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Enforcement of Arbitral Awards in Uzbekistan: Challenges and Uncertainties

Mon, 2019-11-11 00:12

Yakub Sharipov

The national courts in Uzbekistan have not commonly been noted by arbitration lawyers and foreign investors for having a pro-arbitration judicial attitude. However, since President Mirziyoyev took office in 2016, Uzbekistan has been trying to build a reputation as an investment-friendly country. It was hoped that the reforms in various sectors would extend as far as changing courts’ attitude towards enforcement of foreign arbitral awards. However, recent case law demonstrates that the enforcement of foreign arbitral awards in Uzbekistan is still unpredictable because Uzbek courts seem to interpret and apply the New York Convention (‘NYC’) using a ‘pick and choose’ approach.

 

Application of Article III of the New York Convention

In the unreported A v B case, claimant ‘A’, a UK-based company, filed an application for the recognition and enforcement of an LCIA award against respondent ‘B’, a Russia-registered entity, at the place where the respondent’s assets were located, i.e. in Uzbekistan. The Court of First Instance, Appeal Court and ultimately the Supreme Court all refused even to accept the claim1)Subject to Article 253 of the Economic Procedural Code of the Republic of Uzbekistan, the court returns the claim to the claimant if the court finds that such a claim is served in breach of Articles 249-252 of the Code. jQuery("#footnote_plugin_tooltip_3108_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3108_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); based on jurisdictional grounds, under Article 249 of Economic Procedural Code (‘EPC’), and returned it to the claimant without conducting the hearing, let alone recognizing and enforcing the award. The courts held that, notwithstanding Uzbekistan’s accession to the NYС, the mere fact that the respondent is a foreign-registered entity precluded the claimant from applying to Uzbek national courts for recognition and enforcement as, according to the courts, they lack jurisdiction. To support this dubious position, the courts referred to Article III of the NYC, quoting that ‘each contracting state shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon, under the conditions laid down in the following articles’.

More specifically, the courts found that, under Article 249 of the EPC, the application for the recognition and enforcement of foreign court decisions or arbitral awards shall be filed either (i) in the courts at the place of a debtor’s actual location, (ii) in the courts at the place of a debtor’s residence, or, alternatively, (iii) in the courts at the place of the debtor’s registered office if the debtor’s location or residence place is unknown. Since the respondent, as a foreign-registered entity, did not have an actual location, place of residence or registered office in Uzbekistan, the courts refused to accept the claim and hear it because of their alleged lack of jurisdiction. The claimant’s submission that all of the respondent’s tangible assets were located in Uzbekistan did not convince the courts otherwise.

 

Inconsistency of Domestic Rules

Notably, while Article 249 of the EPC does not provide for the enforcement of foreign arbitral awards where the respondent has its assets, it seems other domestic legislation permits enforcement of domestic awards (Article 37 of the Economic Procedural Code) and foreign arbitral awards (Article 365 of the Civil Procedural Code). In such a situation, one may argue that Article 249 contravenes the NYC in the first place. Another interesting question is why the courts did not refer to academic sources,2)See, e.g., ICCA’s Guide to the Interpretation of the 1958 New York Convention: A Handbook for Judges. jQuery("#footnote_plugin_tooltip_3108_2").tooltip({ tip: "#footnote_plugin_tooltip_text_3108_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); practical guidelines and well-established case law on enforcement of foreign arbitral awards which are widely available free of charge in the public domain.

 

Cherry-picking Approach

As can be seen in A v B, the Uzbek courts appear to have interpreted the NYC out of context. In the courts’ logic the wording ‘in accordance with the rules of procedure of the territory where the award is relied upon’ is separate from and prevails over the rest of the article, i.e. ‘shall recognize arbitral awards as binding and enforce them’ and ‘under the conditions laid down in the following articles’. It appears that the courts focused on one clause of the article and disregarded Article III as a whole, hence not giving effect to the aims and principles of the NYC and its whole spirit.

Although they referred to the EPC, the courts failed to refer to its relevant provisions pertaining to the supremacy of international law over domestic law in its entirety. Specifically, none of the courts referred to the very first article of the Code, which unequivocally states that the provisions of international treaties prevail over national law in case of discrepancy between them. Effectively, this means that the NYC supersedes the provisions of the EPC to the extent any provisions of the EPC are inconsistent with it. The courts, however, seem to be of a different opinion as no analysis of the interplay between international and domestic law was provided.

In the same vein, it appears that the court should have considered that Uzbekistan is also a party to the Vienna Convention on the Law of Treaties. Pursuant to Article 27 of the Convention, ‘A party may not invoke the provisions of its internal law as justification for its failure to perform a treaty’. Notwithstanding the provisions of the Vienna Convention, the courts refused to accept the claim and to hear the case, with reference to domestic law restrictions. In this vein, the fact that the courts refused to accept the claim de jure may amount to a refusal to recognize and enforce the foreign arbitral award on grounds not stipulated under the NYC. This may be seen as a violation of Uzbekistan’s obligations under the NYC.

 

Same Jurisdiction, Different Approach

In a similar case, Case No. 4-11-1912/222, a Danish party, ‟Alliance Capital К/S”, applied to the Tashkent regional Economic Court for recognition and enforcement of an ICC award against a Spanish party, “Corsan Corviam Construccion S.A.”. The regional court transferred the case to the Tashkent city Economic Court as the court having jurisdiction to decide the case. That court accepted jurisdiction and heard the case. Surprisingly, unlike in A v B, the court cited Article III of the NYC in full. The court also cited Article VII of the NYC, emphasizing that an interested party cannot be deprived of the rights to avail himself of an arbitral award in the manner and to the extent allowed by the law or the treaties of the country where such award is sought to be relied upon. In doing so, the court acknowledged the role of the NYC in the legal system of the country and refused to apply domestic law to the extent it was inconsistent with the NYC.

Interestingly, despite quite similar factual circumstance with A v B, the court in Case No. 4-11-1912/222 did not confirm whether it had jurisdiction under Article 249 of the EPC and did not discuss the respondent’s actual location or place of residence at all. Unlike in A v B, the court also did not mention the fact that the respondent’s registered office was in Spain as a potential ground for refusing to accept jurisdiction as had been done in the A v B case. Quite to the contrary, neither the respondent’s nationality nor the claimant’s failure to identify the respondent’s assets in Uzbekistan was found to be of any importance to the court in deciding that it had jurisdiction over the claim. Even though the court ultimately refused recognition and enforcement on different grounds, the claimant at least was able to present its position on recognition and enforcement in the courtroom.

 

Lack of Capacity or Lack of Established Practice 

It is quite surprising that, despite being a court of first instance, Tashkent city Economic Court seems to be more competent and familiar with the interplay of the NYC and domestic laws than the Supreme Court, but it is too early to make snap judgments on this phenomenon at this point. Quite worrying, however, is that the Supreme Court decision comes at a time when Uzbekistan is trying to become more arbitration-friendly and is trying to become a regional arbitration hub. Moreover, the Supreme Court’s decision may send a negative message to the lower courts that in Uzbekistan arbitral awards against non-resident entities are generally not enforceable.

The Supreme Court’s position might seem even more surprising bearing in mind that both the A v B and Alliance enforcement claims were filed just one month apart but ended with drastically different rulings. The positive mood in Uzbekistan from the numerous arbitration seminars, training sessions for judges with the participation of some of the world’s preeminent arbitration lawyers, as well as arbitration conferences held in Uzbekistan with speakers and participants from pro-arbitration jurisdictions, may be dampened by this decision of the Uzbek Supreme Court.

References   [ + ]

1. ↑ Subject to Article 253 of the Economic Procedural Code of the Republic of Uzbekistan, the court returns the claim to the claimant if the court finds that such a claim is served in breach of Articles 249-252 of the Code. 2. ↑ See, e.g., ICCA’s Guide to the Interpretation of the 1958 New York Convention: A Handbook for Judges. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
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The Contents of b-Arbitra, Issue 2019-1

Sun, 2019-11-10 01:00

Annet van Hooft and Jean-François Tossens

We are pleased to present you with this new issue of b-Arbitra which not only includes four articles but also reports a significant number of cases from the Belgian courts.

In this issue you will find Dilyara Nigmatullina’s article on how arbitration and mediation can be adapted so as to meet the global demands for change that the users of these dispute resolution mechanisms are calling for. We then have Herman Verbist’s contribution on the so-called “UN Mediation Convention.” In his article, he discusses the drafting process of the Convention, its contents as well as the position of the European Union.

Tilman Niedermaier contributes on the new DIS Rules in his article called “Hello, DIS Rules 2018,” in which he explains, among other things, the enhanced role that the DIS, as an arbitral institution, assumes under the new rules. He also addresses the features that have been introduced to increase the efficiency and quality of DIS-administered proceedings, without altering their distinct character.

Maarten Draye, in his article called “Three Card Trick,” discusses the Court of First Instance judgment of 16 February 2017, the first time a Belgian court dealt with a third party opposition to an arbitral award.

We have several annotations in this issue. Our first annotation is from Adriaan Wijckmans and concerns the well-known decision of the Brussels Court of Appeal (of 29 August 2018) concerning the validity of arbitration clauses in the FIFA Articles of Association. Maxime Berlingin treats a case from the Brussels Court of Appeal (of 25 October 2018) in which the Court not only confirmed that jurisdictional objections must be raised before all other defenses but also that it is possible for non-signatories to be bound by an arbitration clause.

Luc Demeyere has annotated two decisions of the Brussels Court of Appeal (of 28 November 2017 and 11 September 2018) concerning the liability of arbitrators. The decision of the Brussels Court of First Instance of 2014 was already published in b-Arbitra 2016, 215. Finally, we have a note prepared by Professor Johan Erauw and Herman Verbist concerning two decisions of the Courts of First Instance of Tournai and Hasselt (of 21 December 2016, respectively 13 July 2017) relating to the use of arbitration clauses in distribution contracts.

We conclude with one book review by Sigvard Jarvin on “Post-M&A-Schiedsverfahren – Recht und Rechtsfindung jenseits gesetzlichen Rechts” edited by Rüdiger Wilhelmi and Michael Stürner.

We hope you enjoy this issue and always welcome further views, exchanges and suggestions from our readers.

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Improving the Participation of Minorities in International Arbitration

Sun, 2019-11-10 00:24

Fakhruddin Ali Valika

This blog is a summary of the discussion which took place at a workshop organized by Young ICCA in collaboration with Blacks of the American Society of International Law (BASIL) titled “Improving the Participation of Minorities in International Arbitration.”

The event was held in the New York office of Debevoise & Plimpton LLP on 26 September 2019 and was attended by law students and professionals. It addressed some pertinent issues which this blog will cover.

 

The Problem

There appears to be a global consensus regarding promoting diversity. While the obligation arises out of moral and ethical considerations, it often has legal prescription attached. The extent of diversity in the legal profession is disappointing both nationally and internationally. In the United States, for example, the profession appears to be dominated mostly by white males. Unfortunately, the problem further worsens when it comes to the area of international arbitration. International arbitration which is often considered the elite club in the legal profession performs extremely poorly in terms of diversity and minority representation. This issue of diversity was what the workshop addressed.

The event began with welcome and introductory remarks from Nawi Ukabiala (Debevoise), Prince-Alex Iwu (Diaz, Reus & Targ) and Matthew Morantz (Curtis). This was followed by a keynote address from Professor Benjamin G. Davis, who provided us with a historical background regarding the United States’ struggle with diversity and minority representation beginning from the transatlantic slave trade. He also touched upon the differing experiences depending upon one’s privilege and background.

 

A Diverse Tribunal

This keynote address set the stage for a panel discussion titled “Can I get a …. Diverse Tribunal?” The panelists included Naana A. Frimpong (King & Spalding), Randa Adra (Cromwell and Moring) and Mohannad A. El-Murtadi Suleiman (Curtis). The discussion was moderated by Ucheora O. Onwuamaegbu (Arent Fox).

The moderator discussed the issue of diversity in the US context giving the example of the recent case of popular celebrity Jay-Z in which he struggled finding a person of color as a qualified arbitrator for his matter. All of the panelists unanimously emphasized the dire need of making gender inclusion a priority in international arbitration. It was mentioned on how ethnicity and country of origin should also be focused on when striving for diversity and inclusion. Mohannad Suleiman discussed how diversity is needed regarding various aspects such as education (common law or civil law training), bar admissions and languages to ensure that the disputing parties feel their views are being adequately heard and understood by the tribunal. It is often the case that parties feel alienated due to the lack of diversity in a tribunal in all these respects.

The moderator then put forward the question, which was also raised in the Jay-Z case, as to why is a diverse tribunal even necessary to rightly decide the case? Mohannad discussed how people from different backgrounds view things differently which often leads them to different conclusions. However, he said that the underlying problem which demands diversity is different, as it has to do with perception and legitimacy. The perception of legitimacy is crucial to the resolution of disputes. He shared the example of his home country, Libya, whose experience with arbitration involved awards being passed against the country as a consequence of its wave of nationalization in the 1970s, which led the entire country and the region to view arbitration negatively. This negativity could have been avoided or mitigated if there was more trust in the neutrality of a properly appointed arbitral tribunal and this mechanism of alternative dispute resolution, a trust which can be developed through a diverse composition of the tribunal itself. He further explained how enforcement of an award passed by a non-diverse tribunal may also be difficult due to questions of legitimacy and interpretation of law.

Naana Frimpong explained how diversity should not be done for diversity’s sake but for the benefit it brings. She said empirical studies prove how diversity is beneficial especially in a body dealing with multi-jurisdictional issues. She also spoke about the legitimacy crisis in investment arbitration due to the private nature of arbitral tribunals as opposed to being public state courts, which often results in states and their citizens having distrust in the fairness of these proceedings. This crisis could also be addressed by diversity, she suggested. She drew similarities with the International Criminal Court which faced similar legitimacy issues in Africa due to its non-diverse composition and focus on criminals in Africa while not pursuing action against actors in other parts of the world. Randa Adra spoke about how the demand for highly experienced arbitrators has become a major issue in the fight for diversity. She discussed how young arbitrators are heavily disadvantaged hence any minority inclusion solution should incorporate this aspect.

The panel concluded that diversity is the responsibility of all parties and stakeholders. Institutions need to play a greater role and highlight disputes which have been dealt by diverse tribunals to reduce the information vacuum which exists. There was a call for affirmative action.

 

Minority Pledge

The second panel discussion was titled “Is a ‘Minority Pledge’ Needed in International Arbitration?” The panelists included Apoorva J. Patel (WilmerHale), Charline O. Yim (Gibson Dunn) and Jordan C. Wall (Willkie Farr & Gallagher). The discussion was moderated by Natalie L. Reid (Debevoise).

The moderator had the panel comment on the previous panel’s remarks on what a minority was and what diversity constituted. They recognized how diversity differs for everyone, hence a broad view must be adopted towards it rather than a narrow and restricted definition. The panel agreed how merely increasing white female representation does not amount to diversity. Acknowledging the importance of party autonomy in international arbitration, the panel further agreed that any solution towards promoting diversity must bear in mind the crucial role the parties play.

Apoorva Patel discussed his journey in arbitration and how not being able to find anyone in the field who looks like him was often disconcerting and demotivating. Charline Yim explained how she would often be confused for other Asian origin attorneys and told the audience about one such instance. Jordan Wall discussed his personal struggle and difficulties he encountered with being gay. Jordan Wall spoke about the Mansfield rule which Apoorva elaborated on by mentioning the Rooney rule. The Rooney rule is a National Football League policy which requires league teams to interview ethnic minorities for head coach and other senior positions. Inspired by the Rooney rule, the Mansfield rule aims at advancing women and minorities at law firms and place them in positions of power. The panel agreed as to how both rules have been effective and there is a need for a similar rule and pledge in the field of international arbitration. By formulating a minority pledge, the arbitration community gives teeth to the aim of striving for minority representation in international arbitration.

 

Conclusion

The panel discussion was followed by a speed networking and cocktail reception which provided students and young professionals the opportunity to receive valuable mentoring. There was a unanimous consensus to strive for minority representation in international arbitration individually and collectively. Recent developments such as suspensions of bilateral investment treaties by countries and the European proposal of replacing the investor-state dispute resolution mechanism through a Multilateral Investment Court, are all examples of the challenges posed to international arbitration which can be effectively addressed by restoring legitimacy. Increasing diversity will therefore directly translate into increased legitimacy of the system. The onus lies on the institutions, parties and each one of us who are interested in the field.

 

Any views expressed are solely those of the author and do not represent the views of the faculty members.

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Local v. International Standards for Granting Emergency Interim Relief: A Page from SIAC’s New Delhi Summit 2019

Fri, 2019-11-08 18:00

Chahat Chawla

This post covers an interesting discourse during the Singapore International Arbitration Centre’s Summit in New Delhi on 30 and 31 August 2019. In particular, the post focuses on the discussions during Panel Session 1: ‘Masterclass on the use of Institutional Procedures in Arbitration’ held on the second day of the summit. This session was moderated by Ms Sheila Ahuja (Allen & Overy LLP), and the panelists were Mr Gary Born (Wilmer Cutler Pickering Hale and Dorr LLP), Mr Bobby Chandhoke (L&L Partners), Prof Bernard Hanotiau (Hanotiau & van den Berg), Dr Michael Hwang, SC (Michael Hwang Chambers LLC), Mr Toby Landau QC (Essex Court Chambers) and Mr Andre Maniam, SC (WongPartnership LLP).

 

Summary of the discussion

Mr Andre Maniam, SC pointed out how institutions innovate and introduce different procedural tools to promote efficiency in the arbitration process. One such procedure discussed at length during the panel discussion was the Emergency Arbitrator (EA) provision under the SIAC Rules, 2016. Briefly, EA procedures allow parties to apply for urgent interim relief prior to the constitution of the tribunal. Accordingly, in cases where a party requires an immediate interim measure, SIAC will appoint an arbitrator (sometimes in a matter of few hours) to hear and decide an application in a time-bound manner.

Parties have frequently invoked the EA provisions under the SIAC Rules. Indeed, as of the date of this post, SIAC has received 93 applications for the appointment of EAs. Out of these 93 applications, 31 have been granted in favour of the applicant, 6 have been granted by consent, 17 have been granted in part, and 27 applications have been rejected. Further, in 8 instances the EA application was withdrawn and 4 EA applications are currently pending consideration.

It appears that there is no clear consensus in the international arbitration community regarding the applicable criteria to be used in cases of interim or emergency interim relief. It is therefore not surprising that the question of the applicable standard for provisional relief often becomes a point of contention between the disputing parties. This panel was no different.

During the panel discussion, Dr Michael Hwang, SC stated he was only dealing with interim injunctions in Singapore-seated arbitrations, but what he had to say might be applicable to:

  1. Other common law countries (including India) depending on their arbitration law on interim injunctions; and
  2. Other interim measures (which might, however, require other considerations than for injunctions).

