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The Development of International Arbitration as a Mechanism For Determining International Business Disputes

Fri, 2021-02-05 21:55

Professor Stavros Brekoulakis has written a blog post commemorating the 60th volume of Kluwer Law International’s International Arbitration Law Library Series (“Series”), of which he and I are co-editors. His blog post considered the Series’ contribution to the field in light of the evolution of international arbitration’s scholarship in the last 40-50 years. In particular, he reflected on the founding of the School of International Arbitration, Queen Mary University of London in 1985, which was the first academic institution dedicated to the teaching and research of international arbitration. In the intervening years, international arbitration has continued to grow and mature as a field, and so too has related research and scholarship. Reaching the 60th volume of the Series is only one such example; however, it is a significant one. To mark this moment, I wish to offer some perspectives on the background to the development of international arbitration in the 1960s-1980s, and the founding of the School of Arbitration in 1985.

When we established the School of International Arbitration we had a clear vision: to establish a centre of excellence to research, teach and participate in the development of international arbitration as a stand-alone subject. We aimed to provide our students with an understanding of the aims, structure and workings of international arbitration as an independent, flexible and appropriate mechanism to determine disputes arising from international transactions of all kinds in an efficient and effective manner.

There were three prevailing geo-political factors at that time which heralded the beginning of a new era for international arbitration.

First, following the end of WWII, was the emergence of many new and independent states, particularly in Africa and Asia, in the 1950s and 1960s. This was the end of the colonial period. The opportunities from trading internationally were apparent and the circumstances to support these opportunities became the focus of international institutions and national governments.

Second, following on the first point, was the beginning of globalisation and increasing international commercial reliance and business transactions. This was spurred on with the development of telecommunications and the need of the business world for new markets and places of business. National focuses were replaced by global visions.

Third, and perhaps the most significant for the School of International Arbitration, was the emergence and acceptance of an international and neutral infrastructure for international arbitration. This was started in 1958, when the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards was concluded. Today this is the cornerstone of international arbitration, to which over 168 countries are party.

The 1960s saw a flurry of developments:

  • The 1961 European Convention on International Commercial Arbitration (mainly between western and eastern countries). To date, the Convention has 16 Signatories and 31 parties.
  • In 1965 regionally focused arbitration rules for international commercial arbitration were developed by United Nations Economic Commissions for Europe and for Asia and the Far East.
  • These were the forerunners to the UNCITRAL Arbitration Rules 1976.
  • In 1966 through the influence of the World Bank, the Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States, and the establishment of ICSID, provided a system for determining disputes between investors and the States in which they had invested. To date, 163 States have signed the Convention, of which 155 have ratified it.
  • In the early 1980s UNCITRAL also proposed the Model Law on International Arbitration which States could incorporate into their national laws. To date 84 States (for 117 jurisdictions) have adopted the Model Law, in whole or in part.

As we know now, these factors all have contributed to the development of international arbitration practices, with accepted basic legal principles and practices followed in arbitrations conducted under different systems and different laws.

Whilst there were many institutions offering arbitration facilities around the world, the only active international arbitration institution at that time, with a significant caseload, was the International Chamber of Commerce. The other institutions were focused on domestic arbitrations or were offering arbitrations for special circumstances, e.g., the Stockholm Chamber of Commerce, which the American Arbitration Association and the Soviet Foreign Trade Arbitration Commission had agreed should be the forum for disputes between US and USSR entities.

In many countries and legal systems there was no real concept of international arbitration.  There were few truly international arbitration specialist lawyers. Many of those were professors of private international law, public international law, international commercial and comparative law. Even if law firms had lawyers with some experience of international arbitration, few such firms boasted great expertise in international arbitration.  In most national jurisdictions, arbitration was seen either as a subject of procedural law, or a contractual arrangement between parties.

Even where parties were of different nationalities, and the underlying business arrangement out of which their dispute arose was in other countries, most national systems considered the arbitration to have the nationality of the country in which it had its seat. This often also indicated the law and procedure to govern the arbitration and the substantive issues in dispute and enabled national courts to claim the right and obligation to review the process followed and decision reached by arbitrators. That is why in many countries arbitral practice mirrored how proceedings were conducted in the national courts. Today, subject to mandatory laws, there is greater flexibility in the right of parties to choose the applicable substantive law or rules to govern their relations, and the procedure to be followed in the conduct of the proceedings.

At that time, there was nowhere to study international commercial arbitration as a stand-alone subject.  Arbitration was considered in some jurisdictions as a subset of procedural law; in other places, it was a contractual arrangement between the parties as to how disputes should be resolved, and was considered similar to all other contractual terms. In these jurisdictions, it was subject to control and supervision, more or less, by the national courts.  International arbitration was not considered a subject in its own right.

Our vision at the School of International Arbitration was to present international arbitration, commercial and investment, as a distinct and independent subject, with its own specific character, requirements, practices and infrastructure. We wanted to provide a venue where students could learn about international arbitration, its essential characteristics, infrastructures, international regulations, soft law and other instruments, as well as the fundamentals, concepts and issues which arise in practice.

An essential criterion for international arbitration was its non-nationality. Hence the requirement that arbitrators should be independent and impartial, and that all parties should be equally viewed in the context of the arbitral process. It was increasingly accepted that national procedural and substantive laws were not necessarily appropriate for an international arbitration with parties from different and often disparate jurisdictions.  Whilst recognised in principle these concepts were to be developed into fundamentals of international arbitration in light of decreasing confidence of parties receiving a fair hearing in national courts. These principles are still followed and considered fundamental to international arbitration today and, through the decisions of national courts, they have become clearer and even more entrenched.

In this light there were three key elements in the arbitration courses and other programs which were developed by the School of International Arbitration: private international law, public international law and comparative law.  This was pertinently summarised by Professor Pierre Lalive at the inaugural conference of the School of International Arbitration when he expressed the view that an international arbitrator “should have a good command of contract law, commercial law, procedure, private international law and preferably also public international law” but should also have some experience “of comparative law and the comparative method”.1)P Lalive, “International arbitration – teaching and research”, in Contemporary Problems in International Commercial Arbitration, ed Julian D M Lew, 1986, Centre for Commercial Law Studies, at p 16. jQuery("#footnote_plugin_tooltip_6996_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6996_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

These subjects were considered the essential tools for practitioners and arbitrators where parties are from different legal and cultural backgrounds. They remain fundamental to the work of the School of International Arbitration today and to the specialist international arbitration lawyer.

Private international law and conflict of law rules are important as they direct the determination of the applicable national or non-national governing law and the applicable relevant rules to apply. This relates not only to the law to govern the substantive issues and the arbitration agreement, but also relevant procedural issues within a non-national and independent system arbitral context. It also is frequently relevant to other incidental but important issues, such as rights and duties of legal entities, the form of documents and evidence, and the obligations and behaviour of legal counsel.

National legal systems have their conflict of law rules applicable in a domestic context.  There are no default rules for choice of law in international arbitration. Most arbitral institutions now have choice of law rules to be applied by tribunals. This includes the right of arbitrators to make a direct choice of the applicable substantive law to apply based on the facts and circumstances of the case, or to choose and apply a conflict of law rule which the tribunal considers appropriate to direct it to the applicable law. Arbitrators are also able to apply non-national rules such as the lex mercatoria and soft laws to the substantive dispute, or decide issues ex aqua et bono where appropriate.

Public international law was important because States have always been involved, directly or indirectly, in international business, and influence transactions through their laws and policies. This has expanded enormously with the now mainstream of investment arbitrations under the ICSID Convention and other treaties, e.g., NAFTA, USMCA, ECT, CAFCA, and bilateral investment treaties.

Comparative law brings clearly the need to understand that at all levels of legal direction, there are different national ways of dealing with legal and practical situations. This includes, e.g., burden of proof and weight of evidence, discovery/document production, presentation of evidence, examination of witnesses, reports of experts, legal privilege, awarding costs. It is important to understand these concepts which apply with differences in all international arbitrations, often determined specifically for each arbitration depending on its facts, the applicable rules, the origin of the parties, the seat of the arbitration and the background of the arbitrators.

A major change since the establishment of the School of International Arbitration is that now, after 35 years, many law firms and many individual lawyers have expertise in international commercial arbitration, including international investment arbitration, with dedicated teams working in these areas. International arbitration has become almost a core subject in many university programmes. Many of our former students have joined major law firms, big corporations, arbitration institutions, and government service where they are involved with international arbitration; there are also former students now professors and lecturers on international arbitration in many countries.

This level of maturity and growth has been enabled by continued study, research and scholarship. It is therefore fitting that the Series covers a wide range of works related to international arbitration, spanning from mediation and commercial arbitration to energy, maritime and investment arbitration; from private law to public international law; from conflict of laws to contract and procedural law. Professor Brekoulakis and I view it as a venue to explore and better understand current debates and important issues in the field.

Having now reached the milestone of 60 volumes, we look forward to the scholarship that will take us to 100 volumes and beyond.

 

Professor Julian Lew QC is Professor of International Arbitration and Head of the School of International Arbitration, Centre for Commercial Law Studies, Queen Mary University of London. He has held these positions since the School’s creation in 1985. He is Co-Editor (with Professor Stavros Brekoulakis) of the International Arbitration Law Library Series, published by Kluwer Law International.

 

 

 

References   [ + ]

1. ↑ P Lalive, “International arbitration – teaching and research”, in Contemporary Problems in International Commercial Arbitration, ed Julian D M Lew, 1986, Centre for Commercial Law Studies, at p 16. 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: International Arbitration and the COVID-19 Revolution
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Decisions of the Swiss Federal Supreme Court in 2020

Fri, 2021-02-05 00:42

This report highlights the most significant arbitration related decisions of the Swiss Federal Supreme Court (the “SFSC”) issued in 2020.

 

Tribunal’s Jurisdiction – Scope of Arbitration Agreement

In 2020, the SFSC issued several decisions on the jurisdiction of an arbitral tribunal and on the determination of the objective (ratione materiae) and subjective (ratione personae) scope of arbitration agreements.

In decision 4A_342/2019 (06.01.2020), the SFSC dealt with the interpretation of arbitration agreements with regard to their objective scope. A and B initially negotiated three contractual documents, the Terms of Purchase, the Corporate Agreement, and the Quality Assurance Agreement (QAA). They finally signed only the QAA, which contained an arbitration clause for “contract disputes”. Because a dispute arose, B initiated arbitration raising claims that did not arise from the QAA. The tribunal, in a partial award, upheld its jurisdiction over such claims, and A appealed to the SFSC to vacate the award. The SFSC dismissed the appeal. It stated that the interpretation of an arbitration agreement follows the general principles of contract interpretation (discussed here). Where it is established that the parties agreed on the jurisdiction of an arbitral tribunal, there is no reason for a narrow interpretation of the arbitration agreement. In view of the declarations of intent exchanged between the parties, the arbitration clause in the QAA applied to the entire commercial relationship. This was not a question of extending the arbitration clause to other independent contracts, but rather a question of how the arbitration clause could be understood in good faith, i.e., based on the principle of normative interpretation.

In decision 4A_12/2019 (17.04.2020), the SFSC dealt with a dispute arising out of a license agreement in which the licensor A granted the licensee Z the exclusive right to promote, establish and operate seafood bars in airports and train stations around the world. A also authorized Z to grant sub-licenses to its subsidiaries. The agreement contained a clause conferring rights to sub-licensees under Article 112 CO. Z indeed sub-licensed certain rights to its subsidiary. According to the SFSC, the question of whether a claimant or a respondent is a party to an arbitration agreement – a question concerning the jurisdiction of an arbitral tribunal – should not be confused with the question of a party’s standing to sue or to be sued, which is a matter of substance of the claim. The SFSC dismissed A’s appeal to vacate the award confirming the tribunal’s jurisdiction. It held that, where an arbitration clause covers disputes relating to damages resulting from a breach of contract, it does not matter whether the claimant asserts his own damage or that of a third party. In either case, the dispute falls within the scope of such an arbitration clause.

In decision 4A_124/2020 (13.11.2020), the SFSC dealt with the subjective scope of an arbitration agreement. The dispute arose from supply contracts (all of which contained identical arbitration clauses) between the supplier B and several buyers (Contracts), concerning the construction of diesel power plants. B contracted out the supply of diesel engines for the power plants to the subcontractor A. After the installation of the diesel engines, several technical problems occurred. After unsuccessful attempts to fix the problems, the buyers refused to fulfill their payment obligations under the Contracts. B then initiated arbitration proceedings against the buyers. The buyers requested that A be included as a party in the arbitration. A contested the jurisdiction of the tribunal. In a partial award, the tribunal affirmed its jurisdiction over A based on normative interpretation of A’s behavior according to the principle of good faith.

The SFSC vacated the partial award noting that, in Annex I to one of the Contracts, A was expressly listed as B’s subcontractor and as the supplier of diesel engines. Despite A’s presence at the conclusion of one Contract, A’s participation in various meetings with the buyers, and despite A’s various communications with the buyers, A’s involvement in the Contracts did not go beyond fulfilling its obligations as defined in A’s supply contract entered into with B. Given A’s involvement as a subcontractor based on its supply contract with B, the buyers were also not entitled in good faith to understand a letter written on behalf of both, A and B, as an expression of A’s intent to agree to the arbitration clause in the Contracts and thus to waive state jurisdiction. On the contrary, in view of the contractual provisions made, the buyers had to be aware that A was not a party to the Contract(s) and was also not bound by the arbitration clause(s) contained therein.

In the decision 4A_618/2019 (17.09.2020), the SFSC made a further clarification with respect to the tribunal’s determination of its jurisdiction. In default proceedings, where a respondent to an arbitration fails to submit an answer, the arbitral tribunal must review its jurisdiction ex officio. Thereby, the tribunal may gather certain additional information and carry out investigative measures with a view to determining whether it is competent to decide the dispute.

 

Difference Between an Interim and a Partial Award

In decision 4A_300/2020 (24.07.2020), the SFSC addressed the question of when a partial decision, i.e. an arbitral decision dealing with only part of the submitted claims, qualifies as a final and when as a preliminary decision.

The underlying dispute arose out of a Gas Sales Purchase Contract entered into by the seller A and the buyers B and C. After A failed to supply gas, B and C filed a claim for damages and terminated the Contract. The tribunal decided that the termination was valid. A appealed against this decision.

The SFSC held that an arbitral decision qualifies as a partial award if it, independently of other claims, definitely adjudicates and concludes the proceedings with respect to a part of what is claimed. In contrast, a decision merely clarifying one or more preliminary issues with regard to the arbitral decision, qualifies as interim award.

In the present case, the question of whether a contract was validly terminated and the amount of damages were closely related. The arbitral tribunal’s decision that the termination of the contract was valid had a decisive influence on the calculation of the owed damages. The two claims were therefore not independent and the contested decision did not qualify as a partial award.

 

Scope of Res Judicata

In decision 4A_536/2018 (16.03.2020), the SFSC dealt with the principle of res judicata in a dispute between a football club and a footballer’s agent. In the first arbitration against the club, the claimant agent filed a request for payment of a fee and for a declaratory judgement, declaring that he was entitled to a payment of an additional renumeration. In the second arbitration, the claimant agent requested the payment of the additional renumeration from the club. While the first tribunal denied the agent’s right to a declaratory judgment on his entitlement to the additional renumeration, the second tribunal granted his payment request.

The club appealed against the second award arguing, inter alia, that it ignored the binding effect of res judicata and thus violated the procedural public policy.

The SFSC dismissed the appeal stating that res judicata prohibits to question, in a new procedure between the same parties, an identical claim that has been judged in a final decision. The tribunal hearing the new claim is bound by the operative part of the previous decision. While the tribunal’s reasoning can be consulted to determine the precise scope of the operative part – particularly when the operative part merely states that the claim is dismissed –, the reasoning is not binding on the tribunal.

The first tribunal declined to address the agent’s request for declaratory relief. In the operative part, it dismissed the request. This decision of inadmissibility did not prevent a new claim for payment as the binding effect of that decision is restricted to the question of admissibility that has been discussed and denied.

 

Right to be Heard and Right to Equal Treatment

In the aforementioned decision 4A_536/2018, the SFSC also addressed the question of when a party can successfully appeal an award arguing that its right to be heard has been violated. A tribunal’s finding that is obviously inaccurate or contrary to the record is not sufficient to lead to the setting aside of the award since the right to be heard does not guarantee a substantively correct decision and the SFSC’s examination of the award is limited to the question of its compatibility with public policy. On the other hand, a tribunal cannot protect itself from a complaint of violation of the right to be heard by inserting in the award a statement that the allegations, arguments, and evidence put forward by the parties have all been taken into account and that the parties have confirmed at the end of the hearing that their right to be heard has been fully respected.

In decisions 4A_62/2020 (30.09.2020) and 4A_384/2020 (10.12.2020), both dealing with appeals against CAS awards, the SFSC recalled that the right to be heard relates mainly to the establishment of facts and that arbitral tribunals are free to assess the legal scope of the facts and may also decide on the basis of legal rules other than those invoked by the parties. Only exceptionally do the parties have the right to be heard on legal questions (previously discussed here). This exception is applied restrictively and cannot be used by the party complaining of errors in the reasoning of the award to provoke an examination of the application of substantive law.

In decision 4A_156/2020 (01.10.2020), the SFSC dealt with a request to vacate a cost award. The claimants appealed against an award terminating the proceedings and obliging them to pay the respondents fees of approximately EUR 650,000. In the appeal, the claimants argued that their right to be heard as well as the principle of equality of the parties had been violated, inter alia, because the Tribunal had failed to grant them an extension of the deadline and had denied them the opportunity to comment on the defendant’s unsolicited submission.

The SFSC dismissed the appeal holding that the right to be heard does not imply an absolute right to a double exchange of submissions. More than two months elapsed between the last submission and the rendering of the award. During this time, the claimants could have (i) requested the tribunal for a deadline to file a response, (ii) complained that they were not given the opportunity to file a response, or (iii) filed an unsolicited response. As far as the right to equal treatment is concerned, the procedure must be conducted in such a way that each party has the same opportunity to present its case. Like in the case of the complaint of violation of the right to be heard, also here the complainant must not only show that she has been treated unequally compared to the opposing party, but also how the outcome of the proceedings could have been different if the alleged violations had not been committed. Importantly, the party who considers herself to be the victim of a procedural error must complain about the error without delay, otherwise she is prevented from asserting it in the context of an appeal.

 

Rules and Limits to New Legal Arguments Before the SFSC

In decision 4A_80/2018 (07.02.2020), the SFSC assessed a partial award rendered in an investment dispute between four European investors and the Czech Republic, dealing with the issues of jurisdiction and liability.

The SFSC held, inter alia, that unlike the submission of new facts and evidence, the submission of new legal arguments is in principle admissible in proceedings before it. New legal arguments must be raised within the time limit for appeal and may be supplemented by a new legal opinion, excerpts of doctrine or decisions of foreign judicial authorities, which may at least partially have the character of evidence. A party may also submit a judgment related to the case, to support facts. Foreign court or arbitral decisions are admissible if they were issued before the date of issuance of the disputed award. In international investment protection disputes, decisions rendered in earlier proceedings do not bind tribunals in subsequent investment arbitrations, so that they cannot be considered as a source of arbitration law as such.

In accordance with the above principles, the appellant Czech Republic could not rely on the Achmea decision of 6 March 2018 (Case C-284/16), nor on the Antaris award (PCA Case No. 2014-01) as they were both rendered after the disputed award. In keeping with its practice, the SFSC determined the meaning of the treaties in question in accordance with the applicable methods of interpretation, taking into account the doctrine, but with complete freedom in relation to other arbitral awards on the subject.

In decision 4A_461/2019 (02.11.2020), the SFSC reaffirmed its position that, in the international investment protection, pre-existing decisions do not constitute actual sources of law according to which an arbitral tribunal would have to act. It dismissed an appeal to vacate an award accepting the jurisdiction of an arbitral tribunal under the relevant BIT.

 

Concluding Remarks on the 2020 Decisions

In 2020, the SFSC further clarified its constant jurisprudence. In the much discussed decision 4A_398/2019 (25.08.2020) in the case of athlete Caster Semenya, it dismissed an appeal to set aside the CAS award reiterating that it was compatible with substantive public policy and confirming its considerations made in the procedural order of 29.07.2019 (previously discussed here). In the decision 4A_486/2019 (17.08.2020), the SFSC confirmed that the procedural guarantees of article 6(1) ECHR cannot be invoked directly in the setting aside proceedings.

On 22.12.2020, the SFSC approved the request of Chinese swimmer Sun Yang to set aside CAS decision 2019/A/6148 due to bias of Franco Frattini, one of the arbitrators. The SFSC’s decision 4A_318/2020 was published on 15.01.2021 and will be discussed in a separate post.

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Insolvency and Arbitration in Brazil: One More Step Ahead

Thu, 2021-02-04 00:26

On 24 December 2020, the New Brazilian Insolvency Act (“NBIA” – a slight misnomer, as the Act is in fact an amendment to an existing statute) was published in the official Brazilian gazette. The act implements important modifications in the field, including a few related to arbitration, which came into force on 23 January 2021.

Arbitration and insolvency1)The terms ‘insolvency’, ‘judicial reorganisation’, and ‘bankruptcy’ are often used loosely to describe any kind of financial failure. In this article, for the sake of convenience, I use the term ‘insolvency’ to describe the legal proceedings where a court declares that a company is insolvent and can no longer pay off their debts, issuing a winding-up order. The term ‘judicial reorganisation’ is dedicated to cases where the debtor applies to court seeking to save its business and discharge its debts by entering into a reorganisation plan approved by its creditors and by the court. I don’t use the term ‘bankruptcy’, as in many jurisdictions it only applies to individuals, and not companies. jQuery("#footnote_plugin_tooltip_5151_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5151_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); are two separate worlds governed by different policies. On the one hand, arbitration aims to enforce party autonomy and ensure that the winning party gets what it deserves, regardless of the impact of the arbitral award on third parties. On the other hand, insolvency is an attempt to rescue a viable business and/or return productive resources to the market, balancing the interests of the insolvent party with the interests of creditors and other stakeholders.

