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The English High Court of Justice Examines Corrections of ICC Awards in Obrascon

Wed, 2020-08-26 03:00

In June 2020, the English High Court of Justice (Mr Butcher J) issued a judgment in Obrascon Huarte Lain SA & Anor v Qatar Foundation for Education, Science and Community Development dealing with an application under ss. 67 and 68(2)(b) of the English Arbitration Act 1996 (the “Arbitration Act”) for the setting aside an Addendum issued by an ICC tribunal in respect of a Fourth Partial Award in an underlying arbitration proceeding. The case has attracted interest as it concerns important legal questions such as the scope of an ICC tribunal’s power to correct and interpret its previous decisions and the scope of its substantive jurisdiction within the meaning of the Arbitration Act.

The following notes provide a summary and brief thoughts on the Judgment in Obrascon.

 

Background and Underlying Dispute

The underlying dispute related to the construction of a large hospital complex in Doha, Qatar under a construction contract signed in 2009 between the claimants (the “JV”) and the defendant (the “Foundation”) worth approximately GBP 1.8 billion. Throughout the years, many disputes have arisen between the parties and in July 2014, the Foundation terminated the contract and commenced an ICC arbitration. Among the myriad of matters in dispute between the parties was the JV’s contractual entitlement to an extension of time for the completion of certain works and the associated prolongation costs. The importance of this issue was twofold: first, the JV’s entitlement to time extensions meant that it had a counter-claim against the Foundation for the associated costs; and second, the extensions, if granted, would reduce JV’s liability for liquidated damages.

In a Fourth Partial Award issued in November 2018, the ICC Tribunal determined that the JV was entitled to time extensions in relation to certain construction units, but also found that the Foundation had lawfully terminated the contract. Both parties submitted applications under Article 35(2) of the 2012 ICC Arbitration Rules (corresponding Article 36(2) of the 2017 ICC Rules) for the (1) correction of a clerical, computational or typographical error, or any errors of similar nature contained in an award; and/or (2) an interpretation of the award. The gist of the Foundation’s Article 35 application was that the award did not address its submissions that the JV’s entitlement to time extensions was subject to certain contractual prerequisites (which were not satisfied in the Foundation’s view), including a notification requirement. The Foundation submitted that the parts of the Fourth Partial Award dealing with this issue should be either corrected or interpreted by an Addendum as proscribed by Article 35(3) of the 2012 ICC Rules.

On 5 March 2019, the Tribunal issued an Addendum. The Tribunal first clarified, referring to the Handbook of ICC Arbitration, that the objective of the interpretation is to “eliminate any ambiguities or uncertainties and clarify the meaning of a decision without modifying it. In other words, interpretation consists of restoring the true meaning of the decision where it has been improperly expressed …[or] it contains uncertainties or ambiguities.” The Tribunal then pointed out that the Fourth Partial Award did not address any applicable contractual preconditions to the JV’s rights to extensions of time and whether the JV had complied with such preconditions. The Tribunal had not intended to do so in this award as those issues were to be considered later in the proceedings. Accordingly, the Tribunal decided that the relevant paragraphs of the Fourth Partial Award should be corrected so as to reflect the Tribunal’s underlying reasoning and clarify that the JV’s entitlement to extensions of time and prolongation costs is “subject to compliance with any contractual preconditions”.

Following the issuance of the Tribunal’s Addendum, the JV brought a challenge before the English High Court (the United Kingdom being the seat of arbitration) arguing that the Addendum should be set aside as, by issuing it, the Tribunal had acted outside of its substantive jurisdiction and/or had committed a serious irregularity by exceeding its powers causing substantial injustice to the JV.

 

The Court’s Decision 

Butcher J ultimately decided to dismiss JV’s application in its entirety. He proceeded to analyse the applications under s. 67 and s. 68(2)(b) Arbitration Act separately.

 

Application under s. 67

The JV’s position under this section was, in essence, that the Tribunal did not have jurisdiction to issue the corrections in the Addendum because, once issued, the Fourth Partial Award had become functus officio. What the Tribunal did with the Addendum was not to correct clerical, computational, typographical, or similar errors in the Award, or to interpret it, but it had instead altered the award. The Tribunal did not have substantive jurisdiction to do so according to the JV.

The Court disagreed and found that s. 67 did not apply at all. It first reiterated that, according to the Arbitration Act (s. 30(1)), substantive jurisdiction relates to three issues:

  • Whether there is a valid arbitration agreement;
  • Whether the tribunal is properly constituted;
  • What matters have been submitted to arbitration pursuant to the arbitration agreement.

While it was evident that the JV’s application did not relate to the first two instances, Butcher J analysed the third issue more closely. He ultimately determined that it was also inapplicable. In doing so, the Court relied on a previous case law finding that a tribunal’s decision to correct and/or interpret previous decisions does not relate to substantive jurisdiction within the meaning of the Arbitration Act. Second, the Court found that in deciding to make a correction to an award, the tribunal is exercising a power which the parties have conferred upon it by accepting the relevant arbitration rules. Finally, the Court found that its finding was also in line with an important policy consideration – deciding that the tribunal’s power to correct and/or interpret its award is subject to a judicial review under s. 67 would open the door to setting aside of corrections/interpretations without regard to the question whether they had caused any substantial injustice (which is a requirement under s. 68, but not s. 67 of the Arbitration Act). According to the Court, this result would run afoul the policy of Part I of the Arbitration Act. (para. 21 of the Decision).

 

Application under s. 68(2)(b)

Under this section, the Court examined two issues – (1) whether the Tribunal had exceeded its powers at all; and (2) if it had, had that caused or would it cause substantial injustice. The Court answered both questions negatively.

In finding that the Tribunal did not exceed its powers by issuing the Addendum, Butcher J relied on two key points. First, the Tribunal’s powers conferred by the parties import the power to make certain evaluative judgments which entails a degree of latitude as to what errors may be corrected. Second, when a court is asked to consider whether a tribunal has exceeded its powers, “it needs to respect what might by analogy be called the margin of appreciation accorded to the tribunal”. (para. 26). In this particular instance, Butcher J noted that he would find it difficult to say that the corrections done by the Tribunal could not reasonably be regarded as corrections of errors of similar nature under Article 35 of the 2012 ICC Rules.

To complete its analysis, the Court considered whether the Addendum could have caused any substantial injustice to the JV. In finding no such injustice, the Court took into account the fact that the effect of the changes made to the Fourth Partial Award through the Addendum was that the contractual preconditions, including the notification issues, would be heard and determined at a later date. To the Court’s mind, “there [was] no substantial injustice to the JV in these issues being considered on their merits by an impartial tribunal as opposed to being passed over by reason of a mistake”. (para. 31).

 

Key takeaways from the Court’s Decision

Obrascon Judgment deserves attention for several reasons. First, it shows that sometimes it is especially tricky to find the boundary between accidental slips, on the one hand, and re-examination of previous arbitral findings, on the other. While the first can usually be corrected and/or clarified through a subsequent interpretation under institutional rules and legislative acts (so-called “slip rules” such as Article 35 of the 2012 ICC Rules and Article 57 Arbitration Act), the latter is impermissible according to the functus officio rule (once an arbitrator makes an award on a given issue, it could not be re-examined absent parties’ agreement). Here, what the Tribunal purported to do is simply to reinstate and clarify its original reasoning, but not to make any modifications or reconsiderations of that reasoning. In other words, it was clear in the arbitrators’ minds that the JV’s entitlement, acknowledged in the Fourth Partial Award, was subject to contractual preconditions which were to be considered and analysed later in the proceedings – it was the text of the award that did not properly reflect the Tribunal’s thinking. The Court accepted this explanation and found it permissible.

Second, the judgment strengthens the perception that English courts pay a high level of deference to tribunals’ exercise of powers conferred upon them and will abstain from questioning that exercise absent compelling reasons. This impression was signalled through (1) Butcher J’s reliance on the narrow construction of the matters which concern the Tribunal’s substantive jurisdiction (s. 30(1) Arbitration Act) developed in previous case law; and (2) the accordance of a “margin of appreciation” to the Tribunal in assessing whether it had exceeded its powers.

Finally, the Court’s pragmatic approach in clarifying the interplay between challenges concerning lack of substantive jurisdiction (s. 67) and exceeding of powers (s. 68(2)(b)) deserves praise. Indeed, it would make little sense if tribunals’ decisions correcting or interpreting previous awards could be set aside without the Court’s inquiry into whether such acts have caused a substantial injustice to the moving party that is being undertaken under s. 68 Arbitration Act.

 

The views expressed in the post are the author’s only and do not represent the firm’s views on any of the matters discussed.

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Are We Ready for the Brave New World of Virtual Arbitrations? Insights from the 32nd Annual ITA Workshop

Tue, 2020-08-25 02:54

In normal times, the 32nd Annual ITA Workshop and Annual Meeting would have been an in-person summer event held in Austin, Texas. In this brave new world, the Workshop was completely reimagined to be held virtually via Zoom on 17 – 19 June 2020. Introduced by Joseph E. Neuhaus (ITA Chair, Sullivan & Cromwell), and co-chaired by Dominique Brown-Berset (Brown & Page), Mimi Lee (Chevron Upstream), Prof. Loukas Mistelis (Queen Mary University, London) and Ank Santens (White & Case), the Workshop was dedicated to exploring the ethical challenges arising in today’s virtual arbitrations which have been galvanised by the COVID-19 global health crisis. This was an apt topic, as remote working has become the new norm for the world at large and, without exception, for the international arbitration community across the globe.

 

Necessity is the Mother of Invention

The Workshop kicked off with an inspirational keynote address delivered by Justin D’Agostino (Herbert Smith Freehills). He discussed the deep-rooted question of whether the advent of virtual arbitrations and the increased use of technology can create a positive future, unlike the worlds portrayed in the dystopian novels of Aldous Huxley’s “Brave New World” or George Orwell’s “1984”.

Justin D’Agostino started by stressing that the real change caused by the pandemic has been to the arbitration hearing, not the arbitration process as a whole. In recent years, most arbitrations have been conducted online, with email being the main means of communication, with online depositories becoming preferred methods for filing evidence and with tribunals issuing awards by email often bearing electronic signatures. The exception has always been the hearing, the default being an in-person hearing – however far the travel, however complex the logistics, or however high the costs. Practitioners got used to the costs and environmental impact of having arbitrators, lawyers, witnesses and experts flown in from all around the world. Post-COVID-19, such costs will become increasingly difficult to justify.

In the face of this new reality, where the arbitration community has embraced virtual hearings almost overnight, many have expressed concerns about the ability to conduct online arbitrations without sacrificing due process, ethical conduct, or confidentiality. In Justin D’Agostino’s view, the opportunities and rewards lying ahead will outweigh the hesitations regarding ethical risks and the fears of lacking control over the process. And, while not all hearings will be conducted remotely, virtual hearings are definitely here to stay.

 

Ethical Challenges and Opportunities

The keynote speech paved the way for an interactive panel discussion moderated by Sylvia Noury (Freshfields Bruckhaus Deringer). To make for a vivid debate exploring multiple perspectives, panellists included private practitioners Elie Kleiman (Jones Day) and Laurence Shore (Bonelli Erede Pappalardo Studio Legale), in-house counsel Gabriel Costa (Shell Brasil Petróleo Ltda.), expert Carlos Lapuerta (The Brattle Group), and arbitrator Lucy F. Reed (Arbitration Chambers). The panellists focused their discussions on six challenges arising in virtual hearings, as discussed in more detail below. They also took questions through the Zoom Q&A chat and conducted polls from the active audience who, for the first time, participated remotely from numerous locations around the world.

 

  1. Due process and equality of arms

The panellists opened the debate with observations that virtual hearings have amplified parties’ tendencies to bring due process claims under Article V(1)(b) of the New York Convention, by invoking various grounds to support to their alleged inability to present their case. The speakers recognised that, while there are no doubt cases where a virtual hearing would not be appropriate, due process arguments should not be abused or used as insincere strategies to postpone hearings.

From an in-house perspective, Gabriel Costa probed whether, absent express language in the arbitration clause, there could be a reasonable due process expectation that a hearing should be held face-to-face. He considered that parties are now taking the time to put in place well-drafted arbitration clauses; that said, he noted he had never seen an arbitration clause imposing a face-to-face hearing as such hearings have been taken for granted as a matter of practice until this point. Moreover, while the current climate has provided fertile ground for parties to engage in so-called “due process paranoia”, this likely would not last long as he would expect parties to move on and start engaging with virtual hearings as they would with any other procedural aspect of the case.

A more pressing concern appeared to be whether a tribunal’s order to proceed with a virtual hearing could breach the level-playing field between the parties. Equal opportunities and equal treatment of parties are fundamental principles in international arbitration. Elie Kleiman noted that, just because we make assumptions that everyone has their own equipment for a virtual hearing or indeed that everyone can cope with technology, does not mean that this is the case in practice. The reality is that the hardships suffered by the parties may remain unknown until a later stage and it will therefore be difficult to predict the types of challenges that will be made to the enforcement of arbitral awards in the future.

 

  1. Conduct and ethics

The psychology of shifting human behaviour in an online setting was raised several times throughout the Workshop. Would counsel present as more organised, process-driven, and civilised, leaving behind the theatrics? Or, on the contrary, would the virtual environment embolden counsel to act less ethically, for instance by coaching witnesses with messages during their testimony?

The response was that the critical focus should be on the conduct of the parties throughout the entire proceedings, not just the hearing. As pointed out by Gabriel Costa, there are still many instances where arbitrators are reluctant to sanction parties acting in bad faith or not in line with best practices. There is a stark difference between using the procedural flexibility of the system and tolerating abuse. If the new virtual space could lead to a refreshed approach, that would be welcome.

From the private practice perspective, Elie Kleiman and Laurence Shore agreed that the rise of virtual arbitrations has seen increasing collaboration between parties, perhaps due to the need to agree extra protocols for the smooth running of the hearing. In an ideal world, however, cooperation between parties should become an obligation rather than an aspiration. Therefore, what remains crucial is a proactive and organised panel of arbitrators taking command of the proceedings early on and putting in place the organisation and process that a remote arbitration requires. Lucy Reed observed another positive behavioural change in arbitrators who, conscious of constantly being seen on screen, may be more incentivised to be proactive and focus their full attention to the proceedings.

 

  1. Examination of experts and factual witnesses

By far the most hotly debated theme of the Workshop was how to ensure a meaningful examination of experts and witnesses by video-link. As an expert, Carlos Lapuerta viewed giving evidence virtually as particularly difficult given the risk of having limited visual cues from the tribunal. Expert witnesses want to connect with the tribunal, to gauge if their comments are understood, and to see if the tribunal is on track. On the other hand, arbitrators and counsel may themselves not see the expert’s body language, particularly movements of their hands and feet, which are often indicators of reaching a tricky point in their testimony. A solution could be a feature to zoom in and out or ask the witness to sit farther away from the camera. Virtual hearings may also lead to experts having more leeway to avoid giving sufficient context or exaggerate their cases, especially if the option of hot-tubbing is limited or non-existent.

As for factual witnesses, the concern was whether anything should be done differently when preparing for a virtual hearing. As some speakers mentioned, parties need to ensure that their witnesses are prepared emotionally and psychologically, and that they understand their role in giving testimony. Particularly, factual witnesses should not treat the remote testimony as a presentation or a call but appreciate the heat and responsibility of the moment, which might be minimised by the virtual setting.

Linking back to the theme of cooperation, Elie Kleiman finally stressed that practitioners also bear responsibility in reducing the scope of cross-examination, as much as they relish doing it. They should refrain from inflating the existing evidence and agree the facts and technical or quantum issues that are undisputed. Overall, this would achieve a balanced and qualitative remote examination of the witnesses.

 

  1. Cybersecurity and confidentiality

The use of virtual hearings may come with inevitable trade-offs such as technological shortages and cybersecurity issues, risking the confidentiality of the arbitration proceedings. The overall view was that, in time, these would become a lesser concern as platforms become better encrypted and more advanced. To this end, guides to best practices for virtual hearings have started to emerge, such as the Seoul Protocol on Video Conferencing in International Arbitration (discussed in another blog post) and the Guide to Good Practice on the Use of Video-Link under the 1970 Hague Evidence Convention. One question for debate was who has responsibility for ensuring the security of the hearing. As a clear-cut answer may not exist, this should be discussed before the hearing and not left to the award enforcement stage. Elie Kleiman also pointed to the costs associated with the technical and security support, which in his view should not rest solely with the parties and arbitrators but also with the arbitral institutions.

Despite technological advances, a particular sticking point remains the inability to see the reactions around the hearing room. Laurence Shore warned that counsel not having a sound feeling of the arbitrators’ reactions to the evidence and submissions will be a continuing reality of virtual hearings. The result may be the revelation that ultimately, the better argument is the one presented on paper, leading to a shift when deciding what arbitrators should focus on in the papers and what really needs to be presented at a hearing.

 

  1. Carbon footprint and costs

The costs and environmental impact of international arbitrations have been intensely criticised in recent years. In this regard, Sylvia Noury referenced the “Green Pledge” and the growing efforts to actively reduce the carbon footprint of international arbitrations (discussed in another blog post). Indeed, there could be a silver lining to this global crisis and, while the social and cultural trade-offs are regretful, the environmental benefits of limiting international air travel for a hearing are immense. Lucy Reed particularly flagged those unsatisfactory situations where a witness needs to fly half around the world for a half an hour examination. By contrast, where the witness would be on stand for three days, the approach would be entirely different.

 

  1. Increased diversity and the future of international arbitration

When asked to crystal ball gaze into the future of international arbitration, the panellists were optimistic. Gabriel Costa advised that this should be a time for reflection, as sometimes it is easy to lose sight of what the process actually serves. Whether one is dealing with a small commercial dispute or a large investor-State arbitration, parties should consider the dispute’s collateral impact on their business and assess it as a commercial, rather than legal, matter.

In light of the transition to virtual hearings, Elie Kleiman projected more diversity in the arbitral community, particularly more opportunities for the younger generation of lawyers who are more open to and familiar with using online facilities for dispute resolution. Lucy Reed also predicted an emerging preference for the partial virtual hearing – one that would be equally fair and secure, but more efficient, less expensive, and with lower carbon emissions.

 

Will Arbitration Ever Be the Same Again?  

Circling back to the opening speech, there is no doubt that the switch to virtual hearings would have become a reality in the years to come. COVID-19 has simply been the catalyst accelerating the pace of change. In the post-pandemic world, many practitioners may revert to former practices, but the general receptiveness to reconfigure the practice of arbitration hearings has shifted. As many times advocated at turning points in history, the lesson going into this new world is to never let a good crisis go to waste.

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Indonesian Arbitration Law Turns 21: A Timely Metamorphosis?

Mon, 2020-08-24 03:00

12th August 2020 marks the 21st anniversary of the Indonesia’s Law Number 30 Year 1999 on Arbitration and Alternative Dispute Resolution (“Arbitration Law”).1)Any comments/views expressed in this article are those of the authors only. They do not reflect the views of KarimSyah Law Firm or AIAC unless otherwise stated. jQuery("#footnote_plugin_tooltip_2570_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2570_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Culture wise, many countries, especially Indonesia, venerate 21 years of age as the start of adulthood, which leads to change. There have been calls on the amendment of the Arbitration Law.2)Jakarta Post, Lawyers, business players call for revision of business dispute resolution law, 2019 jQuery("#footnote_plugin_tooltip_2570_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2570_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The general consensus is that it is about time to revise the Arbitration Law to keep up with the current arbitration trends and practices, and to accommodate the ever-changing demands in the dispute resolution industry.

 

Significance of the Amendment to the Arbitration Law to Indonesia

Ensuring an up-to-date arbitration legal framework is crucial as it affects the confidence of the users, particularly foreign parties, to have arbitration seated in that jurisdiction. The 2018 International Arbitration Survey by the Queen Mary University of London concludes that arbitration users prefer to choose a seat that has favourable ‘formal legal structure’, which consists of “general reputation and recognition of the seat”, “neutrality and impartiality of the local legal system”, and “national arbitration law”. The latter is particularly relevant here because a national arbitration law serves as the primary framework and bedrock upon which an arbitration takes place.

Familiarity of an arbitration law is one factor to consider – which could explain how 3 out of top 5 seats of arbitration in the world have adopted the UNCITRAL Model Law on International Commercial Arbitration (1985) with amendments as adopted in 2006 (the “Model Law”). To date, the Model Law has been adopted by 83 states. Such figure is a testament to the success of the Model Law in establishing uniformity of procedural law on a worldwide scale.