In Dr Hwang’s view, for a Singapore-seated tribunal, the natural interpretation of Section 12(1)(i) (read with Section 12(5)) of the Singapore International Arbitration Act (Cap. 143A) taking into account its legislative history) was that, if an interim injunction were claimed, then it would be appropriate to apply the domestic (and practiced in various common law jurisdictions) standard applied by the Singapore Courts in granting interim injunctions based on the American Cyanamid test. Dr Hwang suggested that given that the Indian legislation had a similar legislative history as Singapore’s, it could also be argued that India-seated tribunals could apply the standards applied by the Indian Courts.

Mr Toby Landau, QC took a different view. He suggested that unless a tribunal is operating under “mandatory standards” as may be prescribed under the applicable lex arbitri, the tribunal ought to adopt an international approach. He argued that applying national court standards may pose a “danger” and prove to be a slippery slope if arbitrations were conducted in the same manner as court-based proceedings. Prof Bernard Hanotiau agreed with Mr Landau’s proposition and said that tribunals should be guided by international standards.

Mr Gary Born summarised the state of play in his treatise that the “better view” is for a tribunal to look at international sources for appropriate standards. He argued that the absence of relevant standards from most national arbitration statutes suggests that the seat of arbitration may not be a conclusive factor for the determination of the governing standards. To support this view, Mr Born argued that applying an international approach is in furtherance of the parties’ reasonable expectations for the following reasons. First, this approach will ensure the application of a uniform standard in international arbitrations. Second, this uniform standard will be applicable to all similar requests (regardless of the arbitral seat). Third and finally, this uniform standard would contribute towards achieving uniformity in the arbitral process.1)See Chapter 17; page 2465: Provisional Relief in International Arbitration’, in Gary B. Born , International Commercial Arbitration (Second Edition), (Kluwer Law International; Kluwer Law International 2014. jQuery("#footnote_plugin_tooltip_1076_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1076_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Comment

The SIAC Rules confer powers on tribunals or emergency arbitrators (as the case may be) to grant interim relief. However, the rules do not set out a standard to be applied by the arbitrators for the grant of such relief. In view of the same, it is for the tribunal to determine on a case-by-case basis the criteria which are to be applied in a particular set of facts and circumstances. Subject to the parties’ agreement and in the absence of a mandatory standard, a tribunal would broadly choose between a local and an international standard.

Even in cases where some (or majority) of the standards prescribed under a local test and an international test overlap, an applicant in any international arbitration would be compelled to argue that a less burdensome standard ought to apply. For instance, a Claimant is likely to argue that international standards should apply in cases where a national court applies a more onerous standard. Ultimately, and as mentioned above, it will be within a tribunal’s discretion to identify the applicable standards in a given case.

Whilst the contents of the local standards may be determined by a review of the prescribed standards (if any) or by the tests adopted by a seat-court, there seems to be a debate on the breakdown of “international standards”. One view is to apply the standards as set forth under the UNCITRAL Model Law (with amendments as adopted in 2006). In this regard, it may be noted that the 2006 amendments, and, in particular the amendments with regard to standard of interim relief, were subject to extensive deliberations and consultations with various governments and stakeholders. Viewed through this lens, an argument in favour of the codification of the “international standard” under the UNCITRAL Model Law (as revised in 2006) gains some traction.

Alternatively, parties and tribunals may look at previous awards and/or scholarly work to seek guidance on the contents of “international standards”. For example, Mr Born in his treatise summarises these international standards as follows: “stated generally…most international arbitral tribunals require showings of (a) risk of serious or irreparable harm to the claimant; (b) urgency; and (c) no prejudgment on the merits, while some tribunals require the claimant to establish a prima facie case on the merits, a prima facie case on jurisdiction, and to establish that the balance of hardships weighs in its favour”.2)See Chapter 17; page 2468: Provisional Relief in International Arbitration’, in Gary B. Born , International Commercial Arbitration (Second Edition), (Kluwer Law International; Kluwer Law International 2014. jQuery("#footnote_plugin_tooltip_1076_2").tooltip({ tip: "#footnote_plugin_tooltip_text_1076_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Therefore, in a given case and depending on the nature of interim relief being sought, the following alternative tests may be adopted by a tribunal:

  1. Local/National Standards (tests adopted by the seat courts or under the governing law which applies to the substance of the dispute).
  2. International Standards (as envisaged under the UNCITRAL Model Law 2006).
  3. International standards as put forth by scholars and/or previous decisions.
  4. Combination/hybrid version of these tests as may be deemed appropriate by a tribunal.

The SIAC India Summit 2019 did well to highlight these issues, especially given that the Indian Arbitration and Conciliation Act (Indian Act) and its 2019 amendments do not prescribe any standards for granting provisional measures. Like most national arbitration legislation, the Indian Act recognises broad powers of India-seated tribunals to grant interim relief. The Indian Act further clarifies that under section 19, tribunals shall not be bound by the Indian Code of Civil Procedure (or the Rules of Court), thereby allowing arbitrators and parties to determine the rules of procedure for the conduct of arbitration.

It will be interesting to see how India-seated tribunals approach the question of standards of emergency relief. Anecdotal evidence and recent decisions of the Bombay and the Delhi High Court seem to suggest that tribunals are likely to apply national or local standards (for instance see VIL Rohtak Jind Highway).  However, India’s efforts to develop as an international hub for arbitration may have a bearing on how tribunals approach the question of applicable standards in the coming years. (See discussions on India’s recent arbitral reforms here, here, and here).

With a rise of institutional arbitration in India, and the EA mechanisms available under most sets of institutional rules, it bears watching how the Indian Courts will view EA decisions. As suggested by Mr Bobby Chandhoke at the panel discussion, Indian Courts may continue to take the approach adopted in Raffles Design and enforce EA decisions through section 9 of the Indian Act after a re-hearing.

Taken all together, given the emphasis and focus to bring the Indian Act in conformity with global trends, one could look at the 2019 amendments (as was opined by the moderator, Ms Sheila Ahuja) as a missed opportunity to introduce legislative provisions to support EA decisions. The next round of Indian amendments may well look to the Lion City and provide for the enforceability of EA orders and awards.

 

The views expressed herein are personal and do not reflect the views or the position of the Singapore International Arbitration Centre. The author reserves the right to amend his position if appropriate.

References   [ + ]

1. ↑ See Chapter 17; page 2465: Provisional Relief in International Arbitration’, in Gary B. Born , International Commercial Arbitration (Second Edition), (Kluwer Law International; Kluwer Law International 2014. 2. ↑ See Chapter 17; page 2468: Provisional Relief in International Arbitration’, in Gary B. Born , International Commercial Arbitration (Second Edition), (Kluwer Law International; Kluwer Law International 2014. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
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To Insure or Not to Insure: Should Arbitrators Be Obliged to Insure Their Civil Liability?

Fri, 2019-11-08 00:31

Tadas Varapnickas

Arbitrators’ civil liability is not a topic that everyone within the arbitration community enjoys discussing. Therefore, it is not surprising that the approach to the concept of liability differs within the arbitration community. In cases where someone may face civil liability, the possibility to insure such risk arises. This blog post, therefore, will deal with the question of whether arbitrators should mandatorily insure their civil liability and whether it should be regulated by law.1)This blog post is based on the author’s PhD thesis and is intended to provide some guidelines concerning the issue – Varapnickas, Tadas. Arbitrator‘s civil liability and its boundaries. Vilnius: Vilniaus universiteto leidykla, 2018. This PhD thesis was defended at Vilnius University on December 3, 2018. A summary of the thesis is available in English here. jQuery("#footnote_plugin_tooltip_4277_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4277_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Different Concepts Concerning Arbitrator’s Liability

There are three concepts concerning arbitrator’s liability: absolute immunity, absolute liability, and limited or qualified liability. Under the first approach, which found its place in common law countries, firstly, arbitrators should not be found liable for their acts or omissions as arbitrators because the duties they perform are closely related and similar to the ones performed by judges who enjoy absolute immunity. The absolute liability doctrine is cardinally different. Supporters of this approach claim that arbitrators should be held liable as any other service providers and their liability could only be limited by the contract, not by the arbitrator’s status.

The limited liability doctrine tries to reconcile the two other approaches. According to this doctrine, since an arbitrator is not analogous to the state judge but neither a pure service provider due to the functions performed, arbitrator’s status is somewhere in between or sui generis. Therefore, arbitrators should not be liable for ordinary negligence but could not avoid liability in case of bad faith, i.e. when they act intentionally or are grossly negligent, for example, when arbitrator intentionally fails to disclose the conflict of interest and, therefore, the award is later annulled.

It is most widely accepted that an arbitrator’s civil liability should be limited. By way of example, Section 29 of the English Arbitration Act states that an arbitrator should be found liable only in cases of bad faith. Similar provisions exist in arbitration laws in Spain (Article 21 of Arbitration Act of Spain), Portugal (Article 9(4) of Portuguese Voluntary Arbitration Law), Italy (Article 813ter of Code of Civil Procedure of Italy), New Zealand (Article 13 of New Zealand Arbitration Act 1996), Australia (Article 28 of Australia’s International Arbitration Act 1974), Hong (Article 104 of Hong Kong Arbitration Ordinance), Sri Lanka (Article 45 of Sri Lanka Arbitration Act), and others. Although regulation in these countries differs, the goal remains the same – to ensure that arbitrators would only be liable in case of their bad faith, understanding the latter as arbitrator’s intent or gross negligence. Most arbitration rules, for example, LCIA (Article 31 of LCIA Arbitration Rules), ICC (Article 41 of ICC Arbitration Rules), SCC (Article 52 of SCC Arbitration Rules), DIS (Article 4 of DIS Arbitration Rules), SCAI (Article 32 of Swiss Rules of International Arbitration), HKIAC (Article 46 of HKIAC Arbitration Rules), Vilnius Court of Commercial Arbitration (Article 47 of Arbitration Rules of Vilnius Court of Commercial Arbitration), contain the same or very similar provision, under which arbitrators are not held liable in case of ordinary negligence.

 

Status quo on Professional Liability Insurance for Arbitrators

Although not widely discussed, liability insurance is an important topic for arbitrators’ community. When the Swiss arbitration association rendered a survey in 2013, 50% of arbitration institutions claimed to have liability insurance for claims against the institution itself. As regards arbitrator’s insurance, arbitration institutions replied that they insure arbitrators rarely and mostly when they require themselves.2)HABEGGER, Philipp et al. Arbitral Institutions Under Scrutiny: ASA Special Series No. 40. New York: Juris Publishing, 2013, p. 32. jQuery("#footnote_plugin_tooltip_4277_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4277_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This seems somewhat odd knowing that earlier an ICC working group on arbitrator’s status concluded that arbitrators should enter into a contract on liability insurance.3)ICC Working Group. ICC Final Report on the Status of the Arbitrator. ICC International Court of Arbitration Bulletin, 1996, vol. 7(1). jQuery("#footnote_plugin_tooltip_4277_3").tooltip({ tip: "#footnote_plugin_tooltip_text_4277_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Hence, although the ICC Working Group concluded in 1996 that arbitrators should insure themselves, the survey rendered by Swiss arbitration association in 2013 revealed that arbitrators rarely request insurance. In other words, most arbitrators arbitrate without any liability insurance, meaning that if an arbitrator is faced with a civil liability claim, he/she alone would need to cover the damages. The amount of damages theoretically might be so large that an arbitrator would eventually risk facing bankruptcy. So, it is the parties to arbitration that should be interested in arbitrator’s liability insurance in the first place as it is designed to protect arbitrators from potential creditors. Secondly, the states should also be interested in the issue because it may lead to distrust of arbitration in general.

However, if one were to look at different arbitration laws, one would notice that there is nothing on arbitrators` liability insurance. Indeed, to the author’s knowledge, only Spain explicitly regulates arbitrator’s insurance questions. Article 21(1) of the Spanish Arbitration Act provides that arbitrators shall be required to take out insurance to cover civil liability or to make an equivalent guarantee, for the amount established by regulation. This obligation was included in the law together with the 2011 amendments of the Spanish Arbitration Act. As it was noted in another article on the Kluwer Arbitration Blog, the Spanish insurance sector reacted quickly, and Spanish insurers attempted to design a special insurance policy for arbitrators.

Although amendments in Spain were adopted eight years ago, other countries either in Europe or elsewhere in the world did not follow Spain’s example and there are no indications that any country is preparing to do that. As a result, in a situation where only Spain adopted a relevant regulation, the question arises if there is a need to discuss compulsory liability insurance at all?

It may be asked whether the professional liability insurance for lawyers would apply to arbitrators. Although it might depend on different national rules, generally the answer would be answered to the negative. Lawyers work in the field of representing clients before courts, state institutions, i.e., the main activity of lawyers is acting on behalf of someone else and this is the activity that is insured by professional liability insurance. Professional civil liability insurance of lawyers, therefore, is directed to protect lawyers for their main activities and not any activity performed by a lawyer. Arbitrating, on the other hand, is not an activity that would ipso facto be considered every lawyer’s activity. At the same time, auditors, architects, economists, lecturers and others may also be appointed as arbitrators. Therefore, even if professional insurance for lawyers applied to arbitrators, it would not be provided to all professions and the problem would not be resolved.

It might seem surprising that the issue of the insurance of arbitrator’s liability is not regulated by laws, particularly, when the ICC Working Group concluded that arbitrators should insure themselves. However, more careful analysis shows that it should not be too surprising. In fact, most of arbitration laws do not regulate arbitrator’s liability at all. For example, even the UNCITRAL Model Law does not provide any guidance on arbitrator’s liability. So, it should not be surprising that national arbitration laws do not regulate the issue of insurance if the issue of liability itself is not regulated.

 

Should Arbitrators Be Obliged to Have a Professional Liability Insurance?

There are opinions in academia suggesting that professional liability insurance for arbitrators would be useful.4)WESTON, Maureen A. Reexamining Arbitral Immunity in an Age of Mandatory and Professional Arbitration. Minnesota Law Review, 2006, vol. 88:449, p. 497. jQuery("#footnote_plugin_tooltip_4277_4").tooltip({ tip: "#footnote_plugin_tooltip_text_4277_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Furthermore, insurance is required in other professions.5)YU, Hong-Lin. Who is an arbitrator? A study into the issue of immunity. International Arbitration Law Review, 2009, vol. 12(2). jQuery("#footnote_plugin_tooltip_4277_5").tooltip({ tip: "#footnote_plugin_tooltip_text_4277_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

However, as mentioned above, it is most widely accepted that arbitrator’s civil liability should be limited, i.e. even without the insurance, arbitrator’s liability should be applied only when arbitrator acts conducted in bad faith (acts conducted intentionally or grossly negligently). Therefore, an obligation to insure civil liability when the liability is ipso facto limited may be treated as a redundant requirement. Indeed, arbitrators would then need to insure their liability only for acts committed in bad faith, while normally insurers only insure risks of ordinary negligence. Therefore, the issue arises as to whether liability insurance is at all possible in arbitration.

Insurance would also mean additional expenses which ultimately should be covered by the parties to arbitration paying higher arbitrators’ fees. Scholars support this conclusion.6)BROWN, Jenny. The Expansion of Arbitral Immunity: Is Absolute Immunity a Foregone Conclusion. Journal of Dispute Resolution, 2009, vol. 2009(1), p. 236. jQuery("#footnote_plugin_tooltip_4277_6").tooltip({ tip: "#footnote_plugin_tooltip_text_4277_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Also, a rather small amount of insured parties may lead to higher insurance payments for arbitrators and again, ultimately, the parties.

On the other hand, in Brown’s opinion, insurance would ensure fair process with a competent arbitrator.7)BROWN, Jenny. The Expansion of Arbitral Immunity: Is Absolute Immunity a Foregone Conclusion. Journal of Dispute Resolution, 2009, vol. 2009(1), p. 236. jQuery("#footnote_plugin_tooltip_4277_7").tooltip({ tip: "#footnote_plugin_tooltip_text_4277_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Yet, it is not explained what the correlation between insurance and competence is. On the contrary, knowing that any failure will be covered by insurance, arbitrators may start acting less prudently as they would not do without the insurance.

 

Conclusion

Therefore, the conclusion of the ICC working group that arbitrators should insure their civil liability,8)ICC Working Group. ICC Final Report on the Status of the Arbitrator. ICC International Court of Arbitration Bulletin, 1996, vol. 7(1). jQuery("#footnote_plugin_tooltip_4277_8").tooltip({ tip: "#footnote_plugin_tooltip_text_4277_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); cannot be supported. Of course, if the arbitrator would feel more comfortable with insurance, the voluntary insurance can be suggested if applicable law allows for same. Yet, compulsory liability insurance would not achieve the purposes it would seek. Even if an arbitrator may be faced with the civil liability claim, those situations should be rare and most attempts to get arbitrators liable should fail because the standard of liability is high enough. Therefore, it should not be recommended for national law-makers to follow Spain’s example and to implement compulsory arbitrator’s liability insurance in national legislation.

References   [ + ]

1. ↑ This blog post is based on the author’s PhD thesis and is intended to provide some guidelines concerning the issue – Varapnickas, Tadas. Arbitrator‘s civil liability and its boundaries. Vilnius: Vilniaus universiteto leidykla, 2018. This PhD thesis was defended at Vilnius University on December 3, 2018. A summary of the thesis is available in English here. 2. ↑ HABEGGER, Philipp et al. Arbitral Institutions Under Scrutiny: ASA Special Series No. 40. New York: Juris Publishing, 2013, p. 32. 3, 8. ↑ ICC Working Group. ICC Final Report on the Status of the Arbitrator. ICC International Court of Arbitration Bulletin, 1996, vol. 7(1). 4. ↑ WESTON, Maureen A. Reexamining Arbitral Immunity in an Age of Mandatory and Professional Arbitration. Minnesota Law Review, 2006, vol. 88:449, p. 497. 5. ↑ YU, Hong-Lin. Who is an arbitrator? A study into the issue of immunity. International Arbitration Law Review, 2009, vol. 12(2). 6, 7. ↑ BROWN, Jenny. The Expansion of Arbitral Immunity: Is Absolute Immunity a Foregone Conclusion. Journal of Dispute Resolution, 2009, vol. 2009(1), p. 236. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
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Sanctions vis-à-vis Blocking Measures and the Dilemma Faced by Arbitral Tribunals: Lessons Drawn From EU Blocking Regulation and U.S Extraterritorial Sanctions

Wed, 2019-11-06 21:30

Naimeh Masumy and Niyati Ahuja

Introduction

The United States announced the reinstatement of sanctions on Iran in May 2018. Following that, the EU responded by revising their Blocking Regulation (Regulation 2271/96) in August 2018. The Blocking Regulation was designed to safeguard European entities from the extraterritorial reach of the U.S. sanctions. The uncertainty surrounding the scope of application and the nature of blocking regulations, in general, has left their role in arbitration open to increasing speculation.

