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Arbitration of International Factoring Disputes: Back to the Origins

Sun, 2017-04-09 22:09

Guillermo García-Perrote and Robin Wood

Herbert Smith Freehills

Text books will tell you that, in its origins, the concept of arbitration as a method of resolving disputes was a simple one: two merchants, arguing over damaged merchandise, would settle their dispute by accepting the decision of a fellow merchant. And they would do so not because of any legal mandate, but because it was expected of them within the community in which they carried on business.

This is exactly what you can expect from this article: the arbitration of commercial disputes back to its origins. Specifically, the arbitration of disputes within the international factoring community.

The authors recently took part in an arbitration under the Rules of Arbitration of Factors Chain International (FCI Rules). In this article we share some of the lessons which we learned during the arbitration, and highlight some of the specific features of the FCI Rules which differ from the more familiar arbitral institutions.

What is factoring?

At its simplest, factoring is a transaction which enables a seller of goods to assign its receivables (generally invoices) to a third party (the factor) which, in exchange for a commission, collects the receivable and assumes the credit risk of the buyer of the goods. In other words, in exchange for the factor’s commission, the seller of goods can pass on the risk of bad debts and the inconvenience of collecting and managing receivables. Factoring in this form began in the US in the mid-19th century.

By the 1960s, in order to overcome the practical challenges associated with factoring cross-border transactions, the process had evolved (led by the European market) into the more complex process of “two factor international factoring”. This system of factor involves two factoring organisations: one in the country of the seller (the Export Factor) and another in the country of the buyer (the Import Factor). The advantage of a two-factor system is that each factor is familiar with the local requirements for the assignment and collection of receivables, and the Import Factor is located in the same jurisdiction as the Buyer, which is helpful in collecting the debt, especially if the Buyer defaults. This approach was reflected in the 1988 UNIDROIT Convention on International Factoring (the Ottawa Convention), which has proven to be an influential soft law mechanism to harmonise practices and regulations around the factoring industry.

In summary the process works like this:

1. The seller signs a factoring contract with the Export Factor. To avoid the risk of the seller only factoring its risky debts this frequently provides that the seller must assign all approved receivables to the Export Factor (this is referred to as the principle of globality).
2. The Export Factor selects a counter party, the Import Factor, usually in the country where the buyer is based and, under the terms of an interfactor agreement, assigns the receivables to the Import Factor.
3. The Export Factor may advance a proportion of the value of the receivable (usually up to 80%) to the seller.
4. The Import Factor collects the receivable and forwards the funds (less a commission) to the Export Factor which, in turn, deducts its commission and pays the balance to the seller.
5. The Import Factor guarantees the debt so that the seller receives payment even if the buyer fails to pay.

What is the role of FCI?

FCI is arguably the leading institution overseeing factoring and has produced a set of rules, the General Rules on International Factoring (GRIF Rules), which are used by many of the leading financial institutions.

Under the GRIF Rules the factoring companies enter into umbrella interfactor agreements and then agree individual credit lines using an electronic messaging system called edifactoring.com (governed by its own set of rules).

Factoring under the GRIF Rules is a highly commoditised process, which operates on low commissions. There are a number of standard messages (EDI messages) used to, for example, offer a new transaction, approve a credit line or confirm payment. The system is designed to cause as little friction as possible to the underlying commercial transaction.

How are disputes relating to factoring transactions resolved?

Given the commoditised nature of factoring transactions under the GRIF Rules, disputes are comparatively rare. Where such disputes do arise, it is generally because the buyer has defaulted and the Import Factor feels that the circumstances are such that it should be relieved of the obligation to pay the sums owed under the guarantee.

In this regard, the factoring transaction is similar to an insurance policy: like an insurer, the Import Factor must guarantee the buyer’s debt unless the Export Factor has failed to comply with the interfactor agreement. The GRIF Rules expressly set out the very limited circumstances in which the Import Factor will be relieved of liability – in essence, this will be the case if, either:

1. a misrepresentation or non-compliance by the Export Factor has prevented the Import Factor from properly assessing the risk it was taking on; or
2. the Export Factor has failed to assign the receivable correctly so that the Import Factor cannot collect the debt.

To resolve such disputes, FCI has produced the FCI Rules. These are designed to offer a swift, streamlined process, and are heavily focussed on delivering a commercial solution.

The arbitrations are formally seated in Amsterdam (where FCI is based) and, for disputes worth under €100,000 can be heard by a sole arbitrator. For larger disputes the FCI Rules require a tribunal of three arbitrators.

Arbitrators must be senior executives of FCI member companies (there is no requirement that they are lawyers nor that they have any dispute resolution experience) and, in the case of a three-member tribunal, the chair must be selected by the party nominated arbitrators from a list published by the FCI.

The tribunal has broad procedural discretion and, although the FCI Rules anticipate an award within three months of signature of the terms of reference, our experience has been that the FCI secretariat is quite willing to extend this period at the tribunal’s request.

The arbitration process is commenced with a Request for Arbitration which must be served within three years of the events in dispute. The Respondent has 30 days to file his Response and the file is then passed to the nominated arbitrators who have a further 30 days to appoint a chairman from the FCI list.

Once constituted, the tribunal will draw up (in consultation with the parties) terms of reference which will indicate the procedure to be followed.

The process is intended to be one of commercial equity rather than the strict application of national laws and Article 18 of the FCI Rules provides that “[t]he arbitrator shall not be bound by any strict rules of law or procedure or evidence. He shall be entitled to make his decisions in accordance with what he thinks is fair and equitable between the parties in accordance with normal commercial practice and the customs of international factoring based on the GRIF”.

From an advocate’s perspective this means that a thorough understanding of the commercial dynamics at play in a factoring transaction is key. Indeed, the tribunal is going to be more interested in exploring the commercial aspects of the case than in arguments fully based on the black-letter of the GRIF Rules.

The use of the edifactoring.com messaging system also has a significant impact on the dynamics of the arbitration. Since all contractual communications happen through the messaging platform, in effect, all of the contract documents and all of the relevant facts are to be found in the EDI messages. The EDI messages themselves, however, are highly standardised, with limited scope for “free text” comment. Since the tribunal members are all senior executives within FCI member organisations, they are very familiar with the EDI messages, and advocates are expected to master the industry mechanics.

Once handed down the award is final and binding and, by Article 1(3) of the FCI Rules, the parties shall be deemed “to have waived their right to any form of appeal or objection, whether as to procedures or otherwise, in so far as such waiver can validly be made.”

The focus on a swift and final commercial resolution of disputes with little recourse to national law is understandable in the context of a highly commoditised cross-border transaction, and it certainly provides a thrilling challenge for lawyers accustomed to arguing points of law before international arbitration tribunals made up of experienced lawyers. Advocacy is just as interesting and challenging, and the interaction with the Tribunal is even more dynamic.

For those facing the prospect of an arbitration under the FCI Rules, our advice would be to become thoroughly familiar with the commercial dynamics of the transaction and the EDI messages, and to adapt the advocacy preparations and delivery accordingly.

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Government Procurement, Bribery, and an Olympic Size Scandal at the ICC

Fri, 2017-04-07 03:16

Ioannis Glinavos

It is well known that Greek public finances have been in a precarious state since the country’s debt crisis erupted in 2010. In an environment of tough fiscal consolidation, compensation awards running in millions present a significant economic and political challenge. This post discusses a case before the Greek Supreme Court that resulted in a pending liability of €39.8 million (reaffirmed in January 2017) which exposes a trail of corruption and administrative inefficiency all the way back to the Athens Olympics of 2004. This case is an aspect of the famous Siemens corruption scandal that has plagued Greek public life for over a decade.

The case involves a dispute arising from a 2003 contract between Science Applications International Corporation (SAIC) and Greece for the supply of a public security infrastructure system, which was to be used at the 2004 Athens Olympics. SAIC is a US based multinational with prior experience in security systems for Olympic games. The company won the contract to build the C4I security system after a bidding process that lasted for more than a year. SAIC contracted Siemens as its subcontractor to carry out the actual work of software design and material deployment. Subsequently, it was claimed that SAIC won the contact because bribes were paid via Siemens to Greek officials as part of a wider network of underhand transactions organised by the German company in order to obtain a variety of defence and infrastructure contracts in Greece over a number of years.

The security system in question was delivered just weeks before the opening ceremony for the Olympics, but never worked properly. Due to the operational failure of the system, the Greek government refused to formally accept delivery and pay SAIC. SAIC in response initiated arbitration proceedings at the ICC’s International Court of Arbitration in April 2006. The Greek government partially settled, but a second dispute arose in 2008, when Greece refused to make the final payment on the contract, prompting additional arbitration proceedings. The ICC tribunal concluded that the Greek government had breached its contract with SAIC for the design and installation of the system and rendered a €39.8 million award in favour of the claimant in July 2013.

Arbitral awards are capable of enforcement in Greece as per standard international practice. The Greek arbitration statute, introduced in 1999, is based on the UNCITRAL Model Law and deals with international commercial arbitrations, while other legislation and provisions in the Civil Procedure Code cover domestic arbitrations. Greek law is welcoming of commercial arbitration and there has been an effort to harmonise the treatment of arbitral awards with international standards. Even tax disputes are arbitrable if an investment agreement between the state and a foreign investor so provides. Greek courts will determine their jurisdiction over an award on the basis of the arbitral seat. An award can be set aside for the same reasons as those provided in the UNCITRAL Model Law. Under the arbitration statute, the Court of Appeal is the only competent court to decide an application for setting aside an award. Greek law does not provide for recourse against foreign arbitral awards, but enforcement can be refused for the reasons laid out in the New York Convention, which Greece joined in 1961.

Attempting to block enforcement of the ICC award in favour of SAIC, Greece turned to the Athens Court of Appeal, arguing that the award went against international public policy and that the arbitration procedure did not comply with the parties’ agreement. The Greek Government filed an application for annulment and suspension of the award’s enforcement before the competent Athens court as the enforcement place. Jurisdictional issues aside, a key question before the court was whether, as a matter of public policy, the presence of corruption in procuring a contract with a public authority spoils an arbitration clause present in the agreement, therefore rendering subsequent awards invalid. The Court of Appeal seemed to think so. The Athens court annulled the ICC award in June 2014 (decision n.3690/2014). The court noted that the five year delay in the delivery of the agreed system illustrated the fact that SAIC had never been in the position to deliver on-time. Further, it found that SAIC was acting on behalf of its sub-contractor SIEMENS (Hellas) SA, a company part of a group (SIEMENS, Germany, AG) investigated for corruption between 2002-2007. The Court of Appeal concluded that the contract between SAIC and the Greek Government had been the outcome of corrupt practices used by SIEMENS companies against Greek interests and the ICC award was therefore annulled as contrary to public policy.

SAIC applied to US courts objecting to the Greek judgment, arguing that the decision of the Court of Appeal was repugnant to U.S. public policy and that domestic courts lacked authority to overturn foreign arbitral awards. SAIC also brought the matter before the Greek Supreme Court arguing that the decision was incompatible with Greek legislation, which – as was mentioned above – precludes national courts from invalidating foreign arbitral awards. The American court invited the U.S. government to submit evidence on the petition in 2015, asking for guidance on how much deference it had to afford the Athens court’s decision. The U.S. ultimately declined in January 2016, and the Judge then decided to hold the pending motions until the Greek Supreme Court made its decision.

The Greek Supreme Court concluded (decision n.517/2016) in May 2016 that the Court of Appeal, by reviewing the substantive facts, retried the merits of the case, which is beyond its powers. Therefore, its decision no. 3690/2014 was quashed and the case was returned for re-consideration to the Court of Appeal by a differently staffed bench. On the back of this decision, the US court issued confirmation of the ICC award in January this year, making the €39.8 million liability enforceable against the Greek state, pending once again the outcome of the Greek appeal under a re-convened Court of Appeal.

What is the conclusion that we can draw from this case? Highly politicised disputes (high ranking members of the Greek political elite were implicated in the Siemens bribery scandal and a variety of commissions and investigations are still in the process of untangling a web of corruption in both Greece and Germany) will inevitably take a long time to resolve. An arbitral process however that has not ended with enforcement of an award more than 10 years after it started, especially when the award itself can have significant consequences on the financial position of the parties, is not something to celebrate. One wonders whether Greek officials regret their decision to appeal, considering that an early settlement of the dispute would have cost significantly less and could have been achieved when fiscal space was wider than it is now. The message to draw therefore? Settling an ICC case may be better than appealing the resulting award.

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Arbitrator-ordered Costs of Injunctive Relief Proceedings in National Court: When Should a Party Be Able to Recover its Costs?

Wed, 2017-04-05 23:17

Mika Savola and Anna-Maria Tamminen

One of the topics discussed by the panels at last week’s 20th Annual IBA Arbitration Day was parallel proceedings. We heard well-prepared and interesting presentations on many aspects of parallel proceedings such as confidentiality and the taking of evidence. As we all know, such parallel proceedings often also take the form of court proceedings initiated to seek conservatory or other interim measures of protection from a national court. One interesting aspect that arises in this context is whether costs related to such proceedings are recoverable in a subsequent or parallel arbitration and if so, when.

Bernard Hanotiau has concluded that, “[i]t seems that the allowability of these costs as costs of the arbitration is generally not accepted. They should be claimed and allocated in the relevant procedures. Some of them might also be claimed as damages.” (See Hanotiau, The parties’ costs of arbitration, in Derains, Yves – Kreindler, Richard H. (ed.), Evaluation of Damages in International Arbitration, Dossiers of the ICC Institute of World Business Law, ICC Publication No. 668, Paris 2006, p. 215.) Sometimes this analysis is, however, affected by the applicable cost regime. In some jurisdictions (including Finland) the law provides that the costs of interim measure proceedings shall be determined and allocated between the parties only in connection with the decision on the merits of the dispute, i.e., in a final award rendered by the arbitral tribunal (provided that there is a valid and binding arbitration agreement, and the party initiates an arbitration following the interim measure proceedings). In such cases, a party is allowed to request reimbursement of its costs of ancillary interim measure proceedings only in conjunction with the arbitration.

The above-mentioned question was specifically addressed in a final award recently rendered in an FAI arbitration between two Finnish parties, A and B. The main issue in dispute concerned the allegedly unlawful termination of the parties’ co-operation agreement by B. Before the arbitration proceedings were launched, A sought an injunction from Finnish state courts prohibiting B from terminating the co-operation agreement. The application was dismissed in both the District Court and the Court of Appeal. In the meantime, A commenced FAI arbitration proceedings against B, requesting inter alia that the arbitral tribunal (i) declare that the termination had been unlawful and (ii) order B to pay to A the costs and expenses arising out of the injunction proceedings, together with default interest in accordance with the Finnish Interest Act.

The arbitral tribunal ultimately found that the termination of the co-operation agreement by B had been unlawful. As regards the compensation of A’s costs related to the injunction proceedings, the arbitral tribunal stated as follows (direct quotation from the award, with only the names of the parties anonymized):

“A has claimed that as B has not been entitled to terminate the Agreement, A has had the right to seek an injunction. According to A, the Arbitral Tribunal has the power to decide who will bear the costs and expenses arising out of or in connection with the injunction proceedings in front of the national court in accordance with Chapter 7, Section 10 of the Finnish Code of Judicial Procedure. This provision of law reflects the principle that the party who has lost the main proceedings shall also be ultimately liable for the costs and expenses arising out of or in relation to the injunction proceedings.

B has asserted that A should be liable to pay the costs as [it] has lost the injunction proceedings in both instances. The courts have found that no legal grounds for an injunction order have existed. A’s injunction application has therefore not been necessary. (…) B has further asserted that the Arbitral Tribunal is in fact bound by the findings of the Court of Appeal, according to which there have been no legal grounds for an injunction order (…)

The Arbitral Tribunal first notes that Chapter 7, Section 10 of the Finnish Procedural Code provides that the question as to which of the parties in the injunction proceedings shall finally bear the cost, shall be resolved when ruling on the main issue in the main proceedings and provided that a party has so requested. Furthermore, Section 11 of the same Chapter provides that an applicant who has unnecessarily resorted to injunction proceedings shall be liable to compensate the opposing party for the damage caused by the precautionary measures and their enforcement, and to cover the expenses incurred. In other words, the question as to who is liable to pay the cost arising from the injunction proceedings is to be decided based on who wins the main issue and whether the injunction proceeding in the light of the outcome of the main issue has been unnecessary. (…) The Arbitral Tribunal also notes that under Finnish law, as a main rule, the binding finality of court decisions is usually limited to the outcome of the decision, not to its reasoning. Furthermore the findings of a court in an injunction proceeding are not legally binding on the court or arbitral tribunal that is competent to decide on the main issue (…) Accordingly, the decisive matter here is whether the injunction proceeding initiated by A was unnecessary in light of the outcome of this arbitration. The answer is no – B has terminated the Agreement without grounds and therefore A’s attempt to obtain an injunction to try to prevent the unlawful termination was necessary. (…) For the reasons stated above, the Arbitral Tribunal finds A’s claims justified and accepts them and orders accordingly.”

