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Foreign Investments in Poland in Light of the Achmea Case and “Reform” of Polish Judicial System – Catch 22 Situation?

Sat, 2018-04-21 18:02

Marcin Orecki

On 6 March 2018, the Court of Justice of the European Union (“CJEU”) in the case no. C‑284/16 Slovak Republic v. Achmea BV (“Achmea case”) (available here) stated that arbitration agreements concluded between the Member States of the European Union (“EU”) in the so-called intra-EU BITs have an adverse effect on the autonomy of EU law. Achema case is a precedent in many respects and has already resulted in many comments.  It must be noted  that the Judgment of the CJEU prima facie is not surprising – taking into account primacy and autonomy of the EU law – especially the four freedoms of the Single Market of EU: free movement of goods, capital, services and labour. This post aims however to highlight a probably unintended aspect of the Achmea case which might lead to difficulties of a legal situation for foreign investors in EU Member States in which judicial systems are not efficient or have issues with political influence (see the fifth edition of the EU Justice Scoreboard, available here).

The Achmea case, as entire EU Law, is based on the principle of mutual trust and cooperation between EU Member State. Using the words of the CJEU in the Achmea case:

“EU law is […] based on the fundamental premise that each Member State shares with all the other Member States, and recognizes that they share with it, a set of common values on which the EU is founded, as stated in Article 2 TEU. That premise implies and justifies the existence of mutual trust between the Member States that those values will be recognized, and therefore that the law of the EU that implements them will be respected […] In order to ensure that the specific characteristics and the autonomy of the EU legal order are preserved, the Treaties have established a judicial system […] it is for the national courts and tribunals and the Court of Justice to ensure the full application of EU law in all Member States and to ensure judicial protection of the rights of individuals under that law […] Article 8 of the BIT [arbitration agreement – added by the author] is such as to call into question not only the principle of mutual trust between the Member States but also the preservation of the particular nature of the law established by the Treaties, ensured by the preliminary ruling procedure provided for in Article 267 TFEU, and is not therefore compatible with the principle of sincere cooperation” [emphasis added].

The mutual trust between the EU Members led the CJEU to the conclusion that an arbitration agreement concluded in the intra-EU BITs is incompatible with EU Law. This should not be controversial. However, the devil, as always, lies in the detail. Poland can serve as an example.

In 2016, the Polish Government initiated a so-called “reform” of the Polish judicial system (see my post on this reform here). The Polish Government “reformed” the Polish Constitutional Tribunal, the National Council of the Judiciary of Poland (constitutional organ safeguarding independence of courts and judges), the Polish Ordinary Courts and finally the Supreme Court. Many of the amendments are deemed by some unconstitutional. The reform of the Polish judiciary lead to the precedent procedure adopted under art. 7(1) of the Treaty on European Union (see here).

Simultaneously with the “reform” of the Polish judicial system, the Polish Government started to terminate intra-EU BITs (see my posts here, here). Until now, Poland commenced the procedure to terminate its BIT with Portugal, Denmark, Netherlands, Cyprus, BLEU – Belgian – Luxembourg Economic Union, France, Austria, United Kingdom, Bulgaria, Germany, Finland, Spain, Greece, Sweden, Latvia, Lithuania, Hungary and Croatia. The Polish Government persistently repeats:

“the law, as well as access to courts in Poland, guarantees foreign investors the protection of their investments with a possibility to execute investors’ rights before courts. Poland , as an EU Member State, established democracy which respects market rules and has a confident, independent, and impartial judiciary system”.

One may say that reasons given by the Polish Government to justify termination of intra-EU BITs concur with the reasoning of the CJEU in the Achmea case. However, in the light of the “reform” of the Polish Judicial system reasons given by the Polish Government are questionable, especially in the eye of other EU Member States. On 13 March 2018, it was reported that the Irish High Court decided to ask the CJEU for a ruling on the effect of recent legislative changes in Poland which are, in the opinion of the Irish Court

“so immense, the High Court has been forced to conclude that the common value of the rule of law has been systematically damaged and democracy in Poland has been breached. The recent changes in Poland have been so damaging to the rule of law that this Court must conclude that the common value of the rule of law as well as democracy in Poland had been breached. Respect for the rule of law is essential for mutual trust in the operation of the European arrest warrant”  (the case deals with an extradition due to the issued European Arrest Warrant, see here, here, here).

We will have to wait for the decision of the CJEU regarding the “reform” of the Polish Judicial system and its effects on the mutual trust and cooperation between Poland and other EU Members. At this moment, one may aptly ask the question: If the arbitration agreements concluded in the intra-EU BITs are incompatible with EU Law (what is now confirmed by the CJEU) and if the rule of law has been violated in Poland, then where and how should foreign investors execute their rights?

Prof. Nikos Lavranos in his Kluwer blog post proposed to

“One way to improve the situation could be to draft and adopt an EU regulation on investment protection that would incorporate the substantive and procedural standards currently contained in the gold standard BITs, such as in particular the Dutch BITs.

Accordingly, this regulation would contain the Fair and Equal Treatment, Most-Favored-Nation, National Treatment standards as well as an (in)direct expropriation with full compensation provision and an umbrella clause. The procedural standards would include specified timelines for concluding the proceedings and guarantees for the impartiality and independence of domestic courts.”

This proposition sounds interesting. However, it is somewhat doubtful that an EU regulation would intervene into a procedural aspect of investment protection before domestic courts or influence institutions of a particular judicial system of an EU Member State in order to guarantee the impartiality and independence of domestic courts from political influence (institutional aspect).

Hence, another solution which would allow foreign investors to execute their rights would be a creation of a separate, independent adjudicatory body (whether ad hoc or permanent) which would represent a neutral forum. It could be similar to the Iran-United States Claims Tribunal or take the form of the (EU) Multilateral Investment Court. Namely, on 20 March 2018, the Council adopted the negotiating directives authorising the EU Commission to negotiate, on behalf of the EU, a convention establishing a multilateral court for the settlement of investment disputes (see here). It would, therefore, be important to include intra-EU investment disputes under the jurisdiction of the court. An example of other independent bodies and committees which could serve as an example are the Advisory Commission and the Alternative Dispute Resolution Commission, which will act under the EU Council Directive 2017/1852 of 10.10.2017 on tax dispute resolution mechanisms in the EU.

The Achmea case has “emancipated” EU Member States and investors from arbitral tribunals constituted under the intra-EU BITs. Now the EU, in order to guarantee investors right for independent and impartial proceedings, must provide them with an independent body of a different external appearance but of an identical function. One could say that intra EU-BITs constitute a thesis, whereas the Achmea case constitutes the antithesis. The synthesis will be reached once the EU adopts an effective mechanism for the protection of EU investors and replace the old system. Until that moment, foreign investors are probably in a “Catch 22” situation.

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What Next for Intra-EU Investment Arbitration? Thoughts on the Achmea Decision

Sat, 2018-04-21 03:38

Neil Newing, Lucy Alexander and Leo Meredith

On 6 March 2018, the Court of Justice of the European Union (the “CJEU“) delivered its ruling in the case of Slovak Republic v Achmea (“Achmea“), holding that the investor-state arbitration provisions in a bilateral investment treaty (“BIT“) between the Netherlands and the Slovak Republic are invalid, as they are incompatible with EU law.

In reaching the opposite conclusion to that set out in the Advocate-General’s Opinion in September 2017, the CJEU decided that: (i) a tribunal formed under the BIT could be called on to interpret or apply EU law (because EU law is part of the law of both States and because EU law derives from an international agreement between the States), yet (ii) the dispute resolution mechanism of the BIT could prevent the kind of legal review of EU law questions that is required by EU law as a tribunal formed under the BIT had no power to make a reference to the CJEU. This had an adverse effect on the autonomy of EU law and, accordingly, the arbitration clause was incompatible with EU law.

The CJEU’s judgment raises more questions than answers, not least as it looks, prima facie, to have far-reaching implications on both current and future intra-EU BIT disputes (there are currently 196 intra-EU BITs in force containing arbitration clauses which would potentially be affected).  It is likely as a result that attempts will be made to distinguish or get around Achmea, in order to maintain some semblance of protection for intra-EU investment. We consider three possible areas of concern below.

Impact on Countries yet to Join the EU 

Countries such as Serbia and Albania, who are currently in negotiations with the EU regarding accession, have concluded BITs with a number of EU Member States. Once they join the EU, arguably no dispute relating to an intra-EU investment made after that date could be referred to arbitration under those BITs (indeed, that was precisely the position in Achmea). However, what about investments made prior to accession? If the dispute itself arose before accession, it might be argued that neither the investment nor the measure giving rise to the dispute involve EU law, and so the CJEU’s reasoning would not apply as no tribunal would need to consider EU law.  However, this could become more complicated if the measure giving rise to the dispute did not arise until after accession, and even more so if the measure in question was a direct result of accession and the imposition of EU law into that State. Yet, when the investment was made, there would likely have been no expectation of EU law being relevant.

There is little to no direction as to whether future EU Member States will have to terminate their current BITs as a condition of accession. In any event, this will not affect investments made pre-accession, as many BITs contain ‘sunset clauses’ designed to protect investors post-termination of BITs.

It is, of course, only the ISDS (investor-state dispute settlement) mechanisms of intra-EU BITs that are potentially affected by the CJEU’s decision. The substantive protections in the BITs still exist, yet the investor would have potentially no means of effectively enforcing them. Claims could be brought before the host State’s courts, yet in many jurisdictions, i.e. those with less developed or slower court systems or where there may be issues of impartiality and lack of due process, this will not be a satisfactory alternative.

This uncertainty could (conveniently) give the European Commission the impetus required to push forward their proposals for an investment court system, mooted as an alternative to vocal opposition to the current system.

Impact on BITs Between the UK and other Member States post-Brexit

The immediate impact of the Achmea decision will be to reduce confidence in the EU as a place for investment treaty arbitration, both in terms of structuring any future investment (so as to avoid relying on intra-EU BITs) and choosing a seat for any arbitration (to avoid as far as possible any recourse to EU Member State courts). This could, however, make post-Brexit Britain more attractive.

As it currently stands, the Achmea decision arguably renders ISDS provisions in BITs between the UK and EU Member States invalid under EU law, yet once the UK leaves the EU, it will cease to be a Member State. It does not appear to be the case that the effect of the Achmea decision is to essentially ‘strike’ out ISDS provisions in BITs as if they never existed (although the European Commission may well argue to the contrary).  Therefore, arguably,  the ISDS provisions will continue to exist and could then be relied on post-Brexit as if the UK had never been a Member State.  It could, however, also be argued that they should apply only to investments carried out or disputes that arose after the UK ceased to be a Member State (as until that point the UK had been subject to EU law and the supremacy of the CJEU).

Of course, the precise relationship that will exist between the EU and the UK post-Brexit remains to be seen. There is a debate surrounding the role of the CJEU and its influence on the UK going forward, which will clearly impact the UK’s autonomy. The question of the proper resolution of investment disputes between the UK and EU Member States is also likely to be discussed in the Brexit negotiations. If, however, the CJEU is not the final point of authority post-Brexit, in line with the UK Government’s stated objective, and in the absence of any alternative mechanism, then the UK could become a more attractive place (i) to structure investments through, and (ii) as a seat for BIT arbitrations against EU Member States.

Impact on Multilateral Treaties

The Achmea decision also raises questions concerning multilateral treaties such as the Energy Charter Treaty (“ECT“).  Under this treaty, where a Member State is involved on both sides, it could be argued that the judgment in Achmea would apply as EU law may well need to be considered and applied.  However, arguably disputes under the ECT differ from those under intra-EU BITS for at least the following two reasons:

(a)             there are non-EU Member State signatories to the ECT, and

(b)             both the European Union and Euratom are signatories to the ECT in their own right.

Where a dispute is intra-EU, it may be that the CJEU looks to assert its authority as in Achmea.  However, different questions arise where the ECT is invoked by or against a party from outside the EU which has not agreed to be subject to the supremacy of EU law. This could create a situation where EU investors are unable to bring claims in arbitration against EU Member States, but non-EU investors are, effectively creating two classes of investor within the ECT, contrary to the wording of the treaty.  Indeed, a key tenet of the ECT’s investment protections is non-discrimination.

Moreover, as a signatory, the EU itself (and also Euratom) has given its “unconditional consent to the submission of a dispute to international arbitration” under Article 26(3)(a). In doing so, it has arguably also ratified the same consent given by the individual EU Member States that are signatories, and no declaration has been made by the EU that would appear to limit this consent. Arguably, therefore, the EU has already agreed, on an international level, that disputes falling under the ECT are to be dealt with by way of arbitration, effectively carving such disputes out from the jurisdiction of the CJEU. Any CJEU ruling that sought to undermine this would be undermining the political will of the signatories, and arguably also (as an institution of the EU) acting contrary to the EU’s obligations under the ECT.

It is noted that the EU has never been party to an ECT dispute.  Indeed, if it were, it could hardly argue that it lacked the capacity to set out the correct understanding of EU law to the tribunal.  However, as the EU does not have sovereignty over the energy resources of its constituent member states, it is unlikely at the current time that it would ever be a party to such a dispute.  Accordingly, there is currently uncertainty as to how the CJEU will deal with ECT claims in light of Achmea. For non-Member State investors, it may be advisable, where possible, to look to BITs as a more certain mechanism for asserting claims against Member States. When the dispute is between Member States, investors may wish to consider structuring their investments differently – through non-Member State entities that are either signatories to the ECT or, perhaps better still, that have relevant BITs.

Final Thoughts

The Achmea decision does not reach as wide as may be feared. It expressly excludes commercial arbitration and does not apply to ICSID arbitration (which is governed by the ICSID Convention). Whilst national courts of Member States will be bound by the decision, arbitral tribunals will not. Further, it may be possible to seek to isolate the decision as specific to the BIT in question. The UK could, meanwhile, seek to benefit from this uncertainty by positioning itself post-Brexit as the obvious jurisdiction for both structuring investments into the EU and bringing BIT disputes.

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Could Blockchain Help the Recognition of International Arbitration Awards?

Thu, 2018-04-19 20:00

Mauricio Duarte

 “We simply cannot go on with this utterly outmoded way of working…Endlessly re-keying in the same information; repeatedly printing and photocopying the same documents; moving files about, losing all or parts of them in the process… It is a heavy handed, duplicative, inefficient and costly way of doing our work and it is all about to go. Considerably past time, we will finally catch up with the world.”  Sir Brian Leveson.

