulf), the Dubai-DIFC Joint Judicial Tribunal, also commonly known as the “Judicial Tribunal” or simply the “JT”, was required to deal with the conflicting jurisdiction between the onshore Dubai and the offshore Dubai International Financial Centre (the DIFC) Courts for nullification and enforcement of a domestic DIFC-award rendered under the DIFC Arbitration Law, DIFC Law No. 1 of 2008 (the “DIFC Arbitration Law”). In doing so, it essentially confirmed that the DIFC Courts are properly competent to hear actions for nullification of awards rendered under the DIFC Arbitration Law. Unwittingly, it also confirmed the DIFC Courts’ role as a conduit for the enforcement of DIFC awards for onward execution against non-DIFC assets of award debtors based in Abu Dhabi.

 

The JT

By way of reminder, the JT was established by Decree of the Ruler of Dubai (see Decree No. (19) of 2016 forming the Judicial Committee of the Dubai Court and the DIFC Courts, dated 9 June 2016; for reporting on the subject, see my previous blog posts) precisely to deal with conflicts of jurisdiction between the onshore Dubai and the offshore DIFC Courts. Generally speaking, the JT’s competence is confined to situations of genuine jurisdictional conflict, that is where both the onshore and offshore courts have been seized simultaneously in related proceedings or where both courts have declined jurisdiction on the same or related subject-matter.

In an arbitral context more specifically, a qualifying conflict of jurisdiction typically arises in circumstances where an award creditor seeks to enforce a domestic (whether on- or offshore) award before the DIFC Courts pending an action for nullification of the same award initiated by the award debtor before the onshore Dubai Courts. Some of these cases have given rise to the operation of the DIFC Courts as a conduit jurisdiction for the recognition and enforcement of onshore non-DIFC awards for onward execution against the award debtor’s assets offshore by virtue of the area of free movement of judicial instruments, including ratified awards, established by Article 7 of the Judicial Authority Law, Dubai Law No. 12 of 2004, as amended by Dubai Law No. 16 of 2011 (the “JAL”) (see my previous post).

Interestingly, even though the present case appears straightforward on its face, dealing with the nullification and enforcement of a DIFC Award through the DIFC Courts, it is evident that given the registration of both Parties in onshore Abu Dhabi, this is, more likely than not, a case that will ultimately require execution of the award, once ratified by the DIFC Courts, against assets of the award debtor in onshore Abu Dhabi, and in this sense require the DIFC Courts to act as a conduit. To say the least, no mention is made in the JT’s ruling of the presence of any of the award debtor’s assets in the DIFC (despite the passing reference to the purported execution of the subject award by the DIFC Courts, see para. 4 of the ruling).

 

The Facts

By way of background, the Appellant, Al Taena, a subcontractor with registered offices in mainland Abu Dhabi, entered into a subcontract agreement with the Respondent, Power Transmission Gulf, equally registered in mainland Abu Dhabi, for the supply, manufacture, installation, operation and testing of mechanical and electrical works and the plumbing for New York University in Abu Dhabi (the “Subcontract”). The Subcontract contained an arbitration clause providing for any disputes between the Parties to be referred to arbitration under the Arbitration Regulations of the Abu Dhabi Commercial Conciliation and Arbitration Centre(the “ADCCAC”), to be held in Abu Dhabi before a sole arbitrator (the “Arbitration Clause”). The Arbitration Clause was subsequently amended, shifting the arbitral forum from ADCCAC to the DIFC-London Court of International Arbitration (the “DIFC-LCIA”) and providing for a three-member panel to conduct any arbitration under the Rules of Arbitration of the DIFC-LCIA (the “DIFC-LCIA Rules”) and the DIFC Arbitration Law (the “Arbitration Agreement”). In addition, Clause 10 of the Subcontract provided for the exclusive jurisdiction of the DIFC Courts in relation to any dispute arising between the Parties with respect to the Arbitration Agreement.

Subsequently, a dispute arose between the Parties and was referred to DIFC-LCIA arbitration under the DIFC Arbitration Law (see Arbitration Case No. 16068 DL). The arbitral proceedings were conducted in Dubai Marina, that is onshore, i.e. outside the DIFC. On 15 March 2019, the Tribunal rendered an award in favour of the Respondent. In further course, the Respondent in its capacity as award creditor filed for recognition and enforcement before the DIFC Court of First Instance (DIFCCFI) (DIFCCFI Case No. ARB-009-2019).

Around the same time, the Appellant in its capacity as award debtor applied for the nullification of the award to the onshore Dubai Courts (see Petition No. 13/2019) on the basis of the purported invalidity of the award and the purported exclusive jurisdiction of the Dubai Courts given the fact that the arbitral proceedings had been conducted in mainland Dubai and hence outside the DIFC.

 

The JT’s findings

Against this background, the JT held as follows:

  • To start, the JT cited in relevant part Article 5(1) and (2) of the DIFC Courts Law (see DIFC Law No. 10 of 2004), in order to conclude: “Although the DIFC and the DIFC Arbitration Center – London International Arbitration Tribunal are separate entities, the DIFC Arbitration Center is an established institution in the DIFC, and therefore pursuant to Article 5, paragraph 1 / a above, the DIFC Court shall be responsible for monitoring the aforementioned arbitration award and not the Dubai Court.” (para. 9)

I have difficulties following this type of reasoning. The DIFCCFI’s competence to hear actions for recognition and enforcement of DIFC awards stems from Article 42(1) of the DIFC Arbitration Law, which provides that “[a]n arbitral award, irrespective of the State or jurisdiction in which it was made, shall be recognised as binding within the DIFC and, upon application in writing to the DIFC Court, shall be enforced”. Further, the DIFC Courts’ powers conferred by the DIFC Arbitration Law originate in Article 5(1)(E) of the DIFC Court Law, which provides for the “exclusive jurisdiction”of the DIFCCFI “to hear and determine […] any [a]pplication or action that the courts have the power to consider under the Center’s laws and regulations”, one of those laws being the DIFC Arbitration Law. Contrary to the JT’s proposition, the DIFCCFI’s competence in the present circumstances does not result from Article 5(1)(A), which confers exclusive jurisdiction upon the DIFCCFI for any “[c]ivil or commercial applications and claims to which the Center or any of the Center’s bodies, the Center’s institutions or the Center’s licensed institutions are a party” (no such bodies or institutions being involved in the present proceedings).