Unsurprisingly, these policies sometimes clash, and different legal systems have come up with a variety of solutions, often causing complex issues in cross-border disputes. In general, the complexity resides on the lack of specific legal provisions dealing with (i) the arbitrability of insolvency issues, (ii) the effects of insolvency proceedings on arbitration agreements, and (iii) the effects of insolvency proceedings on ongoing arbitrations.

The NBIA expressly deals with the two latter issues. This post briefly explains (i) the relevance of the new legal provisions in the context of a global economic crisis, and (ii) the impact of insolvency on arbitration agreements and ongoing arbitrations in Brazil according to the new legislation (highlighting, when appropriate, precedents from the Superior Court of Justice – “STJ” – on the topics).

 

Well-timed modification

The global economy is in crisis. In April 2020, the IMF indicated that 2020 would see the worst global economic contraction since the Great Depression of the 1930s. In December 2020, the OECD reported that global GDP had decreased 4.2% in the last year as the result of the pandemic (Statista puts the figure even higher, at 4.5%).

In Brazil, the number of winding-up petitions filed in July 2020 increased 28.9% in comparison to July 2019. In the same period, the number of petitions seeking judicial reorganisation in the country jumped to 82.2% in contrast to July 2019.

Needless to say, the huge economic crisis the COVID-19 pandemic caused, and the boost in numbers of insolvency proceedings will likely bring a renewed focus on the topic of ‘arbitration & insolvency’ in 2021. This will require businesspeople, lawyers, arbitrators, and arbitral institutions to use all their creativity in designing the most reasonable legal solutions.

In this sense, the NBIA is a well-timed initiative which will bring more certainty and predictability to arbitrations seated in Brazil and/or to arbitrations involving at least one party headquartered in the country.

 

Insolvency, judicial reorganisation, and arbitration under the NBIA

As previously discussed here, the original text of the Brazilian Insolvency Act did not mention the words “arbitration” or “arbitral”, which was not a particularity of the country as this lack of provisions regarding arbitration is a common feature of many insolvency laws across the globe. In contrast, the NBIA now registers these words five times. This post explores three of these uses.

According to the new paragraph 9 of s. 6, “the commencement of a judicial reorganisation proceeding or the issuance of a winding-up order will neither permit the trustee/liquidator to discharge the arbitration agreement, nor prevent arbitrations from starting or continuing”.

The new provision reinforces what legal scholars2)For a comprehensive analysis of the academic works, see MONTEIRO, Andre Luis. FICHTNER, Jose Antonio. MANNHEIMER, Sergio. Teoria geral da arbitragem. Rio de Janeiro: Forense, 2019, p. 426-490. jQuery("#footnote_plugin_tooltip_5151_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5151_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and case law had already supported: a pre-existing arbitration agreement is not discharged by the commencement of judicial organisation proceedings or by the issuance of a winding-up order. Unlike other jurisdictions, in Brazil trustees/liquidators do not have the power to discharge pre-existing arbitration agreements based on these facts. Also, it is not necessary to seek court permission to enforce pre-existing arbitration agreements against an insolvent party. Everything stands as it was.

In addition, neither creditors nor insolvent parties are prevented from commencing or continuing arbitrations after the beginning of judicial reorganisation proceedings or after the issuance of winding-up orders. Moreover, courts cannot stay ongoing arbitrations exclusively based on these facts. The STJ had already adopted this understanding in the case Hornbeck v Astromarítima (2018). Then, it seems like the NBIA simply turned the existing case law into a legal provision.

This provision also makes clear that the commencement of judicial reorganisation proceedings or the issuance of a winding-up order do not turn the claims made against the insolvent party into inarbitrable matters. Logically speaking, if the arbitration is not stayed and, therefore, it can commence or continue, it follows that the subject matter does not become inarbitrable.

In cases where an insolvency court has rendered a winding-up order, the new s. 22(iii)(c) establishes that the concerned trustee/liquidator will “take on the representation of the estate in extrajudicial matters, court proceedings, and arbitrations.” This provision clarifies that, from the issuance of the winding-up order, the trustee/liquidator will assume the legal representation of the estate, which means he/she will be able to hire/replace lawyers, discuss potential settlements etc., including in arbitration proceedings. As this replacement may take some time, it is fair for the arbitral tribunal to stay the ongoing arbitration for a reasonable period of time, for instance, 60-90 days.

Last but certainly not least, the NBIA has adopted the 1997 UNCITRAL Model Law on Cross-Border Insolvency,3)See ARAUJO, Nadia de. SPITZ, Lidia, “A insolvência transnacional na nova Lei de Falências.” jQuery("#footnote_plugin_tooltip_5151_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5151_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); but with a few important distinctions. Based on subparagraph 1(a) of Article 20 of the Model Law, the UNCITRAL Guide to Enactment and Interpretation of the Model Law states that “by not distinguishing between various kinds of individual action, (the provision) also covers actions before an arbitral tribunal” and, therefore, “article 20 establishes a mandatory limitation to the effectiveness of an arbitration agreement,”, i.e., arbitrations are also subject to the automatic stay provided for this provision.

This is not the approach that the NBIA takes. Paragraph two of s. 167-M states that, in spite of the recognition of the main foreign insolvency proceeding, “it does not affect the creditors’ right to commence or continue any court proceedings or arbitrations seeking a monetary award against a debtor, except when it involves executive measures against the debtor’s assets, which will keep stayed”. In other words, the effects of main insolvency proceedings taking place abroad do not prevent the creditor from commencing or continuing arbitrations against the insolvent party in Brazil. In practical terms, only measures against the debtor’s assets (freezing orders, search and seizure orders, orders for sale, etc.) should be suspended under this scenario.

The NBIA does not deal with the arbitrability of core-insolvency-issues, but the STJ’s case law is clear on that arbitral tribunals do not have powers to grant winding-up orders, for example. Consequently, as decided in Jutaí 661 v PSI (2013) and Volkswagen v Metalzul (2018), a pre-existing arbitration agreement does not prevent the creditor from filing a winding-up petition in the insolvency courts. Also, as decided in Galvão Engenharia v. Clark (2017), Hornbeck v Astromarítima (2018), and Oi v Bratel (2018), arbitral tribunals do not have powers to deal with an insolvent party’s assets (they cannot, for example, issue freezing orders, search and seizure orders, orders for sale, etc.).

 

Conclusion

The NBIA has come into play at a pertinent moment and it adopts an indisputably arbitration-friendly approach. Hopefully, the new legislation can serve as an inspiration for more studies in this field and, also, for other countries’ legislative works.

References   [ + ]

1. ↑ The terms ‘insolvency’, ‘judicial reorganisation’, and ‘bankruptcy’ are often used loosely to describe any kind of financial failure. In this article, for the sake of convenience, I use the term ‘insolvency’ to describe the legal proceedings where a court declares that a company is insolvent and can no longer pay off their debts, issuing a winding-up order. The term ‘judicial reorganisation’ is dedicated to cases where the debtor applies to court seeking to save its business and discharge its debts by entering into a reorganisation plan approved by its creditors and by the court. I don’t use the term ‘bankruptcy’, as in many jurisdictions it only applies to individuals, and not companies. 2. ↑ For a comprehensive analysis of the academic works, see MONTEIRO, Andre Luis. FICHTNER, Jose Antonio. MANNHEIMER, Sergio. Teoria geral da arbitragem. Rio de Janeiro: Forense, 2019, p. 426-490. 3. ↑ See ARAUJO, Nadia de. SPITZ, Lidia, “A insolvência transnacional na nova Lei de Falências.” 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: International Arbitration and the COVID-19 Revolution
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Hong Kong’s Law Reform Commission Green-Lights Outcome Related Fee Structures for Arbitration

Wed, 2021-02-03 01:00

Hong Kong currently prohibits lawyers from using outcome related fee structures (“ORFSs”), including “No-Win, No-Fee” type arrangements, for arbitrations and other contentious matters. This looks set to change for arbitrations, however, following the publication late last year of a compelling Consultation Paper by the Outcome Related Fee Structures for Arbitration Sub-committee of the Law Reform Commission of Hong Kong (the “Sub-committee”).

 

The Sub-committee’s Recommendations

Hong Kong’s Secretary for Justice first announced that a Sub-committee of the Law Reform Commission would consider the introduction of ORFSs for arbitrations during the 2019 Hong Kong Arbitration Week.

The arbitration community welcomed this news since, as previously covered on this blog, reforms to permit the use of ORFSs for arbitrations were arguably overdue in Hong Kong given their potential to enhance access to justice and meet increasing client demand for new methods of funding arbitrations. ORFSs were also already available in other leading arbitral jurisdictions, with the exception of Singapore where reforms are currently being considered.

The Sub-committee’s Consultation Paper was published on 17 December 2020 following an extensive review of the applicable legal regimes regulating ORFSs in other jurisdictions and the arguments for and against the use of ORFSs in arbitration.

The Sub-committee’s headline recommendation is that the law in Hong Kong be amended to permit lawyers, including solicitors, barristers and Registered Foreign Lawyers, to use ORFSs for arbitrations, administered or ad hoc, seated in or outside of Hong Kong. ORFSs would also be available for emergency arbitrator proceedings as well as court and mediation proceedings under Hong Kong’s Arbitration Ordinance (Cap 609).

The Sub-committee’s proposed reforms would therefore allow lawyers in Hong Kong to use ORFSs throughout the entire lifecycle of an arbitration, including for arbitration-related court proceedings such as setting-aside or enforcing awards.

The Sub-committee’s recommendations also address how the ORFS regime should operate in practice with safeguards like caps on the maximum amount payable to lawyers and prohibitions on the recoverability of such amounts from counterparties in the arbitration.

 

A Sea of Acronyms: CFAs, DBAs and Hybrid DBAs

An eye-catching feature of the Sub-committee’s Consultation Paper is the recommendation that all forms of ORFSs, whether conditional fee agreements (“CFAs”), damages-based agreements (“DBAs”) or hybrid damages-based agreements (“Hybrid DBAs”), be permitted.

CFAs, DBAs (also known as contingency fee arrangements) and Hybrid DBAs are similar in substance with the lawyer receiving a financial benefit if the proceedings are successful. They nevertheless have specific characteristics that arbitration users may wish to choose between:

  • CFAs: the financial benefit is a success fee that can either be an agreed flat fee or calculated as a percentage “uplift” on any legal fees charged to the client during the proceedings. CFAs can be structured as “No-Win, No-Fee” or “No-Win, Low-Fee” arrangements with no legal fees or reduced legal fees, respectively, being due to the lawyer if the proceedings are unsuccessful.
  • DBAs: the financial benefit is calculated by reference to the outcome of the proceedings, for example as a percentage of the sum of damages awarded to or recovered by the client. No legal fees are due to the lawyer if the proceedings are unsuccessful (i.e., “No-Win, No-Fee”).
  • Hybrid DBAs: the financial benefit is calculated in the same manner as a DBA, but the lawyer is additionally entitled to certain legal fees irrespective of the outcome of the proceedings. Legal fees are typically at a discounted hourly rate (i.e., “No-Win, Low-Fee”).

The Sub-committee’s recommendation to allow these three forms of ORFSs deserves applause. Although an argument exists that DBAs are unnecessary if CFAs are available and vice-versa, the Sub-committee rightly concluded that once the view is taken to “cross the Rubicon” by permitting one form of ORFS in Hong Kong, there is no real basis to exclude other forms of ORFSs.1)Consultation Paper, paragraph 4.74. For a strong endorsement of DBAs, and Hybrid DBAs in particular, see Lord Justice Jackson Law Society Speech “Commercial Litigation: The Post-Jackson World”, paragraphs 3.1-3.20. Cf. Victoria Law Reform, Access to Justice— Litigation Funding and Group Proceedings: Consultation Paper (July 2017), paragraph 8.17. jQuery("#footnote_plugin_tooltip_3884_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3884_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); From a practical perspective, the Sub-committee’s approach has the advantage of providing arbitration users with the flexibility to select the type of ORFS that best suits their funding needs. (Consultation Paper, paragraph 4.20-4.23)

Relatedly, the Sub-committee’s recommendations recognise the potential for respondents, rather than just claimants, to use ORFSs. The Consultation Paper gives an example of a DBA being structured to provide for a lawyer to receive a financial benefit if the damages awarded against their client fall below an agreed amount. (paragraph 5.73, 5.74(b)(iii), Recommendation 13(h)) Such flexibility would be welcomed by arbitration users.

The Sub-committee’s proposed reforms compare favourably to the approach to ORFSs in other leading arbitral jurisdictions. In England & Wales, for example, CFAs and DBAs are permitted but, despite convincing criticisms of the illogical nature of their exclusion, Hybrid DBAs are not.2)Lord Justice Jackson Law Society Speech “Commercial Litigation: The Post-Jackson World”, paragraphs 3.6, 3.13. 3.14; The 2019 DBA Reform Project: Explanatory Memorandum (October 2019), pages 14-15; Consultation Paper, paragraphs 4.97, 5.50, 5.51. jQuery("#footnote_plugin_tooltip_3884_2").tooltip({ tip: "#footnote_plugin_tooltip_text_3884_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Singapore’s proposed reforms would permit CFAs but not DBAs or Hybrid DBAs.3)Singapore’s Ministry of Law Consultation Paper on Conditional Fee Agreements, August 2019, paragraphs 1, 2, 7. jQuery("#footnote_plugin_tooltip_3884_3").tooltip({ tip: "#footnote_plugin_tooltip_text_3884_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Should ORFSs be Allowed in Hong Kong?

The Sub-committee’s Consultation Paper puts forward a strong case for allowing lawyers in Hong Kong to enter into ORFSs with their clients. Indeed, the Sub-committee identifies such reform as essential to preserving Hong Kong’s continued status as one of the world’s leading arbitral seats and to maintaining its competitiveness. (Consultation Paper, paragraphs 4.4, 4.8-4.10) This reflects not only the significant demand from clients for ORFSs but the fact that nearly all of the arbitral seats with which Hong Kong competes, such as London, Paris, Geneva, New York and Mainland China, already permit some form of ORFS (with Singapore likely to join them in the near future). (Consultation Paper, paragraphs 3.2, 4.4, 4.10) Jurisdictions vying to position themselves as alternative arbitration seats have also embraced ORFSs; most recently with the Cayman Islands introducing legislation in January 2021 to permit contingency fees.

Allowing lawyers in Hong Kong to use ORFSs would enable them to compete on a level playing field with lawyers in other jurisdictions. (Consultation Paper, paragraph 4.27) In contrast, if “Hong Kong continues to prevent its Lawyers from sharing [the risk of arbitration] through ORFSs, it is likely that clients will simply choose to arbitrate elsewhere”. (Consultation Paper, paragraphs 4.4)

The Sub-committee also recognised that ORFSs would enhance access to justice in Hong Kong by allowing clients to fund claims that they may otherwise be unable to bring. (Consultation Paper, paragraph 4.11-4.14.) Although Third Party Funding is now allowed in Hong Kong, the Sub-committee rightly acknowledged that not every case is suitable for it and Third-Party Funding can be difficult to obtain in practice even where the merits of a claim are strong. ORFSs would help to fill this gap.

With respect to the risks commonly associated with ORFSs, such as conflicts of interest between lawyers and their clients, excessive legal fees and increases in frivolous claims, the Sub-committee drew on the experience of other leading arbitral jurisdictions that already allow ORFSs to convincingly conclude that such concerns were misplaced in the context of arbitration or otherwise capable of being managed by implementing safeguards in the relevant laws and regulations to control how they operate in practice. (Consultation Paper, paragraph 4.2-4.3)

In terms of next steps, the Sub-committee has invited public views on the appropriate safeguards to be put in place in lawyer’s professional codes of conduct and subsidiary legislation regarding the use of ORFSs, as well as the recommendations in the Consultation Paper more generally, as part of a consultation that runs until 16 March 2021. Hopefully the Sub-committee’s recommendations will be finalized and promptly implemented in Hong Kong following the conclusion of this consultation.

 

Conclusion

The Sub-committee’s Consultation Paper presents a compelling case for allowing CFAs, DBAs and Hybrid DBAs to be used in arbitrations and arbitration-related court proceedings. Such reforms would, if implemented, help safeguard Hong Kong’s status as one of the world’s leading arbitral seats.

It will be interesting to see whether Singapore’s proposed ORFS reforms remain limited to CFAs or develop in due course to cover DBAs and Hybrid DBAs.

References   [ + ]

1. ↑ Consultation Paper, paragraph 4.74. For a strong endorsement of DBAs, and Hybrid DBAs in particular, see Lord Justice Jackson Law Society Speech “Commercial Litigation: The Post-Jackson World”, paragraphs 3.1-3.20. Cf. Victoria Law Reform, Access to Justice— Litigation Funding and Group Proceedings: Consultation Paper (July 2017), paragraph 8.17. 2. ↑ Lord Justice Jackson Law Society Speech “Commercial Litigation: The Post-Jackson World”, paragraphs 3.6, 3.13. 3.14; The 2019 DBA Reform Project: Explanatory Memorandum (October 2019), pages 14-15; Consultation Paper, paragraphs 4.97, 5.50, 5.51. 3. ↑ Singapore’s Ministry of Law Consultation Paper on Conditional Fee Agreements, August 2019, paragraphs 1, 2, 7. 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: International Arbitration and the COVID-19 Revolution
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2020 in Review: The Year of Virtual Hearings

Tue, 2021-02-02 00:36

In the aftermath of the COVID-19 public health crisis, a seismic event in history, many of us feel as if 2020 is the year that did not happen. While it certainly was not business as usual, in a display of flexibility and resilience, the arbitration community ensured that the (virtual) show did go on. With 2020 now concluded, we reflect on the year’s hot topic: virtual hearings (or remote hearings, see more on the issue of terminology here and here).

As a globalized profession, remote communications have already formed part of the arbitration process, ranging from procedural conferences by phone to some sort of remote participation in hearings, such as notably witnesses being examined by videoconference (see for example, a post from 2018 outlining the features and possibilities of such online proceedings).

However, uncertainty, travel restrictions, and health protocols introduced due to the COVID-19 pandemic functioned as a catalyst to change industry standards and users’ decision making. As pointed out by Professor Maxi Scherer, parties, counsel, and tribunals faced the reality that a physical hearing was not possible to take place at the scheduled time. Despite prior expectations and arrangements users faced a dilemma: “should [the hearings] (cautiously) be postponed, or (proactively) be held remotely using modern communication technologies”? This sparked wide discussion on and use of virtual hearings, and unsurprisingly, virtual hearings are already the subject of scholarly work and in-depth study. Such efforts include ICCA’s recently launched research project on whether the right to a physical hearing exists and the 2020 School of International Arbitration (SIA), Queen Mary University of London (QMUL) Survey, which carries the theme “Adapting Arbitration to a Changing World.”

Here, we shed light on our coverage of the following related issues: the complex practical and legal issues that need to be addressed in the context of remote hearings, the guidance that has been offered by arbitral institutions, the physical and psychological challenges presented by the increase of video conferencing, as well as the potential impact on the promotion of diversity and sustainability.

 

Addressing the Practical and Legal Challenges

Nothing is easy about virtual hearings. Counsel, arbitrators, witnesses, and experts may be located all over the world, rendering it impossible to find a “convenient” timetable to conduct the proceedings. Even after a timetable has been agreed, further challenges including selecting an appropriate video conferencing platform (that considers security and confidentiality needs) determining an appropriate means to share information, documents, and evidence; and arranging for real-time transcription.

Jacky Fung addressed these challenges as counsel in a hearing involving eight global cities and nearly a dozen witnesses and insightfully recommended that an agreed “virtual hearing protocol” could ensure virtual hearings succeed. On the other hand, Chahat Chawla offered the institutional perspective based on two successful and distinct SIAC arbitrations: an emergency arbitrator hearing for urgent interim relief and an evidentiary hearing. He suggested users focus on three aspects: (1) developing best practices; (2) conducting a practice round, e.g., a “test call” or “dry run”; and (3) employing reliable technology. A tailored procedural order could also help ensure success. However, such a procedural order could not exist without technologically adept arbitrators leading the way, a quality that we may see taken into account in future arbitral appointments.

Users must also consider the ethical and legal framework for their hearings to ensure virtual success. Could arbitral awards rendered based on virtual hearing be at greater risk of set aside at the enforcement phase? The Vis Moot is infamous for asking students (and their coaches and mock arbitrators) to consider current industry challenges, and so this precise legal issue appears in this year’s Vis Moot problem. The problem asks whether, in a pandemic environment, a virtual hearing involving the presentation of witness testimony would be appropriate over one party’s objection. It could be argued that virtual hearings violate due process, especially where one party objects and demands an in-person hearing for cross-examination. Virtual hearings may also exacerbate pre-existing inequality between parties.

While the challenges may seem novel, they are merely the most modern iteration of due process paranoia. On the Blog we have previously highlighted views from various jurisdictions, including Colombia, England, India, Malaysia, and Singapore. In the COVID-19 context, some jurisdictions have already articulated clear views. In July 2020, the Austrian Supreme Court confirmed a tribunal’s power to hold a virtual hearing over one party’s objection, thereby rejecting due process concerns. In August 2020, a U.S. district court reached a similar conclusion. More generally, in October 2020, an Egyptian court offered its blessing to virtual hearings.

 

Guidance from Arbitral Institutions

Arbitral institutions have also actively sought to address users’ needs. In hopes of developing best practice tools, several arbitral institutions issued guidelines and hearing protocols, such as for example the ICC Guidance Note on Possible Measures Aimed at Mitigating the Effects of the Covid-19 Pandemic (discussed here), the Vienna International Arbitration Centre (VIAC) Protocol, the ICSID Guide to Online Hearings, the LCA Guidance on remote hearings, and the HKIAC Guidelines on Virtual Hearings.

In addition to the individual efforts made by each institution, the crisis sparked collaboration across arbitral institutions, including the April 2020 Joint Statement on “Arbitration and COVID-19” in which major arbitral institutions urged flexibility and collaboration (see also here).

In 2020, the LCIA also updated its rules. As discussed in a post following their publication, the rules clearly reflect the impact of the pandemic on international arbitration by addressing virtual hearings in greater detail. Similarly, at the end of 2020, the ICC also released its 2021 Rules of Arbitration, which leave no doubt as to a tribunal’s powers to conduct virtual hearings (see relatedly the discussion of the new rules here).