An initial issue in any effort to obtain recognition and enforcement of an international arbitral award is the proof of the existence of an award. This subject is addressed by both the New York Convention and many national arbitration laws, which generally seek to simplify the process of proving the existence of an award. However, in a digital world, the way we operate could be more efficient. Blockchain promises to solve many problems, and just like Charlie Morgan mentioned in his article published on March 5, 2018, smart contracts executed on blockchain could be a part of the future in arbitration. Now, what if I told you that the recognition and enforcement of awards could be disrupted by blockchain as well? With blockchain, we can imagine a world in which international awards are rooted in digital code, stored in a transparent platform, and are protected from removal, tampering, and alteration Eventually, there will be no need to “prove” the existence of a duly rendered award that requires additional costs and procedures.

Under Article IV of the New York Convention, the party seeking enforcement of an award must provide: the duly authenticated original arbitral award or a duly certified copy. Additionally, if the award is not in the official language of the country in which enforcement is sought, Article IV requires that an official or sworn translation be provided. It is clear that the creditor bears the burden of proving the existence of an award under Article IV.

Many arbitration laws around the world contain provisions regarding proof of an arbitral award closely paralleling those of the New York Convention. Article 35(2) of the UNCITRAL Model Law requires parties seeking to enforce an international arbitral award to provide the original award and arbitration agreement, or “duly certified” copies thereof. Arbitration legislation in a few jurisdictions imposes less rigorous proof requirements than Article IV of the Convention. For example, the French Code of Civil Procedure omits any requirement for a certified translation or original copy of the award, instead embracing a simpler approach that an award can be proven in the same manner as contracts.

Another preliminary issue concerns the procedures that apply in national courts to actions to recognize arbitral awards. The New York Convention leaves this issue largely to national law, subject to a general principle of non-discrimination awards. The Convention thus does not require either speedy or efficient procedural mechanisms for enforcing Convention awards. It merely requires Contracting States to use procedures no more burdensome than their domestic enforcement procedures. It is clear that the Convention imposes a mandatory rule, requiring Contracting States to recognize and enforce foreign awards, except where one of Article V’s exceptions applies. Article III provides that “each Contracting State shall recognize arbitral awards as binding” and enforce awards in accordance with the Convention and its national procedural rules.

One of the central objectives of the New York Convention was to eliminate the “double exequatur”, meaning that the award needed the confirmation in the place of the arbitration before it could be recognized internationally. If either court denied exequatur, the award could not be recognized and enforced. This process made the recognition and enforcement of arbitral awards difficult, unreliable and slow. The New York Convention eliminated the double exequatur requirement, with the objective of making foreign awards efficiently enforceable and subject to fewer opportunities for judicial challenges.

If we want foreign awards efficiently enforceable, could blockchain, the technology behind Bitcoin, provide another perspective to this issue? Blockchain can best be described as a digital platform or a distributed and immutable ledger that stores records, known as blocks. Blocks can store various kinds of information; in the case of Bitcoin, blocks store information about financial transactions. These blocks, which collectively form a “blockchain”, are stored on various nodes (“computers”), which ensure that no single person or entity can manipulate the ledger without everyone else knowing.

A key property of blockchain technology, which distinguishes it from traditional database technology, is that it is publicly verifiable, supported by integrity and transparency of the system. In other words, it would be practically impossible to change an entry in the database, because it would require changing all of the data that comes before, on every single node.

With this mechanism, it is possible to store a duly rendered award in an arbitration proceeding. By having this information in the blockchain, the competent authority could verify the existence of the award and avoid additional costs, judicial proceedings, and the traditional method of doing things. Forget about having the “burden of proof” to show the existence of the award that is duly certified. The blockchain can do the task in its own.

The Harvard Business Review listed blockchain as one of the “8
Tech Trends to Watch.”  Blockchain technology is expected to disrupt many different industries, and law will be one of them. In a near future, every award, every process, and every task, will have a digital record that could be identified, validated, stored, and shared. This is the immense potential of blockchain. By having a distributed database for awards, courts can benefit from increased accessibility, accuracy, and safety, all of which will result in better and efficient outcomes.

Utilizing blockchain in arbitration could have the effect of automating recognition of awards without human action. Applications are currently in use and others are in development to use the blockchain in law. This technology will apply to almost everything in the future and, as lawyers, we will have to embrace this technology. Just be watchful.

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ICCA Sydney: The Increasing Participation of Public Entities in International Arbitration

Thu, 2018-04-19 00:29

Mitchell Dearness

Young ICCA

On the second day of the ICCA Sydney 2018 Congress, two separate panels considered ‘Arbitrations Involving Public Bodies and Public Interest Salient Issues’. The first panel, moderated by Professor Stavros Brekoulakis (Queen Mary University of London) focused on ‘the Increasing Participation of Public Entities in International Arbitration.’ The panel comprised of Marie Talašová (Government of the Czech Republic), Paolo Di Rosa (Arnold & Porter), Reza Mohtashami QC (Freshfields Bruckhaus Derringer) and Adriana Braghetta (L.O Baptista Advogados). Each panellist brought a different perspective to the table.

Experience of counsel engaged by states

Paolo Di Rosa considered the position of counsel engaged by states, noting some challenges often encountered. The expectations of states and more specifically individual representatives of states can differ to those of private clients. Often observed is an increased fear of decision-making scrutiny with regard to the conduct of a dispute and a greater reluctance to consider settlement options and the expectations of the public. Counsel might often face challenges in the context of document production and locating responsive documents – government agencies often change, merge or move to different locations. Di Rosa also raised some key considerations with respect to the type of fact witnesses engaged by states. Commonly these witnesses are former state officials who may have very little incentive or indeed might have a disincentive to participate in the arbitration. The experience of counsel may of course differ depending on the particular state and the nature of the entity being represented. For example, representing a State Owned Entity (SOE) is likely to be different from representing the state itself although, as noted by Di Rosa, this is likely to depend upon the degree of control the particular state has in the SOE’s operations and decision-making within the SOE.

Expectations of the state

Marie Talašová shared the perspective of ‘the State’ drawing from a wealth of experience negotiating investment treaties on behalf of the Czech Republic. From the state’s perspective the difference between private commercial arbitration and public investment arbitration may not be so great. This is because both types of arbitrations often involve the same economic transactions and could be related to the measures taken by states. Furthermore, the public interest implications (including expenditure of tax payer money) are usually central to both types of arbitration proceedings. Talašová‘s paper (which has been co-authored with Jaroslav Kudrna) will, once formally published in the ICCA Congress Series No. 20 publication, provide an interesting case study on the ramifications of commercial and investment arbitrations on Central European states.

Issues encountered by private parties

Reza Mohtashami QC commented from the perspective of private parties engaged in arbitration proceedings against states. Mohtashami examined some key jurisdictional and practical challenges which arise uniquely in the public-private arbitration process. One such obstacle often encountered is jurisdictional challenges in the context of commercial arbitrations launched by states. Commonly these challenges are based on certain aspects of the state’s internal domestic law. By way of example, Mohtashami refers to Article 139 of the Iranian Constitution, which makes the submission to arbitration of disputes involving state property conditional upon the approval of the Council of Ministers and notification to Parliament. Such objections rarely succeed often due to what is considered to be a ‘substantive rule of arbitration’ although it is always important for non-state parties to consider carefully the seat of the arbitration to limit the prospect of such a challenge succeeding.

Insights from Latin America

Adriana Braghetta provided an insight from Latin America, which is of particular relevance given forecasted infrastructure development and associated public-private partnerships in the impact the region. Braghetta noted that local arbitration laws with Latin American states can differ, some are more pro-arbitration than others. Nevertheless, it can be observed that some domestic laws do in some instances impose conditions on arbitration which impact the conduct of arbitrations between states and private parties. Some conditions which arise within Latin American states include the need for the relevant arbitration institution to be registered as a public entity in the jurisdiction, restrictions on the language, place and applicable law of the arbitration and the liability for costs incurred in the arbitration.

Key takeaway

There will almost always be a tension between the interests of states and private parties with regard to the manner in which public-private and investor-state arbitrations ought to be conducted. As the panel has noted there can however be some divergence between the expectations of different states. Not every state is the same. It is however necessary for counsel for both states and private-parties to be alive to these expectations and also the types of legal issues which have a proven track-record of materialising in these types of proceedings.

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ICCA Sydney: New Frontiers in International Arbitration II: Potential of Arbitration Involving New Stakeholders

Wed, 2018-04-18 23:56

Jonathan Mackojc

Young ICCA

The morning session of the last day of the ICCA Sydney 2018 Conference on “Potential of Arbitration Involving New Stakeholders” was moderated by Ndanga Kamau and had the insightful contributions of Dr. Campbell McLachlan QC, Prof. Makane Moïse Mbengue and Silvia Marchili.

Ndanga Kamau opened the final plenary session by asking the following question: why do we need to evolve? The answer was rather simple: to ensure that the industry can survive. Ndanga Kamau warned delegates that we are still restrained by the myth that inclusiveness leads to the dilution of quality practitioners (counsel or arbitrators), and it is certainly not good enough to keep thinking about inclusiveness, rather than doing what is necessary to address it. Further, in regions where international arbitration is not developed, there is nothing inherent that stops interested parties from participating in the industry. It is important that we involve new stakeholders, even those with little or no understanding of international arbitration.

Ndanga Kamau invited each of the panellists to share their views on the topic.

Dr. Campbell McLachlan QC referred to the Abyei Arbitration and the Bangladesh Factory Accord as two examples where arbitration agreements were used in an innovative manner to protect the rights of all stakeholders affected by the subject matter of the dispute.

Dr. Campbell McLachlan QC offered five relevant themes and conclusions arising from these cases:

1. Access to new stakeholders – there is no inherent difficulty regarding access as it comes down to the will of the disputing parties as well as the arbitration community.

2. Role of arbitration in wider process of dispute settlement – arbitration is only part of a larger dispute resolution process, but it is a significant part.

Engagement of the international community – a reference was made to Chief Justice Sundaresh Menon’s speech earlier in the conference. It was agreed that the success of the global system depends not only on party autonomy but more importantly active support from the international arbitration community.

4. Capacity of arbitral process to handle disputes – the arbitral process has the capacity to deal with claims other than those where a contact or treaty is invoked.

5. Enlargement of facilitation – processes must be developed to promote facilitation, rather than to inhibit collective claims. This will ensure consistency, efficiency and most importantly access. Tribunals must actively promote the consolidation of claims.

Dr. Campbell McLachlan QC assured delegates that a strong understanding of these five key messages will ensure that arbitral tribunals are viewed as being highly independent, impartial, and international.

Silvia Marchili considered that evolution naturally brings about unintended consequences, and that we often fail to appreciate this as we are overly fixated on new initiatives. Silvia Marchili acknowledged the concerns regarding the legitimacy of ISDS, where some nations have denounced the ICSID Convention and where negotiations regarding regional agreements have often veered off course. Further, involving the local population in the process has a limited impact. Although NGOs and other community organisations may help ‘demystify the secrecy aspect’ of international arbitration, they alone are not capable of addressing broader concerns regarding the legitimacy of arbitration.

Silvia Marchili compared international arbitration to teenagers who believe they are capable of changing the world, questioning whether arbitration is in fact a suitable mechanism to solve human rights disputes. Silvia Marchili left the audience with two proposals which may assist with business and human rights (BHR) disputes: working groups and the need to amend BITs and other investment agreements to better reflect matters of consent, arbitrability, and enforceability.

The final part of the panel discussion involved a brief update on investment arbitration in Africa, and how new stakeholders are being considered in recent negotiations of agreements. Prof. Makane Moïse Mbengue noted that African countries have now become ‘rule-makers’, as opposed to ‘rule-takers’ as Africa is becoming more innovative, particularly with respect to new stakeholders in arbitration. Africa has also strived to strike a balance between rights and obligations in agreements, with the latter recently receiving significant attention. Many agreements also now include provisions regarding investor liability.

Prof. Makane Moïse Mbengue also highlighted that there is significant divergence regarding whether or not ISDS requires reform, and suggested that if it is to be reformed, the best avenue is by arguing that it must welcome (and be more accessible to) new stakeholders. Such an approach is ideal as it would also ease general concerns regarding ISDS reform in African countries.

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ICCA Sydney: New Voices

Wed, 2018-04-18 18:31

Jonathan Mackojc

Young ICCA

The afternoon session of the second day of the ICCA Sydney 2018 Conference on “New Voices” was moderated by Monty Taylor and had the insightful contributions of Jawad Ahmad, Lucas Bastin, Samantha Lord Hill and Solomon Ebere.

Monty Taylor opened the session by noting that not only was this a new initiative for ICCA, but that panellists were selected following a public call for paper abstracts and a rigorous selection process.

Arbitration in conflict and post-conflict zones

Samantha Lord Hill immediately set the scene for a topic that is often overlooked, but highly relevant considering recent geopolitical tensions and conflicts. Samantha Lord Hill noted that there have been over 20 armed conflicts in recent years, many giving rise to lucrative investment opportunities for foreign investors, and noted the World Bank’s commitment of over US$4 billion to restore Iraq. Samantha Lord Hill cautioned legal professionals that timely advice regarding project opportunities for interested investors is not enough; such advice must outline potential disputes and provide guidance on relevant risk assessment and management within these regions of instability. Delegates were provided with an overview of three key risks:

1. A poorly drafted dispute resolution clause – a clause must be correct from the start, with an appropriately selected institution and seat. A fundamental risk is where an institution ceases to operate, or where local judges and lawyers flee the area due to fear of persecution. To avoid this, the designated seat must always be outside the conflict zone.

2. Party non-participation – where the respondent is unable to, or chooses not to, participate in the arbitration. This is less of a concern if it occurs at the beginning of proceedings, but difficult to manage later in the process. Although the tribunal has inherent power to continue with the arbitration, it is important that the non-participating party is still given the opportunity to re-engage, by continuing to copy them into communications. Such an approach will reduce the risk of a challenge or a refusal to enforce the award.

3. Lack of documentary evidence – evidence is often seized or destroyed and access to project areas is limited or restricted. Risks involve parties being unable to produce sufficient supporting documents to prove their own case, or an inability to comply with disclosure obligations. The solution is to ensure that a proper document management process exists, and to store documents outside of the jurisdiction facing conflict.