  • The JT also emphasised the apparent agreement between the Parties to arbitration in the terms set out in the Arbitration Agreement, including in particular the DIFC Courts’ competence to hear actions for recognition and nullification of awards under the DIFC Arbitration Law (see para. 8). This, no doubt, is a correct assessment of the position under the DIFC Arbitration Law, including in particular Article 42(1) in the terms outlined above.

 

  • The JT further confirmed that according to Article 16(2) of the DIFC-LCIA Rules, a DIFC-LCIA tribunal is empowered to hold meetings and hearings outside the legal place or the seat of the arbitration: A resultant award would still be considered issued by the DIFC-LCIA (para. 10). I concur with this proposition in principle, but would add that Article 38(3) of the DIFC Arbitration Law equally confirms that [t]he award shall be deemed to have been made at the Seat of the Arbitration” and according to Article 27(2) of the DIFC Arbitration Law, “the Arbitral Tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties […].”

 

  • That said, the JT also made reference to the “general jurisdiction”of the onshore Dubai Courts (para. 10). It is not clear what this general jurisdiction is. Given that there is no judicial hierarchy between the onshore Dubai and the offshore DIFC Courts, the two courts are of equal status and are as such empowered to determine the limits of their own jurisdiction, neither of the having a “general” jurisdiction that trumps the jurisdiction of the respectively other.

 

Conclusion

In the light of the foregoing, the JT, correctly in my view, concluded in favour of the DIFC Courts’ jurisdiction. For the avoidance of doubt, even without the provision at Clause 10 of the Subcontract, the DIFC Courts are competent to hear actions for nullification in their curial capacity in the terms of Article 41 of the DIFC Arbitration Law. To the extent that parties contract into the DIFC Arbitration Law, the DIFC Courts have competence to exert such curial functions.

On a further note, the JT’s ruling in Al Taena v. Power Transmission Gulfraises the question of the extent to which the DIFC Courts are competent to serve as a conduit for the enforcement of awards (whether on- or offshore) for onward execution outside the DIFC, here in mainland Abu Dhabi. This could be facilitated by the operation of Article 7 JAL, which establishes a system of mutual recognition of DIFC Court orders for enforcement of on- and offshore awards before onshore Dubai Courts, without a review on the merits. A mainland Dubai Court order recognizing the DIFC Court order for recognition and enforcement would in further course be subject to recognition by the Abu Dhabi onshore courts under Article 11 of the UAE Federal Law No. 11 of 1973 (Concerning the Organization of Judicial Relationships Amongst Emirates Members in the Federation, issued 25 July 1973).

In the alternative, the DIFC Court order might benefit directly from the terms of UAE Federal Law No. 11 of 1973, the DIFC Courts qualifying as a court of the Federation. In a further alternative, the DIFC award itself might be enforceable in the terms of Article 13 of UAE Federal Law No. 11 of 1973 (The decisions of the arbitrators issued in one of the emirates shall be executable in any other emirate member of the federation. The juridical body being demanded to carry out the execution cannot reinvestigate the same incident concerning which the decision of the arbitrators was issued.”), there being no need for the more cumbersome enforcement process via the Dubai onshore courts or even the DIFCCFI.

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2019 in Review: India

Wed, 2020-02-12 04:04

Ashutosh Ray (Assistant Editor)

Amazon founder Jeff Bezos on his recent visit to India in January 2020 remarked that the 21st century belongs to India. If that is true, it would also mean a flurry of disputes involving some Indian angle are inevitable and will keep the arbitration industry busy. Thus, even though 2019 may have drawn curtains over the decade, the evolution of arbitration in India will continue to garner immense interest from the rest of the world.

At the start of the new year (and a new decade), it is opportune to reflect the developments and discussions that kept the Indian arbitration community engaged.

 

The 2019 Amendments

The 2019 amendments to the Indian arbitration law came in quick succession since the last amendments in 2015. The amendments garnered global interest and remained a topic of hot discussion. Following are some of the key amendments:

  • The amendments envisage the establishment of an arbitration council (43B) that will grade arbitral institutions in India (S.43I).
  • The appointment of arbitrators may be delegated by the courts to these arbitral institutions to streamline the appointment of arbitrators, especially in ad-hoc arbitrations where the parties are unable to appoint an arbitration tribunal mutually (S.11).
  • The amendments mandate certain qualifications for the arbitrators for their appointment by an accredited institution (by the authority given to them by the court) in an ad-hoc arbitration (where the parties are unable to appoint an arbitrator). Some of the qualifications include that the arbitrator must be one of the following: an advocate in India, a chartered accountant, a costs accountant or a company secretary with certain years of experience (the eighth schedule).
  • There are provisions to ensure that arbitrations are completed in a time-bound manner. They require the pleadings to complete under six months from the appointment of the tribunal (S.23). Similarly, in domestic arbitration, a tribunal shall pass the award within twelve months of the date of completion of the pleadings (S 29A). It is worth noting that these time limits to complete the arbitration do not apply to international commercial arbitrations and are only suggestive in nature (S 29A).

 

A State-supported International Arbitration Institution

The New Delhi International Arbitration Centre Act 2019 (“NDIAC Act”) was passed last year. The passing of the NDIAC Act is to create a state-backed independent and autonomous regime for the promotion of institutional arbitration. The NDIAC Act seeks to declare the New Delhi International Arbitration Centre an institution of national importance and facilitate the promotion of institutional arbitration at both domestic and international levels.

 

A Hands-off Approach Towards BIT Arbitration?