 

Healthy Virtual Hearings

Even with a trove of guidance now available, the necessary and rapid adoption of virtual hearings does not come without a cost. Sophie Nappert and Mihaela Apostol discussed the physical and psychological challenges presented by the increase of video conferencing in professional life, with an emphasis on virtual hearings. They explored the various difficulties that participants in video-gatherings experience. Among the various challenges they identified, and in addition to physical tiredness, they discussed in detail mental challenges because of screen fatigue. They called for increased awareness in relation to the tangible consequences of virtual hearings on practitioners’ minds and bodies. Moreover, and in agreement with other contributors, they recommended the adoption of best practices at the earliest stages of arbitral proceedings.

 

Sustainability and Diversity in a Virtual World

As the arbitration industry matures, voices arguing in favour of promoting sustainability and diversity have increased. Virtual platforms in the post-COVID-19-world may offer greater opportunities. Maguelonne de Brugiere and Cherine Foty approached these two heavily-debated issues in the “newly virtual world of international arbitration.” They argued that the pandemic has functioned as a “natural accelerator” “for the many behavioral changes” that initiatives, such as the Campaign for Greener Arbitrations have sought to promote. As envisaged, in years to come, we will see behavioral changes in relation to traveling. In addition to more “environmentally-conscious” traveling, they emphasized the potential for reduction of material waste in arbitral proceedings by using electronic means of communication.

On the diversity side, in this new virtual world, there might be opportunities for increased visibility and participation for previously underrepresented categories (such as women and minorities). As highlighted by Ibrahim Godofa and Mercy Okiro, event organizers now have a more global and accessible pool of candidates participating as speakers in panels, while on the other side, global attendees may now also have greater access to such high quality programming and networking opportunities. This is truly a silver lining for the arbitration community; however, the news might not be equally good for diversity among virtual hearing participants. Maguelonne de Brugiere and Cherine Foty warned that many skilled practitioners might lack the necessary technological infrastructure to cope with the high demands of a virtual hearing. There is certainly more to add to this list of bad news. For example, there is the further risk that well-established arbitrators could utilize the flexibility offered by virtual hearings (and less traveling or time zone limitations) to accept significantly more appointments (the so-called 24-hour arbitrator problem). The risk is simply that these savvy and seasoned arbitrators could get a larger part of the pie of international disputes, decreasing opportunities available to the younger generation of arbitrators.

 

Concluding Remarks 

Will arbitration ever be the same again? This was considered in depth during the 32nd Annual ITA Workshop and Annual Meeting and the resounding view was that our industry, like many others, has been indelibly impacted by the unprecedented rise of virtual work. Indeed, Gary Benton foresees a ”sea change” for our community. But are virtual hearings here to stay? Luke Nottage considers that whether the COVID-19 pandemic will be a long-term game changer for international arbitration remains open. What we can safely predict is that during 2021 we will see further developments in the realm of remote hearings, as this pandemic heralds a new era in many respects, including for the use of technology in international arbitration.

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The Renewable Energy Saga from Charanne v. Spain to The PV Investors v. Spain: Trying to See the Wood for the Trees

Mon, 2021-02-01 03:08

In the early 2000s, several European states introduced generous incentive programs to attract investors to renewable energy, triggering an investment boom. In the wake of the global financial crisis of 2008, however, the incentive payments put a strain on regulators. The subsequent changes to the regulations of the renewable energy sector implemented by Spain, Italy, and the Czech Republic have sparked a considerable number of arbitrations against these states.

This contribution seeks to bring clarity to the 28 arbitral awards brought against Spain, Italy, and the Czech Republic (as of February 2020). Specifically, it will argue that these awards fit a typology made up of three different lines of reasoning, depending on their conclusions regarding the alleged frustration of legitimate expectations.

 

Background

Each of the renewable energy regulations adopted by the three states had a two-tier structure:

  1. the framework laws guaranteed investors “reasonable profitability rates” (Spain), a “fair return” (Italy) or a certain payback period (Czech Republic); and
  2. implementing legislation specified the exact feed-in tariffs which were at the heart of the incentive programs.

Spain, Italy, and the Czech Republic each rolled back their incentive schemes. Italy and the Czech Republic reduced the feed-in tariffs. Spain, by contrast, chose a two-stage process: the measures preceding the first half of 2013 constituted relatively cautious modifications whereas the changes from July 2013 onwards abolished the fixed feed-in tariffs.

As a result, the three states faced a wave of arbitral proceedings, mainly on the basis of Article 10(1) of the Energy Charter Treaty (to which reforms are currently being discussed), with the investors arguing a violation of the fair and equitable treatment standard due to a frustration of their legitimate expectations. The key legal question in this context was: what legitimate expectations can general legislation give rise to?

The 28 arbitral awards from Charanne v. Spain to The PV Investors v. Spain did not give a uniform answer to this question. Rather, these awards can be divided into three different lines of reasoning, which are examined in the paragraphs that follow.

 

First Line of Reasoning – All State Measures Frustrated Legitimate Expectations

The first line of reasoning was followed by 5 tribunals and 4 dissenting opinions. The tribunals (and dissenting opinions) offered three different lines of analysis concerning this first line of reasoning.

The tribunal in Masdar v. Spain contrasted two investment scenarios: one with and one without a specific commitment as to the stability of the legal framework. If the host state had given a specific commitment, an investor could legitimately expect that the legal framework would not be modified contrary to such commitment. By contrast, without a specific commitment, an investor could only expect that the host state would refrain from unreasonable or unjustified changes. However, the tribunal then avoided the central legal question of whether general legislation could constitute a specific commitment as it found that Spain had provided other specific commitments.

A number of tribunals and dissenting opinions following Masdar equated generally applicable legislation with a specific commitment, invoking the wording and object and purpose of the respective laws to find they had been deliberately implemented to attract investors (9REN v. Spain; OperaFund v. Spain; Greentech v. Italy; Antaris v. Czech Republic, Dissenting Opinion of Mr Gary Born; Wirtgen v. Czech Republic, Dissenting Opinion of Mr Gary Born). Accordingly, the regulatory changes in Spain, Italy, and the Czech Republic were found to have frustrated the investors’ legitimate expectations.

Prima facie, CEF v. Italy does not fall within this line of reasoning. For instance, the tribunal emphasized that without a specific commitment, investors’ expectations had to be balanced against host states’ right to regulate. Yet, it argued that Italy had undoubtedly committed to paying constant feed-in tariffs. Therefore, the cut-back frustrated legitimate expectations. Implicitly, then, the tribunal treated Italy’s legislation as a specific commitment.

Lastly, the dissenting opinions in Charanne and Isolux maintained that while laws were not equivalent to a specific commitment, they could nonetheless give rise to a legitimate expectation that they would not be changed to the detriment of foreign investors.

 

Second Line of Reasoning – Only the Later Spanish Measures Frustrated Legitimate Expectations

The second line of reasoning was followed by 10 tribunals. These tribunals viewed only the later Spanish measures – i.e. the abolition of the fixed feed-in tariffs and their replacement by a significantly less generous remuneration regime – as a frustration of legitimate expectations, offering two different lines of argument.

One group argued that a regulatory framework per se did not contain a specific commitment. Therefore, investors could not legitimately expect that the legal framework be frozen. Nonetheless, investors could expect that when changing regulations, a state would not act “unreasonably, disproportionately or contrary to the public interest” (Charanne v. Spain; similarly Blusun v. Italy; SolEs v. Spain; Antin v. Spain) or that changes would not be “total and unreasonable” (Eiser v. Spain; similarly Foresight v. Spain; Novenergia II v. Spain; NextEra v. Spain). Thus, while the tribunals in Charanne (dealing only with parts of the earlier Spanish measures) and Blusun denied a frustration of legitimate expectations, those in SolEs, Antin, Eiser, Foresight, Novenergia II, and NextEra found that Spain had contravened legitimate expectations by abolishing the fixed feed-in tariffs.

The second group argued that general legislation could contain commitments to regulatory stability. However, the resulting legitimate expectations were limited in scope: a host state frustrated them only if it significantly altered the economic basis of investments made in reliance upon such legislation (Cube v. Spain; similar approach in Watkins v. Spain).

Importantly, while the tribunals following the second line of reasoning were divided over whether a regulatory framework could be equivalent to a specific commitment, they agreed that investors could not expect general legislation to remain unchanged. Rather, modifications had to reach the threshold of unreasonableness or disproportionality or call into question the economic basis of an investment to defeat legitimate expectations.

 

Third Line of Reasoning – Legitimate Expectations Were Confined to a Reasonable Return

The tribunals following the third line of reasoning argued that investors could not expect to be paid the fixed feed-in tariffs specified in the implementing legislation. Rather, their only legitimate expectation was a reasonable return (as the framework laws had promised). As long as they received such return, the host state had not contravened legitimate expectations.

The third line of reasoning was followed by 13 tribunals. Again, these tribunals presented three different lines of argument. However, unlike those following the first and second lines of reasoning, tribunals following the third line had to deal with quite heterogenous facts.

The tribunals in Isolux v. Spain, Antaris v. Czech Republic, and Belenergia v. Italy shared the premise of the first group in the second line (Charanne etc.) that general legislation could in principle give rise to legitimate expectations. Yet, as the investors had invested relatively late – when the unsustainability of the incentive schemes had become obvious – they could only expect a reasonable return. As the investors received such return, these tribunals dismissed the investors’ frustration of legitimate expectations claim.

By contrast, according to the tribunals in The PV Investors v. Spain, Stadtwerke v. Spain, BayWa v. Spain, and Wirtgen v. Czech Republic, investors could only legitimately expect a reasonable return from the outset; and that legislative amendments would not be unreasonable, arbitrary or disproportionate. At this point, the tribunals in The PV Investors, Stadtwerke, and BayWa addressed the substance of the regulatory changes and sought to balance the competing interests of foreign investors and host states. Because the investors in Wirtgen, Stadtwerke, and BayWa still achieved a reasonable return, their legitimate expectations had not been contravened. Conversely, in The PV Investors some claimant entities were denied a reasonable return contrary to legitimate expectations.

Similarly, the tribunal in RWE v. Spain did not view general legislation as a specific commitment and therefore dismissed the frustration of legitimate expectations claim. However, it examined the proportionality of the regulatory changes, likewise focusing on their substance. It concluded that they represented an excessive burden on some of the investors’ power plants, were to that extent disproportionate, and therefore violated fair and equitable treatment.

Lastly, some tribunals combined the reasoning in Isolux etc. and The PV Investors etc., arguing that the legislation had promised only a reasonable return – all the more so as the claimants had invested late (RREEF v. Spain; Photovoltaic Knopf v. Czech Republic; Voltaic v. Czech Republic; I.C.W. v. Czech Republic; WA v. Czech Republic). Only in RREEF did the host state renege on that promise.

 

Conclusion

These awards fit a continuum, with the first line of reasoning fiercely defending investors’ rights and the third line giving legitimate expectations the comparatively narrowest scope. Can the different approaches be reconciled?

Concerning the first and second lines of reasoning, the tribunals following the respective arguments seemingly shared the same premise as to whether general legislation could or could not constitute a commitment to stability. Yet, they reached different conclusions on the frustration of legitimate expectations by attaching different meanings to key terms.

For example, the tribunals in the first line of reasoning that equated general legislation to a specific commitment (9REN etc.) agreed with Cube in the second line that generally applicable legislation could contain a commitment to stability. Nonetheless, they broadened the scope of the legitimate expectations: in their view, investors could legitimately expect that the host state would not enact any adverse changes. Hence, the first line of reasoning implicitly gave a broader meaning to the term “commitment” than did the tribunal in Cube.

Similarly, the view in the first line of reasoning that laws, while not a specific commitment, could create legitimate expectations had a counterpart in the second line (Charanne etc.). Again, the first line of reasoning gave a different spin to a key term, namely to “legitimate expectations”: according to the first line, investors could legitimately expect that there would be no disadvantageous changes to the regulations, whereas pursuant to the second line, they could only expect that changes would not be unreasonable or disproportionate.

With respect to the first two lines of reasoning and the third line, the main divergence relates to the two-tier structure of the regulations (especially the Spanish one): the third line considered the framework laws and not the implementing legislation to be decisive for legitimate expectations. Consequently, according to the third line, investors could not expect to receive fixed feed-in tariffs, but only to earn a reasonable return. Therefore, in particular the abolition of those tariffs through the later Spanish measures did not as such frustrate legitimate expectations, but only if investors were deprived of such return.

Overall, then, the three lines do not give the same scope to legitimate expectations created by general legislation. Nonetheless, the awards fit a typology made up of three different lines of reasoning; in other words, we can still see the wood for the trees.

 

 

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The Contents of Journal of International Arbitration, Volume 38, Issue 1 (February 2021)

Sun, 2021-01-31 21:46

We are happy to inform you that the latest issue of the journal is now available and includes the following contributions:

 

Sundaresh Menon, Arbitration’s Blade: International Arbitration and the Rule of Law

The legitimacy of a system of dispute resolution depends intrinsically on the trust and confidence of its users in its decision-making processes, and that in turn rests on the general adherence of those processes to the values and principles that constitute the rule of law. While international arbitration has long been a close partner of the courts in sustaining the rule of law, some of arbitration’s key features and practices – such as its consent-based limitations, its predisposition toward confidentiality, its longstanding practice of permitting parties to unilaterally appoint arbitrators, and its philosophy that parties have no right to a right answer – mean that arbitration supports an attenuated model of the rule of law. That is largely the result of conscious decisions to forgo certain rule of law values in order to realize other goals. But the problem of rising costs and delays, underpinned by arbitration’s growing procedural rigidity and lack of agility, exacts a heavy price on arbitration’s users and their confidence in arbitration, without obvious returns. We must be cognizant of arbitration’s sacrifice in terms of rule of law values when seeking to advance other objectives, and regularly reflect on whether those gains are still worth their cost.

 

Kevin Ongenae & Maud Piers, Procedural Formalities in Arbitration: Towards a Technologically Neutral Legal Framework

This article addresses the ongoing process of digitalization in arbitration proceedings, particularly in light of the recent coronavirus disease 2019 (COVID-19) pandemic. It focuses on the different communications that occur throughout arbitration proceedings, i.e. written communication at the start and during the proceedings, oral communication at hearings, and the rendering of the arbitral award. The authors assess the past, present and future use of digital means of communication in relation to each of these instances, and analyse the extent to which the applicable legal framework (institutional rules, national laws, and the New York Convention) is actually an obstacle to digitalization. They find that the evolution towards more technologically oriented proceedings had already started, but that the COVID-19 pandemic will likely be a decisive step towards fully digital arbitration proceedings. The authors welcome that evolution, and argue that there are no overriding legal or policy arguments to hold back this trend.

 

Chiann Bao, Return to Reason: Reigning in Runaway Due Process Claims

This article will explore the Singapore Court of Appeal’s recent decision in China Machine New Energy Corp. v. Jaguar Energy Guatemala LLC. Offering welcome guidance regarding due process under Singapore law, this judgment clarifies the rights available to parties for a ‘full opportunity’ to present their cases. From the individual procedural decisions made by the arbitral tribunal to the cumulative effect of such decisions, the Singapore court dissects the various acts that might not have met the expected procedural fairness standard, as well as the Respondent’s failure to object in a timely manner, and concludes that the arbitral tribunal did not violate the Respondent’s right to due process. Recognising the wide latitude in balancing procedural fairness and efficiency of process bestowed upon arbitral tribunals, Chief Justice Menon sends a strong message that makes unequivocally clear that the standard for granting a set aside application is high and any abuse of due process protection is not to be tolerated under Singapore law.

 

Joséphine Hage Chahine, UN and EU Sanctions Versus US Sanctions: Two Different Yardsticks Commentary on the Decision of the Paris Court of Appeal (International Commercial Chamber) (5th Pole, Chamber 16) of 3 June 2020, No. 21/2020

The Paris Court of Appeal rejected a challenge to an ICC award rendered in favour of an Iranian government-owned company. That challenge was based on allegations of breaches by the tribunal of due process, of the arbitrators’ mandate, and of public policy. Of note, the public policy challenge was based on the tribunal’s alleged failure to take into consideration UN, EU and US sanctions against Iran. This decision of the Paris Court of Appeal is in line with the established French case law regarding its answer to the above mentioned three grounds of challenge, but it drew a peculiar conclusion that US sanctions, contrary to UN and EU sanctions, are not part of French international public policy, even though having the same object.

 

Bankole Sodipo, Enforceability of Awards Vitiated by Illegality and Fair Hearing: A Review from a Nigerian Law Perspective of PID v. FRN

This article reviews, from a Nigerian law perspective, the judgment of the English court and the majority arbitral award in Process & Industrial Developments Ltd. (PID) v. The Federal Republic of Nigeria (FRN). The arbitral tribunal awarded record-breaking damages, totalling over USD 9 billion, inclusive of interest. The award relates to an alleged breach by the FRN of a Gas Supply and Processing Agreement (GSPA) to a facility that was never constructed by PID. The signatory of the GSPA, PID, was a British Virgin Island corporation. Although PID had incorporated a local PID Corporation in Nigeria (PID Nigeria), it never executed the GSPA. This article is divided into three sections. Section 1 features the introduction and a general commentary. Section 2 focuses on the second leg of the FRN’s objection: ‘Whether or not the Claimant failed to comply with the provisions of section 54 of the Company and Allied Matters Act (CAMA) 1990 as alleged, and if so whether the GSPA is void, and/or affected by illegality, as a result’. This article does not discuss the first leg of the FRN’s objection, namely, the capacity of the Ministry of Petroleum Resources to contract on behalf of the FRN. Section 3 examines the consequences of the order issued by the Federal High Court of Nigeria (FHC) on FRN’s application, restraining the parties from proceeding with the arbitral hearing, which the tribunal ignored. It considers whether the order can bind members of the tribunal who were not parties to the FHC action; if it was proper for the tribunal to ignore the order; and the consequences of the order on the FRN. It analyses whether the principle of fair hearing was breached when the tribunal reached a determination on the issue of the seat of arbitration without taking further submissions from the parties.

 

Arpan Banerjee & Ashwin Murthy, Rand Investments v. Republic of Serbia: Transparency and the Limits of Consent

International investment law has consistently grappled with the issue of transparency. While the need for increased transparency in the practice of investment tribunals is generally recognized in principle, in practice the application of transparency norms often raises contentious issues. One common issue is the appropriateness of transparent proceedings where the Bilateral Investment Treaty (BIT) governing the dispute is silent on the matter. A further, more vexed question arises when claimants proceed under multiple BITs with disparate transparency obligations. This situation arose in Rand Investments v. Republic of Serbia, where the claimants instituted an arbitration under both the Canada-Serbia and the Cyprus- Serbia BITs. Noting that the Cyprus-Serbia BIT was silent on the question of transparency, the Majority held that the transparency provisions of the Canada-Serbia BIT could be applied to the entire arbitration on grounds of procedural efficiency. However, the respondent’s arbitrator dissented, finding that the Majority’s approach violated Serbia’s consent and sovereignty. Upon examining the dichotomous approaches adopted by the Majority and the Dissenting Arbitrator, this case comment offers an insight into the potential implications of the case on future investment arbitrations involving multiple BITs with disparate transparency obligations.

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2020 in Review: Arbitration-related Developments in France

Sun, 2021-01-31 00:26

The pandemic did not prevent French courts from bringing their share of arbitration-related developments, although they remained almost inactive from March to June. This post succinctly reviews some of 2020’s noteworthy developments.

 

Important Decisions of the Paris Court of Appeal’s International Section

Operational since March 2018, the International Chamber of the Paris court of appeal (“ICCP-CA”) now hears all annulment proceedings of Paris-seated international arbitral awards.

 

Dommo: French Courts Continue to Examine Arbitrators’ Most Tenuous Connections

In Dommo, the ICCP-CA was called to rule on links between a law firm affiliated with the arbitrator’s former firm and a party’s shareholder.

Although the decision makes clear that these links are to be disclosed as per Article 1456(2) of the French Civil Code of Procedure (“CCP”), annulment was denied on the ground that such failure to disclose did not raise in the parties’ mind “a reasonable doubt as to the independence and impartiality” of the arbitrator.

The ICCP-CA relied on the fact that (i) the undisclosed link was indirect, (ii) the controversial relationship had stopped two years before the start of the arbitration, and (iii) it was not established that the arbitrator had ever acted as counsel nor assisted the shareholders, thereby confirming French courts’ well-balanced assessment of the issue, although the links under scrutiny are more and more tenuous (see recently, links between an arbitrators’ firm and a party’s affiliate in the 2019 Volkswagen case).

The ICCP-CA attempted to define each of the three criteria on which French courts traditionally rely (i.e. the well-known (‘notoire’) nature of the circumstance, its link with the dispute, and its impact on the arbitrator’s judgment), but the applicable test would deserve further clarification. The lack of clarity as to the determination of a “reasonable doubt” is not specific to French courts, as illustrated by the recent UK Supreme Court decision in the Halliburton case (see discussion here).

 

Samwell: Arbitrators’ Power to Assess Corruption Allegations

After having strengthened its control of arbitral awards involving corruption in both the 2017 Belokon and 2018 Alstom cases, the Court further clarified its approach in Samwell.

Although corruption is most often addressed on public policy grounds, the challenge was raised under the violation of the arbitrator’s mandate (Article 1520(3) CCP). It was contended that the arbitrator erred in exercising its mandate to apply French law by relying on other corruption criteria than those previously endorsed by French courts.

The Court denied the request, ruling that the application by the arbitral tribunal of other criteria, be they inspired from the 1977 FCPA red flags, did not indicate that it had applied US law. The Court added that the Alstom criteria were not exhaustive under French law.

While preserving the arbitrators’ freedom in their assessment of corruption, this decision also suggests that corruption should be exclusively assessed on the basis of the applicable law as determined by the parties’ agreement.

