Kluwer Arbitration Blog

Syndicate content
Updated: 22 hours 39 min ago

The Contents of the Yearbook Commercial Arbitration, Volume XLVI (2021), Upload 4

Sat, 2021-10-16 00:00

Subscribers to KluwerArbitration.com enjoy access to the ICCA Yearbook Commercial Arbitration.

A selection of major CRCICA awards concerning contracts for the supply of commodities and dealing with a variety of notorious issues – parallel arbitration proceedings, non-signatory parties, res judicata, corruption, and force majeure ‑‑ is now available on KluwerArbitration.com.

Two awards, rendered in Madrid and Cairo, relate to the same dispute, and discuss issues connected to parallel proceedings. In the Madrid proceedings, the tribunal held that the claim for shortfall compensation had already been decided in an ICSID arbitration initiated by the same claimant against the State rather than the State entity involved in the Cairo arbitration. The tribunal applied Art. 26 of the ICSID Convention to decline jurisdiction. In the Cairo arbitration, the arbitrators held that the claimant had not breached the arbitration clause that was at the basis of the Cairo proceedings by commencing the parallel Madrid arbitration, as the clause provided for the possibility of multiple arbitrations.

Another award addresses to which extent a non-signatory party was bound to the arbitration clause in the parties’ contract under Egyptian law, addressing doctrines, such as the group-of-companies doctrine. universal succession, implied consent, piercing the corporate veil, and doctrines relating to the creation of confusion as to who the proper party was to the agreement.

Finally, the upload contains four awards rendered in the same case, in which the tribunal discusses the preclusive effect of a related ICC award in a parallel proceeding, arguments that a supply contract had been obtained through corruption, and the role of the doctrine of force majeure.

These awards will also appear in Volume XLVI (2021) of the Yearbook Commercial Arbitration in January 2022.

More from our authors: International Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
by Gary B. Born
€ 509


Clarity in Dispute Resolution Clauses

Fri, 2021-10-15 00:21

How do English and BVI courts address inconsistencies in arbitration clauses? The English Court of Appeal decision in AdActive Media Inc v Ingrouille [2021] EWCA Civ 313 demonstrates that English courts will make every effort to honour the express terms of a contract.

In AdActive, the Court of Appeal examined three apparently inconsistent dispute resolution clauses which appeared sequentially in an agreement. The issue was whether there was an irreconcilable inconsistency between a “Governing law” clause (clause 15) and the provision for arbitration in a “Disputes” clause (clause 17). The result of the appeal was that a California judgment could not be recognised or enforced in England, because section 32 of the English Civil Jurisdiction and Judgments Act, 1982 prohibited the recognition or enforcement of a foreign judgment if bringing those proceedings was contrary to the underlying arbitration agreement.

The “Governing law” clause designated the law of the Federal or State Court of the Los Angeles County in California as the governing law and provided that the state courts in Los Angeles County have jurisdiction. Federal courts are more formal in nature and deal with cases involving federal laws, whilst county courts preside over state and local municipal law cases. A second clause, headed “Consent to Suit” (clause 16), provided that the parties consented to the jurisdiction of the courts of California in relation to “any legal proceedings arising out of or relating to the agreement.” Although the phrase “legal proceedings” could have been misleading because it is relatively wide and lends itself to different meanings, the Court of Appeal found that there was no inconsistency between this clause and the Governing law and Disputes clauses. The Court of Appeal found that the phrase could only be interpreted as referring to court proceedings especially since the agreement contained an arbitration clause which immediately followed the consent to suit clause. Clause 17, the “Disputes” clause, provided that except for claims in relation to certain specific clauses in the agreement, all disputes in relation to the agreement were to be settled or decided by way of arbitration.

First, the Court of Appeal in AdActive reiterated the well-established principle under English law that English courts should, “give effect to every clause of the agreement and not to reject a clause unless it is manifestly inconsistent with or repugnant to the rest of the agreement”.1)Chitty on Contracts (33rd ed.) (2018 and 2nd cumulative supplement 2020) at 13-071. jQuery('#footnote_plugin_tooltip_38949_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_38949_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Upon an examination of the relevant dispute resolution clauses, the Court of Appeal found that it was apparent from each clause and their respective headings that they generally dealt with different aspects of jurisdiction and there was no irreconcilable inconsistency between all three dispute resolution clauses (clauses 15, 16 and 17).  The court relied on the judgment in Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38, [2020] 1WLR 4117 (previously discussed here and here) for the principle that contracting parties could not have intended that a significant clause, such as an arbitration clause, would be invalid.  This principle originates from a purposive interpretation approach. Based on this reasoning, the court adopted a purposive interpretation of the language of the contract to give effect to, rather than defeat, the underlying aim or purpose of the contract. The court noted that an interpretation resulting in an arbitration clause being void and of no legal effect at all gives rise to a powerful inference that such a meaning could not rationally have been intended by the parties.