The Delhi High Court’s refusal to grant an injunction against a BIT arbitration in Union of India v. Khaitan Holdings (Mauritius) was seen progressive in international quarters. The judgement was on an interim application and there is a lack of clarity on this point from the Supreme Court and other high courts. However, the decision is the latest on the issue and reflects the judiciary’s forward-looking mindset in terms of its non-interventionist approach to a BIT arbitration. The court, however, mentioned that Indian courts have the jurisdiction to grant anti-BIT arbitration injunctions in rare and compelling circumstances. It noted that the Arbitration and Conciliation Act, 1996 applies only to commercial arbitration and that a court may exercise jurisdiction relating to a BIT arbitration through the Code of Civil Procedure, 1908. It may be viewed in skepticism as well, since, without the application of the Arbitration and Conciliation Act, 1996, parties will find it very difficult to enforce a BIT arbitration award in India.

 

Pre-deposit Requirement Unconstitutional

The Supreme Court in M/s. Icomm Tele Ltd. v. Punjab State Water Supply & Sewerage Board & ANR. struck down part of an arbitration clause that required one of the parties to deposit ten percent of the amount claimed prior to commencing arbitration proceedings. The contract was between a state entity and a private party and the Supreme Court held that such a clause was arbitrary and unconstitutional. It stressed the need for arbitration to be speedy and inexpensive, to help alleviate the burdens of Indian courts. As discussed in this post, the judgement is likely limited to contracts with the state or a state entity. This is because a constitutional challenge such as this may not be available against private parties. Another argument is that where commercially minded private parties have entered into a contract under free volition and considering their business needs, they may not retract from the negotiated terms. Despite this doubt on the scope of the judgement, it has been hailed as another step towards the judiciary’s pro-arbitration stance.

 

Limited Scope of “Public Policy”

Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India (“Ssangyong”) was a Supreme Court judgement that clarified the limited scope of the “public policy” ground for setting aside an award as amended by the Arbitration and Conciliation (Amendment) Act 2015. In Ssangyong, the Supreme Court held that the earlier broad interpretation for “fundamental policy” was changed post the 2015 amendments. It relied on the 246th Report of the Law Commission of India which stated that the scope of the public policy ground was different (wider) for the challenge of a domestic award vis-à-vis enforcement of a foreign award. The Supreme Court further relied on the Supplementary to the 246th Report, which stated that the amendments on the issue of setting aside an award ‘were suggested on the assumption that other terms such as “fundamental policy of Indian law” or conflict with “most basic notions of morality or justice” would not be widely construed.’

 

“Group of Companies” Revisited and Reinforced

As covered here, the Supreme Court in Reckitt Benckiser v. Reynders Label Printing and MTNL v. Canara Bank has reinforced the basic principles to be considered while applying the “group of companies” doctrine, such as mutual intention, a direct commonality of subject matter and composite transaction. Both cases provide a fresh and modern outlook through the principles of the settled law in circumstances that are driven by their respective unique facts. They also showcase the Indian judiciary’s maturity, which is mindful of commercial needs and interests, which may require binding non-signatories to an arbitration.

 

Perkins’ Perks

The last quarter of 2019 saw significant developments with the Supreme Court rendering judgments including Perkins Eastman Architects DPC v. HSCC (India) Ltd and Hindustan Construction Company Ltd. & Anr. v. Union of India & Ors. (discussed below) that are forward-looking and will have a lasting effect on how arbitrations are conducted in India. In Perkins Eastman Architects DPC v. HSCC (India) Ltd. the Supreme Court held that a person who has an interest in the outcome of the dispute shall not appoint a sole arbitrator. This judgment will have a deep reforming effect on several government contracts where the government entity is solely entitled to appoint an arbitrator once an arbitration commences.

 

No Automatic Stay on Arbitral Awards

In Hindustan Construction Company Ltd. & Anr. v. Union of India & Ors. the Supreme Court settled that there will be no automatic stay on an arbitral award if it were to be challenged in a court. This is welcome judgment as it has struck down Section 87 (which had resulted in an automatic stay of an award pending the challenge) of the Arbitration & Conciliation (Amendment) Act, 2019 for being manifestly arbitrary under the Constitution of India. The removal of automatic stay was first recommended by the 246th Report of the Law Commission of India consequently adopted by the 2015 amendment to the arbitration law. However, the 2019 amendment had the effect of undoing the changes that were brought in by the 2015 amendment. This judgment should have a decluttering effect on several matters where the parties are unable to recover the arbitration award for several years due to an automatic stay. This may not only encourage the sentiments of the parties to arbitrate, but also provide liquidity to several businesses to expand, as they will be able to secure the award amount pending the outcome of any petition of setting aside of the award.

 

Transitioning into 2020

  • India’s Win in a BIT Arbitration

The beginning of 2020 has been eventful for India. The government recently announced that all claims brought against it in a BIT arbitration by Tenoch Holdings Limited (Cyprus), Mr Maxim Naumchenko (Russian Federation) and Mr Andrey Poluektov (Russian Federation) were dismissed in entirety. The award is not public yet. According to the government’s announcement, the arbitration was the result of the cancellation of Letters of Intent for the issuance of telecommunications licenses to provide 2G services in five telecommunications circles in India. The reason for cancellation cited by the government, among others, was India’s essential security interests. The proceedings were rather swift as the tribunal was constituted only in July 2019.

  • New India-Brazil BIT

According to this report, India has also signed a new BIT with Brazil in January since it revised the model BIT in 2015. The signing comes around two years after the Union Cabinet approved signing and ratification of the Investment Cooperation and Facilitation Treaty (ICFT) between the two countries. Reports suggest that the new treaty incorporates elements from both India’s and Brazil’s model BIT. The text of the ICFT is available here.

***

As India looks forward to 2020, and if Jeff Bezos’ predictions about the 21st century belonging to India are true, the Indian arbitration canvas will continue to be vivid.

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Arbitrating with Saudi Governmental Bodies: Modifying the 56-Year-Old Practice

Mon, 2020-02-10 20:03

Ibrahim Amir

“Recourse to arbitration has now become a right of the competent ministry with the agreement of the Ministry of Finance. Whereas recourse to arbitration was previously an exception, now, this is a clear confirmation by the government of the importance of arbitration and the government’s commitment to participate in more rapid, cost-effective litigation.”