Indonesia has not adopted the Model Law, which was not necessarily a bad thing. The Arbitration Law – which is primarily inspired by the mid-19th Century Dutch-originated code of civil procedure but which also took references from a number of other sources, including the Model Law itself – was considered to be more culturally and legally apt for Indonesian legal framework at the time. Notwithstanding that, the fact that it has not been revised for over two decades means the Arbitration Law could use some amendments for it to keep up with current international arbitration practices and be more appealing to international users.

This post will examine a few feasible points of amendments that Indonesia could adopt to promote itself as the next arbitration hub in the region.

 

Clarifying the Grounds of Annulment of Arbitral Awards

Many national arbitration laws permit annulment of an arbitral award only on grounds analogous to those set out in Model Law, which are aligned with those grounds for non-recognition of an award under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Award (the “New York Convention”). This approach is consistent with the users’ desire for a neutral forum and a final and expeditious dispute resolution means.

However, the Arbitration Law’s grounds for annulment of arbitral awards seem to depart from the Model Law. Article 70 of the Arbitration Law provides that an award can be annulled on three limited grounds: forgery, discovery of concealed material documents, and deceit. The exclusion of the well-accepted grounds for annulment as recognised in the Model Law, e.g. improper proceeding and overreaching jurisdiction, is a concern as it raises a red flag to international parties who are familiar with Model Law.

Further and ironically, the Arbitration Law’s Explanatory Note exacerbates the vagueness of the scope on annulment by providing that the grounds for annulment arbitral awards, are ‘among others’, the three grounds listed in Article 70 of the Arbitration Law. The additional terminology of ‘among others’ suggests the three grounds are merely illustrative and non-exhaustive. Indonesian Court practices have mirrored this inconsistency; with some courts upholding that Article 70 of the Arbitration Law is exhaustive in, e.g. judgments in January 2012 and May 2012,3)Supreme Court, Judgement No. 268 K/Pdt.Sus/2012 (25 May 2012), page 43; Supreme Court Judgement No. 709 K/Pdt.Sus/2011 (24 January 2012), page 18. jQuery("#footnote_plugin_tooltip_2570_3").tooltip({ tip: "#footnote_plugin_tooltip_text_2570_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); while others have employed the wording of ‘among others’ to explore other grounds for annulment, e.g. August 2013 judgment.4)See for example, Supreme Court Judgment No. 367 K/Pdt.Sus-Arbt/2013 (26 August 2013), page 46. jQuery("#footnote_plugin_tooltip_2570_4").tooltip({ tip: "#footnote_plugin_tooltip_text_2570_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

A clarification is required to the above conundrum: whether Indonesia wishes to maintain the relatively strict limitations to three grounds, or if it wishes to have a non-exhaustive list, and leave it to respective courts to determine what may or may not be considered as an annulment ground. One possible solution is to mirror the well-accepted grounds for annulment of an award under the Model Law, which are already in line with the spirit of New York Convention. After all, the Model Law seeks to ensure a pro-enforcement regime for both domestic and foreign arbitral awards.

 

Judiciary Assistance to Enforce Tribunal-Ordered Interim Measure

Despite a strong historical tendency towards voluntary compliance with arbitral awards and orders, tribunal-ordered interim measures are not always complied with.5)Gary B. Born, International Commercial Arbitration (2nd Edition, 2014), page 2511. jQuery("#footnote_plugin_tooltip_2570_5").tooltip({ tip: "#footnote_plugin_tooltip_text_2570_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Accordingly, judicial enforcement of a tribunal’s interim measures may be essential to effectuate the tribunal’s direction. Otherwise, obtaining an interim measure from an arbitral tribunal will be in vain.

Unfortunately, this is the case in Indonesia, where arbitral tribunals are empowered to issue interim measures, yet judicial assistance relating to the enforcement of tribunal-ordered interim measures is not available to enforcing parties. Parties may only seek judicial assistance for the appointment of arbitrator, determination on the challenge of arbitrator, and the enforcement of the final award.

In contrast some jurisdictions have enacted specialised legislation providing for judicial enforcement of tribunal-ordered provisional measure.6)See for example, Section 19(H) of Malaysia Arbitration Law 2005 (as amended in 2011 and 2018). jQuery("#footnote_plugin_tooltip_2570_6").tooltip({ tip: "#footnote_plugin_tooltip_text_2570_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Similarly, the Model Law is designed to permit specialised enforcement of “orders” of provisional relief. Adopting a similar approach would certainly be helpful to increase the efficacy of arbitration in Indonesia.

 

Facilitating the Enforcement of Foreign Arbitral Awards

As a contracting state to the New York Convention, Indonesia has committed to “encourage recognition and enforcement of awards in the greatest number of cases as possible”.7)Official Published Text of New York Convention, page 2. jQuery("#footnote_plugin_tooltip_2570_7").tooltip({ tip: "#footnote_plugin_tooltip_text_2570_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); While, over the years, foreign arbitral awards have been generally recognised and enforced in Indonesia, there is room for improvement to streamline the process and further remove certain stumbling blocks for enforcement.

First, foreign arbitral awards are only enforceable upon the issuance of exequatur by the Head of Central Jakarta’s District Court. The Arbitration Law, however, does not determine any time limit for such issuance. Practitioners have concluded that the issuance of exequatur could take 3 months to 18 months from registration. For legal certainty, a time limit is certainly desirable.

Second, the Arbitration Law requires any arbitral awards – both domestic and foreign – to be registered by the respective arbitrators or their proxies. This has proven to be an obstacle and rather contradictory to the fact that a tribunal is deemed to be functus officio following the final award’s issuance. Mandating tribunals to be responsible for the enforcement phase is a hassle, especially in cases involving foreign arbitrators. Even when a proxy is used, the process would still require a power of attorney from the arbitrators that have to undergo a verification and legalisation process in the arbitrators’ respective country of residence; the complications of such process varied in each country. Ideally, the parties should be able to register the awards without reference to the arbitrators.

Third, the Arbitration Law requires enforcement of foreign award to be accompanied with a certification from the Indonesia’s diplomatic representative confirming the reciprocity of enforcement of foreign arbitral award between Indonesia and the country where the arbitration is seated. In other words, it requires a confirmation that Indonesia and that other country are signatories to the New York Convention. While this requirement might have been relevant back in 1999, nowadays such confirmation can be easily verified and monitored through others means, such as the internet.

 

Conclusion

As the Arbitration Law steps into “adulthood”, it is worth considering certain amendments to keep up with the current landscape of international arbitration practices. The above-mentioned points of amendments are by no means exhaustive; other features should also be considered, such as legalisation/regulation on third-party funding, introduction of emergency arbitrator, clarification on the definition of the other forms of alternative dispute resolutions, and possible synchronisation with Singapore Mediation Convention.

Indonesia has been dubbed as the “Sleeping Tiger” of Asia, an embodiment to its exponential growth and hidden potential. Hopefully, by amending the Arbitration Law, users will more likely perceive Indonesia as an emerging dispute resolution hub in the region – let the tiger awake!

References   [ + ]

1. ↑ Any comments/views expressed in this article are those of the authors only. They do not reflect the views of KarimSyah Law Firm or AIAC unless otherwise stated. 2. ↑ Jakarta Post, Lawyers, business players call for revision of business dispute resolution law, 2019 3. ↑ Supreme Court, Judgement No. 268 K/Pdt.Sus/2012 (25 May 2012), page 43; Supreme Court Judgement No. 709 K/Pdt.Sus/2011 (24 January 2012), page 18. 4. ↑ See for example, Supreme Court Judgment No. 367 K/Pdt.Sus-Arbt/2013 (26 August 2013), page 46. 5. ↑ Gary B. Born, International Commercial Arbitration (2nd Edition, 2014), page 2511. 6. ↑ See for example, Section 19(H) of Malaysia Arbitration Law 2005 (as amended in 2011 and 2018). 7. ↑ Official Published Text of New York Convention, page 2. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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The 2020 SOAS Arbitration In Africa Survey Confirms African Institutions And Seats To Be A Force To Reckon With

Mon, 2020-08-24 02:00

The biennial 2020 Arbitration in Africa Survey Report (2020 Survey), which is the second in the series, is focused on top African arbitral centres and seats. It identifies the top and busiest arbitral centres in Africa. The survey was commissioned by the School of Oriental and African Studies (SOAS) and sponsored by the law firm of Broderick Bozimo & Co, Abuja and the African Legal Support Facility (ALSF). An online questionnaire composed of a combination of 27 closed and open questions was circulated broadly within the international arbitration community for completion. The questionnaire was supplemented by a very short focused quantitative analysis based on three broad questions targeted only at arbitration centres operating in Africa. With the maiden edition of the survey confirming that African arbitrators are skilled and possess sufficient expertise, this survey sought to investigate the suitability of African arbitral institutions as well as Africa cities as seats of arbitration. This was in consideration of previous suggestions that African parties prefer arbitral institutions outside the continent.

The 2020 Survey recorded 350 responses from 34 countries across the continent, Asia, Middle East, North America, and Europe. The majority of the respondents have experience in arbitration on the continent in one capacity or the other. The majority of the respondents were from Africa specifically from South Africa, Nigeria, and Egypt. A quantitative analysis targeted at arbitration centres operating in Africa was further deployed to supplement the findings from the survey. The arbitral centres were ranked based on the arbitration cases they have administered and their outreach to other centres. The reporting period for the survey was 2010-2019.

 

Summary of Findings

91 arbitration centres or organisations were identified as operating on the continent. However, not all of them were found to administer arbitration cases. For instance, the Libyan Centre for International Commercial Arbitration has only administered 4 mediations since its inception. Users of arbitration centres identified that, the key qualities that the centres should possess include; convenient location, conducive hearing facilities, recording equipment, clear rules, language diversity, case management, and neutrality. Respondents further reiterated on a list of facilities that an African centre should provide as an international arbitration centre. Some of these included; location, experienced panels, use of diverse languages, modern rules, modern technology, independence, and knowledge of African socio-cultural context.

Arbitration Foundation of South Africa (AFSA), Cairo Regional Centre for International Commercial Arbitration (CRCICA), and Ouagadougou Arbitration and Mediation & Conciliation Centre (OAMCC) are some of the institutions with the highest number of cases under their own rules since their inception. The Centres have administered 4,134, 1,408, 181 cases respectively. Other institutions in the top 10 are Common Court of Justice and Arbitration, OHADA (CCJA), Kigali International Arbitration Centre (KIAC), Tanzania Institute of Arbitrators (TIArb), Nairobi Centre for International Arbitration (NCIA), and Centre de Mediation et D’Arbitrage de Niamey (CMAN). In terms of administering ad hoc arbitration cases, International Centre for Arbitration and Mediation Abuja (ICAMA) is the standout institution. CRCICA is ranked as the leading arbitration centre on the continent in terms of outward vision and engagement. In addition to CRCICA and AFSA, the other institutions that have been highly ranked by the respondents in this regard are KIAC, Lagos Court of Arbitration (LCA), and the NCIA.

Majority of the respondents expressed the will to recommend African arbitral centres to users of arbitration. These are very important and indicative identifications that African arbitral centres can adopt to increase their suitability to users. Not surprising, with the present COVID-19 pandemic and the rise of virtual hearings, technology stands out as seemingly one of the crucial factors that can help African centres to ultimately measure up to centres outside Africa. Additionally, almost half of the respondents also indicated that they have participated in ad hoc arbitration in Africa.

With regards to the issue of seat, the 2020 Survey identifies the major cities on the African continent that host arbitration cases whether ad hoc or institutional. Johannesburg, Lagos, Cairo, Cape Town, and Durban are ranked as the top five in this regard. The popularity of these seats is largely for reasons provided in the preceding paragraphs with regards to suitability of centres and what the users find to be the most important in a centre. Additional reasons include: arbitration friendly laws and jurisdictions, economic hubs of the continent, multilingual cities, political stabilities, and security.

Finally, respondents shared what they found most rewarding as well as what they found most troubling when participating in arbitration in Africa. Expeditious disposal of disputes, parties’ acceptance of award, cost effectiveness of ICC arbitration in Africa, linguistical considerations, as well as procedural flexibility are some of the rewarding aspects that were noted by the participants. Appointment of non-expert arbitrators, cost of arbitration, enforcement of award, unclear text of local laws on arbitration, frequent recourse to courts during the proceedings, and repeated appointment of some arbitrators are some of the troubling issues identified by the respondents.

 

Comments

Increasingly, African countries have joined the race to establish arbitral centres and ultimately market themselves as attractive seats of international arbitration. With the discussions on the legitimacy of arbitration, African countries have not only contributed to the debate but also showcased their expertise.

With regards to African arbitral centres boosting their prospects to administer international arbitration, a couple of important things stand out from the findings of the 2020 Survey. Technological equipment, having clear rules of arbitration, cost effectiveness, language diversity, being an economic hub and reputation are the most emphasised desirable features. Relationship and cooperation between centres also comes across as an attractive feature. Perhaps another interesting consideration that was observed is a centre’s knowledge of African socio-cultural context. Finally, a crucial factor that cannot be downplayed is the centre’s independence from control, mostly by the government. Even in the midst of a host of challenges pointed out, these are the most important features that African arbitral centres can work on in order to remain attractive seats for international arbitration. It is noteworthy that these features are in tandem with what is expected of an international arbitration centre.

East African centres (Kigali International Arbitration Centre, Nairobi Centre for International Arbitration and Tanzania Institute of Arbitrators) featured in the top seven centres in Africa in terms of cases administered and MOUs with other arbitration centres. Whereas this isn’t a dismal performance, compared to their counterparts in Egypt and South Africa, there’s certainly need to market these institutions and popularize them to users in and outside Africa. In the top 20 seats and cities, only Kigali and Nairobi featured from East Africa. This should prompt the region to look at the factors that make the preferred cities and seats more favourable as they look to borrow best practices.

It is therefore, imperative for African arbitral centres to adopt modern technology and keep up with other centres around the globe. The Africa Arbitration Academy Protocol on Virtual Hearings is a good example of innovation in this regard. This is specifically relevant during the current global restrictions of physical movements when virtual hearings are increasingly in demand. These centres should also put mechanisms in place to have staff and members who have diverse language backgrounds. They should revise their costs to weed out unnecessary financial burdens on their users and most importantly they should work on their image and visibility to establish a positive reputation. This includes making their data and statistics publicly available and easily accessible. African arbitral centres should also step up their efforts to continue signing cooperation MoUs among themselves and with other centres around the world. This will enable them to borrow best practices from these institutions and to build relationships that will foster cooperation. Most importantly, these centres must strive to have clear and comprehensive flexible rules of arbitration that also guarantees their independence. As they continue to adopt these recommendations and address the challenges, some of which have been set out in the survey, these centres will continue to rise and measure to eminent centres around the world. Ultimately, Africa will be an attractive seat of international arbitration just like other parts of the world that already boast this status.

 

Conclusion

The survey’s findings confirm that African parties have faith in arbitral institutions on the continent with 88% of the respondents confirming that they would recommend African arbitral centres. Further, it demonstrates that African arbitral centres enjoy strong reputation from both users within and outside their locations with the respondents lauding their professionalism, efficiency and support facilities. This is certainly a good start as the continent’s centres seeks to assert their rightful place amongst other institutions globally.

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The Kluwer Summer 2020 Arbitration Quiz

Sun, 2020-08-23 04:25

As the global pandemic has constrained in-person gatherings, many arbitration practitioners will have foregone most of their summer travel. Fortunately, for this summer’s holiday (quiz), we can all take a trip together to Transparency Land, where all arbitrators and institutions are above average, but may not all be equal in how they manage proceedings.

With thanks to our friends at Arbitrator Intelligence, the quiz this summer is based on actual data compiled about arbitrators and institutions.1)Arbitrator Intelligence is a global data aggregator that collects factual and evaluative feedback on arbitrators through an anonymous online survey called the Arbitrator Intelligence Questionnaire or AIQ. The collected data is used to develop Reports and other resources, which are then offered to the parties and their counsel who are looking for information on arbitrators. AI is not a ratings agency and does not rank or maintain lists of arbitrators. jQuery("#footnote_plugin_tooltip_7973_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7973_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Have you never wondered whether arbitral tribunals seated in Central and Eastern Europe are likely to encourage amicable settlement and mediation while sipping a relaxing cocktail by the sea? Or, while safely socially distancing at the supermarket, asked yourself what the most common grounds are for granting document production in construction arbitrations? And certainly, while attending an on-line fitness class, had stray thoughts about the methods most tribunals adopt when calculating damages in oil and gas arbitrations?

If your summer holiday includes asking yourself similar questions about international arbitration, then try your hand at this summer’s quiz and submitting your answers here. The first three people to submit the correct answers (or the three people with the highest scores) will win fantastic prizes:

Crina Baltag & Ana Stanic, The Future of Investment Treaty Arbitration in the EU: Intra-EU BITs, the Energy Charter Treaty, and the Multilateral Investment (Kluwer 2020)

Bruno Guandalini, Economic Analysis of the Arbitrator’s Function (Kluwer 2020)

The Born Lectures (6-month access)

The winner(s) will be announced on the Kluwer Arbitration Blog and the Arbitrator Intelligence website in early September. Best of luck!

The following questions are based on data collected by Arbitrator Intelligence (AI) from over 1,000 arbitrations globally, via responses from participants in those proceedings to the Arbitrator Intelligence Questionnaire (AIQ).

 

Duration of arbitral proceedings (commencement to award)

1. One arbitrator is often faster than three – but how much faster? For three-member tribunals conducting “oil and gas” arbitrations (as defined by those responding to the AIQ) the average duration is approximately 1,396 days with a three-member tribunal. For sole arbitrators it is:

a. approximately 400 days

b. approximately 600 days

c. approximately 800 days

 

Document production

2. Many arbitrators boast that they actively limit document production, but do they really? According to AI data, tribunals sitting in “banking and finance” arbitrations mostly order document production with what scope?

a. Narrow: only narrow and specific requested categories of documents that are reasonably believed to exist

b. Moderate: a limited number of individually identified documents

c. Broad: broad categories of documents based on general statements of materiality and relevance

 

3. Regional differences: According to AI data, parties seeking document production are most likely to have their request granted in full in proceedings seated in:

a. the Western Balkans

b. the Middle East

c. Latin America

 

Documents-only arbitration

4. Tribunals are most likely to hold a documents-only procedure (no oral hearings) in disputes in which of the following sectors?

a. construction

b. shipping and transportation

c. sports

c. telecommunications

d. trade in goods

e. banking and finance

f. oil and gas

g. investment

 

Appointment of tribunal secretaries

5. In which of the following sectors, are tribunals mostly likely to appoint tribunal secretaries/assistants?

a. Trade in goods and shipping and transportation

b. Shipping and transportation and construction

c. Construction and energy

 

Encouragement and facilitation of amicable settlement and mediation

6. Tribunals are most likely to encourage and facilitate amicable settlement and mediation in which of the following sectors?

a. energy (other than oil and gas) arbitrations

b. banking and finance arbitrations

c. investment arbitrations

 

Awards of interest

7. Tribunals in which sector award interest most frequently?

a. trade in goods

b. banking and finance

c. oil and gas

 

8. What is the most common interest rate applied in arbitral awards across sectors and regions?

a. the rate imposed by the applicable law

b. the rate agreed by the parties

c. the inter-bank rate

 

Allocation of costs and fees

9. Tribunals in which sector are most likely to award all of the claimed costs of the arbitration to the prevailing party, in favor of both claimants and respondents?

a. construction

b. trade in goods

c. shipping and transportation

References   [ + ]

1. ↑ Arbitrator Intelligence is a global data aggregator that collects factual and evaluative feedback on arbitrators through an anonymous online survey called the Arbitrator Intelligence Questionnaire or AIQ. The collected data is used to develop Reports and other resources, which are then offered to the parties and their counsel who are looking for information on arbitrators. AI is not a ratings agency and does not rank or maintain lists of arbitrators. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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New Law Maintains Switzerland at the Forefront of International Arbitration

Sat, 2020-08-22 03:00

The revision process of Chapter 12 of the Swiss Private International Law Act (PILA), governing international arbitration in Switzerland, was initiated in 2008 through a parliamentary motion. It led to a general mandate for the Swiss government to “touch up” Swiss international arbitration law with a view to aligning the statutory text with Swiss case law and modern international practice.

On 19 June 2020, the final draft bill was approved. It is expected to enter into force in early 2021.

The stated objectives of the revision, were fourfold: first, codifying the case law developed by the Swiss Supreme Court in the field of international arbitration; second, clarifying the issues not expressly stipulated in the law; third, strengthening party autonomy; and fourth, increasing user-friendliness. During the parliamentary debates, the need to preserve and increase Switzerland’s attractiveness as a seat of international arbitration was also mentioned.