The rule contained in Chapter 7, Section 10 of the Finnish Procedural Code – according to which the costs of the injunction proceedings shall be allocated in the main proceedings – hardly lends itself to any other conclusion than the one adopted by the arbitral tribunal, i.e. that it is up to the tribunal to allocate such costs. What this means to a party filing for such injunctive relief in national courts is that that party can seek to recover its costs first once the subsequent or parallel arbitration has been concluded.

More importantly, however, in the light of the decision in the above discussed case, a party seeking injunctive relief from a national court should carefully assess whether it has good grounds to do so at the time of filing its application. Yet, from a costs perspective, the party does not need to worry about whether or not the arbitral tribunal will ultimately agree with the national court on the merits of the case. Rather, the test is only one of necessity at the time of filing the application for injunctive relief.

The above tribunal’s decision thus underlines that a party should subsequently be able to prove that its application for injunctive relief was necessary and made in good faith at the time it was submitted to the court. The decision certainly also discourages any party from bringing injunctive proceedings in bad faith, unless that party is willing to carry the cost of such proceedings.

What this case leaves unanswered is how should an arbitral tribunal weigh the necessity of such application for injunctive relief in a case where a party chooses, for whatever reason, to seek the same interim relief simultaneously from a state court and the arbitral tribunal. To our knowledge, there is no reported case law addressing this question in Finland.

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U.S. Federal Courts’ Broad Jurisdiction Under the New York Convention

Tue, 2017-04-04 23:00

Jason P. Minkin and Jonathan A. Cipriani

The 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) is a lynchpin of the international arbitration system.  The New York Convention provides a means for parties in one member state to enforce judgments issued by arbitration tribunals in another member state.  In the United States, Congress has incorporated the New York Convention into federal statute, at 9 U.S.C. § 201 et seq.  These statutory provisions provide a sweeping grant of jurisdiction to U.S. federal courts to enforce arbitration agreements falling within the New York Convention—a powerful tool for any party seeking to enforce a foreign arbitration clause.

A recent district court decision illustrates the broad deference that U.S. courts will give to parties asserting federal jurisdiction under the New York Convention.  In James Edward O’Connor v. Maritime Management Corp., 2017 WL 1018586 (E.D. La. Mar. 16, 2017), there was a dispute involving a plaintiff (O’Connor) who alleged he suffered asbestos exposure from years spent working as a machinist for the defendants in the early 1980s.  O’Connor sued his former employer Cove Shipping, Inc. and Maritime Management Corporation (collectively, “Cove Shipping”).  Suing in Louisiana, he was also able to use that state’s direct action statute, La. R.S. 22:1269, to name Cove Shipping’s insurer, West of England Shipowners Mutual Insurance Association, as a defendant.  West of England sought to remove the lawsuit from Louisiana state court to the U.S. District Court for the Eastern District of Louisiana, citing 9 U.S.C. § 205.  That statutory provision permits removal to federal court “at any time” before trial of an action that “relates to an arbitration agreement or award falling under the [New York] Convention.”  West of England relied on an arbitration clause in its Club Rules that it contended were in effect at the time of O’Connor’s alleged employment, even though O’Connor is a non-party to the insurance agreement.

Seeking remand to Louisiana state court, the plaintiff raised a bevy of merits-based arguments, including that English law prohibited application of the arbitration agreement to a non-signatory; that the costs of enforcing the arbitration agreement were prohibitive and thus infringed on the plaintiff’s ability to vindicate his rights; that West of England had waived its right to arbitrate; that federal Jones Act claims, such as the plaintiff’s, are not subject to arbitration; and that Louisiana law forbids arbitration in insurance disputes.  The court quickly dispensed with these arguments, noting that they were premature.  Under Fifth Circuit precedent, the court determines, as a threshold matter, whether it has jurisdiction “to decide the arbitration issue, ‘which is a distinct question from how to resolve that issue correctly.’” O’Connor at *2, quoting Beisler v. Weyler, 284 F.3d 665, 670 (5th Cir. 2002).  The court noted that plaintiff’s arguments could still be raised in opposition to a motion to compel arbitration.

With plaintiff’s arguments dispatched, the court concluded that the West of England arbitration agreement met the requirements for removal to federal court under 9 U.S.C. § 205.  That provision requires an arbitration agreement within the meaning of the New York Convention—i.e., a written commercial agreement providing for arbitration in a Convention-signatory nation, with at least one party that is not a U.S. citizen—and an action that “relates” to the agreement.  The court found it clear that the Convention applies to the arbitration agreement at issue, “given the obvious commercial nature of marine insurance,” the fact that the agreement provides for arbitration in a signatory nation of the Convention (the United Kingdom), and that one party to the agreement (West of England) is not an American citizen.

Because it appeared “beyond dispute” that the arbitration agreement itself falls under the New York Convention, the dispositive issue, according to the court, was whether the arbitration agreement “relates to” O’Connor’s lawsuit, despite him not being a party to the insurance policy that contained the arbitration agreement. Citing circuit precedent, the court noted that a plaintiff’s suit “relates to” an arbitration agreement where it is “not completely absurd or impossible” that the arbitration agreement will conceivably have an effect on the outcome of the case. Id.  With the arbitration agreement having cleared this “low bar,” the court denied the plaintiff’s motion to remand the case to state court.

The OConnor decision is an example of the broad grant of jurisdiction that U.S. federal courts have to resolve disputes relating to international arbitration agreements.  The court swiftly dismissed plaintiff’s numerous merits-based challenges and articulated a strikingly easy standard for determining whether disputes “relate to” an agreement under the New York Convention.  While the plaintiff may raise his substantive arguments at a later, procedurally appropriate time, O’Connor is an example of how U.S. federal courts correctly recognize the inherently federal and international character of disputes touching the New York Convention.

The effect of such a broad application of the New York Convention in United States federal courts should not be underestimated. Courts of the United States have developed particular applications of New York Convention provisions, such as detailed requirements for establishing the existence of an agreement in writing under Article II(2), and the public policy gloss of Article V(1)(e), which permits United States courts to disregard an annulment judgment if it violates notions of morality and justice. As the New York Convention is interpreted broadly, the impact of such interpretations likewise grows.

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Trade and Investment Agreements in Disputed Territories: The case of Western Sahara

Tue, 2017-04-04 01:15

Kate Parlett

The long-standing dispute over the territory of Western Sahara has been the subject of a treaty, an advisory opinion of the International Court of Justice, an armed conflict, a United Nations-brokered ceasefire, and several General Assembly and Security Council resolutions. It has also recently come to the fore in several cases before the EU and English courts, raising questions about the legality of the EU’s trade and other international agreements with Morocco being applied to Western Sahara. These cases have brought into focus the need for treaty parties to take account of potential human rights implications in the application of trade and investment agreements, particularly where there are issues concerning the right to self determination. Over time, this consideration of human rights has the potential to result in more explicit human rights protection being built into the text of these treaties, and may in due course form the basis of claims and arguments before investment arbitration tribunals. Moreover, human rights impact assessments – which are likely to be performed more frequently in advance of concluding treaties – will potentially form part of the travaux préparatoires which could be a useful interpretive tool for arbitrators deciding claims under investment treaties.

An area of some 100,000 square miles in the north-west coast of Africa, with nearly 700 miles of coastline and a population of around half a million, two-thirds of Western Sahara territory is currently occupied by Morocco. The international community has repeatedly emphasized the right of self-determination for the indigenous Saharawi people. The UN has recognised the Front Polisario (from the Spanish acronym for Frente Popular de Liberación de Saguía el Hamra y Río de Oro) as the legitimate representative of the Saharawi people and in the peace negotiations with Morocco.

In 2012, the Front Polisario commenced proceedings before the General Court of the European Union, seeking annulment of the decision of the EU Council adopting a 2010 trade agreement with Morocco concerning reciprocal liberalisation measures on agricultural products, processed agricultural products, fish and fishery products.1)Agreement in the form of an Exchange of Letters between the European Union and the Kingdom of Morocco (OJ 2012 L 241, p 2, 8 March 2012). jQuery("#footnote_plugin_tooltip_2823_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2823_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The 2010 Agreement is a development of the existing free-trade agreement between the EU and Morocco: the 2000 Association Agreement2)Association Agreement between the European Union and the Kingdom of Morocco (OJ 1/70/2, 18 March 2000). jQuery("#footnote_plugin_tooltip_2823_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2823_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and it applies to the same area, specified to be the “territory of the Kingdom of Morocco.” The Front Polisario complained that the 2010 Agreement was being applied by Morocco to the territory of Western Sahara, facilitating the export to the EU of agricultural products grown in Sahrawi land and fish caught in Sahrawi waters, violating the rights of the Sahrawi people to self-determination and to permanent sovereignty over their natural resources. It argued that this was in violation of EU fundamental rights, as well as international law, including the right to self-determination.

In December 2015, the General Court upheld the challenge to the EU Council’s adoption of the 2010 Agreement. It noted that although neither the 2010 Agreement nor the 2000 Agreement expressly stated that they applied to the territory of Western Sahara, the EU was aware that the Moroccan authorities had applied the 2000 Agreement to parts of Western Sahara for an extended period of time, and the EU institutions had not opposed this practice.3)Case T-512/12, Front Polisario v Council of the European Union, 10 December 2015, paras 99 and 102. jQuery("#footnote_plugin_tooltip_2823_3").tooltip({ tip: "#footnote_plugin_tooltip_text_2823_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Before the Court, the Commission conceded that the Agreements were in practice applied to products originated in Western Sahara 4)See Case C-104/16P, Council of the European Union v Front Polisario, Opinion of Advocate-General Wathelet, 13 September 2016, para 65. jQuery("#footnote_plugin_tooltip_2823_4").tooltip({ tip: "#footnote_plugin_tooltip_text_2823_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, and a significant number of listed approved Moroccan exporters were based in that territory.5)Case T-512/12, Front Polisario v Council of the European Union, 10 December 2015, para 84. jQuery("#footnote_plugin_tooltip_2823_5").tooltip({ tip: "#footnote_plugin_tooltip_text_2823_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

While the General Court noted that there is no “absolute prohibition” on the EU concluding an agreement which may be applied to disputed territory, if it does so, the EU must consider whether the agreement will be applied to the detriment of the population of that territory, or in breach of their fundamental rights, including those set out in the EU Charter of Fundamental Rights. 6)Case T-512/12, Front Polisario v Council of the European Union, 10 December 2015, paras 227-228. jQuery("#footnote_plugin_tooltip_2823_6").tooltip({ tip: "#footnote_plugin_tooltip_text_2823_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In approving the 2010 Agreement, the EU Council had not conducted that analysis, and it followed that the decision approving the 2010 Agreement was annulled insofar as it applied to the territory of Western Sahara.7)Case T-512/12, Front Polisario v Council of the European Union, 10 December 2015, paras 247-248. jQuery("#footnote_plugin_tooltip_2823_7").tooltip({ tip: "#footnote_plugin_tooltip_text_2823_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

A year later, the Grand Chamber of the Court of Justice overturned the decision, but in doing so it confirmed that neither the 2000 Agreement nor the 2010 Agreement apply to the territory of Western Sahara. The Grand Chamber considered that the question was one of legal interpretation of the Agreements, rather than their application in practice. It held that the principles of interpretation reflected in Article 31 of the Vienna Convention on the Law of Treaties, taken together with the customary principle of self determination, precluded an interpretation of the “territory of the Kingdom of Morocco” as including Western Sahara.8)Case C-106/16P, Council of the European Union v Front Polisario, 21 December 2016, paras 88-92. jQuery("#footnote_plugin_tooltip_2823_8").tooltip({ tip: "#footnote_plugin_tooltip_text_2823_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); It therefore concluded that the General Court had erred in finding that the Agreements applied to the territory of Western Sahara, and as a consequence, the Front Polisario did not have standing to seek annulment of the Council decision approving the 2010 Agreement.9) Case C-106/16P, Council of the European Union v Front Polisario, 21 December 2016,126, 131. jQuery("#footnote_plugin_tooltip_2823_9").tooltip({ tip: "#footnote_plugin_tooltip_text_2823_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); So formally the claim by the Front Polisario was dismissed, but in substance the Grand Chamber concluded that the EU trade Agreements are not applicable to the territory of Western Sahara.

In parallel to the proceedings before the EU courts, an NGO, “Western Sahara Campaign UK”, has brought proceedings before the English courts against the UK, claiming that the UK’s application of EU law implementing the 2000 Association Agreement and a 2006 Fisheries Partnership Agreement between the European Community and Morocco is unlawful. The 2006 Agreement has been quite controversial: it provides for the issuance of licences to fish in the waters within Morocco’s territory or jurisdiction, and under that Agreement EU Member States have issued licences to vessels to fish in the Moroccan fishing zone, and such fishing has taken place in the territorial waters of Western Sahara. 10)Fisheries Partnership Agreement between the European Community and the Kingdom of Morocco (OJ l 141/4 29 May 2006). See The Queen on the application of Western Sahara Campaign UK v The Commissioners for Her Majesty’s Revenue and Customs and The Secretary of State for the Environment Food and Rural Affairs [2015] EWHC 2898 (Admin), paras 28-29. jQuery("#footnote_plugin_tooltip_2823_10").tooltip({ tip: "#footnote_plugin_tooltip_text_2823_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In May 2016, the English High Court referred several questions for a preliminary ruling by the ECJ. These included (1) whether the 2000 Association Agreement applies to products originating in Western Sahara; and (2) whether the 2006 Fisheries Partnership Agreement is valid, having regard to the principles of international law.11)Case C-266/16, Reference for a preliminary ruling by from the High Court of Justice (England & Wales), made on 13 May 2016 – Western Sahara Campaign UK v Commissioners of Her Majesty’s Revenue and Customs, Secretary of State for Environment, Food and Rural Affairs. jQuery("#footnote_plugin_tooltip_2823_11").tooltip({ tip: "#footnote_plugin_tooltip_text_2823_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Following the Grand Chamber’s Judgment in December 2016, the High Court has withdrawn the first question, on the basis that the Grand Chamber’s Judgment establishes that the 2000 Agreement does not apply to Western Sahara. The question of the validity of the 2006 Fisheries Agreement remains pending for preliminary ruling by the ECJ, and is likely to be given later this year, with a final judgment from the English High Court to follow.

The decisions of the EU courts in the Front Polisario cases suggest that there are limitations on the EU concluding trade and investments which will be applied to territory that is disputed, and in certain circumstances the EU will be precluded from doing so.

The decisions also suggest that where there are human rights concerns with trading partners, including concerns about the right to self-determination, a prior human rights impact assessment will be required. A commitment to conclude such assessments was incorporated in the 2012 EU Strategic Framework and Action Plan on Human Rights and Democracy, (available here), and the European Ombudsman recently found that the European Commission’s failure to carry out a prior human rights impact assessment for the free trade agreement between the EU and Vietnam without valid reasons constituted maladministration.12)Case 1409/2014/MHZ on the European Commission’s failure to carry out a prior human rights impact assessment of the EU-Vietnam free trade agreement, 26 February 2016, available here, para 28. jQuery("#footnote_plugin_tooltip_2823_12").tooltip({ tip: "#footnote_plugin_tooltip_text_2823_12", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); These human rights impact assessments will potentially form part of the travaux préparatoires, which may eventually feature in tribunals’ considerations of claims in arbitration under investment treaties.

As to circumstances in which the EU will be precluded from entering into trade and investment agreements which are likely to have adverse impacts on human rights, the position is unclear. The General Court implied that any agreements which are likely to entail breaches of fundamental rights would be not be permissible, but the Grand Chamber did not address the issue. Advocate-General Wathelet, in an opinion preceding the Grand Chamber’s judgment, suggested a more restrictive approach than that taken by the General Court, which would require the EU’s institutions and its Member States only to ensure compliance with jus cogens and erga omnes obligations, and not with the full range of fundamental rights.13) Case C-104/16P, Council of the European Union v Front Polisario, Opinion of Advocate-General Wathelet, 13 September 2016, para 276. jQuery("#footnote_plugin_tooltip_2823_13").tooltip({ tip: "#footnote_plugin_tooltip_text_2823_13", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Since 2013, the EU and Morocco have been negotiating a Deep and Comprehensive Free Trade Area, which is anticipated to cover both trade and investment. In late 2013, the European Commission commissioned an independent trade sustainability impact assessment in relation to the Comprehensive Agreement, which identified several human rights issues in relation to Western Sahara (available here). Given the divergent opinions about the extent to which the EU may be constrained by human rights considerations in negotiating trade and investment agreements, it is likely that these issues will be contested in the context of those ongoing negotiations with Morocco. This is likely to give the EU – both its institutions and its courts – an opportunity to bring much-needed clarity to the relationship between trade and investment and human rights, and in that respect it is to be welcomed.