Saudi Minister of Finance, H.E. Mr. Mohammed Al-Jadaan1)statement made at SCCA19 International Conference, organized by the Saudi Center for Commercial Arbitration. See SCCA News, Issue 2, at 8 (2019). jQuery("#footnote_plugin_tooltip_4862_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4862_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In December 2019, the new Government Tenders and Procurement Law (the “GTP Law”), enacted by Royal Decree M/128 on 13/11/1440H (16 July 2019), along with the Implementing Regulations of the Government Tenders and Procurement Law (the“Implementing Regulations”), issued by resolution of Minister of Finance No. 1242 on 21/3/1441H (19 November 2019), came into force. This law, which replaced the old Government Tenders and Procurement Law, enacted by Royal Decree M/58 on 4/9/1427H (27 September 2006), introduces  significant reform with regard to the requirements to enter into arbitration agreements for governmental bodies. Under the new legal framework, governmental bodies have the right to enter into arbitration agreements, whereas previously, government bodies were only permitted to enter into arbitration agreements in exceptional circumstances. Additionally, the GTP law and its Implementing Regulations sets out the required conditions for governmental bodies intending to enter into an arbitration agreement, which was never been the case before. This post discusses how the new legal framework replaces the prior practice that was in place for nearly 56 years.

 

Prohibiting Saudi Governmental Bodies and Agencies from Having Recourse to Arbitration: The 56-Year Old Practice

Since 1963, governmental bodies and agencies in Saudi Arabia have been prohibited from having recourse to arbitration as a means of settling disputes. This was first enacted by the Council of Ministers Resolution No. 58 on 17/1/1383H (25 June 1963) (“Resolution No. 58”). Resolution No. 58 provided in relevant part that “[i]t is prohibited for any Governmental body to accept arbitration as method for settlement of disputes which may arise between it and contracting individuals and companies.” This prohibition was further affirmed in the old Arbitration Law of 1983, enacted by Royal Decree M/46 on 12/3/1403 (11 September 1983), as well as the new Arbitration Law (the “2012 Arbitration Law”), enacted by Royal Decree M/34 on 24/5/1433H (16 April 2012). Article 10(2) of  the latter states that “[g]overnment bodies may not agree to enter into arbitration agreements except upon [the prior] approval by the President of the Council of Ministers, unless allowed by a special provision of law.

While Article 10(2) of the 2012 Arbitration Law allows governmental bodies to resort to arbitration where there is special statutory permission, this is an uncommon scenario. Examples of such statutory permissions can be seen in article 58 of the Mining Investment Law, enacted by Royal Decree M/47 on 20/8/1425H (5 October 2004), and article 13(8) of the Electricity Law, enacted by Royal Decree M/56 on 20/10/1426H (22 November 2005). Under these two laws, a governmental body does not need to obtain the prior approval of the President of the Council of Ministers to enter into arbitration agreements.

This prohibition was further reinforced by Saudi courts. For instance, in OGMPV v. King Abdul-Aziz University, Case No. 235/C/2/1416H, the 9th Administrative Panel, Decision No. 32/D/A/9 dated 1419H,2)Unpublished decision, cited in Khaled Al-Khodeer, Arbitration in the Administrative contracts in Saudi Arabia, 1 Judicial Journal 134, 142-143 (2010). jQuery("#footnote_plugin_tooltip_4862_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4862_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); the court refused to enforce an arbitral award rendered against King Abdul-Aziz University on the ground that the arbitration agreement was signed in contravention of Resolution No. 58.

 

Modifying the 56-Year Old Practice: The New Legal Framework

On 19 January 2019, the President of Council of Ministers issued High Order No. 28004 (the “High Order”), signaling a significant shift in policy with regard to arbitrating with governmental bodies and state-owned companies. The High Order states that governmental bodies and state-owned companies seeking to settle their disputes with foreign investors through arbitration shall ensure the arbitration is conducted within the Kingdom in the Saudi Center for Commercial Arbitration or other arbitration centers licensed by the permanent committee referred to in the Council of Ministers Resolution No. 107 of 19 January 2016. The High Order further requires that governmental bodies and state-owned companies obtain the necessary approvals in accordance with established procedures. While the High Order does not elaborate on this requirement and procedures, it designates specific venues for all arbitrations involving governmental bodies and state-owned companies.

The most significant reform, however, was introduced in July 2019, by the enactment of the new GTP Law. This law recently came into force on December 1, 2019, and it applies to all governmental bodies. Article 92(2) of the GTP Law provides that governmental bodies may enter into an arbitration agreement after obtaining the approval of the Minister of Finance and in accordance with the Implementing Regulations. The GTP law vests the authority to grant the required prior approval on the Minister of Finance rather than the President of the Council of Ministers as was the case under article 10(2) of the 2012 Arbitration Law. Notably, the Implementing Regulations do not provide procedures for obtaining the approval of the Minister of Finance. It is, however, likely that such approval would be obtained by submitting a formal request to the Minister of Finance.

Furthermore, Article 154 of the Implementing Regulations, lays out three conditions for governmental bodies intending to enter into an arbitration agreement:

  • The first condition limits arbitration to contracts that exceed SAR 100 million. The Minister of Finance may, however, amend this limitation as he deems it appropriate.
  • Second, the Implementing Regulations specifically require that Saudi laws apply to the subject-matter of the dispute. The Implementing Regulations further provide that governmental bodies may not accept the proceedings to be conducted under the rules of arbitration centers located outside the Kingdom, except in disputes with foreign contracting parties.
  • Third, the Implementing Regulations require that the arbitration agreement and its terms to be stipulated in the contract, which is the subject matter of the dispute.

The new legal framework is undoubtedly welcomed and further reinforces the commitment of the Saudi government to facilitate a pro-arbitration environment for foreign investors. In fact, since the introduction of the new 2012 Arbitration Law, the Kingdom has witnessed significant positive changes in its arbitration regime, as has been reported in this blog. For instance, in 2017-2018, and as was reported in this post, the Kingdom recorded both the highest number of applications for enforcement of judgments and arbitral awards as well as the highest value of applications since 2014. Similarly, and as noted in this post, 2016 witnessed the first female arbitrator in Saudi Arabia, and 2014 witnessed the establishment of the Saudi Center for Commercial Arbitration. These continuing positive developments will further boost foreign investors’ confidence to invest in Saudi Arabia’s rapidly diversifying economy.