In Section I below, we discuss secondary sanctions, with a focus on the recent extraterritorial sanctions imposed by the U.S. In Section II, we analyze the varying nuances of blocking regulations and their implications on arbitration, considering EU Blocking Regulations as our focal point. In Section III, we address issues arising when a dispute falls both within the ambit of extraterritorial sanctions and the purview of blocking regulations. Finally, in Section IV, we provide an overview of the comprehensive analysis to be undertaken by arbitrators when confronted by a dispute that involves blocking regulations and extraterritorial sanctions.

 

I. Secondary Sanctions

Sanctions often have a wide and horizontal application prohibiting commercial activity with regards to an entire country. There are two categories of sanctions which may be imposed by a country: primary sanctions and secondary sanctions. Primary sanctions are those sanctions which are imposed on actions having a jurisdictional nexus with the country imposing them. Secondary sanctions apply to international parties without any relevant jurisdictional nexus between those parties and the country imposing such sanctions.

For the purpose of this post, we will focus on secondary sanctions which are extraterritorial in nature. In essence, these sanctions assert jurisdiction over a foreign party often without substantial nexus between the entity or the act committed and the territory of the regulating states. The extraterritoriality of sanctions is not generally accepted across all jurisdictions and hence states may develop blocking regulations to combat these sanctions. For instance, the U.S. imposed secondary sanctions and the EU developed Blocking Regulations to combat the same. This has been precisely echoed in the preamble of the EU Blocking Regulation which recalls that “by their extra-territorial application, such laws, regulations, and other legislative instrument violate international law and impede smooth international trade”.

 

II. Blocking Regulations

A. What are Blocking Regulations?

A blocking regulation is the legislation adopted to impede the sanctions imposed by a foreign jurisdiction.Blocking regulations are not a new phenomenon; Canada and Mexico implemented blocking regulations to counter the effect of U.S. sanctions in 1992 and 1996 respectively. A blocking regulation shields companies and individuals within its jurisdiction by prohibiting them from complying with sanctions, and not abiding foreign court rulings, orders and awards. These regulations can serve an important role as part of the legal measures employed by governments whose citizens will be subject to the sanction and can protect their commercial activities from the consequences of snapback.

B. Implications of EU Blocking Regulation (Regulation 2271/96)

The EU Blocking Regulation is not a standalone measure and each EU Member State ought to determine the amount of the penalty it deems appropriate to impose through their domestic legislation. For example, under German law, breach of the EU Blocking Regulation may constitute an administrative offence and can result in a fine of up to 500 Euros.

It is widely understood that the EU Blocking Regulation has neither been heavily enforced nor tested so far. At the EU level, no jurisprudence exists currently, except the one enforcement action has been heavily reported – against BAWAG PSK.

There are two major intended impacts of the EU Blocking Regulation: first, to enable foregoing compliance with any requirement of prohibition stipulated in extraterritorial sanction and, second, the nullification of foreign decisions. They both bear an important implication as they are changing the way arbitrators resolve disputes as the arbitrators are confronted with another applicable law.

 

III. The Impact of Secondary Sanctions and Blocking Regulations on International Arbitration  

A. Impact of Secondary Sanctions

The impact of sanctions with extraterritorial reach can be summarized in four distinctive categories:

  1. as a part of the governing law to the merits of the case: Parties may use sanctions as an excuse for failure to comply with contractual obligations. It may be either treated as ‘force majeure’ or ‘frustration of purpose’ depending on the jurisdiction.
  2. as a part of the domestic law of the lex arbitri or seat of the arbitration: Sanctions may form a part of the applicable law to the dispute if the seat of arbitration is situated in a sanctioning country. For example, if the parties have chosen New York as their seat of arbitration, U.S. sanctions will be applicable to the dispute.
  3. at the enforcement stage: The impact of sanctions continues even after an arbitration is concluded and an award issued, that is in the context of enforcement. Where enforcement is sought in a sanctioned state, an award may be subject to a challenge in the enforcing court if the objections raised concern a violation of sanctions regulations.
  4. external effect: Secondary sanctions usually result in impossibility of performance of a contract thereby releasing the obligation to perform. However, from a dispute resolution perspective, when a sanction regime proclaims itself applicable extraterritorially, it does not necessarily imply that arbitral tribunals, or domestic courts will give extraterritorial effect to these sanctions.

In this regard, characterization of sanctions by arbitrators has an important impact on an arbitration proceeding. There is no consensus yet as to whether sanctions should be given effect as fact or law. A factual impediment occurs whenever a sanction has the power to compel an individual or an entity to withhold performance, usually via threats of enforcement measures or penalties. The factual approach is increasingly regarded as an unsatisfactory shortcut to the extent that it compels arbitrators to give effect to sanctions almost mechanically which in reality contradicts the purpose of party autonomy. The legal approach suggests that a sanction would be given effect either only because it forms part of the applicable law or because it is applicable as a foreign overriding mandatory rule. It is important to note that the legal approach guarantees a higher degree of flexibility and allows the arbitrators to take into consideration blocking measures.

B. Impact of Blocking Regulations

A blocking regulation, in general, does not automatically apply to an arbitration proceeding, unless it aims to counter a sanction, and its application on the arbitration proceeding cannot be scrutinized in isolation.

The gradual promulgation of blocking measures into domestic law of the parties could result in a concrete body of law enabling courts to openly enforce blocking measures. By such adoption, these measures would fall within the ambit of article 9 of the Rome Regulation and constitute a part of the public policy of the seat of arbitration and be of significance at different phases of the arbitral procedure.

A major impact of the EU Blocking Regulations on international arbitration is the nullification of the effect of any foreign decision including court rulings or arbitration awards, based on the listed extraterritorial legislation or the acts and provisions adopted pursuant to them. This simply means that a European court ought to refuse to enforce an award for the reason that it contravenes EU Blocking Regulations.

 

IV. The Irreconcilable Dilemma Faced by Arbitral Tribunals

The dearth of jurisprudence with regards to blocking regulations has left many pertinent issues unanswered regarding how disputes involving sanctions and sanctioned parties vis-à-vis blocking regulation should be resolved. As previously mentioned, firstly, blocking regulations have a direct bearing on the enforcement of an arbitral award; secondly, arbitrators may engage in an excessive conflict of law analysis to determine and rationalize the applicable law; and, finally, in some particular situations, arbitrators may face certain liabilities due to breaching sanctions regime or blocking regulations.

One of the key operative provisions of EU Blocking Regulations seeks to nullify the effect of any arbitration award based on the sanction regime. Similarly, if the adoption of the blocking regulation is regarded a public policy pronouncement embedded in substantive law of a country, parties may seek to resist enforcement of such awards by arguing that the arbitration award is inconsistent with the country’s public policy. The recognition or enforcement of an arbitral award that involves sanctions may sometimes be seen as contrary to public policy in a sanctioned country. The generally restrictive view of public policy expressed in the famous case Westacre vs. Jugoimport-SDRP demonstrates that the courts, not taking into account unilateral sanctions that do not amount to public policy, will not be breaching ‘international public policy’. The judgment confirms that the prevailing trends with respect to the notion of public policy is in favor of international public policy.

The interplay of blocking regulations and sanctions calls for an extensive conflict of laws analysis while simultaneously broadening the discretion of arbitrators to apply the most appropriate law. When a disputed transaction falls within the ambit of both an extraterritorial sanction and blocking statutes, it is crucial for arbitrators to weigh the interests that are served by the sanctions against those served by the blocking statutes to determine which one should be applied to the dispute. The question that arbitrators need to consider is whether to look at a blocking regulation that has already declared the sanction unlawful or use their discretion to analyze the merits of the case. Furthermore, arbitrators must examine whether sanctions serve interests that are deemed legitimate by the international community. Thus, if a sanction is evidently based on discriminatory motives, arbitrators have the authority and a duty to disregard it.

While blocking regulations have put arbitrators in a precarious position, this post puts forward that endorsing conflict of laws analysis by arbitrators in order to rationalize applicable law could be perceived as an ideal way to maintain the predictability of the arbitration proceeding. The conflict of laws analysis may grant tribunals an objective criterion to take into consideration blocking regulation without disregarding the parties’ choice of law and exceeding its designated power. Moreover, applying conflict of law rules will play an important role in the absence of applicable law or where the parties have not chosen a law, and the result will be much more predictable.

An arbitrator may unknowingly breach sanctions and be held liable in certain cases when they are unsure of whether they can rely on blocking regulations or whether taking sanctions into account may expose them to violation liability. As the legal character of blocking regulations eventually gains uniformity, the aforementioned concerns need to be addressed by the arbitration community. If the landscape remains ambiguous, only the future will tell if arbitration remains to be the chosen form of cross-border dispute resolution.

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Does Nationality Matter in Designations to the ICSID Panel of Arbitrators?

Tue, 2019-11-05 22:20

Federico Cabona and Francesca Sepe

On September 9, 2019, the Federal Republic of Germany designated Professor Franco Ferrari to serve on the ICSID Panel of Arbitrators, pursuant to Article 13 of the ICSID Convention. Professor Ferrari is the only arbitrator designated by Germany who does not have German nationality, the exception that proves the (unwritten) rule of Contracting States predominantly selecting their own nationals for designation on ICSID Panels.

Arbitrators in ICSID-administered cases do not need to be selected from the Panel members. (Article 40(1) of the Convention) However, if the parties fail to constitute the tribunal, or if any arbitrator resigns without its tribunal’s consent, the Centre shall fill any vacancy by appointing Panel arbitrators only. (Articles 38, 56(3) and 40(1) of the Convention) Moreover, and more importantly, ad hoc annulment committees shall be entirely made of members of the Panel. (Article 53(3) of the Convention) Thus, the composition of Panels is far from inconsequential.

According to Section 4 of the Convention, each Contracting State may designate up to four persons to their Panel, providing the designee meets the following requirements:

  • high moral character;
  • recognized competence in the fields of law, commerce, industry or finance; and
  • reliability to exercise independent judgment.

Although not necessary for designation, additional “highly desirable” attributes are: knowledge of and experience with international investment law; knowledge of and experience with public international law; experience and expertise in international arbitration or conciliation; ability to conduct an arbitration or conciliation and write an arbitral award or report in one or more of the Centre’s official languages (English, French and Spanish); availability to accept appointments in cases as of the date of designation; availability and willingness to travel for case proceedings.

The above requisites aside, the process followed to identify and select a Panel designee is entirely within the discretion of the Contracting State.

In its latest phase of designations, Germany selected German arbitrators, in addition to Franco Ferrari, Patricia Nacimiento, Sabine Konrad, and Stephan Schill. Their tenure at the Panel is set to expire on September 12, 2025, barring renewal. The designation of Professor Ferrari is of particular interest. Although he has a German mother and was raised and educated in Germany, Franco Ferrari is in facts an Italian national. Article 13(1) of the Convention provides that a Contracting State’s designees “may but need not be its nationals.” Given the borderless nature of international arbitration, the often-loose links between its practitioners and their State of origin, and its relatively cohesive community, one might expect designations to result from individual reputation rather than nationality.

However, that does not appear to be the case.

Although the busiest treaty arbitrators tend to come from a small group of jurisdictions (e.g. Australia, Canada, France, Germany, Italy, Spain, Switzerland, the United Kingdom and the United States, which account for a significant number), the field of Panel members appears more levelled. Only 10.2% of the past and present Panel members are non-nationals. Half are US nationals. French, English and Italian arbitrators are the next largest minorities among those that were not appointed by their State of origin. Dual-nationals designated by one of the contracting States whose nationality they hold were excluded from this calculation.

In short, it is actually common practice for ICSID Contracting States to appoint their own nationals. The reasons for this are not obvious. The Convention precludes the appointment of arbitrators having the same nationality as the parties in the case to avoid any conflict of interest, meaning that a State could not draw any supposed direct benefit from designating its own nationals on the Panel. Of course, a domestic vetting procedure should be expected to result in a mainly domestic field of candidates. For instance, Latvian arbitrators are more likely to apply for designation with the Latvian authorities than arbitrators of any other nationality. Likewise, Malaysian arbitrators are more likely than arbitrators of any other nationality to satisfy the requirements that the Malaysian authorities may establish for the designation.

However, exceptions exist, and Professor Ferrari is one of them.

Others are:

  • Yves Derains, French national, designated by Albania;
  • Franco Ferrari himself, before being designated by Germany, had already been designated by St. Lucia.
  • Paul Friedland, US national, designated by Georgia;
  • Hamid Gharavi, Iranian/French national, designated by Cambodia;
  • George Kahale III, US national, designated by Albania;
  • Rolf Knieper, German national, designated by Georgia;
  • Carolyn Lamm, US national, designated by Uzbekistan;
  • Alexis Mourre, French national, designated by North Macedonia;
  • Jan Paulsson, Swedish/French national, designated by Bahrain;
  • William Rowley, Canadian/English national, designated by Mongolia;
  • Giorgio Sacerdoti, Italian national, designated by Seychelles;
  • Stephen Schwebel, US national, designated by Bahrain;
  • Brigitte Stern, French national, designated by Georgia;
  • Nassib Ziadé, Chilean/Lebanese national, designated by Kuwait;

Two trends can be detected from this list. First, with the exception of Germany, the above designations were all made by relatively small nations. Second, many of them stem from the same Contracting States, such as Georgia, Bahrain and Albania.

Accordingly, there seems to exist a strong inclination of most ICSID Contracting States to designate nationals only. Until Germany’s designation of Professor Ferrari, the exceptions to this practice have been attributable to a (small) contingent of (small) Contacting States, who have seized the opportunity to avail the Panel not just of their highly qualified nationals, but also of highly qualified non-nationals.

That designation may lead to other States giving serious consideration to non-nationals as well as nationals for their ICSID Panels.

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Case Management in Arbitration: A View from Poland

Tue, 2019-11-05 03:00

Maciej Zachariasiewicz and Michal Kocur

Essential Role of Effective Case Management in Arbitration

Throughout the second half of the 20th century, arbitration has become a dominant and preferred method for resolving international disputes. Its advantages are widely known. This being said, international arbitration suffers nowadays from increasing costs and duration of the proceedings. It is less efficient than it promises. Many business people express dissatisfaction. Efforts are thus made by the arbitration community to improve the existing rules and practices in order to tackle these inconveniences.1)This includes in particular guidelines and rules prepared by various international organizations such as Arbitration Committee of IBA, ICCA, UNCITRAL, the Chartered Institute of Arbitrators or international arbitration courts. jQuery("#footnote_plugin_tooltip_9302_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9302_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Management of the arbitral proceedings lays at the very center of the arbitration’s current difficulties. The issue, although immensely relevant for the whole arbitration world, has its specific Polish dimension. Many of the practices and techniques well settled in international arbitration (e.g. case management conferences, written witness statements, party-appointed experts) only gradually gain prominence in Polish practice. Whilst the world seems concerned with working out new instruments, which will render pursuit of claims in arbitration more effective (e.g. expedited procedures, emergency arbitrators), or with fine tuning the existing measures,2)See e.g. J. Risse, Ten Drastic Proposals for Saving Time and Costs in Arbitral Proceedings, Arbitration International, Vol. 29, No. 3, p. 453 et seq. jQuery("#footnote_plugin_tooltip_9302_2").tooltip({ tip: "#footnote_plugin_tooltip_text_9302_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); the Polish arbitral practice strives to implement instruments long known on the international level. Thus, in so far as the main challenge for international arbitration seems to be counteracting further judicialization of arbitration and restraining the surging arbitration costs, the task before Polish arbitration community is different. Namely, it is to remodel the practices of case management towards best international practices, and in particular to overcome tendencies transposed from litigation before Polish common courts.

 

The Study on the Polish Arbitral Practice

With the above in mind, a study was conducted by Kocur & Partners and Kozminski University in Warsaw that took aim at the management of arbitral proceedings in Poland. The goal of the survey was to determine what rules, techniques, and practices are used in Poland, and how they are viewed by arbitration practitioners. The survey was conducted at the turn of 2018 and 2019. Our respondents answered multiple-choice questions in an online questionnaire sent to arbitration practitioners, i.e. counsels and arbitrators. In all, 108 arbitration practitioners took part in the survey. The answers of the “counsels” and “arbitrators” were contrasted, with some interesting effects.

The study focused on a number of procedural issues that are relevant to the efficacy of dispute resolution. The questions posed to arbitration practitioners related both to their actual experiences (“how things are”), as well as to their opinions about preferred practices relating to case management (“how things should be”). The following issues were covered by the study:

  • duration of proceedings;
  • case management conferences;
  • first procedural orders and timetables of proceedings;
  • arbitrators’ competences with respect to active management of the proceedings;
  • length of the written submissions;
  • expert reports;
  • written witness statements and the examination of witness at the hearing;
  • organization of the hearings within the proceedings;
  • document production;
  • financial incentives for arbitrators to timely render an award;
  • financial sanctions for parties employing dilatory tactics.

 

Length of Arbitration Proceedings and the Reasons for Delays

The participants of the survey were first asked about the length of the arbitration proceedings they had participated in. According to participant’s experiences proceedings most often last between 12-24 months (30% of respondents indicated that this was the duration in majority of cases they dealt with), followed by 6-12 months (16% of respondents have chosen the answer “in majority of cases”). On the other hand, arbitrations in Poland seldom last longer than 24 months. Yet, they also rarely finish in a period shorter than 6 months.

Source: 2019 Polish Arbitration Survey. Case Management in Arbitration, p. 9.

The users’ experiences seem to be confirmed by the data from Polish arbitration courts. The average duration of the proceedings before the Court of Arbitration at the Polish Chamber of Commerce was 448 days in 2018, 385 days in 2017, and 413 days in 2016 (counted from the day when the request for arbitration is filed until the award). The cases before the Lewiatan Arbitration Court were, on the other hand, decided more quickly. It took on average only 3,6 months in 2017 and 5,1 month in 2016 to decide the case (although this was counted from the moment when the arbitral tribunal is constituted). However, because the Court at the Polish Chamber of Commerce decides much more cases, its relative impact on the experience of the users is proportionally greater.

More importantly, we sought to find out what – in the eyes of the respondents – are the main reasons for delays in proceedings. The most frequently chosen answer was the chaotic management of arbitration proceedings (53% of answers), followed by the complexity of the dispute (49%), dilatory tactics (34%), taking unnecessary evidence (33%), waiting for the final award after the proceedings have been completed (31%), insufficient availability of arbitrators (21%), postponing hearings without justified reasons (12%), and the inefficiency of the arbitral institution administering the dispute (8%), with some respondents pointing to difficulties with choosing experts and obtaining their reports timely.

Source: 2019 Polish Arbitration Survey. Case Management in Arbitration, pp. 10-11.

When it comes to reasons for delays there are interesting differences between answers given by arbitrators and counsels. For example, while only 22% of arbitrators consider the chaotic organization of proceedings important, 64% of the counsels underlined that this precisely was the main cause of delays. In that context, it comes as a surprise that 44% of the arbitrators consider the taking of unnecessary evidence as an important cause of delays, while only 30% of counsels pointed to that answer. This may suggest that arbitrators, although generally consider that they are responsible for the management of arbitral proceedings (and not pointing to their own mismanagement), do not feel they are responsible for the active control of taking evidence through a critical examination of the parties’ requests.