References   [ + ]

1. ↑ Agreement in the form of an Exchange of Letters between the European Union and the Kingdom of Morocco (OJ 2012 L 241, p 2, 8 March 2012). 2. ↑ Association Agreement between the European Union and the Kingdom of Morocco (OJ 1/70/2, 18 March 2000). 3. ↑ Case T-512/12, Front Polisario v Council of the European Union, 10 December 2015, paras 99 and 102. 4. ↑ See Case C-104/16P, Council of the European Union v Front Polisario, Opinion of Advocate-General Wathelet, 13 September 2016, para 65. 5. ↑ Case T-512/12, Front Polisario v Council of the European Union, 10 December 2015, para 84. 6. ↑ Case T-512/12, Front Polisario v Council of the European Union, 10 December 2015, paras 227-228. 7. ↑ Case T-512/12, Front Polisario v Council of the European Union, 10 December 2015, paras 247-248. 8. ↑ Case C-106/16P, Council of the European Union v Front Polisario, 21 December 2016, paras 88-92. 9. ↑ Case C-106/16P, Council of the European Union v Front Polisario, 21 December 2016,126, 131. 10. ↑ Fisheries Partnership Agreement between the European Community and the Kingdom of Morocco (OJ l 141/4 29 May 2006). See The Queen on the application of Western Sahara Campaign UK v The Commissioners for Her Majesty’s Revenue and Customs and The Secretary of State for the Environment Food and Rural Affairs [2015] EWHC 2898 (Admin), paras 28-29. 11. ↑ Case C-266/16, Reference for a preliminary ruling by from the High Court of Justice (England & Wales), made on 13 May 2016 – Western Sahara Campaign UK v Commissioners of Her Majesty’s Revenue and Customs, Secretary of State for Environment, Food and Rural Affairs. 12. ↑ Case 1409/2014/MHZ on the European Commission’s failure to carry out a prior human rights impact assessment of the EU-Vietnam free trade agreement, 26 February 2016, available here, para 28. 13. ↑ Case C-104/16P, Council of the European Union v Front Polisario, Opinion of Advocate-General Wathelet, 13 September 2016, para 276. 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:

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Kluwer Mediation Blog: March Digest

Mon, 2017-04-03 05:40

Anna Howard

March was a particularly busy month on the Kluwer Mediation Blog. From legislative developments in Ireland and Singapore, a report on the Berlin Global Pound Conference, and a more provocative post on whether grey hairs are needed to mediate, there is a lively assortment of posts below.

In “Too much or too little”, Bill Marsh explores how mediators might find the appropriate balance of care and attachment to their work. Bill offers some thoughtful questions to prompt thinking on how to attain this elusive balance.

In “Brazilian Mediation – Ten Years in One”, Juliana Loss de Andrade provides a comprehensive overview of the recent developments in alternative dispute resolution in Brazil.

In “About Hacksaw Ridge”, drawing on the film Hacksaw Ridge, Andrea Maia considers how mediators might encourage empathy in particularly challenging mediations.

In “The Evolution of the Partnership and the Predatory Partner”, Peter Garry explains the evolution of partnerships, the rise of the “predatory partner” and how these changes have altered how many partnership disputes tend to arise and are resolved.

In “Something Wicked This Way Comes – Mediators’ Duties in Ireland’s New Mediation Bill”, Sabine Walsh offers a detailed analysis of the obligations that mediators can be subject to under this Bill in cases of court referred mediation.

In “Singapore Developments – The Mediation Act 2016”, Joel Lee provides a thorough overview of the purpose of this act and its provisions.

In “Towards a Harmonised Approach To Mediation legislation in Asia”, Nadja Alexander provides an overview of Singapore’s dispute resolution services for commercial cross-border disputes. Nadja also offers further analysis on the recent Singapore Mediation Act.

In “Do You Need Grey Hairs To Mediate?”, Suzanne Rab considers the composition of the mediation market and explores the challenges faced by mediators who are new to the field.

In “Global Pound Berlin, March 24, 2017”, Greg Bond identifies certain recurring themes at this conference and shares some of the local questions raised and their answers.

In “Working on Water – Again: A Collapsing Consensus”, Ian Macduff builds on his earlier two posts on the work of the Land and Water Forum in New Zealand. In this post, Ian considers the recent developments which undermine the optimism that the consensus achieved, and the recommendations on water quality, will be implemented.

In “A Pop-Up Mediation: Brexit and Devolution”, John Sturrock reflects on a recent event in Edinburgh at which John and his colleague, Charlie Woods, acted as mediators in a simulation of a mediated process involving 10 delegations representing different interests in the current Brexit negotiations.

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Does Cultural Diversity Improve or Hinder The Quality of Arbitral Justice?

Thu, 2017-03-30 23:48

Won Kidane


The answer to this question might seem simple, but consider an instance of a commercial arbitration between a Chinese company and an African state arising out of a failed railway project in Africa. Assume that all three arbitrators are European and from the civil law legal tradition. Assume further that they are experienced arbitrators of the highest integrity and reputation with no conflict of interest. The applicable law is Chinese law, and all the witnesses are either speakers of Mandarin or Yoruba. Consider another similar scenario: the dispute is between a Chinese business and a European state, but the arbitrators are all African with equivalent qualifications as the European arbitrators but who do not speak any Chinese or any European languages. What should concern the reasonable neutral observer in each one of these scenarios?

There are many concerns, but there is only one word that could capture them all without fear, favor, or irony: culture. Although cultural diversity structured in the above-cited way could be a source of misunderstanding, structured differently, it could also improve the quality of the outcome. These scenarios offer a somewhat extreme example of the lack of cultural proximity between the decision-makers and the parties who must suffer the consequences of the inevitable cultural incommensurability. The process of determination of facts and application of the facts to the law (and the interpretation thereof) is a deeply cultural exercise. Facts always grow out of cultural interactions. When arbitrators are asked to determine facts that grew out of interactions within unfamiliar cultural milieu on the basis of evidence offered by “cultural others,” they appreciate the limitations of their comprehension. If a witness who had an orange-colored identification card (the color copy of which the arbitrators have seen) says during cross-examination that his identification card was yellow, assuming that the color is an issue of material fact and the outcome depends on the credibility of this witness, the case would probably have a different result depending on which one of the two above-referenced panels decides credibility. The African arbitrators would probably not be dumbfounded by a witness who points to an orange identification card and calls it yellow because in many African cultures yellow represents a range of colors, including orange. An extreme position would argue that “judges – are unable to adequately conceptualize the thought and practice (and associated material artifacts) of the members of different cultures.”1)See e.g., ANTHONY J. CONNOLLY, CULTURAL DIFFERENCES ON TRIBAL: THE NATURE AND LIMITS OF JUDICIAL UNDERSTANDING 167 (2010) “They do not possess and cannot acquire…’culturally different concepts.” Id. at 2. jQuery("#footnote_plugin_tooltip_3129_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3129_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Another somewhat extreme position would suggest that “you will never understand Chinese people unless you understand Chinese language.”2)Niall Lawless, Cultural Perspectives on China: Resolving Disputes through Mediation, 4 TRANSNAT’L DISP. MGMT. 4 jQuery("#footnote_plugin_tooltip_3129_2").tooltip({ tip: "#footnote_plugin_tooltip_text_3129_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

For example, in the English case of Balraj v. Balraj, the court was called upon to determine a petition for divorce by a UK resident Indian man under a law that permitted divorce upon showing of five years of separation unless the other spouse (in this case residing in India) could prove grave hardship. Part of the court’s opinion is pertinent here: “For a judge to try to achieve the insight necessary to grasp the prospect of this lady in the outskirts of Hyderabad and the prospects of the daughter of the family living with the mother in Hyderabad calls for the exercise of perhaps grater insight than any English judge should be required to exercise.”3)Quoted in SEBASTIAN POULTER, ENGLISH LAW AND ETHNIC MINORITY CUSTOM 6 (Butterworth-Heinemann 1986) (citing 11 Fam. Law 110 (1981)). jQuery("#footnote_plugin_tooltip_3129_3").tooltip({ tip: "#footnote_plugin_tooltip_text_3129_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The same set of facts could be attributed different meanings because of the fact finders’ cultural backgrounds.4)See Susan Bryant, The Five Habits: Building Cross-Cultural Competence in Lawyers, 8 CLINICAL L. REV. 33, 42 (2001). jQuery("#footnote_plugin_tooltip_3129_4").tooltip({ tip: "#footnote_plugin_tooltip_text_3129_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Inaccurate attributions often lead to erroneous findings.5)See Susan Bryant, The Five Habits: Building Cross-Cultural Competence in Lawyers, 8 CLINICAL L. REV. 33, 45 (2001). jQuery("#footnote_plugin_tooltip_3129_5").tooltip({ tip: "#footnote_plugin_tooltip_text_3129_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Erroneous arbitral fact-finding is very difficult to correct or set aside, if not impossible, more so than judicial fact-finding.

Professor John Crook says that “‘[n]othing a court does affect the public perception of its fairness so clearly as its examination and weighing of the relevant facts.”6)John Crook, Fact-Finding in the Fog: Determining the Facts of Upheaval and War in International Disputes in CATHERINE A. ROGERS & ROGER P. ALFORD, THE FUTURE OF INVESTMENT ARBITRATION 313, 314 (2009). jQuery("#footnote_plugin_tooltip_3129_6").tooltip({ tip: "#footnote_plugin_tooltip_text_3129_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); What do arbitrators do? In answering this question, Professor Crook again says: “[s]hould they pause to reflect, most international lawyers would likely accept the thought that the science and art of deciding legal disputes involves at least three inter-related components. The first two involve determining relevant law and the relevant facts. Then comes stage three—applying the law to the facts.”7)John Crook, Fact-Finding in the Fog: Determining the Facts of Upheaval and War in International Disputes in CATHERINE A. ROGERS & ROGER P. ALFORD, THE FUTURE OF INVESTMENT ARBITRATION 313, 314 (2009). jQuery("#footnote_plugin_tooltip_3129_7").tooltip({ tip: "#footnote_plugin_tooltip_text_3129_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The algorithm for the selection of arbitrators must thus account for the ability to determine facts, identify and interpret law, and apply the law to the facts. The determination of fact is probably the most culturally sensitive step, but the ability to correctly determine facts is perhaps the most ignored of all criteria for arbitrator selection. There is no doubt that ordinarily Chinese judges would understand Chinese witnesses better than European or African arbitrators because of the cultural proximity. Would the ability of the tribunal to determine the facts correctly improve if the composition of the members of the tribunals in the above scenarios is mixed? Say, for example, a Chinese, a European, and an African arbitrator on both tribunals (assuming all other qualifications being equal)?

In the United States, the jury is often the mechanism used to determine facts in certain civil and criminal proceedings. Studies have shown that “[t]he most important determinant of how a jury decides a case is the juror’s own values, attitudes, and beliefs.”8)See Doak Bishop & James H. Carter, The United States Perspective and Practice of Advocacy, in THE ART OF ADVOCACY IN INTERNATIONAL ARBITRATION 532 (2nd ed. 2010). jQuery("#footnote_plugin_tooltip_3129_8").tooltip({ tip: "#footnote_plugin_tooltip_text_3129_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In the United States, some doctors specialize in jury psychology. Trial lawyers hire them. Underneath the struggle for composing the tribunal “right” in international arbitration always lurks the desire to gain the cultural upper-hand because the cultural composition of the tribunal sets the invisible balance of power in the arena making one party more understood, more acceptable, and more comfortable than the other. And indeed, the science of persuasion has long established that “[t]he ability to persuade is dependent on … the speaker’s credibility and likability, and his or her understanding of the audience….”9) BRAD BRADSHAW, THE SCIENCE OF PERSUASION: A LITIGANT’S GUIDE TO JUROR DECISION-MAKING 1 (2nd ed. 2015). (It’s a tribute to Aristotle’s ethos, pathos, logos.) jQuery("#footnote_plugin_tooltip_3129_9").tooltip({ tip: "#footnote_plugin_tooltip_text_3129_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); As Brad Bradshaw puts it: “[w]e also tend to like people who are similar to us…. Similarities lead to likability, and likability can increase the ability to persuade. This is especially true in ambiguous situations…. When information is ambiguous we are more likely to rely on the opinions and actions of those who are similar to us.”10) BRAD BRADSHAW, THE SCIENCE OF PERSUASION: A LITIGANT’S GUIDE TO JUROR DECISION-MAKING 1 (2nd ed. 2015). (It’s a tribute to Aristotle’s ethos, pathos, logos.) jQuery("#footnote_plugin_tooltip_3129_10").tooltip({ tip: "#footnote_plugin_tooltip_text_3129_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Some specific decision-maker psychology studies in the context of the jury system have also found, for example, that “[w]hites demonstrated a more complex thinking when assigned to a diverse group than when assigned to an all-white group.”11)Samuel R. Sommers, On Racial Diversity and Group Decision Making: Identifying Multiple Effects of Racial Composition on Jury Deliberations, 90(4) J. PERSONALITY & SOCIAL PSYCHOLOGY 597-612, 598 (2006) jQuery("#footnote_plugin_tooltip_3129_11").tooltip({ tip: "#footnote_plugin_tooltip_text_3129_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); And, indeed, “research indicates that when jurors of different ethnic groups deliberate together, they are better able to overcome their individual biases.”12)JEFFREY ABRAMSON, WE, THE JURY: THE JURY SYSTEM AND THE IDEAL OF DEMOCRACY 104 (Basic Books, 1994) citing social science studies. jQuery("#footnote_plugin_tooltip_3129_12").tooltip({ tip: "#footnote_plugin_tooltip_text_3129_12", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); As the United States Supreme Court said in Taylor v. Louisiana 419 U.S. 522, 532 (1975), “[t]he broad representative character of the jury should be maintained, partly as assurance of a diffused impartiality.”

In international arbitration circles, diversity is often discussed in light only of political legitimacy and the ethical considerations of exclusion. What is not often discussed is the role diversity plays in improving the quality of arbitral justice. This author’s newly released book, The Culture of International Arbitration (Oxford University Press, March 2017), explores these issues in great detail. The book includes summaries of interviews with several leading international arbitration specialists from different legal traditions, including three judges of the International Court of Justice.

As to whether cultural diversity improves or hinders the quality of justice in terms of the accurate determination of facts and application of law, consider a typical scenario of seven actors in the arbitration room: three arbitrators, two party representatives, and two witnesses. If all three members of the tribunal share a cultural background with each other but not with the party representatives or the witnesses, that alignment of diversity would probably have a negative impact on comprehension. But if, assuming interchangeability, two of the arbitrators change positions with the party-representatives or witnesses, comprehension could improve. In any case, the worst possible outcome is if the group with the least cultural comprehension is the one that makes the decision. That is what needs to be avoided. Seeking diversity for its own sake is a legitimate objective but it is even more compelling if it is sought for the sake of improving justice.

References   [ + ]

1. ↑ See e.g., ANTHONY J. CONNOLLY, CULTURAL DIFFERENCES ON TRIBAL: THE NATURE AND LIMITS OF JUDICIAL UNDERSTANDING 167 (2010) “They do not possess and cannot acquire…’culturally different concepts.” Id. at 2. 2. ↑ Niall Lawless, Cultural Perspectives on China: Resolving Disputes through Mediation, 4 TRANSNAT’L DISP. MGMT. 4 3. ↑ Quoted in SEBASTIAN POULTER, ENGLISH LAW AND ETHNIC MINORITY CUSTOM 6 (Butterworth-Heinemann 1986) (citing 11 Fam. Law 110 (1981)). 4. ↑ See Susan Bryant, The Five Habits: Building Cross-Cultural Competence in Lawyers, 8 CLINICAL L. REV. 33, 42 (2001). 5. ↑ See Susan Bryant, The Five Habits: Building Cross-Cultural Competence in Lawyers, 8 CLINICAL L. REV. 33, 45 (2001). 6, 7. ↑ John Crook, Fact-Finding in the Fog: Determining the Facts of Upheaval and War in International Disputes in CATHERINE A. ROGERS & ROGER P. ALFORD, THE FUTURE OF INVESTMENT ARBITRATION 313, 314 (2009). 8. ↑ See Doak Bishop & James H. Carter, The United States Perspective and Practice of Advocacy, in THE ART OF ADVOCACY IN INTERNATIONAL ARBITRATION 532 (2nd ed. 2010). 9, 10. ↑ BRAD BRADSHAW, THE SCIENCE OF PERSUASION: A LITIGANT’S GUIDE TO JUROR DECISION-MAKING 1 (2nd ed. 2015). (It’s a tribute to Aristotle’s ethos, pathos, logos.) 11. ↑ Samuel R. Sommers, On Racial Diversity and Group Decision Making: Identifying Multiple Effects of Racial Composition on Jury Deliberations, 90(4) J. PERSONALITY & SOCIAL PSYCHOLOGY 597-612, 598 (2006) 12. ↑ JEFFREY ABRAMSON, WE, THE JURY: THE JURY SYSTEM AND THE IDEAL OF DEMOCRACY 104 (Basic Books, 1994) citing social science studies. 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:

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Have the Singapore Courts Faltered in the Enforcement of Arbitration Agreements?