References   [ + ]

1. ↑ statement made at SCCA19 International Conference, organized by the Saudi Center for Commercial Arbitration. See SCCA News, Issue 2, at 8 (2019). 2. ↑ Unpublished decision, cited in Khaled Al-Khodeer, Arbitration in the Administrative contracts in Saudi Arabia, 1 Judicial Journal 134, 142-143 (2010). function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Access to Justice in Investment Dispute Settlement

Mon, 2020-02-10 02:00

Stephan Schill

As UNCITRAL Working Group III is proceeding to address concrete proposals to reform treaty-based investor-state arbitration, the future of investor-state dispute settlement (ISDS) is at a historic juncture. Reform proposals include both incremental changes to investor-state arbitration and proposals for further institutionalization, such as the call of the European Union (EU) to establish a Multilateral Investment Court (MIC) or China’s suggestion for an appeals facility for arbitral awards. But there are also suggestions out there to go back to domestic courts or limit international recourses to state-to-state dispute settlement.

This post does not provide a full evaluation of the different reform options; it focuses on one particularly salient aspect: the issue of why investor access to international dispute settlement is a core feature that any reformed system should maintain, independently of whether disputes will be settled through arbitration or by a permanent international court. As further detailed below, the main reason for this is that ISDS provides a form of access to justice and allows for the review of government conduct under international legal standards that cannot be performed with equal vigor by domestic courts or inter-state mechanisms.

 

Protection against political risk in host countries

The principal reason for providing foreign investors with an international recourse against host governments relates to concerns with domestic courts. The domestic judiciary may be, or may be perceived to be, insufficiently independent, impartial, or neutral, or may not offer effective dispute settlement mechanisms, for example due to clogged dockets and excessively lengthy procedures, or because of access limitations for foreign investors. Providing foreign investors with the possibility for recourse in an international forum substitutes for such shortcomings. It provides a form of access to justice in order to have the lawfulness of host state conduct reviewed, and thus reflects an essential tenet of the rule of law.

Granting access to justice to foreign investors is a concern not limited to host countries with weak governance structures. Contrary to often heard arguments that ISDS mechanisms are not needed in countries with well-developed legal systems, deficits with access to justice may also exist there. Such countries, too, may limit or exclude the review of certain government acts, for examples under doctrines, such as the ‘political questions’-doctrine in the United States, or because foreign corporations do not enjoy constitutional protection in the same way as domestic corporations, as is the case inter alia under Article 19(3) of the German Constitution. Furthermore, there is a concern that the host state’s courts, even when they are independent and impartial, may favor their own state to the detriment of the foreign party. Last, but not least, legal systems that have well-functioning judiciaries may change over time. International recourses respond to such concerns and provide access to justice that is independent from domestic courts.

 

Effective enforcement of Investment treaty obligations

A further aspect militating in favor of providing foreign investors with international recourses to settle investor-state disputes relates to applicable law. What investors vindicate under an ISDS mechanism are regularly not rights granted to them under domestic law. Instead, their claims concern alleged breaches of international investment agreements (IIAs). Domestic courts, however, do not necessarily apply IIAs within the internal legal order and do not necessarily give it primacy over conflicting national law. Art 30.6 of the EU-Canada Comprehensive and Economic Trade Agreement (CETA), for example, expressly provides that claims for breach of CETA cannot be brought before the contracting parties’ domestic courts.

Inter-governmental or inter-state mechanisms, such as diplomatic protection, or formal inter-state dispute settlement, in turn, do not provide an adequate substitute for an ISDS mechanism. Affected investors regularly do not have a right vis-à-vis their government to have their claim espoused against a foreign sovereign, making investors dependent on the goodwill of their home country and likely prejudicing smaller compared to larger investors. Giving investors access to an international forum is the most effective means to enforce the substantive rights granted under IIAs.

 

Actively shaping global governance

A third reason that militates for settling investment disputes through ISDS mechanisms consists in the contribution this can make to international cooperation and global governance. In an inter-state system, exercising diplomatic protection could burden the political climate between states, which may be counterproductive to solving other problems for which international cooperation is necessary, be it environmental protection or international security. Granting investors access to ISDS thus creates space for states to cooperate more effectively in other fields without investment disputes clouding their relations, a phenomenon that is also referred to as ‘de-politicization’.

In this context, it is worth stressing that reform solutions to be developed for ISDS preferably are of a multilateral nature, as the protection against political risk is difficult to confine to specific bilateral relationships. This becomes clear when considering that investment flows can be structured so as to fall within the scope of almost any IIA. Even if, for example, CETA had not provided for access to ISDS, Canadian companies could structure their investment into the EU through a company protected by an EU agreement with a third country that contains an ISDS mechanism. The same would apply vice versa for EU investors who invest in Canada. For this reason, it is difficult to limit ISDS to specific bilateral relations. The issue is one of principle: either ISDS is not sought at all, or it is structured so as to be acceptable, in principle, for any foreign investor.

 

Asymmetry problem: investor obligations and enforcement

Yet, ISDS mechanisms also create concerns from an access-to-justice perspective: they asymmetrically provide access to justice for, but hardly against, foreign investors. They serve to protect investor rights, but not to enforce investor obligations and sanction investor misconduct. This is a significant concern as one justification for granting investors access to ISDS, namely deficits in domestic courts, would support granting those affected by investor misconduct access to an international forum as well.