Fresh approaches to briefing damages in investment arbitration

Jawad Ahmad commenced with an interesting observation – we are preoccupied with issues relating to investment arbitration, such as legitimacy concerns and areas of reform, to the extent that we often forget what it is all about – money. It was also stressed that despite the importance of compensation, lawyers and academics regard quantum as the ‘poor cousin’, when compared to merits or claims.

Jawad Ahmad briefly discussed two significant points:
date of breach affects the availability of the contributory fault analysis or the mitigation analysis as defences pleaded by the respondent; and
depending on which analysis is used, economic consequences will be vast.

Contributory fault and mitigation analyses both focus on the investor’s conduct but have different economic consequences. Contributory fault discounts are expressed in the form of percentages ranging from 25 % to 50 % of the total value of damages available to the investor. Mitigation analysis, however, produces discounts that are ‘hard numbers’ of a financial gain acquired—or not acquired—with respect to an identified activity. There is thus less discretion involved in the mitigation analysis.

Contributory fault analysis takes place prior to the date of the breach. Mitigation analysis, however, is carried out after the date of the breach. The date of breach is not, however, always clear. It will depend upon the primary obligation at issue and the factual circumstances of the case. For example, in ‘creeping’ expropriation cases any series of measures could be conceivably the date of the breach. Therefore, if the date of breach is undetermined then investor’s conduct could be analyzed through the lens of either contributory fault or mitigation.

Jawad’s presentation highlighted the importance of determining the date of breach at an early stage of one’s case as it affects both liability and quantum.

Emergence of sovereign wealth funds as active players

Solomon Ebere presented his topic in three key parts – a background on sovereign wealth funds (SWFs), references to several cases involving SWFs, and technical issues in the context of investment treaty arbitration.

Solomon Ebere indicated that SWFs are regulated according to the Santiago Principles – a framework of generally accepted principles and practices that relate to governance and accountability. It was noted that SWFs have, in recent years, attracted significant criticism whereby it is argued that they operate as investment vehicles fostering geopolitical, rather than commercial, interests. Solomon Ebere noted that SWFs can broadly be categorised according to three waves:

1. born in the 1970s, in the Gulf countries;
2. the China and Russia phase; and
3. more recently, born in emerging markets.

As SWFs are significant investors, they are a natural candidate for new commercial and investment arbitrations. Most cases involving SWFs are largely related to the 2008 Financial Crisis, or from high-level corruption scandals. Technical issues that were discussed involved jurisdiction, whether the definition of ‘investor’ includes an SWF and whether their actions may be regarded as an ‘investment’, under BITs and the ICSID convention.

In response to a question from the panel, Solomon Ebere noted that in many BITs, the definition of ‘investor’ encompasses SWFs, but others still require clarification. Amendments to investment agreements will likely occur once countries notice more claims coming from SWFs.

Inter-generational blame and praise in investment arbitration

Lucas Bastin surveyed a group of emerging arbitration practitioners under the age of 40, predominantly practising in investor state dispute settlement (ISDS). These interviews generated a report card on perceptions of experienced practitioners.

A recurring issue, which forced Lucas Bastin to revise the scope of his paper, was the concern that ISDS allowed for personal preferences and biases to permeate the practice, which ultimately affect the decision. Those in a position of influence were seen to be caught up in ‘decision-making individuality’, which questions the legitimacy of ISDS. A key concern was that not only does this diminish integrity and impartiality among legal practitioners, but that one must create a brand in order to be recognised and selected as an arbitrator.

In response to a question regarding solutions, Lucas Bastin noted that one (more extreme) response suggested that an overall cap be placed on the number of ISDS appointments.

Lucas Bastin acknowledged that previous generations have worked tirelessly to build and develop ISDS, and the speed of development has not been mirrored in other international legal practices. The emerging generation means no disrespect, but asks that we regulate the role of the individual in ISDS.

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ICCA Sydney: Building Better Arbitration Proceedings – Efficiency and the Lessons to be Learned from Other Dispute Resolution Frameworks

Wed, 2018-04-18 02:41

Nasreen Jahan

Young ICCA

The 10th panel session of the ICCA Sydney Congress 2018 with The Honourable P A Bergin, Singapore International Commercial Court; Dr. Shen Hongyu, Supreme People’s Court (China); Flip Petillion, Petillion (Belgium); and Henri C. Alvarez, Vancouver Arbitration Chambers (Canada) and moderated by Stephen L. Drymer, Woods LLP (Canada), continued this year’s theme of evolution and adaptation in commercial arbitration, centring its discussion on features of other dispute resolution mechanisms that may be transposed into the realm of commercial arbitration in order to enhance the cost effectiveness and speedy resolution of arbitral disputes. Each panellist explored their own experiences with different forms of dispute resolution in order to evaluate the efficiency of commercial arbitration, highlighting, in the process, what they have seen to be problematic tendencies in the commercial arbitration sphere. While much of this comparative exercise involved weighing commercial arbitration against the Australian court system, speakers Hongyu Shen and Henri Alvarez added colour to the discussion by exploring favourable aspects of the Chinese courts and sports arbitrations, respectively.

The Hon. Patricia Bergin commenced the session by castigating “doomsayers” who claim that commercial parties now hold a level of disdain for the courts and their adversarial nature. Patricia Bergin submitted that there is no evidence of such disdain, despite the fact that commercial parties are now often seen to favour arbitration over other forms of dispute resolution. In fact, it was noted by the entire panel that present-day arbitrations have proven to be rather protracted and laborious in practise, falling well short of the promised efficiency which often attracts parties to arbitration in the first place.

Both Patricia Bergin and Hongyu Shen suggested that aspects of traditional litigation can prove useful in enhancing the efficiency of arbitral proceedings. For example, Practice Note SC Eq 11 of the Equity Division of the NSW Supreme Court (including the Commercial List but excluding the Commercial Arbitration List), now provides:

4 The Court will not make an order for disclosure of documents (disclosure) until the parties to the proceedings have served their evidence, unless there are exceptional circumstances necessitating disclosure.
5 There will be no order for disclosure in any proceedings in the Equity Division unless it is necessary for the resolution of the real issues in dispute in the proceedings.”

Reference to “evidence” in this practice note means all evidence- claim, reply and all supporting evidence- and restricts the court to ordering discovery only after parties’ reply submissions have been delivered. The audience heard that this guideline should be applied more commonly in arbitral proceedings. The discussion period offered robust agreement on this point from speakers, moderator and audience members alike, with many pointing out that until each party’s reply to the other’s claims is examined, the true issues of the case cannot be properly evaluated. This means that when document discovery is allowed to occur immediately after filing of the initial claims, unnecessary (and unnecessarily broad) requests are made and the discovery process can take several months to exhaust. Patricia Bergin noted that the average legal cost that parties incur during discovery alone in large commercial arbitrations averages 2 million dollars. Problematically, the IBA Rules regarding document discovery (see Article 3) permit parties to submit to the Arbitral Tribunal and the other parties a Request to Produce, within any time ordered by the Tribunal, so long as the request is “relevant to the case and material to its outcome”. Arguably, this poses a much lesser threshold than the NSW Supreme Court guideline and allows tribunals to more readily order discovery immediately after the submission of initial claims and before replies.

A point was made that in the age of technology, inefficiencies such as this are all the more objectionable- the very function of advents such as e-discovery tools is to accelerate the process of discovery and yet, it is perhaps the introduction of these tools that has allowed the process to remain laborious as they enable parties to drown each other in Redfern Schedule requests and production of documents- most of which ultimately do not go to the crux of the issues in dispute. Panellists observed that rare are the cases where a “smoking gun” is discovered in an opposing party’s document production. Rather, most disputes centre on presenting and defending one’s own arguments. Given this tendency in arbitral disputes, it is time that discovery takes its place as a supporting, rather than central process in arbitration in order to accelerate final resolution of disputes.

This point was reiterated by Henri Alvarez, who stated that a common cause of frustration amongst arbitrators is that whilst they attempt to push parties along, parties themselves favour a luxuriously paced process. While it has been suggested that the memorial system in arbitral proceedings overcomes the prohibitive cost and time impact that is seen in traditional litigation, Patricia Bergin disagrees. Members of the panel commented that memorials of claim in arbitral proceedings have not served their promised purpose of condensing the parties’ claims, with memorials often extending to hundreds of pages long. Accordingly, it was suggested that page limits for memorials and witness statements should be imposed more frequently by tribunals to compel parties to distil their submission to the very nucleus of their claims, again going some way towards accelerating the proceedings and arriving more efficiently at a final award.

Henri Alvarez also delivered novel insights and comparisons from the field of sports arbitration as against commercial arbitration. Where sports arbitrations are mandated by sporting contracts between athletes and sporting institutions, they are hallmark examples of extreme efficiency of the arbitration process. As an example, tribunals acting on FIFA arbitrations are held to tight time frames for the delivery of each party’s evidence and tribunals are compelled to deliver awards within 48 hours of the hearing. Another aspect that is lacking in the commercial arbitration world is that with consistency in sporting arbitral awards which stems from a reliance on authoritative precedents.

As a counter-point to the entire discussion, it was noted that context is key to the success of any system and that no one mechanism can be transferred to another area without posing unique issues, even when certain adaptations are made. That is, there exists no universal system capable of meeting all needs in all areas. This is especially true of commercial arbitration as it is the one binding mechanism of alternative dispute resolution that often canvasses extremely complex legal issues and subject matters. The consensual nature of arbitration perhaps plays to its favour in this regard, as procedures can be tweaked to suit the particular needs of the parties to a particular dispute.

The closing remarks of the panel served as a poignant reminder to practitioners in the field; it is the parties themselves who bear the responsibility of ensuring that the unique benefits of arbitration are reaped; it is the parties themselves who are responsible for ensuring arbitration lives up to its promise of being a cost and time effective alternative dispute resolution mechanism, perhaps by borrowing from the beneficial aspects of court and sporting arbitral proceedings as presented by the panel.

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ICCA Sydney: Hot Topics

Wed, 2018-04-18 00:41

Brecht Valcke

Young ICCA

In a much-anticipated session at ICCA Sydney Conference 2018 moderated by Mark Kantor, the panel: Joongi Kim, Yonsei Law School (Republic of Korea); Judith Levine, Permanent Court of Arbitration (Australia, Ireland); Natalie L. Reid, Debevoise & Plimpton LLP (Jamaica), tackled the following four “hot topics” in international arbitration:

1. illegally obtained evidence;
2. the One Belt, One Road initiative;
3. parallel proceedings; and
4. harassment & sexual misconduct.

1. Illegally obtained evidence

Whether evidence that was illegally obtained will be thrown out of the tribunal largely depends on who obtained the evidence.

If the party, or its counsel, had a hand in obtaining evidence in a less than kosher way, that evidence will be considered inadmissible on the basis that the party bringing the evidence does not have “clean hands”.

A party who relies on illegally obtained evidence “found” in the public domain (e.g. through Wikileaks), may find the evidence admissible. One of the considerations to allow the evidence is whether the party against whom the evidence is brought, objects to its admission. In cases were no objection was made, generally, the evidence was admitted. In cases where the party did object, the tribunal weighed the interest to find the truth against the risk of allowing the evidence would cause damage to the objecting party.

Another consideration is the interest for the tribunal to know relevant information that is already in the public domain. Sometimes, an independent advisor will assess the evidence and report back to the tribunal in an attempt to protect the tribunal from being influenced by any privileged information the tribunal would not have known, but for the leaked evidence.

The panel pointed out that the IBA Guidelines on Party Representation in International Arbitration (2013) and Article 9(2) and 9(3) of the IBA Rules on the Taking of Evidence in International Arbitration (2010) are of limited help. These soft-laws address the issue of inadmissibility of false evidence but is silent on the question of illegally obtained evidence, which may not necessarily be false evidence.

So what can be done? The tribunal has the power to rule on the admissibility of the evidence. As mentioned above, whether this type of evidence will be admissible generally depends on considerations of involvement of the party, or its counsel, and the egregiousness nature of how the evidence was obtained.

The panel concluded this topic by posing the question who should sanction the party who obtained evidence illegally? Is the function of a tribunal to be a watchdog, limited to assessing admissibility of such evidence; or act as a bloodhound, sanctioning the party or counsel? Is it more appropriate for the court of the seat to address this issue; or is it the bar association or law society to which the counsel is admitted?

2. One Belt, One Road initiative (OBOR)

China’s monster construction project of constructing a maritime silk road (One Belt) and a land based silk road (One Road) will connect China with 71 countries and its markets, with a potential of more countries to follow. Of those 71 countries, 55 also have BITs, but many of them are challenging jurisdictions.

A recent development in China is the creation of “OBOR-courts”. A court in Xi’an will hear disputes on the Road initiative; a court in Shenzhen will hear disputes on the Belt initiative; where a court in Beijing will operate as a “headquarter”.

Other developments triggered by the OBOR initiative are CIETAC’s recently published investment arbitration rules, and the creation of an e-OBOR initiative in Hong Kong.

With over a trillion dollars in projects, it is surprising that no investment has been made to date in the OBOR initiative by the Asian Infrastructure and Investment Bank (AIIB).

Where there are construction projects, disputes usually follow. With 71 jurisdictions involved, of which many States are not near at arms length with China, parties in dispute will very likely seek a neutral forum to bring the dispute; international arbitration is an attractive option.

The panel drew attention to China’s multi-tier dispute resolution clause of going through stages of negotiation and mediation before arbitrating. Clauses like this, if carefully drafted and applied, have the potential of preserving long time commercial relationships. However, the potential delay in finalising a dispute, especially when delaying a contraction project, may very well kill the project or bankrupt the construction company.

3. Parallel Proceedings

Over the last four years, it has not been uncommon for a party to seek provisional measures to address the issue where one of the parties or witnesses is also involved in domestic criminal proceedings. In assessing this request, the tribunal has to balance the sovereign right or duty of a State to prosecute criminal proceedings with the principle of due process, more specifically the right to access to an international forum and the integrity of arbitral proceeding. In general, tribunals have granted provisional measures where the criminal proceedings negatively impact the integrity of the arbitral proceedings, e.g. where a witness is unable to provide its testimony because he or she is unable to attend the tribunal.

The Permanent Court of Arbitration has a system in place to allow for safe passage of a key witness against whom an INTERPOL or EUROPOL arrest warrant has been issued. The tribunal has also taken the voluntary action to travel to the witness.