When a party provides evidence which seems unnecessary to resolve the case, the arbitrators may find themselves in a difficult position. In deciding whether to take the evidence they must balance the need to expeditiously head towards the final award with the parties’ right to fully present their case. That the given evidence is irrelevant for the case might not be clear until it is actually taken and analyzed by the tribunal. Consequently, arbitrators may be inclined to think that the admission of almost all evidence is necessary to safeguard due process and to rely on the parties’ in that they best know what evidence should be taken. Moreover, not only arbitrators have an obligation to make sure that parties are treated fairly, but also that the proceedings appear to be fair in the eyes of the reasonable third party (e.g., the court called upon to decide any challenge to the award).

 

Yearning for “Stronger” Arbitrators

On the other hand, yearning for “stronger” arbitrators seem to be on the tide in international arbitration. A “stronger” arbitrator is one who is not overly constrained by the due process paranoia, who manages the case actively and is ready to identify the contingent issues and take difficult decisions early in the proceedings.3)See e.g. Compendium of arbitration practice – IBA Arb40 Subcommittee (2017), p. 6, which note that “earlier engagement from the tribunal is essential”. jQuery("#footnote_plugin_tooltip_9302_3").tooltip({ tip: "#footnote_plugin_tooltip_text_9302_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The most far-reaching of the recent initiatives are the recently adopted Prague Rules on the Efficient Conduct of Proceedings in International Arbitration (2018), which encourage this attitude, even suggesting that the arbitral tribunal is entitled to take “a proactive role in establishing the facts of the case which it considers relevant for the resolution of the dispute” (Article 3(1)). While this might be a step too far, a general longing for more active arbitrators is often heard.4)K.P. Berger, O. Jensen, Due process paranoia and the procedural judgment rule: a safe harbour for procedural  management decisions by international arbitrators, Arb. Int’l, vol. 32, 2016, s. 416; ICC Techniques for Controlling Time and Costs in Arbitration (2012), para 13. jQuery("#footnote_plugin_tooltip_9302_4").tooltip({ tip: "#footnote_plugin_tooltip_text_9302_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

This seems to be confirmed also by findings of the survey. Although only 22% of the users agreed with the proposition that arbitrators should always seek to identify key issues to resolve the dispute, and in the absence of the parties’ activity, should seek to clarify the issues by conducting evidentiary proceedings themselves, as much as 71% of the Polish users contended that arbitrators should be active, although not to the extent that they should conduct evidentiary proceedings at their own initiative. Conversely, only 6% of the respondents felt that the arbitrators should be mere observers of the parties’ actions during the proceedings.

That the Polish users prefer active arbitrators with strong procedural powers results also from their answers to some of the specific questions posed in the survey. 59% of respondents said that if the witness summoned to the hearing failed to appear, the arbitrators should disregard the evidence from such witness. 36% of respondents took a more flexible stance that the arbitrators may disregard such evidence, but only for important reasons.

Users seem also to prefer strong arbitrators’ powers when it comes to limiting the length of the written submissions and sanctioning dilatory tactics. With respect to the first issue, although majority (56%) of those who took part in the survey believe that arbitrators should only limit the length of the written submission when the parties have consented to it, as much as 24% believe that such restrictions should be applied in each case irrespective of parties’ consent and only 11% that there must never be limits in that regard. Interestingly, it was arbitrators who more often (23%) than counsels (8%) indicated that the length of the written submissions should never be limited. This might come as a surprise given that it is the parties’ right to fully present its case which is at stake and that it is usually suggested on international fora that parties should agree on such restrictions.5)See, for example, ICC Techniques for Controlling Time and Costs in Arbitration (2018), para 47. jQuery("#footnote_plugin_tooltip_9302_5").tooltip({ tip: "#footnote_plugin_tooltip_text_9302_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The results of our survey seem to suggest that the counsels are more keen to self-limit their chances to fully present their case than it would be necessary according to the arbitrators.

Finally, Polish users want arbitrators to sanction unethical behavior of the parties and their counsels that results in prolonging the proceedings. Majority of respondents believe that such behavior should always be sanctioned by arbitrators and affect the decision on costs (54%). A minority (39%) choose a more moderate proposition, that this can only be done if the arbitrators have warned the parties in advance. Only 4% contended that arbitrators may apply cost sanctions only if the parties have actually agreed to this. Polish users thus accept more leeway in sanctioning parties that what is usually suggested in international arbitral practice.6)Where a dominant view seems to be that the parties must at least be warned that their unethical behavior may affect the decision on costs. See Compendium of arbitration practice – IBA Arb40 Subcommittee (2017), p. 11, 26; IBA Guidelines on Party Representation in International Arbitration (2013) – Guideline 26. jQuery("#footnote_plugin_tooltip_9302_6").tooltip({ tip: "#footnote_plugin_tooltip_text_9302_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Can Procedural Effectiveness Be Restored in Arbitration?

Much ink has been spilt in the recent years about the effectiveness of arbitration. Voices are heard that arbitration does not live up to its promise of being expedient, inexpensive and informal method of dispute resolution. Many are nostalgic about the good, old times when arbitration was exactly that (or is now perceived as such). Although the judicialization of arbitration may be its natural development resulting from its growth as a predominant method of settling international, often complex and large scale, business disputes, efforts aimed at increasing its usefulness for users are always worth pursuing. The survey on the case management in arbitration, although focused on Polish practices, aspires to make a modest contribution in that regard.

References   [ + ]

1. ↑ This includes in particular guidelines and rules prepared by various international organizations such as Arbitration Committee of IBA, ICCA, UNCITRAL, the Chartered Institute of Arbitrators or international arbitration courts. 2. ↑ See e.g. J. Risse, Ten Drastic Proposals for Saving Time and Costs in Arbitral Proceedings, Arbitration International, Vol. 29, No. 3, p. 453 et seq. 3. ↑ See e.g. Compendium of arbitration practice – IBA Arb40 Subcommittee (2017), p. 6, which note that “earlier engagement from the tribunal is essential”. 4. ↑ K.P. Berger, O. Jensen, Due process paranoia and the procedural judgment rule: a safe harbour for procedural  management decisions by international arbitrators, Arb. Int’l, vol. 32, 2016, s. 416; ICC Techniques for Controlling Time and Costs in Arbitration (2012), para 13. 5. ↑ See, for example, ICC Techniques for Controlling Time and Costs in Arbitration (2018), para 47. 6. ↑ Where a dominant view seems to be that the parties must at least be warned that their unethical behavior may affect the decision on costs. See Compendium of arbitration practice – IBA Arb40 Subcommittee (2017), p. 11, 26; IBA Guidelines on Party Representation in International Arbitration (2013) – Guideline 26. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
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Colombia’s Constitutional Court Declares That Constitutional Injunctions (Tutela) Can Be Upheld Against Awards In International Arbitration

Sun, 2019-11-03 20:00

Eduardo Zuleta and María Camila Rincón

On August 6, 2019, the Fifth Revision Chamber of Colombia’s Constitutional Court (the “Court”) issued judgment T-354/19 resolving a constitutional injunction (tutela)1)The tutela is a constitutional injunction that aims to protect fundamental constitutional rights when they are violated or threatened by the action or omission of any public authority. This mechanism is incorporated in Article 86 of the Constitution. Tutelas proceed when: (i) fundamental constitutional rights are violated or threatened; (ii) when there are no other means to protect the right; and (iii) against action or omissions of a private individual in the event that said individual provides a public service, or exercises public functions; and (iv) when the actor is in a situation of defenselessness or subordination with respect to the individual against whom the tutela is brought. jQuery("#footnote_plugin_tooltip_8282_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8282_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); submitted by a state-owned company and its subsidiary against an international arbitral award (the “Tutela”). In its decision, the Court recognized the possibility of obtaining constitutional injunctions against awards issued in international arbitrations seated in Colombia. However, it concluded that the Tutela was not admissible in the specific case because the annulment proceedings had not been exhausted.

This is a decision of one of the Chambers of the Court, not a decision of the plenary of the Court nor a decision to unify jurisprudence, and therefore it only applies to the specific case and may be revisited.

 

Background

On December 22, 2010, Gecelca S.A E.S.P (“Gecelca”) and its subsidiary Gecelca 3 S.A.S E.S.P (“Gecelca 3”), and the Consortium CUC-DTC, constituted by China United Engineering Corporation and Dongfang Turbine Co. LTD. (the “Consortium”), executed an EPC contract to build a thermoelectric plant (the “Contract”).

During the development of the Contract certain disputes arose between the parties regarding, inter alia, the term for performance of the Contract, Gecelca 3’s alleged delay in the payment of invoices, and the alleged breach of the Contract by the Consortium.

On December 29, 2014, the Consortium submitted a request for arbitration under the arbitration clause of the Contract. The tribunal, seated in Bogota, was constituted on March 11, 2015 from the list of “international arbitrators” of Bogota’s Center of Arbitration (the “Tribunal”). The Parties disputed whether the arbitration was to be conducted as a national or an international arbitration.

On May 8, 2015, the Tribunal issued a partial award deciding that the arbitration was international because two of the three criteria set forth in Article 62 of Law 1563 of 2012 (Statute of National and International Arbitration) were applicable in the specific case. Namely, that the parties were domiciled in different States at the time of execution of the arbitral clause and that the dispute affected international trade interests (the “Partial Award”).

On December 4, 2017, the tribunal issued a final award (the “Final Award”) declaring, among other things, that Gecelca 3 had breached the Contract, and ordering it to pay over USD $40 million to the Consortium.

On January 11, 2018, Gecelca 3 filed an action to set aside the Final Award before the Third Section of the Council of State (the “Third Section”), because, among other reasons, it was inconsistent with Colombia’s international public order.

In parallel, on February 28, 2018, Gecelca and Gecelca 3 (the “Gecelca companies”) presented a constitutional injunction (tutela) against the Final Award alleging that the Tribunal had violated their fundamental rights to due process and access to justice. The Gecelca companies also requested interim measures to suspend the payment ordered by the Tribunal.

On July 26, 2018, the Fourth Section of the Council of State – the first level competent court –declared that the tutela was inadmissible considering that this mechanism could not be used to re-open a legal debate addressed during the arbitral proceedings. On September 12, 2018, the Fifth Section of the Council of State –the second level competent court– confirmed the first instance judgment and added that, since constitutional injunctions are subsidiary mechanisms, the tutela was not admissible because the decision to set aside the Final Award was still pending.

Following the first and second level decisions, Gecelca 3 filed a request before the Constitutional Court to revise the tutela. On October 29, 2018, the 10th Selection Chamber of the Court selected the tutela for revision and designated the Fifth Revision Chamber for this purpose.

 

The Constitutional Court’s decision

The Fifth Revision Chamber concluded that it is possible to obtain constitutional injunctions (tutelas) against international arbitral awards. However, it decided that, in the specific case, a constitutional injunction was not appropriate because annulment proceedings were still pending.

The court noted previous constitutional jurisprudence according to which arbitral awards issued in national arbitrations are materially equivalent to judicial decisions because arbitrators are temporarily invested with the function of administering justice according to Article 116 of the Constitution, and considering that both are issued in the exercise of jurisdictional functions and have res judicata effects. For this reason, the admissibility of constitutional injunctions against arbitral awards must be analyzed under the same requirements applicable to judicial decisions.

Nonetheless, said requisites must be more rigorously applied to arbitral awards than to judicial decisions, considering that arbitral awards derive from the express will of individuals deciding to depart from the jurisdiction of the courts.

The Court concluded that the same criteria applicable to analyze the admissibility of arbitral awards issued in national arbitrations, must be applied to awards issued in international arbitrations. Accordingly, the admissibility of constitutional injunctions against international arbitral awards must be analyzed on the basis of the following criteria: (i) the arbitral award must have violated fundamental rights directly; (ii) the applicable remedies must have been previously exhausted (according to Article 40 of Law 1563 of 2012, the only applicable remedy to arbitral awards is annulment); and (iii) compliance with “specific admissibility requirements” (as set out in Judgment T-466 of 2011), which refer to the existence of substantive, organic, procedural, or factual defects of the award or the tribunal’s constitution, also known as the doctrine of “vías de hecho”.

Additionally, the Court noted that when the substantive law applicable to the arbitration is foreign, constitutional judges shall only apply Colombia’s international public order as parameter of constitutional control. In consequence, “specific admissibility requirements” are only applicable when the award is “partially governed by Colombian law” and not when the substantive law applicable to the arbitration is foreign.

Finally, the Court noted that the possibility of obtaining constitutional injunctions against international awards is even more exceptional (“excepcionalísima”) than in the case of national awards. Yet, it is a discretional matter for the competent judge to decide.

Based on the above, the Court concluded that the Tutela filed against the Final Award was not admissible considering that the Gecelca companies had not previously exhausted the proceedings to set aside the award, which are still pending before the Third Section of the Council of State.

 

Comments

The Court’s decision leaves several questions unresolved.

First, despite the fact that Colombia is a contracting party to the New York Convention of 1958 (the “Convention”), the Court did not address the interplay between Colombia’s international obligations under the Convention and the domestic legal regime. According to Article V(1)(e) of the Convention, the recognition and enforcement of the award may be only refused if, inter alia, the “award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which that award was made.” In the light of this provision, one may ask how the decision of the Court that tutelas may be filed against awards issued in international arbitrations seated in Colombia interplays with an international convention to which Colombia is a signatory and which provides for the action to set aside as the sole remedy against an award. Regrettably, the Court did not address this point in its decision.

Second, the Court’s analysis regarding the relation between “the law governing the award” and the admissibility of constitutional injunctions is unclear. The Court states that when the “the law governing the award” is foreign, there is no room to analyze the admissibility of a tutela in light of criteria different than Colombia’s international public order. While it is far from clear what the Court means by with “the law governing the award”, it seems to be referring to the substantive applicable law. Accordingly, the Court seems to conclude that in those cases where “the law governing the award” is partially Colombian, the constitutional judge may apply other criteria such as the doctrine of “vías de hecho”, a catalogue of: substantive (e.g. the arbitrator interpreted or applied a rule ignoring constitutional judgments with erga omnes effects defining the scope of the rule); organic (e.g. the arbitrators have absolutely no competence to resolve the matter submitted to their consideration, either because they have manifestly acted outside the scope defined by the parties or because they have ruled on non-arbitrable matters); procedural (e.g. the arbitrators have issued the award in a manner completely contrary to the procedure established contractually or in the law); and factual defects (e.g. the arbitrators made their assessment of the evidence directly violating fundamental rights) in which the award or the tribunal may incur. If this is so, then a constitutional judge deciding a tutela against an international arbitral award, may review the merits of the case to determine if the arbitral tribunal incurred in vías de hecho.

Third, while the court states that national awards are “materially equivalent” to judicial decisions and seems to conclude that the same equivalency applies to an award issued in an international arbitration, it does not explain how it arrived to such conclusion and does not analyze the implications of such equivalency. Does it mean that the decision considers arbitrators in an international arbitration as judges?  If so, can a non-Colombian be deemed to be a judge exercising jurisdiction in Colombia, although Colombian nationality is required to be a judge in Colombia? Can arbitrators seated in an international arbitration in Colombia trigger the international responsibility of Colombia?

 

Conclusion

In its review of the case, the Court invited scholars and institutions to provide comments on several questions related to the Tutela, the key one being whether constitutional injunctions should be admitted against awards issued in international arbitrations seated in Colombia. The majority of the opinions were in the negative based on the same point of departure: arbitrators in international arbitrations seated in Colombia are not judges, public officials, or private parties exercising public functions. The Court, however, seems to have departed from this premise and based its analysis on the thesis that international arbitrators comply with public functions.

References   [ + ]

1. ↑ The tutela is a constitutional injunction that aims to protect fundamental constitutional rights when they are violated or threatened by the action or omission of any public authority. This mechanism is incorporated in Article 86 of the Constitution. Tutelas proceed when: (i) fundamental constitutional rights are violated or threatened; (ii) when there are no other means to protect the right; and (iii) against action or omissions of a private individual in the event that said individual provides a public service, or exercises public functions; and (iv) when the actor is in a situation of defenselessness or subordination with respect to the individual against whom the tutela is brought. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
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Is The Future Bright For International Energy Disputes In Asia?

Sat, 2019-11-02 22:24

Gabriella Richmond

The ITA-IEL-ICC Joint Conference on International Energy Arbitration was held in Singapore in September, examining the future of international energy disputes in the region. There was a focus on the client perspective, with insights from a variety of speakers. The range of participants and speakers was impressive, with practitioners, in-house counsel and institution representatives covering a broad spectrum of topics in the lifecycle of energy disputes.

As the inaugural holding of the conference in Singapore, Edwin Tong SC (Senior Minister of State for Law) highlighted the growing importance of Asia as an energy hub, and Singapore as a dispute resolution hub for parties worldwide. As SMS Tong noted, energy demands have grown hugely in Asia in the last 15 years, driven by Asia’s development and the infrastructure required. Singapore is Asia’s leading oil trading hub, and home to more than 300 leading energy and chemical companies. Its location and position as a neutral and stable jurisdiction make it attractive for multi-party, multi-jurisdictional, high-value disputes, particularly as the industry grows.

 

Lifecycles and global reach of energy disputes. The conference covered a variety of aspects to an energy dispute, from pre-dispute responsibilities of the parties involved and early case assessment, through to awards and settlement possibilities. A panel of in-house counsel and practitioners (Jennifer L. Ferratt, Chevron; Christopher Moore, Moyes & Co; Nandakumar Ponniya, Baker McKenzie; and Liz Snodgrass, Three Crowns) also discussed “Exit” disputes at the end of a project, covering the framework for such disputes, the financial and fiscal aspect, and the commercial and investment aspect of dispute resolution.

From a region-specific angle, Professor Chester Brown delivered a presentation on difficulties encountered through boundary disputes in the Asia-Pacific region, particularly significant for energy disputes. Professor Brown considered the balance of uncertainty over making investment decisions against the demand for energy, against a background of key boundary disputes in the region. In terms of comparisons drawn from energy disputes in Europe, Mark Mangan (Dechert LLP) and Joquin Terceno (Freshfields) took part in an interesting debate considering the similarities and differences between gas price reviews in Europe and Asia. This left conference members wondering if price reviews in Asia will follow the same pattern seen in Europe, despite many market differences. The diversity of topics covered, and global experience of the speakers themselves was an overriding theme throughout the two days, encapsulated by two inspiring interviews with Laura M. Robertson (ConocoPhillips) and Loretta Malintoppi (39 Essex Chambers, Singapore).

 

Innovation in arbitration keeping the future bright. A repeated topic throughout the conference was innovation in arbitration, with both institutions and practitioners staying attuned to what parties want and developments in the field, both generally and energy dispute-specific. Senior representatives from the ICC, ICSID, SIAC and HKIA spoke on recent innovations and perspectives from the institutions, including prevalent topics such as third party funding and transparency. Throughout the conference, the rising importance of mediation and ADR also became clear, particularly with the recent signing of the Singapore Convention on Mediation.