The court found that the structure of the provisions provided consistency and noted that the clauses were grouped together, not scattered in unrelated areas. This meant that it was objectively less probable that the clauses were inconsistent. The court reconciled the various dispute resolution clauses contained in the agreement by finding that all claims and disputes arising under the agreement were to be referred to arbitration pursuant to clause 17 except for the specified exceptions under clauses 7 and 8. The excepted category of claims brought under clauses 7 and 8 which related to the use and protection of confidential information and protection of the work product respectively, were specifically to be dealt with by the federal and state courts of Los Angeles County.

Secondly, the court found that the language used in the various dispute resolution clauses lacked similarity and demonstrated the absence of any inconsistency. The court noted that the thrust of the “Disputes” clause as contained in clause 17 was to subject all claims, disputes, etc. to arbitration save for the specified exceptions, of claims brought under clauses 7 and 8 of the contract which could only be brought by way of court proceedings before the federal and state courts of Los Angeles County. This was in contrast to the “Governing law” clause 15 which was concerned with the appropriate court as the venue for cases, suits, actions, etc. which fell within the specified exceptions.

The Court of Appeal’s decision suggests that parties should exercise care when drafting an agreement. As the English courts will seek to reconcile potentially inconsistent clauses where possible and are reluctant to declare an arbitration agreement void or unenforceable unless it is manifestly inconsistent with or repugnant to the rest of the agreement.

A similar warning was echoed in the BVI case of Anzen Limited and others v Hermes One Limited [2016] UKPC 1 in litigation that went up to the Judicial Committee of the Privy Council on the interpretation of an arbitration clause in a shareholder’s agreement providing that either party ‘may submit the dispute to binding arbitration.’ The question was whether that clause entitled the appellant to a stay of litigation under section 6(2) of the relevant act of the time, the BVI Arbitration Ordinance, 1976. There, the Judicial Committee of the Privy Council cautioned that ‘clauses depriving a party of the right to litigate should be expected to be clearly worded.’  However, the court recognised the public policy shift towards upholding arbitration clauses and continued: ‘even though the commercial community’s evident preference for arbitration in many spheres makes any such presumption a less persuasive factor nowadays than it was once.’  The court allowed the appeal, rejected the High Court and Court of Appeal rulings and found that the shareholder was entitled to enforce the arbitration clause by a stay of litigation pursuant to the Arbitration Ordinance, 1976. Whilst the court recognised that the term ‘may’ suggested that arbitration was optional and not mandatory, the court applied the principle in the House of Lords case Bremer Vulkan Schiffbauund Mashinenefabrik v South India Shipping Corp Ltd [1981] AC 909 that parties to arbitration agreements are mutually obligated to cooperate in the pursuit of arbitration. Consequently, whilst the clause did not prohibit shareholders from commencing litigation, its wording permitted the other party to enforce the arbitration clause by the imposition of a stay of litigation and insisting on arbitration.

By the advent of the current BVI Arbitration Act, 2013 the mechanisms for upholding arbitration clauses are now even more robust. For instance, section 59(1) of the BVI Arbitration Act, 2013 provides useful guidance and parameters for binding arbitration agreements, whether signed or unsigned or whether those agreements are for determination of all or some specific disputes by way of arbitration. The Act provides for the recognition of arbitration agreements irrespective of whether they were entered into in the BVI or elsewhere and Part III of the Act provides that arbitration agreements must be in writing and can take the form of a separate agreement or be contained in a clause of an existing contract. The Act also provides guidance on how the tribunal of choice will determine the governing law of the substantive dispute. Section 32 of the Act even includes mechanisms for severing arbitration clauses and treating it as an independent agreement – a useful mechanism for upholding the power to arbitrate even if the main agreement fails or is later found to be invalid.

For users of arbitration, the crucial lesson to be taken from these cases is that careful attention should be paid to ensuring that the dispute resolution clauses accurately and clearly state the intended objective and avoid ambiguity. Clarity of language and intent is critical for ensuring that parties are able to enforce the use of the intended jurisdiction, choice of law and forum when disputes arise. Should there be any ambiguity, this could lead to potentially costly and drawn-out issues that could require a court judgment to resolve. In the BVI, the courts will make every effort to honour the express terms of a contract, and the BVI Arbitration Act, 2013 contains robust mechanisms for upholding arbitration clauses in order to provide a level of reassurance for parties which is also supported by past case law. Nonetheless, the ambiguous wording in AdActive and Anzen Limited resulted in extensive litigation and delay for both cases; a cautionary tale for all.

References[+]

References ↑1 Chitty on Contracts (33rd ed.) (2018 and 2nd cumulative supplement 2020) at 13-071. function footnote_expand_reference_container_38949_30() { jQuery('#footnote_references_container_38949_30').show(); jQuery('#footnote_reference_container_collapse_button_38949_30').text('−'); } function footnote_collapse_reference_container_38949_30() { jQuery('#footnote_references_container_38949_30').hide(); jQuery('#footnote_reference_container_collapse_button_38949_30').text('+'); } function footnote_expand_collapse_reference_container_38949_30() { if (jQuery('#footnote_references_container_38949_30').is(':hidden')) { footnote_expand_reference_container_38949_30(); } else { footnote_collapse_reference_container_38949_30(); } } function footnote_moveToReference_38949_30(p_str_TargetID) { footnote_expand_reference_container_38949_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } } function footnote_moveToAnchor_38949_30(p_str_TargetID) { footnote_expand_reference_container_38949_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
by Gary B. Born
€ 509


Conflicting Dispute Resolution Clauses in Related Contracts in the UAE: Which Forum?