An interesting point was raised by the panel discussing the impact the conclusion of the domestic criminal proceeding may have on the arbitral proceedings still on foot. Considering the burden of proof is higher in a criminal proceeding, would a tribunal be tempted to put more weight on relevant factual evidence from the criminal proceedings?

Another intriguing question posed by the panel was what if the tribunal ignores or denies the domestic criminal judgment? Would this open up the arbitral award to scrutiny of not be recognised or enforced under the New York Convention’s public policy ground?

4. Harassment & Sexual Misconduct

Confidentiality and privacy have long been saluted as a major advantage arbitration provides to court proceedings in a commercial dispute.

However, consumer and employment law arbitrations are challenging these very notions of confidentiality and privacy, demanding instead transparency and public accountability.

One of such cases where the demand for transparency and public accountability is especially strong is where an arbitration clause in an employment or other contract is used to hide a case of harassment or sexual misconduct from public scrutiny.

The “hot topics” panel certainly left the attendees with lots of interesting talking points for the gala dinner tonight.

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ICCA Sydney: The Moving Face of Technology

Tue, 2018-04-17 21:17

Geneva Sekula

Young ICCA

Part 1: Technology as Facilitation

“The future is already here; it’s just not evenly distributed.”

Paul Cohen, assisted by Gabrielle Nater-Bass, Hugh Carlson and Rashda Rana SC, opened his session with this quote from Mr William Gibson, and was able to demonstrate it through his discussion of technology as facilitation in arbitration.

Upon entering the conference room, delegates most likely did not anticipate watching clips from Star Trek, watching a witness interview with Darth Vader, or discussing Snapchat filters, but as they were led through various technologies that could be used to assist the development of arbitration they saw all this and more.

The session was structured around three key technologies. The first, augmented reality (AR), was demonstrated to the audience through an app, which delegates were instructed to download at the start of the session. The panel considered the fictional case, Galactic Empire v Death Star Manufacturers, Inc, in which the Empire seeks to sue DSM for negligent manufacture of its Death Star. AR was used to visually demonstrate to the audience the set of physical circumstances required to lead to the destruction of the Death Star, and to help the Tribunal visualise the structure they were being asked to consider.

While this was highly entertaining, it was an important demonstration of the ways that augmented reality can be used within arbitration, for example in the context of a construction dispute where the parties may wish to show the Tribunal the technical side of what is being debated. Ms Gabrielle Nater-Bass cautioned that though the use of AR is appealing, parties must be cautious to ensure that its use does not jeopardise due process and the rights of parties to be heard, to receive equal treatment, and the right to present their own case.

The second technology considered by the panel was that of instant translation. Given the cross-border nature of international arbitration, the value of this technology is immediately apparent. The panel used Microsoft Translate to demonstrate how an app can process this sort of linguistic information almost instantaneously. However, given the complexity of legal language and issues in dispute in arbitral proceedings, this technology is not yet mature enough to be implemented. Issues such as confidentiality would also need to be considered as the technology develops.

Finally, real time analytics and artificial intelligence were considered as a means by which data could be processed and analysed. Self professed Star Trek expert, Mr Cohen explained they had downloaded the full suite of Star Trek episodes, and demonstrated as certain videos were digitally and instantly extracted as evidence of various propositions (for example that Vulcans are incapable of telling a lie).

Part 2: Technology as Disruption

Part 2 of the panel took a different approach as the new panellists turned to consider technology as disruption. Brandon Malone as moderator was joined by Carsten van de Sande, Sophie Nappert and Matthew Kuperholz, for a sub-panel on artificial intelligence (AI).

Sophie Nappert drew attention to the advanced development of AI, and the ways that technological advances have already started to reshape the legal profession. Ms Nappert also asked the delegates to consider where these advances were taking us. For example, if computers are able to deliver perfect legal reasoning, what need would we have for appeal mechanisms or judicial review? However, Ms Nappert highlighted part of what it is to be human is equity, empathy, conceptual thinking, emotional intelligence, fairness and trust; and these are essential ingredients in (human) dispute resolution. It might mean that parties prefer to reign in computers, and allow fairness, common sense, honesty and empathy to come to the fore.

Carsten van de Sande took a different approach, and suggested that AI would replace human arbitrators as fact finders and adjudicators. He suggested that where AI can overcome narrow, purpose specific application, and can replicate a human’s ability to reason, solve problems and innovate, this would lead AI to develop thoughts and ideas. Experts now believe that by 2045 there will be a functioning AI that will be able to reason like a human being. Mr van de Sande rejected the notion that parties want arbitrators to employ empathy and emotional intelligence, rather parties want arbitrators to adjudicate dispassionately. One man’s empathy is another man’s bias.

Mr van de Sande also considered the criticism that AI cannot explain how it arrived at the decision it did. Mr van de Sande noted that this is not so different from a human arbitrator – the process leading to a decision is never fully transparent, parties simply tend to have an inherent confidence in the human arbitrator because we understand better how their mind words.

The second sub-panel dealt with cyber security. Edna Sussman, Alana Maurushat and Hagit Muriel Elul considered challenges in the digital age, particularly how people are the weakest link in tech defence, and introduced the Draft Cybersecurity Protocol for International Arbitration. Ms Maurushat also strongly recommended that organisations adopt cyber-insurance and helpfully advised that having a cybersecurity protocol helps to bring insurance premiums down.

Based on today’s panels it is clear the future is already here, and it will be fascinating to see where these technologies take the arbitration world.

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ICCA Sydney: Building Better Arbitration Proceedings – Practical Suggestions I: Revisiting Conventional Wisdom in the Organization of Arbitral Proceedings

Tue, 2018-04-17 19:43

Jonathan Mackojc

Young ICCA

The morning session at ICCA Sydney Conference 2018 on “Revisiting Conventional Wisdom in the Organization of Arbitral Proceedings” was moderated by Chiann Bao and had the insightful contributions of Funke Adekoya SAN, Dr. Fuyong Chen, Klaus Reichert SC and Prof. Nayla Comair-Obeid.

Chiann Bao insisted that we ought to deal with issues of procedure by firstly examining the existing structure and questioning whether the current system is wise. Chiann Bao broadly suggested that the following three questions must be considered if we are to unpack the notion of ‘conventional wisdom’:

1. What are we actually organising and what are we seeking to achieve?;
2. What influences conventional wisdom?; and
3. Are there any aspects that should be revisited?

What are we actually organising and what are we seeking to achieve?

Klaus Reichert SC asserted that both the tribunal and parties must share a common understanding of the object and purpose of the arbitration, to avoid a costly and unsatisfactory outcome. The key contention was that disputes are not settled by procedures, but rather relief that is granted by the tribunal. It was noted that most experienced arbitrators commence by reading the prayers for relief, and then work their way back to the beginning of the statement of claim or defence. This is particularly important as the tribunal does not (or at least ought not) have full jurisdiction over parties, as it is restricted to jurisdiction over prayers for relief. The absence of a wide-ranging jurisdiction renders statements such as ‘…further or other relief which the tribunal may award’ superfluous and thus meaningless.

Klaus Reichert SC offered a simple yet powerful solution: immediately after the tribunal is constituted, it must inform parties that they ought to carefully consider prayers for relief as any request to widen the scope at a later stage may be denied by the tribunal. Promoting a strong foundation at the outset will almost always guarantee a smooth process.

What influences conventional wisdom?

Chiann Bao referred to John Kenneth Galbraith OC’s thoughts on conventional wisdom as a starting point. Prof. Nayla Comair-Obeid’s interpretation of the term suggests that it represents a set of good practices and principles, passed down from the current generation of arbitration practitioners to the emerging generation. Prof. Nayla Comair-Obeid also noted that international arbitration has developed significantly, yet not solely in response to technological developments. Recent changes can also be attributed to developments in investor-state arbitration which demand constant adaption to a changing environment. Ultimately, as cases are specific in nature, the arbitration community may be permitted to deviate from conventional wisdom.

Funke Adekoya SAN suggested that we go a step further than Galbraith’s definition of conventional wisdom and consider material which is readily available such as the UNCITRAL Notes on Organizing Arbitral Proceedings. It outlines common practice with respect to key procedural issues, and seeks to addresses power imbalances between experienced and inexperienced parties. However, it is important to note that it is merely a guide. Klaus Reichert SC shared this view, and suggested that even if uniform principles exist, people will inevitably interpret them differently. The only safeguard is sufficient dialogue, within the arbitral tribunal and among parties, as to how these principles are to be interpreted.

Dr. Fuyong Chen urged us to revisit conventional wisdom from time-to-time, and according to different perspectives, to ensure that we remain sensitive to certain cultural issues which equally influence the development of international arbitration. In the case of China, these include the restrictions on ad hoc proceedings, the use of Med-Arb, and the importance of witnesses.

Klaus Reichert SC referred back to Galbraith’s definition of conventional wisdom, noting that it suggests it may change at any time. This has recently been observed, particularly where certain (and often new) arbitration stakeholders are on the look out for the next sound bite, tweet, or conference topic. Such an approach disregards fundamental points of organisation and conventional wisdom. Klaus Reichert SC also highlighted that the arbitration community is currently obsessed with the ‘arrogance of internationalism’ – where just because one arbitral institution adopts a certain procedure or initiative, others must follow suit.

Are there any aspects that should be revisited?

The panel’s list included: online arbitral proceedings, word limits for submissions, front-loading the arbitral process, common understanding of definitions relating to evidence, whether cases should be allowed to ‘breathe’, and considering the ‘essential, desirable, superfluous’ award. The panel agreed that the first seemed to be the most relevant at present.

Other Considerations

The panel agreed that the role of the tribunal secretary must be examined further, particularly whether delegating legal research to the secretary suggests misconduct (as it may be considered an element of ‘decision-making’); and
Prof. Nayla Comair-Obeid’s call to action – experienced practitioners must involve emerging practitioners in arbitration prayer meetings and that this is not a choice but rather a duty.

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ICCA Sydney: Arbitration Challenged II – Party Autonomy in Choosing Decision-Makers: Advantages and Drawbacks – Should it be Revisited?

Tue, 2018-04-17 01:09

Jonathan Mackojc

Young ICCA

The afternoon session at ICCA Sydney Conference 2018 on “Party Autonomy in Choosing Decision-Makers” was moderated by Prof. Dr. Gabrielle Kaufmann-Kohler and had the insightful contributions of Alfonso Gómez-Acebo, Audley Sheppard QC, Natalie Y. Morris-Sharma and Ruth Stackpool-Moore.

The session commenced with Prof. Dr. Kaufmann-Kohler underscoring the importance of maintaining party autonomy in international arbitration. Prof. Dr. Kaufmann-Kohler argued that the ability to choose an arbitrator is more than a hallmark of international arbitration; it is the keystone.

Prof. Dr. Kaufmann-Kohler also noted that investment arbitration has recently faced significant scrutiny, forcing the international arbitration community to consider certain reforms to ensure that it continues to be seen as a legitimate form of dispute resolution for investor-state disputes.

Role of party-appointed arbitrator

Alfonso Gómez-Acebo asked whether the expectations of a party-appointed arbitrator are the same as that of a presiding arbitrator. Alfonso Gómez-Acebo also highlighted the existing debate with respect to the unilateral appointment of arbitrators, and whether this tried-and-tested mechanism should remain as a default, or whether it ought to be entirely abolished. Alfonso Gómez-Acebo argued that this necessarily depends on the ‘role’ or ‘job description’ of party-appointed arbitrators. It was noted that there is currently no understanding, or set of written rules, which address what that particular role may be.

Alfonso Gómez-Acebo also noted that it is disconcerting to contemplate that one should presume that a specific role exists, as this in itself brings about confusion regarding independence and impartiality, an imbalance in the arbitral process, and the introduction of bias.

Overall, it was argued that there is a need for clarity regarding the role of party-appointed arbitrators and that there may be value in exploring special roles for certain party-appointed arbitrators, provided that both parties agree to do so. The most important action is to facilitate increased dialogue between parties, to ensure that their views regarding special roles are considered.

Audley Sheppard replied by stating that there should not be a positive obligation on party appointed arbitrators to adhere to specific roles. However, this should not discourage party-appointed arbitrators from better articulating their parties’ case in the event that their arguments have been poorly presented by counsel, or simply to ensure that the other members of the tribunal ‘get it’. It seems natural that a party would expect such support from its appointed arbitrator, and such initiative would not compromise expectations of independence and impartiality. After all, international arbitration is underpinned by the notion that parties strive to select the best arbitrators in the first place.

Quality of institutional appointments

Ruth Stackpool-Moore agreed with Audley Sheppard that an understanding of the role of party-appointed arbitrators is not enough, and proposed that it may be time to submit to a full-scale evolution of the arbitrator appointment process – by firstly assessing the status quo regarding institutional appointment, and then proposing specific improvements to the process.

Ruth Stackpool-Moore noted that there seems to be a general hesitation to accept that institutions play a pivotal role. Statistics from the QM Arbitration Survey, BLP Arbitration Survey and from institutions such as HKIAC, SIAC, LCIA and ICC, cumulatively suggest that institutions do in fact play a significant role in the appointment of arbitrators. Ruth Stackpool-Moore proposed that institutions must immediately address transparency – an exercise that would necessarily involve clear and comprehensive information with respect to the appointment process. This may include details as to who is responsible for such decisions and their experience, how such decision-makers are selected, and even the criteria used to inform the final appointment.

Natalie Y. Morris-Sharma welcomed Ruth Stackpool-Moore’s call to action and contributed the following points:

trust stems from more than the quality of appointments – institutions must have a good reputation;
institutions must strike the right balance regarding the type and extent of transparency; and
institutions must carefully consider the quality of their appointments, and ensure that their criteria are aligned to party criteria– a consultation process would be an ideal solution.

Prof. Dr. Kaufmann-Kohler then remarked – if we are to pursue greater appointment from institutions, what standard are we to adopt?

Reforming ISDS

Natalie Y. Morris-Sharma acknowledged that investor-state dispute settlement is facing a legitimacy crisis, irrespective of whether this is real or imagined. Three possible solutions with respect to the arbitrator appointment process were proposed:

1. ‘Arbitrators ad hoc’ – following the approach of certain courts which have a ‘Judges ad hoc’ system, increasing the tribunal from three to five members. This may assist parties with real or perceived concerns regarding arbitrator bias. This should remain an option rather than an obligation.
2. ‘Circumscribed appointments’ – rely on pre-established lists which would require parties to internally rationalise their appointments, as they would need to balance considerations of both an investor and host state.
3. ‘Agreed appointments’ – parties to agree at an early stage, empowered by an investment treaty. Though difficult, it is viable as long as parties have options and timelines.