There are, however, also important differences between investor rights and investor obligations that mitigate the asymmetry problem considerably:

  • First, international dispute settlement mechanisms are in many situations not strictly necessary to enforce investor obligations. Investor misconduct can, in many circumstances, be addressed through the means of administrative law and the enforcement mechanisms it provides. Host states regularly do not need to have recourse to dispute settlement to enforce duties they have imposed on investors.
  • Second, ISDS mechanisms, already at present, can be used to enforce investor duties in certain circumstances. Depending on the applicable IIA, breaches of domestic law can bar an investor’s access to ISDS; and counterclaims by states against investors are increasingly accepted as a means to sanction investor misconduct.
  • Third, investor obligations are first and foremost imposed under domestic law; they only appear gradually in IIAs, and often enough only in the form of soft law, such as through references to the OECD Guidelines for Multinational Enterprises. The argument that access to justice in an international forum is needed to enforce obligations that are of an international legal character would therefore not apply.

In any event, the concern for asymmetry should not be resolved by opposing investor access to an international dispute settlement forum, or by not supporting the present UNCITRAL reform process for ISDS. ISDS mechanisms are worth preserving because they can serve as an accountability mechanism for host government conduct, implementing the rule of law’s central idea of subjecting government conduct to effective legal constraints. In this sense, investment dispute settlement, whether through arbitration or before an international court, constitutes a form of access to justice. An appropriate solution to the asymmetry problem could then consist in creating investment dispute settlement mechanisms, for example as part of the current UNCITRAL process, that are sufficiently open, so that its jurisdiction can cover not only claims by, but also claims against, foreign investors. This could constitute an important step in addressing gaps in investor accountability and provide comprehensive access to justice in respect of international investment projects for all actors affected.

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Decisions of the Swiss Federal Supreme Court in 2019 – Part I

Sun, 2020-02-09 02:32

Petra Rihar

This is the 1st part of the report highlighting the most significant arbitration related decisions of the Swiss Federal Supreme Court (the “Supreme Court”) issued in 2019.

 

Arbitrability

In the decisions 4A_244/2019 and 4A_246/2019 of 12 December 2019, the Supreme Court dealt with the issue of arbitrability. In two arbitrations brought before a tribunal under the UNCITRAL Arbitration Rules (PCA Case No. 2015-34 and PCA Case No. 2015-35), Ukrainian companies (“Claimants”) argued that the Russian Federation (“RF”) had taken measures in connection with the integration of the Crimean peninsula in 2014 which affected the Claimants’ assets (petrol stations, storage facilities and office premises) and led to their expropriation. In two awards dated 12 April 2019, the tribunal found that RF expropriated the investments made by the Claimants in violation of Article 5 of the 1998 Investment Protection Agreement (the “ISA 1998”), for which it owed a compensation.

RF appealed against the awards arguing that the dispute was not arbitrable and the awards should be annulled. By holding that the dispute fell under ISA 1998 and that the Claimants had made an investment in Russia, the tribunal had assumed that, as of 21 March 2014, the Crimea had changed its status and was no longer Ukrainian territory. However, the status of the Crimea was a question that could not be determined by the Claimants or by one party to the ISA 1998 on its own. Rather, only the contracting states could determine the extent of their mutual obligations by way of a formal amendment of ISA 1998. The tribunal had thus decided a question which was neither freely determinable nor arbitrable.

The Supreme Court held that the subject of the arbitration was not the status of the Crimea in relation to ISA 1998 or its status under international law, but rather the claim for compensation for the alleged expropriation of the Claimants’ investments, i.e., a pecuniary claim within the meaning of Article 177 PILA. Therefore, the awards were neither void nor contestable.

An award of a tribunal seated in Switzerland can be appealed against, if the tribunal, due to lack of arbitrability, should have, but did not decline its jurisdiction. In case of an appeal, when reviewing the issue of arbitrability, the Supreme Court applies the same law, i.e. the Swiss lex arbitri. By contrast, in recognition and enforcement proceedings under Article V(2)(a) NYC, the courts of the state in which an award is to be enforced, apply their own laws, i.e. lex fori executionis, when deciding on the arbitrability of the dispute.

 

Extension of Arbitration Agreement to Non-Signatories

In the decision 4A_636/2018 of 24 September 2019, the Supreme Court dealt with the issue of whether a state was bound by an arbitration clause signed by a state-owned entity. A Turkish joint-venture A, consisting of two Turkish companies B and C entered into an agreement (“Agreement”) with a state-owned Libyan entity D in order to realize a large infrastructure project. In 2011, as 70% of the project were completed, A, B and C suspended their work due to riots. Subsequently, they filed an arbitration claim against D as well as against the state of Libya. In a partial award, the tribunal, by reference to the Westland decision (P 1675/1987), found the claim against Libya, a non-signatory, inadmissible due to lack of jurisdiction. A, B and C appealed against this decision.

The Supreme Court dismissed the appeal stating that, under the Swiss lex arbitri, entities established under public law and founded by the state are considered to be legally independent. Arbitration agreements concluded by such entities cannot be extended to the states that control them, if they did not sign the respective agreement. With reference to its case law on Article 178 PILA, the Supreme Court stated that there are constellations, where an arbitration clause can be binding on persons who did not sign it, namely in the case of (i) an assignment of claims, (ii) an assumption of debt, (iii) a transfer of contract, and (iv) a contractual interference. In the last mentioned situation, a third party who continuously and repeatedly interferes in the performance of a contract containing an arbitration clause is treated as having joined the contract and submitted to the arbitration clause if she indicates her will expressly or gives the impression under the principle of good faith to be a party to the arbitration clause.

The Supreme Court concluded that A, B and C failed to show any circumstances from which they could have concluded that Libya had acceded to the arbitration clause by interfering in the execution of the Agreement.

The extension of an arbitration clause due to contractual interference was also discussed in the decision 4A_646/2018 / 145 III 199 of 17 April 2019. In 2009, a Slovenian company A entered into a distribution agreement (“Agreement”), valid until 31 December 2014, with a Swiss company BAG. The Agreement contained an arbitration clause providing for arbitration in Ljubljana and Slovenian laws applicable to the resolution of the dispute. With the consent of all parties involved, the Agreement was being performed by BAG’s sister company BSA until the end of 2015. Subsequently, A filed a claim for payments against BSA before the state court. BSA objected the claim, stating that the court lacked jurisdiction due to the arbitration clause contained in the Agreement. The state court found A’s claim against BSA inadmissible and, pursuant to Article II(3) NYC, referred the parties to arbitration. A appealed to the Supreme Court to vacate the lower court’s decision.