This revision brings Swiss arbitration law (composed of 19 articles, i.e. Articles 176 to 194 PILA) up to date while maintaining its conciseness and flexibility. By increasing legal certainty and modernising certain features of Swiss arbitration law, while ensuring at the same time that any new provision would regulate only “as much as necessary” and “as little as possible” in order to preserve party autonomy, the new Swiss arbitration law goes a long way toward ensuring that Switzerland remains one of the most attractive arbitral seats in the world. The key points of the revision are discussed below.

 

The scope of application of the PILA

Article 176 provides that the PILA shall apply if at least one of the parties has its domicile, habitual residence or seat outside Switzerland at the time of conclusion of the arbitration agreement.

Under the current law, there was some uncertainty as to whether the time of conclusion of the arbitration agreement or the time of the initiation of the arbitration would be decisive in determining the parties’ seat or domicile.

Article 176 PILA now clarifies that a party’s seat or domicile at the time of conclusion of the arbitration agreement is decisive, thereby deviating from the current case law of the Swiss Supreme Court, according to which the international nature of a dispute is assessed by reference to the domicile or seat at the time of the initiation of the arbitration. Therefore, a later change in a party’s domicile or seat after the conclusion of the arbitration agreement would have no impact on the applicability of the PILA.

 

The written form requirement – new opportunities for wills and trust arbitration

Article 178 PILA provides that arbitration agreements are valid if made in writing or in any other form that allows the arbitration agreement to be evidenced by a text. This new wording clarifies that emails and other forms of modern communications constitute valid means to demonstrate the existence of a valid arbitration agreement.

Also, Article 178(4) PILA now expressly confirms that an arbitration agreement may be included in unilateral legal acts or instruments, such as last wills, bylaws, or trusts. This new provision, however, does not alter the existing requirements with regard to the substantive validity of an arbitration agreement, which also apply to arbitration clauses contained in unilateral legal acts. The impact of this new provision in the context of wills and trust arbitrations (and notably the limits to the possibility of extending arbitration agreements to non-signatories, such as beneficiaries) remains to be seen.

 

Appointment and replacement of arbitrators

Article 179(1) PILA provides that arbitrators are appointed or replaced in accordance with the procedure set out in the arbitration agreement. Article 179(1) further clarifies that unless the parties have agreed otherwise (directly or by reference to the rules of an arbitration institution), a three-member panel will be appointed.

Article 179(2) PILA provides that where the parties have not specified such a procedure in the arbitration agreement (directly or by reference to the rules of an arbitration institution), the Swiss state court at the seat of the arbitration is competent to appoint the arbitrators. With a view to “saving” incomplete arbitration agreements, this provision then goes on to clarify that if the parties have not determined the seat of the arbitration or simply referred in their arbitration agreement to arbitration in Switzerland, the Swiss state court seized first is competent to decide on the appointment of the members of the arbitral tribunal.

Also, Article 179(4) PILA clarifies that, if the parties have failed to appoint the arbitrators in a multiparty arbitration, the competent Swiss state court has the authority to appoint all members of the arbitral tribunal.

Finally, Article 179(6) PILA now codifies the arbitrators’ duties in terms of independence and impartiality, that were not expressly codified previously, but were considered by courts of law.

 

Direct access of foreign arbitral tribunals and foreign parties to Swiss state courts

Enforcing interim or provisional measures can be a very difficult exercise if said measures have been ordered by an arbitral tribunal sitting outside of Switzerland.

Article 185(a) PILA now grants foreign arbitral tribunals and foreign parties direct access to Swiss state courts for interim relief or the taking of evidence in support of foreign arbitrations. This new provision has the clear benefit of sidestepping the burdensome path of international legal assistance.

Another welcome clarification is that the proceedings before said Swiss state courts shall be conducted under the provisions of the Swiss Code of Civil Procedure on summary proceedings.

 

Codification of the parties’ duty to object immediately to procedural irregularities

This general principle under which a party must immediately object to any procedural irregularities, failing which such party would be considered to have waived its right to object (which was already well anchored in the jurisprudence of the Swiss Supreme Court) is now expressly stipulated in Article 182(4) PILA.

 

Express statutory provisions regarding correction, interpretation and amendment, and revision

Under the current law, only the grounds to have an award set aside were listed, although the Swiss Supreme Court has acknowledged that parties may also rely on further remedies, such as correction, interpretation and amendment, or revision of an award.

The new law sets out self-explanatory provisions on those remedies which clearly improve their user-friendliness for foreign users:

  • Article 189(a) provides that the parties can apply to the arbitral tribunal within 30 days after the award was rendered to seek correction, interpretation or amendment thereof. Importantly, such applications do not generally suspend the 30-day time limit to file any setting aside application.
  • Article 190(a) provides that a party may seek the revision of an arbitral award within 90 days after the discovery of a ground for revision, such grounds including the discovery of new and material facts, criminal proceedings revealing that a criminal offense influenced the arbitral award, or the discovery of a ground to challenge an arbitrator after the conclusion of the arbitral proceedings. Article 191 clarifies that foreign parties can waive their right to file an application for revision, with the notable exception that no waiver would ever be possible for the ground that the award was influenced by a criminal offense.

 

Submissions to the Swiss Supreme Court in English

As one of the most controversial amendments, the new Swiss arbitration law allows parties to submit setting aside (or revision) applications in English.

Switzerland is one of the few jurisdictions where any application to set aside (or revise) an award must be brought directly before the country’s highest court, that is the Swiss Supreme Court. The Swiss Supreme Court drafts its decisions in one of the country’s official languages (those being German, French, Italian or Rumantsch). Until now, the parties were also required to submit their briefs in one of those languages.

The new law authorises the parties to file memorials in English. That being said, the Swiss Supreme Court’s decisions and correspondence will still be issued in one of Switzerland’s official languages.

In the author’s view, allowing parties to submit applications in English is likely to lead to a reduction in translation work, which will constitute a significant improvement in light of the very short time limit for filing setting aside applications (only 30 days). With that in mind, offering counsel the possibility of drafting their memorials in English and, by way of consequence, exchanging any preliminary drafts with their clients in that language presents the significant advantage of saving time and minimising any translation costs that could have been incurred otherwise, and making sure that no ideas or issues get lost in translation. This is all the more important since the underlying case materials are more often than not drafted in English. As such, the new law helps better serve the client’s interests and, more generally, the dynamic between counsel and their clients.

One may however legitimately wonder about the narrow scope of application of this linguistic amendment. It might have made sense to introduce English as a language in all other arbitration-related judicial proceedings as well, that is, before Swiss state courts assisting arbitral tribunals during the arbitration, or in the context of enforcement proceedings. The revision did not elect to take that route.

More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Inequity in the Citadel of Justice: A Case for Fair Play!

Fri, 2020-08-21 03:00

Nishith Desai Associates as part of its client continuing education program (“NDA cCep”) launched a two-part webinar series on “Women in Dispute Resolution”. The first session focused on perspectives of a Judge, an Arbitrator, In-house Counsel and law firm practitioners and dealt with the journey of each panelist. A sequel to this session, was recently hosted on July 31, 2020 titled “Not a Manel: Pursuing Excellence in Dispute Resolution!” in association with ArbitralWomen, Equal Representation in Arbitration Pledge, She Breaks the Law, Her Forum and Kluwer Arbitration Blog. This blog focusses on the discussions held during the session, personal stories shared by the panelists, need for change in mindset and continuity of dialogue.

The webinar had a stellar line-up comprised of Sherina Petit (Partner and India – Head, Norton Rose Fulbright), Dr. Crina Baltag (Editor – Kluwer Arbitration Blog, Senior Lecturer – Stockholm University and Arbitrator) Karishma Vora (Barrister – 39 Essex Chambers), Janie Wong (Partner – Commercial Litigation, Addleshaw Goddard LLP), Dr. P.M. Devaiah (General Counsel and Vice Chairman – Everstone Partners), Pratibha Jain (Head – FRP, Nishith Desai Associates) and Gowree Gokhale (Head – TMT, Nishith Desai Associates) along with myself moderating the session. The webinar received a lot of enthusiasm weeks before it was conducted thanks to the title and people across the globe appreciating the fact that it is not a manel. The central theme of the session focused on the need for gender diversity in dispute resolution. The webinar provided a unique platform for law firm practitioners, arbitrators, counsels and academicians to discuss issues faced by women practitioners and academicians across the globe.

 

Tackling conscious and unconscious bias

The discussion revolved around gender diversity in the legal profession, which has been a topic of much debate but still requiring momentum in several parts of the world. The moot question for the panelists was whether there was a need for gender diversity or gender equality in today’s times and steps taken by them to shatter the glass ceiling.

Ms. Sherina Petit quoted a few surveys conducted by McKinsey to highlight that law firms across the globe took steps to have more female partners but they have had limited effect. She also presented certain statistics showing that only 19% of equity partners across the globe are women and they are 29% less likely to reach that position. Further, she reported that Law Society of England survey also stated that the presence of perceived unconscious bias in the legal profession was the most commonly cited reason for women being unable to reach seniority, due to their inability to have a traditional image of a business leader. I think Sherina beautifully summed it up saying “To be somebody you don’t have to be like a man but more like a woman”. Ms. Karishma Vora on the other hand felt that though her experiences were slightly different from Sherina, the under-current has been the same.

Dr. Crina Baltag like the other panelists, also strongly felt the need to focus on hard work, determination and not have a mindset of bias to move forward. She observed how diverse backgrounds, socio-cultural and economic differences contribute to the growing unconscious bias. She also drew a parallel with the similarities and differences that exist in legal academia when compared to law firms, with fewer women and the long hours put in by professors. Ms. Janie Wong was firmly of the view that the way forward was with determination and seizing the opportunities life presents itself with to build a successful career.

The session then moved forward with discussing the reasons for typecasting and the only man on the panel shared his views.

Mr. P.M. Devaiah felt typecasting is nothing but an alter ego of professionalism and is inevitable. It has both positive and negative connotations. Typecasting becomes an issue only if one says, “Jack can do it better than Jill”. The consequences and tremors of typecasting are different in rural and urban areas in India and differs culturally and socially across jurisdictions. He termed bias as ‘cholesterol’ which needs a social fix. Mr. Devaiah strongly felt that the solution to typecasting cannot be found in the corridors of courts – Supreme Court or House of Lords but needs to be implemented at the grass root level to bring about a change in the patriarchal society.

 

Empowered Women empower Women

The glass ceiling will go away when women help other women break through that ceiling.” 1)Indira Nooyi, Board of Directors, Amazon, Former Chairman and CEO, Pepsico. jQuery("#footnote_plugin_tooltip_4247_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4247_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The second theme of the session focused on the measures being implemented to empower women at an individual, corporate/firm and institution level.

  • Sherina Petit discussed about the initiatives taken by her including launching the Pledge in India two years back and started initiatives for women in arbitration fostering friendships, mentoring, work and non-work relationships. She concluded with a Serena Williams quote: “The success of every woman should be an inspiration to the other. We should raise each other up, make sure you are courageous, extremely kind and above all humble.” Her focus was on the changes introduced by arbitral institutions and organizations and steps that may be taken to improve gender diversity in arbitral appointments and proceedings.
  • Pratibha Jain discussed about the changes in culture and biases that she witnessed while working in different organizations and across jurisdictions. She was candid in mentioning that other than being a role model for her daughter or her family where she was the first one to work, she didn’t feel much has been done for the cause. She attributed the same to women being overwhelmed as mothers or not getting enough time to network and brushing it aside to be done at a later stage in life. She hopes that the younger generation will be more open-minded and create networks for everyone to have discussions.
  • Karishma being a Barrister and practicing in UK felt the need for empowerment even more for the younger generation including both men and women as she felt counsel practice is a different ballgame altogether. She highlighted that though the selection happens primarily based on style of advocacy, in her 15-year career, she has not appeared even once before a Tribunal with a female member. Dr. Crina Baltag brought a very different perspective to the table. She mentioned in the context of law firms opening offices in eastern Europe, the demand was for young, enthusiastic and well qualified professionals rather than looking at gender. She felt having been part of the international arbitration community, she never felt any kind of pressure or lack of diversity. She broke the myth of some common perceptions about western European countries leading by example: (i) the first woman judge in Portugal was appointed only in 1974; (ii) the first female judge in High Court in Northern Ireland was appointed only in 2015 and (iii) the first female lecturer in Scotland was in 1990 leading to the universal reference point disappearing. She concluded on the importance of the recently released Report by the Cross-Institutional Task Force on Gender Diversity in Arbitral Appointments – a powerful example of moving things forward. Further, she also observed that over the years there has been an earthquake transition in the arbitration fraternity.

The panelists echoed that the institutions are in a better position to foster the change. Tracing the progress made thus far, the panelists acknowledged the contribution and initiatives taken by Lucy Greenwood to raise consciousness within the arbitration community which have been instrumental in effecting change.

  • Taking a slightly different approach, Ms. Gowree Gokhale emphasized on the need for empathy to understand the background of different lawyers and stressed on the importance of upbringing and approach towards life. She felt that women expect too much from themselves. They should realise that they are not superwomen. She discussed some of her personal experiences which have shaped her thinking. While discussing about selection of female Counsels and Arbitrators, Ms. Janie Wong felt that historically women not being as visible on panels or their inability to promote themselves or support each other worked to their disadvantage. She felt while selecting counsels, the parameters should be technical skills, diligent and work product and not tied to one’s gender.

Men have the most important role in achieving gender equality and promoting women empowerment initiatives. Men as an ally can be a role model in elevating women’s access to employment. Mr. Devaiah shared that recently based on a head count conducted in his organization, he was pleasantly surprised that the ratio between men and women is 55% to 45%. He felt such statistics are an accomplishment in themselves.

 

Conclusion

Based on surveys and statistics published by various arbitral institutions and organizations, it is evident that there is a lack of gender diversity and despite several awareness programs, a lot is yet to be achieved. The impact of unconscious bias on arbitrator choices has been the subject of recent debate and discussion, and has been described as “one of the single most influential factors for the disparity between male and female representation on international tribunals.” The power to effect change does not lie with one individual or organization or only with women; rather, collective and concerted efforts are required from all international arbitration stakeholders and participants to close the diversity gap. The top to bottom change is necessary to fill the leadership gap and to have our next-generation be more inclusive and diversified.

Conferences such as this allowed a free exchange of ideas which will hopefully go a long way in creating momentum and room for more focused discussions on these issues within the arbitral community. The speakers with diverse backgrounds during the session candidly shared their personal experiences, recognizing the existence of conscious and unconscious bias and the need to bring about meaningful change. Several initiatives taken by the speakers on the panel, organizations and arbitral institutions are encouraging and reflection of the positive outcomes. The webinar highlighted the need for unconscious bias training, support during work, regular analysis, mentoring, network, recruitment and selection of Arbitrators and practitioners using blind recruitment policy. The panelists departed with the hope that participants and professionals across the globe will be inspired and more aware about their roles and responsibilities and need to foster diversity. The timing of the webinar was very apt, coinciding with the launch of the Report by the Cross-Institutional Task Force on Gender Diversity in Arbitral Appointments and Proceedings and Asian International Arbitration Centre (“AIAC”) launching its inaugural Diversity in Arbitration Week (“DAW”) as part of its ADR Online: An AIAC Webinar Special Series in July 2020 providing the much-needed impetus to this cause. The link to the video recording of the discussion is here.

References   [ + ]

1. ↑ Indira Nooyi, Board of Directors, Amazon, Former Chairman and CEO, Pepsico. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Mexico and EU propose a Permanent Arbitration Court and an Appellate Mechanism: Modernization or Destruction of ISDS?

Thu, 2020-08-20 03:00

Mexico and the EU recently released a draft text of the upcoming EU-Mexico Free Trade Agreement (the “Agreement in Principle”), including its proposed investor-State dispute chapter. As explained in the draft agreement, “The texts are published for information purposes only and may undergo further modifications including as a result of the process of legal revision. The texts are still under negotiations and not finalized.”

The Agreement in Principle continues a trend of the EU and some States modifying (and in some cases removing) protections that were traditionally afforded to foreign investors under international investment agreements. For example, the United States Mexico Canada Agreement (the “USMCA”), which replaced the North American Free Trade Agreement (“NAFTA”) on July 1, 2020, removed investor-State arbitration for Canadian investors and against the Canadian State, and limited other aspects of protection that NAFTA once provided.

Among the many innovations reflected in the Agreement in Principle, this article focuses on two: (1) the elimination of party-appointed arbitrators in favor of a pre-selected pool of arbitrators, appointed by States; and (2) the inclusion of a permanent appellate arbitration court also appointed by the States. These changes are consistent with the EU’s announced approach to ISDS in 2018.

 

Appointment of Arbitrators

“The Members of the Tribunal System will be appointed in advance by the EU and by Mexico and will be subject to strict requirements of independence and integrity.”

The EU-Mexico Agreement in Principle proposes a pre-selected arbitrator pool. The following describes the manner in which the pre-selected arbitrator pool is organized:

  • The “Joint Council shall, upon the entry into force of [the] Agreement, appoint nine Members to the Tribunal [Board]. Three of the Members shall be nationals of a Member State of the European Union, three shall be nationals of Mexico and three shall be nationals of third countries.” Art. 11(2).
  • The Members of the Tribunal Board are appointed for five-year terms. Art. 11(5).
  • Each tribunal for each individual case will consist of three Members, of whom one shall be a national of a Member State of the European Union, one a national of Mexico, and one a national of a third country. Art. 11(6).
  • The individual tribunals will be chaired by the Member who is a national of a third country. Art. 11(6). The Parties may also agree that a case be heard by “a sole Member who is a national of a third country…” Art. 11(7).
  • “Within 90 days of the submission of a claim pursuant to Article 7 (Submission of a Claim to the Tribunal), the President of the Tribunal…shall appoint the Members or Member composing the division of the Tribunal hearing the case on a rotation basis, ensuring the composition of the divisions is random and unpredictable, while giving equal opportunity to all Members to be selected.” Art. 11(8) (emphasis added).

This is a stark change from typical investor-State dispute resolution clauses, which allow for the claimant and respondent to appoint their own arbitrator. It would thus test the debate between those in favor of maintaining the practice of party-appointed arbitrators and those proposing a centralized appointment mechanism.

Several debates have transpired recently regarding party-appointed arbitrators. Commentators in favor of the traditional method of constituting a tribunal have opined that selecting an arbitrator is a “basic and important” right of parties in international arbitration. Investor-State disputes may arise in several different sectors and industries of an economy. The ability to “vet” an arbitrator for the relevant experience in a given industry is thus highly valued by parties and counsel alike. Moreover, commentators also argue that parties generally sign arbitration agreements to submit intricate and complex business disputes to the hands of experts of such industries. Consequently, it may be argued that electing the pool of arbitrators beforehand could compromise this valued aspect of investor-State arbitration.

Commentators in favor of the Agreement in Principle’s method of freely choosing an arbitrator have criticized party appointed arbitrators in international arbitration as having an unconscious bias towards the party who selected them. The same have pointed to the fact that dissenting arbitrators are nearly always those who have been appointed by the party aggrieved by the majority decision and that parties are motivated by winning the case rather than issues of experience.

The drafters of the EU-Mexico treaty have attempted to address these concerns by requiring that the arbitrators “have [a] demonstrated expertise in public international law and possess the qualifications required for appointment as a judge to the International Court of Justice…” Art. 11(4). Further, the proposed text attempts to address consistency in interpretation by subjecting arbitrators to 5-7 year terms. Art. 11(5). Whether these proposals will be effective is remained to be seen.

 

Appellate Arbitration

“Decisions of the Tribunal of First Instance can be appealed to a permanent Appeal Tribunal which will ensure legal correctness and certainty about the interpretation of the agreement.”

According to the Agreement in Principle, the “EU-Mexico agreement fully implements the new EU approach to investment protection and investment dispute resolution by fundamentally reforming the old-style ISDS system. It establishes a standing international investment court system composed of a Tribunal of First Instance and on an Appeal Tribunal.”

The proposal of an appellate mechanism is not novel. The UNCITRAL Working Group III was established in the fall of 2017 to “provide a useful model for possible reforms in the field of investor-State arbitration, in conjunction with interested organizations.” In its Thirty-eighth session, the UNCITRAL Working Group IIII provided a possible reform adding appellate and multilateral court mechanisms.

Commentators analyzing the strengths and weaknesses of the proposed appeal reform by UNCITRAL in international arbitration have argued that an appellate mechanism replaces “crucial parts of the system such as annulment mechanisms, enforcement and finality of awards.” On the other hand, commentators note, “Consistency in the application of substantive norms in BITs would contribute to the confidence in ISDS” and will serve as a check against legal error. Further, commentators have raised concerns of costs and time increasing by allowing appeals to go forward in international arbitration.