Panellists also discussed the possibility of a permanent multilateral investment court, discussing issues such as Groupthink, homogenous decision makers, the role of dissents and other psychological pressures.


The arbitrator selection process is one of the most important aspects of an arbitration proceeding, and a key reason why parties choose arbitration over litigation. All panellists agreed that it now deserves significantly more attention in both commercial and investment arbitration, as it impacts a variety of stakeholders. Active participation in the arbitrator selection process by all concerned parties is imperative; it will ensure that the best possible arbitrators are appointed to meet the specific needs of a case.

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ICCA Sydney: Arbitration Challenged I – Reforming Commercial Arbitration in Response to Legitimacy Concerns

Tue, 2018-04-17 00:51

Geneva Sekula

Young ICCA

What if Facebook, as a result of its recent negative publicity, had the opportunity to file a request for arbitration against Cambridge Analytica? A key principle of international commercial arbitration is its maintenance of confidentiality, but would the public interest in such an arbitration justify greater transparency?

The afternoon panel of the first day of the ICCA Sydney Congress 2018 grappled with questions such as these in its examination of how international commercial arbitration is positioned to respond to growing challenges and concerns related to its legitimacy. Various criticisms include that arbitrations take too long, that they are too costly, that they are secretive, that there is no accountability etc. But how can the arbitration community respond?

Mr Dietmar W Prager’s opening remarks and Mr Andrés Jana’s presentation shone a spotlight on the tension that exists between public and private interests within an arbitration. A cornerstone of the concept of international commercial arbitration is party autonomy and party freedom in dictating the terms of their own dispute resolution.

However, there are strong public interest factors which emerge in arbitration proceedings, which Mr Jana characterised as stemming from two arenas:
The specific arena: the involvement of states and state entities necessarily brings into question issues of public interest. In 2017, 15.4% of ICC arbitrations involved a state party or state entity.
A more general arena: the large scale social significance of arbitration continues to grow, attracting more public scrutiny and focus.

There is a natural tension which exists between the promotion of public and private interests, and Mr Jana noted that adopting a framework which considers both is a good way to start to find a solution to enhance perceptions of legitimacy. Considering both interests is more likely to produce a favourable result.

However, of particular interest were the comments made by Ms Noradèle Radjai. Her presentation focused on a specific manifestation of the tension between public and private interests, through an examination of the criticism that the growth of international arbitration is hindering the development of the common law. Her thesis grew from the position that indeed, cases that might have otherwise contributed to the development of the common law are being arbitrated, thereby not forming part of case law. English and US law are the most common choices of law for international commercial arbitrations, and therefore these systems of law are particularly affected by this issue.

There are necessary issues of legitimacy to confront in this arena. From a global perspective, if a third of jurisdictions (i.e. common law jurisdictions) are limited in their development of precedential law then this is not a legitimate outcome. Ms Radjai noted however that this issue also impacts civil law jurisdictions, which though do not adopt binding precedent, use case law as influential precedent. Regardless of whether one takes a narrow view (i.e the interest of a party, or the arbitration community) or the wider global view, there are legitimacy issues that need to be confronted.

So what is the solution for the arbitration community? Any solution must be careful not to override the autonomy of the parties in choosing arbitration as their forum for dispute resolution. Ms Radjai suggested that one possible way to mitigate this issue is through a more systematic publication of arbitral decisions. Wider publication would enable parties to refer to more decisions, and also allow courts to allocate appropriate weight to certain decisions. Ms Radjai recommended that these awards could carry the same weight as other non-precedential material, such as academic materials and judicial decisions from other jurisdictions.

In the discussion that followed her presentation, Ms Radjai also suggested that to balance confidentiality concerns, publication bodies could anonymise the names of the parties, implement a cooling off period or 2 or 3 years before publication, and publish the reasoning with limited reference to the facts, in an effort to protect and preserve confidentiality.

Unsurprisingly, the panel were unable to resolve all the legitimacy concerns facing international commercial arbitration in their allotted 90-minute time slot, however the panellists provided insightful and engaging responses to current problems facing the arbitration community, and made some compelling suggestions for the arbitration world to consider moving forward.

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ICCA Sydney: Law-Making in International Arbitration – What Legitimacy Challenges Lie Ahead?

Mon, 2018-04-16 21:40

Mitchell Dearness

Young ICCA

The theme of this year’s ICCA Congress is ‘Evolution and Adaptation: The Future of International Arbitration.’ Central to this theme was the topic of the First Plenary Session -‘Law-Making in International Arbitration: What Legitimacy Challenges Lie Ahead?’ The timing of such a discussion is apt given the Court of Justice of the European Union’s decision in Slovak Republic v. Achmea BV (Achmea). Stephan Schill (University of Amsterdam) moderated the discussion. The panel comprised of Sundaresh Menon (Singapore Supreme Court), Alexis Mourre (ICC International Court of Arbitration), Lucy Reed (National University of Singapore) and Thomas Schultz (King’s College London).

Thomas Schultz considered the concept of ‘legitimacy’ in this international arbitration context, noting that it ought to be viewed from the perspective of key actors (such as arbitrators and arbitration institutions) who have the ability to influence law-making.

Lucy Reed examined the role of the arbitrator and the extent to which it involves legitimate ‘law-making.’ Professor Reed noted the distinction between the role played by an arbitrator in general commercial arbitrations, in certain specialised arbitral tribunals (such as the Court of Arbitration for Sport and the Iran-US Claims Tribunal) and finally in the context of investor-state arbitrations. The legitimacy of arbitrator law-making in this final scenario (arbitrators determining investor-state arbitrations) is particularly topical in the current climate given decisions such as Achmea and the negotiation and signing of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

Alexis Mourre focussed on the role played by arbitral institutions and bodies in rule-making, in particular with regard to ‘arbitration procedure.’ Arbitration cannot exist in a vacuum and the contribution made by these institutions and bodies is fundamental. One only needs to consider widely adopted instruments such as the IBA Rules on the Taking of Evidence in International Arbitration and the IBA Guidelines on Conflicts of Interests in International Arbitration. Legitimacy can be established in this context by ‘cross-fertilisation’ within the arbitration community and the existence of a ‘decentralised and horizontal rule-making process.’

Finally, Chief Justice Sundaresh Menon considered the ‘law-making’ role played by other public actors, in particular domestic legislatures, domestic courts and international organisations. In a climate where a less interventionist approach by these bodies can be called for the important and essential role played by them can be overlooked. Chief Justice Menon refers to the ‘high watermark’ being the development of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the Model Law on International Commercial Arbitration.

Note: The ICCA Sydney conference papers prepared by the panelists will be published in the ICCA Congress Series No. 20. This Post is intended to provide only an overview of a detailed discussion of a complex topic.

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ICCA Sydney: Arbitration Challenged II: The Realities of Arbitration Economics: Who Gets to Play, and What are the Implications

Mon, 2018-04-16 21:15

Brecht Valcke

Young ICCA

The panel on Arbitration Challenged II: The Realities of Arbitration Economics: Who Gets to Play, and What are the Implications, at ICCA Sydney 2018 Conference, was moderated by Susan Franck, American University, Washington College of Law (United States) and had contributions from Mohamed Abdel Wahab, Zulficar & Partners Law Firm (Egypt); John Beechey, BeechyArbitration Ltd (UK); Kate Brown de Vejar, Curtis, Mallett-Prevost, Colt & Mosle, S.C. (Australia); Victoria Shannon Sahani, Arizona State University, and Sandra Day O’Connor College of Law (United States).

One of the key criticisms of the international arbitrations system is the high costs. Surprisingly however, stakeholders have generally not questioned costs to be high in international arbitration in deciding to proceed to arbitration or not. However, there is considerable uncertainty as to the law applicable to the question of costs (some States apply party-party costs, some apply a “loser pays” approach) as well as recoverability of costs (some States do not accept recoverability and the laws are not consistent between States).

More and more, third party funders are being used in international arbitrations and it is questioned what impact this may have on the concept of access to justice.

Third party funding may increase the access to justice by allowing parties who would not otherwise have been able to fund a dispute to bring a claim.

However, third party funders generally will not agree to fund parties that are unlikely to win, or pursue non-damages claims, or the respondent State in investment arbitrations. This is so because generally, third party funders are looking for a return on their investment. This approach arguably denies access to justice for the parties third party funders refuse to fund.

Other concerns raised by the panel were the allocation of costs (party-party or “loser pays”) and security of costs. Considering third party funders are not a party to the arbitration agreement, a concern is that third party funders are beyond the reach of the tribunal in imposing an order for costs or for security for costs, where third party funders gain a benefit when costs are awarded in favour of the party they funded.

The panel further discussed the fact that third party funding is currently not regulated or supervised. Because third party funding comes into play at the beginning of a dispute, it is a highly speculative business. The panel argued that third party funders may adapt a ‘portfolio’ funding approach where it invests in many high risk, high rewards disputes which may increase the number of unmeritorious claims to be brought. Potentially, third party funders may also have an interest in funding such claims that are about changing rules in favour of third party funders.

Whether or not third party funding fosters or hinders access to justice, the concept of third party funding is generally accepted throughout the common law (except for Ireland) and civil law jurisdictions. Most tribunals and legislations impose an obligation to disclose where third party funders are involved in a dispute.

As the use of third party funding in disputes will continue to grow, it remains to be seen whether it will be sufficient to rely on self-regulation and code of conduct rules or whether third party funding will need to be independently regulated and supervised.

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ICCA Sydney: Arbitration Challenged Part I: Reforming Substantive Obligations in Investment Treaties and Conditions of Access to Investment Arbitration

Mon, 2018-04-16 20:44

Brecht Valcke

Young ICCA

The panel on Arbitration Challenged Part I: Reforming Substantive Obligations in Investment Treaties and Conditions of Access to Investment Arbitration, at ICCA Sydney 2018 Conference, was moderated by Meg Kinnear, Secretary General of the International Centre for Settlement of Investment Disputes (Canada) and had contributions from speakers Christophe Bondy, Cooley LLP (Canada); Max Bonnell, White & Case (Australia); Mélida Hodgson, Foley Hoag LLP New York (United States); Won Kidane, Seattle University School of Law (United States); and Whenhua Shan, Xi’an Jiaotong University (China).

The panel discussed whether specific substantive obligations in investment treaties need reform or at least could be benefited from an evolution. This question springs from some of the criticisms that are expressed about investment treaties, such as:

– interpretation of investment treaties are too expansive and too pro-State;
– a lack of consistency in jurisprudence; or
– poor drafting of 1st and 2nd generation investment treaties.

The substantive obligations addressed by the panel included: the definition of investment, the fair & equitable treatment standard (FET), the concept of expropriation, the most favoured nation clause (MFN), and investment treaties imposing obligations on the investor.


As a part of assessing whether tribunals have jurisdiction a ‘double-door’ approach is taken in assessing the definition of “investment”. First, whether the definition of “investment” under the investment treaty under which the dispute is brought applies; secondly, whether the definition of “investment” under the investment arbitration rules applies.

“Investment” in investment treaties is usually based on an asset approach. Most tribunals apply the Salini-test, however, not in a consistent fashion.

The interpretation of “investment” should be based on the ordinary meaning of the word and in general includes the characteristics of an input of capital, the assumption of a profit or gain, and the adoption of risk.

Fair & Equitable Treatment (FET)

FET in investment treaties is the idea of a minimum standard of treatment of investors, disciplined by State practice. The panel identified a conflict between the standard as considered:

– by the States when drafting investment treaties, being a minimum standard based on such customary international law notions as the denial of justice,
– where the jurisprudence has linked FET to concepts such as legitimate expectations, reasonableness or proportionality. This has triggered State practices to react to the tribunal decisions on FET.

Some possible reactions identified by the panel include:

1. terminating investment treaties;
2. eliminating the reference to FET in investment treaties but including a reference to minimum standard concepts such as reasonableness or proportionality;
3. redrafting investment treaties so that FET is defined as a minimum standard treatment;
4. defining FET and restricting the tribunals right to interpret the concept; or t
5. maintaining the existing notion of FET under the motivation that a new concept of FET may bring with it unknown problems of its own.


The concept of expropriation evolved from direct expropriation to also include indirect expropriation (e.g. contractual rights). Over the years, a wider interpretation developed of what constitutes expropriation, triggering questions of whether refusing to grant an environmental permit could be construed as expropriation. Nowadays, more and more exceptions are accepted for the States to regulate such areas as health (pharmaceuticals, vaccines, medical devices), public health or regulating tobacco. The panel questioned whether extremely low or extremely high damages awarded in a dispute between State and investor could be considered an expropriation.

Most Favoured Nation (MFN)

Remarkably, States infrequently turn their mind to the concept of MFN when drafting investment treaties and its application by tribunals is seldom challenged.

However, the concept that an investor can rely on any substantive protection offered by the State in any of its other third party investment treaties exposes the State to potential obligations it may never intended to undertake when it negotiated the investment treaty under which the State is now sued.

Some States, such as India, therefore have excluded MFN clauses or international arbitration clauses from their more recent treaties. Newer treaties such as CETA and JEPA also limit the application of MFN.

The argument against the application of MFN is that a State cannot be drawn into an arbitration it did not consent to, where it nonetheless common for tribunals to rely on MFN to allow arbitration to go ahead.

It is therefore crucial that States address the application or exclusion of MFN in their treaty negotiations expressly. More and more States exchange position papers expressing the State’s view on whether MFN should or should not apply.

Treaty obligations on investors

Recently, investment treaties may also impose obligations on the investor (e.g. in the areas of environmental protection, labour laws and anti-bribery).

The panel questioned whether imposing obligations on investors under investment treaties erodes the protection of the investor, which is the main reason investment treaties came into existence, i.e. to replace “gunboat” diplomacy.

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Belt and Road: Supporting the Resolution of Disputes

Mon, 2018-04-16 08:05

Mingchao Fan, Briana Young and Anita Phillips

On 5 March 2018, the ICC Court announced the establishment of a commission to address dispute resolution in relation to China’s Belt and Road Initiative. The commission will drive the development of ICC’s existing dispute resolution procedures and infrastructure to support Belt and Road disputes.