Wed, 2017-03-29 19:22

Darius Chan


In TMT Co Ltd v The Royal Bank of Scotland plc [2017] SGHC 21, the Singapore High Court took the view that an arbitration clause did not meet the prima facie standard to warrant a stay of court proceedings because it designated an inapplicable arbitral institution. Commentators have suggested that the decision is “surprising” and out of line with the prevailing judicial policy of upholding arbitration agreements. This note takes the view that the ultimate decision is defensible because, on a proper interpretation of the dispute resolution clauses, there was no clear intention to arbitrate the dispute at hand.


TMT Co., Ltd (“TMT”), a Liberian ship-owning company, opened a trading account with the Royal Bank of Scotland plc (“RBS”) in May 2007. The trades were cleared by RBS through the London Clearing House, of which RBS was a Clearing Member.

In 2010, TMT commenced proceedings against RBS in England for breach of the trading account agreement (referred to in the judgment as the “FFA Account Agreement”) negligence, breach of statutory duty concerning risk management and other obligations and negligent misrepresentation as to the margin requirements of the trading accounts. It was essentially alleged that incorrect information was provided by RBS and relied upon by TMT to make trading decisions, leading to substantial losses. The FFA Account Agreement is governed by English law. Clauses 20 and 22 of the FFA Account Agreement provide as follows:

20. Arbitration
Any dispute arising from or relating to these terms or any Contract made hereunder shall, unless resolved between us, be referred to arbitration under the arbitration rules of the relevant exchange or any other organization as the relevant exchange may direct and both parties agree to, such agreement not to be unreasonable [sic] withheld, before either of us resort to the jurisdiction of the Court.

22. …
Subject to term 20 [the arbitration clause] above, disputes arising from these terms or from any Contract shall, for our benefit, be subject to the jurisdiction of the English courts to which both parties hereby irrevocably submit, provided however that we shall not be prevented from bringing an action in the courts of any other competent jurisdiction.

In 2012, the parties entered into a settlement agreement to settle the English proceedings (referred to in the judgment as the “Settlement Agreement”). The Settlement Agreement is governed by English law. The Settlement Agreement contains an exclusive English jurisdiction clause.

In 2015, TMT sued RBS’s Singapore branch and a number of RBS’s officers (collectively the “Defendants”) for losses arising from imposing improper and erroneous margin requirements, improper and erroneous valuation, diversion of monies and delay of instructions, wrongful or fraudulent assistance, and conspiracy to carry out the wrongful acts, relating to TMT’s margin trades.

The Defendants applied for a stay of the Singapore proceedings and succeeded before an Assistant Registrar. On appeal before the Singapore High Court, TMT argued, inter alia, that:

(a) The Settlement Agreement covered only claims raised in the English proceedings.

(b) The arbitration clause in the FFA Account Agreement was inoperative and incapable of being performed. There was no relevant exchange because the London Clearing House is not an exchange.

(c) The arbitration rules governing the London Clearing House Clearing Members are inapplicable because they are intended solely for Clearing Members. TMT is a non-clearing member.

(d) Under the jurisdiction clause in the FFA Account Agreement, TMT must submit to the jurisdiction of the English courts if RBS commenced proceedings there. Otherwise, both parties are entitled to commence legal proceedings anywhere else.

On the other hand, the Defendants raised various alternative arguments, including:

(a) Any dispute about the scope of the Settlement Agreement should be determined by the English courts pursuant to the exclusive jurisdiction clause in the Settlement Agreement.

(b) All the claims in the Singapore proceedings arise from or relate to the terms of the FFA Account Agreement, and would be subject to the arbitration clause under the FFA Account Agreement.

(c) All the claims are subject to the exclusive jurisdiction of the English courts under the FFA Account Agreement.

Eventually, the Singapore High Court decided that the Singapore proceedings fell within the scope of the Settlement Agreement properly construed. The Court also found that, even if there was any dispute about the scope of the Settlement Agreement, such a dispute would fall within the scope of the exclusive jurisdiction clause in the Settlement Agreement. The proceedings in Singapore should thus be stayed.

By way of obiter, the Court proceeded to examine whether a stay would be warranted on the basis of the arbitration clause in the FFA Account Agreement. The Court’s reasoning was that, because there is no relevant exchange in this case, the arbitration clause does not on its face apply to the present dispute. On the evidence before the Court which appears to be undisputed, the trades that were executed under the FFA Account Agreement were carried out through a clearing house, which is different from an exchange.

The Defendants tendered an English legal opinion which took the view that the English courts would not limit the arbitration clause to only situations where an exchange is involved. The English courts would focus on the provision for arbitration, treating the rest of the clause as the relevant mechanism which could be modified to the situation at hand.

The Court rejected the Defendants’ argument on the premise that the Courts would be slow to override the plain words in the parties’ agreement. The Court was unable to conclude on the evidence that there is any absurdity or that parties had intended to give an expanded meaning to the word “exchange”. The Court took the view that the threshold for granting a stay under section 6 of the International Arbitration Act was not met.


Observers have suggested that the Court’s decision is “unusual” because the arbitration clause in this case was coherently drafted—the Singapore Courts have on previous occasions, such as HKL Group Co Ltd v Rizq International Holdings Pte Ltd [2013] SGHCR 5 and Insigma Technology Co Ltd v Alstom Technology Ltd [2009] SGCA 24, saved other defective arbitration agreements between commercial parties when the defect was more apparent. These observers have suggested one way of rationalizing this decision: a bad arbitration clause is more likely to be saved than one that is coherent but inapplicable, because the Court would be reluctant to “rewrite” the clause.

In this writer’s view, the Court’s decision is defensible. The outcome of such cases does not simply turn on how well-drafted the clause is; a fundamental touchstone is whether the parties have evinced, prima facie, an intention to arbitrate the specific dispute at hand. On the facts of this case, the intention of the parties is gleaned by reading both the dispute resolution clauses in the FFA Account Agreement, i.e. clauses 20 (arbitration clause) and 22 (jurisdiction clause), together.

It is uncontroversial that, as a starting point, Singapore courts strive to uphold arbitration clauses—a paradigm example would be K.V.C. Rice Intertrade Co., Ltd v Asian Mineral Resources Pte Ltd [2017] SGHC 32, where the Singapore High Court recently enforced “bare” arbitration clauses which specified neither the seat or means of appointing arbitrators. However, unlike a typical case where the parties only included an arbitration clause but not a jurisdiction clause, in this case the dispute resolution mechanism included a jurisdiction clause. One would need to give effect to the existence and language of the jurisdiction clause.

On a plain reading of clauses 20 and 22 of the FFA Account Agreement, it is arguable that, under the FFA Account Agreement:

(a) Before parties “resorted to the jurisdiction” of the courts, parties would first submit disputes that are amenable for resolution “under the arbitration rules of the relevant exchange or any other organization as the relevant exchange may direct”; and

(b) Any disputes not so amenable would then be resolved by way of the jurisdiction clause in clause 22.

If the Defendants’ expansive interpretation of clause 20 were accepted, clause 22 may be rendered practically otiose. There is no evidence that was the intention of the parties. Furthermore, that outcome would be inconsistent with the language of clause 20 because clause 20 itself refers to the possibility of parties “resort[ing] to the jurisdiction” of the courts. On its terms, clause 22 applies to any disputes that are not amenable for arbitration under clause 20.

Put simply, it is arguable the scope of the arbitration agreement here is expressly limited to disputes that are amenable for resolution “under the arbitration rules of the relevant exchange or any other organization as the relevant exchange may direct”. There appears to be no evidence, prima facie or otherwise, that the Singapore proceedings fell within that scope.

The decision at hand is a good example of how, despite adopting a pro-arbitration policy, the Singapore courts will not enforce arbitration clauses indiscriminately. The mere existence of an arbitration clause does not, without more, carry the day.

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The German Media Arbitral Tribunal

Wed, 2017-03-29 03:25

Nadine Lederer

Since 1 January 2017, national and international media companies can initiate arbitration proceedings with the German Media Arbitral Tribunal (Deutsches Medienschiedsgericht – “DMS”). The DMS, which was established in 2016 in Leipzig, is a specialized arbitral institution that exclusively deals with media law disputes. In addition to arbitration proceedings, the DMS offers conciliation proceedings and expert determinations.


Media-related disputes frequently involve publishing houses, broadcasting and internet enterprises, media companies as well as copyright collecting societies. These disputes often deal with complex legal issues of intellectual property, copyright, film, music and press law, as well as with difficult technical questions which may require special expertise. In many cases, proceedings before national courts take place over several years. Therefore, and as expressed by the DMS on its website, there is a risk that such proceedings may become obsolete due to technical development.

By taking into account the special needs of media companies, the DMS aims at providing a faster and more economical alternative to litigation proceedings. It offers an alternative dispute settlement mechanism which allows for flexibility and confidentiality, and provides also for tailored services to meet the requirements of the evolving area of media law.

The DMS Rules of Arbitration in a Nutshell

Parties that wish to have their dispute administered by the DMS may use the model arbitration clause provided on the DMS website. Arbitration proceedings are conducted on the basis of the DMS Rules of Arbitration (“DMS Rules”). The DMS Rules include provisions that deal with the organization of arbitration and conciliation proceedings, as well as with expert determinations.
Some of the most important aspects of the DMS Rules are analyzed in this post:

The Jurisdiction of the DMS: Media Law Disputes

Article 3(1) of the Rules stipulates that the DMS only deals with media law disputes.
According to the definition provided in Article 3(2) of the DMS Rules,

“[a] media law dispute shall be deemed given if at least one of the parties directly involved in the proceedings creates, utilises, uses or markets media and the dispute focuses on such an activity. Media within the meaning of sentence 1 comprise means of communication that are disseminated by way of technical duplication and disseminated to users by word, pictures or sound content. These include, in particular, the print media (e.g. newspapers, magazines, posters and flyers) and electronic media (e.g. broadcasting and online services).”

Based on this definition, it is to be expected that relevant disputes will include, for example, copyright and licensing issues. Also, pursuant to Article 18(2) of the DMS Rules, the minimum amount in dispute must be EUR 100,000.00.

The DMS may come to the conclusion that it does not have jurisdiction with regard to certain disputes. As clarified by Article 3(3)(b) of the DMS Rules, such a decision may be issued in the event that the matter is not sufficiently significant for the development of media law. The notion of “insufficient significance” gives the DMS a wide discretionary power to reject cases. However, this threshold is vague and may cause legal uncertainty for the parties. How the DMS will interpret this term remains to be seen.

Place of the Arbitration and Applicable Laws

According to the model arbitration clause, the place of the arbitration proceedings is Leipzig, where the DMS has its headquarters (Article 2 of the DMS Rules).

The Rules provided for an application of the provisions of the German Code of Civil Procedure (Zivilprozessordnung – “CCP”) relating to arbitration proceeding when the DMS Rules are silent on the matter (Article 19(2) of the DMS Rules). Also, unless otherwise agreed by the parties, German law is the applicable substantive law (Article 4(1) of the DMS Rules). If the parties agree on the application of foreign law, they must bear the additional costs for obtaining any necessary legal opinion (Article 4(2), read with Article 18, of the DMS Rules).

This shows that the DMS arbitration proceedings are largely based on and dictated by German law. To some extent, this may restrict the parties’ flexibility to shape their arbitration proceedings. Against this backdrop, it remains to be seen how attractive arbitration proceedings under the DMS Rules will be not only for German, but also for international media companies.

DMS Arbitrators

The DMS provides a list of arbitrators (currently 21), each with special expertise and a reputation in media law (Article 6 of the DMS Rules). The parties must choose their arbitrators from this list (Article 12(1) DMS Rules).

Furthermore, the parties must decide whether the arbitral tribunal shall consist of either three, five or seven members. Ideally, the parties should agree on the number of arbitrators in advance (i.e. in their arbitration agreement). The model arbitration clause provides specific wording in this respect. However, in the absence of a clear stipulation of the number of arbitrators in the arbitration clause, and failing an agreement between the parties at a later stage when the dispute has already arisen, the arbitral tribunal cannot be constituted (Article 12(2) of the DMS Rules). As such, one party may effectively block arbitration proceedings by simply not engaging in discussions with the other party about the number of the arbitrators.

Arbitral Award

An arbitral award has the effect of a final judgement (Article 31 of the DMS Rules), and as such it may be subject to annulment pursuant to Article 1059 of the CCP. However, before the initiation of arbitration proceedings, the parties may agree in their arbitration agreement “to the contrary that the legal action is to remain pending before a state court without any restriction”. Thus, recourse to domestic courts remains open to the parties if they so agreed. The model arbitration clause provides specific wording should the parties take the advantage of this possibility, which reads as follows:

“All media law disputes that arise in conjunction with [describe matter in dispute in detail] shall be ultimately decided upon in accordance with the rules of arbitration of the German Media Arbitral Tribunal by way of the continued unrestricted permissibility of a legal action before a state court.”

However, this possibility seems inconsistent with the DMS’ intention of providing a faster and more economical alternative to litigation proceedings before domestic courts. This intention serves the broader objective of arbitration, that is, to resolve disputes outside of the courts’ jurisdiction.


The 2016 Queen Mary Dispute Resolution Survey “Pre-empting and Resolving Technology, Media and Telecoms Disputes” (which was discussed on this blog by Gustavo Moser) identified the future potential and increased use of arbitration as a viable mechanism for the resolution of technology, media and telecoms (“TMT”) disputes. According to the aforementioned survey, litigation is still the most frequently used dispute resolution mechanism in this area of law. However, this will hopefully change in the future. The survey also reported that, to date, the most popular arbitral institutions for TMT disputes are the ICC, the LCIA, the SIAC, and the WIPO Arbitration and Mediation Center. The DMS was thus established at a time in which arbitration is becoming more and more relevant for the resolution of media law disputes, and as such the DMS is an important step for the further promotion of arbitration in the field of media law.

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The Development of Arbitration Legal Studies In Brazil (or How the Vis Moot Can Change Your Life)

Mon, 2017-03-27 22:57

Thiago Del Pozzo Zanelato and Lucas Moreira Jimenez

With the upcoming 2017 edition of the Willem C. Vis International Commercial Arbitration Moot Court Competition (the “Vis Moot”), the eyes of the international arbitral community are turned – maybe more than ever before – to Brazil. That is because the arbitration rules that will apply as the basis for the competition’s fictional dispute will be, for the first time, that of a Latin American arbitral institution: the Center for Mediation and Arbitration of the Brazil-Canada Chamber of Commerce.

Curiously, law schools in Brazil in general are still taking their first steps in adopting and promoting arbitration and other dispute resolution-related subjects. In fact, the overwhelming majority of courses do not have “arbitration” or “ADR” in their syllabus and the few ones that do offer these disciplines offer them as elective courses.

This situation is also in dire contrast to the current arbitration practice in Brazil. With an effective and up-to-date legal framework and a broad acceptance from the business community (and even for the State entities), who wish to opt-out from the local judiciary, arbitration has firmly established itself in the country over the last years.

Recently, some extension or post-graduate courses have presented themselves as makeshift solutions for the market’s demand for lawyers with an expertise in the field. In this sense, law firms and law associations are increasingly making the case for turning arbitration and ADR mandatory disciplines in law schools across the country.

It is in this context (familiar to several other countries besides Brazil) that the Vis Moot immensely contributes to the formation and development of young legal professionals, filling a gap in the local legal education and getting students acquainted to areas of law traditionally neglected by the universities.

A proof of this statement comes from the fact that, despite the scenario just described, Brazil has almost 30 teams participating in the Vis Moot this year, with universities from virtually all regions of this continental country, placing the country among those with most expressive participation in number of teams.