 

Practicalities from an in-house perspective. The in-house perspective added a practical note to discussions, with engaged and interested clients with a desire for time and cost efficiency in proceedings. On a general note, the management of construction disputes was summarised by experienced practitioners (Erin Miller Rankin, Freshfields, and Chen Han Toh, Pinsent Masons MPillay), and the client perspective from Mona Katigbak (GE Renewable Energy) and Catherine McNeilly (INPEX Australia). Client interest and involvement in selecting an arbitrator was evident, as well as the need for alignment between counsel and clients in the approach to the dispute.

The influence and responsibility of the parties at the pre-arbitration stage, particularly in relation to attempted settlement and dispute assessment was emphasised, with early case assessments and proactive resolution plans. Reference was also made to the updated ICC Commission Report published in February 2019, with updates on interim measures, settlement and translations being discussed in relation to energy disputes. The proactivity of institutions in responding to what users and clients want was apparent. As a fitting end to the conference, Craig Miles (King & Spalding) delivered a concise and entertaining review of the top energy dispute cases of the year, including the very recent award in ConocoPhillips v Venezuela.

 

Key takeaways. The recurring themes, as highlighted by the conference co-chair Nicholas Lingard (Freshfields), were those of diversity, both in terms of experience, perspectives and nationalities, and the omnipresence of geopolitics in energy disputes. The importance for clients in maintaining working relationships during a dispute, and the need for cost and time efficiency, was also evident. Institutions and seats are responding to this by increased focus on areas such as third party funding, settlement, and expedited arbitrations, amongst others. ADR is gaining greater traction and rising in importance outside of formal arbitration proceedings, particularly with the recent signing of the Singapore Mediation Convention. The future for energy arbitration in Asia does look bright, bolstered by proactive institutions and engaged clients, against a backdrop of an increasingly important Asian market.

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Does Signing an International Treaty Impliedly Waive Sovereign Immunity in the U.S. under the FSIA?

Fri, 2019-11-01 22:22

J.P. Duffy IV and Daniel Avila II

The recent decision issued by the United States Court of Appeals for the District of Columbia in Pao Tatneft v. Ukraine reopened the door to whether a country waives sovereign immunity under the Foreign Sovereign Immunities Act (the “FSIA”) by signing the New York Convention or other international treaties.

In Pao Tatneft v. Ukraine, Tatneft, a Tatarstan oil company, was a primary shareholder to a Ukrainian oil company, along with Ukraine and Tatarstan (a republic of the Russian Federation). When the Ukrainian courts invalidated Tatneft’s shares, Tatneft sought arbitration against Ukraine under the Russia-Ukraine Bilateral Investment Treaty (the “Russia-Ukraine BIT”). An UNCITRAL arbitral tribunal in Paris awarded Tatneft $112,000,000 in damages plus interest against Ukraine for violating its obligations under the Russia-Ukraine BIT by failing to provide legal protection and allowing discrimination against Tatneft, an investor from Russia.

Tatneft petitioned the U.S. District Court of the District of Columbia to confirm and enforce the award under the New York Convention. Ukraine moved to dismiss the petition on the basis of sovereign immunity and other grounds. Tatneft argued that the district court had jurisdiction pursuant to 28 U.S.C. § 1605(a)(1) because Ukraine waived its sovereign immunity under the theory of implied waiver.

The district court noted that although the FSIA does not define “implied waiver,” it applied in the following circumstances: where

“(1) a foreign state has agreed to arbitration in another country; (2) a foreign state has agreed that the law of a particular country governs a contract; or (3) a foreign state has filed a responsive pleading in an action without raising the defense of sovereign immunity.”

The court found that if a foreign state agrees to arbitrate in a country that has signed the New York Convention, it waives its sovereign immunity in all of the signatory countries by virtue of the fact that “when a country becomes a signatory to the Convention, by the very provisions of the Convention, the signatory state must have contemplated enforcement actions in other signatory states.” The court found Ukraine agreed to arbitrate in the territory of a state that has signed the New York Convention (France); and thus it should have anticipated enforcement actions in signatory states like the U.S.

The D.C. Court of Appeals agreed, finding a sovereign, by signing the New York Convention, waives its immunity from arbitration-enforcement actions in other signatory states. The Court of Appeals found that signatories of the New York Convention must have contemplated arbitration-enforcement actions in other signatory countries, including the United States. The present discussion will focus on the trend of U.S. courts finding implicit waivers of sovereign immunity if the country (1) signed the New York Convention and (2) arbitrated in the territory of a state that has signed the New York Convention.

The FSIA, under 28 U.S.C. § 1605(a)(1), provides:

(a) A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case—

(1) in which the foreign state has waived its immunity either explicitly or by implication, notwithstanding any withdrawal of the waiver which the foreign state may purport to effect except in accordance with the terms of the waiver.

A good starting point for understanding the D.C. Court of Appeals’ approach is the Second Circuit case, Transatlantic Shiffahrskontor GmbH v. Shanghai Foreign Trade Corp., 204 F.3d 384, 391 (2d Cir. 2000). Here, the plaintiff attempted to establish jurisdiction for a suit that did not concern the enforcement of an international arbitration award. The Court of Appeals for the Second Circuit held simply signing the New York Convention alone—without an arbitration award—was not sufficient to waive sovereign immunity unless the “cause of action is so closely related to the claim for enforcement of the arbitral award.” Similarly, in Creighton Ltd. v. Government of State of Qatar, the D.C. Court of Appeals refused to find Qatar had waived sovereign immunity based on arbitrating in a signatory state to the New York Convention because Qatar had not signed the Convention.

U.S. courts have also denied finding a waiver of sovereign immunity when states sign international treaties that are not for the enforcement of arbitral awards. For example, in Reers v. Deutche Bahn AG, the U.S. District Court for the Southern District of New York held that “[b]y signing the Convention Concerning International Carriage by Rail (COTIF), a treaty that regulated litigation arising from railway transportation in signatory countries Germany and its instrumentalities did not impliedly waive sovereign immunity.”

The New York Convention by its very title (the Convention on the Recognition and Enforcement of Foreign Arbitral Awards) was created as a mechanism to enforce arbitration awards rendered in signatory states. U.S. courts have appreciated this and denied attempts from States to avoid this international obligation by invoking domestic statutes. Under the Vienna Convention, a state may not invoke its internal laws to avoid an international obligation. Thus, if (1) a party obtains an award from a signatory state and (2) the award was rendered in the territory of a signatory state, a state may not refuse enforcement in the U.S. based on sovereign immunity. This opens the door not only to states waiving sovereign immunity by signing the New York Convention, but also other enforcement treaties including the Panama Convention and the ICSID Convention.

On September 22, 2019, Ukraine filed a motion to stay issuance of mandate pending disposition of a petition for certiorari from the Supreme Court. On October 9, 2019, the D.C. Court of Appeals granted the stay until November 8, 2019.

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Procedural Orders or Challengeable Awards? The English High Court Clarifies Its Position

Fri, 2019-11-01 00:00

Craig Tevendale and Rutger Metsch

The English High Court (the Court) has recently issued two judgments clarifying its approach to determining whether a decision by an arbitral tribunal is an award or a procedural order. A few months ago in ZCCM Investment Holdings PLC v Kansanshi Holdings PLC & Anor (ZCCM), the Court identified a list of factors that it will take into account when reaching a conclusion on this issue. The Court then applied these factors in the recent case of K v S (together with the ZCCM case, the Cases) to decide whether a ruling by the tribunal should be considered an award or not.

This distinction between orders and awards is key, given that a party can apply to set aside an award (but not a procedural order) under the English Arbitration Act (the Act) on grounds set out in s.67 (substantive jurisdiction), s.68 (serious irregularity), and s.69 (appeal on a point of law). The Court’s reasoning in the Cases will therefore be relevant to arbitrators and practitioners aiming to ensure clarity in relation to the status of any ruling issued.

 

Uncertainty regarding the status of arbitral decisions

A tribunal may record a decision on an issue raised in the arbitration either in the form of an ‘award’,1)Which may be further categorised in various types of award, including ‘partial awards’, ‘interim awards’, ‘final awards’, and ‘consent awards’. jQuery("#footnote_plugin_tooltip_3841_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3841_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); or as a ‘procedural order’, and the distinction is important because an award and a procedural order lead to different procedural and substantive implications. For example, procedural orders do not fall within the scope of the enforcement provisions in the New York Convention and the annulment and (non-)enforcement safeguards embedded in national arbitration laws, including the Act. The status of a particular ruling – ultimately a decision made by a domestic court in relation to an action on the decision – can therefore have significant consequences for the parties to the arbitration. Despite the importance of the question, the term ‘award’ is not defined in the Act (nor is it in other leading instruments such as the New York Convention and the UNCITRAL Model Law).

Nonetheless, it will usually be quite clear whether a decision is a procedural order or an award. For example, it is uncontroversial that a tribunal’s final decision on the substantive claims in the arbitration is usually recorded in an ‘award’ and that a decision fixing the date of the hearing is usually recorded in a ‘procedural order’. However, sometimes this determination will be less straightforward. Questions regarding the legal status of a decision may arise because of ambiguity in the terminology used by the tribunal (by referring to, for example, ‘rulings’ and ‘decisions’ rather than ‘awards’ and ‘procedural orders’). This occurred in the ZCCM case, where the tribunal issued a decision that was somewhat ambiguously described as a ‘Ruling on Claimant’s Application’ (the Ruling). The issue can also arise where the designated status of the decision is clearly stated, but a party contests that designation. This occurred in K v S, where the decision by the tribunal was recorded as Procedural Order 5 (PO5), but one of the parties submitted that the decision was in substance actually an award. In both cases, the Court had to decide the proper categorisation of the Tribunal’s decision.

 

The Court’s reasoning in the Cases: the ZCCM factors

The facts of the Cases are outside of the scope of this post and, for present purposes, it is sufficient to note that in both cases the applicant challenged a tribunal’s decision under s.68 of the Act. S.68(1) provides that a party may apply to the Court to challenge “an award in the proceedings on the grounds of serious irregularity affecting the tribunal, the proceedings or the award” (emphasis added). In each case, the Court was therefore required first to deal with the “threshold” issue of whether the arbitral ruling could be considered an ‘award’ (and in both cases, the Court eventually found on the facts that the relevant decisions could not).

The Court in ZCCM reviewed the applicable authorities and outlined the following factors relevant to the determination of whether a decision by a tribunal is an award:

  • real weight is given to the substance, and not merely the form, of the decision;
  • a decision is more likely to be an award if it finally disposes of the matters submitted to arbitration, rendering the tribunal functus officio either entirely, or in relation to the particular issue or claim;
  • the nature of the issues considered in the decision is significant, as substantive rights and liabilities of parties are likely to be dealt with in the form of an award. A decision dealing purely with procedural issues is less likely to be an award;
  • the tribunal’s description of the decision is relevant – but is not conclusive;
  • the perception of a reasonable recipient of the tribunal’s decision is relevant;
  • that reasonable recipient is likely to take into account the objective attributes of the decision, including the tribunal’s own description of the decision, the formality of the language and the level of detail in the reasoning and whether the decision complies with the formal requirements for an award under any applicable rules; and
  • the reasonable recipient must be considered to have all the information the parties and tribunal would have had when the decision was made, including the background and context of the proceedings. This may include whether the tribunal intended to make an award.

These factors may, however, not all bear equal weight in the Court’s determination. In the K v S case, the Court commented that the ZCCM factor that should be accorded most weight was the question of whether there was a final determination of a substantive point in the arbitration.

 

Awards made to order

The Cases offer a welcome clarification of the English courts’ approach to the distinction between awards and procedural orders. As noted above, the Act does not provide a definition of the term ‘award’: whilst it does address in s.52 the requirements of an award in relation to form, it is silent on any substantive requirements. The principles governing these substantive requirements have, instead, been developed through case law. The ZCCM case provides a helpful overview of the factors considered relevant by the Court and, together with the K v S case, demonstrates which factors will be accorded the most weight.

Applying these factors is, however, not an exact science. The Court recognised in ZCCM that the question arises in “a wide variety of circumstances“, and that there is no hard rule that prescribes whether a ruling is an award or a procedural order. Nonetheless, there are certain steps which arbitrators and counsel can take to reduce any uncertainty to the extent possible. The Court’s judgment indicates that the tribunal’s description of the decision, the formality of the language, the level of detail of the tribunal’s reasoning, and whether the decision complies with the formalities of an award are factors to be taken in to account. An arbitral Tribunal should therefore always consider the intended form of any decision they are producing, make that form clear on the face of the document, and avoid using any language that creates doubt as to the nature of the decision. Practitioners can limit any ‘classification risk’ by explicitly raising the issue with the tribunal at the time of the relevant application to the tribunal, and by making submissions on the nature of the decision they are seeking.

Whilst such actions by the tribunal and the parties cannot guarantee that a decision will be recognised as having the intended form by a court – because the key factor is an objective assessment as to whether a decision finally disposes of a substantive issue or claim – considering the ZCCM factors during the arbitration will minimise the chance of a surprising outcome in this regard. Given the general absence of an authoritative definition of ‘award’ in international instruments and in domestic legislation, this issue is not confined to London-seated arbitrations, and the practical approach set out above is also likely to be of interest for arbitrations seated in other jurisdictions.

References   [ + ]

1. ↑ Which may be further categorised in various types of award, including ‘partial awards’, ‘interim awards’, ‘final awards’, and ‘consent awards’. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
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India’s Affair with the ‘Group of Companies’ Doctrine Continues

Wed, 2019-10-30 20:00

Juhi Gupta

Introduction

In a previous post, I had surmised whether the Indian courts’ tryst with the group of companies doctrine (“Doctrine”) in the arbitration context is a harbinger or aberration. If the Indian Supreme Court (“SC”) decisions in Reckitt Benckiser v. Reynders Label Printing, decided on 1 July 2019 (“Reynders Label), and MTNL v. Canara Bank, decided on 8 August 2019 (MTNL”) are any indication, it appears that the tryst is steadily evolving into an affair. The decisions reinforce India’s pro-arbitration outlook and at the same time clarify the parameters to employ the Doctrine to bind non-signatories to arbitration.

 

Non-Signatory Member of A Group of Companies Cannot be Ipso Facto Bound by Arbitration

Reynders Label involved a petition under Section 11 of the Arbitration and Conciliation Act, 1996 (“Act”) to appoint a sole arbitrator. The question was whether there was a clear mutual intention of the signatory parties to the agreement (“Agreement”) and the arbitration agreement contained therein to bind the non-signatory party. The signatory first respondent was a party to the Agreement and the non-signatory second respondent was a Belgian company. Both respondents were members of the same group of companies. Therefore, if the non-signatory was held bound by the arbitration agreement, the arbitration would become an international commercial arbitration as opposed to a domestic commercial arbitration, governed by different provisions of the Act.

In order to determine the existence of mutual intention, the SC examined whether it was manifest from the indisputable inter-parties correspondence, culminating in the Agreement, that the transactions between the petitioner and first respondent were essentially undertaken within the group of companies. Apart from alluding to the Doctrine as expounded in Chloro Controls and relied upon in Cheran Properties, the SC predominantly engaged with the Doctrine in the factual matrix. Therefore, it concerned itself with the inter-parties correspondence to analyse if the second respondent played a role in negotiating the Agreement and consequently, whether it was bound by the arbitration agreement by virtue of Section 7(4)(b) of the Act according to which an arbitration agreement can be concluded via exchange of correspondence.

The petitioner primarily relied upon correspondence from one Mr Frederik Reynders, who it claimed was the promoter of the second respondent and therefore, represented it in the negotiations. Since the second respondent was the disclosed principal of the first respondent, it was bound by the arbitration agreement, which was an integral component of the Agreement. On the other hand, the second respondent (i) submitted a counter-affidavit stating that Mr Reynders was an employee of the first respondent and could not represent or bind the second respondent to any legal obligation; (ii) argued that there was no privity of contract and that it was not involved in the negotiation, execution or enforcement of the Agreement; and (iii) argued that both respondents were merely members of the same group of companies sharing a common parent/holding company but otherwise were distinct legal entities operating independently. There was no relationship, such as that of a parent-subsidiary, between them.

The SC held that the second respondent was not a party to the Agreement and, consequently, the arbitration agreement:

“Thus, respondent No.2 was neither the signatory to the arbitration agreement nor did [it] have any causal connection with the process of negotiations preceding the agreement or the execution thereof, whatsoever. If the main plank of the applicant, that Mr. Frederik Reynders was acting for and on behalf of respondent No.2 and had the authority of respondent No.2, collapses, then it must necessarily follow that respondent No.2 was not a party to the stated agreement nor had it given assent to the arbitration agreement and, in absence thereof, even if respondent No.2 happens to be a constituent of the group of companies of which respondent No.1 is also a constituent, that will be of no avail. For, the burden is on the applicant to establish that respondent No.2 had an intention to consent to the arbitration agreement and be party thereto”. (paragraph 9, emphasis supplied)

Although this made the arbitration a domestic arbitration for which the SC did not have jurisdiction to appoint an arbitrator, the SC appointed the arbitrator since the first respondent had no objection to this. It is pertinent to note that the SC dismissed the review petition filed by the petitioner against this decision.

 

Parties’ Conduct and Intention to be Examined to Apply Doctrine

In MTNL, the issue was whether the non-signatory subsidiary (“CANFINA”) was bound by the arbitration agreement entered into between its parent company (“Canara Bank”) and MTNL. Interestingly, while the factual matrix was relatively straightforward to even intuitively conclude that CANFINA was bound by the arbitration agreement, the SC engaged with the Doctrine in decent depth. Briefly, the facts were that MTNL placed bonds with CANFINA under a MoU Agreement. Due to a liquidity crunch, Canara Bank purchased certain value of the bonds issued by MTNL on behalf of CANFINA. Subsequently, MTNL cancelled the bonds as a result of which disputes arose. Canara Bank objected to CANFINA being made a party to the arbitration agreement.

The SC observed that:

  • The parent or subsidiary entering into an agreement, unless acting in accord with the principles of agency or representation, will be the only entity in a group to be bound by that agreement. Similarly, an arbitration agreement is governed by the same principles.
  • However, a non-signatory can be bound by an arbitration agreement on the basis of the Doctrine, where the parties’ conduct evidences their clear mutual intention to bind the signatory and non-signatory. Such an intention can be evidenced ­via the non-signatory’s engagement in the negotiation or performance of the contract or any statements made by it indicating its intention to be bound by the agreement.
  • The SC identified three critical factors: (i) non-signatory’s direct relationship with the signatory; (ii) direct commonality of the subject matter; and (iii) composite nature of the transaction between the parties. The SC further noted that the Doctrine has also been invoked in arbitration where there is a tight group structure with strong organisational and financial links, so as to constitute a single economic unit or reality.