The Belt and Road

The Belt and Road is China’s ambitious infrastructure project spanning more than 70 countries, with an increasing number of non-Chinese investors, contractors and developers – including sovereign states – involved. The project aims to build connectivity and cooperation between China across the land-based Silk Road Economic Belt and the 21st Century Maritime Silk Road. It spans large parts of Asia, the Middle East, Africa and Europe.

A construction and infrastructure initiative on this scale will inevitably generate disputes. With an estimated US$900bn in projects planned or already underway, the project gives rise to a multitude of actual and potential commercial disputes to consider. In response to this, Alexis Mourre, President of the ICC Court, announced the establishment of the commission during the ICC Court’s working session last fall.

It is a competitive field, with numerous existing institutions vying for a share of the Belt and Road disputes market, and new courts and institutions being established specifically for the purpose. It seems clear that parties who adopt the right dispute resolution model in their contracts today will be in a better position to resolve disputes as and when they may arise.

Make-up of the Commission

Justin D’Agostino, Global Head of Disputes at Herbert Smith Freehills and Hong Kong’s alternate member of the ICC Court, has been appointed commission chair. Dr Mingchao Fan, ICC Director for North Asia, will act as secretary. Other commission members are drawn from a range of sectors, representing jurisdictions including the PRC, Hong Kong and Singapore. A broader advisory board, representing other countries along the Belt and Road, is being considered.

ICC recognises the importance of engaging key stakeholders within both corporates and governments all along the Belt and Road, to ensure that it is offering the best possible service to parties on all sides.

Although the ICC Belt and Road Commission’s main objective is to raise awareness of the ICC as a “go-to” institution for disputes arising out of China’s Belt and Road Initiative, the commission has additional relevant aims:

leveraging ICC’s unparalleled international coverage with secretariats and/or national committees in over 100 jurisdictions to attract Belt and Road disputes;
engaging with corporates, state-owned enterprises and governments across all Belt and Road territories; and
highlighting Belt and Road dispute resolution at a series of events throughout the region, with the aim of promoting ICC’s capabilities widely. Events are planned in locations as diverse as China, Paris, Kazakhstan, Kyrgyzstan, Nigeria, Southeast Asia, Japan and Hong Kong, with more to come.

In the Commission’s view, the combination of the ICC’s tried-and-tested, multi-process services, its unrivalled geographical footprint, and its established credibility and independence, place it in a strong position to resolve Belt and Road disputes.

Sector expertise

On average, construction and engineering disputes account for close to a quarter of all ICC arbitration cases, while the finance and insurance sector accounts for approximately 20%. As the world’s leading arbitral institution, ICC is adept at handling complex multiparty cases as well as high-value, complex multi-party and multi-contract disputes (approximately half of all cases filed involve three or more parties). The introduction in 2017 of an expedited procedure also enables lower-value cases to be handled with greater time- and cost-efficiency.

Mediation matters too

There is no ‘one-size-fits-all’ method of resolving Belt and Road disputes. But there is a concerted effort, led and supported by the Chinese government, to encourage mediation clauses in Belt and Road agreements, with provision for arbitration if mediation fails. ICC is a world-leading arbitration and mediation provider, with tried and tested mechanisms and a strong pool of arbitrators and mediators. It is therefore well placed to provide appropriate, effective dispute resolution services to parties all along the New Silk Road. ICC’s stated objective is to ensure that where disputes arise, they are resolved efficiently and with minimal damage to the parties’ commercial relationships.

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Interview with Meg Kinnear, Secretary General of the International Centre for Settlement of Investment Disputes

Sat, 2018-04-14 23:41

Crina Baltag (Acting Editor)

In the midst of challenges to the very legitimacy of Investor-State Dispute Settlement (ISDS), the International Centre for Settlement of Investment Disputes (ICSID) celebrated its 50th anniversary and embarked on the fourth ICSID Rules amendment process in ICSID history. The previous amendment processes brought notable additions to the ICSID Rules, such as enhanced transparency in the arbitral process (including publication of at least excerpts of the ICSID awards), and the development of an amicus curiae provision (used in over forty ICSID cases since 2006).

Kluwer Arbitration Blog invited Meg Kinnear, the Secretary-General of ICSID, to discuss these proposed changes to the ICSID Rules, the first 50 years of existence of the Convention on the Settlement of Investment Disputes between States and Nationals of other States (ICSID Convention) and of ICSID, as well as the challenges ISDS is currently facing.

1. Meg Kinnear, welcome to Kluwer Arbitration Blog. It is an honour to have you as our guest before the start of the ICCA Conference in Sydney. ICSID and the ICSID Convention celebrated the first 50 years with an impressive caseload, exceeding 650 cases registered under the ICSID Convention and Additional Facility Rules. How were the first 50 years?

Thank you for the opportunity. I am tremendously proud of the role that ICSID has played in the field of investment law over the last fifty years.1)See also Building International Investment Law: The First 50 Years of ICSID by Meg Kinnear, Geraldine Fischer, Jara Minguez Almeida, Luisa Fernanda Torres, Mairée Uran Bidegain (Wolters Kluwer/ICSID) jQuery("#footnote_plugin_tooltip_6125_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6125_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Let me offer a few reflections. One is the ongoing relevance of ICSID’s original mandate. As you know, ICSID is housed in the World Bank where a core priority is mobilizing private finance for development. How to unlock finance by putting in place the right economic and policy drivers for investment—this is the conversation that surrounds us. Against this backdrop, the preamble to the ICSID Convention is remarkably prescient. Its emphasis on international cooperation, and the specific role that foreign investment plays in economic development, could well have been written today.

I also think that the drafters of the ICSID Convention, Regulations and Rules were admirably forward-thinking in the design of the institution. The notion of a self-contained regime that serves to depoliticize international investment disputes—these are qualities that have firmly established ICSID as the preeminent forum for investment dispute settlement. And it is because of this solid foundation that ICSID jurisprudence has made such a wide and deep imprint on international investment law over time.

Finally, it has been a personal privilege to witness the development of the ICSID secretariat. Today we are about 70 individuals from 35 countries, fluent in some 20 different languages, and amongst the most talented people I know.

2. Besides the case administration, the ICSID Secretariat is also involved in other activities, such as the appointing authority function of the Secretary General, training courses etc. How busy is the ICSID Secretariat?

The short answer is ‘very’. We have seen a growing demand for our capacity building services, particularly amongst first-time and developing country participants in ICSID cases. Our ICSID 101 training course, which offers member States a deep dive into ICSID arbitration practice, has been delivered in 40 countries so far. The process of amending the regulations and rules has also been time intensive. We have consulted widely, and will continue to do so over the next year. Our goal is to ensure that all interested stakeholders have an opportunity to provide input and respond to proposed amendments. And our website has also developed over the years into a tremendous research and learning tool, and we continue to build and refine it.

I am also pleased that ICSID has been named the registry in recent EU trade and investment treaties, and designated as the appointing authority in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Both are a significant recognition of ICSID’s leading role in investment arbitration.

3. The current debate revolves around the legitimacy of ISDS, the proposal for a new multilateral investment court, accompanied by renegotiations of free trade agreements etc. How are all these reflected on ICSID?

Clearly international investment agreements have evolved significantly over the last couple decades. There is, however, a lag between innovations in treaties and ISDS case law. UNCTAD pointed out recently that virtually all ISDS cases to date have concerned treaties drafted before 2010. In other words, ICSID tribunals have not yet interpreted the latest generation of investment agreements.

In terms of discussions on ISDS specifically, such as a multilateral investment court, our philosophy is to contribute where we can and in ways that are appropriate. A key objective is ensuring that discussions are grounded in the facts. Given that the majority of investment disputes are settled at ICSID, we have a special responsibility to make information on ISDS trends, and on how the system operates in practice, available in ways that are useful and timely.

At the end of the day, policy decisions on the form of ISDS are for States to make. Our role is to administer these cases, and we strive to do that at the highest professional standard. This ultimately is the responsibility we have to our 153-member States and the investors which elect to bring cases to ICSID, and it doesn’t change even as ISDS evolves.

4. Is the amendment process of the ICSID Rules a response to this apparent ISDS crisis?

I would say firstly that the rhetoric of crisis, backlash, etc. does everyone a disservice in many ways. I value the fact that international investment law broadly, and dispute settlement specifically, is a dynamic field. I don’t agree with every policy or approach, but change that is brought about by a competitive exchange of ideas is ultimately a good thing. The real crisis would be if investment dispute settlement ossified and was incapable of change.

Second, my sense, and this comes from speaking daily with our clients, is that the ICSID rules are performing well. There is always room for improvement—which is why we initiated the amendment process—but we are starting from a solid foundation. You may recall that we made some important amendments to the rules in 2006, including strengthened disclosure requirements for arbitrators, expanded transparency provisions, and procedural rules designed to reduce the time and cost of proceedings. The amendment process today continues this tradition of carefully considered change based on a lot of hands-on experience, a solid empirical foundation, and broad consultation.

5. What is the current stage of the amendment process?

I would say that we are a good half-way to the finish line, but let me explain. In terms of scope, I should emphasize that we are focused on amendments to the ICSID Convention Regulations and Rules—but not the Convention itself. Changes to the Convention require endorsement from all member States, whereas changes to the rules can be amended with a two-thirds majority. We currently have 153 members, so that means at least 102 votes of support. Changes to the Convention are part of the overall vision, but do not fall within the scope of the current process.

In 2016 we made three requests to ICSID member States. One, that they suggest topics to be considered for amendment. Two, that they nominate a focal point: someone with knowledge and responsibility for the portfolio and who could contribute substantively and authoritatively on behalf of her government. Third, we undertook a survey of member States on compliance with awards of costs, at the request of Panama. Last year, we also reached out to the broader public for input. To date we have received over twenty written submissions from law firms, NGOs and individuals—all of which are published on our website.

In parallel, we established a rigorous internal process. Working groups of ICSID counsel were tasked with studying specific rules: their history, how they have been applied in practice, and the comments we received on them from States and the public. In a series of weekly meetings, these groups presented their findings and subjected them to often intense debate amongst their ICSID colleagues.

This process of external consultation and internal deliberation feeds into a working paper, to be released in August of this year, that suggests textual changes to the rules and regulations. We will meet with member States in late September to discuss the proposed amendments, and then embark on a round of meetings at a country and regional level, and with ISDS practitioners and the public, to gather further input.

At the end of 2018 we will take stock. I imagine that some amendments will be easily agreed, others will need further discussion, and others may need to be shelved for another day. Ultimately, a package of amendments will go to the ICSID Administrative Council for a vote.

6. What are the potential areas for amendment? Is the creation of an appellate body still a topic to be considered?

I am glad to discuss what we think will be proposed, but with the caveats that the working paper is not yet final, and, what it will offer are proposals for States and the public to consider and respond to.

That said, a cross-cutting priority is that the rules are simply worded and sequenced in a way that makes them more user friendly. We also want the rules to help reduce the time of ICSID proceedings. So, for example, the working paper recommends that claimants provide more information in their request for arbitration, such as background to the dispute and damages claimed. This would not influence whether a claim is registered, but it would expedite the subsequent proceedings. Also likely is a proposal to allow claimants to ask that their request for arbitration be used as the memorial, which again saves time and might be especially useful in less complex cases.

Once a case is registered, there are other ways in which the rules can quicken the pace of proceedings. For example, by imposing a general obligation on the parties and arbitrators to establish firm time goals for each step in the process. Also recommended is a presumption that all filing is electronic, which not only reduces the time and cost of proceedings, but makes them more environmentally friendly.

I expect that measures to cut down on the time and cost of proceedings—so long as they don’t jeopardize due process—are going to be widely welcomed. Other changes require a more delicate balancing of interests. Transparency and access to case-related documents is one of them. In our view one of most important aspects related to transparency is making decisions and awards public. This fosters consistency and coherence in ISDS caselaw, and public confidence in the system more generally. The working paper therefore proposes mandatory publication of awards (or extracts of awards), decisions and orders, while leaving the release of other case-related materials to the discretion of the parties or the obligations in the relevant treaty.

In answer to the last part of your question, no, the working paper will not propose an appeals facility specifically. Indeed, this was discussed as part of the 2006 amendment process, and ultimately did not muster sufficient support amongst member states. It continues to be discussed at UNCITRAL and UNCTAD, but my sense is that states have still not reached a consensus either way.

However, there are a couple aspects related to appointments to keep in mind. One is that an appeals facility, or other options concerning how or who to appoint, can likely be accommodated by the current rules. In fact, treaties are where—first and foremost—States decide on the primary appointment system. The ICSID rules address appointments in default of a party selection, and so the method selected by the parties is respected.

7. Do you consider that the Administrative Council could play a more active role and issue interpretative resolutions on controversial matters, such as the meaning of the term “investment”, the denunciation of the ICSID Convention, among other matters?

No, this would confuse the function of the Administrative Council. It is a governance, not a legal, body—and we are scrupulous about not mixing the governance function with the legal function of a tribunal. Keep in mind that the States which comprise the Administrative Council are the same States which are respondents or have citizens acting as claimants in cases. The ICSID Convention is careful not to politicize the role of the Administrative Council, mindful of the fact that it would hinder the Council’s ability to perform its governance function and hurt the legitimacy of ICSID cases.

8. Are there certain areas that are in real need of improvement, so that ICSID is able to move forward as successful as now?

The goal of ensuring the rules make ICSID proceedings more efficient in terms of time and money is really in everyone’s interest. That is a lens through which we have viewed all the ICSID rules, and where I am confident that we will see some meaningful improvements.

9. What is the position of the ICSID Secretariat in relation to the non-compliance with arbitral awards rendered under the ICSID Convention based on the allegation that compliance with such arbitral awards are inconsistent with EU law?

The ICSID secretariat needs to be impartial and that means not commenting on legal decisions. We are carefully watching the impact of the decision, and it is being raised by parties in a number of ICSID cases.

10. Third Party Funding is a hot topic in arbitration at this moment and ICSID arbitral tribunals have had the opportunity to express their position on this matter. Should we expect some important amendments of the ICSID Rules to reflect the latest developments on Third Party Funding in investment arbitration cases?

Prohibiting third-party funding is not something we plan to propose. There are a few conceptual and practical reasons behind that decision. First, simply defining third-party funding is difficult. Second, forms of third-party funding are legal in many states, and may be viewed as an access to justice—rather than a conflict of interest—issue. What we do propose is required disclosure by parties of third party funding and by arbitrators of a relationship with a funder to identify, and hopefully avoid, conflicts of interest.