The EU-Mexico Agreement in Principle attempts to address efficiency concerns by (i) providing a fork-in-the-road clause, waiving an investor’s opportunity to litigate the same dispute in domestic courts; (ii) allowing for an expedited review on appeal where it is clear that an appeal is “manifestly unfounded”; (iii) requiring appeals to be decided within 180 days (with exceptions) but in no case no more than 270 days; as well as (iv) allowing for requests for the corresponding party to post a security bond pending the appeal.

Finally, the proposal of an appellate mechanism also raises practical questions. For instance, ICSID, a proposed institutional option in the EU-Mexico Agreement in Principle, provides for an annulment mechanism in Article 52 of the Convention and states in Article 53 that the award “shall not be subject to any appeal or to any other remedy except those provided for in this Convention” (which only includes annulment). Similarly, the New York Convention only provides limited grounds for the annulment of an arbitral award—none of which includes an error in the law which is a ground for an appeal under the EU-Mexico Agreement in Principle.

It thus remains to be seen how the proposed appellate mechanism would be compatible with ICSID Convention arbitration and the New York Convention.

 

Conclusion

The EU-Mexico FTA Agreement in Principle continues a trend of recent EU treaties modifying the mechanisms for protecting foreign investment. Disputes arising out of the new EU treaties, including with Mexico—EU’s number one trade partner in Latin America—will likely serve as a testing ground for these new dispute resolution procedures on selecting arbitrators. The attractiveness of future foreign investment covered under these new treaties will likely depend on whether an appeal mechanism and pre-selected arbitrators is truly feasible in investment arbitration or whether it is a destruction of the basic principles of neutrality, finality, and the freedom to select one’s arbitrator.

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Global Impact of the Pandemic on Arbitration: Enforcement and Other Implications

Wed, 2020-08-19 03:00

The COVID-19 outbreak as of now affects 183 states and a number of territories. Out of 164 State signatories to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the “New York Convention”) only Marshall Islands, Tonga, Palau are not affected by the pandemic; all 153 state members to the ICSID Convention have been impacted by the pandemic. Most of these states have taken lockdown or health-related precautionary measures inevitably affecting the conduct of court proceedings all over the world.

Much has already been done by arbitral institutions to adapt to the current situation, but unfortunately, state courts have been slow to catch up primarily because of the increasing pressure to deal with urgent cases such as criminal actions. While, according to Remote Courts Online, a substantial number of state courts such as Australia, Norway, New York, Mexico, Uganda have switched to virtual hearings, others such as Armenia and Iran have chosen to postpone hearings or to allow only essential litigation.

The partial closure and reduced capacity of courts due to this unprecedented situation is affecting and could continue to affect enforcement of arbitral awards under the New York Convention. In examining the possible effect of the pandemic on enforcement of arbitral awards we must acknowledge that delays in every procedural aspect are inevitable. However, the effect might be greater in state courts that have shut down enforcement proceedings.

 

Justice delayed = justice denied?

The ultimate aim of a party in arbitration is quick enforcement of a successful arbitral award. Being unable to timely enforce an award will likely increase parties’ expenses and is counterintuitive to arbitration.

A significant impact of the pandemic on enforcement proceedings are the likely delays. For example, arbitration proceedings that were nearing closure may be left open indefinitely, especially where formalities such as requiring original copy of final award cannot be completed, especially, where parties fail to agree to an electronic award.

Enforcement becomes a bigger issue with flights being canceled and postal communication being interrupted or delayed. Filing enforcement applications online is not always possible and the disruption of postal services could result in situations where parties have difficulties or the least experience delay with filing the enforcement application with the court in question.

Additional obstacles could arise where some courts will insist on the hard copy of the award and supporting documentation. They may require the parties to provide a duly authenticated hardcopy of the award or proof that the award has become binding on the parties. This would need to be acquired at the seat of arbitration which in turn would likely impact the time it takes to enforce the award.

It is not possible to predict the end of the pandemic. Parties should therefore be cognizant of any time limits in recognizing and enforcing an award in some jurisdictions. For instance, if a State requires arbitral awards to be enforced within a year, a party should be mindful of this limitation in order to avoid being time barred.

 

Non-enforceability of an award due to procedural irregularities

While considering online arbitrations, the parties and the tribunal need to consider how best to ensure that in the end the final award is enforceable.

Article V(1)b of the New York Convention allows a party to challenge an award where it was unable to present its case. During the drafting of this article, drafters may have considered a scenario where one of the parties was unable to appear before the arbitral tribunal due to visa refusal, or when a party might not have sufficient opportunity to present the case before the tribunal.

The pandemic and lockdown caused numerous restrictions and travel bans. If interpreted narrowly, arguably the cancelation of flights and, thus, inability of the party or the witness to participate in the proceedings or the hearing could be considered as a ground for not enforcing the award under Article V(1)b of the New York Convention. Some courts have granted this provision a wider interpretation. For example, in the Italian case Bauer & Grobmann OHG v. Fratelli Cerrone Alfredo e Raffaele, the Court considered a recent earthquake a circumstance preventing the parties from presenting their case in the required period of time. However, parties wishing to object under Article V(1)b need to present that adequate actions have been taken to remedy their defaults.

When invoking Article V(1)b, the parties need to prove that the inability to present their case could have resulted in a different outcome than what was achieved by the tribunal.

The strength of such an argument is questionable as parties can agree to hold virtual hearings (VHs) to solve the problem. However, it is debatable whether having a VH will provide the party with the same opportunity as in the case of physical hearings. When referring to a “hearing” did the New York Convention envisage VHs?

Interestingly, in the 2001 case Tongyuan International trading Group v. Uni-Clam Limited, while referring to Article V(1)d the English High Court stated that “a different location did not affect the fairness of the proceedings or prejudice to that party”. The Court further reasoned that in the mentioned case, the wording of the arbitration agreement did not consider the venue as an important factor. According to practitioners such as Pieter Sanders, the role of the venue of arbitration was considered of secondary nature while drafting the convention as well.

As discussed above, in light of the current situation and restrictions, many courts have delayed in-person hearings or cut down the hearings only to essential matters, and many arbitral tribunals transitioned to online hearings or are considering it. VHs may give rise to a serious concern regarding the validity of the rendered award, in its turn creating room for parties to attempt objecting to enforcement of award because of VHs. Article 19 of the LCIA rules straightforwardly grants the arbitral tribunal the power to decide upon the form of the hearing: “… a hearing may take place by video or telephone conference or in person (or a combination of all three).” Accordingly, it may be difficult for parties having chosen LCIA rules to attempt to object to enforcement of an award where a tribunal exercises its discretion under the Rules and orders an online hearing regardless of parties’ consent.

In contrast, the ICC rules do not grant the tribunal the authority to decide on a VH; if the parties agreed to have a hearing it should not be remote. This can be inferred from Article 26(1) of the ICC Rules:

When a hearing is to be held, the arbitral tribunal, giving reasonable notice, shall summon the parties to appear before it on the day and at the place fixed by it.” (ICC Rule 26.1)

That said, in the event the parties agreed to ICC rules, and if no agreement is reached to replace the hearing with a virtual one, enforcement of the award might become problematic due to failure to have the arbitral procedure agreed by the parties. (Article V(1)d)

 

Final thoughts

Under the New York Convention the enforcement of the award is not hindered by any aspect unless a member state may find it contrary to its public policy to enforce the award (Article V(2)b), which is worth considering as COVID-19 has already had its devastating effects on the many developed states, one of the most vivid examples being Italy. The courts could also be non-cooperative in cases where the awards negatively impact their interests (investment awards), and could potentially delay enforcement of the award. The states may also misuse the process and time limits of court procedure in the same way.

There is a general consensus that there is likely to be an increase in international arbitration disputes in the wake of the pandemic, the extent to which these cases will be successful procedurally remains to be seen.

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Is the Departure from a Procedural Order by an Arbitral Tribunal Considered to Be a Procedural Error?

Tue, 2020-08-18 03:00

In a recent judgement, the Swedish Supreme Court rejected an appeal against the decision of the first instance which set aside an arbitral award in part due to a procedural error of the arbitral tribunal. The particularity of this case stems from the fact that the procedural error derived from an earlier procedural order of the tribunal and the fact that the parties were not allowed the opportunity to fully argue their case after the tribunal decided to deviate from its earlier ruling of which the parties were not informed. This serves as a reminder of the importance of observing due process and allowing parties the opportunity to make full submissions on each aspect of the case. It also underlines the need to discuss the legal nature of procedural orders in the arbitration community and the need to define the line between the parties’ right to be heard and the tribunal’s discretion in conducting the proceedings.

 

The Background of the Case and the Courts’ Decisions

On 25 May 2016, a partial award (“Partial Award”) was rendered by an SCC arbitral tribunal in the proceedings involving the issue of royalty payments for pharmaceutical licence between CicloMulsion AG (“CicloMulsion”) and NeuroVive Pharmaceutical AB (“NeuroVive”). The Partial Award was challenged by both parties, and the first instance judgement of the Court of Appeal was appealed before the Swedish Supreme Court by NeuroVive (Judgment of the Supreme Court, 30 April 2019, Case No. T 796-18, hereinafter: “Supreme Court Judgement”). The Supreme Court focused on the argument made by CicloMulsion about the existence of a procedural error, which affected the outcome of the case and to which CicloMulsion had not contributed.

The procedural error invoked by CicloMulsion consisted of the arbitral tribunal’s departure from the procedural order no. 10 (“Procedural Order”) made during the proceedings and issued two years before rendering the Partial Award. The Procedural Order, inter alia, provided the tribunal’s position on the payment of the royalties, according to which “CicloMulsion’s right to the royalties in relation to a certain country was not conditioned by a launch of the pharmaceutical in the country” (Supreme Court Judgement, para. 5). Moreover, the tribunal prescribed its commitment to this conclusion by declaring it final and stating “that the arbitral tribunal would not deviate from the position in relation to the intention of the parties without informing the parties in advance and providing them with an opportunity to comment on the issue” (Supreme Court Judgement, para. 6).

The argumentation concerning this point of the Procedural Order was reopened by one of the parties during the arbitration proceedings – NeuroVive. The other party – CicloMulsion – had an opportunity to reply by submitting its position on the issue. However, the arbitral tribunal has never informed the parties that it decided to change its conclusion made in the Procedural Order, i.e. to condition the right to the payment of the royalties on the launch in the respective country. The deviation from the Procedural Order without informing the parties and issuing the Partial Award based on this change of stances constituted for CicloMulsion a procedural error in the proceedings and the ground for the annulment of the Partial Award.

Hence, the issue before the Court of Appeal and the Supreme Court was whether this deviation constitutes a procedural error. According to the Swedish Arbitration Act 1999:116, as read before 1 March 2019, Section 34, paragraph 1, item 6, “[a]n award […] shall […] be wholly or partially set aside upon motion of a party […] if, without fault of the party, there otherwise occurred an irregularity in the course of the proceedings which probably influenced the outcome of the case.” The Supreme Court confirmed that both courts analysed two prerequisites set by the law and

1) that the procedural irregularity occurred without fault of the party and

2) that it probably influenced the outcome of the case.

It also briefly analysed an interesting question of whether the tribunal’s departure from the Procedural Order was a procedural error in the first place. Both courts decided to annul in part the Partial Award.

 

Comment

Procedural errors are built around the parties’ expectations regarding the tribunal’s conduct of the proceedings within a procedural legal framework. The procedural legal framework is usually formed of the due process standard, procedural rules introduced by the parties’ drafting and/or choice of the arbitration rules, and the arbitration law of the seat. As a counterbalance to the parties’ expectations stands the restrictiveness in defining procedural errors that was emphasized by the Supreme Court in this case (see Supreme Court Judgement, paras. 13 and 20) and well-established attitude in court practice that arbitral tribunals have the discretion to conduct the proceedings as they see fit, as long as it conforms to the procedural legal framework. When deciding whether there was a procedural error, the Supreme Court was satisfied with a mere fact that the procedural rule existed, and that the tribunal has not respected it (Supreme Court Judgement, para. 23).

However, the peculiarity of this case is that the procedural rule to which the tribunal subjected its substantive finding was created by the tribunal itself. The tribunal reserved the right to revisit the position on the royalties, but also guaranteed that the parties will have an opportunity to make their submission on the issue. Neither of the courts negated the fact that the parties had an opportunity and made submissions on the matter. What was missing from this procedural puzzle is the tribunal’s notice to the parties that it had changed the opinion on a substantive matter, i.e. the decision regarding the right on the royalties.

Furthermore, it is important to emphasize that had the parties respected the procedural order of the tribunal, neither of them would have made any submissions on this issue after that point in the proceedings. However, the parties decided to continue its discussion and made further submissions. This was not sufficient for the Supreme Court to conclude that this procedural rule was respected. Quite the opposite, the Supreme Court pointed out that the error means that important principles of legal security have been disregarded and that the investigation supports the conclusion that if CicloMulsion would have known that the issue would be re-examined by the arbitral tribunal, it would have further argued its case (Supreme Court Judgement, para. 26). Based on these two points, the Supreme Court presumed that the error has affected the outcome.

Hence, the issue was not whether the parties had an opportunity to argue at all, but rather whether they had an opportunity to argue further after they found out that the tribunal reopened the issue. The claim that “[…] the conduct of the proceedings has meant that the arbitral tribunal has determined a question which, with respect to the development of the proceedings, could with good reasons be presumed to have been finally determined” (Supreme Court Judgement, para. 25), however, puts into question the nature of the procedural order as it assigns the finality feature to it. Yet, in international arbitral practice, the finality of a decision is a characteristic of an arbitral award, not of a procedural order. That being said, it is fair to say that the tribunal’s Partial Award certainly took the parties by surprise, but whether the lack of opportunity for a party to argue further has constituted a procedural error and whether this error probably influenced the outcome of the case is another matter.

The Supreme Court discussed at length what the relevant applicable standard is, and concluded that “[a] presumption that an error has affected the outcome may be justified by the fact that certain errors are of the kind that it is difficult to show that they have affected the outcome of the case, and at the same time they entail that it may be seriously questionable whether the proceeding has been acceptable or not” (Supreme Court Judgement, para. 19). The court applied this rule and stated that in the case at hand the procedural error meant that CicloMulsion had been deprived of the opportunity to fully argue its case in relation to this issue (Supreme Court Judgement, para. 25). However, this was not the only circumstance considered by the Supreme Court. The court also gave due consideration to the fact that CicloMulsion, from the time when the Procedural Order was issued until being informed by the arbitral tribunal, has been entitled to assume that the issue in question would not be reassessed by the arbitral tribunal (Supreme Court Judgement, para. 25); and this is the part that raises doubts regarding the existing and future decisions of courts on a similar matter. Namely, the picture becomes clearer if this question is revisited with an assumption that the tribunal had informed the parties, and then refused to receive any further submissions on the matter besides those already submitted by the parties when they disregarded the Procedural Order instructions. If the Supreme Court would come to the same conclusion in that case and partially annul the award, then the reasoning stands the posed test. However, if the court would decide differently, it would mean that the reasoning was based merely on the fact that the parties were not informed about the internal deliberations by the arbitral tribunal on substantive matters and any trial to provide the procedural order with an effect of finality would severely question the international arbitral practice.

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Setting the Ground for Corporate Arbitration in Switzerland: Swiss Parliament Approves New Rules for Arbitration of Corporate Law Disputes

Mon, 2020-08-17 03:00

One of the spillovers from arbitration’s popularity for the resolution of commercial disputes has been a steady increase in the use of arbitration provisions in corporate governance documents such as articles of association (“AoA”) or bylaws. Global public companies such as Royal Dutch Shell plc, Kone Oyj or Petrobras SA are prominent examples of this trend. As a result, arbitration has become an important means for the resolution of corporate disputes in various jurisdictions. In Germany, for instance, as much as one third of all arbitrations seated in the country are estimated to concern corporate disputes brought under arbitration clauses contained in AoA.1)See Duve/Wimalasena, Arbitration of Corporate Law Disputes in Germany, in: Nacimiento/Kroell (eds.), Arbitration in Germany, 2nd ed. 2015, at 929. jQuery("#footnote_plugin_tooltip_2332_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2332_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Surveys in Italy, where more than half of all corporations have an arbitration clause in their AoA, have produced similar results.2)See Camera Arbitrale di Milano, Statistiche Arbitrato 2019, at 5. jQuery("#footnote_plugin_tooltip_2332_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2332_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In Switzerland, by contrast, corporate arbitration has played a marginal role so far. But this is likely to change. On June 19 and 26, 2020 the Swiss parliament approved a new statutory framework for the arbitration of corporate disputes based on arbitration clauses set forth in companies’ AoA. The new rules, which will come into effect in 2021 or early 2022, are scattered across two major legislative amendments: one to the Swiss arbitration laws – the Private International Law Act (“PILA”) and the Code of Civil Procedure (“CPC”) – and the other to the Code of Obligations (“CO”)’s sections on corporate law dealing with Swiss stock corporations and limited liability companies. This post briefly outlines the key features of the new framework.

 

Introducing Articles of Association as a Non-Contractual Basis of Arbitration 

One of the major innovations of the new rules is the recognition of corporations’ AoA as a non-contractual basis of arbitral jurisdiction. Previously, the Swiss Federal Supreme Court had repeatedly failed to provide guidance on the legal nature, validity and scope of arbitration clauses in AoA. Consequently, it had remained unclear if unanimous consent in writing from all shareholders and members of corporate bodies was required for such a clause to become valid – thus constituting a multilateral arbitration agreement of a contractual nature, “hidden” in the AoA – or whether it was subject only to the requirements of the applicable corporate law, with the requisite majority of shareholder votes sufficing to compel all shareholders and corporate bodies to arbitration.

The new statutory provisions have now partly solved this conundrum by characterizing AoA as a non-contractual, corporate form of party autonomy on which arbitral jurisdiction can be based. Accordingly, they specify that the PILA’s and the CPC’s rules on (contractual) arbitration agreements shall not apply directly but only “by analogy” to arbitration clauses in AoA (articles 178(4) PILA and 358(2) CPC). While the exact meaning of this application “by analogy” remains to be determined, its more salient implications are briefly addressed below.

 

Applicable Lex Arbitri 

An important deviation from the regime governing contractual arbitration agreements concerns the connecting factors defining the PILA’s and the CPC’s respective fields of application. In Switzerland, an arbitration is normally considered “international” and therefore governed by the PILA if, at the time of the conclusion of the arbitration agreement, at least one of the parties to such agreement had its domicile, seat or place of business outside Switzerland (article 176(1) PILA). Otherwise, the arbitration qualifies as “domestic” and is therefore subject to the provisions of the CPC (article 353(1) CPC).

For arbitration clauses in the AoA of Swiss stock corporations and limited liability companies, the new rules now expressly derogate from this rule by stipulating that the arbitration shall always be governed by the CPC, regardless of any international dimension resulting from, e.g., a shareholder’s domicile or the corporation’s effective seat of management located outside Switzerland (article 697n(2) CO). According to the Swiss Federal Council’s explanatory report, the arbitration is considered “domestic” because the company is governed by Swiss law, a rationale that appears to designate the company’s place of incorporation as the only relevant connecting factor. Although a corresponding rule for corporations incorporated outside Switzerland is lacking, logically it follows that arbitration arising from arbitration clauses in such corporations’ AoA likely would qualify as “international” and be, therefore, subject to the PILA.

 

Validity of the Arbitration Clause Governed by Corporate Law Principles

Arbitration has traditionally derived its legitimacy from a contract requiring mutual consent to arbitrate, the arbitration agreement. Under the new rules, however, arbitration clauses in AoA are characterized as an expression of party autonomy in its corporate law dimension: freedom of association or corporate autonomy to choose the appropriate mechanism for the resolution of internal corporate disputes. Whether and to what extent such autonomy exists within AoA and under which conditions such arbitration clauses can be held to be substantively valid must be determined according to the applicable corporate law.

  • In Swiss stock corporations and limited liability companies, the adoption of an arbitration clause requires an amendment to the AoA by way of resolution of the general meeting of shareholders. Under the new rules, such resolution must be passed by a supermajority vote, requiring two-thirds of votes and the majority of the nominal value of shares represented (article 704(1)(12) CO). Only if the arbitration clause is adopted already at the time of the company’s incorporation, unanimous consent from all founding shareholders is required. Thus, the new rules also clarify that arbitration clauses are not beyond the statutory limitations imposed on the content of Swiss corporations’ AoA, another issue that had previously remained controversial.
  • As to non-Swiss corporations, the question arises of whether the in favorem validitatis conflict of laws rule for arbitration agreements (article 178(2) PILA) will also apply to arbitration clauses in AoA. This rule provides for an alternative application of the law chosen specifically for the arbitration clause, the law governing the subject-matter of the dispute – here the law under which the company was incorporated (lex incorporationis) – or Swiss law. In this regard, several commentators have argued for a substitution of the in favorem validitatis rule by a direct application of the lex incorporationis. This recommendation appears convincing, as an arbitration clause in AoA arguably enjoys a lesser degree of autonomy than an arbitration clause stipulated in a contract. Rather, its validity inextricably depends on the corporation’s fate and will regularly require prior approval or certification by a public incorporating authority applying its own corporate law.