Thu, 2021-10-14 00:00

The purpose of a dispute resolution clause is to provide for a process and a forum through which disputes can be resolved efficiently. However, dispute resolution clauses are too often ignored and relegated to the end of contractual negotiations or considered boilerplate provisions without regards to the overall context. Issues may arise from the parties’ chosen dispute resolution forum where parties conclude multiple related contracts with conflicting dispute resolution clauses. Efficiency considerations play in favour of having mutual claims arising out of the same fact pattern heard in a single forum although such disputes arise under separate agreements. This is particularly relevant in the context of construction disputes, which frequently involve multiple related contracts and various stakeholders who are not always signatories to the same agreements.

This post reports on a recent decision of the Dubai Court of Cassation dated 21 April 2021 in Case No. 209/2021, which involved claims under two distinct contracts relating to the same transaction but only one of which contained an arbitration agreement. As the arbitration agreement was not binding on all parties, the Dubai Court of Cassation held that the local courts were the proper forum to resolve the parties’ dispute “in the interests of justice” and to “avoid contradictory judgments”.

 

The Background Facts

In this case, a real-estate developer entered into (i) a construction contract for the performance of enabling works for the construction of a tower (the “construction contract”) and (ii) a separate agreement with a consultant for the provision of engineering, design and supervisory services over the enabling works to be performed by the contractor (the “consultancy contract”). The consultancy contract contained an arbitration clause while the construction contract did not.

Following completion of the enabling works, the real-estate developer hired another contractor for the erection works of the tower, but the new contractor faced issues in completing its own works because of inadequate enabling works. Upon the developer’s request, a panel of court appointed experts confirmed that both the first contractor and the consultant defaulted on their respective obligations and were jointly liable to pay damages to the developer.

 

The Judgments

Relying on the experts’ opinion, the developer commenced proceedings before the onshore Dubai court against both the contractor and the consultant jointly, seeking damages for the harm suffered as a result of the consultant having mistakenly certified the enabling works as complete when in fact they were not.

The Dubai Court of First Instance (“Court of First Instance”) accepted the claim against the contractor but dismissed the case against the consultant for lack of jurisdiction based on the existence of a valid arbitration agreement in the consultancy contract, as was raised by the consultant. This decision is in line with the provisions of Article 8 of the 2018 UAE Federal Arbitration Law, which provides that:

[t]he Court before which the dispute is brought in a matter covered by an Arbitration Agreement, shall declare the inadmissibility of the action, if the defendant has raised such plea before any claim or defence on the substance of the case, and unless the Court finds that the Arbitration Agreement is null and void or incapable of being performed”.

Nevertheless, upon appeal by the developer, the Court of Appeal overturned the Court of First Instance decision and rejected the jurisdictional challenge raised by the consultant. In reaching its decision, the Court of Appeal stated that:

(i) A finding of liability on part of the consultant was dependant on a finding of liability on part of the contractor. In other words, to determine whether the consultant was in breach of its obligations under the consultancy contract, it was necessary first to establish a breach by the contractor of its own obligations under the construction contract.

(ii) In the interests of justice and to avoid contradictory decisions, all related issues, should be determined in one forum.

(iii) Given that the arbitration agreement in the consultancy contract was not binding upon the contractor, the claims could not all be determined by arbitration, and the proper forum with jurisdiction was the local court.

Upon further appeal by the consultant, the Court of Cassation upheld the Court of Appeal’s decision and agreed with the reasoning of the lower court that where disputes related to a transaction that was the subject of multiple but closely related contracts, these disputes should not be divided and determined separately. In circumstances where it was not possible for the whole dispute to be determined by arbitration, the forum with jurisdiction must be the court with original competence. The Court of Cassation also noted, in line with previous decisions, that arbitration under UAE law remains an exceptional means of dispute resolution, and arbitration agreements are to be construed narrowly and cannot bind third parties who have not consented to arbitrate, as have been commented on in some previous posts here.

 

Commentary

The Dubai Court of Cassation disregarded an express choice of dispute resolution forum in favour of its own jurisdiction. This decision illustrates that a party may find itself having to litigate before the local courts despite having signed a contract with a valid and otherwise binding arbitration clause if the “interests of justice” so require. However, the decision is fact specific and should be understood in the light of all the circumstances of the case. In this case, the consultancy contract included the arbitration agreement whilst the construction contract, which was arguably the main underlying agreement, did not. The Court of Cassation may possibly have ruled differently if it was the construction contract that contained the arbitration agreement rather than the consultancy contract or if the issue in dispute was a different one, i.e. if the resolution of the parties’ dispute did not depend on a finding of liability under the construction contract.