11. The number of challenges of arbitrators sitting on the ICSID panels has increased in recent years, and this is something emphasized by the ICSID Secretariat itself. What are the suggested approaches to this matter envisaged in the new ICSID Rules?

We are working on the exact parameters, but I can say a few things. One suggestion is for a specific timeline for the filing of a proposal for disqualification of an arbitrator. This would replace the current requirement that it be done “promptly”, which is not as precise. Another is that a challenge should not automatically suspend the proceedings. Other proposals that we have received—such as modifying the system of having co-arbitrators decide a challenge unless they are especially divided—may be difficult without changes to the ICSID Convention. And changes to the Convention, as I mentioned, are not a part of this current process. However, I should point out that the Convention constraints do not apply to the Additional Facility rules, so here there will be greater scope for change. Moreover, changes made to the Additional Facility could serve as examples down the road for amendments to the Convention.

12. Is there a need for an ICSID Code of Conduct for Arbitrators and Conciliators?

That is a good question. Currently, the ICSID rules require a declaration that arbitrators meet the qualifications spelled out in the ICSID Convention and a continuing duty to disclose throughout the case. The amended rules could entail a more elaborate declaration. The IBA code of conduct, as well as recent investment treaties that feature more detailed codes of conduct, offer guidance in this area. At the same time, we understand that UNCITRAL is mandated to work on a code of ethics, and ideally that code is as close to universal as possible. We will work with UNCITRAL on the elaboration of a code.

13. What are the issues concerning the ICSID annulment procedure identified so far and which are likely to be addressed in the background paper to be published soon?

The working paper will touch on some technical issues related to annulment; for example, addressing cross application in cases where both parties to an arbitration seek the annulment of an award. But generally, the rules on annulment work well. The debate on annulment is primarily focused on the standard of review, and that is a policy question that falls outside the scope of the ICSID rules amendment. It is certainly a discussion worth having, and could provide an interesting alternative to a full appeals court. But it is not a part of ICSID’s rules amendment process.

14. We are in a boom-and-bust technological period where new tech can either aid ICSID’s operations or expose it to security breaches. There are examples of arbitral institutions being hacked and confidential information being dumped online. How has ICSID responded to these issues?

I am pleased to say that our security systems are first class and benefit from the expertise and technology that exists at the World Bank Group. A dedicated unit, the Office of Information Security, steers the World Bank Group’s cyber security risk management policies and procedures, including those at ICSID. This includes around-the clock security operations in Washington, D.C. and 186 country offices across the world. We have state-of-the-art firewalls, which have been key in preventing any information breach leading to reputational harm. Plus, all ICSID staff are required to take periodic trainings on information security and data protection.

15. Finally, what are you expecting in the next 50 years for ICSID and the ICSID Convention?

Good question! My crystal ball doesn’t extend quite that far in the future, but there are two things I would flag in the shorter term. One, as I mentioned we are not proposing amendments to the ICSID Convention itself. However, we do want to plant that seed now and encourage States and users of ICSID to consider changes that would be beneficial so that it will keep evolving to ensure that we meet our mandate.

Second, our clients will be happy to know that we are moving our Washington D.C. offices in 2019. The new building will have dedicated, state-of-the-art hearing rooms, which we are excited about. We will be sure to invite Kluwer to the house warming.

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References   [ + ]

1. ↑ See also Building International Investment Law: The First 50 Years of ICSID by Meg Kinnear, Geraldine Fischer, Jara Minguez Almeida, Luisa Fernanda Torres, Mairée Uran Bidegain (Wolters Kluwer/ICSID) 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 Rule of Law
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CJEU Does Not Buy Wathelet’s Opinion in Achmea – What Is Left Unanswered?

Sat, 2018-04-14 03:00

Volodymyr Ponomarov

On March 6, 2018, the Court of Justice of the European Union (“CJEU”) in its 12-page judgment backed the Commission in its grid to finally scrap the intra-EU BITs and defied Advocate General’s attempt to preserve the system.

The purpose of this note is to concisely analyze this far-reaching judgment of the CJEU against the major precepts of the advisory opinion of Advocate General Wathelet (“AG”), previously discussed in several posts, and to determine what was, nonetheless, left unattended by the Court, and what may ensue in the aftermath.

General Observations

The CJEU held that the substantive provisions of the EU law preclude the ISDS mechanism of Article 8 of the Netherlands-Slovakia BIT and hence render any award stemming from the intra-EU BIT unenforceable in the Member States.

Key points worth noting before proceeding to the substance of the judgment:

  • The CJEU employed the reverse order of the questions discussed by the AG in his opinion, effectively bypassing the third and, arguably, the most important question on discrimination under Article 18 TFEU pushed by the EU Commission.
  • The CJEU conflated the first and the second questions and simultaneously considered whether the BIT in question conformed to Articles 267 and 344 TFEU.
  • The CJEU did not entertain the request from the Czech, Hungarian, and Polish governments to fend off the AG’s opinion on the matter.

The crux of the CJEU’s reasoning consisted in a fundamental premise that an international agreement, i.e. the Netherlands-Slovakia BIT, cannot affect the allocation of powers fixed by the EU law. The CJEU further underlined that the Member States are to ensure the uniform application of the EU law in their territories. And the only way to ensure such uniformity and consistency is through a common judicial system of the European Union consisting of the national courts, tribunals, and the CJEU.

Given that the CJEU effectively avoided addressing the third question on whether the Netherlands-Slovakia BIT discriminate against other Member States, this note will follow the pattern set out by the CJEU, in particular addressing three pivotal issues of the Court’s reasoning below.

I. Does the Achmea dispute concern the interpretation of the EU law?

In 2017, the AG opined that, although Article 8(6) of the Netherlands-Slovakia BIT subjects investment-state disputes to “the law in force of [the Netherlands or Slovakia]” and “other relevant Agreements between [them]” (i.e., the EU Treaties), the dispute does not implicate the interpretation and application of the EU law per se. According to the AG, the Achmea Tribunal was called upon to rule on the breaches of the BIT in question, and the latter’s provisions do not necessarily overlap with the EU law. For instance, the most-favored nation clause of Article 3(2), the umbrella clause of Article 3(5), the sunset clause of Article 13(3), and finally, the ISDS mechanism of Article 8 of the BIT have no equivalents in the EU law and the Treaties. Therefore, the Achmea Tribunal faced little risk of engrossing in the application and interpretation of the EU law, according to the AG.

In its recent judgment the CJEU decisively renounced the AG’s proposition by pointing out that, to consider the potential infringements of the Netherlands-Slovakia BIT, the Achmea Tribunal could not but apply the EU law, specifically the provisions on the freedom of establishment and free movement of capital. This finding led the CJEU to the question of whether the Achmea Tribunal had the power to apply the EU law in principle.

II. Can the Achmea Tribunal be considered “any court or tribunal” within the confinements of Article 267 TFEU and thus apply the EU law in the first place?

Given the CJEU’s position that Achmea Tribunal was essentially engaged in application and interpretation of the EU law, the question now lingers whether it had the right to do so. In other words, whether it constituted “[a] court or tribunal of a Member State” within the confinements of Article 267 TFEU.

The AG offered a number of criteria for the CJEU to determine that the Achmea Tribunal was indeed “[a] court or tribunal” under Article 267 TFEU and thus could legitimately apply the EU law. He surmised, in particular, that the Achmea Tribunal was “established by law” – the standard which was elaborated in Ascendi Beiras Litoral e Alta, Auto Estradas das Beiras Litoral e Alta (C-377/13, EU:C:2014:1754), where arbitration of tax disputes was found sanctioned by a Portuguese law. In addition, the AG attempted to draw the analogy with the Benelux Court of Justice discussed in Parfums Christian Dior (C-337/95, EU:C:1997:517), recognizing that the latter, even though not a court or tribunal of a Member State, “should . . . be able to submit questions to [the CJEU], in the same way as court of any of those Member States.”

The CJEU dismissed the AG’s reasoning. First, it emphasized that tribunals arbitrating tax disputes in Portugal derive their power from the state’s constitution. On the contrary, the ISDS mechanism of Article 8 of the Netherlands-Slovakia BIT does not form “part of the judicial system” of the contracting states, but is rather of “a precisely exceptional nature”. Second, the Achmea Tribunal did not have “any . . . links with the judicial systems” of Slovakia and the Netherlands, as compared to the Benelux Court of Justice, whose principal task is to ensure cooperation and uniform application of law within the three Benelux states.

Consequently, the CJEU held that, as a matter of the EU law, the Achmea Tribunal cannot be considered “[a] court or tribunal of a Member State” and hence it was not authorized to apply and interpret the EU law in the first place. The CJEU never addressed other criteria advanced in the AG’s opinion, such as the permanent nature of the Achmea Tribunal, its compulsory jurisdiction, exclusion of aequo et bono in decision making, and the Tribunal’s impartiality.

III. Does a limited judicial review of arbitral awards in the context of investment arbitration constitute a remedy for “effective legal protection” as required by Article 19 TEU?

According to the AG, the awards rendered under the BITs are similar to arbitral awards of the commercial arbitration. As such, these awards cannot avoid judicial review and/or be enforced without the assistance of a Member State. Further, neither the Commission nor the Member States ever sought to debate the incompatibility of arbitral awards with the EU law in the context of commercial arbitration.

In the AG’s opinion, the CJEU judgments in Eco Swiss (C-126/97, EU:C:1999:269), Genentech (C-567/14, EU:C:2016:526), and Gazprom (C-536/13, EU:C:2015:316) involving set aside of arbitral awards of commercial arbitration prove that the Member States are able to safeguard the uniform application and interpretation of the EU law “whether in a competition matter or in other areas of [law]” (i.e., in international arbitration). In addition, the AG weighted in that domestic courts are well equipped with the mechanisms of Article V of the New York Convention to protect the European public policy in the context of both commercial and investment setting.

The CJEU once again resolutely disagreed with the AG. It noted that the award rendered by the Achmea Tribunal is final by its nature, which in turn leaves little room for the judicial review by German courts under Paragraph 1059(2) of the German Code of the Civil Procedure [Judgment para. 53].

The CJEU accentuated on the crucial discrepancy between the investment and commercial arbitrations, noting that the former “originate[s] in the freely expressed wishes of the [private] parties”. On the contrary, according to the CJEU, the BIT arbitration is conceived as an attempt of the Member States to remove from the jurisdiction of domestic courts and thus from the remedies for “effective legal protection” fixed by Article 19(1) TEU. In other words, the ISDS mechanism of Article 8 of the BIT falls foul with the states’ obligations arising from Article 19(1) TEU to provide sufficient remedies in the fields covered by the EU law.

What the CJEU did not say?

  • Whether the ISDS in the intra-EU BITs constitutes discrimination under Article 18 TFEU?

The CJEU left open a pivotal question of the alleged discriminatory nature of the BIT’s ISDS provision, strongly pushed by the Commission. The AG noted that the reciprocal nature of the rights and obligations of the parties is “a consequence inherent in the bilateral nature of the BITs” and hence does not amount to discrimination within the meaning of Article 18 TFEU.

  • Whether intra-EU BITs are similar to intra-EU treaties on the avoidance of double taxation (DTA)?

The AG stressed on the similarities between BITs and DTAs, namely that they are aimed at the same economic activities, which was not addressed by the CJEU.

  • What will happen to the ISDS mechanism of the Energy Charter Treaty in the wake of the CJEU’s decision, given that all Member States and the EU itself are the parties to the ECT?

The AG noted in his opinion earlier last year, that if any EU institution or any Member State had “the slightest suspicion” that the ISDS mechanism set forth in Article 26 of the ECT might be incompatible with the EU law, they would have sought an opinion from the CJEU. Nonetheless, it remains unclear what will happen to it, since the CJEU did not address the issue in the recent judgment.


*Other recent posts on the Achmea judgment can be accessed here and here, as well as at the following link.


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How to Disqualify and/or Remove Arbitrators Under Ethiopian Arbitration Law: Is Ethiopian Law on the Right Track?