 

TCM v. NGSC: Economic Sanctions and International Arbitration

Frustration at the recent Court of Cassation’s ruling in Finmeccanica – where the Court failed to take a clear stance on whether implementation measures for the UN embargo against Iraq formed part of international public policy under Article 1520(5) CCP – resulted in high expectations on the impact of international sanctions on the validity and enforcement of awards issued by French-seated arbitral tribunals.

In TCM v NGSC, the ICCP-CA rejected TCM’s claim that the award was contrary to international public policy based on the arbitrators’ failure to consider the impact of international sanctions against Iran upon the termination of the contract.

For the first time, the Paris Court ruled that UN and EU sanctions – which aimed at “contributing to the maintenance or restoration of international peace and security” – were mandatory rules integrated into the French conception of international public policy. This was contrasted with US sanctions, which could not be regarded “as an expression of international consensus”, especially considering EU and French opposition to their extraterritorial reach.

 

Stay of Enforcement: Towards a More Restrictive Approach?

Since the 2019 Oschadbank case, the Paris CA relies on an in concreto restrictive approach and tends to focus on economic arguments to assess whether enforcement is “likely to seriously infringe upon one party’s rights” under Article 1526(2) CCP. It remained unclear, however, whether the Court could take into account non-economic criteria. Decisions rendered in 2020 have not clarified the issue.

Whereas a focus on economic arguments was suggested in CSPI, the ICCP-CA expressly stated in Sanofi and EPPOF that Article 1526 CCPdoes not only limit its benefit to an assessment of the sole economic consequences of the enforcement”. Yet, these decisions confirm the preponderance of economic considerations, such as:

– the creditworthiness of the debtor (CSPI, Sanofi, EPPOF) and the creditor (CSPI, Sanofi);

– the creditor categorization as a foreign offshore company without employees and infrastructures (CSPI);

– the uncertainty arising out of the fact that the parties successively prevailed in two awards (CSPI).

On the contrary, the Court deemed as irrelevant: the debtor’s absence of cash flow (EPPOF); difficulties relating to (i) the singularity of the debtor’s activity and revenues, and (ii) the Covid-19 crisis (EPPOF); the debtor’s alleged fraudulent conduct; the debtor’s location abroad; as well as legal uncertainty arising out of enforcement (Sanofi).

 

PwC: Balancing Compétence-Compétence with Consumer Protection

As previously described, the Court of Cassation upheld a CA ruling that declined, in a dispute involving a consumer, to refer the parties to arbitration based on the arbitration agreement’s characterisation as an unfair term. The Court held that the appeal judges did not breach Article 1448 CCP – enshrining the compétence-compétence principle – by ensuring “the full effectiveness of European consumer protection law”.

In doing so, the Court remarkably departed from its previous case law – set out in the Jaguar and Rado case – according to which the compétence-compétence principle was equally applicable in disputes involving a consumer. Consumers were accordingly required to initiate arbitration to challenge the validity of the arbitration agreement.

The Court of Cassation thus introduced a new exception to the negative effect of the compétence-compétence when the dispute involves a consumer and EU law is applicable. It remains to be seen whether this solution will be extended to non-EU consumers disputes.

 

(Only) Two Annulments of Investment Arbitration Awards

While 2019 proved to be a turbulent year with regard to investment arbitration (6 decisions rendered over a total of 20 since the first one in 2008), 2020 remained moderate.

The first case is the last episode of the Garcia Armas saga. In this new decision, the CA upheld its prior interpretation of Article 1(2) of the Spain-Venezuela BITi.e. the investor’s nationality at the time of its investment is relevant for jurisdiction ratione materiae – while setting aside the jurisdictional award in its entirety. By doing so, the French annulment judge confirmed that a special meaning is to be drawn from the definition of protected investments as assets “invested by investors”.

The same reasoning was applied in Pugachev v Russia to interpret Article 1(2) the France-Russia BIT for jurisdiction ratione personae purposes, holding that the treaty required the investor to have held French nationality at the time of the making of his investments in Russia.

In Sorelec v Libya, the CA annulled a partial award that recorded a settlement between the parties, based on circumstantial evidence that enforcement of the award would give effect to a transaction tainted by corruption. Remarkably, the corrupt scheme had not been alleged by the parties before the arbitral tribunal.

The evidence of corruption upheld by the Court is as much exogenous – the political context in Libya – as endogenous to the disputed agreement, namely the Minister’s non-compliance with Libyan administrative procedures, the lack of evidence of negotiations preceding its signature, and its very favourable terms for the foreign investor.

Interestingly, the ICCP-CA had found two weeks earlier in Benin v Securiport that there was no sufficient evidence of corruption, notably because the contract at stake had been negotiated for almost three years.

This decision further confirms the Court’s willingness to tackle corruption by using the “red flags” methodology as in the Alstom case – already discussed in a previous post –, allowing heightened scrutiny of awards on public policy grounds, including the review of all relevant facts.

Finally, the Court of Cassation made clear in Schooner v. Poland that the waiver under Article 1466 CCP did not preclude investors from presenting new arguments on jurisdiction before the annulment judge, as long as the issue of jurisdiction had been argued before the arbitral tribunal.

This certainly is an important ruling, as it makes plain that the annulment judge’s de novo review of jurisdiction as per Article 1520(1) CCP is to be conducted even with new arguments, and not only within the boundaries of what had been argued before the arbitral tribunal.

 

Kout Food: French Courts’ Centred Approach as to the Law Applicable to the Arbitration Agreement

As previously described, the Paris CA upheld an ICC award after ruling that absent an express choice as to the law applicable to the arbitration clause, the lex arbitri applies to issues relating to the extension of the clause to non-signatories. The Court ruled so despite the fact that the relevant contracts all provided for the application of English law to the contract and an appeal court in London had previously refused enforcement of the award precisely because English law applied to the arbitration agreement, thereby confirming its centred approach on the issue.

 

Noteworthy Enforcement-Related Decisions

Enforcement proceedings arising out of the Commissimpex saga continue to generate interesting developments with regards to the application of the 2016 Sapin II statute, and especially Article L.111-1-3 of the French Civil Enforcement Code granting immunity from execution to assets “used or intended to be used in the exercise of the functions of the diplomatic mission of foreign States” or assets “assigned to a diplomatic protection”.

The Court considered that the Congolese presidential aircraft, temporarily in France for maintenance purposes, could not fulfil these conditions, since (i) the on-board personnel and maintenance of the aircraft were carried out by third parties, (ii) the flight log listed only one international flight unrelated to diplomatic activity and (iii) the president routinely used another aircraft, thereby confirming a pragmatic assessment of this condition.

More recently, the Court of Cassation endorsed the position that enforcement measures served on a foreign bank’s French branch towards funds located abroad have no effect where the debtor has no accounts at the French branch. In other words, the seized third-party shall have a registered office or a branch in France able to pay the sums owed by the debtor.

 

Conclusion

The developments outlined in this post remain in line with the French courts’ approach towards international arbitration which, ten years after the last reform of French arbitration law, remains liberal despite the strengthening of their intervention.

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Bid Challenges: What Role Can Arbitration Play in Tender Disputes?

Sat, 2021-01-30 01:01

Competitive tendering for construction and engineering contracts is an essential element of business for the industry. Huge expenditure is devoted to public infrastructure projects and effective competition is essential to achieve value for money and appropriate use of public funds. The World Bank estimates that Governments worldwide spend US$9.5 trillion in public contracts every year. What role is there for arbitration in resolving tender disputes? In this post, we address review procedures for public procurement derived from international sources, arbitration of disputes arising from contractual tender procedures, and consider how arbitration rules could be adapted to suit the particular requirements of bid challenge disputes. The post addresses issues considered in more detail in a new chapter to Kluwer Law’s International Construction Arbitration to be published in its 3rd edition in February 2021.

 

Public procurement review procedures

Mechanisms for review of public procurement procedures provided for under international sources such as the Government Procurement Agreement (the GPA), UNCITRAL Model Law, and EU Procurement Directives provide for some level of judicial review, but make no express reference to arbitration. Instead, generic reference is made to independent review bodies coupled with ultimate review by the courts. States are generally left free to determine the nature of domestic challenge mechanisms, to enable alignment with existing national laws and legal systems. National public law, for example, may require decisions relating to the conduct of public bodies to be determined exclusively by way of judicial review before the national courts. In these circumstances, an arbitral tribunal will have no jurisdiction. Indeed, public policy may ordain transparency of decision-making and accountability in relation to public expenditure be secured in a public process as opposed to a confidential arbitration process. Foreign bidders, however, may be sceptical about the independence of national review bodies and prefer international arbitration with a neutral panel. Attempts at redress for tender decisions have been the subject of investment treaty arbitrations. However, demonstrating a qualifying investment has proven challenging where no contract has been awarded.

 

Arbitration of contractual obligations to tender contracts

It is common for obligations to run competitive tenders to be imposed on concessionaires responsible for the construction, operation, and maintenance of public infrastructure and operators under production sharing contracts (PSCs) for the exploitation of natural resources. Disputes may arise regarding the manner of award of such contracts, such that aggrieved bidders may bring a complaint. Alternatively, the State entity awarding the concession or PSC may claim that procedures adopted by the concessionaire/operator were in breach of contract. Such disputes are commonly subject to arbitration.

In November 2020, reference to an ICC arbitration award addressing tender disputes reached the public domain. The arbitration was between Doula International Terminal (DIT) and the Autonomous Port of Doula (APD), and arose under a container terminal concession for the Port of Doula in Cameroon. Press reports indicate that the disputes that arose under the concession agreement relate both to the sharing of parking rights and the exclusion of DIT from participating in the tender procedure for a replacement concessionaire launched by APD in January 2018. The ICC tribunal ordered APD to pay DIT damages and to re-issue an open tender notice including DIT. In parallel, DIT’s shareholders commenced proceedings in the Cameroonian courts to challenge the irregularity of the tender procedure and the illegality of the public company implemented by APD to operate the container terminal in place of DIT.

 

A proposal for a tribunal-based system as an adjunct to the Courts in the UK

In December 2020, the UK Government published a Green Paper entitled ‘Transforming Public Procurement’ (the Green Paper) which proposes reform to Court procedures and investigation of the possibility for establishing a tribunal-based system for a subset of procurement challenges. This subset includes “low value claims or challenges to process on an ongoing competition, such as a claim that a specification is discriminatory or that a bidder has been wrongly excluded”. There is potential for referring more cases to a tribunal-based system “should the anticipated benefits of Court reform not be realised”. There is no express reference to arbitration in the Green Paper and it remains to be seen what system is proposed for this purpose.

 

Adapting arbitration for the resolution of tender disputes

The need for speed

There are significant challenges in designing arbitration procedures appropriate for the resolution of tender disputes, not least the need for speed. When a bidder is informed that it has not been successful in a tender procedure, its principal concern will be to try and stop the entry into the contract so that the procurement can be rerun. Arbitral procedures can and are designed to allow for expedition. The appointment of emergency arbitrators is contemplated under institutional rules such as those of the ICC and LCIA. Alternatively, a standing panel of arbitrators with appropriate expertise could be constituted to hear bid challenge disputes on an urgent basis. The arbitration rules would need to be tailored to accommodate emergency applications for urgent relief and provide for fast-track resolution of the substantive dispute where the suspension of the contract award is ordered.

 

Disclosure of relevant information

A difficulty frequently faced by losing bidders is obtaining information regarding the reasons for the decision to assess the merits of bringing a claim. In some jurisdictions such as Germany, the tender file for public procurements is made available to the bidders, but in others such as England, the losing bidder is dependent on a debrief by the awarding entity and its willingness to provide further information in response to questions. Where the information is not forthcoming, the losing bidder has to apply for disclosure. Interestingly, the Green Paper proposes increased transparency in the procurement regime to provide bidders with “immediate and more comprehensive access to much of the information that might be sought under a traditional disclosure process”.1)Ibid at para 197. jQuery("#footnote_plugin_tooltip_2249_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2249_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This suggests that applications for disclosure may not be necessary or may be more limited in scope than is currently the position. Clear provisions for establishing confidentiality rings in bespoke arbitration rules would also be of benefit to manage the disclosure, production, and deployment of confidential information.

 

Joinder of the winning bidder and interested parties?

Should the winning bidder be joined to an arbitration? Ideally, arbitral procedures would allow for such joinder, given the winning bidder has an obvious interest in the outcome of the dispute and will want to ensure protection of its confidential information. While the winning bidder’s interests may be essentially aligned with the awarding authority’s, those interests may diverge on questions such as the extent of disclosure to be made and, if a contract is ordered to be set aside, the consequences that flow.

 

Public proceedings and publication of awards

The GPA requires that the procedure for review of tender decisions within the scope of the GPA must provide for public hearings or, in the alternative, allow for decisions of a first review body to be subject to judicial review. The GPA does not limit the circumstances in which decisions can be judicially reviewed. In order to be compatible with the GPA, therefore, any review carried out by an arbitral tribunal would have to either: (i) allow for hearings to take place in public (as well as complying with the other procedural requirements in the GPA); and/or (ii) allow for any arbitral award to be subject to judicial review. Where the law of the seat or indeed any institutional rules governing the arbitration only allow for arbitral awards to be judicially reviewed in certain circumstances (e.g., where the tribunal has acted beyond its jurisdiction), the review process would arguably be non-compliant with the GPA.

Of course, it is well-known that the ICC from January 2019 has changed the approach to publication of its awards. The default now is that awards will be published two years after notification to the parties unless either party objects. This practice goes some way to addressing the above transparency concerns. The ICC rules, however, would still arguably not be fully compliant with the GPA given that the rules exclude appeals on a point of law and accordingly limit the scope of judicial review.

 

State Aid, Public Law, and Competition Law

Tender disputes may be coupled with challenges in relation to unlawful state aid, breach of public law, and competition law. In developed legal systems, bodies other than arbitral tribunals may have jurisdiction to address such issues. As noted above, for example, typically the courts have jurisdiction to address questions of breach of public law. These jurisdictional issues are not fatal to an arbitration process but would need to be addressed when devising bespoke arbitration rules where there is a potential overlap with public law, state aid, and competition.

 

The answer posed by this blog post is clear – there is undoubtedly a role for arbitration in tender disputes. Such role holds potential for further development, including the development of suitable rules adapted to be fit for purpose.

References   [ + ]

1. ↑ Ibid at para 197. 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: International Arbitration and the COVID-19 Revolution
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Arbitral Tribunals Beware: Better Keep an Eye on Potential Corruption Involving Consent Awards

Fri, 2021-01-29 00:02

The dispute involving the State of Libya and French company SORELEC was heard by the Paris Court of Appeal in the context of a much lower tolerance for bribery and corruption in domestic and international affairs than ever before. France has indeed significantly strengthened its anti-corruption framework since adopting the so-called “Sapin II” law in December 2016, introducing mandatory anti-corruption programs for large companies, and creating a deferred prosecution agreement instrument which the French prosecutorial services have employed in a series of landmark cases since then. On 17 November 2020, the Paris Court of Appeal provided yet another example of its strong inclination to scrutinize awards relating to facts where corruption is suspected to have occurred, and provides new insight regarding its approach to such matters.

 

Background

In 1979, the Education Ministry of the State of Libya and SORELEC entered into a contract for various construction works. In 1985, a dispute arose and after several failed attempts to settle, SORELEC brought the ICC arbitration proceedings against the State of Libya, claiming €109 million in damages plus interest. On 27 and 29 March 2016 – at an advanced stage of the proceedings – the parties reached yet another settlement (“the Protocol”) providing that (i) the State of Libya would pay SORELEC €230 million within 45 days from notice and (ii) that the State’s failure to pay in the allocated time would result in another award being issued against the State, ordering it to pay €452,042,452.85 in damages (i.e., SORELEC’s initial claim in the arbitration together with interest). The Protocol was signed for the State of Libya by Mr. Omran, the Justice Minister of the provisional government of Libya at the time.

SORELEC requested on 22 August 2016 that the arbitral tribunal render an award reflecting such agreement. In a partial award dated 20 December 2017, the tribunal approved the Protocol and thus issued an award ordering the State of Libya to pay €230 million within 45 days from notice. Following the State of Libya’s failure to pay, a second award was rendered on 10 April 2018.

The State of Libya brought annulment proceedings against both awards, respectively on 26 January and 10 April 2018, alleging amongst other matters that the awards violated international public policy by enforcing a contract obtained through bribes of a public official, and succeeded in having the first award set aside by the Paris Court of Appeal. Indeed, the State of Libya alleged that there was “serious, precise, and concurring evidence” sufficient to demonstrate that the Protocol was obtained by unlawful means.

 

The Paris Court’s Analysis

When controlling the regularity of the award with respect to international public policy, the Paris Court of Appeal applied what is now seen as its typical approach, using “red flags” of corruption, or, in other words, identifying signs of potential corruption in order to uncover a corrupt practice.1)Belokon (CA Paris, 21 February 2017), Rev. Arb. 2017 (3) p. 915, Alexander Brothers (CA Paris, 10 April 2018), Indrago C. Cass, 1st civil 13 September 2017 no. 16-25.657 jQuery("#footnote_plugin_tooltip_8934_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8934_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Reaffirming the existence of an international consensus on the definition and incrimination of acts of corruption of public officials, namely the practice of offering a public official an undue advantage (referring to the OECD Convention of 1997 and the UN Merida Convention of 2003), the Court conducted an in-depth analysis of all the circumstantial evidence submitted by the State of Libya to assess whether there was sufficient evidence to warrant the conclusion that corruption had occurred.

The political context as an indicator of corruption

The Court meticulously noted that when the Protocol was agreed, Libya was in the midst of a civil war between the two competing factions and that both national and international organizations had reported that corruption was pervasive in Libya at that time. The Protocol had been agreed during “this chaotic period“, in circumstances that were particularly favourable to corruption.

Evidence of corruption in the Protocol itself

  • The bypassing of normal procedures

Under Libyan Law, a Minister cannot settle a dispute without prior notification of the State’s Litigation Department. The Court noted that this process was not complied with, which gave rise to a suspicion that Mr. Omran, who executed the Protocol on behalf of Libya, directly or indirectly received a bribe – Mr. Omran having himself acknowledged the duty to follow certain procedures. This was therefore considered a “serious and precise indicator of collusion with SORELEC“, and all the more so bearing in mind Mr. Omran’s implication in the Ghenia case where an Award rendered under the UNCITRAL Arbitration Rules and dated 9 December 2016 was retracted by the arbitral tribunal following similar corruption allegations.

  • The absence of evidence documenting the negotiation process immediately before execution of the Protocol

The Court noted that the parties had failed to settle their dispute for over a decade, and that their positions in the arbitration were strongly antagonistic. Moreover, a commission responsible for conducting the negotiations, which Mr. Omran personally appointed, issued a report a couple of months before the Protocol was signed recommending that the dispute be settled for a principal amount of €59.4 million.

Although the preamble of the Protocol stipulated that negotiations were difficult and lasted over a week, a handful of documents submitted by SORELEC did not amount to satisfactory evidence of a genuine negotiation.

  • The specific terms of the Protocol

In view of the State of Libya’s political situation as well as its public finances at the time, the undertakings from the Protocol were held to be inconsistent with the state of Libya’s public finances at the time.

The absence of any concessions from SORELEC and the “striking difference” between the terms of the Protocol and the various documents issued by other State commissions prior to the Protocol, indicated an absence of economic or a political incentive to enter into this agreement, especially considering the advanced stage of the arbitral proceedings. The Court of Appeal concluded that Mr. Omran knowingly accepted terms that were obviously detrimental to the interests of Libya and that such acceptance could only be explained by the fact that he had accepted a bribe.

In light of the serious, precise, and concurring evidence that the Protocol had in fact dissimulated a corrupt scheme between SORELEC and Mr. Omran, the partial award rendered on 20 December 2017 was set aside.

In Alexander Brothers, the Court of Appeal had previously described the type of circumstantial evidence that could be taken into account to prove corruption. The SORELEC case provides additional guidance in this respect, and also relates to a different type of agreement (a settlement, rather than an intermediary broker arrangement).

 

What Is Expected of Arbitral Tribunals?

The decision maintains the keystone solution that the corruption of foreign public officials is offensive to international public policy. As a result, the French courts are under a duty to examine, both in fact and in law, the legality of agreements and whether the recognition or enforcement in France of awards violates international public policy in a “manifest, effective and concrete manner“. The Court of Appeal, however, provides no guidance as to what is expected of arbitral tribunals. In answer to SORELEC’s argument that the State of Libya had not alleged the payment of bribes before the arbitral tribunal, the Court held that it was under a duty to determine whether or not the award allowed the enforcement of an illicit act, irrespective of the parties’ arguments raised before the arbitral tribunal.

In numerous other cases, bribery (or fraud) had been alleged by one of the parties during the arbitration.2)Belokon (CA Paris, 21 February 2017), Rev. Arb. 2017 (3) p. 915, Alexander Brothers (CA Paris, 10 April 2018), Indrago C. Cass, 1st civil 13 September 2017 no. 16-25.657 jQuery("#footnote_plugin_tooltip_8934_2").tooltip({ tip: "#footnote_plugin_tooltip_text_8934_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In some instances, criminal proceedings running in parallel to the arbitration made it especially difficult for the arbitral tribunal to ignore the allegations and dismiss them.

In SORELEC, the parties had made it difficult in practice for the arbitral tribunal to investigate the matter, given that they applied for consent award. There are, nevertheless, arguments in favor of more intervention on the tribunal’s part.

The first relates to the enforceability of the award itself. It is generally considered that arbitral tribunals are to render awards that are enforceable (see, for instance, Article 42 of the ICC Rules), and failing to investigate further in case of concerns about potential corruption could be taken as a breach of that duty.

The role of arbitration in the general justice system should also be borne in mind. Given the very efficient enforcement of arbitral awards (to illustrate, in France, exequatur is obtained ex parte and allows for the immediate seizure of assets), it is difficult to consider that arbitrators should not be mindful of giving effect to agreements obtained through corrupt practices. In SORELEC, the tribunal was indeed manipulated by the parties to carry out their corrupt scheme.