This decision is interesting as it highlights the importance of ensuring consistency in the choice of dispute resolution in the context of multiple and distinct but related contracts.

If multiple parties to a construction project wish for all their potential disputes to be determined by arbitration, they should ensure that all related contracts contain compatible arbitration agreements allowing for joinder of additional parties and consolidation of arbitrations. Otherwise, they run the risk of having to litigate before the local courts. In this context, it is noteworthy that, unless contracts are entered into on a back-to-back basis, not all parties will necessarily be aware of the contractual terms entered into by others in relation to the same project and/or one party may not be in a strong negotiating position and therefore not able to impose its preferred choice of dispute resolution forum. It will not always be possible to ensure consistency in the choice of dispute resolution forum across all distinct but related contracts at the outset of a particular project. Once a dispute arises, it remains open to the parties to agree to submit their dispute (or a particular aspect of it) to arbitration by signing a separate submission agreement. Submission agreements that allow parties without pre-existing arbitration clauses to choose to submit a particular dispute to arbitration may possibly remedy the absence of a pre-existing arbitration agreement. In practice, parties may sign a submission agreement while engaged in negotiations for resolution of their disputes or even where a dispute is already being litigated before the courts. In the context of multiple contracts, parties should carefully consider how the submission agreement aligns or conflicts with all concerned agreements to ensure it achieves the desired relationship between all contracts. When negotiating and drafting a submission agreement, parties will have to consider (as with any arbitration clause) whether the arbitration should be administrated by an institution or conducted ad hoc, which arbitrations rules are to apply, what the seat of the arbitration and number of arbitrators should be. Once a dispute has arisen, parties have the benefit of understanding the precise issues and amounts in dispute, which will allow them to better tailor the process to best suits their needs.

More from our authors: International Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
by Gary B. Born
€ 509


The Impending Binance Arbitration: a Primer on the World of Cryptocurrencies, Derivatives Trading and Decentralised Finance on the Blockchain

Wed, 2021-10-13 00:07

Introduction – What is Binance?

The rise of the cryptocurrency industry has spawned some of the fastest growing and most profitable companies since the original dotcom boom, with those like Coinbase, which was valued at almost US$100 billion after its recent IPO, being prime examples. However, Coinbase, as a cryptocurrency exchange, is dwarfed by the runaway success and size of the Chinese-founded exchange, Binance. On average, around US$100 billion is traded there daily. The current size of this exchange and trading platform is equally impressive in light of the fact that the company was originally founded in 2017 (five years after Coinbase). The reasons for Binance’s rapid development have obviously mirrored the cryptocurrency industry’s massive expansion, but they are also likely due to its unorthodox approach to providing its services in every corner of the globe over the past four years. This latter point is one of the many interesting parts of the impending arbitration to be filed by disgruntled traders against the platform.

 

News of a dispute involving Binance originally broke in mid-August 2021, when mainstream news outlets such as CNBC and the Financial Times released stories about a recently created third-party funder based in Switzerland called Liti Capital, which was planning to fund a ‘class action’ style HKIAC arbitration with potentially up to 700 claimants. The circumstances of the dispute arise out of a shutdown of many parts of the Binance online trading platform on
19 May 2021, the day of one of the largest percentage drops in the value of Bitcoin ever, and allegedly resulting in huge losses for traders who could not access their accounts.

 

What has brought a lot of mainstream media attention to this dispute is Binance’s long-standing, ambivalent approach to regulation when providing its services around the globe. The corporate entities behind the platform have shifted around the world regularly as its success has grown, avoiding stricter regulation as regulators have reacted to Binance’s presence within their remit. Critics have pointed to comments by Binance’s CEO Changpeng Zhao (known colloquially as ‘CZ’) repeatedly touting Binance’s ‘decentralised’ – implying “stateless” or “lawless” – nature.  Let us look at the publicly-known facts.

 

From a corporate legal point of view, Binance appears to have originally been founded in mainland China in 2017, before moving its servers and headquarters to Tokyo, Japan later that year in advance of China’s crackdown on Bitcoin exchanges and initial coin offerings (ICOs). After hints of stricter regulation in Japan in 2018, Binance announced plans to move some of its operations to Malta, and later also to Bermuda and Jersey. Today, the platform has entities in the Cayman Islands, The Seychelles, Singapore, South Korea, Uganda, Ireland, U.S.A and the UK, amongst many other countries, without any clear indication as to which of the entities are parent companies, which are subsidiaries or how they are related.