By the same token, the application “by analogy” of the lex arbitri mandates a derogation from the PILA’s and CPC’s requirements of form, providing that the arbitration agreement be made in writing or by another means allowing it to be evidenced by a text (articles 178(1) PILA and 358(1) CPC). The formal validity of arbitration clauses in AoA should be subject to the rules of the lex incorporationis governing amendments to the AoA instead. In Swiss corporations, e.g., shareholder resolutions on an amendment of the AoA require notarization and subsequent registration in the commercial register. Institutional arbitration rules referred to in the arbitration clause need not be notarized in full, as long as the arbitration clause contains a clear reference to such rules (article 697n(3) CO).

 

Scope of the Arbitration Clause and Arbitrability Ratione Materiae

The subject-matter scope of an arbitration clause in AoA must be determined by way of interpretation, following the principles developed for the construction of AoA under the lex incorporationis, which may deviate from those governing the interpretation of contracts. For Swiss stock corporations and limited liability companies, the new rules provide that all disputes arising out of corporate law can be submitted to arbitration (article 697n(1) CO), including, e.g.:

  • direct or derivative actions against members of the corporation’s governing bodies, in particular directors and executive officers, for breach of fiduciary duties;
  • actions to set aside shareholder resolutions passed by the corporation’s general meeting of shareholders;
  • actions for the enforcement of shareholders’ or directors’ rights of information;
  • actions against members of the corporation’s governing bodies for the restitution of company funds; and
  • actions for the dissolution of the corporation.

The new rules also resolve some of the uncertainties surrounding the arbitrability of corporate disputes. With regard to Swiss corporations, many commentators previously considered actions to set aside shareholder resolutions non-arbitrable. These actions cannot be freely disposed over, as required by article 354 CPC, because they have a preclusive effect against all shareholders of the company (erga omnes). However, as the new statutory provisions specifically include procedural rules for such actions, safeguarding shareholders’ rights of information about and participation in the arbitration proceedings (article 697n(3) CO), it is likely that such actions will now become arbitrable. By contrast, other proceedings of Swiss corporate law, in particular those involving the public commercial register authorities, will likely remain subject to the exclusive jurisdiction of state courts. As to corporate disputes arising in non-Swiss corporations, which are subject to the PILA’s test requiring only that the dispute be of financial interest (article 177(1) PILA), arbitrability will rarely pose problems, as virtually all corporate disputes have a financial component.

 

Scope of the Arbitration Clause Ratione Personae

As with the substantive validity, the personal scope of arbitration clauses in AoA is now determined pursuant to principles of the lex incorporationis regarding the binding effect of AoA. For Swiss stock corporations and limited liability companies, the new statutory framework provides as a default rule that an arbitration clause in AoA shall be binding on the company, its shareholders and its governing bodies such as directors, executive officers or auditors (article 697n(1) CO). Once the arbitration clause has been validly inserted into the corporation’s AoA, it will become binding on all present and future shareholders, as well as members of the company’s governing bodies from the time they acquire stock or assume their office. Consequently, minority shareholders who either voted against the resolution for the adoption of an arbitration clause or who did not attend the respective general meeting are deemed bound by such clause regardless of the lack of individual consent on their side. The same holds for members of the corporation’s governing bodies who as such have no voting rights. By contrast, third parties such as the company’s creditors or the commercial register authorities cannot be bound by an arbitration clause in a corporation’s AoA.

A remaining uncertainty concerns whether the broad statutory definition of the personal scope of application is compatible with article 6(1) of the European Convention of Human Rights (“ECHR”), which in the context of arbitration requires an express individual waiver of the right to trial before a state-sponsored court. In Suda v. Czech Republic, which concerned the review of compensation offered to minority shareholders in a squeeze-out merger, the European Court of Human Rights held that legislation allowing majority shareholders to opt for arbitration without minority shareholders’ consent violated article 6(1) ECHR. Commentators in Switzerland were quick to distinguish the new statutory framework from the mandatory arbitration regime in Suda, emphasizing that the latter was based on a contractual arbitration agreement and that article 6(1) ECHR would allow for a more liberal solution in a corporate law context.3)See the overview in Allemann, Statutarische Schiedsklauseln in der Aktienrechtsrevision, in: 13(3) Swiss Review of Corporate and Capital Markets Law 339 (2018), at 347. jQuery("#footnote_plugin_tooltip_2332_3").tooltip({ tip: "#footnote_plugin_tooltip_text_2332_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Specifically, many have argued that shareholders and members of the corporation’s governing bodies must be deemed to consent to arbitration by retaining their shareholdings or office in the aftermath of a shareholder resolution adopting an arbitration clause. This rationale was also relied on by the European Court of Justice in Powell Duffryn plc v. Wolfgang Petereit with regard to a jurisdiction clause in AoA under the Brussels I Regulation.

 

Recognition and Enforcement of Arbitral Awards in Corporate Disputes

Once an arbitral tribunal seated in Switzerland has rendered an award in a cross-border corporate dispute, the question invariably arises of whether such award can be enforced outside Switzerland under the New York Convention (“NYC”) and, in particular, if an arbitration clause in AoA qualifies as an “agreement in writing” (articles V(1)(a) and II(2) NYC). Although courts in many jurisdictions have taken a rather lenient stance on the NYC’s requirements of form with regard to non-signatories, it remains to be seen if the term “agreement” is sufficiently broad to encompass non-contractual expressions of party autonomy. While the discussion will likely revolve around arguments similar to the ones offered in the context of article 6(1) ECHR, the favor recognitionis principle underlying the NYC would certainly speak in favor of a liberal and broad interpretation.

 

Outlook

The new statutory provisions on the arbitration of corporate disputes clear up many of the uncertainties that have so far befogged the arbitration of corporate disputes. Switzerland thus enables corporations, shareholders, directors and officers to enjoy the benefits of arbitration for the resolution of disputes arising from internal corporate affairs and, thereby, further enhances its attractiveness as a seat of arbitration. Moreover, the new statutory rules have already sparked innovation on the institutional front. The Swiss Chambers’ Arbitration Institution is currently preparing a supplement to the Swiss Rules of International Arbitration specifically designed for corporate disputes. The draft supplementary rules are currently undergoing internal consultations and will likely be published in 2021.

References   [ + ]

1. ↑ See Duve/Wimalasena, Arbitration of Corporate Law Disputes in Germany, in: Nacimiento/Kroell (eds.), Arbitration in Germany, 2nd ed. 2015, at 929. 2. ↑ See Camera Arbitrale di Milano, Statistiche Arbitrato 2019, at 5. 3. ↑ See the overview in Allemann, Statutarische Schiedsklauseln in der Aktienrechtsrevision, in: 13(3) Swiss Review of Corporate and Capital Markets Law 339 (2018), at 347. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Tribunal Split in Guatemala Case: Uncertain Recidivism or Present Breach?

Sun, 2020-08-16 03:00

US energy company TECO Guatemala Holdings, LLC (“TECO”) was awarded additional damages in a resubmitted ICSID claim against the Republic of Guatemala under the Dominican Republic-Central America-United States Free Trade Agreement (“DR-CAFTA”).1) TECO Guatemala Holdings, LLC v. Republic of Guatemala (ICSID Case No. ARB/10/23), Award, 13 May 2020. jQuery("#footnote_plugin_tooltip_7926_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7926_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); On 13 May 2020, the resubmission Tribunal composed of Prof. Vaughan Lowe, Dr. Stanimir Alexandrov and Prof. Brigitte Stern awarded TECO US$26.8 million for loss of value and US$0.8 million for pre-sale interest on historical damages, rejecting the rest of TECO’s claims originally set at US$380 million. TECO argued that Guatemala’s 2008 breach had caused it to sell its interest in EEGSA (Guatemala’s largest electricity distribution company) at a depressed price in 2010. The Tribunal split regarding the loss of value claim. The majority focused on future uncertain scenarios, while the minority looked into the effects that Guatemala’s breach had in the 2010 sale. Below we discuss the contrast between both legal positions and the soundness of the minority’s view.

 

Background

In 1998, TECO invested in EEGSA through a joint venture (DECA I, which later became DECA II). Guatemala’s energy regulator, the CNEE, had a limited role in calculating the electricity tariffs every five years.

The dispute arose in relation to the 2008-2013 tariffs. As prescribed by law, EEGSA provided the CNEE with an independent assessment of tariffs entrusted to an engineering firm prequalified by the CNEE. The CNEE disagreed with the assessment, and the issue was submitted to an Expert Commission. The Expert Commission’s comments were later incorporated by EEGSA into a revised report. However, the CNEE rejected the report, commissioned its own consultants, and ended up applying lower tariffs than those under EEGSA’s engineering firm’s report.

TECO filed a Request for Arbitration in 20 October 2010 to recover historical losses and the loss of value of its investment plus interests. The next day, DECA II sold its shares in EEGSA to Empresas Públicas de Medellín E.S.P. (“EPM”).

In December 2013, the original tribunal held that Guatemala breached its fair and equitable treatment obligation on the basis that the CNEE applied an arbitrary tariff review process in breach of due process. The original tribunal awarded TECO damages for its historical losses and denied those arising out of loss of value. Both parties requested the annulment of the award. An ICSID ad hoc Committee annulled the original ruling regarding the loss of value and TECO resubmitted this claim (among others) to arbitration.

 

Majority Focused on the Future: Recidivism Is Not to Be Presumed

According to TECO, the sale value of its EEGSA shares would have been higher but for Respondent´s breaches of the DR-CAFTA, estimating a loss of value of approximately US$222.5 million. Guatemala argued that TECO had not met its burden of proof in relation to the existence and extent of damages, and in any event, TECO’s calculations were incorrect.

The Tribunal analyzed two different periods, viz. 2010-2013 (the remainder of the five-year period) and 2013-2018, and arrived at two different conclusions. For the 2010-2013 period, the Tribunal recognized that the shortfall in EEGSA´s cash flow caused by the Respondent´s breach was certain to continue until the next tariff review in 2013 and that any rational buyer would have considered this shortfall and deducted it from EEGSA’s sale price. The Tribunal thus granted TECO approximately US$26.8 million in damages.

In contrast, for the 2013-2018 period, the majority considered that Respondent’s breach was not the tariff itself but the procedural deficiencies that led up to the adoption of the tariff. Thus, the impact of the breach upon EEGSA’s sale price would depend on the expectation of a recurrence of the procedural breach.

The majority held that “[r]ecidivism is not to be presumed by investment tribunals” and tribunals may not assume that buyers will presume that a Government — whose actions have already been ruled as unlawful — will continue acting in disregard of its legal obligations. Furthermore, even if Guatemala was to breach the DR-CAFTA again in 2013, EEGSA´s loss of value would have been caused by the second breach, which creates a gap of causation between the 2008 breach and Claimant´s alleged loss of value.

 

The Loud Voice of the Minority

An undisclosed arbitrator (the minority opinion) held that the commercially sensible approach was to recognize that any reasonable buyer in EPM’s position would have considered the 2008 review process and depressed tariff when valuing EEGSA, as the evidence showed. Thus, causation would not relate to uncertain recidivism but to a proximate reality: EPM determined the value of EEGSA in 2010 under lower tariffs imposed in breach of the BIT. Therefore, the loss of value was a direct result of Respondent´s breach. Additionally, the arbitrator stated that the 2008 breach would have increased risks that the Government would act wrongly in the future, lowering EEGSA’s market value in 2010.

But for the 2008 tariff review process, TECO´s shares in EEGSA had a market value of x. When TECO sold its shares in 2010, such shares had a market value of (x – y), y being the effects of the depressed tariffs. The minority held that this is nothing but “the undeniable fact that the tariffs operative at that time had been set a lower level, that causes the reduction in the value of EEGSA: the lower valuation, based on the lower tariffs imposed in breach of the BIT, is thus a direct result of that breach of the BIT.

The minority’s thought-provoking reasons contrast strongly with the mere two paragraphs dedicated to them in the award.

 

  • The apparent causation issue

To assess TECO’s loss of value claim one must differentiate among EEGSA’s potential valuations at different times: the value of EEGSA but for the 2008 review process; the 2010 sale value; and any possible future value after 2013. We then ask: what is the relevance of these different valuations to TECO´s damages claim? The majority focused on two scenarios: Guatemala’s recurring breach in the 2013 tariff review process or a fix in tariffs that would be in full compliance with its international obligations. Under both scenarios, the majority considered that either a decrease or an increase in EEGSA´s value could ensue, and if a decrease were to occur, damage would be caused by the 2013 review process instead of the 2008 breach.

However, it is difficult to identify how those scenarios are related to Claimant’s burden of proof on causation. Arguably, a breach on the 2013 review process resulting in depressed tariffs would entitle EPM to pursue a claim against Respondent, which is unrelated to TECO’s loss of value derived from the 2010 sale. Similarly, a tariff increase in 2013 would benefit EPM and would not bear on the fact that TECO sold what were considered “damaged goods.”

The majority examined what appears to be another, indirect, layer of causation. When stating that the minority’s view “builds upon an implicit presupposition of the continuation and repetition of a breach of the BIT (…),” the majority does not deny that EPM bought TECO´s shares of EEGSA at a lower value than but for the 2008 review process. The shares’ value from October 2010 onward was irrelevant for TECO.

 

  • The rational buyer’s analysis

For the 2010-2013 period, the Tribunal unanimously considered that any rational buyer in 2010 would have taken the impending 2010-2013 cash flow shortfall into account. However, only the minority recognized that the same rational buyer in 2010 “had no alternative but to base its estimate of the value of EEGSA on the assumption that such tariffs would continue in future.” It was established that EPM considered this breach when valuing EEGSA. As EPM´s CEO stated “We bought on the basis that the current tariff model and layout is the one that exists. Clearly it has an impact on the final valuation and we had no expectation that it would be modified or changed.” Thus, the record shows that EPM’s final – and diminished – valuation of EEGSA was a direct result of Respondent´s present breach of its DR-CAFTA obligations and was not based on an uncertain futuristic assessment.

 

Will this Minority Voice Resonate in the Future?

Investment arbitration cases present complex issues to arbitrators with different backgrounds in law and evidence. Often inevitable, divergent views among tribunal members emerge, and decisions have to be taken by majority. Despite the limited (if any) effect that minority opinions might have on the actual dispute at issue, these opinions contribute to the development of law, provoking new discussions and even guiding arbitrators facing similar issues in future cases. In TECO, the minority disagreed with the other arbitrators in a key issue that would have changed the outcome of the arbitration. Even if not decisive for TECO, the loudness of the minority’s voice remains to be heard in future cases.

References   [ + ]

1. ↑ TECO Guatemala Holdings, LLC v. Republic of Guatemala (ICSID Case No. ARB/10/23), Award, 13 May 2020. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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A “Transparency Lighthouse” for Arbitration in Peru

Sat, 2020-08-15 02:00

In the last decades, Peru has been recognized to be a solid, convenient and leading choice as a seat for arbitrations in the Latin American region.

Peru is party to the New York Convention and the ICSID Convention, as well as to several Bilateral Investment Treaties that provide for international arbitration as the applicable dispute resolution mechanism. The Peruvian Arbitration Act of 2008,1)Peruvian Arbitration Act, Legislative Decree Nº 1071, enacted on 27 June 2008 and in force since 1st September 2008. The full text can be read at: http://spijlibre.minjus.gob.pe/normativa_libre/main.asp. jQuery("#footnote_plugin_tooltip_4021_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4021_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); based on the 2006 version of the UNCITRAL Model Law, governs both domestic and international arbitrations and is viewed as a modern arbitration law in the region. In addition, domestic law2)Peruvian State Procurement Act, Law Nº 30225, enacted on 12 March 2019 and in force since 13 March 2019. jQuery("#footnote_plugin_tooltip_4021_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4021_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); requires all disputes arising out of State procurement contracts to be submitted to arbitration.

This regulatory scheme has allowed a steady development of the arbitration system and a healthy coexistence with the judiciary, while fostering foreign investment and socioeconomic growth. Nevertheless, in recent years, arbitration users began to raise queries concerning the legitimacy of arbitration because of the lack of publicly available information, especially with respect to arbitrators and their accountability. Some of these queries arose from the uncovering of bad practices and acts of corruption associated to the “Lava Jato” investigation, which managed to permeate arbitration in Latin America.3)The “Lava Jato” investigation involves arbitration procedures conducted between the Peruvian government and the Odebrecht Group, in which the latter allegedly payed bribes to arbitrators in order to obtain favorable awards. jQuery("#footnote_plugin_tooltip_4021_3").tooltip({ tip: "#footnote_plugin_tooltip_text_4021_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In light of all these circumstances, the National and International Arbitration Center of the Lima Chamber of Commerce (LCC Arbitration Center) has been active in strengthening policies and measures to (i) promote the highest ethical standards in the arbitrations that it administers and (ii) prevent bad practices. In particular, the LCC Arbitration Center has focused in developing transparency mechanisms that guarantee the legitimacy of arbitration, while contributing to achieve greater efficiency in the arbitration proceedings.

 

The “Transparency Lighthouse” of the Arbitration Center of the Lima Chamber of Commerce

In 2019, the LCC Arbitration Center launched a digital platform named “Faro de Transparencia” (“Transparency Lighthouse”), aimed at providing public access to key pieces of information with regard to arbitrations administered by the institution as well as the arbitrators acting in them since 2012.

Taking into account the confidential nature of arbitration in Peru4)Article 51 of the Peruvian Arbitration Act provides for the confidentiality of arbitration proceedings, unless otherwise agreed by the parties. jQuery("#footnote_plugin_tooltip_4021_4").tooltip({ tip: "#footnote_plugin_tooltip_text_4021_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and the scarcity of data with regard to arbitrators in the market, the main goal of the Faro de Transparencia is to grant arbitration users with more information to make better informed decisions when appointing arbitrators.

 

Providing key pieces of information

The Faro de Transparencia makes publicly available information of all the arbitrators that participate in proceedings administered by the LCC Arbitration Center, regardless of whether they belong to the institution’s roster of arbitrators. Among the information provided are: (i) the number of cases in which the arbitrators have participated or are currently participating, (ii) the nature of those disputes, (iii) the names of the co-arbitrators in the tribunals, (iv) the law firms that have appointed the arbitrators, (v) the dates of the requests for arbitration and of the arbitral awards, (vi) the current status of the proceedings, and (vii) any disciplinary sanction that the arbitrators may have received from the institution’s Arbitration Court.

On one hand, by accessing this information, parties can get a broader scope of the experience, availability and track record of the arbitrators they intend to appoint, preventing subsequent unpleasant surprises in this respect. In addition, such information enables arbitration users to fulfill an exhaustive research with regard to any conflicts of interests that might come up and should be avoided or disclosed within an arbitration, such as dubious practices associated with repeated appointments of arbitrators. On the other hand, public access to said information encourages higher ethical standards and greater efficiency by arbitrators, who will be keen on maintaining a good performance and track record.

Moreover, the Faro de Transparencia provides access to important information relating to arbitral awards. The digital platform publishes the full texts of the awards that have been issued in proceedings involving the Peruvian State as a party, considering their public nature provided by law.5)Article 51 of the Peruvian Arbitration Act provides for the publicity of awards that were issued in proceedings in which the State acted as a party. jQuery("#footnote_plugin_tooltip_4021_5").tooltip({ tip: "#footnote_plugin_tooltip_text_4021_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); On the other hand, even though arbitration proceedings between private parties are confidential, the Faro de Transparencia includes special anonymized summaries of arbitral awards that have been issued in commercial cases. The summaries provide information regarding: (i) the matter of the dispute, (ii) the nature of contracts, (iii) the applicable laws, (iv) the amount of the claims and (v) the legal topics addressed by the arbitral tribunals. Furthermore, the digital platform provides information of all awards issued in cases administered by the institution that have been set aside by Peruvian courts, which fortunately do not amount to more than 1%. Users may access the full text of the court judgement and the annulled award of either the cases in which the Peruvian State acted as a party and those between private parties.

Information on arbitral awards is relevant for potential arbitration users since it may evidence the quality of the work of the arbitrators and the legal criteria followed in different disputes. In addition, all the above-mentioned information can lead to interesting academic research and consequent publications with regard to arbitration in Peru.

 

Strengthening arbitration in Peru

The information of the Faro de Transparencia is available not only to users of the LCC Arbitration Center but to the general public. There is no charge for the use of the platform or the download of documents.