Applying the aforementioned principles, the SC concluded that CANFINA was bound by the arbitration agreement:

“It will be a futile effort to decide the disputes only between MTNL and Canara Bank, in the absence of CANFINA, since undisputedly, the original transaction emanated from a transaction between MTNL and CANFINA – the original purchaser of the Bonds. […] There is a clear and direct nexus between the issuance of the Bonds, its subsequent transfer by CANFINA to Canara Bank, and the cancellation by MTNL, which has led to disputes between the three parties. Therefore, CANFINA is undoubtedly a necessary and proper party to the arbitration proceedings. Given the tri-partite nature of the transaction, there can be a final resolution of the disputes, only if all three parties are joined in the arbitration proceedings […]”. (paragraph 10.9, emphasis supplied)

In addition, the SC noted that (i) a Committee of Disputes had referred all three parties to arbitration, pursuant to which a sole arbitrator was appointed; (ii) Canara Bank itself had circulated a draft arbitration agreement in which it had mentioned itself and CANFINA on one side and MTNL on the other side; and (iii) CANFINA had participated in all proceedings thus far and was represented by separate counsel. Accordingly, the SC concluded that CANFINA had given implied or tacit consent to being impleaded in the arbitral proceedings, which was evident from the parties’ conduct.

 

Implications of the Decisions

These decisions, in my opinion, are significant. They have generated or renewed discussion about the Doctrine, which will lead to more awareness and debate about its application to arbitrations, both in theory and practice. This in turn will persuade practitioners and parties to be careful about how they draft and interpret arbitration clauses where entities of a same group of companies are involved or could be potentially involved in the underlying transaction/contract.

MTNL in particular is significant because it engages with the Doctrine at a jurisprudential level and expressly predicates its decision on it: “We invoke the Group of Companies doctrine, to join Respondent No. 2 – CANFINA i.e. the wholly owned subsidiary of Respondent No. 1 – Canara Bank, in the arbitration proceedings pending before the Sole Arbitrator” (paragraph 11). It does not cite Cheran Properties, which is unfortunate as discussing and/or applying it would have aided the larger goal of cultivating jurisprudence on the Doctrine. This, however, does not dilute MTNL’s importance.

Both decisions reinforce fundamental factors that are to be considered in applying the Doctrine, such as mutual intention, direct commonality of subject matter and composite transaction. They also provide greater clarity about different factual scenarios in which the Doctrine could potentially be attracted and applied. This is particularly important given the Doctrine’s application is heavily predicated on the underlying facts and circumstances. Accordingly, they reinforce India’s dynamic and commercially pragmatic approach to arbitration and to binding non-signatories to arbitration. Internationally, uptake of the Doctrine to bind non-signatories is rare, with the exception of civil law courts to a certain extent, as compared to “traditional” devices such as piercing the corporate veil, agency and estoppel (see previous posts on this blog here and here). Therefore, India’s affair with the Doctrine could prove instructive for other jurisdictions.

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New Trends For Dual Nationals Claims. Is the Ballantines Award Relevant For Cases Where A Dual Nationals-Related Provision Is Not Incorporated In The Relevant Treaty?

Tue, 2019-10-29 19:00

Pablo Mori

It is said that states lose more times than investors in investment arbitration. Indeed, ICSID surveys reveal that while investors receive an award of costs in 41.4% of the cases, states receive a similar award of costs only in 23% of the cases, even when jurisdiction is fully declined. A case where a state prevails but has to bear the costs of a groundless claim is hardly a total victory. Despite that, there have recently been good news for some Latin American states. The latest is the case of the Dominican Republic, which in September prevailed in the first investment arbitration dealing with a treaty provision allowing dual nationals to sue one of their home states (Lisa Ballantine and Michael Ballantine v. The Dominican Republic), whose further implications for future disputes will be discussed below.

Before that, for the sake of fairness, it is worth mentioning that this decision follows on a series of recent positive cases for two other Latin American states. First, in May Venezuela beat Clorox Spain, when a PCA tribunal declined jurisdiction, requiring that “the owner of an asset in the territory of a Contracting Party is required to have been the active subject in the act of investing” (¶ 802). Second, in August, Colombia also beat Glencore when an ICSID tribunal awarded Glencore an actual compensation of approximately only 1.75% of the claim (considering both the restitution awarded less the legal expenses).

 

Understanding the Ballantines award

The dispute was decided by a PCA tribunal on a majority award declining jurisdiction dated September 3, 2019 (PCA Case No. 2016-17). The Ballantines are American citizens who accused the Dominican Republic of violating its obligations under the Dominican Republic – Central America – United States Free Trade Agreement (the “DR-CAFTA”), by rejecting in 2011 their authorization to keep expanding their luxury real estate project Jamaca de Dios, due to environmental reasons. In September 2014, the Ballantines submitted their dispute to arbitration, claiming that the Dominican Republic gave them less favorable treatment than its nationals and failed to give them fair and equitable treatment.

The Ballantines were also citizens of the Dominican Republic, i.e. dual nationals. The DR-CAFTA is one of the few treaties to allow claims by dual nationals against one of the countries of their nationality (the host country) if and only if the claimant’s “dominant and effective nationality” is that of the non-host country (article 10.28 of the DR-CAFTA).

For that reason, the Dominican Republic objected to the Tribunal’s jurisdiction, contending that the Ballantines did not qualify as “claimants” under the treaty, since their dominant and effective nationality at the time when they submitted their claims to arbitration was the Dominican one. As for the Ballantines, although they acknowledged that they have to comply with the definition of “claimant” under the DR-CAFTA, they contended that the only relevant date was the time when they made their investment in the Dominican Republic and that, in any event, their dominant and effective nationality was always the one of the U.S.

Analyzing the Dominican Republic jurisdictional objection, the Ballantines tribunal first focused on when an individual should comply with the nationality requirement. The majority award concluded that according to both the terms of the specific treaty and the UNCITRAL Rules, the nationality requirement must be fulfilled, first, at the moment the notice of arbitration along with the statement of claim is received by the respondent and, second, at the date in which knowledge of the breach is or should have been acquired (¶¶ 522-523), which is when the alleged breach was committed.

Second, the Tribunal went on to analyze the legal standard under the treaty to determine the dominant and effective nationality of the claimants. Given the DR-CAFTA’s silence on the matter, the majority tribunal pointed out that it is necessary to give effect to the customary rules of international law for which “customary international law cases are instructive” (¶ 533). As such, the Tribunal took reference from the ICJ decision in the famous Nottebohm case (¶ 545).

In a nutshell, following the Ballantines award, parties dealing with similar disputes from now on should consider four elements to determine the effective and dominant nationality: (i) the state of habitual residence; (ii) the circumstances in which the second nationality was acquired; (iii) the individual’s personal attachment to a particular country; and (iv) the center of the person’s economic, social and family life (¶ 552). The importance of those elements is such there will be no investor if there is no dominant and effective foreign national (¶ 553).

After concluding that the first three elements favored the Ballantines’ Dominican Republic nationality, the Tribunal focused on the Ballantines’ center of economic, social and family life. For that, the Tribunal considered very relevant not only the Dominican naturalization voluntarily acquired by the Ballantines on December 30, 2009 (¶ 578), but also the fact that the Ballantines moved to the Dominican Republic in 2006.

The Ballantines made a significant investment creating the Jamaca de Dios project in the Dominican Republic in 2006, for which they even sold two of their homes and commercial real estate in the U.S. Although they maintained connections to the U.S., the Tribunal considered that from 2006 to the moment the claim was submitted, the Ballantines had moved or relocated their economic and family center to the Dominican Republic. That was independent of the fact that they often visited the U.S., that their children continued their education in the U.S., or that they kept social relations in the U.S. The Tribunal pointed out that the Ballantines both established their “main” business and reorganized their way of living in the Dominican Republic for several years around the investment. In consequence, the Tribunal concluded that the Dominican Republic was the center of their economic, family and social life, despite maintaining ties with the U.S. (¶ 576).

Given those findings, the Tribunal upheld the Dominican Republic objection and rejected jurisdiction dismissing the case without any further analysis of the merits.

 

Impact of the Ballantines award in other cases

The Ballantines case is the first publicly known investment arbitration that deals with a provision like this and will most likely be taken as a precedent for similar cases. For instance, the recent case of Alberto Carrizosa Gelzis and others v. Colombia, where the claimants just submitted their Memorial on Jurisdiction in May this year, deals with a claim presented by dual nationals under the BIT between the U.S. and Colombia, which contains a similar DR-CAFTA provision. The U.S.-Colombia BIT states that “a natural person who is a dual citizen shall be deemed to be exclusively a citizen of the State of his or her dominant and effective nationality” (article 12.20). Most likely, both parties in the latter case will consider the findings on Ballantines in order to convince their tribunal whether the U.S. nationality is or not the claimants’ dominant and effective nationality.

The question remains whether the Ballantines findings will also be relevant for cases brought by dual nationals whose relevant treaties do not have a similar provision. To the author’s understanding, the answer is affirmative. This is not only because the Ballantines award has reinforced the concept that in absence of a provision in a treaty, “customary international law cases are instructive” (¶ 533), but also because, in at least one ongoing case without a similar provision (Serafin García Armas v. Venezuela), the French courts recently upheld the need to determine the effective nationality.

Although in 2014 the Serafin García Armas v. Venezuela Tribunal (PCA Case No. 2013-3) allowed claims brought by dual Spanish-Venezuelan nationals against Venezuela due to a lack of an express prohibition for such claims in the Spain-Venezuela BIT (previously discussed in Kluwer Arbitration Blog), recently in February 2019, the French Court of Cassation determined that the Court of Appeals had previously violated the Spain-Venezuela BIT when it set aside the arbitral tribunal’s jurisdictional decision only partially. As a consequence, the Court of Cassation annulled and remanded the lower court decision so that a different Court of Appeals could proceed according to the law (p.3), which can be understood as an order to fully set aside the jurisdictional tribunal decision.

Further, the Court of Cassation stated that “[even though the corresponding treaty does not have a provision like the DR-CAFTA], it was indeed necessary to decide whether the Spanish nationality of the claimants was their effective nationality” (p. 17). Thus, the concept of effective nationality developed in the Ballantines award will likely be considered if and when the arbitral jurisdictional decision is partially or fully set aside.

The importance of the Ballantines decision is therefore bigger than previously imagined. There are other pending cases with or without a provision allowing dual nationals to bring claims against one of their national states. The trends are yet to come and both investors and states have to remain aware of the new developments as they will either close or open the doors for new arbitration proceedings. For ICSID cases, the rule is simple, the doors are completely closed (ICSID Convention, Article 25(2)(a)). For non-ICSID cases, if tribunals follow the Ballantines reasoning, doors will most likely get closed too. It will not be enough for prospective claimants to have multiple passports to bring a claim against one of their home states, but rather they will also have to demonstrate that their effective and dominant nationality is that of the non-host country.

 

Did the Dominican Republic really win?

On a final note, although the Dominican Republic totally prevailed in this case, the award reveals that the state spent approximately US$3.23 million in legal/expert fees and additional expenses (¶ 613), plus US$450,000 in arbitration costs (¶ 609). Each party was ordered to bear its own costs, with the common costs of arbitration split between them (¶ 637). This amounts to a loss for the Dominican Republic of approximately US$3.7 million, confirming the belief that even when states prevail they also lose. To be clear, this is not to say that such outcome is right or wrong, but rather a statement of fact to be considered when initiating or contesting an investment arbitration proceeding.

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Does Investment Arbitration Threaten the Effectiveness and Integrity of EU Bank Resolution?

Tue, 2019-10-29 01:00

Dimitrios Andriopoulos and Ioannis G. Asimakopoulos

Background

In early June 2017, Banco Popular Español S.A. (‘Popular’) was placed into resolution under the European Union’s (‘EU’) Bank Recovery and Resolution Directive (‘BRRD’) and the Single Resolution Mechanism Regulation (‘SRMR’). It was the first – and only, to this day –case where the Single Resolution Board (‘SRB’), as the European resolution authority, intervened on public interest grounds to prevent another bailout. Popular was sold to Santander for one euro, whilst losses were covered through the use of the bail-in tool on shareholders and junior subordinated debtholders.

On 23 August 2018, a group of Mexican investors affected by the June 2017 resolution initiated two parallel arbitrations against Spain under the Mexico-Spain Bilateral Investment Treaty (‘BIT’). The two arbitrations were later consolidated and are now being heard by a single arbitral tribunal operating under the UNCITRAL Arbitration Rules 2013. The case, Antonio del Valle Ruiz et al. v. Kingdom of Spain (PCA Case No. 2019-17) (hereinafter ‘Antonio del Valle Ruiz v. Spain’), is being administered by the Permanent Court of Arbitration (‘PCA’). In their Notice of Arbitration, the claimants allege that they lost “their entire original investment, which […] was of more than € 470 million”,1)Antonio del Valle Ruiz v. Spain, Notice of Arbitration, 23 August 2018, para. 10. jQuery("#footnote_plugin_tooltip_3932_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3932_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); as a result of the resolution. The claimants argue that this was the result of Spain’s “acts and ommissions” in precipitating Popular’s “liquidity crisis and the using it to justify the bank’s resolution and ‘sale’ to Santander”.2)Id. at 11. jQuery("#footnote_plugin_tooltip_3932_2").tooltip({ tip: "#footnote_plugin_tooltip_text_3932_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The claimants consider these actions violated several of Spain’s obligations under the BIT, including the obligation to provide fair and equitable treatment and not to engage in an unlawful expropriation of the claimants’ investment.3)Id. at 12. jQuery("#footnote_plugin_tooltip_3932_3").tooltip({ tip: "#footnote_plugin_tooltip_text_3932_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

This is a case of first impression in two ways: (i) it concerns the first EU sanctioned resolution of a failing or likely to fail financial institution under the BRRD and the SRMR; and (ii) it constitutes the first ever investment treaty arbitration directly arising out of the application of the EU’s new regulatory resolution framework for systemic banks that was promulgated in response to the 2008 financial crisis.

Scholarly discussions on investment claims as a corollary to bank resolution have so far focused on the purported conformity of the resolution process to investment protection standards of treatment, the availability of state defenses against such claims and on whether liabilities subject to bail-in could fall under the definition of investment under the relevant investment treaty and the ICSID Convention.4)See, e.g., Michael Wolfgang Müller, “Creditor protection in bank resolution: a case for international investment arbitration?” (2015) 10(3) Capital Markets Law Journal 276; Maurice Mendelson QC and Martins Paparinskis, “Bail-ins and international investment law: In and beyond Cyprus”, in Christian J. Tams, Stephan W. Schill and Rainer Hofmann (eds.), International Investment Law and the Global Financial Architecture 193 (Edgar Elgar, 2017); Phoebus Athanassiou, “BITs and pieces: Reflections on the relevance of BITs in resolution-related litigation”, in Christian J. Tams, Stephan W. Schill and Rainer Hofmann (eds.), International Investment Law and the Global Financial Architecture 240 (Edgar Elgar, 2017). jQuery("#footnote_plugin_tooltip_3932_4").tooltip({ tip: "#footnote_plugin_tooltip_text_3932_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Evidently, as discussed in a previous Kluwer Arbitration Blog post, Antonio del Valle Ruiz v. Spain has also touched on salient transnational litigation issues, such as the availability and extraterritorial reach of discovery applications under Section 1782 of the United States Code.

 

Opposing Dynamics in EU Integration

Other than reaffirming the notion that investment treaty claims can indeed arise out of a BRRD/SRMR bank resolution, the case’s nascent stage does not allow us to draw any conclusions on how such claims would play out in practice. Instead, we would argue that this case could highlight the lingering tension between two of the EU’s most ambitious integration efforts in the post-Lisbon era: (i) shaping an EU international investment policy (Article 207(1) of the Treaty on the Functioning of the European Union (‘TFEU’)) and (ii) establishing a single resolution mechanism as a fundamental pillar of the Banking Union (Article 114 TFEU).

The EU’s international investment policy relates to the EU and its Member States’ shared competence to conclude Investment Protection Agreements (‘IPAs’) with non-EU states pursuant to Article 4 TFEU. Recent examples of such treaties include the EU-Singapore IPA and the EU-Vietnam IPA. Following the Court of Justice of the European Union’s judgment in Achmea on 6 March 2018 which found the international dispute settlement provisions in the Netherlands-Slovakia BIT to be incompatible with EU law, intra-EU investor-state arbitration is now precluded under EU law. This was reaffirmed in the CJEU’s Opinion 1/17 of 30 April 2019 concerning the EU-Canada Comprehensive Economic and Trade Agreement (‘CETA’). In the field of investor-state dispute settlement, the EU is pushing for the ultimate replacement of the current regime by a Multilateral Investment Court system with an Appellate Mechanism.

In the context of the BRRD/SRMR, investors affected by the resolution tools can seek limited recourse to domestic courts (cf. Articles 85 and 86 BRRD) and can instead only challenge the resolution decision taken by the SRB before the CJEU (Article 86 SRMR) – as is the case with Popular. This is in line with the EU policies behind the BRRD/SRMR and the EU Banking Union more generally. But again, all such claims need to be justified on the basis of the no creditor worse off principle (‘NCWO’), meaning that investors should not be treated in resolution worse than they would have in national insolvency as the default alternative option to resolution. Proving damages on the basis of the NCWO is challenging given the technical and complex nature of the underlying valuations as well as the assumptions built into the assessment of the counterfactual, namely of liquidation. Therefore, investment arbitration could well have a role to play in allowing individuals affected by resolution to bring forward claims that would be inadmissible before the CJEU or national courts.

 

The Significance of Antonio del Valle Ruiz v. Spain

In our view, Antonio del Valle Ruiz v. Spain raises a normative conflict between two aspects of EU integration. Investors from non-EU states affected by the Popular resolution can – and for the first time, have – avail(ed) themselves of the investment treaty protection regime, alleging that Spain violated its international law obligations, initially by contributing to the bank runs experienced by Popular and later on by raising its liquidity provision requirements to unprecedented levels and using the mandatory EU law framework of the BRRD to engineer the sale of Popular to Santander or another large bank. Essentially, given the difficulties attached to a direct challenge of the resolution actions, Antonio del Valle Ruiz v. Spain illustrates the case that challenging the resolution of a bank in arbitration can occur indirectly by challenging the circumstances that led to the resolution and not the mechanics of the resolution per se. A successful outcome for the claimants could significantly affect the integrity of the resolution process by legitimizing damages beyond those provided on the basis of the NCWO standard described above.

Meanwhile, it is now trite EU law that this avenue would not be available to EU investors. We consider this result to be the victim of an unforeseen externality of the Achmea judgment with severe effects for both EU investors and the EU as a whole. Not only are EU investors placed in a less favorable position than their non-EU peers – which can hardly be seen as a welcome outcome from an EU investment policy perspective – but the EU’s policy under the BRRD/SRMR is also in danger of being displaced since Spain could plausibly be held accountable for complying with a mandatory EU law obligation instead of opting for a bailout.