Particularly in 2016, Brazil had a historical run in the Vis Moot: besides the record number of 21 participating universities (which placed the country 3rd in number of teams), Brazilian universities attained top positions in the overall ranking. Four teams advanced to the eliminatory rounds: PUC-PR (semi-finals), PUC-SP (quarterfinals), Universidade Positivo (round of 32) and UniCuritiba (round of 64). In the Vis East Moot, the “sister” competition taking place in Hong Kong, PUC-SP was the only Latin American university competing, having advanced to the eliminatory rounds (a feat repeated in the three previous editions of the competition).

Commonly held by professionals as one of the most innovative and productive legal educational experiences nowadays, the competition’s relevance as a practical experiment is widely recognized by local Brazilian law firms. In fact, top arbitration lawyers seek to participate in the competition (and in the several pre-moots that precede it), apart from the traditional networking and exposure, to scout for talented young practitioners to fill highly disputed positions in their law firms.

This should come as no surprise. Some of the characteristics the students create or develop over the competition are highly sought after by any law firm: pro-activity, resiliency, being able to work in a group, leadership, advocacy skills etc. (apart from other less obvious but nevertheless useful features, such as a high tolerance to sleep deprivation).

In this sense, it is clear that the Vis Moot is more than an educational tool, serving as a valuable exercise of law practice – arguably one of the closest you could get to the real deal while still an undergraduate student.

Besides, depending on the dedication and the performance of the competitors (known as mooties), the Vis Moot can generate unique opportunities to students. Indeed, there are several cases of students from Brazil and other nationalities that were offered internship positions in major international law firms, arbitration centers and other institutions following their participation in the competition. The social aspect of the Vis Moot experience is also well known – lasting friendships are formed, fruitful partnerships are created, and eventually even couples are put together.

These opportunities of exchange and growth are certainly advantageous to all law students, regardless of their nationalities. However, they are all the more appealing when one considers the standpoint of aspiring lawyers coming from places such as Brazil and others not as integrated to the global economy or the international arbitral community. In these cases, these opportunities become truly unique.

In the end, it is also the intensity of the Vis Moot experience as a whole that defines the kind of results that will be reaped from participating in the competition – a hard working student will make the most of it, and there is plenty to be made. Whether it is on the educational, professional or personal level, the Vis Moot can mean a lot to anyone who wish to be a part of it (and give up some or all weekends from October to April), to a point that it wouldn’t be an exaggeration to say that the Vis Moot can change your life.

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Trust Disputes Non-Arbitrable in India

Mon, 2017-03-27 05:30

Mohit Mahla

Coincidentally, at the same time last year, the world witnessed two historical developments. First, Donald J. Trump was elected as the 45th president of the United States. Second, in an attempt to curb black money (a move, the result of which is still to be evaluated), the Modi-led Government demonetised 500 and 1000 currency notes in India. Even before, interestingly, the Supreme Court of India through its judgment in Shri Vimal Kishor Shah & Ors. v. Mr. Jayesh Dinesh Shah & Ors. (“Vimal Kishor Shah”) [2016 (8) SCALE 116] in effect has demonetised arbitration of trust disputes in India.

From being typically charitable in nature to becoming an effective commercial vehicle for succession and estate planning, trusts in India have evolved with time. With the growing complexity of trust deeds and the constantly evolving nature of trusts, came the inevitable raven – “disputes”. Resolving trust disputes through arbitration – which comes with the usual advantages over litigation, such as confidentiality, party autonomy, limited curial review, costs and time benefits – seemed to be an attractive option. That being said, arbitration of trusts disputes raises issues that make trusts disputes non-arbitrable in many jurisdictions including India.

The question of arbitrability of disputes arising out of trust deeds was considered by the Supreme Court of India in Vimal Kishor Shah. The court was hearing an appeal against an order of the High Court of Bombay appointing an arbitrator to hear disputes arising out of a family trust deed. The arbitration agreement in that deed provided for arbitration of any disputes between trustees; trustees and beneficiaries; and beneficiaries, it held that disputes arising out of trust deeds are non-arbitrable under the Arbitration and Conciliation Act, 1996 (the “Arbitration Act”). The Supreme Court, however, ignored certain important facets of modern-day-arbitrations which are problematic. A few of those problems are the following.

A trust deed is not an Arbitration Agreement

The Supreme Court concluded that a trust deed cannot be construed as an agreement let alone an arbitration agreement within the meaning of Section 7 of the Arbitration Act (which is based on Article 7 of UNCITRAL Model Law on International Commercial Arbitration, 1985). The Supreme Court found that trust deeds are not signed by the beneficiaries and, thus, beneficiaries under a trust deed containing an arbitration clause cannot be regarded as a “party” to the arbitration agreement under the Arbitration Act. In reaching such a conclusion, the Supreme Court has ignored the following points:

First, the signature of the parties to an arbitration agreement cannot be regarded as a decisive factor in determining its validity and enforceability. In the past, however, courts and arbitral tribunals strictly interpreted the writing requirement of arbitration agreements. Now, however, the writing requirement is interpreted more liberally by various jurisdictions. The courts in U.S.A, Singapore and even in India have clarified that the mere absence of a signature will not affect the existence of a valid and binding arbitration agreement. [See Seawright v. Am. Gen. Fin., Inc., 2007 U.S. App. (6th Cir. 2007); Malini Ventura v. Knight Capital Pte. Ltd and others [2015] SGHC 225; Govind Rubber Ltd. v. Louids Dreyfus Commodities Asia Ltd. (2015) 13 SCC 477]. Further, both, Option I (on which Section 7 of the Arbitration Act is based upon) and Option II of the 2006 version of Article 7 of the UNCITRAL Model Law on International Commercial Arbitration do not have a writing requirement. This removes one of the difficulties faced in arbitration of trust disputes–especially in respect of disputes involving beneficiaries.

Second, in reaching the conclusion that a beneficiary of a trust cannot be regarded as a “party” to the arbitration agreement under the Act, the Supreme Court ignored the intention of the legislature behind the recent amendment to Section 8 of the Arbitration Act. As a result of the amendment, Section 8 now provides a reference to arbitration could be sought not only by a party to the arbitration agreement but also by “persons claiming through or under” a party to an arbitration agreement. Thus, the purpose was to bring parties who are not signatories to an arbitration agreement – but whose rights and liabilities are still affected by the underlying agreement – into the ambit of “party” to the arbitration agreement. Beneficiaries of a trust can plausibly be regarded as “persons claiming through or under” the settlor who is a party to an arbitration agreement and, thus, can be bound by an arbitration agreement contained in a trust deed.

Third, the Supreme Court has failed to appreciate the common law doctrine of “Direct Benefits Estoppel or Deemed Acquiescence” the foundation of which is that a party is estopped from avoiding or bound by arbitration if it knowingly seeks the benefits of the agreement containing the arbitration clause. [See McArthur v. McArthur, 224 Cal. App. 4th 651 (Cal. App. 1st Dist. Mar. 11, 2014)], where the court applied the doctrine of direct benefits estoppel and prevented a trust beneficiary who was getting benefits under a trust, from avoiding the arbitration provision of that trust]. Beneficiaries of a trust should not be allowed to cherry-pick from a trust deed, parts which are suitable and avoid the parts which are not suitable and should ideally be bound by the arbitration agreement contained in the trust document if they have derived any benefits from the trust.

Implied bar of exclusion of applicability of the Act under the Indian Trusts Act, 1882

The Indian Trusts Act, 1882 (the “Trusts Act”) is the legislation governing private trusts in India. The Trusts Act encompass provisions about various aspects of trusts, i.e., the creation of trust, duties, and liabilities of trustees, rights and powers of trustees, rights and liabilities of the beneficiary, and so on. The Trusts Act empowers the civil courts in respect of certain legal remedies, but it nowhere provides, however, the civil courts’ exclusive jurisdiction to adjudicate disputes arising between the settlor, trustees and beneficiaries. The Supreme Court, while accepting there is no express bar on arbitration of disputes under the Trusts Act, found that there was an implied bar of exclusion of applicability of the Act for deciding trust disputes. By doing so, the Supreme Court has added yet another category of disputes to the list of six well-recognized examples of disputes considered non-arbitrable as identified by the Supreme Court in the case of Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd. & Ors., (2011) 5 SCC 532 (“Booz Allen”). However, the Supreme Court failed to appreciate the general arbitrability test (though not being rigid or inflexible) in Booz Allen. According to that case, “generally and traditionally all disputes relating to rights in personam are considered to be amenable to arbitration; and all disputes relating to rights in rem are required to be adjudicated by courts and public tribunals, being unsuited for private arbitration.” Trust disputes concern rights in personam and, therefore, based on the general arbitrability test laid down under Booz Allen should not have been regarded as non-arbitrable.

Further, a blanket ban on arbitration of disputes arising out of trust deeds would also mean that separate arbitration agreements entered into between the beneficiaries to resolve disputes between themselves are now non-arbitrable, a consequence – which was highly undesirable.


Arbitration could be an effective mean to resolve trust disputes, especially due to its private and confidential nature which is an important consideration in disputes arising in the context of family trusts in India. However, unless reconsidered, Vimal Kishor Shah has clearly made all trust disputes (even those between the beneficiaries) non-arbitrable in India. To cure the harm done by Vimal Kishor Shah, legislative amendments to the pre-independence era’s Trusts Act are desirable. As a suggestion, the Trusts Act could be amended to include a provision that where a written trust instrument provides for any dispute arising between any of the parties (including the beneficiaries) to the trust, would be submitted to arbitration. That provision should have effect as between those parties as if it were an arbitration agreement and as if the parties were parties to that arbitration agreement. Guidance in this regard could be taken from the legislative amendments made in the Florida Probate Code (Section 731.401 of Chapter 731) or Guernsey Trust Law (Section 63) to facilitate arbitration of trust disputes. However, until allowed legislatively, trust disputes remains non-arbitrable in India.

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Has Brazil Made a Unilateral Binding Offer to Arbitrate in the 2016 Investment Partnership Program (PPI)?

Thu, 2017-03-23 17:19

Cesar A. Guimarães Pereira and Luísa Quintão

A provision enacted in 2016 seems to have created a revolutionary change in Brazil’s approach to arbitration involving State parties. It is well-known that Brazil is not a party to the Washington Convention of 1965 nor of any ratified BIT (Bilateral Investment Treaty). The country has relied on commercial arbitration to resolve disputes with State parties, mostly based on arbitration clauses included in contracts. Provision Measure (MP) 752, issued by the federal government in November 2016, may dramatically change this scenario. At least with regard to certain existing projects governed by Law 13.334, of 2016 (the federal government’s PPI – Investment Partnership Program).

MP is a form of provisional legislation, issued by the President and subject to confirmation or alteration by Congress in up to 120 days. The sectors comprised by PPI include highways, railways and airports and other fields, under many forms of contractual arrangements. PPI projects may be conducted by the federal government or by local governments based on delegation or association. PPI may include privatizations under Law 9.491, of 1996. These fields give PPI a potential breadth that covers most large-scale infrastructure projects.

MP 752 created additional tools to favor PPI projects. One of them is arbitration under special rules. Articles 1 and 2 of Law 9.307, of 1997, allow governments to include arbitration clauses in contracts or enter into submission agreements. But MP 752 brought about special regulations to govern arbitration in two situations.

The first one deals with termination and re-tendering. If parties wish to terminate and re-tender their current contracts, they shall enter into a submission agreement as part of a specific amendment (Article 15, section III, of MP 752).

The second one comprises disputes arising out of PPI contracts. There are two subcategories. If the conditions set forth in Article 25 are met, the provision functions as a unilateral binding offer to arbitrate from the Federal Government. If those conditions are not met, parties may arbitrate under an existing arbitration clause or one that is added through a contractual amendment (Article 25, paragraph 1). The conditions under Article 25 are as follows:

Article 25. Disputes relating to disposable economic rights arising out of partnership agreements within the sectors governed by this Provisional Measure may be resolved by arbitration or other alternative dispute resolution mechanism after a final decision by the competent authority.

Paragraph 1. The contracts that do not have an arbitration clause, including those in force, may be amended for the purposes of the head of this article.

Paragraph 2. The arbitration costs shall be anticipated by the private partner at the commencement of the proceedings and when applicable they will be reimbursed under the terms of a final decision in arbitration.

Paragraph 3. The arbitration shall be in Brazil and in Portuguese language.

Paragraph 4. For the purposes of this Provisional Measure, disposable economic rights are limited to:

I – issues relating to the reestablishment of the economic and financial balance of the contracts;

II – calculation of compensations resulting from the termination or transfer of concession contracts; and

III – non-compliance with contractual terms by any of the parties.
Paragraph 5. The accreditation of arbitral institutions for the purposes of this Provisional Measure shall be governed by an Act of the Executive Power.1)Free translation by the authors. jQuery("#footnote_plugin_tooltip_9753_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9753_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The main innovation by MP 752 is the introduction in Brazil of a mechanism widely known internationally for the protection of investments. A State may offer its investors the possibility of submitting investment disputes to arbitration. A unilateral offer may be provided for in multilateral investment treaties, BITs or domestic investment laws. Investors may accept the offer and give effect to the consent required for an arbitration agreement by several means, by simply submitting a request for arbitration.2)SALACUSE, Jeswald. The Law of Investment Treaties, 2nd edition. Oxford University Press, 2015. pp. 422-423. jQuery("#footnote_plugin_tooltip_9753_2").tooltip({ tip: "#footnote_plugin_tooltip_text_9753_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });


MP 752 is indistinctly applicable to Brazilian national and foreign parties. The head of Article 25 provides that “disputes (…) arising out of partnership agreements within the sectors governed by this Provisional Measure may be resolved by arbitration or other alternative dispute resolution mechanism”. Such sectors are those covered by PPI, usually infrastructure projects under concession or PPP agreements.

Article 25 sets forth two requirements. First, it requires a final decision by the competent administrative authority prior to arbitration. In other words, arbitration under the special conditions of Article 25 is only possible after a decision from an administrative authority. Second, the dispute’s subject matter must deal with disposable economic rights referred to in paragraph 4. For the specific purposes of the unilateral offer to arbitrate, the objective arbitrability is limited to the subject-matters specified in such provision. Paragraph 5 of Article 25 deals with accreditation of arbitral institutions, but this is not a condition for the offer under the head of Article 25 to be effective.

Article 25 must be interpreted as a unilateral and irrevocable expression of consent by the Federal Government to submit the dispute to arbitration provided such conditions are met.

Consent by the private party may arise from an amendment to a contract without an arbitration clause or even by filing the request for arbitration or through a unilateral statement. The private party then enters into an arbitration agreement and is entitled to all its effects. The private party may initiate arbitration, including through the system to compel arbitration through national courts set forth by articles 6 and 7 of Law 9.307.

The head of Article 25 does not require the conclusion of the amendment provided for in paragraph 1 for consent to exist.3)A suggestion to that effect can be found in the reasons (Exposição de Motivos) submitted by the Federal Government when it issued MP 752, but such reasons are not binding nor do they supersede the language of the MP 752 provisions. jQuery("#footnote_plugin_tooltip_9753_3").tooltip({ tip: "#footnote_plugin_tooltip_text_9753_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); It would have been simple for MP 752 to provide otherwise, but it has not done so.

The most important and final confirmation of such interpretation of Article 25 arises from reading Article 25 and its paragraph 1 in their context.

Law prior to MP 752 already provides for arbitration agreements for disputes involving disposable economic rights between the Federal Government and its private partners or concessionaires. There would be no point in MP 752 simply repeating such provisions. It has gone beyond that.

The possibility of conclusion of arbitration agreements has been expressly provided by Law 11.079 (PPPs Act) and Law 8.987 (Public Concessions Act), since 2004 and 2005. Several sectorial laws had provided for arbitration since the mid-1990s. Such possibility was reaffirmed by the 2015 amendments to the Brazilian Arbitration Act (Law 9.307) introduced by Law 13.129. One can assume that MP 752 has not merely repeated what had already been historically built and consolidated through several acts that led to the legislative reform in 2015.

Most importantly, this interpretation gives sense to the provision that arbitration is possible “after a final decision by the competent authority” (Article 25). Such requirement has created perplexity among specialists. The discussion relates to whether the provision causes a restriction to access to jurisdiction.

The interpretation of the Article 25 condition is clear and simple if one understands such administrative decision is one of the conditions for the unilateral offer to arbitrate. Once an administrative decision exists, the dispute shall be submitted to arbitration under Article 25, depending only on the private party’s expression of consent. If such decision does not exist, the special mechanism introduced by Article 25 does not apply.