Even if arbitral tribunals prove reluctant to investigate such matters of their own motion for a number of reasons,3)See S. Bollée Rev Crit DIP 95(1) jan-mar 2006 p.104 jQuery("#footnote_plugin_tooltip_8934_3").tooltip({ tip: "#footnote_plugin_tooltip_text_8934_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); the SORELEC case should undoubtedly encourage arbitral tribunals to exercise extra caution in circumstances that raise, or should raise, concerns such as those in this particular case.4)For a detailed analysis, see Rapport sur la responsabilité de l’arbitre, Club des juristes 2017 jQuery("#footnote_plugin_tooltip_8934_4").tooltip({ tip: "#footnote_plugin_tooltip_text_8934_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

References   [ + ]

1. ↑ Belokon (CA Paris, 21 February 2017), Rev. Arb. 2017 (3) p. 915, Alexander Brothers (CA Paris, 10 April 2018), Indrago C. Cass, 1st civil 13 September 2017 no. 16-25.657 2. ↑ Belokon (CA Paris, 21 February 2017), Rev. Arb. 2017 (3) p. 915, Alexander Brothers (CA Paris, 10 April 2018), Indrago C. Cass, 1st civil 13 September 2017 no. 16-25.657 3. ↑ See S. Bollée Rev Crit DIP 95(1) jan-mar 2006 p.104 4. ↑ For a detailed analysis, see Rapport sur la responsabilité de l’arbitre, Club des juristes 2017 function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the COVID-19 Revolution
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International Law Talk Podcast and Arbitration: Does the International Arbitration Community Need Minimum Civility Standards? A Dialogue with Abby Cohen Smutny

Thu, 2021-01-28 01:42

International Law Talk is a series of podcasts through which Wolters Kluwer provides the latest news and industry insights from thought leaders and experts in the fields of International Arbitration, IP Law, International Tax Law, and Competition Law. Here at Kluwer Arbitration Blog, we highlight the podcasts focused on international arbitration. In this latest episode, Kiran Nasir Gore, Associate Editor of Kluwer Arbitration Blog, interviews Abby Cohen Smutny, Global Head of White & Case’s International Arbitration Practice.

With decades of experience in international arbitration, Abby shares her thoughts on various topics, including her commitment to enhancing her work as an arbitration practitioner and advocate through professional activities. In particular, Abby is Co-Chair of the ICCA Task Force on Standards of Practice in International Arbitration (“Task Force”) (with Professor Guido Tawil). Abby discusses the value of professional extra-circular activities to practitioners to maintain perspective on arbitral procedure and practice more broadly. She provides her perspectives on the Task Force’s substantive mandate and goals, highlighting tensions central to practice in a growing and maturing field. The conversation explores:

  • The way the increasing number of practitioners, the increased use of arbitration, and the general maturity of the field have together created a need for common guidelines on civility as a matter of best practice. Abby compares such standards to ones on civility and conduct developed in recent years in national contexts, including by domestic courts.
  • The Task Force’s mandate to develop guidelines that may serve as voluntary benchmarks in arbitration proceedings. In Abby’s view, the Task Force faced the challenge by identifying a common understanding of “civility,” drawing on the experience of practitioners coming from different legal traditions.
  • Abby’s hope that the guidelines (once issued) could help to ensure civility and respect among practitioners and other participants. A challenge of promulgating proposed guidelines is that they are not “rules” of conduct and, thus, they are not coercive and failure to adhere to them is not sanctionable.
  • How practitioners “embody the law” and can help to cement the legitimacy of arbitration as a means of dispute resolution among users and various stakeholders. In particular, Abby describes the conduct of practitioners as a reflection of the rule of law. On this point, she emphasizes that practitioners must approach their work with a sense of respect, civility, and fairness.
  • The distinction between ethical requirements and guidelines on civility, and relatedly, the fine line between zealous advocacy on behalf of one’s clients and courtesy toward and respect for one’s colleagues. While these concepts dovetail, Abby describes the Task Force’s efforts to balance these competing interests in a manner that does not interfere with practitioners’ obligations to their clients.

While the ICCA Task Force on Standards of Practice in International Arbitration has not issued its final guidelines yet, Abby hopes that the guidelines could provide a “soft reminder” and objective basis to the arbitration community and other participants to manage their own conduct. She further hopes that arbitration institutions, law firms, tribunals, and/or parties could endorse and reference the guidelines and that they become a reflection of industry best practice.

As a final thought, Abby opines that the continual improvement of process and procedure is healthy, as innovation and evolution is necessary for the field and community to continue thriving.

 

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Listen to the podcast “Does the International Arbitration Community Need Minimum Civility Standards?” with Abby Cohen Smutny.

The International Council for Commercial Arbitration (ICCA) is an NGO dedicated to promoting the greater understanding and use of international dispute resolution processes globally. Its activities include convening the biennial ICCA Congress, publishing authoritative dispute resolution publications (including the ICCA Yearbook Commercial Arbitration, the ICCA International Handbook on Commercial Arbitration, and the ICCA Congress Series), and convening outreach and research projects on contentious or cutting-edge areas of international arbitral practice. ICCA’s publications are available on Kluwer Arbitration.

 

Follow the coverage of the International Law Talk arbitration podcasts on Kluwer Arbitration Blog here.

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Arbitrators: Immunity, Conflicts and New Challenges – Revisiting the ITA-ALARB Americas Workshop

Tue, 2021-01-26 23:53

The ITA (Institute for Transnational Arbitration) – ALARB (Latin American Society of Arbitration) Americas Workshop took place virtually on 2-4 December 2020. The conference focused on the role of arbitrators, their liabilities, challenges, and the need for increased diversity efforts.

The conference was co-chaired by Julie Bédard (Skadden, New York), and Maria Inés Corrá (Bomchil, Buenos Aires), and consisted of five panels, an open forum, and networking sessions.

 

The conference began with a panel entitled “Fernando Cantuarias Salaverry’s Paradigmatic case,” moderated by Estefanía Ponce (Posse Herrera Ruiz, Bogota). Alfredo Bullard (Bullard Falla Ezcurra, Lima) and Mario Reggiardo (Payet, Rey, Cauvi, Pérez Abogados, Lima) explained the case. Mr. Cantuarias participated as arbitrator in an ad hoc proceeding in 2012 between Odebrecht and the Ministry of Transportation concerning additional costs in a highway construction in the Peruvian Amazon. The tribunal ordered the payment of USD 23 million to Odebrecht, as approved by the relevant authority overseeing the construction. A preliminary investigation began against the arbitrators for allegedly having received a disguised bribe from Odebrecht through increased arbitrator fees. In that context, Mr. Cantuarias was incarcerated in Peru in early November 2019, and then released weeks later.

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Members of the Peruvian arbitral community filed an amicus curiae in the criminal proceeding explaining the flaws in the prosecution’s case. They observed that the 2019 fees of the Lima Chamber of Commerce were not applicable to a 2012 ad hoc proceeding, and that the fees were reasonable under Peruvian law considering the complexity and amount in dispute. Several institutions and associations submitted briefs regarding Mr. Cantuarias’ record in the field and comparing the arbitrator fees for the same amount in dispute under various other institutions, which would have been significantly higher than those received by Mr. Cantuarias. Mr. Cantuarias’ prosecution continues in Peru, as do investigations in other cases involving alleged corruption by Brazilian companies known as “Operação Lava Jato” or “Operation Car Wash”.

 

Karima Sauma (CICA, Costa Rica) moderated a panel surveying immunity of arbitrators and the use of constitutional actions in Latin America. Leonardo de Castro Coelho (Mattos Filho, Brazil), María Angélica Burgos (Baker McKenzie, Bogota), María del Mar Herrera (EY, Central America), and Michael Fernández (Winston & Strawn, New York) shared their perspectives.

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The survey suggested that since recent arbitration laws in Latin America follow the UNCITRAL Model Law, they also lack specific provisions or exclusions on arbitrators’ liability. In Brazil, arbitrators are subject to criminal liability under the strict standard for judges requiring, for example, a wrongdoing performed with intent or fraud. In jurisdictions with separate regulations for domestic and international arbitrations, such as Colombia, arbitrators may be subject to disciplinary proceedings in only domestic arbitrations. In El Salvador claims may be brought against arbitrators and institutions for damage caused to the parties.

In the United States, arbitrators and institutions are immune from civil cases due to their quasi-judicial role. Arbitrators are generally immune from testifying, and are only exceptionally deposed in vacatur proceedings based on fraud, misconduct, or corruption implicating the opposing party or one or more of the arbitrators.

In Latin American jurisdictions, constitutional actions including mandado de segurança, amparo, and tutela are very exceptional against awards or the process towards the award, and could rarely proceed against arbitrators.

 

The second day began with a keynote speech on arbitrators’ immunity and liability by Eduardo Zuleta (Zuleta Legal, Bogota). A panel followed, moderated by Calvin Hamilton (Independent Arbitrator), with Eduardo Silva-Romero (Dechert, Paris), Valeria Galíndez (Galíndez Arb, Sao Paulo), and María del Carmen Tovar (Estudio Echecopar, Lima).

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Mr. Zuleta explained that while domestic laws rarely refer to arbitrators’ liability, some assimilate arbitrators to judges or consider arbitration a contractual issue. Contractual arrangements (such as limiting liability in the terms of reference) and indemnities in arbitration rules would not be a standing solution without involving the applicable local law in assessing the validity of the limitation. He proposed limiting liability for adjudicative and non-adjudicative functions to protect arbitrators from claims intended to harass them and to implement rules designed to prevent the parties from relitigating certain issues. Mr. Zuleta proposed that gross negligence or willful misconduct should be the liability standard for the adjudicative function. If the standard was lower, the arbitrator could be liable for an annulled award. A standard of professional due diligence would apply to duties such as disclosure, independence, impartiality, and confidentiality.

Mr. Silva-Romero highlighted that limitations of liability clash with Latin American laws that prohibit the waiver of future claims for willful misconduct or that equate gross negligence to willful misconduct. Ms. Galíndez recalled cases where arbitrators had to reimburse fees and expressed concern over possible orders to compensate for lost opportunities or moral damages. Ms. Tovar mentioned that the key should be preserving the independence of arbitrators and institutions and protecting the award.

The panel addressed the relationship between the validity of the award and the arbitrators’ liability. While a set aside proceeding against the award does not necessarily involve arbitrator negligence, it might entail an assumption of negligence, that the arbitrator is wrong, and that the court is always right. Such exposure to liability for misapplication of the law could prevent arbitrators from acting in certain jurisdictions. Mr. Silva-Romero warned that, as in ICSID annulment proceedings, there must be an “egregious” error in the application of the law or be equivalent to not applying any law.

The panel agreed that “immunity” limits civil liability but does not address criminal liability. Some pending questions included (i) whether one may simultaneously seek annulment and initiate actions against the arbitrators; (ii) whether there should be a waiver of eventual criminal proceedings; and (iii) how to tackle the lack of knowledge of arbitration rules by a criminal judge that could conclude that a criminal offense was committed.

 

Prof. Catherine Rogers (Queen Mary University, London) gave a keynote address on the duty of disclosure and conflicts of interest. A panel followed, moderated by Sandra González (Ferrere, Montevideo), with Claudia Salomon (Latham & Watkins, New York), Eduardo Damião Gonçalves (Mattos Filho, São Paulo), Guido Tawil (Independent Arbitrator, Buenos Aires).

Professor Rogers explained that the duty of disclosure is subject to multiple regulations including the IBA Guidelines and the Draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement. Difficulties include the use of that binary terms (biased/unbiased, partial/impartial) that prevent nuances and new conflicts such as double-hatting, issue conflicts, conflicts with expert witnesses and third-party funders. Stakeholders apply different standards: (i) arbitrators deciding what to disclose; (ii) parties deciding whether to file a challenge; (iii) institutions as de facto regulators in admitting challenges, establishing disclosure requirements, creating rosters and blacklists, providing for fee reductions, publishing case details; and (iv) courts reviewing awards under national laws or the New York Convention.

Mr. Tawil suggested that the main challenge is to determine what is transparency and what should be disclosed to achieve the standard of transparency. Excessive disclosure might give place to “unfounded and frivolous challenges.” While the IBA Guidelines and the ICC rules provide guidance on what should be disclosed, self-regulation by arbitrators would be preferred. For Mr. Damião an additional challenge is that today’s actions and disclosures may be judged in five years with future standards. Thus, if the door was open to more rules on disclosures, there will always be more rules to come, and strict definitions make sense only in specific cases.

When asked about tools or measures of particular value to address impartiality, Ms. Salomon mentioned the power of arbitrators under the 2021 ICC Rules to exclude new counsel, considering the facts and circumstances of the case. The rule seeks to address cases where counsel might bring in new counsel that would result in one of the arbitrators having a conflict and potentially resigning, which could cause a delay in the arbitration. Mr. Damião Gonçalves mentioned publicity initiatives at the ICC including the publication of awards, the composition of tribunals and counsel, and requiring the parties to give reasons when formulating challenges.

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On institutions as de facto authorities, Ms. Salomon mentioned that the clients determine whether more transparency is required, and the system should be responsive to such expectations. Additional guidelines may help to level the expectations of the parties in the process, and arbitrators may have additional layers of duty if they have their own codes of conduct or ethical obligations. ICC Note to Parties and Tribunals mentions what should be disclosed, for example, if the arbitrator has been appointed by the parties or counsel or acted in a related case (¶23). The issue then is if the arbitrators will be challenged after all these facts are disclosed.

 

Carolyn Lamm (White & Case, Washington DC) moderated a panel addressing gender diversity in arbitration. Alexis Mourre, (President, ICC International Court of Arbitration, Paris), Yas Banifatemi (Shearman & Sterling, Paris), Patricia Kobayashi (CAM-CCBC, São Paulo), Mónica Jiménez (Ecopetrol, Bogota), and Wendy Miles QC (Twenty Essex, London) shared the perspectives of counsel, institutions, clients, and arbitrators.

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The panel acknowledged the increase of the appointment of female arbitrators since 2005 and praised initiatives such as the Arbitration Pledge. Arbitral Women and Women Way in Arbitration have also raised awareness on diversity and provided a search base with qualified candidates.

Mr. Mourre highlighted the achievement of gender parity in the ICC Court in 2018. He called for an effort on education, since diversity is broader than gender diversity. The 2019 ICC Dispute Resolution Statistics indicated that women represent 21% of arbitrators in ICC arbitrations. Regional diversity remains limited, as 66% of arbitrators are from Western countries, a figure that has remained relatively stable in recent years. He urged a deeper consideration of the career lives of women and the role of counsel in choosing arbitrators. What is imposed on attorneys at law firms may be a major element of discrimination, and helping young women to achieve a balance between work and personal responsibilities should be part of the solution.

Ms. Banifatemi encouraged a conscious and systemic among counsel to ensure that women represent at least half of the individuals in each list of arbitrator candidates. She observed that only 20% of ICSID arbitrators are women and 47% of ICSID arbitrators are from Western countries. Within law firms, a structurally diverse arbitration personnel will occur with diversity in exposure, mentorships, recruitment, and promotions. Ms. Kobayashi shared the institutional perspective, explaining the CAM-CCBC’s commitment to have at least 30% women in conferences, appointments, and lists of arbitrators.

Ms. Jiménez stressed the need to commit clients in the appointment process, presenting lists of female candidates and informing them of diversity initiatives. Explicit diversity policies may be incorporated in arbitration clauses and even in the bylaws, as she shared her experience of both of those practices at Ecopetrol. Ms. Miles suggested the creation of webinars interviewing female practitioners, including local experts in topics that arise in arbitrations involving such discrete issues as the environment, indigenous communities, and human rights.

 

A final informal open forum was co-moderated by Cecilia Azar (Galicia, Mexico) and Tai Heng-Cheng (Sidley, New York). Participants discussed changes during the pandemic, sharing experiences in virtual hearings with participants in different time-zones, challenges to cross interrogate virtually, and changes in organizations, including remote work, and how to continue with the training process of younger associates.

 

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2020 in Review: Reflections on a Year of Steady Progress in East and Central Asia

Tue, 2021-01-26 01:00

In spite of unfamiliar challenges that emerged in 2020, arbitration progress in East and Central Asia has persisted. In this post, our East and Central Asian editorial team recapitulates major arbitration trends and developments of the region featured in the past year from the perspectives of national and interstate policies, judicial and legislative changes, as well as the technological viewpoint, issues related to the COVID-19 pandemic, and beyond.

 

Further Opening Up of PR China to International Arbitration

Our 2020 coverage encompassed encouraging updates and forecasts from our contributors with a focus on the promising steps being made towards enabling the further opening up of the arbitration market in PR China.

An international arbitration-friendly environment is an often-mentioned prerequisite. One aspect of the progress is observed in the Free Trade Zone (“FTZ”) context wherein the Shanghai Pilot FTZ represents a pioneering attempt of the government to open up its arbitration market by allowing foreign arbitral institutions to carry out arbitration activities in a specific FTZ from January 1, 2020. Even further potential may be seen under the Beijing Policy, which may permit foreign arbitral institutions to register an operational entity with no geographical restrictions confined to designated areas of Beijing. The development of the 2018-designated Hainan FTZ also reflects PR China’s effort in expanding effective dispute resolution options to encourage foreign investments and trades in additional designated areas.

Forward movement in enabling the operation of foreign arbitral institutions in PR China, as well as the expansion of dispute resolution options, could be seen as a clear demonstration of PR China’s willingness to enhance its dispute resolution environment for the conduct of international arbitrations.

Judicial development may also lend support to the growth of international arbitration in PR China. In the Guangzhou Intermediate People’s Court’s groundbreaking ruling, a Chinese court has for the first time applied the “seat standard” in determining the nationality of an arbitral award rendered in PR China under the auspices of a foreign arbitral institution, which aligns with international practice and has sparked discussions on legal reform regarding the treatment of arbitrations in PR China administered by foreign arbitral institutions. While uncertainty remains regarding judicial practice in PR China on this topic, an amendment to PR China’s Arbitration Law and Civil Procedure Law may provide a solution to increasing predictability of enforcement outcomes in PR China.

Further, the Judicial Committee of the Supreme People’s Court of China enacted detailed new rules of evidence, paving the way for document production to become more prevalent in PR China litigation, which will impact the conduct of arbitration proceedings in PR China.

Big data research and the “Standardization Guide” on cases involving “judicial review” of arbitration by the Beijing Fourth Intermediate People’s Court also projects an arbitration-friendly narrative and the judiciary’s endeavor to address legal ambiguities by “unify[ing] adjudication standards,” which, together with the continued implementation of the Mainland China-Hong Kong Interim Measures Arrangement, indicate determined judicial efforts in fine-tuning PR China’s readiness to further open up its arbitration market.

In reflection, the driving forces behind the opening up of the arbitration market in PR China include the foreseeable demand for arbitration system reform as triggered by changing international financial architecture, the need to reconcile different legal systems and currencies adopted amongst the PR China, Hong Kong, and Macau jurisdictions, as well as the necessity to address the arbitrability of antitrust-related claims in PR China given its increasing dominance in international trade and commerce.

  

Improvements to the Arbitration Infrastructure and Practice

Other East and Central Asian jurisdictions had some notable legislative and rule developments over the past year (or recent years), including the following:

Meanwhile, our Blog contributors advocated for further improvements to certain aspects of regional arbitration infrastructure and practice. Our Blog featured commentary on:

 

Connecting Virtually; Responding to COVID-19 Challenges

Virtual hearings and technology were much discussed in 2020 amidst the COVID-19 pandemic (see also 2020 in Review for ISDS, Europe, and Southeast Asia). In East and Central Asia, arbitral institutions were quick to provide guidance on virtual hearings. KCAB released the Seoul Protocol on Video Conference in International Arbitration in March 2020. The Protocol grappled with issues of fairness, impartiality, and confidentiality that could arise from videoconferencing. The Protocol was drafted mostly before COVID-19, but it was welcomed as a timely release amidst the pandemic. CIETAC released the Guidelines on Proceeding with Arbitration Actively and Properly during the COVID-19 Pandemic in April. In May, HKIAC issued the HKIAC Guidelines for Virtual Hearings, which provides a checklist for virtual hearings. Various institutions organized seminars on the topic, including HKIAC and SHIAC.

The experience in virtual hearings increased knowhow on better preparing for the various facets of such hearings, from videoconferencing technologies and electronic presentation of evidence to interpretation and transcription. Our Blog contributors analyzed whether such virtual hearings may replace physical hearings even post-COVID. Such developments related to the use of technology in arbitration are likely to continue into the New Year and beyond.

Our Blog contributors also tackled other pressing issues related to the pandemic, including how different jurisdictions may approach issues of force majeure in the context of the ongoing waves of COVID-19 and pre-award interest when procedural delay is beyond the parties’ control.

Our annual live coverage of Hong Kong Arbitration Week continued. In 2020, all events were accessible virtually. We kicked off our coverage with a 360-degree interview with Chiann Bao. We then covered events tackling issues related to the COVID-19 pandemic, such as witness credibility, party agreement, and digital equality in virtual hearings; “asynchronous” arbitration; and the idea of a “breathing space” amidst the pandemic. We also covered events on smart contracts, blockchain, and cryptocurrencies; the “multi-faceted and pervasive issue” of U.S.-China relations; and a debate on the motion, “This house believes that there is no such thing as a bad challenge.”

 

Finally, we thank our contributors for their deeply engaging and wide-ranging contributions in 2020. We look forward to continuing our coverage of the East and Central Asian region, which we believe is likely to see exponential developments in arbitration this year.

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Better Late Than Never? Costa Rican Supreme Court Recognizes ICC Award

Sun, 2021-01-24 22:21

Approximately a year ago, on 19 December 2019, the First Chamber of the Supreme Court of Costa Rica recognized an ICC arbitration award rendered on 10 June 2016 by a tribunal seated in Miami. This case, one of the very few where the New York Convention (“NY Convention”) has been applied by a State court in Costa Rica, provides a useful basis to discuss some of the remaining challenges of this instrument, as well as the practical circumstances concerning the recognition and enforcement of an international award in developing jurisdictions.

 

The underlying dispute

The dispute arose out of an exclusive pineapple sales agreement entered between Del Monte International GmbH (Swiss) and INPROTSA (Costa Rican) in May 2001.