This digital platform, which was nominated to the Global Arbitration Review Awards 2020 in the category of “best innovations by an organisation”, constitutes a quantum leap in strengthening Peruvian arbitration and leading it towards higher standards of transparency, ethics and efficiency. The LCC Arbitration Center is currently working to introduce new features to the Faro de Transparencia which may turn into better services for its users.

References   [ + ]

1. ↑ Peruvian Arbitration Act, Legislative Decree Nº 1071, enacted on 27 June 2008 and in force since 1st September 2008. The full text can be read at: http://spijlibre.minjus.gob.pe/normativa_libre/main.asp. 2. ↑ Peruvian State Procurement Act, Law Nº 30225, enacted on 12 March 2019 and in force since 13 March 2019. 3. ↑ The “Lava Jato” investigation involves arbitration procedures conducted between the Peruvian government and the Odebrecht Group, in which the latter allegedly payed bribes to arbitrators in order to obtain favorable awards. 4. ↑ Article 51 of the Peruvian Arbitration Act provides for the confidentiality of arbitration proceedings, unless otherwise agreed by the parties. 5. ↑ Article 51 of the Peruvian Arbitration Act provides for the publicity of awards that were issued in proceedings in which the State acted as a party. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Arbitration in South Africa Receives Another Boost

Fri, 2020-08-14 03:00

International arbitration is on the rise in South Africa.  This is partly a result of the country’s new arbitration law, which was passed in 2017, but now the process has been given a further boost by the publication by the Arbitration Foundation of Southern Africa (AFSA) of its draft International Arbitration Rules (the Draft Rules), which are currently out for public consultation and comment.

 

A new law

When South Africa’s International Arbitration Act (IAA) was passed three years ago, it was a significant development in the region.  Many parties choose arbitration in their international agreements; however, this is only desirable if an arbitration is seated in a jurisdiction where courts give support when needed, but otherwise do not interfere.  The IAA entrenches this approach.  Being based on the UNCITRAL Model Law, it provides a familiar framework for administering an arbitration, clarity of process and procedure, and certainty that foreign arbitration agreements and awards will be recognised and enforced within the jurisdiction.  It also helps reassure outsiders that the process will be neutral, without biased interventions from local courts.  All this gives parties in neighbouring countries (and beyond) the confidence to seat their arbitrations in South Africa.

 

Draft rules

A good arbitration law is only one side of the equation, however.  Other factors that parties look for include a developed judicial system, good physical and technological infrastructure, established arbitrators and arbitral institutions, and modern arbitral rules.  So far South Africa has lacked only the latter; however, AFSA is now plugging this gap with the publication of their Draft Rules.  These have been crafted to comply with the laws of the major sub-Saharan jurisdictions, but do not appear specifically parochial in any obvious way.  On the contrary, they incorporate a number of procedures developed recently by leading global institutions, and strike a careful balance on many sensitive and important issues such as expedited procedures, early dismissal, confidentiality/transparency and third party funding.  They also make provision for remote hearings, which may remain in fashion after the current COVID-19 pandemic has gone away (Art 21(6)).

 

Abbreviated procedures

For a long time arbitration trailed behind the courts in dealing with weak cases expeditiously.  Courts will often strike out flawed claims, grant summary judgment, or grant default judgment when a defendant refuses to cooperate.  Arbitrators, on the other hand, are traditionally unable or unwilling to make similar awards.  There are good reasons for this, the main one being the concern that a summary award might be challenged in the courts for procedural irregularity.  However, there is a clear need for frivolous cases to be disposed of quickly, and the leading arbitral institutions have at last begun to deal with this.  The draft rules do so too, following the examples of SIAC and ICC, and ICSID before them.  Article 12 of the draft rules provides for ‘Early Dismissal’ wherever a claim or defence is manifestly without legal merit or manifestly outside the jurisdiction of the tribunal.  Applications for Early Dismissal must be made promptly, though, and within 30 days of the constitution of the tribunal, and the application papers must be reasonably detailed.  It is not sufficient to set out a brief argument in the hope that it can be fleshed out later with facts and legal reasoning (Art 12(2)).

Another way in which the draft rules allow suitable claims to be dealt with quickly is by providing for an ‘Expedited Procedure’ (Art 10).  This is basically the normal arbitration procedure but with less scope for document production, tighter deadlines, and a final award delivered without any (or fully stated) reasons within six months of the tribunal receiving the papers.  Again, this is not new, but it is not universal either, and so it is positive and encouraging to see the procedure included here.  The key point is that it is suitable not only for low value claims, but also for higher value ones which are relatively simple, or where the parties have a particular interest in having their dispute dealt with quickly.   Article 10(1) allows the procedure where sums in dispute total no more than USD 500,000, or where both parties wish to use it.

The extent to which parties agree to use the procedure is not clear.  A similar procedure in the English courts, for instance, has hardly been used since it was put in place in 2015.1)The Shorter Trials Scheme: Practice Direction 57AB in the English Civil Procedure Rules. jQuery("#footnote_plugin_tooltip_9844_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9844_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });  In arbitration there is the added complication that an expedited procedure sometimes requires the appointment of a sole arbitrator, regardless of whether the arbitration agreement specifies a three-person tribunal (Art 10(3)(b)).  That can catch parties unawares.  However, it is certainly helpful that the Draft Rules include an abbreviated procedure in these economically difficult times.

Even where cases are conducted in the normal way and over an extended period, there are circumstances in which urgent action is called for, in particular injunctive or similar relief early on in the proceedings.  This is another area in which arbitration has for a long time lagged behind litigation, leaving parties obliged to make applications to the courts.  However, the Draft Rules follow those of the ICC, LCIA and others in allowing for the appointment of an emergency arbitrator before the tribunal proper is constituted (Art 11).

 

Transparency v. confidentiality

In several respects, then, the Draft Rules follow emerging best practice in many welcome ways.  In other respects, though, the drafting committee (supported by an advisory board including such luminaries as Lord Hoffmann and Professor Julian Lew) has had to pick its way through more difficult issues.  Third party funding is one of those.  Should funding be disclosed to other parties and the tribunal, or is it a private matter for the party receiving funding?

Since many arbitrators have links to funders, there is a growing acceptance that funding should be disclosed to some degree, so that any potential conflicts are brought into the open.  However, this raises the question of how much should be disclosed of the funding arrangements.  AFSA has taken a minimalist approach, requiring only the disclosure of the existence of an arrangement and the identity of the funder (Art 27(2)).  This may not please opponents, who would no doubt like some insight into the funder’s terms, not least because they might affect the opponent’s ability to recover costs if it wins.  However, the drafting committee clearly thought this unnecessary and also potentially problematic, since the terms on which funding is offered necessarily reflect the funder’s assessment of a claim’s chances of success.  As regards to recovery of costs, Art 25 provides for security for costs which should allay any fears.

The draft rules on funding also exclude party representatives from the definition of ‘Third Party Funder’.  This means that lawyers who enter into damages-based agreements with their clients are not obliged to disclose this.

The tension between a party’s right to confidentiality and the desire for transparency is also an issue in relation to the publication of arbitral awards.  Again, there is a change of public mood here, and many think that a greater level of openness would benefit arbitration as a whole, allowing awards to be scrutinised more often and arbitration case law to develop more quickly.  The problem, however, is that parties’ attitude to confidentiality is rather different when they come to consider their own disputes.  There is a strong feeling that these should be private, and the confidentiality of arbitration is after all considered to be one of its main advantages.

In this respect AFSA follows the LCIA’s general approach of confirming the general principle of confidentiality but allowing defined exceptions.  Some of these are inevitable, arising from overriding legal rights or duties (Art 36(1)), but there is also a provision allowing AFSA to publish all arbitral awards in an anonymised or pseudonymised form, provided no party objects.  The key point here is that this is an opt-out procedure,2)In contrast to Art 30.3 of the 2014 LCIA rules, which provides that “LCIA does not publish any award or any part of an award without the prior written consent of all the parties and the Arbitral Tribunal.” jQuery("#footnote_plugin_tooltip_9844_2").tooltip({ tip: "#footnote_plugin_tooltip_text_9844_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and objections must be submitted in writing within a short time (30 days after notification of the award), so parties must be aware of Art 36 and the need to act quickly (Art 36(3)).

 

Wider consultation

The draft rules are clearly a major step forward for arbitration in South Africa, and already the product of careful thought and consultation.  AFSA should be commended for seizing the opportunities offered by the IAA and potentially transforming the country as a hub for international dispute resolution in the region.  It is important that the draft rules are as user-friendly as they can be, and take into account all views, so it is appropriate that AFSA is now consulting more widely and seeking the views of the arbitration community generally.  The public consultation ends on 31 August 2020.  Comments on the draft rules should be sent to [email protected] before that date.

References   [ + ]

1. ↑ The Shorter Trials Scheme: Practice Direction 57AB in the English Civil Procedure Rules. 2. ↑ In contrast to Art 30.3 of the 2014 LCIA rules, which provides that “LCIA does not publish any award or any part of an award without the prior written consent of all the parties and the Arbitral Tribunal.” function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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The LCIA Publishes its 2020 Rules: A Light-Touch Update to Meet Modern Needs

Thu, 2020-08-13 03:00

On 11 August 2020 the LCIA unveiled the long-awaited update to its Arbitration Rules (the 2020 Rules). The 2020 Rules will become effective on 1 October 2020 and will apply to arbitrations commenced from that date onwards. They will supersede the 2014 edition of the LCIA Arbitration Rules (the 2014 Rules).

The 2020 Rules introduce a number of changes reflecting the best practice of LCIA tribunals to date, as well as bringing the LCIA Arbitration Rules in line with modern international arbitration trends. None of the changes made are dramatic: according to the LCIA’s current President, Paula Hodges QC, the drafters of the new rules adopted a “light touch” approach.

The main changes to the 2020 Rules are summarised below.

 

Early determination

One of the most important updates is the introduction of express provisions regarding early determination. Under previous editions of the LCIA Rules it was generally accepted that tribunals had an implicit power of early dismissal in relation to claims outside their jurisdiction or manifestly unmeritorious (under Articles 14.4(ii) and 14.5 of the 2014 LCIA Rules, which respectively provided the tribunal’s “duty to adopt procedures suitable to the circumstances of the arbitration” and its “widest discretion to discharge these general duties”). The 2020 Rules make this power express in Article 22.1(viii).

This brings the LCIA in line with the general trend towards allowing the early determination of claims. For example, the SIAC Rules have expressly provided for early dismissal of claims and defences since 2016 (SIAC Rules, Rule 29). However, unlike the SIAC Rules (which set out the process for making an application for early dismissal and a deadline for its consideration by the tribunal), the new provisions in the 2020 LCIA Rules are less detailed and give more latitude to tribunals in terms of establishing the process for considering such applications.

The express spelling out of the tribunal’s power of early dismissal in the 2020 Rules is a welcome development, which should serve to enhance the efficiency of international arbitration, save costs and protect parties from manifestly unmeritorious claims that would have never seen the light of day in many countries’ courts. While tribunals in principle had this power under the previous version of the LCIA Rules, they were all too often reluctant to exercise it. It is hoped that this express new provision will embolden tribunals to deploy this previously underutilised power more frequently.

 

Multiple proceedings and claims

Another significant development is the broadening of the powers of the LCIA Court and of individual tribunals to order the consolidation and concurrent conduct of arbitrations, in the new Article 22A of the 2020 Rules.

Under the 2014 LCIA Rules, tribunals had the power to order, with the approval of the LCIA Court, the consolidation of several arbitrations into a single arbitration (1) where all the parties to the arbitrations to be consolidated so agree in writing; or (2) where arbitrations were commenced under the same arbitration agreement or any compatible arbitration agreement(s) between the same disputing parties, provided that no tribunal had yet been formed for such other arbitration(s) or, if already formed, that such tribunal(s) was composed of the same arbitrators. The LCIA Court had similar powers to consolidate arbitrations where no tribunal had yet been appointed.

Under the 2020 Rules, in addition to the situations envisaged under the 2014 Rules, tribunals (or the LCIA Court, if the tribunal has not yet been appointed) will also have the power to order the consolidation of arbitrations commenced under the same arbitration agreement or any compatible arbitration agreement(s) and arising out of the same transaction or series of related transactions – even if the disputing parties are not the same (Article 22.7(ii)). Tribunals also have the power to order that such arbitrations shall be conducted concurrently where the same arbitral tribunal is constituted in respect of each arbitration (Article 22.7(iii)).

This amendment should result in greater efficiency and is in line with the recent trend of broadening the circumstances in which different arbitrations can be consolidated. For example, the SCC Rules (Article 15) and the SIAC Rules (Rule 8) likewise provide for the possibility of consolidating disputes arising out of the same transaction or series of transactions and where there is no identity of parties.

The 2020 Rules also introduce a new provision whereby a claimant wishing to commence more than one arbitration under the LCIA Rules (whether against one or more respondents and under one or more arbitration agreements) may serve a composite request for arbitration in respect of all such arbitrations (Article 1.2). This provision appears to have been introduced as a result of the judgment in A v B [2017] EWHC 3417, which held that the 2014 Rules did not permit a request for arbitration filed by the claimant to include related claims under two contracts and their associated LCIA arbitration agreements (and that the tribunal therefore had no jurisdiction). The amendment in the 2020 Rule means that claimants will no longer need to file multiple requests in such circumstances, which is a more efficient outcome.

 

Changes reflecting the impact of the global pandemic on international arbitration

The LCIA Rules were the first major international arbitration rules to be updated after the start of the COVID-19 global pandemic. As explained in the announcement accompanying the release of the 2020 Rules, “while the pandemic did not necessitate any change of direction or focus, it allowed the LCIA to address explicitly some changes in recent good practice, notably the increased use of virtual hearings and the primacy of electronic communication across the board.” In particular:

  • The 2020 Rules address virtual hearings in greater detail than the 2014 Rules. While the latter did provide for the possibility of hearings being held by video, the 2020 Rules (Article 19.2) spell out that “a hearing may take place in person, or virtually by conference call, videoconference or using other communications technology with participants in one or more geographical places (or in a combined form).”
  • The 2020 Rules establish the primacy of electronic communications. Under the 2020 Rules the request for arbitration, as well as the response to it, shall be submitted in electronic form only (either by email or other electronic means g. the LCIA’s electronic filing system), and can only be submitted in paper form with the LCIA Registrar’s prior written approval (Article 4.1). This contrasts with the 2014 Rules, which provided that the request for arbitration and response could be submitted in electronic form, in paper form or in both forms (the latter being most commonly used in practice). In addition to making arbitrations easier to manage during a pandemic, the use of electronic communications by default will help save costs and also reduce the LCIA arbitrations’ environmental impact. However, LCIA users should be mindful of enforcement considerations in jurisdictions where courts take a formalistic view of the evidence that due notice of the arbitration proceedings was given under Article V(1)(b) of the New York Convention.
  • E-awards. Article 26.2 of the 2020 Rules now expressly provides that “any award may be signed electronically and/or in counterparts and assembled into a single instrument”. This is unless the parties agree otherwise, or the tribunal or LCIA Court directs otherwise; for example, departure from this default provision could be envisaged when the formalities at the seat of arbitration so require, or where enforcement of the award will be sought in a jurisdiction where there is a risk that courts would not accept a copy of an e-award as a “duly authenticated original award” in the meaning of Article IV(1)(a) of the New York Convention.

 

Other changes

The 2020 Rules introduce a number of changes designed to maximise the efficiency of the proceedings. In particular:

  • Tribunals are now given a three-month deadline from the last submission by the parties to issue the final award (Article 15.10).
  • The tribunal and the parties are now required (and not just “encouraged” as in article 14 of the 2014 LCIA Rules) to make contact within 21 days of the tribunal’s appointment (Article 14.3).
  • Certain steps that a tribunal can take to expedite the procedure (such as limiting the length or content of written submissions, limiting the written and oral testimony of witnesses or employing technology) are expressly spelled out in Article 14.6.

Additionally, the 2020 Rules address certain data protection (Article 30.A) and compliance (Article 24.A) issues that could arise in the LCIA’s practice. The 2020 Rules also contain express provisions governing the role of tribunal secretaries, folding section 8 of the 2017 LCIA Guidance Notes for Arbitrators into the 2020 Rules (Article 14A).

Finally, the LCIA’s Schedule of Costs has also been updated, increasing the maximum hourly rate to be charged by arbitrators to £500 (from the current £450). While potentially leading to an increase of costs in some arbitrations, this should help the LCIA to continue to attract the most experienced and highly qualified arbitrators to resolve complex and high-value commercial disputes.

 

Conclusion

While the 2020 Rules might not be ground-breaking, the update strikes a balance between meeting the needs of modern arbitration users and maintaining the stability and predictability of the LCIA Rules. As emphasised by the LCIA’s Director General Jacomijn van Haersolte-van Hof, “a stable rules framework is important for users,” but this consideration has to be balanced with the need to ensure “that rules continue to reflect best practice.” The amendments reflect practices first pioneered by other arbitral institutions that have proven effective (such as early determination and broader consolidation powers) and the best practices of the LCIA itself. The reform of the 2020 Rules should thus help the LCIA maintain its leading global position in resolving international commercial disputes.

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Dispositive Motions: A Step Change?

Wed, 2020-08-12 03:00

Over the past decade, many arbitrators and international arbitration practitioners have seen a consistent increase in parties’ interest in bringing dispositive motions within the context of the arbitration proceedings. Some commentators—especially from common law traditions—suggest that such motions should play a more prominent role in international arbitration. In the same time frame, as discussed below, many of the major international arbitral institutions have introduced or confirmed the possibility of dispositive motions (also referred to as requests for summary or early disposition, or early determination) under their rules. This has followed from a long evolution in international arbitration towards recognizing arbitrators’ power to make early determinations arising from their inherent authority to dispose of cases or issues.

But while parties continue to bring these motions, they are still rarely granted in arbitration,1)See Edna Sussman, The Arbitrator Survey—Practices, Preferences and Changes on the Horizon, 26 Am. Rev. Int’l Arb. 517, 523 (2015). jQuery("#footnote_plugin_tooltip_2910_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2910_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); as in reality it can be difficult for a tribunal to unanimously agree, at a relatively early stage in the proceeding, that one or more issues can be definitively determined without a merits hearing. Through the remainder of 2020 and in 2021, however, we may see dispositive motions gain significantly greater acceptance in arbitration procedure.

 

Dispositive Motions: Scope and Purpose

A dispositive motion, summary disposition, or early disposition is usually defined as a motion that would finally determine or dispose of an issue in dispute, much like a motion to dismiss or motion for summary judgment in judicial proceedings. Dispositive motions are intended to provide a relatively abbreviated procedure to narrow the scope of issues in dispute, or eliminate issues entirely, potentially even resulting in an early resolution of the entire case, in the event it causes the parties to reassess their settlement positions.

The rationale for dispositive motions wherever they appear, in arbitration or in court, is obvious: to improve the efficiency and cost-effectiveness of the proceedings, and to avoid belaboring disputed issues where one side’s position does not hold up to scrutiny, even assuming the facts are as it claims, or simply as a matter of law. There are potential risks, of course, in that a party could potentially be denied an opportunity to fully present its case, imperiling the integrity of the award, or that its claims or defenses could be dismissed summarily while some as-yet undisclosed document, line of testimony, or credibility finding surfacing later in the proceeding would have reversed the outcome.

 

Law and Rules Concerning Dispositive Motions

In the United States, domestic arbitration law has permitted dispositive motions for some time, though some rules have only implemented them in the past decade. For example, while the Federal Arbitration Act, which was enacted in 1925, is silent on dispositive motions, Section 15(b) of the 2000 Revised Uniform Arbitration Act provides that “[a]n arbitrator may decide a request for summary disposition of a claim or particular issue.” Similarly, institutional rules provide for dispositive motions. Rule 18 of the JAMS Comprehensive Arbitration Rules and Procedures has permitted dispositive motions since April 2003, but the AAA Commercial Arbitration Rules did not explicitly allow them until October 1, 2013, when Rule 33 was implemented.

While international arbitration regimes have been slower to embrace the concept, they are now increasingly doing so. In recent years, many of the international arbitration rules of the leading institutions worldwide have been revised to codify arbitrators’ power to grant dispositive motions, explicitly or implicitly. In 2006, ICSID incorporated Article 41(5) into its Arbitration Rules, which expressly granted arbitrators the power to summarily dispose of a case. On August 1, 2016, SIAC officially implemented a new Rule 29 providing that parties may request early dismissal of claims or defenses which are “manifestly without legal merit” or “manifestly outside the jurisdiction of the Tribunal.” On September 1, 2016, JAMS added Rule 26 to its International Arbitration Rules and Procedures, expressly allowing “any party to file a Motion for Summary Disposition of a particular claim or issue.” HKIAC, on November 1, 2018, added a new Article 43 to its Administered Arbitration Rules, empowering the tribunal to make early determinations of law or fact where “such points of law or fact are manifestly without merit” or “outside the arbitral tribunal’s jurisdiction.” CPR, for its part, on March 1, 2019, added Rule 12.6 to its Administered Arbitration Rules, providing that “a party may make a preliminary application to the Tribunal to file a motion for early disposition of issues.” The LCIA is imminently launching their revised rules in 2020, and have indicated that they will include an early determination provision. (See prior Kluwer Arbitration post authored by Aaron McDonald and Jerome Temme here.)