The notion of “final decision by the competent authority” requires clarification. Article 25 merely requires some administrative decision before any party can resort to arbitration. For the unilateral offer to arbitrate to be effective, the subject matter of the dispute must have been previously resolved by an administrative decision. This is not the general rule. If there is an arbitration agreement, a private party may commence arbitration without having to wait for an administrative decision, provided there is a dispute and the party has standing to arbitrate.

The condition of a “final decision” does not require a decision by the highest possible authority nor exhaustion of all available administrative appeals. An express or implied waiver of the administrative discussions suffices to give the challenged administrative decision a final character.

Article 25 of MP 752 brings an important innovation to the Brazilian legal system concerning arbitration involving State entities. It creates a unilateral and binding offer from the government to arbitrate certain categories of disputes arising from PPI (infrastructure) contracts in which a competent authority has already rendered a final decision. A private party may conclude the arbitration agreement by a formal submission agreement with the government or by submitting the dispute to arbitration after a final administrative decision or a waiver of subsequent administrative appeals.

References   [ + ]

1. ↑ Free translation by the authors. 2. ↑ SALACUSE, Jeswald. The Law of Investment Treaties, 2nd edition. Oxford University Press, 2015. pp. 422-423. 3. ↑ A suggestion to that effect can be found in the reasons (Exposição de Motivos) submitted by the Federal Government when it issued MP 752, but such reasons are not binding nor do they supersede the language of the MP 752 provisions. 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:

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Place of Arbitration in the Proposed “Investment Court” Scenario: An Overlooked Issue?

Wed, 2017-03-22 23:30

Joel Dahlquist

The international arbitration community has lately been occupied with various proposals to reform investor-state disputes. On the interstate level, a consensus seems to be building that several aspects of the current system need to be modified in order for the system to safeguard its own legitimacy.

In this context, there are various reform proposals floated in different fora. Most notably – and most concretely – the EU Commission has been clear in its ambition to establish a more “court like” system to solve investment disputes. Although this work goes on in parallel on different levels, the proposal has been implemented in the signed but not yet ratified treaty with Canada, the CETA. Among other novelties, the reforms include the establishment of a permanent roster of arbitrators (Art. 8.27), an appellate tribunal (Art. 8.28) and the express opening for a future “multilateral” tribunal and appellate body (Art. 8.29).

Although there are many details still to be worked out with respect to this new dispute settlement mechanism, this blog post discusses one specific aspect, which is presumably relevant for most other reform plans, namely the overlooked issue of the place of arbitration.

Similar to many other investment treaties, Art. 8.23.2 CETA allows an investor to choose between different arbitration rules. The three available regimes are the ICSID Convention (with its associated arbitration rules), ICSID Additional Facility and the UNCITRAL Rules. There are numerous differences between these three rules. One such difference is that the two latter require a legal place of arbitration (lex arbitri) in a national jurisdiction. This aspect is integral to the current structure of the ICSID Additional Facility Rules and the UNCITRAL Rules and nothing in CETA suggests an intention to deviate from this fundamental feature.

The lex arbitri governs the outer procedural frame for the arbitration, and is also integral for the question of set-aside proceedings (determining which court has jurisdiction), as well as enforcement under the New York Convention (which requires that the award has a “nationality”). Arbitration under the ICSID Convention, by contrast, is “self-enclosed” in the sense that all such matters are regulated within the Convention itself. In fact, one stated intention behind the ICSID Convention was to remove domestic courts from the arbitration proceedings entirely.

Given this importance of the lex arbitri, remarkably little attention seems to have been paid to which domestic jurisdiction should govern non-ICSID proceedings under CETA and, more crucially, how the new features described above interact with the lex arbitri and the courts at the place of arbitration.

CETA does not specify the place of arbitration in case the ICSID Additional Facility Rules or the UNCITRAL Rules are used. Therefore, the choice rests with the disputing parties (in the case of the UNCITRAL Rules, which also authorize the tribunal to determine the seat if the parties cannot agree) or directly with the tribunal (in the case of ICSID Additional Facility Rules, which require the tribunal to consult with the disputing parties prior to determining the seat).

Presumably, in the CETA context, the contracting states envisioned – to the extent any such details were envisioned at all – that the disputing parties or the tribunal would choose a neutral and suitable place of arbitration (yes, that means you, Switzerland) where the more creative features of CETA would be respected. Alternatively, the assumption might be that the proceedings might be anchored in either Canada or the EU. In any event, the place of arbitration – or at least a limited list of available options – could easily have been specified directly in the treaty (which is the case, for example, with the NAFTA). As it stands now, it is at least theoretically possible for the disputing parties or the tribunal to choose any seat it deems appropriate, which might be in Singapore, Dubai or Moscow.

So why does the place of arbitration matter in this context? Generally speaking, it matters because the law at the place of arbitration determines the procedural frame for the arbitration and therefore, as international arbitration lawyers are well aware, may have important consequences. The lex arbitri can come into play in everything from fundamental matters such as arbitrability and the tribunal’s general powers, to more detailed procedural questions such as evidence production and court assistance during the proceedings.

More specifically, however, the proposed reforms potentially push up against that procedural frame in an unprecedented way with respect to the post-award stage, in the sense that the proposed appellate mechanism is a novelty whose compatibility with mandatory provisions of domestic arbitration law remains to be tested. At the post-award stage, will domestic courts accept that CETA deprives courts of jurisdiction to hear a challenge against the award, in favor of an international “appellate” court?

It is very possible that this will be a non-issue, in the sense that the contracting states’ intentions, as expressed in the CETA, will be respected by domestic courts. It is submitted, however, that the lack of regulation introduces (further) elements of uncertainty into the ambitious reform efforts. Imagine, for example, a disputing party which loses a CETA arbitration under the UNCITRAL rules. The UNCITRAL tribunal is seated in third state X and the losing party moves to challenge the award before that state’s courts, instead of under the CETA appellate mechanism. It is not particularly far-fetched that the courts in state X would not cede its jurisdiction to hear the challenge in such a case, given that the proceedings are governed by the state’s arbitration statutes which generally give state court’s exclusive jurisdiction over such challenges. In fact, only a few jurisdictions allow for parties to an arbitration to contract out of set-asides at the place of arbitration (although the number seems to be growing, see this earlier post on this blog). By way of illustration, Article 34 of the UNCITRAL Model Law provides that:

(1) Recourse to a court against an arbitral award may be made only by an application for setting aside in accordance with paragraphs (2) and (3) of this article.

(2) An arbitral award may be set aside by the court specified in article 6 [the court specified as competent by the domestic statute] only if […]

The Model Law approach is generally echoed in most arbitration statutes, which seem to presuppose that any post-award challenge against an award can only be brought before the courts in the state.

Finally, given the general calls to include domestic courts to a larger degree in future investor-state proceedings, it is surprising that this particular detail has not been discussed further in the arbitration community. What is the role of domestic courts vis-à-vis the appellate mechanism? How does the place of arbitration affect any subsequent enforcement efforts? Is it desirable to allow for both UNCITRAL/ICSID Additional Facility arbitration (which require domestic lex arbitri and domestic courts) and ICSID arbitration (which does not)? These questions should probably be discussed as part of any further reform effort. This applies especially in the EU context, given the well-known tension between tribunals and EU law: what difference does it make if the place of arbitration is in an EU jurisdiction, compared to in a “third state“ jurisdiction?

It is clear that the interaction between various lex arbitri and the new wave of “reformed” investor-state arbitration has not been researched, or even discussed, sufficiently. At least there is ample room for PhD proposals…

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FIDIC Multi-Tier Dispute Resolution Clauses in the Light of Bulgarian Law

Wed, 2017-03-22 05:11

Martin Zahariev and Boyana Milcheva

The FIDIC forms of contracts (FIDIC forms) constitute a comprehensive set of rules applied worldwide in complicated construction projects. The FIDIC forms contain a multi-tier dispute resolution mechanism – depending on the type of a Book, they provide for consideration of disputes (1) by an Engineer (an Employer’s agent managing the construction project), (2) by an Engineer and a Dispute Adjudication Board (DAB – a private independent panel consisting of one or three experts who consider a dispute and issue a decision binding for the parties under certain conditions), (3) through an amicable settlement, (4) and by an arbitral tribunal/court (depending on the specific agreement between the parties, as stated in the Particular Conditions of the respective contract).

A widely-accepted view among scholars and practitioners is that all tiers should be exhausted, i.e. each of the steps is a precondition for admissibility to the other. So, normally the parties to FIDIC based contracts use all the tiers as provided. This being the case, normally a dispute resolution procedure takes a considerable amount of time. Therefore, for the parties involved in respective projects (and related disputes) it is crucial whether this multi-tier mechanism is compatible with the law governing the contract. In other words, are these multi-tier mechanism provisions enforceable and could arbitral awards resolving such disputes be enforced in the respective jurisdiction. As the number of FIDIC based contracts in Bulgaria increases, this question is a very much valid for the country.

Currently, there are two contradicting views in the Bulgarian court and arbitration practice on the FIDIC multi-tier dispute resolution mechanism and its enforceability.

According to the first view, the referral of a dispute to an Engineer/DAB is a precondition for filing an admissible claim (i.e. the mechanism is recognized as a valid agreement as well as its role as a precondition for approaching a court or arbitration). Such interpretation has its foundations in the party autonomy established in Article 9 of the Bulgarian Obligations and Contracts Act (OCA). Its only limitations are the mandatory rules of the legislation and good morals. Hence, the parties are free to agree on whatever procedure they deem suitable and subsequently should comply with it. At the same time, an arbitral tribunal is obligated to follow the procedure agreed by the parties, and if the tribunal does not give due consideration to this procedure, the award may be set aside or have its enforcement refused. Thus, arbitral tribunals should consider only disputes that were duly referred to an Engineer/DAB.

This interpretation was adopted by an arbitral tribunal of the Bulgarian Chamber of Commerce and Industry in a case decided in 2012 (one of the very few cases related to FIDIC contracts). The case concerned the FIDIC Yellow Book 1999 (providing for a 28-day term to refer disputes to an Engineer – Sub-Clause 20.1). The dispute related to the nature of the obligation for a timely referral of the dispute to an Engineer. The claimant argued that the term under Sub-Clause 20.1 constituted a preliminary waiver of rights, which is void under Bulgarian law. According to the respondent, the clause established a clear mechanism for avoidance of bad faith conduct and for timely referral of disputes for consideration. The arbitral tribunal sustained the respondent’s interpretation – the mechanism under the FIDIC forms was not a waiver of rights, but a contractual provision for referral and timely consideration of disputes on major investment projects.

А similar approach was followed by some Bulgarian courts as well. In the Decision No. 1966 of 13.10.2015 in the commercial case No. 4069/2014, Appellate Court – Sofia, Commercial Division, affirmed a decision of the Sofia City Court [Decision No. 867 of 11.06.2014 of the Sofia City Court, Commercial Division, 2nd Chamber under commercial case No. 6378/2012] which granted enforcement of a foreign arbitration award rendered in an ICC arbitration proceeding under the FIDIC Red Book 1992. In the award, the arbitral tribunal refused to consider counterclaims filed by the Contractor directly before the tribunal, but not referred to an Engineer beforehand. The Contractor argued that Sub-Clause 67.3 (which is similar to Sub-Clause 20.1. cited above) contradicts Bulgarian mandatory procedural rules and Bulgarian public order, and is therefore void. Two instances rejected this argument and granted enforcement of the award. Two things should be noted regarding these decisions: First, both instances did not deal with the matter in detail, stating only that the Sub-Clause providing for a prior referral of a dispute to an Engineer was severable from the arbitration clause. Thus, even if the Sub-Clause was deemed void (which the courts did not examine), it does not lead to the voidness of the arbitration clause per se. Second, the decision of the Appellate Court was signed with a dissenting opinion enclosed.

This dissenting opinion introduces the second view on FIDIC’s multi-tier mechanism: referral of a dispute to an Engineer/DAB as a precondition for filing an admissible claim is void due to contradiction with mandatory Bulgarian legislation. This interpretation derives from the requirement for ensuring equality and competitive conditions for parties in judicial proceedings (Article 121, Paragraph 1 of the Bulgarian Constitution). In addition, the court should provide the parties with an equal opportunity to exercise the rights conferred on them (Article 9 of the Bulgarian Civil Procedure Code). The court (and by analogy, an arbitral tribunal) should apply the law equally in respect of all parties concerned. Therefore, by creating contractual preconditions for filing a claim, the parties violate these mandatory rules as they limit their contractual freedom. According to the dissenting judge, the non-consideration of a claim due to the non-referral to an Engineer constituted impossibility for the aggrieved party to present its case and violated Bulgarian public order.

The decision on the case was appealed before the Bulgarian Supreme Court of Cassation, which rejected the admissibility of the appeal [Court Ruling No. 59 of 03.02.2017 under case No. 788/2016 of the Supreme Court of Cassation, I Commercial Division]. The cassation appeal in Bulgaria is restricted and it is subject to special criteria for admissibility. The Supreme Court of Cassation found that the questions concerning the Engineer’s role in the dispute resolution mechanism do not justify the admissibility of the appeal. According to the court, the Engineer’s decision is not per se enforceable if a party refuses to voluntarily perform it. If a party does not agree to the decision, it is entitled to file a claim before an arbitral tribunal/state court under Sub-Clause 67.3. In such a case, Sub-Clauses 67.1 and 67.2 shall not apply. Thus, according to the Supreme Court of Cassation, Sub-Clause 67, which regulates the procedure for handling claims and disputes by the Engineer, is not void. The Supreme Court of Cassation, however, did not examine in detail whether the Engineer’s decision is a pre-condition for filing a claim. This is unfortunate considering the limited court and arbitration practice on the matter. The eventual interpretation on FIDIC dispute-resolution mechanism given by the highest court in Bulgaria would have created predictability and legal certainty for all stakeholders using FIDIC forms. Unfortunately, the Supreme Court did not admit the appeal.

In conclusion, the lack of clear view on the compatibility of the FIDIC mechanism with Bulgarian legislation creates serious uncertainties for domestic and foreign investors in Bulgaria. Moreover, if it is accepted that the FIDIC mechanism is void under Bulgarian law, the enforceability of awards on sometimes multimillion disputes could be seriously jeopardized.

Bulgarian legislation provides sufficient grounds for making an in-depth analysis of the matter and justifying each of the respective positions. For example, the currently prevailing position that recognizes the mechanism could be further elaborated: if the freedom of contract is not a convincing basis for the FIDIC mechanism to be recognized, other possibilities could also be used. An Engineer/DAB decision can be qualified, for example, as a third-party determination. Under Article 299 of the Bulgarian Commercial Act it is recognized that if the parties agree that a third party shall determine certain terms and conditions of the contract, such determination shall become binding only in case the third party has determined them in compliance with (1) the objectives of the contract, (2) the other provisions of the contract, and (3) the commercial custom. Courts should examine any decision of the Engineer/DAB in the light of the said criteria. Should the decision contradict the latter, either of the parties is entitled to contest it before a court, and thus it has a mechanism available to defend its rights. This qualification has already been supported by some scholars, but has not been confirmed in practice thus far.

Considering the fact that some jurisdictions have already introduced specific legislation regarding the mandatory use of dispute boards, it is about time for both Bulgarian legal doctrine and the Supreme Court to intervene on that matter (regardless of which view will be adopted and on what grounds) in order to create legal certainty for all stakeholders willing to use the FIDIC forms in Bulgaria.

The views and opinions expressed herein are those of the authors and do not necessarily reflect those of Dimitrov. Petrov & Co., its affiliates, or its employees.

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The Hypocrisy of Anti-ISDS Groups – Part 2

Tue, 2017-03-21 03:34

Nikos Lavranos

Not so long ago, I reported on the recent documented discovery that anti-ISDS groups have been making and continue to make a handsome profit from the anti-ISDS/anti-trade/anti-globalization campaign, which they have unleashed over Europe with the active financial support of the European Commission and several EU Member States.

This time I would like to draw the attention to an interesting dispute between two NGOs, which is currently dealt with by the Swiss National Contact Point (NCP) that has been established to deal with complaints of NGOs against investors which supposedly have violated the OECD Guidelines for Multinational Enterprises (better known as the OECD Guidelines).

In February 2016, Survival International (an NGO based in London) submitted its claim against the World Wildlife Fund (WWF), which is headquartered in Switzerland. According to the NCP report:

“The submission concerns the rights of the Baka people of southeast Cameroon related to the environmentally protected areas which the government of Cameroon has introduced with the financial and logistical support of WWF, but according to the submitting party without the free, prior and informed consent (henceforth referred to as “FPIC”) of the Baka.

As a consequence, the Baka has been denied or seriously curtailed access to their traditional territories and natural resources on which they depend (the ‘Land Issue’). The submitting party further states that the Baka people have been subjected to violent abuse by the ecoguards and other law enforcement officials who patrol the protected areas with WWF’s support (the ‘Ecoguard Issue’).