Ironically, while not a classic intra-EU case, Antonio del Valle Ruiz v. Spain could have major consequences for EU law and policy by placing a higher standard of accountability for Member States hosting banks undergoing resolution, while creating more legal uncertainty as to the finality of resolution actions. Indeed, we would not be surprised if the EU Commission – or even the SRB for that matter – attempted to participate in the arbitral proceedings as an amicus curiae, bringing this matter to the Tribunal’s attention. Regardless, it will be interesting to see how this case unfolds.

 

Any views expressed are solely those of the authors and do not represent the views of Shearman & Sterling LLP.

References   [ + ]

1. ↑ Antonio del Valle Ruiz v. Spain, Notice of Arbitration, 23 August 2018, para. 10. 2. ↑ Id. at 11. 3. ↑ Id. at 12. 4. ↑ See, e.g., Michael Wolfgang Müller, “Creditor protection in bank resolution: a case for international investment arbitration?” (2015) 10(3) Capital Markets Law Journal 276; Maurice Mendelson QC and Martins Paparinskis, “Bail-ins and international investment law: In and beyond Cyprus”, in Christian J. Tams, Stephan W. Schill and Rainer Hofmann (eds.), International Investment Law and the Global Financial Architecture 193 (Edgar Elgar, 2017); Phoebus Athanassiou, “BITs and pieces: Reflections on the relevance of BITs in resolution-related litigation”, in Christian J. Tams, Stephan W. Schill and Rainer Hofmann (eds.), International Investment Law and the Global Financial Architecture 240 (Edgar Elgar, 2017). function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
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Watch Out, Africa is Here! – The East African International Arbitration Conference 2019

Tue, 2019-10-29 00:01

Sadaff Habib (Assistant Editor for Africa)

This August, Kenya hosted the 7th annual East African International Arbitration (EAIAC) conference. This year’s theme was Government Contracting and Investment Disputes: Lessons for States and Investors. The conference explored the full spectrum of government contracting from procurement and PPPs (public-private partnerships), tender disputes, dispute mitigation in government contracts, investment arbitration and arbitrating with governments in African centres. It was a delight to be involved in an interesting flurry of debate and discussion on arbitration in Africa and to meet so many reputable African practitioners.

The main takeaway from the conference is that East Africa has come far in the past 15 years in international arbitration. However, there still remains a lot to be done for African countries to establish themselves as favourable seats of arbitration and for local arbitration centres to be included in contracts. Gauging the progress and enthusiasm the future does look optimistic. Below is a snapshot of key themes and topics that were discussed.

 

What is Being Done to Bring Confidence in Arbitration in East Africa?

Mr Allen Gichuhi, the President of the Law Society of Kenya (LSK), remarked that it is key to make arbitration a cost-effective mechanism that will appeal to users. Also, strength in numbers is beneficial to push Kenya and East Africa as an arbitration hub. This is being done through the LSK partnering with organizations such as the Chartered Institute of Arbitrators to jointly promote and advance alternative dispute resolution. There are currently 600 advocates who are registered as arbitrators with the CIArb.

Training is an essential component and the LSK aims to provide cost effect ADR training by partnering with associations such as the Nairobi International Arbitration Centre. On becoming a better arbitrator, Mr Gichuhi commented you do this by networking and advancing ideas.

 

The Kenyan Arbitration Story

The Chief Justice of Kenya and keynote speaker, the Honourable David Maraga, highlighted that arbitration in Africa has benefited from the adoption of the UNCITRAL Model Arbitration Law by African countries. Arbitration has become a preferred mechanism for settling disputes in the region and has gained popularity especially as most judicial disputes are open to public scrutiny whereas arbitration provides settlement of disputes without such disclosure.

Kenya’s Arbitration Act of 1968 initially did not apply to international trade. This changed with the enactment of the Arbitration Act of 1995 which adopted the UNCITRAL Model Law. Arbitration also found a foothold in the Kenyan Constitution when it was revised in 2010. Article 159 (2) of the Kenyan Constitution 2010 states:

“In exercising judicial authority, the courts and tribunals shall be guided by the following principles” and includes at (c) alternative forms of dispute resolution including reconciliation, mediation, arbitration and traditional dispute resolution mechanism shall be promoted, subject to clause (3)”.

The Kenyan Courts are promulgated as supportive of arbitration. Section 35 of the Kenyan Arbitration Act 1995 provides that a party seeking to challenge the award can do so through the High Court within 3 months of the date of receipt of the award. Section 35 provides limited grounds to challenge the award, similar in many respects to the New York Convention to which Kenya became a signatory in 1989. The Section 35 grounds include: the subject matter of the dispute not being arbitrable under the laws of Kenya, the award which goes against public policy, and evidence that the award is tainted with corruption, bribery, undue influence or fraud.

 

Arbitration as the Solution for Judicial Backlog

A way that ADR forms, such as arbitration, have assisted Kenya is by helping the judicial case load. In April 2016, more than Ksh 6.5 million worth of assets were released on successful conclusion of the mediation of a case which had been in court for 15 years. It took 30 days to resolve the case by mediation.

One of the speaker commented that there are currently Ksh 32 billion worth of disputes in Kenya going through mediation. Efforts are also being made to fast track the arbitration process. It is also promising to know that the latest World Bank report ranked Kenya as 61 amongst 190 economies where the preferred mode of dispute resolution is arbitration. There has been a stark improvement in the past 15 years. Kenya aspires to be in the top 50 countries by 2020.

Nairobi is the center for international arbitration in the region. Kenyan courts are doing their best to liaise with the LSK to single out arbitration disputes going to court to conclude them in the shortest possible time. It is therefore not surprising that investors not only prefer Kenya for investment but also as a seat of arbitration.

 

Is the East Africa’s Investment Outlook Optimistic?

The key drivers for growth in the region are continued investment infrastructure and growing consumption. Unfortunately, not all regions are doing well. For example, Burundi and Somalia are lagging behind because of the lack of peace and general instability in these nations.

Speakers considered that the focus in the region should be on financing trade to public and private sectors and to support trade you need infrastructure. Key barriers to investment include:

  • Intra Africa trade is minimal as there is more trading outside the continent than inside. Most African countries have uncontrollable public spending and often consider tax money as an indefinite source of income.
  • Another barrier is corruption. It is almost like a second tax. African economies have not been as successful in prosecuting and convicting corrupt practices.
  • Africa economies are heavily dependent on agriculture and agriculture is weather dependent. Efforts need to continue towards diversifying to manufacturing industries.

The enactment of the African Continental Free Trade Agreement last year is one of the most positive things to have happened to the region and speakers are optimistic that the agreement will have a positive impact on trade.

 

Foreign Direct Investment and State sovereignty

In 2018, East Africa was the biggest regional attractor of FDI especially Kenya and Tanzania. The immediate outlook although positive raises concerns. African States are concerned about enacting new legislation because it may cause them to be in breach of BITs. There is a concern regarding exercising their State sovereignty. Most BITs protect rights of investors without imposing obligations creating a serious imbalance in power. Such provisions also preclude States from initiating investment treaty arbitration against investors. This has caused some countries such as Tanzania to denounce investment arbitration.

The key aspects of BITs that States should consider include the non-discrimination of foreigners and their preferential treatment, national treatment, most favoured nation treatment, fair and equitable treatment, umbrella clauses, expropriation and compensation clauses, investor obligations and dispute resolution mechanisms.

 

Room for Improvement

Investors are keen to know that disputes if arising can be resolved quickly. Having said that confidence needs to increase in the use of African country governing laws and seats. For example, the East and South Africa Development Bank in its contracts, as a matter of policy, refers to the English Law as the governing law with the LCIA and ICC as arbitration centres. The Bank was set up in 1985 and these policies still stand. The African arbitration ecosystem, unfortunately, has not ignited enough confidence to scrap the use of ICC and LCIA as arbitration centres and replace them with local centres. Africans wait for the day when the Bank’s contracts refer to local institutions and local governing laws.

 

Africans in African Arbitrations?

Interestingly, 15% of the cases in ICSID are from sub-Saharan Africa; out of these only 2% of the cases had African arbitrators. In 2019 only 2 arbitrators from Africa were appointed in ICSID cases compare to 18 from France alone.

Whilst there has been an improvement in African local counsel appointment, and Kenya took the lead in appointing local counsel in ICSID cases, a lot still needs to be done to involve local expertise. To resolve this gap in African appointments various bodies such as the East African Law Society, the LSF Academy, the International Lawyers for Africa (ILFA) are actively engaged in training young practitioners. Arbitration conferences such as EAIAC are also great platforms for African practitioners to network and assess the needs and requirements of the market.

The EAIAC Committee remarked:

“Organizing EAIAC continues to be a very demanding yet extremely rewarding experience for us. Each year we see the platform growing and becoming a discussion and networking place for arbitration practitioners in East Africa and beyond. At its 7th year, EAIAC 2019 has been our best yet with a diverse representation of stakeholders from private sector, arbitration practitioners and government entities, thereby realizing our aim to bring all concerned stakeholders in one room to discuss current and future developments in arbitration in the region”. 

The conference concluded with an awards ceremony, the first of its kind for the conference, which recognized leading African practitioners in the region. It is hoped that creating a platform to showcase in-house African talent will make a change in the above statistics. The future remains optimistic!

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From Trinh Vinh Binh to EUVIPA: Vietnam’s Meritorious Step towards Transparency in ISDS

Sun, 2019-10-27 18:00

Ba Duong (Donny) Trinh

Introduction

The topic of Investor-State Dispute Settlement (“ISDS”) has never been more trending in Vietnam than now. The year 2019 witnessed two of the most noticeable events pertaining to ISDS that involved Vietnam: the end of over-twenty-year Trinh Vinh Binh v Vietnam saga 1)Global Arbitration Review, ‘Dutch national wins moral damages against Vietnam’. jQuery("#footnote_plugin_tooltip_8511_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8511_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and the final conclusion of the EU-Vietnam Free Trade Agreement (“EUVFTA”) and EU-Vietnam Investment Protection Agreement (“EUVIPA”).2)EU-Viet Nam free trade agreement – Joint press statement by Commissioner Malmström and Minister Tran Tuan Anh. jQuery("#footnote_plugin_tooltip_8511_2").tooltip({ tip: "#footnote_plugin_tooltip_text_8511_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Although the Trinh Vinh Binh v Vietnam saga is considered to have come to an end after an arbitral award was issued in favour of the investor, its resonance is likely to keep on echoing in the future. It is the resonance of doubt not merely about whether Vietnam is still a promising and healthy investment environment for foreign investors but also about the transparency in ISDS proceedings, which has been put under critical spotlight for a long while now. However, the conclusion of EUVIPA shortly after the Trinh Vinh Binh award is a light at the end of the tunnel which hopefully resurrects the faith in the ISDS mechanisms for foreign investors in Vietnam, particularly with respect to the issue of transparency of proceedings. This blog post focuses on examining Vietnam’s meritoriously bold step to expose itself to a more transparent ISDS regime under the EUVIPA and how Vietnam will possibly benefit from it.

 

From Trinh Vinh Binh…

On 10 April 2019, an UNCITRAL arbitral tribunal established under the Vietnam-Netherlands BIT 1994 rendered an award ordering Vietnam to pay Mr. Trinh Vinh Binh – a Dutch national of Vietnamese descent – and his company Binh Chau JSC a total amount of approximately US$45 million, including damages for expropriation of property, moral damages, costs of arbitration and related legal fees. The claim was brought by Mr. Trinh against the Vietnamese Government for the breach of a settlement of a previous claim under the same BIT. The arbitration proceedings were seated in London and administered by the Permanent Court of Arbitration, with hearings organized at the ICC headquarters in Paris in August 2017.

This piece of news was initially published by an US government-funded news agency VOA before rapidly spreading out. Notably, the first article by VOA regarding this information contained a picture of the last page of the award in which the final decision of the tribunal was clearly revealed, though the authenticity of that picture is still unknown.

Immediately, the Vietnamese Government dismissed the accuracy of this news. In a statement, the Ministry of Justice confirmed that the arbitral tribunal had issued the final award between Trinh Vinh Binh and Vietnam. However, the content of this award along with other dispute-relevant information was supposed to be kept confidential by all parties. The Ministry of Justice further alleged that news agencies and social networks had failed to provide accurate information about the award’s outcome with subjective interpretation and speculation that caused serious misunderstanding by the public. Nevertheless, Vietnam or the Ministry of Justice has neither expressly confirmed nor denied the award’s outcome provided by the news sources. Hence, a wave of doubts by the public pertaining to the actual result of this case has been raised.

This action from the Vietnamese Government is a perfect demonstration why investor-state arbitration should not be as confidential as private commercial arbitration since the former often involves various issues of public interest that requires to be transparently known. In this particular case, it was the Vietnamese taxpayers who desired to know whether their own money ended up going to a foreign investor as a consequence of the Government’s wrongful acts.

On the other hand, investors may take advantage of the fact that there is no presumption of confidentiality in investment arbitration and play the media strategy in order to put pressure on the host state’s government. For example, in Amco v. Indonesia, the respondent accused the claimants of publishing an article that was allegedly detrimental to Indonesia and requested provisional measures on confidentiality of the dispute. However, the tribunal rejected this request as the ICSID Convention and ICSID Arbitration Rules do not prevent the parties from revealing the case.3)Amco Asia Corporation and others v. Republic of Indonesia (ICSID Case No. ARB/81/1), Decision on Request for Provisional Measures of 9 December 1983, 1 ICSID Rep. 410 (1993). jQuery("#footnote_plugin_tooltip_8511_3").tooltip({ tip: "#footnote_plugin_tooltip_text_8511_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The tribunal in Loewen v. United States even further acknowledged the value of making information about investment arbitrations public as failure to do so would “preclude the Government (or the other party) from discussing the case in public, thereby depriving the public of knowledge and information concerning government and public affairs”.4)The Loewen Group, Inc. and Raymond L. Loewen v. United States (ICSID Case No. ARB/(AF)/98/3), Decision on Hearing of Respondent’s Objection to Competence and Jurisdiction of 5 January 2001, para. 26. jQuery("#footnote_plugin_tooltip_8511_4").tooltip({ tip: "#footnote_plugin_tooltip_text_8511_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In the case at hand, VOA revealed that they had an opportunity to read the whole 200-page award before publishing the news. Regardless of who the person who disclosed the award to VOA was or the rightfulness of such an action, other foreign investors in Vietnam are possibly concerned about the possibility of enforcing an award in case they have disputes with the Vietnamese Government, not to mention that the reason why this case was initiated was because the Vietnamese Government had failed to enforce the settlement agreement with Mr. Trinh in the previous dispute.

 

… to EUVIPA

In the midst of doubt from the public and foreign investors, the signing of the EUVIPA came on 30 June 2019 as a savior to help Vietnam somewhat win their trust back. Not only did it draw more attention to Vietnam as a promising land for future foreign investors, the inclusion of the new Investment Court System (“ICS”) in the EUVIPA is an assurance that serious concerns about ‘lack of transparency’ in the current ISDS mechanism are being addressed.

The ICS under the EUVIPA will be fully transparent and allow a third party to make submission to intervene in the proceedings. Article 3.46(1) EUVIPA provides for the application of the UNCITRAL Transparency Rules to ISDS proceedings and adapts them to the context of the EUVIPA without much alteration. This incorporation-by-reference methodology contrasts with Annex 8 (‘Rules on Public Access to Documents, Hearings and the Possibility of Third Persons to Make Submissions’) of the EU – Singapore Investment Protection Agreement (“EUSIPA ”) which adopts the UNCITRAL Transparency Rules only to match the terms of the EUSIPA ISDS procedure.

Greater transparency in the proceedings is also reflected in the EUVIPA’s treatment of third-party funders. While the EUSIPA requires foreign investors to disclose merely the identities of the third-party funder, the EUVIPA goes a step further by mandating disclosure of the “nature of the funding arrangement”.

Information about all investment arbitration disputes involving Vietnam so far has always been confidential. However, with the birth of the UNCITRAL Transparency Rules in 2014, the situation will be likely to change. Although Vietnam is yet a member of the 2014 United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (the “Mauritius Convention”) and thus not expressly bound by UNCITRAL Transparency Rules, such Rules nonetheless have been incorporated in the new 2013 UNCITRAL Arbitration Rules. The Rules will automatically apply to disputes arising out of treaties concluded as of 1 April 2014, not to mention that the EUVIPA adopts many key provisions of the UNCITRAL Transparency Rules.

 

Conclusion

As noted in a previous post, both UNCITRAL Transparency Rules and Convention were born as a response to the criticism against the secrecy of investment arbitration: “investment tribunals frequently decide matters of public importance behind closed doors”. Since the inception of investment arbitration, a multitude of commentators did not approve of the idea of letting a small group of unknown arbitrators handle investment disputes with enormous awards of damages in secrecy, especially when these disputes may lead to national law being revoked, justice systems questioned, environmental regulations challenged and public policy threatened. Therefore the public nature of investment arbitration should never be underestimated. Furthermore, stepping towards transparency will express the fairness that host states are willing to guarantee to their own local citizens, who are members of the society that could be affected by the outcome of investment arbitration. Hence, giving non-parties, including groups of local people, the right to make amici curiae submission is a vital aspect of transparency in ISDS.

Nevertheless, from host state’s perspective, transparency in ISDS can be a double-edged sword which may take a toll on its reputation if it is known to lose in a dispute for wrongly treating foreign investors. Given the current state Vietnam has no other option but to play with the sword to regain the trust from foreign investors and its locals, especially when the trust has been significantly tainted after the Trinh Vinh Binh saga. Exposing itself to a more transparent dispute settlement mechanism like the EUVIPA’s ISDS is a brave move from the Vietnamese Government. What matters now is how Vietnam is going to get prepared to adapt to the new wave of transparency policies under the EUVIPA as well as the new generation of international investment treaties. Only time will tell.

References   [ + ]

1. ↑ Global Arbitration Review, ‘Dutch national wins moral damages against Vietnam’. 2. ↑ EU-Viet Nam free trade agreement – Joint press statement by Commissioner Malmström and Minister Tran Tuan Anh. 3. ↑ Amco Asia Corporation and others v. Republic of Indonesia (ICSID Case No. ARB/81/1), Decision on Request for Provisional Measures of 9 December 1983, 1 ICSID Rep. 410 (1993). 4. ↑ The Loewen Group, Inc. and Raymond L. Loewen v. United States (ICSID Case No. ARB/(AF)/98/3), Decision on Hearing of Respondent’s Objection to Competence and Jurisdiction of 5 January 2001, para. 26. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
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Same Concept, Different Interpretation: The Full Protection and Security Standard in Practice

Sat, 2019-10-26 23:42

Omar Moussly

The numerous interpretations of the Full Protection and Security Standard (“FPSS”) have complicated the findings of tribunals for many years. A number of tribunals have found that this standard applies only to physical protection. Meanwhile, other tribunals have extended this standard to cover all types of protection from physical to legal and commercial. Also, more recently tribunals have considered the stability of the host state when construing the FPSS.

There is a growing body of arbitral case law on the FPS standard since the first investment treaty award on the full protection and security in Asian Agricultural Products Ltd (AAPL) v. Republic of Sri Lanka, as discussed here.