Under the Pineapple Sales Agreement (“Agreement”), Del Monte provided INPROTSA with “MD-2” pineapple seeds free of cost.1)This variety is widely known as the “Del Monte Gold” pineapple and has been credited for the increase in per capita consumption of fresh pineapples throughout the world. jQuery("#footnote_plugin_tooltip_4911_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4911_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Del Monte also offered its technical expertise and assistance, while retaining the ownership of all MD-2 seeds. In exchange, INPROTSA agreed to grow, sell, package, and deliver the MD-2 variety pineapples exclusively to Del Monte. The parties further agreed that, upon termination of the Agreement, INPROTSA would destroy or return the plant stock to Del Monte.

After the Agreement came to an end in 2013, INPROTSA failed to comply with its obligation to destroy or return. Instead, it sold the plant stock to third parties. This prompted Del Monte to pursue arbitration before the International Court of Arbitration of the ICC in Miami, requesting damages, specific performance, and injunctive relief on the basis of breach of the Agreement.

One of the main arguments of defense raised by INPROTSA was that it had been induced to enter the Agreement by fraud, alleging that Del Monte made a false representation that it owned a patent over the MD-2 pineapple variety. Ultimately, the single arbitrator ruled in favor of Del Monte, issuing a 48-page final award dated 10 June 2016.

 

Recognition of the award in Costa Rica

On 18 July 2016, Del Monte requested the recognition of the award in Costa Rica before the First Chamber of the Supreme Court. INPROTSA intervened and requested the Court to refuse recognition of the award, arguing that the award relied on a misrepresentation of the facts, resulting in a breach of due process. Consequently, INPROTSA argued that recognition had to be refused, in accordance with article V(1)(b)2) “The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case” jQuery("#footnote_plugin_tooltip_4911_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4911_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); of the NY Convention, article 5(1)(b) of the Inter-American Convention on International Commercial Arbitration (“Panama Convention”), and article 36(1)(a)(ii) of the Law on International Commercial Arbitration (the domestic law governing international arbitration, which is based on the UNCITRAL Model Law).3) The text of the remaining two articles is nearly identical to the cited section of the NY Convention. jQuery("#footnote_plugin_tooltip_4911_3").tooltip({ tip: "#footnote_plugin_tooltip_text_4911_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Court found that the challenge based on due process actually referred to the merits of the case and – in turn – dismissed it.4) The authors did not have access to the documentation preceding the judgement of the Supreme Court. The latter is brief on its exposition of the substantive arguments raised by INPROTSA and its dismissals, so further elaboration is currently unattainable. jQuery("#footnote_plugin_tooltip_4911_4").tooltip({ tip: "#footnote_plugin_tooltip_text_4911_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The Costa Rican company further alleged that the arbitration tribunal went beyond the scope of its authority, by granting damages not requested by the claimant. To support its claim, INPROTSA invoked article V(1)(c)5) “The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration.” jQuery("#footnote_plugin_tooltip_4911_5").tooltip({ tip: "#footnote_plugin_tooltip_text_4911_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); of the NY Convention, article 5(1)(c) of the Panama Convention, and articles 36(1)(a)(iii) of the Law on International Commercial Arbitration. The strength of this argument under the NY Convention is, in any case, questionable. In the past, tribunals applying this article have discussed whether it provides a ground for refusal of an award rendered ultra petita. The general conclusion has been that the interpretation of article V(1)(c) of the treaty must be restrictive, distinguishing the parties’ pleadings and prayers for relief, from the parties’ broader submission to arbitration (see here and here).

Finally, INPROTSA raised a public policy exception,6) Under this exception a court may refuse to enforce a foreign judgement or award because it would violate the public policy of the country where those actions are being sought. jQuery("#footnote_plugin_tooltip_4911_6").tooltip({ tip: "#footnote_plugin_tooltip_text_4911_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); attempting to demonstrate that, by ordering the destruction of the plant stock, the award was contrary to Costa Rican constitutional and agrarian law. The legal bases for this claim were article V(2)(b)7) “The recognition or enforcement of the award would be contrary to the public policy of that country.” jQuery("#footnote_plugin_tooltip_4911_7").tooltip({ tip: "#footnote_plugin_tooltip_text_4911_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); of the NY Convention, article V(2)(b) of the Panama Convention, and article 36(b)(ii) the Law on International Commercial Arbitration. The Court disregarded the argument, by stating that the Costa Rican company did not provide any evidence to support its claim, and that the remedy of destruction of the goods stemmed from the Agreement. Additionally, the Court also found —once again— that the argument referred to the merits of the case.

 

Enforcement pending

While the First Chamber of the Supreme Court oversees the recognition of foreign awards in Costa Rica, the enforcement action is outside its jurisdiction, and must be sought before a lower court. One year after the recognition of the award, the enforcement of the award is still pending, and currently being litigated before the competent domestic court.

 

Commentary

Arbitration is increasingly recognized as the go-to forum for cross-border commercial disputes, as companies have a generally positive perception of this mechanism (see here and here). Arbitration is unique in offering a speedy, expert-relying, and internationally enforceable process. However, even if arbitration proceedings usually live up to their users’ expectations by providing a final and binding award quickly, a risk still remains: running into a longer than expected delay, when the need to turn to State courts for recognition/enforcement of the award arises. The case at hand is a perfect example of that.

Some Latin American jurisdictions have faced criticism that judicial delay has become the norm within their court systems. This problem could be attributed to multiple motives and, although resources have been destined to tackle the issue, there still seems to be limited effective change. However, one of the causes, particularly in arbitration-related cases, can be easily identified: the competent courts having a very ample subject-matter jurisdiction.

For instance, in Costa Rica, the First Chamber of the Supreme Court is the highest forum in matters relating to civil law, commercial law, administrative law, agrarian law, tax law, and the recognition of foreign civil/commercial judgements and awards (Article 54, Judiciary Act). The recognition of foreign awards is just one of the many issues falling under its jurisdiction. An overloaded docket sets the perfect stage for the aforementioned delay situation: it took Del Monte three-and-a-half years before obtaining a resolution from the First Chamber, and this resolution only concerned the recognition of the award. Now, Del Monte is waiting —once again— for the enforcement action.

Of course, judicial delay is not an issue faced exclusively by the Costa Rican court system. In 2020, the COVID-19-related restrictions impacted even some of the top-ranked judicial systems, likely resulting in setbacks for their users. Under this premise, a broader question must be asked: does judicial delay affect the efficiency of international arbitration? If so, which solutions could be offered?

The latter question must be solved according to the reality posed by each State facing this issue. Several proposals could be considered, including the possibility of creating a State court devoted exclusively to arbitration matters, as discussed in previous posts of the Kluwer Arbitration Blog (see here and here). However, in States where the practice of arbitration is still developing, such as Costa Rica, it is likely that the arbitration-related caseload is not large enough to justify such a policy.

Another proposal is to effectively channel any arbitration matter to a single judicial authority, different from the Supreme Court, which already has a heavy workload. In the case of Costa Rica, such a court could oversee matters such as: (1) the recognition of foreign awards, (2) the enforcement of domestic and international awards, (3) requests to compel or stay arbitration, and (4) requests for setting aside awards rendered in Costa Rica. Currently, all of these matters are handled by the First Chamber of the Supreme Court, except for enforcement proceedings, which are referred to the competent lower court, according to the internal jurisdictional rules (Article 99, Code of Civil Procedure). In the case of foreign awards, the system requires two distinct judicial proceedings: one for recognition and another one for enforcement.

The authors propose that the relevant laws (e.g. the Code of Civil Procedure, the Law on International Commercial Arbitration, and the Judiciary Act) are amended, empowering the competent lower courts to both recognize and enforce foreign awards under a single proceeding. Far from requiring the creation of a new type of legal procedure, the recognition of the award could be treated as a preliminary question during the enforcement action. All of this would save time, in turn contributing to the better fulfilment of the goals of the NY Convention.

 

Conclusion

Facilitating cross-border trade and business transactions is in the best interest of developing States, and the availability of effective dispute settlement mechanisms is a core component of achieving that goal. The NY Convention, and to a lesser extent, the Panama Convention, are at the forefront of this, as they provide companies with reliable bases for pursuing transnational claims.

For these reasons, the Contracting States of these instruments should constantly strive to find ways to enhance their efficiency. The “dependency” that arbitration has on States and their courts should not be a crutch. Instead, the relationship between the two should be mutually beneficial, with both sides understanding that they contribute to each other.

References   [ + ]

1. ↑ This variety is widely known as the “Del Monte Gold” pineapple and has been credited for the increase in per capita consumption of fresh pineapples throughout the world. 2. ↑ “The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case” 3. ↑ The text of the remaining two articles is nearly identical to the cited section of the NY Convention. 4. ↑ The authors did not have access to the documentation preceding the judgement of the Supreme Court. The latter is brief on its exposition of the substantive arguments raised by INPROTSA and its dismissals, so further elaboration is currently unattainable. 5. ↑ “The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration.” 6. ↑ Under this exception a court may refuse to enforce a foreign judgement or award because it would violate the public policy of the country where those actions are being sought. 7. ↑ “The recognition or enforcement of the award would be contrary to the public policy of that country.” 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: International Arbitration and the COVID-19 Revolution
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ESPF v. Italy: The Broadening Scope of Specific Representations under the FET Standard

Sun, 2021-01-24 00:46

Traditionally, one of the central pillars of the FET standard has been the protection of legitimate expectations. Legitimate expectations can be either based on a host state’s specific representations provided to the investor, or, under certain conditions, such expectation can be based on the regulatory framework that existed at the time of making the investment.

Numerous tribunals have stressed that the specific representations provided to an investor by a host state form the strongest basis for the creation of legitimate expectations.1)White Industries v. India, UNCITRAL, Final Award (30 November 2011) para. 10.3.17; Mamidoil Jetoil Greek Petroleum Products Société S.A. v. Republic of Albania, ICSID Case No. ARB/11/24 Award (30 March 2015) para. 642. jQuery("#footnote_plugin_tooltip_7576_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7576_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Notwithstanding this, the level of specificity required varies from case to case. The common understanding conveyed by numerous investment tribunals is that only a host state’s specific representation to a particular investor can form legitimate expectations subject to treaty protection. However, a broader understanding still finds its place in the investment arbitration community. For example, in the recent renewable energy award in ESPF v. Italy (September 2020), the majority of the tribunal found that a specific representation can also be based on general legislation.

This blog post analyses the part of the ESPF v. Italy award that concerns the assessment of the legitimate expectations of the investor. The inclusion or not of legitimate expectations in the FET standard will have significant impact on investor protection given the protections role and standing in the world of investment arbitration (see discussion on the scope of a FET standard in the context of ECT modernisation process). Moreover, the narrowing or broadening of its scope and application also have significant practical consequences and ramifications.

 

Facts of the case

In ESPF v Italy, the investor “KGAL”, a German investment management company, made investments in Italy between 2009 and 2012. The investments were made by setting up PV-investment funds and investing in multiple solar plants. Through various legislative acts during 2005, Italy had introduced a so-called incentive regulatory regime for renewable energy producers (“incentive regime”). Thus, in making the investments, the claimants primarily relied on this incentive regime, in particular on the Conto Energia Decrees (“Conto Decrees”), which guaranteed incentive payments to PV plants for a period of twenty years.

Despite this, from 2013 and onwards, the Italian authorities undertook a series of measures limiting the application of the incentive regime. This is because Italy was facing the tariff deficit resulted from the difference between the subsidies in the form of feed-in tariffs granted by the state to producers of renewable energy and the tariffs that had to be paid by consumers.. Resultingly, in 2014, the benefits of the incentive regime provided in Conto Decrees were substantially reduced through various state’s measures. E.g., through the changes introduced in the so-called “Spalmaincentivi Decree.” In 2016, the claimants challenged the state’s measures by initiating the ECT arbitration claim against Italy.

 

Claim based on a violation of the legitimate expectations under the FET

The claimants argued that Italy had violated the FET standard by breaching their legitimate expectations arising out of (a) the explicit assurances, as well as (b) implicit assurances. First, explicit assurances were allegedly made in the form of the Legislative Decree No. 387/2003 and in the five implementing Conto Decrees.(para. 469) Furthermore, the investors argued that the GSE Letters,2)GSE is the the state-owned company that Italy created to manage renewable energy support schemes. This company has entered into agreements with claimants’ companies and the GSE sent a formal tariff confirmation letter to claimants. jQuery("#footnote_plugin_tooltip_7576_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7576_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); the GSE Agreements, public statements and declarations by state officials had reinforced the explicit commitments made by Italy that investors will receive the specified tariffs for 20 years.  In assessing the legitimacy of the investor’s expectations, the majority of the tribunal upheld the claim of the investors, finding that Italy has undermined investor’s explicit commitments reinforced by implicit promises provided in public statements and declarations.

 

Specific representations arising out of legislation

In its assessment, the tribunal evaluated the existence of the specific representations arising out of Conto Decrees as well as the GSE Letters and the GSE Agreements. At the outset, the majority of the tribunal underlined that “there is no doubt that a clear and specific commitment is required in order to create an enforceable legitimate expectation”.(para. 512) Furthermore, that “there is no reason in principle why such a commitment of the requisite clarity and specificity cannot be made in the regulation itself (…)”.(ibid) Hence, the tribunal asserted that the relevant Conto Decrees qualify as specific representation, and therefore that investors could rely on the assurance that the feed in tarrifs rates will not be reduced in the next 20 years.

In the view of the tribunal, the Conto Decrees did not just form a general framework for investments, but they provided ‘specific incentives to investors who met specific requirements’.(para. 518) Since the plants of investors met the specific qualifying criteria under the Conto Decrees, the investors had the right to expect that the specific rates and duration of the FITs would remain unchanged. Furthermore, the state’s specific representation embedded in the Conto Decrees was further reinforced in the GSE Letters and the GSE Agreements, addressed to each of the claimants’ investments by the Italian authorities.(para. 517) The tribunal also underlined that the promotional statement and reports by Italian officials regarding the incentive tariff regime confirm the commitments included in the Conto Energy Decrees and GSE Letters and GSE Agreements.

 

Analysis

In ESPF v. Italy, the tribunal found that Italy violated the legitimate expectations of the investors by reversing the Conto Decrees and replacing it with the Spalmaincentivi Decree. According to the tribunal, the Conto Decrees amount to specific representation, containing the assurance that the tariffs for which they qualified would remain unchanged for 20 years. Furthermore, it was held that the GSE Letters and GSE Agreements reinforced the state’s specific representation.

The holding and reasoning in ESPF v. Italy is particularly important as there are variations in tribunals’ interpretation and application of the FET standard, in general, and the extent and assessment of what constitute a legitimate expectation, including specific representation, in specific. In a number of decisions (discussed here), the tribunals relied on several criteria in determining whether the state’s representation can be regarded as specific. These are: (i) whether a representation was provided by a competent state authority that has the relevant decision-making power; (ii) whether a representation has a legal force through its legal form, content and wording (e.g. a representation has a formal character, aimed at the purposeful and specific inducement of an investment); and (iii) whether a representation has been addressed directly to the investor. On the third criterion, tribunals are generally consistent in affirming that the state’s representation should be addressed directly to a particular investor and cannot be aimed at large or even small groups of potential investors.

According to the El Paso v. Argentina tribunal, the level of specificity of a state’ assurance should be assessed from the point of view of the addressee. Thus, the specific representation should be ‘directly made to the investor – e.g., in the contract or in a letter of intent, (…) and not simply general statements in treaties or legislation which, because of their nature of general regulations, can evolve ’.(para. 376)

Moreover, in multiple renewable energy cases against Spain, Italy, and Czech Republic, tribunals have been tasked with assessing whether or not there has been a violation of the FET standard arising out of the expected stability of the regulatory framework. In this respect, only a few tribunals have found that general legislation (in combination with some other state’s assurances) may qualify as a specific representation and raise to protection under the FET standard.

The ESPF tribunal was among the renewable energy decisions finding that the general legislation contained a clear inducement on the basis of wording of its provisions. The conclusion in ESPF v. Italy is consistent with Greentech v. Italy (December 2018). The Greentech tribunal provided that the Conto Decrees constitute a specific representation and by reducing the tariffs through the enactment of the Spalmaincentivi Decree, Italy has violated the investor’s legitimate expectations. The Greentech tribunal emphasised that ‘given the specificity of the assurances Italy offered (Conto Energia decrees, statements and conduct of Italian officials, and individual GSE letters and GSE Agreements), those assurances bear the hallmarks of “an agreement, in the form of a stabilisation clause or otherwise’’’.(para. 453)

However, some other renewable energy decisions have reached other conclusion. The tribunals in Belenergia v. Italy (August 2019) and SunReserve v. Italy (March, 2020) provided that no specific representation can be derived from the general Italian legislation. Moreover, in the Spanish renewable case Charanne v. Spain, the tribunal warned against qualifying a regulation that involved a group of beneficiaries as ‘specific’. It emphasized that this could ‘constitute an excessive limitation on the power of states to regulate the economy in accordance with public interest’.(para. 493) The issue of the right to regulate in the context of investment law is high on the political agenda of states. The need to ensure that ‘policy space’ is preserved in the context of the FET standard has been articulated by negotiators and contracting states within the framework of several of the most recent agreements such as the Comprehensive Economic Trade Agreement between Canada and the EU (CETA), the EU-Singapore FTA, the United States-Mexico-Canada Agreement (USMCA).

The debate on specific representation and its scope, nuance, and degree is important. A specific representation can create a strong basis for legitimate expectations, and therefore generate investor protection pursuant to the FET standard. The presence of a specific assurance direct at an investor may often overweight other considerations such as an investor’s due diligence or the proportionality of a state’s measure and therefore substantially limit the sovereign powers of a state to regulate in a public interest. The ESPF v Italy is among the decisions that adopted a broad approach towards the scope of specific representation, where a specific commitment primarily was found in a general legislation. In this decision, a tribunal has not performed a balancing exercise by weighing the subjective interests of investors and the state’s right to regulate.

Thus far, tribunals dealing with renewable energy cases have been inconsistent with respect to the circumstances in which general legislation is considered to constitute a specific representation. It indicates that there is theoretical divergences amongst tribunals on the scope and the legal basis for the creation of legitimate expectations.

References   [ + ]

1. ↑ White Industries v. India, UNCITRAL, Final Award (30 November 2011) para. 10.3.17; Mamidoil Jetoil Greek Petroleum Products Société S.A. v. Republic of Albania, ICSID Case No. ARB/11/24 Award (30 March 2015) para. 642. 2. ↑ GSE is the the state-owned company that Italy created to manage renewable energy support schemes. This company has entered into agreements with claimants’ companies and the GSE sent a formal tariff confirmation letter to claimants. 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: International Arbitration and the COVID-19 Revolution
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2020 in Review: The Pandemic, Investment Treaty Arbitration, and Human Rights

Sat, 2021-01-23 01:00

It will come as no surprise to the readers of this blog that the ongoing COVID-19 pandemic has had a significant impact on international arbitration (see blog coverage here).  In this post, we take a look back at 2020 to consider the intersection of the pandemic, investment, and human rights.  In February 2020, one of us took a look back at 2019 specifically in the context of international investment agreements (IIAs) and human rights.  This post follows in that tradition, while seeking to further understand how the COVID-19 pandemic is likely to shape the intersection of international arbitration and human rights.

This post first considers the ongoing effects of the pandemic on investment and human rights in 2020.  Second, it considers the degree to which human rights considerations have been specifically reflected in IIAs signed in 2020.  Notably, it does not address disputes because 2020 was a quiet year for investment treaty arbitration decisions that substantively engage with human rights considerations.  Third, and finally, it looks ahead to consider the potential trajectory of the intersection of investment and human rights in 2021.

 

Downward Pressure on Both Investment and Human Rights Protections as a Result of COVID-19

UNCTAD’s 2020 World Investment Report notes that the pandemic has caused a severe drop in foreign direct investment (FDI), falling well below the trough reached during the 2008 global financial crisis, with a disproportionate impact on low- and middle-income countries (LMICs).  Altogether, this implies that countries, particularly LMICs, will likely compete for limited available FDI.  In this environment, countries may be willing to forego human rights and other sustainable development considerations in an attempt to attract FDI.

The COVID-19 pandemic has also had severe human rights implications. The pandemic has exacerbated human rights challenges globally, which the UN High Commissioner notes will “create even wider inequalities.”  Alarmingly, Amnesty International has noted that the pandemic is “being exploited as a pretext for oppression in nearly every region of the world.”  In response, UN Secretary General Guterres has called for human rights to be placed “front and center” of any pandemic response.

Finally, as UNCTAD has noted, governments all around the world have taken measures in response to the pandemic. Some of these measures could be challenged by foreign investors for breaching obligations under IIAs. For example, after proposing an emergency measure that would suspend the collection of toll fees on its roads, investors warned Peru of potential ICSID claims in response.

While such cases have not yet emerged, it remains to be seen what impact such cases may have on the landscape of depleting FDI. Indeed, prominent organizations like the Columbia Center for Sustainable Investment have called for a “Moratorium” on ISDS disputes during the pandemic, noting that ISDS awards can “represent sizable percentages of governments’ budgets” and that governments must ensure that ISDS does not “deepen the inevitable fiscal crisis.”  A similar call has been made by the International Institute for Sustainable Development, which has argued that governments must either suspend the application of ISDS claims for all pandemic-related measures or clarify how international law defenses will apply for this “extraordinary” situation.  Until governments or international organizations adopt any such measures, the dual realities of declining foreign investment and downward pressure on human rights and other sustainable development considerations are likely to result in individual governments lowering standards to attract foreign investment.

 

Few Notable Developments in New IIAs in 2020

2020 was a relatively quiet year for new IIAs.  According to UNCTAD, only six new IIAs were signed in 2020, five of which have publicly available texts.  Regarding human rights-related issues, these IIAs contain fairly standard preambular text (Table 1).  The Fiji–US TIFA is a notable exception, both for its specific mention of several environmental-specific concerns and its recognition that “enhancing opportunities for women to participate in civic and economic life contributes to the economic empowerment of women and to prosperity”. Interestingly, we do not yet see a concerted effort to address pandemic-like situations in the future.  Following the cases involving tobacco regulation, there was an increase in provisions that sought to exclude tobacco-related measures.  We have not seen a concerted effort to address pandemic-like situations expressly yet.