The submitting party claims that the responding party has violated the OECD Guidelines by failing to conduct a due diligence and not making its support for the demarcation of the protected areas conditional upon the FPIC of the Baka. Moreover, WWF should have supported ecoguard patrols only if effective steps were taken to ensure that the patrols focused on commercial poachers rather than Baka hunting for subsistence, and that ecoguards should be held accountable if they used or threatened violence against the Baka. The result of the non-intervention of WWF has been a denial of Baka rights to their land and natural resources, and a conflict with the governmental forces.

According to the submission, the development and management of protected areas in southeast Cameroon has required significant expenditure and expertise with WWF being the government’s most important source of funds and logistical support. As a consequence, the protected areas have depended and continue to depend heavily on WWF, which has been able to set the agenda and determine priorities. The submitting party further states that the Ministry of Forests and Wildlife in Cameroon describes WWF as the “joint manager” of each of the parks of the Jengi Southeast Forest Program1. It also mentions that WWF has regarded ecoguards as crucial to its operations, and thus established its own Wildlife Law Enforcement Programme in Cameroon. Furthermore, WWF until the mid-2000 organized workshops to train ecoguards about wildlife law and criminal prosecution and supported the deployment of a heavily armed military unit called the Bataillon d’Intervention Rapide on anti-poaching patrols. Ecoguards were also supported financially and logistically by WWF.

In the view of the submitting party, the responding party should fund an independent consultation of the Baka in which they can express their own views on the way forward and ensure that in future the Baka have an effective say in decisions that affect them, and can protect themselves against physical and other forms of abuse. Consequently, the WWF procedures in order to respect the human rights of the Baka should be revised.”

This dispute is interesting and relevant for the investment arbitration community for several reasons.

The Creeping Hard-Law Effect of the OECD Guidelines

Firstly, it should be recalled that the OECD Guidelines, while intended to be voluntary and of soft-law character, are increasingly turned into hard-law obligations for foreign investors.
This is evidenced by the fact that CETA and the other recently negotiated EU trade and investment agreements (EU FTAs) make direct reference to the OECD Guidelines, which to some extent brings them into the scope of application of CETA and the other EU FTAs.

Moreover, at the 2017 OECD Global Forum on International Investment, which took place on 6 March 2017, practically all participants underlined the importance of strengthening and enhancing the observance and enforcement of the OECD Guidelines as a tool to show that foreign investors are capable of making “good” investments, which benefit the whole society. Indeed, some went as far as claiming that the observance of the OECD Guidelines could be used as a positive tool against the current backlash against globalization and multinationals and foreign investors generally.

In other words, there is a general expectation that the OECD Guidelines must be respected by all investors.

NGOs Can Be Qualified as “Multilateral Enterprise”

Secondly, it is noteworthy that the Swiss NCP qualified the WWF as falling within the scope of a “multinational enterprise” within the meaning of the OECD Guidelines. In this context, the NCP notes that

“[T]he WWF network employs around 6,200 full time staff and has dedicated around USD11.5 billion to charitable activities like conservation projects since its foundation in 1961.”

But more importantly, the NCP concluded that

“WWF’s approach to conservation is to a certain extent market based and it undertakes commercial activities (e.g. income of the WWF network from royalties as well as from other trading activities). WWF for example sells collectors’ albums and the panda emblem for more environmentally friendly products. This would not be possible without projects such as the ones in southeast Cameroon which are part of its activities to protect the environment. Therefore, WWF’s involvement in the establishment and maintenance of protected areas in southeast Cameroon can also be considered as activities of commercial nature, to which the OECD Guidelines are applicable.”

In other words, this is another important decision clarifying that also NGOs can be qualified as multilateral enterprises with commercial activities, similar to foreign corporate investors.

A Meritorious Claim

Thirdly, the initial assessment of the Swiss NCP is that issues raised in this submission “merit further consideration”, and the Swiss NCP therefore accepts the specific instance. However, and at the same time, the NCP stresses that this “conclusion should not be construed as a judgment of whether or not the corporate behaviour or actions in question were consistent with observance of the OECD Guidelines and should not be equated with a determination on the merits of the issues raised in the submission.”

Accordingly, one must wait for the final assessment of the NCP. Nonetheless, it seems clear that the claims by Survival International are not unfounded or without merit, which in itself is an important and relevant conclusion.

No Transparency

Fourthly, the NCP stresses that

“The role of the Swiss NCP is to offer a forum for discussion and to assist the parties concerned to deal with the issues raised. The submitting party has engaged in a mainly written exchange with the responding party prior to this submission during the last two years. The Swiss NCP considers that by accepting this specific instance and offering a confidential setting for discussions, it could foster the continuation of this previous exchange between the responding and the submitting party. Thereby, the NCP could contribute to a better understanding among parties and help them reach a mutually acceptable outcome concerning the issues raised with regard to the future situation of the Baka related to the engagement of WWF in Cameroon.”

At the end of its report, the NCP repeats again that full confidentially must be maintained even after the final outcome of the proceedings:

“The Swiss NCP requests parties concerned to agree to maintain confidentiality during the further proceedings. In order to establish an atmosphere of trust, the OECD Guidelines foresee that no information regarding the content of the proceedings may be shared with third parties or supporters of the complaint. If sensitive business information is provided or discussed during the meetings of the Swiss NCP, special requirements concerning the treatment of confidential information can be agreed upon by the parties involved in this specific instance. The NCP informs the parties that it reserves the right to stop the proceedings if one or other of the parties does not respect this confidentiality. Even after the proceedings have finished, parties concerned remain committed to treat information received during the proceedings in a confidential way unless the other party agrees to their disclosure.”

The issue of confidentiality is of particular interest when contrasted with the criticism against the (limited) confidentiality, which exists in investment treaty arbitration.

No Need for NGOs to Exhaust of Local Remedies

Another interesting point to note is the preference of the NCP as an international dispute settlement forum by Survival International, instead of using Swiss courts. Again, this contradicts the call of anti-ISDS groups to include the exhaustion of local remedies in EU FTAs, thereby forcing foreign investors to first spend a couple of years of proceedings before national courts prior of being allowed to turn to an international dispute settlement forum. This was repeated several times by anti-ISDS NGOs at the EC’s stakeholder meeting on the multilateral investment court (MIC), which was held some weeks ago.

The Same Standards Should Apply to All Investors

While the NCP proceedings are obviously different from international arbitral proceedings, there are interesting parallels. In this specific case, it is interesting to note the different standards, which the NGOs proclaim for themselves but which at the same time ferociously criticize in their anti-ISDS campaign. It is this kind of hypocrisy that has so much contaminated the current debate.

Instead, NGOs should be submitted to the very same standards as foreign investors. Accordingly, it is to be applauded that the Swiss NCP qualified WWF as a multilateral enterprise, thereby requiring it to fully observe the OECD Guidelines.

Similarly, the same standards of transparency as is called for in investment arbitral proceedings and as proposed in the investment court system (ICS) of the EU should be applied to NGOs, i.e. the UNCITRAL Transparency Rules. Indeed, this may require to align on this point the OECD Guidelines with the UNCITRAL Transparency Rules.

As far as the exhaustion of local remedies is concerned, if that were to be made a general rule in EU FTAs or in the proposed multilateral investment court (MIC), that would necessitate a modification of the OECD Guidelines as well.

In sum, there is no need for double standards for NGOs, nor is there any need for more hypocrisy from anti-ISDS NGOs.

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How Legal Traditions (Still) Matter in International Arbitration

Mon, 2017-03-20 06:06

Claire Morel de Westgaver and Sébastien Krier

On 23 February 2017, three prominent international arbitrators shared their views and experience on the controversial question of the influence of legal traditions on arbitrators and arbitral proceedings. Juliet Blanch, Bernard Hanotiau and Pedro J. Martinez-Fraga were interviewed by Oliver Caprasse and Claire Morel de Westgaver at an event jointly organised by Belgian arbitration institution CEPANI and US law firm Bryan Cave. Dirk De Meulemeester, President of the CEPANI, and Maria Gritsenko gave the introductory notes.

Arbitrator nomination and appointment

When it comes to the arbitrator selection process, mixed perceptions exist as to the importance of legal traditions. An arbitrator’s legal background may be the subject of stereotypes. A classic example of such a stereotype is the scope of document production which counsel sometimes assumes can automatically be limited through the nomination of a civil law trained arbitrator.

It was noted that counsel tends to get excessively engrossed on the question of legal backgrounds. Although an arbitrator’s legal training may be relevant with junior lawyers or litigators, more experienced arbitrators tend to understand both civil and common law – notwithstanding the fact that common law can be very different depending on the jurisdiction in question. The panel agreed that more weight should be given to a prospective arbitrator’s experience and qualifications. For example, it was noted that there are cases that benefit from having a non-lawyer involved as arbitrator.

Advocacy and evidence

Advocacy style can be adapted based on the circumstances including the background and experience of arbitrators. If the arbitral tribunal is composed of three QCs, English Court style advocacy might prove more effective. However, given that tribunals, and in fact arbitrators themselves, are often of mixed backgrounds, a particular style might not necessarily be any more helpful.

As regards the conduct of cross-examination, it transpired from the discussion that common law trained lawyers might be better placed than civil law lawyers who generally do not receive such training. It was said that a well-conducted “QC style” cross-examination could be “a real delight”. With regard to how arbitrators approach cross-examination, it was also noted that ultimately, arbitrators cannot extract themselves from who they are: cross-examining witnesses is generally more natural in Anglo-Saxon jurisdictions, meaning that how a document is being used and what it purports to prove is not always scrutinised in the same way by lawyers from across jurisdictions.

When asked about the influence of national legal systems on evidence, it appeared from the discussions that the scope of both documentary and witness evidence tends to be overly broad across the board, civil law and common law lawyers continue to differ in how they view and interpret a document. Generally, from the perspective of a civil law lawyer “the document speaks for itself”. In contrast, a common law lawyer might feel the need to have witnesses introduce documents and examine witnesses in relation to the content of a document that would appear self-evident to a civil law lawyer. It was further advised that counsel often lose track of the two main purposes of cross-examination: impeachment and admission. In relation to bridging the gaps between different legal traditions on evidence, the safest option remains sticking with the 2010 IBA Rules on the Taking of Evidence in International Arbitration.


The panel testified that it is not unusual for parties to approach arbitrators to seek their preliminary views on liability but also sometimes on quantum. If the arbitrators engage in this process, this is always on the basis that the tribunal will not be bound by such preliminary views. In fact, parties will sometimes agree in writing not to challenge the arbitrator(s) and/or the ensuing award(s) on the basis that such preliminary views were given. The validity of such a waiver – which could in turn vary across jurisdictions – was questioned by the panellists.

Settlement in the context of arbitral proceedings is an area where the legal culture, in particular the seat of the arbitration, has an impact on the role of arbitration. The process by which arbitrators share their preliminary views on the dispute is more common in certain jurisdictions, such as Germany and Switzerland. Panel members expressed reservation about engaging in this process unless sitting in jurisdictions where such a practice is commonly accepted. In the same vein, the panellists discussed whether it is appropriate to suggest that option to parties, or whether it is preferable to consider it only when expressly sought by the parties.

Sua sponte

Another important topic, which led to very interesting discussion, was sua sponte actions by arbitrators. It emerged from the discussion that whether arbitrators may or should sua sponte raise questions of law may depend on many factors, including the seat of the arbitration, the applicable law, the legal background of the arbitrators and the public policy character of the norm. The principle of iura novit curia was cited as an example of rule relied upon by arbitrators to raise questions of law on their own initiative. Such rule tends to be inexistent in jurisdictions where parties are to prove the law.

Decision making process

Reference was made to the Spanish Supreme Court in the Puma case (Spanish Supreme Court 102/2017, 15 February 2017) where an award was set aside and two of three arbitrators were found professionally liable for excluding their fellow arbitrator from the deliberations. The panel noted that there were sometimes cultural differences in how arbitrators approached the decision-making process, including the deliberations. In this case, it remained to be seen what evidence of the exclusion of the third arbitrator had been adduced in the ensuing litigation.

In this context, it was noted that it is not uncommon in investment treaty cases to have an arbitrator seeking to further his or her appointing party’s agenda – whether consciously or not. Only a minimal number of dissenting opinions come from arbitrators appointed by the successful party. It could, however, be argued that dissenting opinion statistics demonstrate effective selection of arbitrators, thereby proving that cultural background might indeed play a role in the arbitrator selection process. The panel however was adamant that the issue was more likely one of personality or honest belief in different legal theories.

The media sponsors for this event were OGEMID / TDM and ArbitralWomen.

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Antitrust Arbitration in Europe (Part I): Improving Private Enforcement by Removing Procedural and Evidential Barriers in Arbitration

Fri, 2017-03-17 05:01

Patricia Živković (Associate Editor)

The Member States of the European Union (“EU”) had a task that a very few has managed to complete: to implement the Directive 2014/104/EU of the European Parliament and of the Council of 26 November 2014 (“Damages Directive” or “Directive”) by 27 December 2017. According to the website of the EU Commission, only ten Member States have thus far transposed the Directive in their national laws, whereas the remaining 18 countries are in different stages of the implementation process.

This Directive is the first EU legislation that addresses directly the private rights of actions for antitrust damages, and it was envisioned as a means for leveling the field among EU Member States by providing procedural, evidential and substantive minimum to be implemented in national legal frameworks. Namely, the main reason for a centralization of antitrust claims in only a few EU jurisdictions (for example, in the UK, the Netherlands, Germany, and France) was found to be a direct consequence of the claimant-advantageous procedural and substantive laws in these countries, among other features of their legal systems.

This attempt of achieving the uniformity not only encompasses private actions brought before national courts, but it also actively promotes and facilitates the use of other dispute resolution mechanisms, i.e. “consensual dispute resolution”, to use the (somewhat unclear) terminology of the drafters of the Directive. However, while the position of the EU Commission is clearly to send a signal that there is a need for promotion of alternative dispute resolution mechanisms in this area, it does not provide clear guidelines as to how this is to be achieved.

Research shows that only Finland considered the possibility of the application of reformed laws on arbitration. This was not done explicitly in the act itself, but rather in the Government Bill. Still, it is certainly welcomed when a Member State takes a step further. The drafters of the Directive have not left parties without any incentive to arbitrate their disputes either. Article 19 of the Directive provides that “the claim of the settling injured party is reduced by the settling co-infringer’s share of the harm that the infringement of competition law inflicted upon the injured party”, and that “[a]ny remaining claim of the settling injured party shall be exercised only against non-settling co-infringers”.

Still, whereas the topic of antitrust arbitration is widely discussed in regards to the application of antitrust/competition laws by arbitral tribunals, thus far only a few authors have written about arbitrating antitrust damages claims. Perhaps the thought of arbitrating this type of claims could have been easily dismissed three weeks ago; however, in the meantime, the English High Court has changed this course by deciding on 28 February 2017  to stay the proceedings on antitrust damages claims which were commenced by Microsoft before this court due to an arbitration clause (Microsoft Mobile OY (Ltd) v Sony Europe Limited et al., [2017] EWHC 374 (Ch)). The Microsoft case offered a novel perspective as to whether arbitration clauses encompass antitrust damages claims that will be discussed in a follow up post (Part II). This post is aimed at pointing out which procedural and evidential barriers can be found within the existing arbitration framework when it is observed through the lens of the Damages Directive and private enforcement of antitrust damages claims in general.

Collective Redress: Designing Complex Antitrust Arbitration

Antitrust violation results with scattered harm for a large number of victims on a different level of a distribution chain, i.e. the harm can be caused both to direct purchasers and to indirect purchasers, who suffered the harm passed-on through overcharge. Hence, collective redress plays an important role in private antitrust damages actions.

Antitrust damages proceedings would involve multiple claimants on one side and (possibly) multiple respondents (competition law infringers) on the other side. These parties could, but not necessarily would have had concluded arbitration agreements with each and every one of them. Arbitration would in that regard be bipolar in a sense that there would be a group of claimants and a group of respondents, but not all of them would necessarily be in contractual relations and their contracts would not necessarily contain same arbitration agreements or designate same arbitral institutions.

The Damages Directive, however, did not oblige Member States to introduce procedural mechanisms for collective redress. Collective redress was, nevertheless, mentioned in both the Green Paper and the White Paper, which preceded the Damages Directive, and was also recommended by the Commission in 2013 to be introduced at a horizontal level.

Simply put, in order for antitrust arbitration to become a competitive dispute resolution mechanism for antitrust disputes, the effective and efficient rules on bipolar multi-party, multi-contract proceedings should be introduced. Otherwise, private claimants may have little if no incentive to pursue such claims individually due to the costs and legal risks involved.