Some institutions have withheld from offering express rules on dispositive motions, like the ICDR International Dispute Resolution Procedures, which do not expressly provide for dispositive motions but implicitly permit them by empowering the arbitrator to decide preliminary issues, bifurcate the proceedings, and exclude cumulative or irrelevant evidence. (ICDR International Dispute Resolution Procedures, Article 20(3).) Similarly, while the ICC Arbitration Rules do not expressly permit dispositive motions, on January 1, 2019, the ICC clarified in its Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration that arbitrators may summarily dismiss “manifestly unmeritorious claims or defences” pursuant to Article 22 of the 2017 ICC Rules, as it views such authority as inherent in the tribunal’s adjudicatory powers.

Slowly but steadily, dispositive motions are being legitimized in international arbitration, and parties are bringing them. Many commentators, too, are calling for their increased acceptance. But are these motions prevailing? In recent years, anecdotally, the most common perception among arbitrators and practitioners is that they are more often made but still not often granted. Empirical evidence, though limited in arbitration, corroborates this: in 2013, New York-based arbitrator Edna Sussman reported her survey results finding that one out of five arbitrators had never granted a dispositive motion, and nearly 50% reported having done so but only five or fewer times. See Edna Sussman, The Arbitrator Survey—Practices, Preferences and Changes on the Horizon, 26 Am. Rev. Int’l Arb. 517, 523 (2015). Thus, despite increased interest in recent years, successfully presenting these motions in international arbitrations has remained somewhat elusive.

 

Emerging Opportunities for Use of Dispositive Motions

The events of this year, however, may spur a step change in the acceptance of dispositive motions in international arbitration. Amidst the COVID-19 crisis and throughout its economic fallout, parties and arbitrators will almost certainly continue to place increased emphasis on efficiency and cost-effectiveness in their proceedings. At the same time, we can expect to see a rising number of disputes—and particularly international disputes—as parties seek determinations on how to allocate increasingly scarce resources, while at the same time, international norms, relationships, and arrangements are questioned and restructured. It is also reasonable to expect increasingly complex disputes in the near future, with arcane and relatively untested contractual provisions and legal doctrines being challenged and examined in ways few expected would ever be necessary, in the areas of force majeure, impossibility of performance, and similar bespoke terms. Many of these disputes will be adjudicated in arbitration.

So while parties will likely have more—and more complex—disputes in the near future, and a greater need to resolve them quickly and efficiently due to pressure on liquidity, the dispositive motion will likely play a significantly enhanced role, with both respondents and claimants seeking summary dispositions on key points, in an attempt to accelerate the issuance of an award in their favor. At the same time, the pandemic has brought about enormously increased interest in virtual hearings, which may serve to reduce the international arbitration community’s dependence on traditional in-person evidentiary hearings.

Of course, prediction is a difficult business, especially these days, and only time will tell whether these factors will indeed lead to arbitrators entertaining and granting more dispositive motions. Still, it seems that given the increased institutional acceptance in recent years, and the rising enthusiasm from parties and commentators, the stage is set for the dispositive motion to gain a much more tangible foothold in international arbitration, with current events acting as a catalyst. As this dynamic plays out, arbitrators must take care to exercise this discretion judiciously, and seek to balance the exigencies of the moment with the enduring considerations of basic fairness and due process, ensuring parties are still able to fully present their cases when warranted.

References   [ + ]

1. ↑ See Edna Sussman, The Arbitrator Survey—Practices, Preferences and Changes on the Horizon, 26 Am. Rev. Int’l Arb. 517, 523 (2015). function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Cross-Institutional Task Force Releases Groundbreaking Report on Gender Diversity in Arbitral Appointments and Proceedings

Tue, 2020-08-11 03:00

On 28 July 2020, the Cross-Institutional Task Force on Gender Diversity in Arbitral Appointments and Proceedings released its long-awaited Report in the eighth volume of the International Council for Commercial Arbitration (ICCA) Reports Series.

Established in 2019, the Task Force brings together 17 leading international arbitration institutions, law firms and gender diversity initiatives to publish and analyze recent statistics on the appointment of female arbitrators, as well as to identify opportunities and best practices to promote gender diversity in international arbitration. The Report draws on data provided or published by members of the Task Force (DIS, HKIAC, ICC, ICDR, ICSID, LCIA, SCC and VIAC), as well as publicly available data published by the PCA and CAS, and surveys conducted by the Task Force with a range of female arbitrators.

As detailed below, the Report (i) identifies key trends in the statistics on arbitral appointments; (ii) considers the barriers to achieving greater arbitrator diversity; and (iii) compiles concrete suggestions for how various actors in the international arbitration community – ranging from counsel to clients to arbitration funders and institutions – can take steps to improve gender diversity in arbitral appointments and proceedings.

 

Current trends in arbitral appointments

The statistics published in the Report show that, over the past four years, the proportion of female arbitrators has almost doubled. Whereas in 2015, an average of 12.2% of arbitrator appointees were female, that figure increased to 16.3% in 2017 and again to 21.3% in 2019. This increase is not solely a reflection of an increase in the number of arbitrations being administered over the past four years. Thus, while the total number of arbitrator appointments in 2015 and 2019 was roughly the same for the institutions considered by the Task Force (3942 and 3930, respectively), the total number of female arbitrator appointments increased from 490 in 2015 to 879 in 2019. However, with just over a fifth of newly appointed arbitrators in 2019 being female, there is room for improvement.

As the Report notes, there may be a number of factors influencing this positive trend. For example, the apparent increase in the number of female arbitrator appointees may be the result of improvements in tracking and reporting data and/or the result of increased awareness following the launch of diversity campaigns like the Equal Representation in Arbitration Pledge and the work of organizations like ArbitralWomen. A number of commentaries in recent years have also sought to increase awareness of why diversity in arbitral tribunals is a valid concern and why it matters. Other factors that may affect the trends in the data published by the Task Force include the fact that current records of female arbitrator appointments do not disaggregate the effect of repeat appointments, which would have the effect of lowering the true diversity of arbitral appointees.1)On repeat appointments, the Report notes that some arbitral institutions have begun to track this information, including the HKIAC, ICSID, ICC and LCIA. The HKIAC, for example, provided the Task Force with data on repeat appointments dating back to 2016, which suggests that repeat appointments amongst female arbitrators have been increasing over the past three years. jQuery("#footnote_plugin_tooltip_8527_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8527_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The data collected by the Task Force has also made it possible to identify the influence of appointments by arbitral institutions, co-arbitrators and parties. We highlight three trends identified in the Report:

  • The proportion of female institutional appointees exceeds the proportion of female co-arbitrator or party appointments. Over the past four years, approximately a third of all institutional appointees have been female (32.5% of appointments made by institutions in 2015, and 34% of all appointments in 2019). Over this same period, some institutions have seen a marked increase in the proportion of female institutional appointees. For example, in 2015, 28.2% of appointees by the LCIA were female. By 2019, that figure rose to 48%. Similarly, in 2015, only 5.9% of ICSID appointees were female, whereas 25.8% were female in 2019.
  • The proportion of female co-arbitrator appointments appears to be catching up with the institutional appointments, with 21.5% of co-arbitrator appointees being female in 2019 (up from 9.6% in 2015). The actual number of female co-arbitrator appointees is, however, very low, with one institution recording no female co-arbitrator appointments in 2019 at all. Given the small sample sizes involved, there has been significant year on year variation in the proportion of female co-arbitrator appointments.
  • The proportion of female party-appointments has increased more slowly over the last four years, from 8.5% in 2015 to 13.9% in 2019. Given the wealth of female arbitrator talent available to parties, this number is low and suggests that the greatest opportunities for increasing gender diversity in arbitral tribunals lie with parties and the counsel that represent them. This observation is consistent with the findings of prior studies using publicly available data.

 

Barriers to gender diversity

There are a number of barriers to gender diversity in arbitral appointments and proceedings that have been well documented in literature and commentary. Lucy Greenwood, for example, distinguishes between “leaks” in the pipeline of sufficiently qualified arbitrator candidates, and, more significantly, “plugs” in the pipeline, preventing already-experienced female arbitrators from obtaining appointments.2)See Lucy Greenwood, Unblocking the Pipeline: Achieving Greater Gender Diversity on International Arbitration Tribunals, 42 ABA Int’l L. News (Spring 2013). jQuery("#footnote_plugin_tooltip_8527_2").tooltip({ tip: "#footnote_plugin_tooltip_text_8527_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Pipeline leaks may include issues driving poor retention of women in the legal profession; the impact of unconscious bias on female professional development; the difficulties that female lawyers may face as a result of a lack of flexible working arrangements; and issues relating to gender-based and sexual harassment and bullying in the workplace.

Pipeline plugs may include, amongst other factors, that the fact that the most selected source of information about arbitrator candidates is through word-of-mouth. This, in turn, can mean that arbitration users do not have access—or do not proactively access—information about new, more diverse arbitrator candidates who may be well qualified for the role of an arbitrator in a particular case. Unconscious bias can also impact on parties’ arbitrator choices. As the Report notes, unconscious bias “may influence the notion of the best candidate in favor of male candidates, because of an implicit association between ‘male’ qualities with those of a successful arbitrator, such as ‘gravitas,’ [or] ‘assertiveness.’” The impact of unconscious bias on arbitrator choices has been the subject of recent debate and discussion, and has been described as “one of the single most influential factors for the disparity between male and female representation on international tribunals.”3)Lucy Greenwood, Could “Blind” Appointments Open Our Eyes to the Lack of Diversity in International Arbitration?, TDM 12:4 (2015), at 4 (referring to research that shows that “[g]ender stereotyping has been identified as one of the most powerful influences on decision making, particularly when considering women for leadership positions”). jQuery("#footnote_plugin_tooltip_8527_3").tooltip({ tip: "#footnote_plugin_tooltip_text_8527_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Report also notes that the best qualification for the role of an arbitrator may be prior experience, making it difficult for candidates to obtain first-time appointments. This may be particularly problematic for women, since studies have shown that men tend to be promoted on potential, whereas women tend to be promoted based on experience.4)See discussion in Lucy Greenwood, Moving Beyond Diversity Toward Inclusion in International Arbitration, 2019 Stockholm Y.B. 93, 98 (2019). jQuery("#footnote_plugin_tooltip_8527_4").tooltip({ tip: "#footnote_plugin_tooltip_text_8527_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Recommendations for the future

A key feature of the Report is its recommendations on how to improve the representation both of female arbitrators on tribunals and of female lawyers in arbitral proceedings, including targeted suggestions for qualified arbitrator candidates, external and in-house counsel, parties who appoint arbitrators, and appointing authorities.

The Report highlights many useful tools and resources to address gender diversity in arbitral tribunals, including:

  • Databases of qualified female candidates to serve as arbitrators;
  • Tips for addressing unconscious bias;
  • Recommendations on how parties and funders can require diversity in international arbitration;
  • Opportunities for qualified women to promote and market their credentials;
  • Guidance for less experienced female lawyers who wish to progress their careers; and
  • Advice for employers on how to grow and promote their female talent.

The Report concludes by reaffirming its two key objectives. First, the Report is intended to provide a platform for publishing data on the appointment of female arbitrators in order to both inspire others to record and publish their own diversity statistics, as well as to facilitate more detailed analysis of the data. Second, the Report is intended to collate the various opportunities that exist for arbitration users to take positive and proactive action to address the lack of gender diversity in international arbitration. As the Report notes: “[t]here is a wealth of opportunities for all of us to promote women in arbitration, including as arbitrators, ranging from minor changes to our everyday actions, to implementing broader initiatives that allow women to succeed in this profession. Significantly, there are also many opportunities for women to take advantage of, and we hope that they do.”

References   [ + ]

1. ↑ On repeat appointments, the Report notes that some arbitral institutions have begun to track this information, including the HKIAC, ICSID, ICC and LCIA. The HKIAC, for example, provided the Task Force with data on repeat appointments dating back to 2016, which suggests that repeat appointments amongst female arbitrators have been increasing over the past three years. 2. ↑ See Lucy Greenwood, Unblocking the Pipeline: Achieving Greater Gender Diversity on International Arbitration Tribunals, 42 ABA Int’l L. News (Spring 2013). 3. ↑ Lucy Greenwood, Could “Blind” Appointments Open Our Eyes to the Lack of Diversity in International Arbitration?, TDM 12:4 (2015), at 4 (referring to research that shows that “[g]ender stereotyping has been identified as one of the most powerful influences on decision making, particularly when considering women for leadership positions”). 4. ↑ See discussion in Lucy Greenwood, Moving Beyond Diversity Toward Inclusion in International Arbitration, 2019 Stockholm Y.B. 93, 98 (2019). function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Mainland China-Hong Kong Interim Measures Arrangement One Year On: Crossing the River by Feeling the Stones

Mon, 2020-08-10 06:00

On 1 October 2019, the Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland of the Hong Kong Special Administrative Region (the “Arrangement”) came into force. It was previously reported on the blog here and here. On 8 October 2019, the first interim measure under the Arrangement was granted by the Shanghai Maritime Court. We can expect to see more applications under the Arrangement. Inevitably, challenges will follow, creating a situation of “crossing the river by feeling the stones” (摸着石头过河) for parties and practitioners.

 

Background

Before the Arrangement, parties looked to local legislation for local courts to (1) recognise and enforce interim measures granted by tribunals in a foreign jurisdiction, and/or (2) itself issue interim measures over an arbitration commenced in a foreign jurisdiction.

In Hong Kong, where the arbitration law has largely adopted the UNCITRAL Model Law, both above-mentioned mechanisms are available (sections 35 and 45 of the Hong Kong Arbitration Ordinance). Such mechanisms were not available in Mainland China (see previous commentary on the Blog from the Mainland China perspective: Part I and Part II).

As a starting point, in Mainland China, arbitral tribunals are not empowered to grant interim measures. For arbitrations seated in Mainland China, a party making an interim measure application (usually called a preservation application) should first submit it to the arbitration commission administering the arbitration, which then passes the application on to the relevant court (see Articles 28 and 68 of the PRC Arbitration Law). Prior to the Arrangement, the domestic laws of the PRC provided no mechanism for a court to provide the same assistance to a foreign arbitration, nor was there a ready mechanism to enforce an interim measure made by a tribunal in a foreign arbitration or by a foreign court.

Given the rise in arbitrations involving or concerning parties from Mainland China as shown by HKIAC’s 2019 statistics, this lacuna and its consequences have become more evident in recent years. The risk is apparent: if the subject matter of the interim measures is in Mainland China, the power of any order made largely depended on the voluntary cooperation of the party against whom the order was made. On the whole, the effectiveness of such orders would be undermined.

While the introduction of the Arrangement does not (and does not claim to) fill the entire gap, it opened the first door in in allowing interim measures to cross borders in respect of Mainland China.

 

Key Points of the Arrangement

Who

Two issues fall under the question of “who”. The first is who the parties to the arbitration are: the Arrangement applies only to commercial arbitrations between parties of equal status. This excludes Investor-State arbitrations (see Section II(II)2 of the Interpretation and Application by the Supreme People’s Court of the Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland of the Hong Kong Special Administrative Region, published in the People’s Court Daily on 26 September 2019, with courtesy English translation available here) (the “SPC Interpretation”).

The second is which arbitration institutions can take advantage of the Arrangement. The answer to this question is in Articles 2 and 6 of the Arrangement.

For Hong Kong-seated arbitrations (Article 2), only those administered by institutions confirmed by both jurisdictions are eligible. The premise of this is that ad hoc arbitrations cannot take advantage of the Arrangement. Conversely, Article 6 of the Arrangement does not require confirmation of a list of eligible Mainland arbitral institutions. Under Article 10 of the PRC Arbitration Law, a Mainland arbitral institution is one “registered with the administrative department of justice of the relevant province, autonomous region or municipality directly under the Central Government” (see the relevant list here).

What

Article 1 of the Arrangement states what the term “interim measures” means in the Mainland and in Hong Kong respectively, the specific types of which are defined by domestic laws of Mainland China and Hong Kong.

In Mainland China, interim measures are called “preservation orders” which are, as the name suggests, for preserving the status quo. They are broadly divided into three categories: the preservation of property, evidence, and conduct. In Hong Kong, the types of interim measures are less rigidly categorised.

When

In both jurisdictions, Arrangement applications are made before the arbitral award is made (Articles 3 and 6 of the Arrangement), and even before an arbitration has been commenced.  An extra caveat should be noted that if an application is made to a Mainland court before the commencement of an arbitration: the applicant should request the Hong Kong arbitral institution to communicate with the Mainland court regarding its acceptance of the case no later than 30 days after the preservation measure is taken (paragraph 3, Article 3 of the Arrangement).

Where

The question of “where” also encompasses two issues: (1) where the arbitration in question is seated; and (2) which court to turn to for the application.

On the first issue, many have already noted that an “arbitration in Hong Kong” must mean an arbitration that is seated in Hong Kong (Article 2 of the Arrangement). The same requirement does not apply to Mainland arbitrations, which only needs to be an arbitral proceeding administered by a Mainland arbitral institution. The seat of the arbitration in this case could be outside of Mainland China (see SPC Interpretation, Section II(III)).

On the second issue, Article 6 of the Arrangement states that the application in Hong Kong should be made to the Hong Kong High Court. For parties making applications to Mainland Chinese courts, Article 3, Paragraph 1 of the Arrangement sets out the rule which helps to pinpoint the appropriate court. The applicant should apply to the court of either (1) the respondent’s place of residence, or (2) the place of the subject matter of the application (e.g. where the property or the evidence is located). This physical location needs to be identified to a municipal level; in terms of court level, the applicant should seek a court at the intermediate level: this is usually straightforward, as such courts would include the word “intermediate” in their names. Some specialised courts are also deemed intermediate level courts, such as maritime courts and the Shanghai Financial Court.

How

Articles 4, 5, and 7 outline the documents and information needed to make the application to a Mainland Chinese court and to the Hong Kong High Court respectively. These articles are, however, outlines. The application should be made having full regard to the practical meaning of relevant provisions in the context of domestic law.

 

Practical Notes

The reader should keep in mind that while the language of the Arrangement appears to be straightforward, it should be considered only as a starting point for applications. The specific types of interim measures and the procedure for their application remain the subject of local laws. There are many factors to consider when making actual applications, which if overlooked, could lead to delay or even failure in obtaining the interim measure.

  1. Mainland Chinese court-compliant documents: Courts in Mainland China place great importance on the authenticity of documents submitted. Depending on the documents, authenticity may be proven by a number of means, individually or combined. Given the likely international nature of applications made under the Arrangement, the notarisation / legalisation / certification / authentication of documents is particularly significant. The specific steps (and their names) may vary from jurisdiction to jurisdiction, but will often involve notaries public, the ministry of foreign affairs of the place where the documents are created, and the PR China embassy or appropriate authority at the particular jurisdiction. Furthermore, documents not in Chinese need to be translated (Article 4 of the Arrangement) by a court-approved translation agency. It is important that these time and costs factors be considered well in advance of the application to avoid delay as this process often takes a number of weeks.
  2. Security or undertaking: Whether in Mainland China or in Hong Kong, the applicant should be ready to provide court-compliant security or undertaking (Article 8 of the Arrangement). Courts in Mainland China often calculate security based on a percentage of the claimed amount, and require it to be provided in the form of a guarantee by a bank or by an insurance company.  The specific requirements will vary from court to court and from dispute to dispute.  Applicants should therefore factor in the costs of such security when charting out the costs of an application.
  3. Making an application before commencement of arbitration: In a straightforward arbitration, 30 days may look like ample time for communication between the Hong Kong arbitral institution and the Mainland court (Article 3 of the Arrangement). However, for example, the HKIAC receives arbitrations commenced under potentially problematic arbitration clauses almost daily.1)This was discussed during a Webinar hosted by the HKIAC on 6 May 2020 titled “Dos and Don’ts of Drafting Arbitration Clauses”. jQuery("#footnote_plugin_tooltip_9422_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9422_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); There is therefore a risk that there might be unexpected time lag or non-acceptance of the arbitration, causing the applicant to run afoul of this requirement and to potentially lose the security put up for the application.
  4. Choosing amongst multiple possible Mainland Chinese courts: If there are multiple possible courts to choose from (whether it is because different assets are in different locations, or the respondent and assets are in different locations), the applicant may only make one application. Some factors that may help the parties decide where to make the application include: (1) the familiarity and experience a court has with cases involving a foreign element; (2) the ease and convenience with which execution of the preservation order may be carried out; (3) the need for further enforcement against the final arbitral award. The applicant does not have to confine the application to preservation measures that can only be taken out at the court of application, as choosing one court does not necessarily deprive the applicant of assistance by another relevant court (though this matter is subject to discussion between and implementation through the courts) (SPC Interpretation, Section II(IV)1).
  5. Role of the Hong Kong arbitral institution: The Hong Kong arbitral institution plays an important role in an application to a Mainland Chinese court, though this role has manifested itself differently in the small number of applications seen to date, depending on the Mainland Chinese court to which applications are made. Paragraph 2, Article 3 of the Arrangement requires the application to be passed from the arbitral institution to the relevant court. This is in line with the practice of Mainland Chinese arbitral institutions passing on applications to the relevant Mainland Chinese court. However, the SPC has also commented that a party should be allowed to submit its application together with a transfer letter issued by the Hong Kong arbitral institution (SPC Interpretation, II(V)1, 2). Communication with the relevant Mainland court before application to determine its practice would be helpful in avoiding confusion and delay.
  6. Provision of “asset clues”: the application for preservation of assets or evidence in Mainland China needs to include “clear particulars of the property and evidence to be preserved or concrete threads which may lead to a train of inquiry” (Article 5(4) of the Arrangement). This is sometimes colloquially referred to as “asset clues”. The key point to note here is that the Mainland Chinese courts do not take on an investigative function, and such “asset clues” (or the lack thereof) may well be determinative the outcome of the application.