 

Table 1 – Preambular Text

  Preambular text regarding human rights (Yes/No) Japan–Morocco BIT Yes (mentions public health, environment, natural resources) Brazil–India CFIA No Fiji–US TIFA Yes (mentions labor, environment, marine litter, illegal logging, illegal fishing, gender) Investment Chapter (Chapter 10) of the RCEP Yes (mentions sustainable development) Hungary–Kyrgyzstan BIT Yes (mentions health, environment, human rights, labor, corporate social responsibility)

 

These IIAs likewise contain fairly standard operative provisions addressing human rights-related issues (Table 2).  Consistent with prior trends, these operative provisions generally do not establish direct obligations on multi-national enterprises and, where they do, are couched in aspirational language (e.g., Art. 12.2 of the Brazil–India CFIA).

 

Table 2 – Operative Provisions

  Prevent and combat corruption Corporate social responsibility Non-lowering of standards General exception for health Seeking to preserve regulatory autonomy FET standard Japan–Morocco BIT Art. 7 (aspirational language) None Art. 19 Art. 21 None Art. 4 (includes access to courts and due process) Brazil–India CFIA Art. 10 (requires the adoption of measures) Art. 12 (directed to investors, but in aspirational language) Art. 22 Art. 23 Art. 22 Art. 4 (includes denial of justice, due process, and “targeted discrimination, such as gender, race or religious belief”) Fiji–US TIFA None None None None None None Investment Chapter (Chapter 10) of the RCEP None None None None None Art. 10 (includes denial of justice) Hungary–Kyrgyzstan BIT None None Art. 2 None Art. 3 Art. 2 (includes denial of justice, due process, and “targeted discrimination on manifestly wrongful grounds, such as gender, race or religious belief”)

 

Finally, although not explicitly related to human rights, exceptions and even so-called war clauses may also be relevant for claims arising out of the pandemic, including directly vis-à-vis human rights, based on reference to a state of emergency. Both the Brazil–India CFIA and Hungary–Kyrgyzstan BIT contain such clauses—specifically, as compensation-for-loss clauses—but any reliance by investors will be highly fact-dependent.

 

Two Additional International Agreements Likely to Impact Human Rights and Investment in 2021

Separately, two other international agreements may have subsequent ramifications for human rights in 2021.

First, following Brexit, the recently released draft of the EU–UK TCA contains preambular text recognizing the importance of human rights and generally recognizes the importance of sustainable development in Title XI. However, it largely does not address human rights considerations specifically impacting trade and investment.  At present, the draft only provides for State-to-State dispute resolution.

Second, the Agreement Establishing the African Continental Free Trade Area (AfCFTA), which went into effect on January 1, 2021, provides in the preamble that the State parties recognize “the importance of . . . democracy, human rights, gender equality and the rule of law” and reaffirm the state parties’ regulatory powers in areas like “public health, safety, environment, public morals and the promotion and protection of cultural diversity.”  This agreement is remarkable because it creates the largest free trade areas since the WTO.  As has been previously noted, AfCFTA has not addressed ISDS so far, providing only for State-to-State dispute resolution.

While efforts have been made to establish guiding principles on investment via the G20, these two agreements do not at present fully reflect such principles. In particular, principles VI (reaffirming the right to regulate) and VIII (encouraging responsible business conduct) could serve as a conceptual model for framing core obligations in such agreements.

 

Key Considerations for 2021

Looking ahead, we see two key considerations for the intersection of investment and human rights, and the future trajectory of ISDS.

First, as we have previously written, ongoing ISDS reform efforts offer a crucial opportunity to revisit the role of human rights considerations in the ISDS system.  While such ongoing efforts have primarily focused on procedural rights (e.g., due process), opportunities to address substantive rights, such as social, economic, and cultural rights within the ISDS system could better recognize the shared fate of foreign investment and society.

Second, States are able to satisfy their direct obligations regarding human rights on the international plane by exercising their regulatory autonomy.  Efforts to push back against the so-called regulatory chill, therefore, will remain crucial.  This is particularly the case as States continue to enact domestic measures aimed at combatting the effects of the ongoing pandemic.  States could correspondingly focus on strengthening operative provisions in new IIAs.  As one of us has written, Model Agreements, such as the 2019 Netherlands Model BIT, can offer instructive examples of progressive approaches to drafting new operative provisions.

 

The views expressed herein are personal and do not reflect the views of the authors’ employers or their clients. The authors reserve the right to change the positions stated herein.

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Interviews with Our Editors: In Conversation with Gwen de Vries, Director, International Group Content & Market Development at Wolters Kluwer Legal & Regulatory, U.S.

Thu, 2021-01-21 23:35

Gwen de Vries is Director of International Group Content & Market Development at Wolters Kluwer Legal & Regulatory, U.S. (‘Wolters Kluwer’). She has decades of experience and expertise in information services, focusing on the international legal market, including international arbitration. Among other projects, Gwen leads the team behind Kluwer Arbitration, Wolters Kluwer’s development of content for expert solutions and practical digital tools. She oversees Wolters Kluwer’s publication of the dozens of international arbitration-related books and journals in both digital and print format. In 2009, Gwen helped conceive and establish the Kluwer Arbitration Blog and was the author of its first post. As the Blog completes its 12th year and has more than 3,000 posts, Gwen shares her perspectives on the international arbitration field, growth of the Blog over the years, evolution of the information services industry, and how digital transformation is enhancing both international arbitration practice and the information services industry in unique ways.

 

  1. Gwen, here at the Blog, we are indebted to you for the vision that inspired this platform’s inception. Can you tell us more about the reasons you launched the Blog and why Wolters Kluwer invested in its development?

In 2009, blogging had been around for several years, but it was still a relatively new medium for international lawyers. At Wolters Kluwer, we thought that a Blog platform could become a modernized way for the arbitration community to interact. Until then, there was no ‘middle ground’ and ‘low threshold’ platform to exchange views and information. On the one end of the spectrum, there were informal discussion email groups, and on the other end, academic and heavily footnoted journal articles. In the ‘middle’ we saw scope for publication of short articles with a substantive approach and analytical lens. We did not intend for the Blog to be a place for gossip but rather a platform where the community could share news and opinions. We also expressly wanted it to be freely accessible – something that anyone could contribute to and access. Perhaps it sounds idealistic, but at the time, we saw this as a way to give back to the arbitration community.

We conceived the Blog in partnership with Gary Born, Roger Alford, and Luke Peterson. Roger became its Managing Editor, and he continues today as its General Editor. We assembled a group of correspondents, intending to solicit prospective posts from their networks on hot topics. The goal was to attract both established and new voices.

 

  1. Can you briefly reflect on the past 12 years of the Blog and its achievements?

Over the years, we have been impressed by the interest in the Blog and the community that it has garnered. Today, on a monthly basis, the Blog welcomes thousands of readers and contributors from every corner of the world. We are proud of its success. It has become acknowledged as a meeting place for the international arbitration community members to consider and debate important topics.1)James Clanchy and Cherine Foty “Conflicting Perceptions of Ethics in International Arbitration,” Arbitration: The International Journal of Arbitration, Mediation and Dispute Management, Vol. 85, Issue 2 (2019) p. 185 (‘New arbitration communities are developing on the internet around the Kluwer Arbitration Blog and OGEMID, for example. For Professor Emmanuel Gaillard, such fora “strongly contribute to the shaping of values underpinning international arbitration.”’). jQuery("#footnote_plugin_tooltip_5467_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5467_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The Blog is even respected as a source of commentary, having served as resource material in important cases. For example, it has been cited in party submissions in investment arbitrations (like EDF International S.A. v Argentina2)EDF International S.A. v. Argentina, ICSID Case No. ARB/03/23, Annulment Proceedings, Argentine Republic’s Additional Observations on the Proposal to Disqualify Teresa Cheng (Spanish), n. 43 (citing Joanne Greenaway’s May 1, 2015 blog post). jQuery("#footnote_plugin_tooltip_5467_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5467_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and Gabriel Resources Ltd. v. Romania3)Gabriel Resources Ltd. and Gabriel Resources (Jersey) v. Romania, ICSID Case No. ARB/15/31, Respondent’s Additional Preliminary Objections, n. 67 (citing Marcin Orecki’s August 8, 2017 blog post). jQuery("#footnote_plugin_tooltip_5467_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5467_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });); in party submissions before several courts (such as U.S. Supreme Court proceedings concerning Belize v. BCB Holdings4)Belize v. BCB Holdings, Petition for a writ of certiorari (citing Charles H. Brower II’s January 20, 2012 blog post). jQuery("#footnote_plugin_tooltip_5467_4").tooltip({ tip: "#footnote_plugin_tooltip_text_5467_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });); and also by decisionmakers themselves (see the decisions of tribunals and committees in Renco v. Peru,5)The Renco Group, Inc. v. Republic of Peru [I], ICSID Case No. UNCT/13/1, Decision as to the Scope of the Respondent’s Preliminary Objections under Article 10.20.4, n. 2 (citing Bernardo Cremades’ September 4, 2013 blog post). jQuery("#footnote_plugin_tooltip_5467_5").tooltip({ tip: "#footnote_plugin_tooltip_text_5467_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Pezold v. Zimbabwe,6)Bernhard von Pezold and Others v. Republic of Zimbabwe, ICSID Case No. ARB/10/15, Decision on the Applicant’s Application for Provisional Measures, n. 48 (citing Mallory Silberman’s June 10, 2013 blog post). jQuery("#footnote_plugin_tooltip_5467_6").tooltip({ tip: "#footnote_plugin_tooltip_text_5467_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Caratube v. Kazakhstan,7)Caratube International Oil Company LLP v. The Republic of Kazakhstan, ICSID Case No. ARB/08/12, Decision on the Annulment Application of Caratube International Oil Company LLP, n. 46 (citing David Bigge’s December 29, 2011 blog post). jQuery("#footnote_plugin_tooltip_5467_7").tooltip({ tip: "#footnote_plugin_tooltip_text_5467_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and Philip Morris v. Australia8)Philip Morris Asia Limited v. The Commonwealth of Australia, UNCITRAL, PCA Case No. 2012-12, Procedural Order No. 8, n. 109 (in citing party submissions, which referred to Inna Uchkunova and Oleg Temnikov’s August 15, 2013 blog post). jQuery("#footnote_plugin_tooltip_5467_8").tooltip({ tip: "#footnote_plugin_tooltip_text_5467_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });). This is not to mention the Blog’s citation in important commentaries, books, and journals – there are hundreds of such references on Kluwer Arbitration alone, including in Gary Born’s recently published International Commercial Arbitration (Third Edition).9)See e.g., n. 661 (citing Hassan Raza’s April 24, 2018 blog post); n. 921 (citing Robert Landicho and Andrea Cohen’s October 5, 2018 blog post). jQuery("#footnote_plugin_tooltip_5467_9").tooltip({ tip: "#footnote_plugin_tooltip_text_5467_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

  1. You have the unique vantage point of observing the international arbitration field’s development as both an insider and outsider over a long period. How has the field evolved over the years?

The first international arbitration-related conference that I attended was ICCA’s Biennial Congress in Seoul in 1996. That conference saw about 200 attendees, who were mainly middle-aged men from Europe or the U.S. At the time, Albert Jan van den Berg and Jan Paulsson were among the community’s younger and emerging voices. Wolters Kluwer was one of the few exhibitors and the only one displaying books (mostly ICCA publications, a partnership we continue today). Believe it or not, we distributed cigars as giveaways at the exhibition table!

Arbitration conferences look very different these days. Seeing 1,000+ participants and many exhibitors is common, and there are of course many women and individuals from different backgrounds joining. This reflects the significant growth of arbitration as a practice: today, there is more arbitration work available and it demands a greater diversity of people doing the work.

This emerging landscape makes a platform like the Blog even more important. It helps members of the community connect with each other. It also allows our contributors to build their profiles and stand out among the crowd. In some ways, I feel that the Blog itself has contributed to achieving increased diversity within the arbitration community, as it offers an accessible platform for anyone with a valuable perspective to share it.

 

  1. You’ve already previewed that, over the years, the Blog has changed and grown significantly. How does this evolution reflect on changes in the information services field?

At its core, Wolters Kluwer, is on a mission to support arbitration specialists in their work. As the arbitration field has evolved to keep up with the changing market, Wolters Kluwer has done the same. We are in an era of information overload. With more arbitration cases, more individuals involved, and more to cover, it becomes difficult for anyone to keep up. We have addressed this challenge by evolving Kluwer Arbitration from a research service into a professional work flow tool. Kluwer Arbitration Practice Plus, that launched end of 2019, includes a suite of practical and data-driven tools to provide guidance and answers that support the case strategy of arbitration lawyers.

While we continue to commission high-quality original publications, we focus on offering increasingly clever and useful search engines, filters, and tools that make the task of identifying relevant sources easier – because once those important sources are identified, an arbitration lawyer can truly focus on legal problems and innovative solutions.

Meanwhile, understanding the arbitration community is still crucial for our success. The Blog is a mutually beneficial platform. Arbitration lawyers can easily share their perspectives, and we can connect with practitioners and academics who may later help us develop our content and solutions. In this way, we keep track of what is interesting and important to the community. In addition, it reinforces our brand as a market leader in arbitration, by allowing us to promote the work of our partners, including ICCA, CIArb, ITA, and others, while also highlighting our innovative content and tools. Most importantly, the Blog allows us to achieve our original vision of quickly highlighting important developments in the field with high-quality commentary in real-time.

 

  1. What are your thoughts on the need for a digital community as we continue through the COVID-19 pandemic era? Are there any related implications in the information industry?

Perhaps unsurprisingly, I expect that a digital community will become even more important. Years ago, an arbitration lawyer would establish his or her brand by going to as many conferences as possible and networking extensively. COVID-19 has also widened how we think about connecting with each other. This carries several positive effects – only a small group of individuals had the resources (time and money) to travel to conferences. Meanwhile, establishing a digital presence in this community can be achieved simply by sharing your perspectives. For Wolters Kluwer, this is now also one of the ways we identify new prospective authors. In the past, we would have mainly relied upon networking at conferences to achieve this same goal!

Again, I can return to the important role of the Blog. It is an established platform that, in 2020 alone, saw more than 500,000 visitors. This, coupled with the fact that a blog post is easier to write than a journal article, creates a huge opportunity for prospective contributors to gain visibility. I encourage arbitration lawyers to add their voice to the Blog and consider submitting a post to the editorial board for consideration.

As our focus is on serving the community, I must say that none of this would be possible without the enthusiasm, dedication, and active contribution of the Blog’s editorial team and contributors (past and present). We owe a big thanks to all of them and the current team, led by Dr Crina Baltag, who review contributions and guide prospective contributors to ensure that the Blog continues to be a place of thought leadership and innovation.

 

  1. Are there any latest initiatives at Wolters Kluwer that you’d like to highlight?

We continue to explore new ways to bring useful digital content to our community, sometimes with partners. For example, we are currently offering a pick of 3 free arbitrator reports from our partner Arbitrator Intelligence to subscribers of Kluwer Arbitration Practice Plus. This offer is valid until the end of April. Recently we launched the International Law Talk podcast series, which presents a new digital medium for us to share opinions and news with the community. Several episodes have focused on arbitration and we were privileged to host established and emerging voices from the community as both interviewees and interviewers. We will continue releasing new episodes periodically, I hope you will have a listen!

 

We look forward to supporting Wolters Kluwer in its future initiatives! In the meantime, on behalf of our fellow editors and readers, we thank you for everything you do behind the scenes to support the arbitration community!

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

References   [ + ]

1. ↑ James Clanchy and Cherine Foty “Conflicting Perceptions of Ethics in International Arbitration,” Arbitration: The International Journal of Arbitration, Mediation and Dispute Management, Vol. 85, Issue 2 (2019) p. 185 (‘New arbitration communities are developing on the internet around the Kluwer Arbitration Blog and OGEMID, for example. For Professor Emmanuel Gaillard, such fora “strongly contribute to the shaping of values underpinning international arbitration.”’). 2. ↑ EDF International S.A. v. Argentina, ICSID Case No. ARB/03/23, Annulment Proceedings, Argentine Republic’s Additional Observations on the Proposal to Disqualify Teresa Cheng (Spanish), n. 43 (citing Joanne Greenaway’s May 1, 2015 blog post). 3. ↑ Gabriel Resources Ltd. and Gabriel Resources (Jersey) v. Romania, ICSID Case No. ARB/15/31, Respondent’s Additional Preliminary Objections, n. 67 (citing Marcin Orecki’s August 8, 2017 blog post). 4. ↑ Belize v. BCB Holdings, Petition for a writ of certiorari (citing Charles H. Brower II’s January 20, 2012 blog post). 5. ↑ The Renco Group, Inc. v. Republic of Peru [I], ICSID Case No. UNCT/13/1, Decision as to the Scope of the Respondent’s Preliminary Objections under Article 10.20.4, n. 2 (citing Bernardo Cremades’ September 4, 2013 blog post). 6. ↑ Bernhard von Pezold and Others v. Republic of Zimbabwe, ICSID Case No. ARB/10/15, Decision on the Applicant’s Application for Provisional Measures, n. 48 (citing Mallory Silberman’s June 10, 2013 blog post). 7. ↑ Caratube International Oil Company LLP v. The Republic of Kazakhstan, ICSID Case No. ARB/08/12, Decision on the Annulment Application of Caratube International Oil Company LLP, n. 46 (citing David Bigge’s December 29, 2011 blog post). 8. ↑ Philip Morris Asia Limited v. The Commonwealth of Australia, UNCITRAL, PCA Case No. 2012-12, Procedural Order No. 8, n. 109 (in citing party submissions, which referred to Inna Uchkunova and Oleg Temnikov’s August 15, 2013 blog post). 9. ↑ See e.g., n. 661 (citing Hassan Raza’s April 24, 2018 blog post); n. 921 (citing Robert Landicho and Andrea Cohen’s October 5, 2018 blog post). 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: International Arbitration and the COVID-19 Revolution
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Surveying the Clean Energy Investment Landscape in Australia: Investment Arbitration Lessons for Foreign Investors

Thu, 2021-01-21 00:43

The Renewable Energy Target (RET), Australia’s key policy instrument for encouraging electricity generation from renewable sources, has been described as a policy hampered by politicisation. Notwithstanding such criticism, in 2019, it was reported that Australia’s energy system is undergoing the transition to renewables faster than any other country in the world.1)Blakers et al., (2019) “Pathway to 100% Renewable Electricity”, IEEE Journal of Photovoltaics, Vol. 9, No 6, cited in the 2020 Integrated System Plan at pages 8, 10, 21. jQuery("#footnote_plugin_tooltip_8181_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8181_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Against this backdrop, Australia remains attractive for investments in clean energy, and there continues to be a considerable inflow of foreign capital, particularly from overseas solar and wind developers.

 

Investment protections for renewable energy projects

The uncertainty faced by investors in the renewable energy sector over recent decades is not unique to Australia. It is largely a symptom of the long lead-time and capital-intensive nature of large scale renewable energy projects, resulting in a reliance – at least in part – on favourable regulatory frameworks and supportive government policies. That support can take many forms, including improvements in energy efficiency, the implementation of tradable certificate schemes (as adopted in Australia under the RET model), and the payment of fixed feed-in tariffs or market premiums to electricity producers from renewable sources.

As the experience in Spain and other European states has demonstrated, incentive schemes can be prone to reduction and retraction, particularly in times of financial crisis. Such changes can have a dramatic impact on the profitability of renewable projects. In this context, renewable energy investors in several European states have looked to the protections available to them in international trade agreements and treaties. The treaty most frequently invoked for this purpose is the Energy Charter Treaty (ECT), an international multilateral investment agreement which has the aim of promoting international cooperation in the energy sector. The ECT – and the ongoing discourse surrounding its modernisation – has been the subject of several recent Kluwer Arbitration Blog posts.

There are numerous examples of how the investment protections set out in the ECT have been invoked through ISDS where political or regulatory changes have eroded the profitability of renewable energy projects. Indeed, available data suggests that of the ISDS claims initiated under the ECT (as at 31 July 2020), approximately 60% (or 78 of 131) are claims made by investors in the renewable energy sector. The dramatic increase in ISDS claims initiated by renewable energy investors under the ECT over recent years is illustrated below.

Source: Statistics of ECT Cases (as of 1/6/2020), Energy Charter Secretariat (2020) 

 

Investment arbitration lessons for foreign investors in Australia?

Australia has signed, but not ratified, the ECT. As such, its provisions are not strictly binding on Australia. However, the investment protections set out in the ECT are broadly representative of the types of protections available to foreign investors under Australia’s (binding) treaty commitments. These mechanisms are found in the numerous bilateral and multilateral agreements to which Australia is a signatory.2)Australia–New Zealand Closer Economic Relations Trade Agreement (ANZCERTA); Singapore-Australia Free Trade Agreement (SAFTA); Australia–United States Free Trade Agreement (AUSFTA); Thailand–Australia Free Trade Agreement (TAFTA); Australia–Chile Free Trade Agreement (AClFTA); Malaysia–Australia Free Trade Agreement (MAFTA); Korea–Australia Free Trade Agreement (KAFTA); Japan–Australia Economic Partnership Agreement (JAEPA); China–Australia (ChAFTA); Australia-Hong Kong Free Trade Agreement (A-HKFTA); Peru-Australia Free Trade Agreement (PAFTA); Indonesia–Australia Comprehensive Economic Partnership Agreement (IA-CEPA); ASEAN–Australia–New Zealand Free Trade Agreement (AANZFTA); Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). jQuery("#footnote_plugin_tooltip_8181_2").tooltip({ tip: "#footnote_plugin_tooltip_text_8181_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); It is also relevant to note that on 16 November 2020, it was announced that Australia had joined 14 other states in signing the Regional Comprehensive Economic Partnership (RCEP), which has been described as the ‘world’s largest free trade deal’. Although there is no ISDS mechanism in the RCEP, it constitutes a landmark statement in favour of free-trade and multilateralism by the new Indo-Pacific trading bloc.