Thu, 2018-04-12 21:12

Michael Teshome

If you are a counsel in an ongoing arbitration, you have two obligations: 1) navigate your ways through provisions of the applicable law so that you can litigate as a professional; 2) satisfy your client with your service and make sure that all his questions are answered properly.
Especially, if an arbitrator (whether or not chosen by you) is not discharging his or her duty on time, if you suspect there exists a relationship with the other party, does not understand the case properly, fails to communicate meetings which are crucial to the parties, delegate his or her duty to another person, you might wonder what to do in that regard before things get worse, or before an award is rendered.
It is impossible to think of arbitration without arbitrators. After all, parties choose arbitration to save time, maintain confidentiality and use the advantage of choosing their own arbitrators and seat. In other words, parties choose arbitration because they feel like they can be well represented and ultimately get a fair award. Had it not been for procedural flexibility and specificities, it would have been impossible to speak about arbitration.
Until a final award is given, arbitrators are expected to act independently and impartially. You expect them to act professionally to the best of their abilities as their conduct maintains the integrity of arbitration.
This short blog post attempts to discuss ways in which an arbitrator can be disqualified and removed in accordance with the Civil Code of Ethiopia. An award rendered by an arbitrator who is partial will not be enforced both under the New York Convention and Ethiopian arbitration law. In fact, article 351/d/i-iii/ of the Ethiopian Civil Procedure Code stipulate that it will be reviewed by appeal.
Disqualification of an Arbitrator: Article 3340 of the Civil Code and Its Vagueness?
Who can submit an application to disqualify an arbitrator? What are the grounds that must be considered? A party, whose interest is compromised, due to an arbitrator’s behavior, can submit an application to “disqualify” an arbitrator.
The application can be submitted either to the court having jurisdiction or to the arbitral tribunal. As a corollary, if the application to disqualify an arbitrator gains acceptance, he or she will be disqualified.
According to the 1960 Civil Code, an arbitrator can be disqualified based on these grounds:
• Age,
• Criminal conviction,
• Unsound mind,
• Illness,
• Absence, or
• Any other reason which bars him from discharging his or her duty within a reasonable time.
However, a party may seek disqualification of the arbitrator appointed by him “…only for a reason arising subsequently to such appointment, or for one of which he can show that he had knowledge only after the appointment”, according to article 3341 of the Civil Code.
The general rule that is used to disqualify an arbitrator is found under article 3340/2/ of the Civil Code: “…any circumstances casting doubt upon his impartiality or independence.” This rule corresponds with article 10 of the UNCITRAL model law which says: “an arbitrator may be challenged only if circumstances exist that give rise to justifiable doubts as to his impartiality or independence or if he does not possess qualifications agreed to by the parties…”
Yet, the Ethiopian Civil Code fails to define this phrase: “any circumstance casting doubt upon his impartiality or independence.” This might leave much room for parties to submit an application to disqualify an arbitrator; and case law has a lot to show.
The procedure prescribed by the law to disqualify an arbitrator is:
– An application to disqualify an arbitrator should be made to the arbitration tribunal by a party before an award is rendered and as soon as the party knew of the grounds for disqualification;
– If the application is dismissed, then the party can lodge an appeal within 10 days.
Let us take cases as examples…
In a case between Harar Trading (claimant) and Gelateli Hanki Co. (respondent), which was ad-hoc arbitration, published on Arbitral Awards Volume 2, page 191, the respondent’s attorney submitted an application to the sole arbitrator asking for his disqualification citing the following reasons:
“…While the sole arbitrator was a judge at the Federal High Court, he abused me; I had submitted an application requesting disciplinary measures to be taken against him and an action was taken accordingly. Thus, it is difficult for me to believe that he will render an impartial award…”
In deciding on the application for removal, the sole arbitrator said that
“…Even though the respondent’s lawyer mentioned the file in which he claims that there was abuse, as I am not certain about the final decision, I cannot accept or refuse to be disqualified based on mere speculation… he may have approached my bench while I was a judge; He may have discontent as a result of my decision. Nonetheless, I believe that all of the judgments I gave were according to the law. Even if he claims that there was a disciplinary action, the action was not properly stipulated… further, we do not have intimate relationship, we do not know each other that much… therefore, claims he brought against me were unsubstantiated and have no legal basis.”
A party cannot simply apply to disqualify an arbitrator just because he is unhappy. The claim must be founded upon legally acceptable instances. If arbitration allows parties’ emotion to be involved, it will be difficult to maintain its autonomy and will make people consider it as a child’s play. But what does recent Ethiopian case law show?
The Federal Supreme Court Cassation Division Case Number 135094 (Volume 21) decided that “…as per article 3340/2/ of the Civil Code to disqualify an arbitrator it is not necessary to prove that a close connection between an arbitrator and a party. It is enough if there are any circumstances casting doubt upon his impartiality or independence… In the case at hand, the second respondent, which is apparently the arbitrator, was made a party to the suit by Federal First Instance Court; he continued to be joined as a respondent both at the Federal High Court and Cassation Decisions… this means he was litigating to be made an arbitrator… and this creates doubts on his impartiality…”
The Cassation basically stated that if the arbitrator argues against a party who requests him to be disqualified, he or she must be disqualified, because as per article 3340/2/ of the Civil Code such a scenario will give rise to circumstances casting doubt on the arbitrator’s impartiality. Is this the right way to go?
Removal of an Arbitrator under the Civil Code of Ethiopia
Disqualification of an arbitrator is a wider concept than removal. The Civil Code only gives one article to removal and seems to leave the rest under the umbrella of disqualification. It is unclear why the legislature chose to deal with removal and disqualification in this way. Even if we say their effect is the same, there lies no reason as to why the legislature needed to differentiate between disqualification and removal.
According to Article 3343, after accepting his or her appointment, if an arbitrator unduly delays the discharge of his duties the authority agreed upon by the parties, or in the absence of such agreement, the court, can remove him from his position.
A reasonable question would be what the difference between article is 3343 and 3340/1/. According to article 3340/1/, an arbitrator can be disqualified “… for any other reason unable to discharge his function properly or within a reasonable time.” Thus, one may ask the relevance of article 3343 which says that an arbitrator can be removed if he delays the discharge of his duties.
In fact, there is no difference between the two articles. In fact, the criterion in article 3340/1/ can be broadly interpreted to mean the condition laid down in article 3343.
Conclusion and Recommendation
The Ethiopian arbitration law needs to be amended when it comes to disqualification and removal of arbitrators – it can learn a lot from the IBA Guidelines on Conflict of Interests in International Arbitration. The grounds laid down under article 3340 and 3343 seem to be redundant, and no clear interpretation of the law in relation to article 3343 has been given by the Federal Supreme Court Cassation division.
Especially, the interpretation given by the Cassation bench is so wide that an arbitrator who argues against a party who brought a claim for his or her disqualification has to be disqualified. This has a lot of practical ramification.

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Appellate Court Limits “Procedural Loophole” to Enforce Foreign Arbitral Awards in New York Absent Jurisdiction over the Award Debtor or Its Property

Thu, 2018-04-12 02:15

Andreas Frischknecht

The recent decision by an intermediate New York appellate court in AlbaniaBEG Ambient Sh.p.k. v. Enel S.p.A.1)A.D.3d, No. 152679/14, 2018 WL 755355 (N.Y. App. Div. 1st Dep’t Feb. 8, 2018). jQuery("#footnote_plugin_tooltip_7437_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7437_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); has sharply curtailed “a procedural loophole in Chapter 2 of the Federal Arbitration Act”2)Commissions Imp. Exp. S.A. v. Republic of Congo, 916 F. Supp. 2d 48, 49 (D.D.C. 2013), rev’d and remanded sub nom. Commissions Imp. Exp. S.A. v. Republic of the Congo, 757 F.3d 321 (D.C. Cir. 2014). jQuery("#footnote_plugin_tooltip_7437_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7437_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); that some creditors have used to obtain indirect recognition of foreign arbitral awards in New York without having to establish personal jurisdiction over the debtor, or the presence of property belonging to the debtor, in New York.

Background: Different Jurisdictional Rules for Recognition of Foreign Arbitral Awards and Foreign Judgments

In New York, the vast majority of foreign arbitral awards are enforced directly under Chapter 2 of the U.S. Federal Arbitration Act (“FAA”). But unlike in some other jurisdictions, the holder of a foreign award for the payment of money also has the option of first obtaining a foreign court judgment recognizing the award and then seeking recognition of that judgment in New York as a foreign money judgment under Article 53 of the New York Civil Practice Law and Rules (“CPLR”).3)See Seetransport Wiking Trader Schiffahrtsgesellschaft MBH & Co., Kommanditgesellschaft v. Navimpex Centrala Navala, 29 F.3d 79, 81 (2d Cir. 1994) (French judgment conferring exequatur on an arbitral award issued in a Paris-seated ICC arbitration was entitled to recognition under Article 53 of the CPLR as “the functional equivalent of a French judgment awarding the sums specified in the award”); see also Commissions, 757 F.3d at 323 (proceeding to enforce English High Court order recognizing ICC award in Paris-seated arbitration was “a lawful, parallel enforcement scheme” not preempted by the FAA). jQuery("#footnote_plugin_tooltip_7437_3").tooltip({ tip: "#footnote_plugin_tooltip_text_7437_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This is known as the “dual enforceability” principle. For a more fulsome discussion of this topic, see Andreas A. Frischknecht, Yasmine Lahlou & Gretta Walters, Enforcement of Foreign Arbitral Awards and Judgments in New York, at 210-12 (Kluwer Law International 2018).

A key reason why some holders of foreign arbitral awards have opted to seek recognition of a foreign judgment recognizing their award (rather than the award itself) in New York stems from the requirement that award creditors must establish jurisdiction over the debtor (known as personal jurisdiction) or the debtor’s property (known as quasi in rem jurisdiction) to obtain recognition of a foreign arbitral award under Chapter 2 of the FAA.4) See AlbaniaBEG, 2018 WL 755355, at *9 (citing Frontera Res. Azerbaijan Corp. v. State Oil Co. of Azerbaijan Republic, 582 F.3d 393, 398 (2d Cir. 2009) & Glencore Grain Rotterdam B.V. v. Shivnath Rai Harnarain Co., 284 F.3d 1114, 1118, 1122 (9th Cir.2002)). jQuery("#footnote_plugin_tooltip_7437_4").tooltip({ tip: "#footnote_plugin_tooltip_text_7437_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In contrast, New York courts have held that the creditor may obtain recognition of a foreign money judgment in New York even if the judgment debtor is not subject to personal jurisdiction in New York and has no assets in the state. The rationale for this exception is that proceedings to recognize a foreign judgment are merely “ministerial” where a foreign court with proper jurisdiction over the debtor has already adjudicated the parties’ underlying dispute.5) Abu Dhabi Commercial Bank PJSC v. Saad Trading, Contracting & Fin. Servs. Co., 117 A.D.3d 609, 613 (N.Y. App. Div. 1st Dep’t 2014). jQuery("#footnote_plugin_tooltip_7437_5").tooltip({ tip: "#footnote_plugin_tooltip_text_7437_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

AlbaniaBEG Reduces the Jurisdictional Gap

In AlbaniaBEG, the Appellate Division, First Department sharply limitecthe scope of this exemption from personal or quasi in rem jurisdiction for judgment enforcement proceedings. Going forward, the exemption applies only where the judgment debtor “does not contend that substantive grounds exist to deny recognition to the foreign judgment” under CPLR Article 53. Otherwise, the New York court’s “function ceases to be merely ministerial,” and the judgment creditor must establish either personal or quasi in rem jurisdiction. This newly-formulated rule reduces the jurisdictional discrepancy between proceedings to enforce foreign money judgments under the CPLR and proceedings to enforce foreign arbitral awards under the FAA.

The First Department reversed the trial court’s ruling and granted the Italian defendants’ motion to dismiss the Albanian plaintiff’s action to recognize and enforce an Albanian judgment arising from a dispute over the contemplated construction of a hydroelectric power plant in Albania. After one of the defendants prevailed against the plaintiff’s parent company in an Italian arbitration, the plaintiff commenced proceedings in Albania and obtained a judgment against the defendant in that country. The plaintiff then filed a motion for summary judgment in lieu of a complaint against the Italian counterparty and its parent company seeking enforcement of the Albanian judgment in New York.

The defendants moved to dismiss, asserting that the plaintiff had established neither personal nor quasi in rem jurisdiction because both defendants were “foreign corporations with no known presence in New York,” and the plaintiff neither alleged any dispute-related contacts between the defendants and New York nor identified any property of the defendants within the state. The defendants also planned to assert multiple ground for non-recognition of the Albanian judgment under CPLR Article 53, including that the Albanian proceedings were contrary to the parties’ arbitration agreement, and that Albanian tribunals and procedures are not compatible with due process.

Because the defendants “attacked the Albanian judgment as failing to meet the prerequisites for recognition under article 53” and the plaintiff did not seek jurisdictional discovery, the court granted the defendants’ motion to dismiss and directed entry of judgment in their favor.

The full impact of AlbaniaBEG in practice remains to be seen. In most cases, the creditor will have little incentive to pursue enforcement of a foreign arbitral award in New York unless the debtor is believed to have substantial connections with (and assets in) New York. 6)For a discussion of New York’s significance as a global hub for award enforcement generally, see Andreas A. Frischknecht, Yasmine Lahlou & Gretta Walters, Enforcement of Foreign Arbitral Awards and Judgments in New York, 3-5 (Kluwer Law International 2018). jQuery("#footnote_plugin_tooltip_7437_6").tooltip({ tip: "#footnote_plugin_tooltip_text_7437_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In such cases, the creditor should be able to establish either personal or quasi in rem jurisdiction, such that the debtor can pursue enforcement directly under Chapter 2 of the FAA. Following AlbaniaBEG, however, the holder of a foreign arbitral award desiring to preserve “the opportunity to pursue [further] enforcement steps in futuro”7) Lenchyshyn v. Pelko Elec., Inc., 281 A.D.2d 42, 50 (N.Y. App. Div. 4th Dep’t 2001). jQuery("#footnote_plugin_tooltip_7437_7").tooltip({ tip: "#footnote_plugin_tooltip_text_7437_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); likely can no longer obtain recognition in New York of a foreign judgment recognizing the award if the debtor is not subject to personal jurisdiction in New York, lacks any assets in New York, and contests the enforceability of the foreign judgment on substantive grounds.

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References   [ + ]

1. ↑ A.D.3d, No. 152679/14, 2018 WL 755355 (N.Y. App. Div. 1st Dep’t Feb. 8, 2018). 2. ↑ Commissions Imp. Exp. S.A. v. Republic of Congo, 916 F. Supp. 2d 48, 49 (D.D.C. 2013), rev’d and remanded sub nom. Commissions Imp. Exp. S.A. v. Republic of the Congo, 757 F.3d 321 (D.C. Cir. 2014). 3. ↑ See Seetransport Wiking Trader Schiffahrtsgesellschaft MBH & Co., Kommanditgesellschaft v. Navimpex Centrala Navala, 29 F.3d 79, 81 (2d Cir. 1994) (French judgment conferring exequatur on an arbitral award issued in a Paris-seated ICC arbitration was entitled to recognition under Article 53 of the CPLR as “the functional equivalent of a French judgment awarding the sums specified in the award”); see also Commissions, 757 F.3d at 323 (proceeding to enforce English High Court order recognizing ICC award in Paris-seated arbitration was “a lawful, parallel enforcement scheme” not preempted by the FAA). 4. ↑ See AlbaniaBEG, 2018 WL 755355, at *9 (citing Frontera Res. Azerbaijan Corp. v. State Oil Co. of Azerbaijan Republic, 582 F.3d 393, 398 (2d Cir. 2009) & Glencore Grain Rotterdam B.V. v. Shivnath Rai Harnarain Co., 284 F.3d 1114, 1118, 1122 (9th Cir.2002)). 5. ↑ Abu Dhabi Commercial Bank PJSC v. Saad Trading, Contracting & Fin. Servs. Co., 117 A.D.3d 609, 613 (N.Y. App. Div. 1st Dep’t 2014). 6. ↑ For a discussion of New York’s significance as a global hub for award enforcement generally, see Andreas A. Frischknecht, Yasmine Lahlou & Gretta Walters, Enforcement of Foreign Arbitral Awards and Judgments in New York, 3-5 (Kluwer Law International 2018). 7. ↑ Lenchyshyn v. Pelko Elec., Inc., 281 A.D.2d 42, 50 (N.Y. App. Div. 4th Dep’t 2001). 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 Rule of Law
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