 

However, in an article published by the South China Morning Post on 16 September 2021, CZ admitted that the platform would need a centralised entity to “work well with regulators”. This marks a turning point from Binance’s prior “catch-me-if-you-can” approach to regulation, and the platform’s recognition that it cannot continue to operate wholly outside of national regulatory boundaries. This recent sequence of events puts to rest the media narrative that Binance as a whole is a stateless and decentralised set of entities with no corporate foundations and therefore a minimal level of obligations to either customers or regulators. An important distinction should be made between the fact that the Binance corporate entities are undoubtedly grounded in the corporate structures of each of their respective countries (and, as such, are clearly subject to their laws) and the fact that a number of services hosted on the Binance platform operate in a legal vacuum, raising the open question of whether the platform is a legal entity distinct from those corporate underpinnings and, if so, what legal regime governs it?

 

The Dispute, and the Billions behind Cryptocurrency Derivatives

While no requests for arbitration or other statements of case have been made publicly available (it is not known, for example, which Binance entity is a respondent), a video interview by CNBC with Liti Capital CIO, David Kay, along with other print interviews, have revealed some details around the potential allegations involved and approximate quantum of the claims. Of the 700 potential traders as claimants, six individuals allege losses of over US$20 million in aggregate, with the size of the total claims possibly reaching more than US$100 million. From the information available, most if not all of the potential claimants appear to have been trading cryptocurrency derivatives, a factor which is key not only to understanding the crux of the dispute but also Binance’s commercial success and the recently heightened regulatory scrutiny of cryptocurrency trading in jurisdictions around the world. Generally speaking, derivatives are contracts created on top of financial assets that have set correlations in relation to those assets.

 

Crypto derivatives on exchanges like Binance are almost identical to those that one might see on stocks, commodities or indexes in traditional financial markets, except for the fact that the underlying financial assets are obviously cryptocurrencies. Where crypto derivatives can be especially risky, and potentially catastrophic, for traders is through the high volatility of cryptocurrencies, especially over short periods of time.

 

What is alleged by the potential claimants in the Binance dispute is that they were unable to access their accounts and/or trading positions during one of the most volatile days in the history of cryptocurrencies.  This was due to Binance’s platform shutting down, preventing them from either limiting their losses, or posting more collateral to avoid liquidation. These types of claims are not unheard of in regulated traditional markets (see India’s NSE outage for four hours in February 2021).  However, in the case of Binance, cryptocurrency trading is unregulated by any jurisdiction other than by subjecting it to de facto bans on crypto derivatives trading in countries such as the U.S., China and the U.K.

 

Unique Aspects of the Binance International Arbitration

On the surface, this is a dispute that presents several features in common with many other disputes regularly brought to international arbitration:

 

  • Binance has Terms of Use that provide a clear reference to HKIAC arbitration, a seat of arbitration in Hong Kong and Hong Kong law as governing law;

 

  • Binance has a number of corporate vehicles behind the platform, one of which is Binance Holdings Limited, a company incorporated and with an address in the Cayman Islands and another being Binance Limited, a company incorporated and with an address in Hong Kong; and

 

  • Although, according to the information shared by Liti Capital, the prospective claimants may attempt to file a class arbitration against Binance, the Terms of Use provide a waiver of class arbitrations, albeit this could have been added after the current dispute started.

 

However, some aspects of this dispute present very unique challenges arising from the world of cryptocurrencies.  Some of these challenges include the following:

 

i. Identifying Proper Parties

While the consistent media characterisation of Binance as an ephemeral, stateless and decentralised platform may be overblown, from a contractual point of view, the Terms of Use for Binance.com remain equivocal as to what Binance corporate entities control and are responsible for the platform’s operations. The Terms of Use refer only to “Binance Operators” as being the parties that run Binance, without naming any incorporated legal persons, and conversely, including language to the effect that the identities of these operators are subject to change. This is likely to be a very hotly contested legal issue in the impending arbitration due to the fact that Binance’s global corporate structure continues to be opaque and unknown, even to regulators such as the UK’s FCA, who reportedly requested this information and was refused by Binance’s UK entity.

 

Further, in a jurisdictional context, the question arises whether Binance would be able to argue that the trading services provided on its platform are decoupled from nearly every Binance entity (especially those which own the majority of its assets) except those entities which Binance could essentially select due to the open drafting of the Terms of Use. This leads to the larger, and unanswered, question of identifying the legal status of the Binance platform itself and how its prior approach to providing its services around the globe has contributed to ‘muddying the waters’ of its corporate governance.

 

ii. Applying Substantive Legal Standards & Potential Arbitrability Concerns

The next question is which substantive legal and liability regimes govern the derivatives trading services allegedly used by foreign claimants on the Binance platform, considering that Hong Kong law (the governing law of the Terms of Use) does not allow unlicensed derivatives trading in its territory and its residents are ostensibly banned from using Binance derivatives services according to the Terms of Use. While we do not know the nationalities of the claimants, it is likely that they comprise a large number of countries. This raises the question of the propriety of the sole application of Hong Kong legal standards to an arguably international and decentralised set of services, performed by the parties outside that jurisdiction. This also has the potential to bring up serious illegality concerns and the question of arbitrability under Hong Kong law.

 

iii. Traditional Enforcement against Cryptographic Assets & On-chain Enforcement

Decentralised services provided through blockchain technology bring about a range of obstacles, and also opportunities, when confronted with the traditional commercial and corporate world.