While Australian companies have successfully enforced the protections available to them under Australia’s investment treaty commitments (in respect of their investments abroad), Australia has so far managed to shake off claims brought against it. The only claim made against Australia to date was that advanced by Philip Morris Asia in respect of the introduction of plain packaging for tobacco products, which Australia successfully defended on jurisdictional grounds.

Recognising Australia’s limited experience as a respondent to ISDS claims (and notwithstanding its status as a non-ratifying signatory of the ECT), the ECT arbitrations against Spain and other European states offer important lessons about the interpretation of investment protections in a renewable energy context:

  1. The apolitical nature of ISDS decisions: Where renewable energy investors have been successful, it is not because their projects have been given ‘special treatment’ or deemed so important as to outweigh the operation of the host state’s sovereign right to regulate. Rather, the outcome is arrived at following a distinctly apolitical process. Throughout that process, tribunals are plainly concerned with the need to strike a balance between, on the one hand, the investors’ desires for a fair and consistent regulatory framework and, on the other, the host states’ mandates to implement legal and regulatory changes. This demands a nuanced application of the relevant investment protections, with due regard for the relevant political, economic, and social factors at play. In this way, the broad (and on one view, vague) wording of the investment protections allows tribunals the flexibility to determine the appropriate standard of treatment owed to investors in each case.
  2. The consequences of the host state’s commitment to investors: In considering whether there has been a breach of the ‘fair and equitable treatment’ (FET) standard, tribunals have considered whether – on an objective analysis – the host state actively fostered or instilled an expectation in the mind of the investor that its investment would be treated with a certain degree of stability. If the investment was procured on the basis of a specific promise or commitment by the host state (for example, that the host state would not make changes to a favourable regulatory framework, or that if it did, those changes would not impact the investment in question), the host state will likely be held to that promise. As the Tribunal in Cube Infrastructure v. Spainobserved (at [409] – [410]), if the host state makes a representation that induces investment, it must either deliver on that representation or ensure that any adjustments do not significantly alter the economic basis of the investments made in reliance on that representation.
  3. The relevance of the public interest objective: In considering the specific act of the host state that has given rise to the claim (for example, the retraction or significant reduction of a guaranteed feed-in tariff), the public interest objective underscoring that act will be a relevant consideration. For example, in Charanne v. Spain (at [535]), the Tribunal considered the pressing need to limit the tariff deficit in the solar energy sector, which had been worsening year by year. However, this does not involve the making of a value judgment about the perceived necessity or quality of the regulatory measure in question. Rather, the measure is assessed through the lens of whether or not the investor, in the precise circumstances of each case (and taking into account the nature of any specific promise or commitment by the host state), ought to have expected it.
  4. The investor’s duty to assess the regulatory landscape, including the likelihood of change: On the other side of the coin, tribunals have considered whether the investors’ expectations were rigid and unrealistic, or allowed for reasonably foreseeable changes. Investors cannot eliminate the possibility that the host state will exercise its sovereign prerogative to implement new measures, or to increase the impact of existing measures, in accordance with a legitimate public interest objective. Since economic, environmental, and social considerations are necessarily dynamic, an investor must be able to demonstrate that it exercised due diligence in appraising the landscape of its potential investment. In other words, the pursuit of stability must be largely driven by the investor’s own efforts. In Cube Infrastructure, the Tribunal emphasised (at [357]) that investors were never entitled to expect that the regulatory regime would remain completely unchanged.
  5. The limitations on an investor’s duty to predict (and accept) change: Like Cube Infrastructure, the Tribunal in SolEs Badajoz v. Spain considered the impact of changes to Spain’s renewable energy incentive scheme (known as the ‘Special Regime’) in 2013 and 2014, in addition to the original amendments that were made to the Special Regime in 2010. The Tribunal found (at 449]-[453]) that the 2010 amendments had an adverse impact on the claimant’s revenue, but did not fundamentally change the key features of the Special Regime, nor were they disproportionate to the policy objectives of those measures (i.e. the reduction of the tariff deficit). Accordingly, the amendments were found to be consistent with Spain’s obligation to accord fair and equitable treatment to the claimant’s investment. However, the 2013 – 2014 amendments were found to have fundamentally changed the basic features of the Special Regime, exceeding the changes that the claimant could have reasonably anticipated when it made its investment. Accordingly, the Tribunal concluded that Spain had violated the FET standard. 

 

Conclusion

The question of whether there is a causal link between the availability of ISDS under any international investment agreement and increased foreign direct investment has not been answered in any definitive way. It is even less clear whether Australia’s commitment to treaties which include investment protections (and recourse to ISDS) makes Australia a more attractive prospect for foreign investors than it would otherwise be (and relevantly, the Australian government is presently conducting a review of its bilateral investment treaty program – discussed here). In the circumstances, it is difficult to make the positive assertion that the availability of ISDS in Australia offers renewable energy investors the kind of comfort that would sound in tangible financial benefits, such as reduced risk premiums.

That said, regulatory and political risk continues to impact the flow of foreign capital and technology into the renewable energy sector in Australia, and if treaty protections were not available at all, they could not be factored into a broader assessment of the risk associated with a potential project. At the very least, Australia’s acceptance of ISDS-backed treaties demonstrates to foreign investors that its legal framework, as applicable to the prospective investment, is aligned with international norms and standards. There are enough examples of those standards being enforced by renewable energy investors in Europe, in a wide array of different factual and technical contexts, to provide investors with an understanding of what they are entitled to expect from host states.

Similarly, the ever-growing body of case law in this field should be closely examined by state signatories – Australia included – who have committed to afford foreign investors a certain standard of treatment under international law. These case examples offer valuable insight into the importance of regulatory and political consistency in the renewables sector, which cannot be overstated at such a critical juncture in Australia’s clean energy transition.3)The authors wish to acknowledge the research assistance provided by Rebecca Lucas, a solicitor in Herbert Smith Freehills’ Disputes team. The authors are members of ACICA45, a group established by ACICA with the aim of responding to the needs of young and emerging arbitration practitioners keen to learn more about arbitration and be involved in the arbitration community. The views expressed by the authors are their own. jQuery("#footnote_plugin_tooltip_8181_3").tooltip({ tip: "#footnote_plugin_tooltip_text_8181_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

References   [ + ]

1. ↑ Blakers et al., (2019) “Pathway to 100% Renewable Electricity”, IEEE Journal of Photovoltaics, Vol. 9, No 6, cited in the 2020 Integrated System Plan at pages 8, 10, 21. 2. ↑ Australia–New Zealand Closer Economic Relations Trade Agreement (ANZCERTA); Singapore-Australia Free Trade Agreement (SAFTA); Australia–United States Free Trade Agreement (AUSFTA); Thailand–Australia Free Trade Agreement (TAFTA); Australia–Chile Free Trade Agreement (AClFTA); Malaysia–Australia Free Trade Agreement (MAFTA); Korea–Australia Free Trade Agreement (KAFTA); Japan–Australia Economic Partnership Agreement (JAEPA); China–Australia (ChAFTA); Australia-Hong Kong Free Trade Agreement (A-HKFTA); Peru-Australia Free Trade Agreement (PAFTA); Indonesia–Australia Comprehensive Economic Partnership Agreement (IA-CEPA); ASEAN–Australia–New Zealand Free Trade Agreement (AANZFTA); Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). 3. ↑ The authors wish to acknowledge the research assistance provided by Rebecca Lucas, a solicitor in Herbert Smith Freehills’ Disputes team. The authors are members of ACICA45, a group established by ACICA with the aim of responding to the needs of young and emerging arbitration practitioners keen to learn more about arbitration and be involved in the arbitration community. The views expressed by the authors are their own. 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: International Arbitration and the COVID-19 Revolution
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Revamping of P.R.I.M.E. Finance Arbitration Rules Underway

Tue, 2021-01-19 22:11

What makes disputes in banking and finance different? After all, like most commercial disputes, their determination often requires the interpretation of contracts, deciding whether a party is liable in contract or tort, and quantifying damages. Furthermore, financial institutions are, in many respects, no different from other commercial parties to disputes.

Yet, in practice banking and finance disputes require special expertise to resolve them. Amongst other things: banking and financial markets are strictly regulated sectors, and regulatory compliance may need to be taken into account when determining potential breaches of contract; perceived risks may trigger bank runs; statutory duties of secrecy may prevent financial institutions from disclosing customer information, affecting evidence-gathering; and minimum capital and asset ring-fencing on local bank branches may present challenges to enforcement.

As a result, courts in several countries have established specialist chambers to deal with complex banking disputes. These include the High Court of England and Wales’ Financial List and the Singapore International Commercial Court. In arbitration, while institutions like the ICC, ICDR, SIAC, SCCA, and LCIA offer their general rules and administrative services for disputes across all sectors, others have sought to increase their attractiveness to the finance sector. For example, the CIETAC Financial Disputes Arbitration Rules are designed for financial disputes, and the HKIAC’s Panel of Arbitrators for Financial Services Disputes offers a tailored panel of arbitrators with requisite expertise.

The number of banking and financial disputes reported by arbitral institutions is growing. In 2018, the ICDR-AAA reported a 78% increase (more than any other sector), and the LCIA reported that 29% of its cases were banking and finance disputes. While the ICC merges the finance and insurance sectors in its statistics, preventing a precise comparison, this author’s first-hand knowledge of the ICC Court’s docket confirms a similar increase in banking-related cases in recent years.

The case for arbitration as an alternative to litigation in the finance sector has been compellingly made in several recent studies. They include the ISDA Arbitration Guide of 2013 and the second edition of the guide published in 2018, the 2014 Report on Arbitration in Banking and Financial Matters by the French Arbitration Committee, the ICC Arbitration Commission’s monumental 2016 Report on Financial Institutions and International Arbitration and its supplements, and the Legal High Committee for Financial Markets of Paris’ 2020 Report on Arbitration in Banking and Financial Matters. All of these studies were conducted by working groups of bankers and arbitration practitioners and can be found on the website of the University of Cologne’s Center for Transnational Law Institute for Banking Law. Other initiatives include Hong Kong’s Financial Dispute Resolution Centre, established to resolve by mediation or arbitration disputes resulting from the demise of the local affiliate of Lehman Brothers and now enjoying comprehensive jurisdiction over disputes between customers and financial institutions, and the interbank dispute settlement mechanism Servicio para dirimir incidencias entre Bancos (DIRIBAN), established by the Spanish Banking Association. DIRIBAN boasts a 100% voluntary compliance rate by award debtors.

Among the competing fora in this field, P.R.I.M.E. Finance stands out. Based in The Hague, P.R.I.M.E. Finance is a specialist organisation for the resolution of banking and financial disputes, with users offered a panel of experts and arbitrators with the expertise to resolve complex financial disputes. Financial institutions have consistently ranked technical expertise in banking and finance of sitting arbitrators as key when considering an alternative dispute resolution mechanism. In addition, all cases referred for arbitration under the P.R.I.M.E. Finance Arbitration Rules are administered by the Permanent Court of Arbitration (PCA), the world’s oldest arbitral institution. The combination of the subject-matter expertise of P.R.I.M.E. Finance’s Panel and the PCA’s efficiency in administering arbitral proceedings brings significant advantages for users. ISDA has listed P.R.I.M.E. Finance in both its 2013 Arbitration Guide and its 2018 Arbitration Guide as among the few arbitral institutions recommended for financial arbitrations. The PCA administers disputes under the P.R.I.M.E. Finance Arbitration Rules regardless of the seat of arbitration and the nature of the dispute. Examples of disputes that may be submitted include those arising in relation to derivatives, sovereign lending, investment and advisory banking, financing (export, project, Islamic, trade, asset, and commodities), private equity, asset management, and smart contracts. Importantly, non-bank parties and financial institutions conducting ordinary business transactions, with no distinctive credit component, can choose to submit their treat or contract-based disputes to P.R.I.M.E. Finance.

In 2020, P.R.I.M.E. Finance launched an in-depth review of its arbitration rules. The first comprehensive draft has now been posted online for public comments. The draft rules aim to offer arbitrators and users a comprehensive and clear set of procedural rules for their arbitrations, and are the result of work undertaken by pre-eminent banking experts and dispute resolution practitioners representing the world’s major legal systems. It is expected that specialist firms, financial institutions, and arbitrators from around the world will comment on the draft, ensuring the geographical and sectoral representativity that is essential to global rule-setting. The deadline for the submission of comments is 21 March 2021.

Features of particular interest include:

  • Transparency. The drive for transparency is evident across the draft rules. By way of example, parties are required to disclose any third-party funding arrangement of any claim or defence, and the identity of that third party (Articles 5, 6, and 12). Another application of transparency in the draft rules flows from the fact that banking is a highly standardised sector, with syndicated lending generally following the template of the Loan Market Association (LMA) or the Loan Syndications and Trading Association (LSTA) and derivatives using the ISDA Master Agreement. The draft rules give the tribunal the power to invite or grant leave to an industry body to appear before it as amicus curiae and make submissions on any issues relevant for the proceedings (Article 29). In addition, unless the parties object, final awards will be published (redacted as appropriate) (Article 39.9), permitting the emergence of a body of jurisprudence similar to the case law of the courts in the major financial centres. This will increase predictability and transparency of the arbitral process.
  • The administering institution. The PCA has a key role throughout the arbitral process. It enjoys all the customary prerogatives of an administering institution (Article 4). Under the draft rules, in exceptional situations, the PCA is also granted the power to decline the confirmation of arbitrators nominated by the parties or a tribunal president nominated by co-arbitrators, such as when the agreed nominee and/or nomination process creates a risk of unfairness and endangers the enforceability of the award (Articles 11 and 15).
  • Complex arbitrations. Complex banking transactions may involve hundreds of parties, sometimes with adverse interests, and multiple contracts. The draft rules deal with the treatment of complex situations such as these, for example with detailed joinder and consolidation provisions (Articles 31 and 32). Where separate arbitrations are not eligible for consolidation, the tribunal can also coordinate the proceedings after consulting with the parties. Such coordination ensures that common questions of fact or of law are determined consistently.
  • Emergency and expedited rules. The draft rules contain provisions on emergency arbitration (Article 25), interim measures (Article 25) and, in response to financial institutions’ requests for efficiency in the rendering of awards, expedition (Article 17); arbitrations with an amount in dispute of EUR 4 million or less are automatically subject to expedited arbitration rules, with a sole arbitrator expected to render the final award within 180 days of the constitution of the tribunal. The system under the proposed expedited rules still retains flexibility: at any juncture, the parties may opt for a three-member tribunal, and either the parties or the PCA may decide that proceedings initiated under the expedited rules will revert to the standard rules.
  • Efficiency. The draft rules are built on efficiency. Tribunals are expected to convene a case management conference with the parties within 30 days from their constitution (Article 16). The convening of additional procedural conferences is encouraged throughout the proceedings. Tribunals are also given deadlines to ensure the rendering of final awards in a timely fashion. Tribunals with three or more members are required to render the final award within 90 days of the closing of the hearing (or the receipt of the last submissions authorised by the tribunal); for sole arbitrators, the time limit is 60 days (Article 39). Tribunals are also explicitly empowered to assist the parties in discussing a settlement when appropriate.

In addition, tribunals enjoy all powers necessary to manage the case. In particular, tribunals may decide, after consulting the parties, that any hearing will be conducted through means of communication that do not require physical presence (Article 18). The logistical experience of the PCA in organising remote hearings will be particularly helpful in this regard. In fact, the draft rules provide the option for the entire procedure to be paperless, under which even hard copies of awards with wet signatures are only required when the law of the seat or the place for enforcement explicitly requires them.

One concern raised by financial institutions is the need for tribunals’ decisiveness in dismissing evidently unmeritorious claims or defences, without having to go through the full procedure on the merits. Thus, early determination is a power explicitly conferred upon tribunals in the draft rules (Article 35).

The emphasis on efficiency also includes cost-optimisation. The draft rules offer parties a choice between a time-based arbitral fee system and a system based on the value of the dispute (Article 49). Absent an agreement, the rules default to a time-based fee system.

***

The revised P.R.I.M.E. Finance draft arbitration rules are rules of their time. They draw on the drafters’ vast experience accumulated over decades of litigating and arbitrating disputes, both specific to the banking and financial sector and in a plethora of other contexts. They achieve a delicate balance between empowering tribunals to rule on all the situations that may arise in the course of the proceedings, while requiring the transparent, fair, and equal treatment of the parties. It is now essential for the drafters’ vision to be put to the test and allow users, be they arbitrators, counsel, or corporate officers, to consider whether these rules meet their expectations. At the end of this process, P.R.I.M.E. Finance will emerge with rules better fitted to offer a credible alternative dispute resolution mechanism to financial institutions, their customers, and counterparties. This will lead to greater and more secure business for all.

 

The author, Professor Georges Affaki, is Partner at AFFAKI and chairs the revision of the P.R.I.M.E. Finance Arbitration Rules.

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Interviews with Our Editors: In Conversation with Ndanga Kamau, Vice President of the ICC International Court of Arbitration and President of the ICC Africa Commission

Mon, 2021-01-18 23:24

Ndanga Kamau is a Vice President of the International Chamber of Commerce (ICC) International Court of Arbitration and the President of the ICC Africa Commission. She is an international lawyer who specialises in international dispute settlement and international law. She sits as arbitrator and represents clients in international disputes. She also provides consultancy work and teaches as independent/adjunct lecturer. Ndanga holds an LLM in International Dispute Settlement from the University of Geneva/Graduate Institute, postgraduate diplomas in law from City Law School/Inns of Court School of law, and a degree in Economics from the University of Cape Town.

Welcome to the Kluwer Arbitration Blog, Ndanga!  This will be a great opportunity to learn more about you, your trajectory, and your experience in international arbitration. Thank you for your time.

  1. Let us begin with your personal trajectory. How did you become interested in international arbitration?

My interest in international arbitration was nurtured while trying to sit, and sometimes stand, unobtrusively in the back of various conference rooms in the late 2000s! In between my studies in London, I spent a year as an intern at the British Institute of International and Comparative Law (BIICL). One of the perks of a BIICL internship was that interns could attend the Institute’s rich programme of events for free. Speakers at these events were leading experts in international dispute resolution and international law, drawn from private practice, academia, government, institutions, and international courts. It was at one of these events that I first encountered an agreement to arbitrate.

I went on to do the MIDS programme in Geneva, which covered international dispute resolution more broadly – negotiations, WTO, ICJ, commercial arbitration, investment arbitration, and WIPO. I maintain this broad interest in international dispute resolution.

 

  1. Turning to your work on international arbitration in Africa, are there discernible trends in how international arbitration is developing on the continent? Please feel free (actually, please do!) to bring nuances and distinctions in trends you see in different Sub-Saharan African regions and jurisdictions.

It is difficult to discern any trends in a region that contains such diverse countries. But, with that caveat, I would make four generalisations.

Firstly, states in the region are increasingly committed to modernising their legal and institutional frameworks for international dispute resolution – this year alone, Ethiopia and Sierra Leone have ratified the New York Convention, and Tanzania has enacted a new international arbitration law.

Secondly, African stakeholders are becoming more sophisticated and assertive. They are calling for the use of African seats, for the engagement of African counsel, and for the appointment of African arbitrators in international disputes.

Thirdly, there is more intra-Africa collaboration, especially between the younger generation of lawyers. These pan-African exchanges can only increase as African states start to implement the African Continental Free Trade Agreement (AfCFTA) in 2021.

Finally, there is considerable interest in Africa from the international arbitration community outside the continent.

 

  1. In a recent webinar, you shared your passion about ‘the development of affordable, accessible, efficient and inclusive dispute resolution systems in the world, particularly in Africa’. How can we achieve this in a world disrupted by Covid-19?

If I may focus on Africa, I think that the disruption caused by Covid-19 has given us the impetus to think about how we can leverage technology for dispute resolution. Now is the time for all stakeholders to invest in multi-year plans to ensure better connectivity across the continent.

 

  1. In the same webinar, you suggested that we should broaden the data points that we rely on when talking about and measuring diversity. Could you elaborate a bit more on this?

You may have been listening too attentively to the webinar! I suppose I was making two broad points.

The first was that to achieve diversity and inclusion in international arbitration, we must look beyond gender, and do that in a way that does not prioritise one category of diversity over another – I think this has already started.

The second was that we may be guilty of overemphasising arbitral appointments as a proxy for diversity and inclusion in our field. We focus on data on arbitral appointments to tell us how well (or badly) we are doing on diversity and inclusion, but we should really be looking at data from the full field – in-house counsel, counsel in law firms, barristers, counsel in arbitral institutions, academics, etc. We can only achieve diversity and inclusion in international arbitration if we achieve it across the board, not just in arbitral appointments. More than that, it is unlikely that we can achieve diversity in arbitral appointments without first achieving it in these other areas.

 

  1. Among the many interesting projects you are involved with, you are currently an observer in the UNCITRAL Working Group III on Investor-State Dispute Settlement Reform. From your perspective, how are African states approaching ISDS reform?

As can be expected from a continent with 54 countries, there is great diversity in the way in which African states are approaching ISDS reform. There are states which have been vocal about dismantling the current system, others that are actively working to reform the system, and many others which do not have a discernible position. As African states prepare to negotiate the Investment Protocol of the African Continental Free Trade Agreement (AfCFTA), these differences will impact the outcome of their negotiations.

At UNCITRAL Working Group III, which is mandated with procedural reform, it has been striking to see the increase in attendance by African states between the first session in late 2017 and the last in-person session in January 2020. I think it would enrich the discussions to have more active participation by African delegations during the sessions and I am working with others to support that participation.

Separately, on substantive reform, African states are actively reforming their investment laws and international investment instruments (IIAs) – at bilateral and regional levels. The reforms are generally aimed at rebalancing rights and obligations between investors and states, eliminating overly broad provisions, and linking investment to sustainable development.

In the coming years, I expect to see more assertiveness from African states on ISDS reform. But, in the short term, I anticipate that some reform ambitions will be tempered by the urgent need for foreign direct investment (FDI) to rebuild African economies in a post-pandemic world.

 

  1. What would have surprised your younger self about a career in international dispute resolution?

That international dispute resolution is more than just law – it is history, culture, politics, economics, international relations, and much more besides. This confluence of disciplines is part of what makes the work so rewarding.

Many thanks, Ndanga!

 

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

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