References   [ + ]

1. ↑ This was discussed during a Webinar hosted by the HKIAC on 6 May 2020 titled “Dos and Don’ts of Drafting Arbitration Clauses”. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Warsaw Court of Appeal Defines Rules for Arbitral Tribunals in Matters Involving State Aid

Sun, 2020-08-09 03:01

In its judgment of 26 November 2019 (I ACa 457/18), the Warsaw Court of Appeal gave its view on the duties of arbitrators and counsel in cases involving state aid. In a well-argued decision, the Court reversed the decision of the lower court and annulled an award rendered by a prominent international tribunal on the grounds of public policy, namely, the failure to give effect to Articles 107 and 108(3) TFEU. It is a precedent-setting ruling with implications reaching far beyond Polish borders, which merits broad review and discussion.

 

Background 

The original dispute concerned the validity of an annex to a concession agreement that purported to compensate the concessionaire (“AWSA”) for the loss of revenue resulting from a change in law. The Minister representing the Polish State Treasury as a party to the concession agreement argued that it had been deceived by AWSA into signing the annex on the basis of outdated assumptions, which led to reportedly excessive compensation of the concessionaire. The arbitral tribunal dealt with the contract law aspect of the dispute and upheld the validity of the annex. The Minister challenged the award to the Circuit Court in Warsaw. A broader account of the dispute is given in the Decision of the European Commission and the judgment of the General Court of the EU, referred to below.

 

EU’s Position: AWSA Received State Aid

In parallel, on 31 August 2012, the Polish government notified the European Commission of a measure consisting of a grant of financial compensation to AWSA. On 25 August 2017, the Commission adopted Decision (EU) 2018/556 (“Decision”) which ordered Poland to recover from AWSA some EUR 223 million with interest as state aid which was both incompatible with the internal market (under Article 108(3) TFEU), and unlawful under Art. 108(3) TFUE. The European Commission explained in the Decision that reliance on the outdated assumptions led to overcompensation of AWSA, which constituted incompatible state aid (para. 139 of the Decision). AWSA appealed the Decision to the General Court of the EU, but on 26 October 2019, the General Court dismissed AWSA’s challenge (T-778/17 Autostrada Wielkopolska). The matter is now pending before the Court of Justice of the EU (Case C-933/19 P).

 

Warsaw Court of Appeal Sets a Precedent

On 26 January 2018, the Circuit Court in Warsaw dismissed the action for the annulment of the award. The Minister appealed the judgment to the Warsaw Court of Appeal. The European Commission intervened in the appeal proceedings. Referring to C-168/05 Mostazza Claro and C-126/97 Eco Swiss, the Warsaw Court of Appeal observed that EU competition law (including state aid) constitutes a part of the public order that must be considered by national courts on review of arbitral awards. The Court then noted that the EU rules on state aid should be applied in coherence with domestic legal order and that such coherence cannot only be limited to ensuring recoverability of incompatible, or unlawful state aid. Such coherence would also be at risk if two inconsistent decisions, i.e. the Decision and the award, in which the arbitral tribunal failed to apply Article 108(3) of the TFEU, were permitted to co-exist.

The Court of Appeal dismissed the argument that the arbitral tribunal could not have been tasked with an obligation to assess compatibility of the measure with internal market under Article 107 TFEU, because it is a matter reserved for the European Commission. The Court of Appeal distinguished between the assessment under Article 107 TFEU and the problem of whether the state aid in question had at all been notified pursuant to Article 108 TFEU. It concluded that the measure in the AWSA case was not notified, and that in the absence of actual proof of such notification, the arbitral tribunal could not conclude otherwise. Therefore, the arbitral tribunal should have regarded the state aid in question to be unlawful, even without any argument from a party, since any unnotified state aid is automatically unlawful under Art. 108(3) TFEU. In such a case, the Court of Appeal declared, all competent bodies should draw appropriate legal consequences, including an order to recover unlawful state aid, if it had been paid.

The Court of Appeal addressed the argument that annulment of the award on this basis would imply a revision of the merits of the award. The Court agreed in principle that such a review should not take place but asserted that where an arbitral tribunal failed at all to appreciate EU competition rules, an intervention from a state court could be justified. The Warsaw Court of Appeal then reverted to examine the impact on the award of the Decision, which declared the aid as incompatible with internal market under Art. 107 TFEU, and decided national courts were required to give effect to the Decision.

Therefore, in addition to criticizing the arbitral tribunal for having disregarded Article 108(3) TFEU, the Court of Appeal also concluded that when a measure in question is regarded by the Commission as state aid incompatible with internal market under Art. 107 TFEU, and its recovery is required from the Member State, its courts cannot tolerate an earlier arbitral award confirming the entitlement of the private party to receive such aid.

 

Important Lessons to be Drawn from the Decision of the Warsaw Court of Appeal

The judgment of the Warsaw Court of Appeal provokes several comments. It reiterates the importance of EU rules on state aid and warns that arbitration practitioners should not ignore their implications. The weight attached by the Court of Justice of the EU and the European Commission to state aid rules is notorious. Already back in 2007, enforcement of EU state aid rules prompted the CJEU to disregard the principle of res iudicata in domestic civil court proceedings (C-119/05 Lucchini). Therefore, it is only somewhat controversial that the need to ensure the application of EU rules on state aid could be invoked by national courts to justify annulment or even review of the merits of an arbitral award.

The novelty in the AWSA case consists in that the Court of Appeal de facto extended onto arbitral tribunals the obligations defined in the Commission notice on the enforcement of State aid law by national courts). This is a controversial proposition. Firstly, the obligation of national courts to enforce EU rules on state aid stems from the principle of loyal co-operation, which extends onto all organs of Member States. Arbitral tribunals, however, are not organs of Member States, and they are not even considered to be a part of the EU judicial system (C-284/16 Achmea, para. 58; 102/81 Nordsee, paras. 12-14). Therefore, the rationale for extending a similar duty on arbitral tribunals seems flawed. Secondly, arbitral tribunals do not have the necessary tools that national courts have. They cannot refer to the CJEU questions related to the interpretation of EU state aid rules under Article 267 TFEU, or seek information and/or assistance from the European Commission pursuant to Article 29 of Regulation 1589/2015 of 13 July 2015 laying down detailed rules for the application of Article 108 of the Treaty on the Functioning of the European Union (codification).

 

Facing the Issue of State Aid Upfront

Overall, the Warsaw Court of Appeal was right that unnotified state aid is automatically unlawful under Art. 108 TFEU, and that an arbitral tribunal ignoring this provision may expose its award to the risk of annulment. If the measure is later investigated by the European Commission which orders recovery of state aid, this compounds the legal risk even further. If so, the parties and counsel in arbitral proceedings may need to consider this issue upfront. If appropriate, they may need to furnish evidence of the notification of state aid to the European Commission, or take other necessary steps, such as request a stay.

In the case arbitral tribunals were to be put on an equal footing with national courts, however, EU law would not encourage them to stay the proceedings until the European Commission completes its investigation (C-39/94 SFEI and others, para. 53). Therefore, they may be required to consider, whether applicable procedural law allows them to seek assistance from national courts, in order to either refer questions to the CJEU or seek assistance of the European Commission.

 

Conclusion

All the foregoing implies that the initiation of an arbitration versus a public party with unresolved state aid issues may currently trigger significant legal risks that even the most skilled and qualified arbitral tribunal may be unable to discharge on its own, and which may surface many years after the final award was rendered. This requires debate on the reconciliation of the requirements that may exist under EU law with regard to arbitrators, and the natural limitations of commercial arbitration.

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Arbitration Reform in China: Keeping up with the Beijing Fourth Intermediate People’s Court

Sat, 2020-08-08 02:55

In March 2020, the official Beijing judiciary website published the ground-breaking Big Data Research Report on Cases of the Beijing Fourth Intermediate People’s Court Involving Judicial Review of Arbitration (北京市第四中级人民法院仲裁司法审查案件大数据研究报告) (the “Report”). Prepared by the China Arbitration Institute of China University of Political Science and Law (中国政法大学仲裁研究院), the Report covers 18 months of decisions involving “judicial review” of arbitration cases (仲裁案件司法审查) (“Judicial Review”) by the Beijing Fourth Intermediate People’s Court (北京第四中级人民法院) (“No. 4 IPC”). When the Report was first announced in December 2019, the No. 4 IPC also launched the comprehensive Standardization Guide for Adjudication of Cases Involving Judicial Review of Arbitration (仲裁司法审查案件审理规范指南) (the “Guide”).1)The Guide is not currently available from an official court site. This embedded version was downloaded from http://xindalilaw.com/gjzc, courtesy of the Xindali Law Firm (accessed on 29/6/2020). jQuery("#footnote_plugin_tooltip_2464_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2464_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Both documents generally support an “arbitration friendly” narrative but also highlight judicial efforts to address legal ambiguities and provide insights into the dynamic relationship between courts and arbitral institutions in China.

The Report and the Guide are both likely to grow in influence. As of the time of this writing the main text of the Report has been accepted for publication in People’s Court Investigation and Research (人民法院调查研究), which is a new journal sponsored by the PRC Supreme People’s Court (“SPC”). Following augmentation by No. 4 IPC judges, the Guide was submitted to the Law Publishing House (a leading Chinese legal publisher) for publication.

 

Background

To address various outstanding legal gaps in China’s arbitration regime pending amendment of the PRC Arbitration Law, the SPC issued several binding “judicial interpretations” in 2017 (the “2017 Interpretations”), previously discussed by Dr. Kun Fan of UNSW Law in his article, Supreme Courts and Arbitration: China.2)See also, Jingzhou Tao and Mariana Zhong, “China’s 2017 Reform of its Arbitration-Related Court Review Mechanism with a Focus on Improving Chinese Courts’ Prior-Reporting System”, Maxi Scherer (ed), Journal of International Arbitration, (Kluwer Law International 2018, Volume 35 Issue 3) pp. 371-378. jQuery("#footnote_plugin_tooltip_2464_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2464_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Of particular importance, SPC Judicial Interpretation Fashi (2017) No.22 confines the scope of Judicial Review to determination of the validity of arbitration agreements (broadly encompassing typical “gateway” issues), annulment of awards and recognition and enforcement of foreign, Hong Kong, Taiwan and Macao awards, while leaving open the possibility of its future expansion. To implement the SPC’s December 2017 notice calling for greater judicial specialization in arbitration matters, effective January 1, 2018 the Beijing High Court granted exclusive primary jurisdiction over Judicial Review in Beijing to the No. 4 IPC. With arbitrations administered by CIETAC, CMAC and BAC/BIAC under its purview, the No. 4 IPC has emerged as a highly influential court nationwide whose decisions are frequently discussed in the arbitration community. Approximately one year later, the General Offices of the Chinese Communist Party Central Committee and State Council promulgated the Several Opinions Concerning Perfection of the Arbitration System and Raising Credibility of Arbitration (“Credibility Opinions”), a sweeping policy directive underpinning the 2017 Interpretations and mandating systemic arbitration reforms.

 

Big Data” Research Report

The Report contains detailed statistics on 968 dispositive decisions (结案裁定书) encompassing both domestic and foreign-related Judicial Review cases issued from February 2018 through August 2019,3)Broken down as follows: 316 jurisdictional challenges, 647 annulment petitions and 5 challenges to recognition and enforcement of foreign awards: Report, §II(1). jQuery("#footnote_plugin_tooltip_2464_3").tooltip({ tip: "#footnote_plugin_tooltip_text_2464_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); including decisional and procedural outcomes and the frequency of legal grounds asserted by parties. The accompanying qualitative discussion, reform recommendations and analysis of five “representative cases” provide useful insights into ongoing reform efforts.

Roughly covering implementation of the 2017 Interpretations, the Report establishes a baseline against which to compare their implementation by other courts nationwide and the impacts of future rule-making. The Report affirms the No. 4 IPC’s strongly pro-arbitration record, with the court supporting arbitral jurisdiction in over 99% of challenges and granting less than 1% of annulment petitions. This is generally corroborated by a more general 2020 Tian Tong Law Firm study of reported Judicial Review cases.

 

Judicial Review Guide

The Guide reflects the No. 4 IPC’s ongoing efforts to “unify adjudication standards” (统一裁判尺度) in Judicial Review, a key policy objective of the 2017 Interpretations. By restating legal rules governing over 100 issues the Guide clarifies application of over 20 laws and normative documents bearing on Judicial Review, mostly enacted since the Arbitration Law took effect in 1995. The 16 “representative cases” appended to the Guide presumably exemplify adjudicatory best practices in difficult cases. By reducing the risk of inconsistent application of the law by inexperienced judges and legally defective submissions by counsel, the Guide furthers judicial predictability and efficiency. As the Guide is a form of ‘local court guidance’ (discussed by Susan Finder in her 2018 chapter, China’s Translucent Judicial Transparency), its direct impact will likely be confined to No. 4 IPC judges,4)See, Finder, supra, pp. 169 – 170 (noting a prohibition on issuance of documents in the nature of judicial interpretations by local courts). jQuery("#footnote_plugin_tooltip_2464_4").tooltip({ tip: "#footnote_plugin_tooltip_text_2464_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); but with wider distribution it may well prove broadly influential.

 

Comments

Taken together, the Report and the Guide reflect an increasingly active role of Chinese courts in implementing arbitration reform policies and warrant close reading.

 

“Prior Review” System and Historical Delays

A previous blogpost expressed concerns that the 2018 expansion of the “prior reporting system” from foreign-related Judicial Review cases to purely domestic ones would seriously impair efficiency by clogging SPC dockets. The Report observes, however, that in the 18 Judicial Review cases (of which 14 were foreign-related) requiring over 12 months to resolve, delays generally resulted from international service of process, procedural issues and visa applications. In very few cases was prior review the cause of long delays, suggesting that its overall impact on timing has been negligible for cases handled by the No. 4 IPC. [Report, p. 24]

 

Greater Judicial Scrutiny of Institutional “Decisions”?

In what one Chinese law firm characterizes as judicial law-making, in Chuangkai (Hong Kong) (Representative Case No. 15) the No. 4 IPC held that a CIETAC procedural decision (决定) dismissing arbitration against an improperly joined party was in substance an award (裁决) subject to its Judicial Review jurisdiction at the annulment stage.5)The decision was made by the tribunal but issued as a CIETAC decision. jQuery("#footnote_plugin_tooltip_2464_5").tooltip({ tip: "#footnote_plugin_tooltip_text_2464_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The court based its ruling on the following factors: the decision was rendered after CIETAC accepted jurisdiction, it involved adjudication of facts concerning the substance of the dispute, and it entailed application of law to determine whether a party was proper. A nationwide review of analogous cases would be useful to validate whether this represents an emerging trend of closer scrutiny of documents issued by arbitral commissions with binding legal effect on the parties.

 

Reducing Legal Ambiguity

While the gateway issue of validity (效力) of an arbitration agreement explicitly falls within the scope of Judicial Review under the relevant 2017 Interpretation, a 2019 blogpost notes some variability among courts over their competence to decide jurisdictional challenges asserting the arbitration agreement’s non-existence. Section 18 of the Guide implicitly affirms but limits the court’s competence to review claims of non-existence, in effect establishing a presumption of existence and validity that can only be overturned by undisputed facts or clear and convincing evidence. Only if the respondent acknowledges non-existence of the agreement (or inauthenticity of signatures or seals), or if evidence proves absence of an agreement to arbitrate, may the court find the allegedly non-existent agreement to be “invalid”. [Guide, Section 18(1)] In any event, if the parties’ consent remains at issue, courts should “do their utmost” not to invalidate the arbitration agreement and defer this substantive determination to the tribunal. [Guide, Section 18(2)]

 

Relationship between Courts and Institutions

The Report suggests that the No. 4 IPC has established “relatively open” channels of communication with CIETAC and BAC/BIAC. [Report, §V(4)2.)] This appears to implement the Credibility Opinions’ mandate to establish a “work coordination system” between courts and arbitration commissions. [Credibility Opinions, ¶(22)] Moreover, in addition to providing general policy support, the Credibility Opinions specifically call for strengthening the role of Communist Party committees at all levels in raising the credibility of arbitration. [Id, at ¶(19)] Some foreign observers may view these features of China’s unique system of administered arbitration as carrying a risk of informal and opaque intervention outside of formal legal proceedings, and therefore incompatible with China’s aspirations to be a leading seat of international commercial arbitration (“ICA”). These initiatives should, however, be considered in light of China’s judicial evolution and demonstrated commitment to supporting ICA.

The work coordination mechanism is expected to facilitate court remand to the tribunal under Article 61 of the Arbitration Law as a pro-arbitration alternative to annulment of awards involving curable procedural defects. Some local courts still lack an understanding of arbitral procedure and are reticent to investigate alleged breaches of procedural due process. Conflating procedural requirements of arbitration and litigation, they tend to undermine arbitration by indiscriminately granting annulment petitions based on procedural irregularities that could have been remedied by the tribunal on remand. A robust working relationship with arbitral commissions would serve to educate courts and improve their access to procedural history.

In order to implement its New York Convention obligations, China has not only established separate Judicial Review standards for ICA cases but also adopted the prior reporting system, under which the SPC ensures uniform application of legal standards and insulates review of ICA matters from local protectionism. Guaranteeing the independence and autonomy expected by foreign institutions considering to administer ICA proceedings under the Shanghai Free Trade Zone pilot program would be a natural extension of this long-standing policy commitment, and is consistent with the Credibility Opinions’ prohibition on interference in the daily operations of arbitral commissions. [Id., at ¶(2)]

 

Conclusion

As noted in the 2018 International Arbitration Survey conducted by the School of International Arbitration, Queen Mary University of London and White & Case LLP, after “general reputation and recognition”, the next three most important considerations in international seat selection can be summed up as the “’formal legal structure’ at the seat”. [At page 10] Given the preponderating role of central government policies in China’s arbitration reforms, it remains to be seen whether recent pro-arbitration initiatives will crystallize into fixtures of the Chinese legal system. In the meantime, the Guide and the Report, by promoting transparency, adjudicatory consistency and general understanding of China’s dynamic Judicial Review regime, are cause for optimism.

References   [ + ]

1. ↑ The Guide is not currently available from an official court site. This embedded version was downloaded from http://xindalilaw.com/gjzc, courtesy of the Xindali Law Firm (accessed on 29/6/2020). 2. ↑ See also, Jingzhou Tao and Mariana Zhong, “China’s 2017 Reform of its Arbitration-Related Court Review Mechanism with a Focus on Improving Chinese Courts’ Prior-Reporting System”, Maxi Scherer (ed), Journal of International Arbitration, (Kluwer Law International 2018, Volume 35 Issue 3) pp. 371-378. 3. ↑ Broken down as follows: 316 jurisdictional challenges, 647 annulment petitions and 5 challenges to recognition and enforcement of foreign awards: Report, §II(1). 4. ↑ See, Finder, supra, pp. 169 – 170 (noting a prohibition on issuance of documents in the nature of judicial interpretations by local courts). 5. ↑ The decision was made by the tribunal but issued as a CIETAC decision. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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