 

Firstly, the legal nature of cryptographic assets remains uncertain in many jurisdictions, leading to doubts as to the enforceability of a successful award over certain amounts of cryptocurrencies. There are a small number of countries where Bitcoin and other cryptocurrencies are banned or highly restricted but many other countries have simply not yet legislated for their existence. For example, India has not yet attributed any legal status to cryptocurrencies but a legislative bill is being discussed at the present time.

 

Secondly, and perhaps more interestingly from both a technical and practical point of view, is the possibility of on-chain enforcement, e.g. where ownership of cryptographic assets can be automatically transferred to the winning parties of an arbitration through the execution of smart contracts on the blockchain, therefore dispensing with the necessity of resorting to the traditional levers of enforcement such as national courts. Practically, it would appear unlikely that the Binance dispute would culminate with the execution of any type of on-chain enforcement mechanism. However, there are crypto/blockchain disputes which have or currently are being resolved in this manner. Traditional arbitral institutions, such as JAMS, are beginning to look at drafting arbitration rule sets relating to disputes involving smart contracts.

More from our authors: International Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
by Gary B. Born
€ 509


Can an Arbitral Tribunal Award a Claim in a Different Currency Than Requested? – The Case of Switzerland

Tue, 2021-10-12 00:35

Swiss substantive law allows a debtor to pay a debt in the national currency of the place of payment even though the debt is actually owed in a foreign currency, except for cases where the contract expressly requires fulfillment of the debt in “actual currency” by using the term “actual” or words to that effect (Article 84(2) of the Swiss Code of Obligations). A creditor has to accept fulfillment of a monetary debt payable in Switzerland by means of payment in Swiss francs even if the debt is owed in a foreign currency. In contrast, a creditor cannot claim compensation in a currency other than the currency owed (see, e.g., the decision of the Federal Supreme Court, ATF 134 III 151, consid. 2.2). Thus, a Swiss court cannot award a claim in the national currency of the place of payment if the compensation is actually owed in a foreign currency but has to dismiss such claim (see, the decision of the Federal Supreme Court, ATF 134 III 151, consid. 2.4). Likewise, a Swiss court may not award a claim in the currency owed if the creditor has wrongly claimed compensation in a different currency – by doing so, the Swiss court would violate the Swiss procedural law principle of ne extra petitawhich forbids a court to award “something else than what has been claimed” as set out in Article 58(1) of the Swiss Civil Procedure Code (see, e.g., the decision of the Federal Supreme Court, dated 1 October 2015, Case no. 4A_319/2015, consid. 3). This blog post will shed light on this issue in the context of international arbitration against the background of a recent decision rendered by the Swiss Federal Supreme Court.

 

Swiss Lex Arbitri: Enshrining the Principle of Ne Extra Petita

In international arbitration proceedings, the lex arbitri of Switzerland, as set out in Chapter 12 of the Swiss Private International Law Act (“PILA“), also requires an arbitral tribunals to adhere to the principle of ne extra petita. An arbitral award that disregards this principle may be set aside on the ground as set out in Article 190(2)(c) PILA. Article 190(2)(c) PILA reads as follows:

An arbitral award may be set aside only:

[…]

c. where the arbitral tribunal ruled beyond the claims submitted to it, or failed to decide one of the claims;

[…]

An arbitral award can thus be set aside if it grants a party more than it has claimed (ultra petita), if it grants a party something else than it has claimed (extra petita), or if it fails to decide on one or more claims (infra petita).

In the context of the topic at hand, the question one must ask is whether an award can be set aside in which the arbitral tribunal has awarded payment of a claim in a different currency than the currency claimed, as would be the case under Swiss substantive and procedural law as described above. In a recent decision rendered on 8 April 2021 in French, the Federal Supreme Court was presented with the opportunity to assess this question (Case no. 4A_516/2020, no English translation yet available at the time of this posting).

 

What Does the Federal Supreme Court Have to Say?

The background of the Federal Supreme Court’s decision was an international investment arbitration proceeding under the ICC Rules. The dispute concerned the investment of several Turkish investors in cement plants in Syria. In the course of the Syrian war, in April 2012, the Syrian government lost control over the region where the plants were located. As a consequence, the investors had to abandon their plants. In order to obtain compensation for the value of their investment in the plants, the investors commenced arbitration against Syria and requested payment of damages in USD. In its award rendered on 31 August 2020, the Arbitral Tribunal awarded the investors compensation of their claim in Syrian pounds (SYP) but allowed the investors to request payment in USD at the official exchange rate of the Syrian Central Bank on the day of payment. However, because of the Syrian pound’s significant currency devaluation between 2012 (when the investors lost control over the plants) and 2020 (when the award was rendered), the USD value of the amount awarded in SYP in 2020 was considerably lower than USD value of the amount of damages suffered by the investors in 2012.