The Supreme Court dismissed the appeal stating that Article II(2) NYC, like Article 178(1) PILA, requires that the arbitration agreement is signed by the (original) parties at the time the agreement is concluded. While the formal requirement only applies to the declarations of intent of the (original) parties to the arbitration agreement, the binding of third parties is governed by the applicable substantive law. This differentiation regarding the form requirement applies under Article 178(1) PILA and under Article II(2) NYC. Which third parties are bound by an arbitration agreement is a question of contract interpretation, the decisive factor being the concurrent actual will of the parties. The effect of BSA’s contractual interference did not concern the formal requirements of the arbitration agreement, but must be assessed in accordance with the applicable substantive law.

 

Violation of the Right to be Heard Must be Relevant to the Outcome

In the decision 4A_424/2018 of 29 January 2019, while acknowledging that the appellant athlete’s right to be heard had been infringed, the Supreme Court refused to set aside a CAS-award ordering the athlete’s suspension from the date of the award. The athlete appealed to the Supreme Court arguing that her right to be heard had been violated regarding the starting point of the suspension. The panel, when deciding on the starting point, took into account facts subsequent to the hearing, without giving her an opportunity to express her views on them.

The Supreme Court held that, by assessing the interests of the athlete and the results she had obtained after the hearing, without first giving her the opportunity to make a statement on this issue, the panel infringed the athlete’s right to be heard. However, there was no evidence that the violation of the athlete’s right to be heard could have had any bearing on the panel’s decision.

A false or arbitrary reasoning is not in itself sufficient to cause an award to be set aside. For an award to be set aside for violation of the right to be heard, a party must show that the arguments or evidence presented but not considered by the tribunal were relevant for the outcome of the dispute. If it is not clear what effect the violation of the right to be heard had on the proceedings, the challenged award will not be set aside.

 

Violation of Substantive Public Policy Must Lead to a Manifestly Unjust Result

In the decision 4A_318/2018 of 4 March 2019, the Supreme Court refused to set aside a CAS-award sanctioning a footballer with an ineligibility of 14 months. The sanctioned athlete did not contest having committed an anti-doping rule violation and, when fixing the suspension, the panel held that under the applicable regulations a shorter duration of the suspension was not possible. The athlete appealed against the award arguing, i.a., that the suspension was contrary to substantive public policy as it infringed his right to pursue his professional activity and seriously affected his reputation.

The Supreme Court held that the plea of incompatibility with substantive public policy was unfounded as, in matters of disciplinary sanctions imposed on athletes, when an appeal is based on the violation of the substantive public policy, the Supreme Court only intervenes, if an award leads to a manifestly unjust result or a shocking unfairness.

The Supreme Court reaffirmed its case law in procedural order 4A_248/2019 of 29 July 2019. A CAS-award obliged the athlete Caster Semenya to take medication reducing her testosterone level pursuant to DSD-regulations (“DSD-R”). While acknowledging that DSD-R created a differentiation based on sex and certain innate biological characteristics, the panel considered such discrimination necessary, reasonable and proportionate means to ensure fair competition in female athletic events. Semenya appealed against the award, together with an ex parte request for suspension of DSD-R and a stay of the execution of the award, arguing, i.a., that the DSD-R was contrary to substantive public policy as it violated the principle of the prohibition of discrimination, her personality rights and human dignity.

The Supreme Court held that the European Convention on Human Rights was not directly applicable to arbitration and it was rather unlikely that an infringement of personality rights or human dignity would be contrary to public policy. For an award to be set aside, it is not sufficient that the tribunal’s reasoning violates public policy; it is the result of the award that must be incompatible with public policy.

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Decisions of the Swiss Federal Supreme Court in 2019 – Part II

Sun, 2020-02-09 01:30

Petra Rihar

This is the 2nd part of the report highlighting the most significant arbitration related decisions of the Swiss Federal Supreme Court (the “Supreme Court”) issued in 2019.

 

Ne Eat Arbiter Extra Petita

In the decision 4A_294/2019 / 4A_296/2019 of 13 November 2019, the Supreme Court dealt with an extra petita appeal against an ICC-award. The dispute arose from an agreement between A (Claimant) and B and C (Respondents) regarding the supply of 60 armored vehicles. After various disagreements, A, who was tasked to develop, design, manufacture and supply the vehicles, commenced an arbitration and submitted, i.e., the following request:

“… 3. The Tribunal shall declare Respondents, severally and jointly, liable to compensate Claimant for any and all damages incurred as a result of Respondents’ contractual breaches resulting in Claimant’s partial avoidance of the 4×4 Armored Tactical Vehicle Contract dated 25 January 2015, as amended …“.

In section a. of the award, the Tribunal declared that:

“… ii. The Respondents are jointly and severally liable to compensate the Claimant in the amount of USD 1,605,521.37, for damages incurred as a result of the Respondents’ contractual breaches of the Agreement / Amended Agreement; …“.

A appealed, i.e., against section a.ii. of the award arguing that the arbitral tribunal had decided on points of dispute which had not been submitted to it. While A had sought a declaration that the defendants were jointly and severally liable for the damage arising from the breaches of contract, the tribunal ordered the Respondents to pay damages under joint and several liability.

The Supreme Court upheld the appeal stating that the tribunal, instead of deciding on A’s request for a declaratory judgment, decided on a request for performance which A had not made in the arbitration. By doing so, the tribunal went beyond A’s requested relief.

By contrast, the principle of ne extra petita is not violated where a tribunal, without granting more or something else than requested, relies on different legal reasons than those argued by the parties (iura novit arbiter previously discussed here on the blog).