Probably the first thing that comes to one’s mind is the conflict between collective redress and the consensual nature of arbitration. However, the recent development in regards to corporate disputes in Russia has shown that these two are not incompatible at all. Besides, the arbitration legal framework already provides for several procedural tools in this regard: arbitration rules usually contain a provision on complex arbitrations, i.e. multi-party and multi-contract claims. Still, without an adequate framework, the involvement of multiple parties in antitrust arbitration will heavily depend on the consensual nature of arbitration.

While awaiting the change of the procedural framework either through the extended application of implementing laws to arbitration or through tailor-made arbitration rules, there is at least one interim solution which can be offered as a middle step. This is the suggestion to create alternative vehicles which will bring such claims instead of multiple claimants. An example of such a vehicle is the Cartel Damages Claims (“CDC”). The CDC is a special purpose vehicle which main task is aggregating individual claims from numerous cartel purchasers and lowering the economic barriers for the enforcement of these claims by enforcing them in its own name and on its own account against cartel members on a Europe-wide basis.

Vehicles such as the CDC could function in the arbitration field as well (perhaps they already do). This would not only lower economic barriers but also procedural barriers since it would, at least on a claimant’s side, reduce the number of parties, and in that way it would ease access to justice and foster the private enforcement system for antitrust damages claims. Recent developments regarding the third party funding industry in relation to arbitration which shows that the lines between third party funders and law firms are becoming blurred open possibilities for this and other types of similar vehicles to be developed for the purposes of aggregating claims in arbitration.

Information Asymmetry and Disclosure: Expanding the Evidential Standard in Arbitration

The disclosure rules imposed by the Damages Directive are more or less novel to most civil law countries in the EU, but they are also recognized by the EU Commission as best-suited rules for this type of proceedings as

“it is appropriate to ensure that claimants are afforded the right to obtain the disclosure of evidence relevant to their claim, without it being necessary for them to specify individual items of evidence”. (Recital 15 of the Directive)

In this type of proceedings, the importance of disclosure should be recognized in arbitration as well, where it should outweigh the usual expectation of the parties to have expedited proceedings.

In order to fully understand why there is a need for the reform of the rules on disclosure of evidence in antitrust arbitration, one needs to look at what is received within the procedural “box” when parties agree to arbitrate their antitrust damages claims. In short, the current stance on the discovery/disclosure of evidence in arbitration is that although arbitrators are usually vested with such an authority under the umbrella of broad discretion, the climate regarding discovery in international arbitration has so far been rather unaccommodating.

The scope of application of the provisions in implementing laws should, therefore, be expanded on arbitration as well, or at least provided in a set of rules for antitrust arbitration. Furthermore, it would be important to establish the scope of persons to whom such an order for disclosure can be addressed by an arbitral tribunal, i.e. whether the tribunal would have the power to order disclosure to a person who is not a party to the dispute. This is perhaps one of the biggest disadvantages of arbitration when it comes to the resolution of private antitrust damages claims, as national courts will usually have much wider powers when making orders against third parties. Hence, it is necessary to determine whether the assistance of national courts to arbitral tribunals can be developed in this area.

On the other hand, consequences stemming from the lack of extension of the rules limiting disclosure to arbitration dealing with private antitrust claims may raise severe questions regarding the subsequent court review of an award. One such consequence may arise in a case when the tribunal orders disclosure of evidence that should not be disclosable according to the Directive, such as leniency statements and settlement submissions. At this point it is not clear in the doctrine and in the practice whether arbitral tribunals ordering disclosure of these or other restricted documents would be violating public policy, and risking setting aside of an arbitral award in that regard. Hence, it needs to be considered whether it is necessary, given the importance of, for example, leniency programs, to protect these documents more effectively from disclosure in arbitration.

To be continued…

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Evidence in Investor-State Arbitration – The Need for Action

Wed, 2017-03-15 23:14

Frédéric Sourgens


Newspapers, cable television shows, and Twitter are abuzz with claims of “fake news.” Within the past two weeks alone, the U.S. President accused his predecessor of wiretapping his office building, apparently in reliance upon reporting in online news media. More traditional news outlets have responded with innuendo that the Director of the U.S. Federal Bureau of Investigation privately asked the Department of Justice to refute the claim – perhaps even threatened to resign if the Department of Justice failed to act. In this particular instance, both President Trump and his detractors are likely to condemn the other side’s efforts as “fake news” and carry on developing their respective political narratives.

What the world currently experiences is not new to investor-state arbitration practitioners. The world of investor-state arbitration has long been exposed to “guerrilla tactics.” Part of such guerrilla tactics may well be to make unsubstantiated factual claims, support these claims with dubiously sourced news stories, and accuse opposing counsel of relying upon conspiracy theories in seeking to rebut a particular claim or defense. From the claimant’s point of view, the issue is particularly poignant in the context of assertions by the host state that the investor obtained the investment by corrupt means. From the respondent’s point of view, the issue comes to the fore in the context of allegations of bad faith in governmental decision-making, relying as ever upon anonymous reports of internal government deliberations. In our world, too, we are likely to see parties accuse each other of fabrication or “fake news” while carrying on in their respective thematic narratives.

In the world of politics, we can stand to suffer spin – even spin on steroids. As Steven Colbert memorably put it, decisions in politics are often based on truthiness, or the appearance of truth due to gut instinct. The narrative-driven endeavors to campaign and convince are a natural consequence of this modality of political decision.

When the world of politics discovered investor-state arbitration, some painted the picture that arbitrators, like voters, respond to ideologically well-sounding narratives rather than facts. Arbitrators are intellectually predisposed to want to believe one version of the truth. They are thus susceptible to fake news. Thus, investor-state arbitration has been dubbed a dangerous and corruptible realm of pseudo-courts charged with making far-reaching decisions affecting policy choices in host states for years to come.

Investor-state arbitration practitioners and scholars have long sought to refute this charge of bias. Following Susan Franck’s pioneering work, they have shown that decisions are not inevitable, that no one side wins disproportionately, and that stories of arbitrator prejudice are greatly exaggerated. And yet – one might ask, if investor-state arbitration suffers from the same kind of guerrilla tactics as the exchanges between President Donald Trump and his political opponents, how can we be certain that arbitrators remain truly above the fray?

In other words, if champions of investor-state arbitration are to successfully refute the charge that decisions are made based on truthiness rather than truth, there must be a predictable and reliable means of addressing evidence. It is self-evident that binding investor-state arbitration decisions should aspire to be based in fact rather than make-believe. When parties and their counsel have become so good at making believe, however, the practice must be able to look to a nascent law of evidence. It is only if such a nascent law of evidence exists that it is possible to shelve Senator Elizabeth Warren’s criticism of investor-state arbitration in the category of political narrative as opposed to factually warranted critique.

Over the past few years, Ian Laird, Kabir Duggal and I have set out to address whether there are in fact rules of evidence that could rebut recent criticism. Our starting point was that discretion of the arbitrator – the free examination of evidence by the tribunal – would not rebut the charge. Discretion does not per se banish ideological predispositions from deliberations. Discretion could well prefer “fake news” to hard fact in arbitral decision-making. The only check against that possibility is trust in the arbitrators to utilize sound discretion – but this trust would need to be merited in some demonstrable way.

Consequently, we hoped to be able to pull back the curtain of arbitrator discretion and show that tribunals in fact made predictable and reliable factual determinations in investor-state arbitrations. Our conclusion after reviewing arbitral awards, jurisdictional decisions, annulment jurisprudence, and procedural orders is that investor-state arbitration does in fact follow robust rules of evidence. Surprising though this conclusion may sound to some, it is nothing other than confirmation that arbitrators can be trusted, but not because of some intangible quality of “arbitratoriness,” rendering tribunals immune to truthiness arguments. Rather, it is due to an adherence by arbitrators to a basic fact-finding rubric that yields consistent results based in fact rather than conjecture, in record rather than narrative.

Our inquiry, Evidence in International Investment Arbitration (Oxford University Press, forthcoming 2017), begins with an articulation of rules governing burdens and standards of proof. The use of burdens and standards of proof provides the innermost skeleton for decision making in most any form of dispute resolution. Investor-state arbitration is no exception. And the burdens and standards of proof in investor-state arbitration unsurprisingly do not differ from the burdens and standards of proof applied in other international and transnational proceedings. As recently stated in Apotex, the principle of onus probandi actori incumbit applies in investor-state arbitration – the party submitting that an event took place has the burden to prove the veracity of its own claim. Further, as recognized by a Rompetrol tribunal otherwise skeptical of efforts to codify evidentiary rules in investor-state arbitration, the more sensational the claim, the more evidence will typically be required before a tribunal will accept the claim, i.e., a single anonymously sourced news article without more would rarely be sufficient to support a claim of egregious misconduct.

Our inquiry continues by cataloguing how tribunals permit parties to discharge their burdens and meet the respective standards. It catalogues a reasonably consistent practice of drawing inference and using presumptions. It showcases how the use of document disclosures assists a tribunal in shoring up the use of inferences and presumptions and looked to a general practice of treating witnesses and experts. It further finds a consistent practice even with regard to the exclusion of evidence on the basis of privilege, confidentiality, or violation of fundamental principles of international public policy.

In short, investor-state arbitration follows robust rules of evidence. It can withstand the charge that as a practice, it cannot distinguish between truth and truthiness. Our book will provide additional evidence for the integrity and earnest judgment of arbitrators in the field.

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Parties’ Obligations Under an ADR Agreement – A Systematic Content Analysis of Agreements to Resolve Commercial Disputes

Wed, 2017-03-15 03:32

Maryam Salehijam

In the past fifteen years, the European Union has displayed a particular interest in Alternative Dispute Resolution (ADR). Furthermore, a number of recent initiatives have shown that a general, overarching framework relating to both Business-to-Business (B2B) as well as Business-to-Consumer (B2C) ADR would enhance legal certainty in Europe and improve access to justice. Without losing sight of the elaborate work already done by specialized institutions with a global reach, such as the UNCITRAL, one could indeed state that there is a clear need for a more general European framework of minimum minimorum requirements applicable to ADR in Europe.

One aspect that is particularly important in this regard is an ADR agreement. The concept of ‘ADR agreement’ assumes a consent of the parties to resolve their present or future disputes through ADR. So far the ADR agreement has remained under the European radar and European lawmakers expressed no intent to regulate ADR agreements any further than the already are regulated within national legal frameworks. The Consumer ADR Directive (Recital 49, Article 12) and the Mediation Directive (Recital 24, Article 8), for instance, explicitly state that the European legislature does not have the ambition to prescribe the effect of ADR/Mediation agreements. This leaves the Member States with an ample leeway to regulate (or not regulate) the ADR agreement and to determine its legal nature and effect.

Certain jurisdictions have specific ADR legislation governing these agreements, while in others, (significantly varying) general contract law provisions apply. In some countries, they are considered a condition precedent to litigation, while in other countries it is uncertain what the available (procedural or contractual) remedies are in the event of non-compliance. Moreover, there are different rules on the precise moment in time at which ADR begins and ends, and on the exact obligations of the parties to an ADR agreement. This uncertainty leads to the following questions: when are the parties bound by their ADR agreement? What are the parties’ obligations in an ADR agreement? Are the parties’ obligations in an ADR agreement enforceable? Does the non-compliance with an ADR agreement precludes arbitral tribunals’ jurisdiction? Can awards be set aside for the tribunal’s failure to enforce a step prescribed in a dispute resolution clause?

Now that ADR has become more prominent in the European Union, regulating the European status of the ADR agreement is the next logical (and necessary) step. In that line, my PhD research, which is funded by BOF (Special Research Fund) and supervised by Professor Piers at the Transnational Law Center (University of Ghent), focuses on the ADR agreement. The research will examine whether and how European law regulating the ADR agreement could advance the use of ADR in a European cross-border context. In addressing the above question, a chapter of the PhD researches the parties’ obligations under the ADR agreement. Do parties to an ADR agreement calling for mediation or conciliation have to set up the proceedings? Attend a minimum number of session? Cooperate? Act in good faith? Settle? Refrain from commencing litigation/arbitration?

In order to assess the scope of the parties’ obligations to an ADR agreement, the research is divided into two stages. The first stage involves a questionnaire. The questionnaire targets legal professionals – including lawyers and third-party neutrals – who have experience in drafting, inserting or enforcing dispute resolution clauses that provide for non-binding ADR mechanisms such as mediation and conciliation. The aim of the questionnaire is to gather model/standard or previously utilized dispute resolution clauses with a non-binding ADR element. The choice for a questionnaire instead of a general call for clauses was prompted by the fact that many professionals are unwilling to provide such a clause due to various reasons, such as confidentiality.

In the second stage, the clauses gathered as well as clauses extracted from other sources will be content coded using the software NVivo in order to determine which obligations tend to be reoccurring in the majority of the clauses under analysis. If a “common practice” in terms of obligations is detected, the findings can be relied upon by courts and tribunals to imply terms to an otherwise uncertain ADR agreement. This is essential to promote the conclusion of ADR agreements, as today a simple omission in the ADR agreement might results in its invalidity. For instance, if an ADR agreement fails to address the remuneration of third-party neutral, the courts in certain jurisdictions, such as in England & Wales, will find the clause to be void for uncertainty.

The participation in the short questionnaire will require minimum effort, as most questions only require a simple mouse-click. Please note that the information entered in the survey is kept anonymous, unless indicated to the contrary by participants. Moreover, as the analysis takes place on an aggregated level, the findings will not disclose personally identifiable information. Accordingly, the information provided will only serve scientific purposes.

To complete the questionnaire, please click on the following link (closing date 29 April 2017).

If you wish to provide the model/previously used dispute resolution clauses without completing the questionnaire, please email Maryam Salehijam at [email protected].

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Green Light for Romania to Terminate its Intra-EU Bilateral Investment Treaties

Tue, 2017-03-14 00:07

Crina Baltag (Associate Editor)

On 8 March 2017, the Romanian Parliament sent to the Romanian President for promulgation the Law allowing for the termination of the Bilateral Investment Treaties between Romania and other Member States of the European Union (“Intra-EU BITs”). This comes after Poland adopted a similar measure at the beginning of January 2017 and with the European Commission starting to assume a more active role in the issue of Intra-EU BITs. (See Markus Burgstaller, Recognition and Enforcement of ICSID Awards: The ICSID Convention and the European Union, p. 412, in Crina Baltag (ed.), ICSID Convention After 50 Years: Unsettled Issues, 2017, Wolters Kluwer). With the entry into force of the Lisbon Treaty and the shift in the competencies with respect to Foreign Direct Investment, the European Commission voiced its real concerns with respect to the issue of Intra-EU BITs. For instance, in the Observations submitted in Eureko BV v. the Slovak Republic (now, Achmea BV v. the Slovak Republic), the European Commission stated that

Eventually, all intra-EU BITs will have to be terminated. Commission services intend to contact all Member States again, urging them to take concrete steps soon. Furthermore, while the Commission is in favour of consensual solutions with EU Member States, as guardian of the EU treaties it cannot exclude eventually having to resort to infringement proceedings against certain Member States. (Award on Jurisdiction, Arbitrability and Suspension of 26 October 2010, para. 182)

The measure adopted by the Romanian Parliament is a direct consequence of the infringement proceedings under Article 258 of the Treaty on the Functioning of the EU, commenced in 2015 by the European Commission against Austria, the Netherlands, Romania, Slovakia and Sweden in respect to their Intra-EU BITs. As highlighted by the European Commission, Intra-EU BITs affect the single market by conferring rights to some EU investors on a bilateral basis, which come in conflict with the EU Law and with the principles of a single economic market. As noted by the Commission, there is a high reliance by some investors on these BITs in the recent years and the outcome of this might create legal uncertainty for cross-border investments. The Commission referred here to the outcome in the Micula I case against Romania where the European Commission regarded the damages awarded by the ICSID tribunal as illegal state aid. (For the enforcement of the Micula I Award, see Markus Burgstaller, Recognition and Enforcement of ICSID Awards: The ICSID Convention and the European Union, in Crina Baltag (ed.), ICSID Convention After 50 Years: Unsettled Issues, 2017, Wolters Kluwer).

This position of the European Commission is reflected in the reasoning of the Law by the Romanian Parliament. It is highlighted here that there are twenty-two Intra-EU BITs in force signed by Romania and, in accordance with the EU Law, such agreements are superfluous given the fact that the EU Law guarantees to EU investors and their investments in the EU Member States proper and equal protection. While the Law refers to termination by consent or by unilateral termination, issues concerning the sunset clauses in the terminated BITs should not be much debated.

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