The investors commenced setting aside proceedings before the Federal Supreme Court arguing, among others things, that the Arbitral Tribunal had violated the principle of ne extra petita by awarding the investors compensation in SYP rather than in USD.1)The investors also claimed that the award was against substantive public policy as the investors were only awarded a fraction of their loss on investment incurred. This argument was rejected by the Federal Supreme Court. jQuery('#footnote_plugin_tooltip_38927_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_38927_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

The Federal Supreme Court considered that the compensation in SYP was “technically” something else than what the investors had claimed (in the words of the Court, an aliud) but nonetheless refused to set aside the award. Rather, the Court considered the investors to lack a legitimate interest in having the award set aside (as required by Article 76(1)(b) of the Swiss Federal Supreme Court Act). According to the Federal Supreme Court, it was uncertain whether a setting aside of the award and a remand to the Arbitral Tribunal for a new decision would be more favorable to the investors. The Court assumed that the Arbitral Tribunal in such case would reject the investors’ claim in USD. Although the investors could commence new proceedings claiming compensation in a currency other than USD, the Court considered that there was nothing to suggest that such a solution would be more favorable for the investors (Case no. 4A_516/2020, consid. 5.5).

Eventually, the Federal Supreme Court left open the question whether an arbitral tribunal can award a claim in a different currency than the currency claimed by the plaintiff. Instead, the Court submitted that the principle of ne ultra/extra petita may be less rigorously applied in a case concerning international commercial law than in a case governed by Swiss law (Case no. 4A_516/2020, consid. 5.5).

 

Federal Supreme Court’s Reasoning Leaves One Unsatisfied

The Court did not answer the question whether an arbitral tribunal can award payment of a claim in a different currency than the currency claimed, although the Court considered that in this case the Arbitral Tribunal awarded something else than what had been claimed. Rather, the Court noted that the principle of ne infra petita might be applied less strictly in an international commercial setting, without however defining what this means.

Moreover, the Federal Supreme Court simply assumed that the Arbitral Tribunal would reject the investor’s USD claim if the case were remanded without detailing the basis of this assumption. The Court’s conclusion that the investors lack a legitimate interest in having the award set aside ignores the fact that the award of a sum in a currency other than the one claimed resulted in a significant loss for the investors because of that currency’s devaluation.

In any case, this decision confirms the high threshold to be met to successfully set aside an award in Switzerland.

 

Key Takeaways

Parties to international arbitration proceedings seated in Switzerland involving different currencies are well advised to assess the correct currency of their claim and, in case the claim is for a currency other than the apparent currency, to show the arbitral tribunal why a different currency is claimed.

In commercial arbitration proceedings, parties should also consider to designate in their contract the currency for all claims arising out of or in connection with the contract. Absent such a clause, under Swiss substantive law, the contractually agreed currency designates the currency of a claim for performance. In case of a claim for damages, the correct currency is usually the currency of the state where the damages occurred (see, e.g., the decision of the Federal Supreme Court, dated 10 February 2017, Case no. 4A_341/2016, consid. 2.2).

In investment arbitration proceedings, the bilateral investment treaty may designate a specific currency for compensation claims, e.g. the currency of the investor’s state of domicile or the currency of the state where the investment is made. In the case at hand, the bilateral investment treaty in question did not designate the currency and the Federal Supreme Court considered that there was no established international rule determining the currency for compensation in investment arbitration (Case no. 4A_516/2020, consid. 4.3.2). In such a case, it is up to the claimant to convince the arbitral tribunal that the claimed currency is the correct one.

References[+]

References ↑1 The investors also claimed that the award was against substantive public policy as the investors were only awarded a fraction of their loss on investment incurred. This argument was rejected by the Federal Supreme Court. function footnote_expand_reference_container_38927_30() { jQuery('#footnote_references_container_38927_30').show(); jQuery('#footnote_reference_container_collapse_button_38927_30').text('−'); } function footnote_collapse_reference_container_38927_30() { jQuery('#footnote_references_container_38927_30').hide(); jQuery('#footnote_reference_container_collapse_button_38927_30').text('+'); } function footnote_expand_collapse_reference_container_38927_30() { if (jQuery('#footnote_references_container_38927_30').is(':hidden')) { footnote_expand_reference_container_38927_30(); } else { footnote_collapse_reference_container_38927_30(); } } function footnote_moveToReference_38927_30(p_str_TargetID) { footnote_expand_reference_container_38927_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } } function footnote_moveToAnchor_38927_30(p_str_TargetID) { footnote_expand_reference_container_38927_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
by Gary B. Born
€ 509


The Contents of the Yearbook Commercial Arbitration, Volume XLVI (2021), Upload 3

Mon, 2021-10-11 00:00

Subscribers to KluwerArbitration.com enjoy access to the ICCA Yearbook Commercial Arbitration.

A new upload of materials for the 2021 volume of ICCA’s Yearbook Commercial Arbitration is now available on the KluwerArbitration website. The upload consists of 27 decisions. Here are some highlights.

The Federal Supreme Court of Germany held that the need to avoid contradictory results required that the applicable-law rules of Art. V(1)(a) of the New York Convention, which concern the enforcement of awards, have to be applied by analogy in proceedings concerning the enforcement of arbitration agreements.