The FPSS can be found under various formulations in the promotion and protection of investment section in BITs. However, different BITs use different wording to express the same concept. For example, Article 4.1 of the Argentine Republic – Japan BIT expresses the concept as “full protection and security”. Another example, Article 1 of the European BIT template, the Abs-Shawcross Draft Convention (1960) states the notion as “the most constant protection and security”. Similar wording is included in Article 10 of the Energy Charter Treaty (“ECT”). Another example can be found in Article 1. 2 of the Arab Republic of Egypt and the Belgium-Luxembourg Economic Union BIT (1977) which expresses the concept as “continuous protection and security”.

Accordingly, the FPSS may be referred to as “constant protection and security”, “continuous protection and security”, or “full protection and security” standard. However, the meaning of these clauses suggests that the host State is under obligation to take active measures to protect the investment from harmful effects. The harmful effects may stem from non-government actors such as demonstrators, employees or business partners or even from actions of the host State and its organs.

Investment tribunals are generally consistent in their findings that the obligation to accord FPSS can impose an onerous level of liability on states with scarce resources.1)Mahnaz Malik “The Full Protection and Security Standard Comes of Age: Yet another challenge for states in investment treaty arbitration?iisd.org, November 2011. jQuery("#footnote_plugin_tooltip_6531_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6531_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Does FPSS apply only in the case of physical security?

The question of whether the FPSS is only applicable to physical security has divided arbitral tribunals for years.

Some tribunals held that the State’s duty was only to protect the investor from violence caused by State or non-government (i.e. private) actors. These tribunals decided that the FPSS applied only to physical security.

For example, in Saluka v. Czech Republic (2006), the tribunal observed that FPSS applies only to physical protection and stated that:

“The full protection and security standard applies essentially when the foreign investment has been affected by civil strife and physical violence […] the full security and protection’ clause is not meant to cover just any kind of impairment of an investor’s investment, but to protect more specifically the physical integrity of an investment against interference by use of force”.

Further, the tribunal in Wena Hotels v. Egypt (2002) held Egypt liable for violating the FPS standard for its failure to prevent the seizures and subsequent failure to protect Wena’s investment which gave rise to the liability of the State.

Also, in BG Group v. Argentine (2007), the tribunal found that protection and security was restricted to physical violence and damage. The tribunal relied on Wena Hotels v. Egypt tribunal interpretation of the FPSS and held it was: “inappropriate to depart from the originally understood standard of protection and constant security”.

It is notable that the tribunals in subsequent arbitral awards have extended this standard to cover all types of protection, including legal and physical security. For example, the tribunal in Biwater v. Tanzania (2008) stated that the FPPS “implies a State’s guarantee of stability in a secure environment, both physical, commercial and legal”. The tribunal in Siemens v. Argentina (2007) found that the FPSS goes beyond physical security from the fact that the applicable BIT’s definition of investment also applied to intangible assets:

“The tribunal concluded that the initiation of renegotiations for the sole purpose of reducing costs for the host State, unsupported by any declaration of public interest, affected the legal security of Siemens’ investment”.

 

Should arbitral tribunals take into considerations the stability of the host State?

FPSS creates a special regime of liability for the acts of the host State and for third parties that compromise the physical security of the assets of the investors, as discussed here. However, it remains subject to debate whether the FPSS imposes an obligation of due diligence which must be tailored to the resources available to the host State.

For example, the claimant in Pantechniki v. Albania (30/Jul/2009) argued that the Albanian authorities did not protect the claimant’s construction project and failed to provide full protection and security. The tribunal held that the Albanian authorities were powerless and the police “were simply unable to prevent the losses under the circumstances of the case”. Furthermore, the tribunal held that the arbitrators must consider the circumstances and resources at the disposal of the relevant State, and thereby consider the State’s level of development and stability.

In a more recent case, Ampal v. Egypt (21/Feb/2017), and after an ICC tribunal rejected Egypt’s force majeure defence in arbitration case and held it liable for the contractual breach arising of attacks on the pipeline, Ampal shareholders filed an ICSID case against Egypt claiming, inter alia, the violation of the FPSS obligations under the US-Egypt BIT.

Irrespective of the unstable and exceptional situation Egypt was facing and the nation’s limited resources, the tribunal found Egypt liable for its failure to protect the pipeline of the investor against the attacks and, as discussed here, “the tribunal only considered the security of the investor’s pipeline, neglecting the overall state of the country. The tribunal unconsciously transformed the due diligence standard from a duty of care to a duty to achieve”.

The tribunal in Cengiz v. Libya (07/Nov/2018) reached a similar decision to that of Ampal v. Egypt. The tribunal in Cengiz v. Libya acknowledged the border challenges Libya was facing at that time and the country’s lack of sufficient resources to offer “dynamic protection” to protect the investors. However, the tribunal held Libya responsible for its total failure to provide the necessary security measures to protect the investor’s project and equipment. Although the tribunal acknowledged that the evidence was scarce, it was nevertheless confident that the Libyan armed forces and/or militia controlled by the government had pillaged the investor’s camps and did not prevent any attack from third parties during the civil war.

In doing so, the tribunal departed from the narrow reading taken by WAY2B v. Libya tribunal that held that “an FPSS provision demanded due diligence on the part of a state to ensure adequate protection and security risks of physical damage caused by third parties”, and that the burden of proof lies with a claimant so that a tribunal can determine if the host State has acted with “due diligence in light of its development/situational capabilities”. Furthermore, the tribunal noted that the claimant had failed to assert even a prima facie case that the State had not met its protective duties.

 

Conclusion

It is clear that there is a considerable divergence in the interpretation of the FPSS. Some tribunals have only applied this standard to physical protection, whereas subsequently the majority of the tribunals have disagreed with this interpretation and have gone further to apply this standard to legal and commercial protection.

More recently, some tribunals have decided to take into consideration the stability of the host State, whereas others did not give sufficient consideration for the limited resources, the exceptional circumstances and the stability of the host State.

Arbitral tribunals should apply greater weight to the circumstances being faced by the host State before interpreting the FPSS and deciding whether it should apply to physical protection only or whether its coverage should be extended further. It is not easy for arbitral tribunals to reach a satisfactory decision in an unstable political area because of the lack of evidence in many cases, which the investor needs to proof. Ultimately – and as commented upon by the Pantechniki v. Albania tribunal – an investor investing in an area with endemic civil strife and poor governance “cannot have the same expectation of physical security as one investing in London, New York or Tokyo”.

References   [ + ]

1. ↑ Mahnaz Malik “The Full Protection and Security Standard Comes of Age: Yet another challenge for states in investment treaty arbitration?iisd.org, November 2011. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
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Mainland China–Hong Kong Interim Measures Arrangement Swiftly Put into Use

Fri, 2019-10-25 18:00

Peter Yuen, Matthew Townsend and John Zhou

On 1 October 2019, Mainland Chinese and Hong Kong bodies brought into force a reciprocal arrangement with significant implications for Hong Kong as a seat of arbitration. The arrangement allows the courts of each jurisdiction to award interim measures in support of arbitrations seated in the other territory.

Parties to Hong Kong-seated arbitrations have been quick to adopt the new tools available. Reports suggest they have already made a number of applications to the PRC courts, with at least one having been granted.

 

The Arrangement and Announcements

On 2 April 2019, as reported in this blog, the Chinese Supreme People’s Court (‘SPC’) and Hong Kong’s Department of Justice (‘DOJ’) entered into the Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong Special Administrative Region (‘Arrangement’).

The Arrangement changes the position under PRC law. Previously, there existed no formal mechanism by which Chinese courts would grant interim measures in support of arbitrations seated outside of Mainland China. Now they are empowered to issue interim measures in aid of institutional arbitrations seated in Hong Kong.

On 26 September 2019, the SPC and DOJ issued further instruments including: an SPC Judicial Interpretation and accompanying article; as well as a DOJ announcement and list of relevant institutions (together referred to as the ‘Announcements’).

As stated in the accompanying article to the SPC Judicial Interpretation, the Arrangement sets out “comprehensive provisions on the scope of preservation, the definition of arbitration procedures in Hong Kong, the procedures for applying for preservation, and the handling of preservation applications”. However, as the Announcements themselves clarify, a number of points had been left open when the Arrangement was entered into.

 

Effective date and qualifying institutions

The Announcements bring the Arrangement into force on 1 October 2019, which applies to both new and ongoing arbitration proceedings as of that date.1)See Article 3 of the Arrangement and Section 8 of the Accompanying Article. jQuery("#footnote_plugin_tooltip_5711_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5711_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Specifically, the Arrangement applies only to Hong Kong-seated arbitrations administered by certain “institutions or permanent offices”.2)See Article 2 of the Arrangement. jQuery("#footnote_plugin_tooltip_5711_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5711_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Announcements now list these bodies as:

  • the Hong Kong International Arbitration Centre (‘HKIAC’);
  • China International Economic and Trade Arbitration Commission (‘CIETAC’) Hong Kong Arbitration Center (‘HKAC’);
  • International Court of Arbitration of the International Chamber of Commerce – Asia Office;
  • The Hong Kong Maritime Arbitration Group;
  • South China International Arbitration Center (Hong Kong); and
  • eBRAM International Online Dispute Resolution Centre.

The list may be updated from time to time in the future.

 

First cases following the Announcements

Parties to Hong Kong-seated arbitrations have been quick to make use of the mechanism under the Arrangement. Indeed, in an 11 October 2019 announcement (‘HKIAC update’), the HKIAC noted that it had already received five applications for interim measures to be ordered by the PRC courts. The HKIAC, which had received these applications pursuant to its role under Article 3 of the Arrangement to accept such applications and transfer them to the PRC courts, stated that each of the five cases concerned applications to preserve assets in the PRC.

It has also been reported in the HKIAC Update that on 8 October 2019, the Shanghai Maritime Court granted one of these applications, thereby rendering the first of such orders under the Arrangement.

 

Analysis

The Arrangement stands to bolster Hong Kong’s attractiveness as a seat for China-related disputes. As noted in our previous post, it offers parties to China-related transactions a new arbitration option, allowing them on the one hand to enjoy the benefits of ‘offshore’ arbitration (in this case in Hong Kong), while on the other hand enabling them to apply for interim measures in Mainland China.

Parties, who wish to benefit from the Arrangement, need to clearly and unambiguously identify Hong Kong as the seat of arbitration, and specify that such proceedings are to be administered by one of the recognised institutions as listed in the DOJ Announcement.

Given that this list might later be expanded in due course, it remains to be seen whether well-known institutions which presently have no qualifying operations in Hong Kong pursuant to the Arrangement (Arrangement, Article 2), will seek to establish eligible dispute resolution institutions or permanent offices in Hong Kong so as to benefit from this mechanism.

Of course, parties should note that the scope of interim relief available from PRC and Hong Kong courts differs considerably, as do the applicable standards and procedures. In this regard, Hong Kong courts are accustomed to ordering a diverse range of relief, including injunctive relief, in support of arbitration. By contrast, Mainland Chinese courts have in most circumstances been reluctant to order relief extending beyond preservation measures against assets or property. Further, parties seeking interim measures in Hong Kong may apply directly to the court while applications made to Mainland Chinese courts are commonly made in the first instance through an arbitration institution itself.

The Announcements confirm that each side to the Arrangement will apply their own current standards when reviewing applications made in support of arbitrations seated in the other jurisdiction. That said, in practice both sides have embarked on a considerable programme of cross-border judicial training following the Announcements.

 

Conclusion

It is unsurprising that arbitration users are swiftly adopting the tools available in the Arrangement in the same month the Arrangement came into force. The mechanism offers significant benefits to parties to transactions and disputes involving Chinese assets, operations or counterparties. This trend can be expected to continue given the hybrid jurisdictional nature of many transactions across the regions, for example investments into China involving offshore structures backed by guarantees from onshore assets.

References   [ + ]

1. ↑ See Article 3 of the Arrangement and Section 8 of the Accompanying Article. 2. ↑ See Article 2 of the Arrangement. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Interviews with Our Editors: Thoughts and Perspectives from Winnie Tam SC

Thu, 2019-10-24 22:01

Theresa Tseung (Assistant Editor for East and Central Asia)

Introduction

Ms Winnie Tam SC is a leading intellectual property specialist in Hong Kong, and was the first female specialist of the field to be appointed Senior Counsel by the Chief Justice of Hong Kong in 2006.

After her elected term as Chairman of the Hong Kong Bar Association (“HKBA”) between January 2015 and January 2017, Ms Tam SC continued to engage in leadership role in the HKBA and currently sit as Chairman of its Committee on Intellectual Property.

As the last post on our Blog’s live coverage of Hong Kong Arbitration Week this year, we have invited Ms Tam SC to share with us her insights on various topics ranging from gender diversity and arbitrators’ expertise, to use of AI in arbitrations and the future of arbitration in Hong Kong.

 

  1. Has arbitration always been your interest from the start of your career?

My interest for the early years of my career has been in intellectual property and general corporate commercial work. I also have a deep interest in civil procedural law and private international law, not least due to the nature of intellectual property litigation. I began to be involved in arbitration when I was introduced to it and thrown in at the deep end, learning, researching, teaching, speaking on and practising it almost at the same time, and helping with the formulation of the new legislation in Hong Kong on arbitrability of IP. It has been a great journey and I am loving it.

 

  1. There have been a number of initiatives aimed at improving gender diversity in international arbitration. However, we are still faced with an under-representation of women at senior levels in the legal profession and on arbitral tribunals. What do you think are the greatest hurdles to achieving gender diversity in international arbitration? How may we overcome them?

There are several aspects to achieving greater equality in gender in the international arbitration, but I am hopeful that it can be done given time and a gradual change in mindset. We need capacity building amongst women. In terms of counsel teams, I do not see any real hurdle in women being engaged as part of the counsel team in international arbitration. As more female counsel enter the sector, more of them will reach the higher rungs of the ladder in due course.

Female lead counsel are fewer in number compared to their male counterparts, but that is true too in the litigation world and in the appointment of silks at the Bar. From my observation, there are several hurdles to overcome:

  • Stamina. While some young (age 40-45) arbitrators enjoy early success due to special factors, parties do mostly prefer to appoint more experienced arbitrators or lawyers. On the other hand, many women burn out or fade out of the scene around the age of 50 unless they are determined and confident to continue to push their own career to new heights. It could be because of their family, e.g. trying to synergise with the husband retirement plans, or it could be a lack of opportunity to demonstrate their stamina to take on greater challenges with all the years of experience under their belt. It is very much determined by self-perception.
  • Perception. The notorious glass ceiling, as I see it, is formed by perception. Well-heeled senior female lawyers are often presumed to wish to slow down after they reach middle or late-middle age. That perception will need to be removed by some positive indication by word or conduct on the part of the woman practitioner herself. Declaring a keen interest in a new practice area, taking silk, taking up rigorous teaching work alongside practice, and active networking in conferences all have the effect of negating any undesired perception or presumption of “slowing down”.
  • Fighting gender-consciousness. It is natural that arbitrators would choose those they enjoy working with to share a panel, particularly where they may have to arbitrate away from home. Where the designation is the decision of two males, do women stand a chance? To be good around people regardless of their gender is a great asset in arbitration. On the other hand, the more you think you are suffering a disadvantage because you are a woman, the more likely you are going to suffer that disadvantage. It is important that women who aspire to be arbitrators are able to feel at ease, quietly confident and able to engage both professionally and socially when they are appointed to work whether with male counsel or arbitrators. Furthermore, it is important that successful women practitioners who are fortunate to rise through the glass ceiling do not only enjoy the kudos of being the rarer species, but would also empower other women to join them.

 

  1. Online dispute resolution platforms have been created to improve procedural efficiency and cost-effectiveness in international dispute resolution. In your view, is online dispute resolution, assisted by emerging technologies such as blockchain and artificial intelligence, the answer to such concerns?

There is no doubt that technology will increasingly be deployed widely to achieve lower cost and higher efficiency in international arbitration. I do believe that there are major contributions to be made by technology in the near future by the use of artificial intelligence and block chain in document management, in deal making and administration of the execution of certain types of contracts through to dispute resolution, and in the administration of proceedings such as filing of documents and procedural compliance, in breaking language barriers and more. In terms of the cost of arbitration, there will be a day when virtual hearings will be as common as video-conferencing. Further down the line, holograms of individuals attending an arbitration in various capacities may well make physical congregation in a hearing room look archaic and an absurd waste of time. We all need to be prepared to embrace the changes ahead.

 

  1. What in your view is the greatest pitfall of an increasing use of artificial intelligence in arbitral proceedings? Could it be avoided?

It is hard to predict all the forms of disaster an over-reliance on technology would bring. More immediately, where certain types of disputes are reserved to be resolved by a robot, such as smaller and fixed form disputes suitable for a formalistic mode of resolution, e.g. parking ticket disputes, e-Bay type disputes, injustice is sized by the monetary value at stake. However, where the dispensing of justice depends on judgment calls to be made on the credibility of witnesses, or appropriateness of non-monetary relief, which is often the case, the value of traditional human effort cannot be marginalised. I believe maintaining a firm belief in the value of human judgment, and treating dispute resolution as a humanistic, not mechanical, undertaking will help guard against over-enthusiasm in the use of technology leading to apparent efficiency at the expense of justice.

 

  1. What are the skills you would consider critical to an arbitration practitioner for him or her to be practising as a counsel above his or her peers?

There are three skills that are critical:

  • Management skills. These skills relate to accessing, organising and managing information, managing co-workers, clients’ and the tribunal.
  • Skills in expression and presentation. I cannot over-emphasise how the format of presentation of information and materials can make or break a case, especially where the case is complex. The skill to be able to master simplicity and lucidity in organizing information for presenting a forceful case is at least as valuable, if not more valuable, than good legal research.
  • Outgoing personality. As a person relatively new to the practice, the mindset of a senior barrister, who is accustomed to being reserved and almost withdrawn in a professional circle, must change.

 

  1. What do you think are the biggest challenges to the growth of arbitration in Hong Kong and Mainland China in the next decade?

With the development of the Greater Bay Area (“GBA”), I can see a lot of potential in Hong Kong’s continued growth as an arbitration hub for the fast-growing foreign investment in the GBA. The challenge is how to synergise the unique features of Hong Kong’s relevant experience and attributes to maximise a win-win scenario for both China and Hong Kong. As for the fear of competition from places like Singapore, I believe we should instead be focusing on our unique position as an independent but integral part of China with a fiercely protected spirit of independence under One Country, Two Systems.

 

  1. Any words of wisdom for budding arbitration practitioners?

Work hard, play hard and rest well. Above all, learn for life and serve non-stop. Your high aspirations will be better achieved with a healthy body and high spirit. When you feel that you have been working too hard in your practice, take a little time off and work for public causes. Find a sense of purpose in making contributions. You will find that it enriches you well beyond the time cost you “lose”.

 

More coverage from Hong Kong Arbitration Week is available here.

This interview is part of Kluwer Arbitration Blog’s “Interviews with Our Editors” series – past interviews are available here.

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