 

Impartiality and Independence

In the decision 4A_292/2019 of 16 October 2019, the Supreme Court dealt with the admissibility of ex parte communication between an arbitrator and a party’s counsel. A dispute between a claimant Turkish company B and a respondent Swiss Company A was to be solved in an ad hoc arbitration. Addressing the competent court, B requested the appointment of L as co-arbitrator. A opposed this nomination stating the L had previously worked in the same law firm as B’s counsel. The court nominated L as arbitrator stating that this fact does not compromise L’s independence and impartiality. The court further nominated E as the second co-arbitrator. Subsequently, both co-arbitrators nominated S as chairman. Two days after his appointment and four days before the constitution of the tribunal, L had a 12-minute telephone conversation with B’s counsel. According to tribunal’s explanation, L had called B’s counsel to inquire whether the contract contained a choice of law clause, with the purpose of enabling the two co-arbitrators to choose a suitable chairman. L had made the telephone call with the prior consent of the co-arbitrator and had subsequently informed the chairman of the call. The arbitration ended with an arbitral award in favor of B. A challenged the award on the basis of irregular constitution of the tribunal due to L’s lack of impartiality and independence.

The Supreme Court dismissed the appeal stating that unilateral contacts between a party’s counsel and an arbitrator are not generally forbidden. Having regard to paragraph 8 (a) and (b) of the IBA-Guidelines on Party Representation, it is acceptable to contact a potential arbitrator in order to determine her availability or to discuss the appointment of a chairperson. However, following the appointment of the chairperson, unilateral contacts are in principle inadmissible. L’s telephone conversation served the purpose of selecting a suitable chairperson, since the state court’s appointment decision did not contain any information on a possible choice of law and the question was likely to influence the choice of a chairman. Viewed objectively and in the light of all circumstances, L.’s actions did not create an appearance of bias.

 

Recognition and Enforcement

The impartiality and independence was further discussed in the decision 4A_663/2018 of 27 May 2019, concerning the recognition and enforcement of two ICC-awards. The ICC-arbitrations were initiated by B, a Swiss Company belonging to the C Group, against A, the appellant in the case at hand. Chairman in both ICC-proceedings was F, a partner in the US law firm GLLP. After the awards, both in favor of B, were rendered, A challenged F’s impartiality. The challenge was based on the fact that, during the ongoing arbitration, fees in the amount of USD 6.5 million were paid to GLLP by a company of the C Group. However, the client of GLLP was the US Department of Energy (“DOE”) and not the company of the C Group. GLLP advised DOE in connection with the granting of a loan to C Group and the C Group paid the relevant fees based on an agreement with DOE.

B successfully applied for recognition and enforcement of the awards in Switzerland. Referring to Article V(2)(b) NYC, A appealed against the recognition arguing that it was contrary to the Swiss public policy.

The Supreme Court dismissed the appeal holding that, whether F is to be regarded as biased, must be analyzed objectively and in the light of all circumstances. F’s conduct was careless, as he inadequately entered the details of the parties to the proceedings into the conflict of interest system before accepting the mandate. The significant fees paid to GLLP by a company belonging to the same group as one of the parties to the arbitration were also critical. However, this was not sufficient to refuse the exequatur of the awards. The public policy exception must be interpreted restrictively, especially when it comes to the recognition and enforcement of foreign decisions. Only blatant disregard of the principle of independence and impartiality can lead to a refusal. In the field of international arbitration, it is mainly facts that clearly belong on the red list of the IBA Guidelines on Conflicts of Interest.

 

Principle of Good Faith in the Phase of Award Notification

In the decision 4A_264/2019 of 16 October 2019, the Supreme Court dealt with the parties’ obligation to immediately give notice of any procedural errors. After the conclusion of an ICC-arbitration obliging the respondent A to make a payment to the claimant B, the award was delivered to A’s counsel by courier on 23 October 2018, after receiving a copy of the award by email on 22 October 2018. On the basis of the email copy, A filed a request for interpretation of the award. Subsequently A discovered at an undisclosed date that several pages, including the dispositive part and the signature page, were missing from the original award delivered by courier. A’s counsel reported this to the ICC-Secretariat by email on 8 April 2019, requesting that a complete original of the award be sent to him; he received it on 29 April 2019.

In her appeal of 29 May 2019, A requested that the final award, notified to A by courier on 23 October 2018, be declared null and void and the matter referred back to the ICC for rectification so that a new complete original would be delivered to A.

The Supreme Court held that the appeal was not admissible. A knew that an award had been issued and realized that the ICC-Secretariat wanted to send her this award. She was able to see that at least a part of the document and the signature were missing, simply by inspecting the document. She was not only in a position, but also obliged – in good faith and applying due attention – to report the incompleteness of the award to the ICC-Secretariat immediately upon receipt of the original and demand the delivery of a complete document. After failing to do so, A forfeited her right to a new, proper service of a complete original. Whereas a timely request for service of a complete original could have been regarded as the triggering event for the statutory 30-day time limit, the fact that A failed to make such a request in due time resulted in the expiry of the time limit for challenging the award.

The principle of good faith also applies to parties to international arbitrations seated in Switzerland. According to the principle of good faith, the parties must immediately give notice of procedural errors. They forfeit the possibility of contesting the decision if they do not give the deciding instance the opportunity to remedy such errors in due time.

 

Appointment of Arbitrator Not Subject to Appeal

In decision 4A_146/2019 of 6 June 2019, the Supreme Court addressed the question whether a decision by which an arbitration organization appointed an arbitrator can be challenged before it.

Supreme Court held that a decision taken by a private body, such as the ICC or the CAS, to appoint an arbitrator – on the basis of the rules of the arbitration institution – does not constitute an award and is therefore not subject to direct appeal to the Supreme Court. Consequently, the appointment of the arbitrator can only be reviewed in the context of an appeal against the first challengeable award made by that arbitrator.

 

Conclusion

In its decisions issued in 2019, the Supreme Court has confirmed its constant arbitration-friendly jurisprudence. In some decisions, the Supreme Court further developed its case law by clarifying its earlier statements. This was particularly the case with regard the exact requirements that need to be met for it to intervene (see, in particular, 4A_424/2018, 4A_318/2018 and 4A_248/2019). In one decision, the Supreme Court extended its settled case law on PILA to situations where NYC applies (see 4A_646/2018 / 145 III 199).

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