In its decision in the PAO Tatneft v. Ukraine case, which saw judgments in three jurisdictions, the UK High Court rejected Ukraine’s application to deny enforcement of a French investment treaty award under the 1998 Russia-Ukraine BIT, finding that Ukraine could not object to enforcement arguing that the tribunal had lacked jurisdiction, because it had not raised that issue in the arbitration.

Consequences of the COVID-19 pandemic were discussed in two decisions of the Southern District of Florida. In Fnu Isanto, the Court granted a motion to compel arbitration under an employment contract for a dispute concerning the death of a seaman due to a COVID-19 infection he allegedly contracted on a cruise ship because of the failure of his employer to timely implement social distancing measures. In Maglana, the issue was whether the arbitration agreement in the employment contracts of several seamen had become null and void because the cruise ship operator had failed to pay wages when all cruises were cancelled and the seamen were forbidden to disembark due to the pandemic.

Finally, two decisions in the Hulley v. Russian Federation dispute granted or confirmed a stay of the proceedings to enforce three PCA awards, pending a set-aside action in the Netherlands. In November 2020, the United States District Court for the District of Columbia held that a stay was appropriate in terms of judicial economy, balance of hardships, and considerations of international comity – since denying the stay would risk the possibility of inconsistent results in the primary (Dutch) and secondary (US) jurisdictions. Similarly, in April 2021, the English High Court of Justice denied the application to lift the stay previously granted, finding that the grounds for annulment invoked by the Russian Federation in the Dutch annulment action had at least a realistic prospect of success.

More from our authors: International Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
by Gary B. Born
€ 509


Cultural Heritage Law and Investment Treaty Law: A Balancing Act?

Sun, 2021-10-10 00:45

Investor-state disputes often involve an interplay of different bodies of international law.  In addition to investment law, disputes may invoke issues involving public international law, international human rights law, and international environmental law – and tribunals are faced with the challenges of trying to reconcile the sometimes conflicting rights created under these different bodies of law.  International cultural heritage law is one of the areas of law that can sometimes be relied on in the context of investment treaty disputes, particularly where an investment touches upon an area that has been granted international recognition and protection either by the competent authorities of the host State, and/or by the United Nations Educational, Scientific and Cultural Organization (“UNESCO”).  Relevantly, the 1972 Convention Concerning the Protection of the World Cultural and Natural Heritage (“1972 World Heritage Convention”) creates obligations on States to protect and conserve sites that are inscribed on the UNESCO World Heritage List (article 5), and UNESCO publishes Operational Guidelines requiring States to take legislative and regulatory measures to protect listed sites.

The recent designation of the land at the center of the 4.4 billion USD dispute in Gabriel Resources Ltd. and Gabriel v Romania (ICSID Case No. ARB/15/31) (“Gabriel Resources v. Romania) as a UNESCO World Heritage site brings to the fore the conceptual challenges that may arise where an investment dispute concerns a site of international cultural significance.  In this case, the inscription of Roşia Montană as a World Heritage site came after the tribunal had heard oral arguments and received post-hearing briefs.  Accordingly its significance may be limited for the decision.  However, the case provides a useful opportunity to reflect on past developments in investment treaty disputes involving culturally or environmentally significant sites, and how tribunals might approach these two different bodies of law.

 

Gabriel Resources v Romania

In 2015, Gabriel Resources Ltd. and Gabriel Resources (Jersey) Ltd. (“Claimants”) initiated a claim against Romania under the Romania-Canada BIT and the Romania-United Kingdom BIT.  The claim alleged that the government had breached its treaty obligations by failing to approve the Claimants’ environmental impact assessment and issue an environmental permit to allow exploration at the Roşia Montană gold mining project.

The Claimants’ project was planned for Roşia Montană, which is located in the Apuseni Mountains in the western region of Romania.  The site was used extensively for gold mining during the Roman Empire, and evidence of the infrastructure and mining techniques used during these times is preserved to this day.  The Roşia Montană site is now renowned as the most “significant, extensive and technically diverse underground Roman gold mining complex”.

In 2017, Romania applied to UNESCO to have the Roşia Montană site listed on the World Heritage List.  In 2018 however, Romania suspended this process, reportedly pending ICSID’s determination in the ongoing proceedings.  In February 2020, the Romanian government resumed its application to include Roşia Montană on the World Heritage List.  In July 2021, at the 44th Session of the World Heritage Committee, the Roşia Montană site was inscribed on the UNESCO World Heritage List.  Relevantly, UNESCO noted that “the current mining proposal means that the integrity of the property is highly vulnerable.”  UNESCO also indicated the need for the Romanian government to take adequate controls to prevent active mining licenses on the site from being extended.

As noted above, the tribunal in Gabriel Resources v Romania has already heard oral argument, and received post-hearing briefs. It is unclear accordingly what effect, if any, the UNESCO inscription will have on the dispute.

 

Previous Investment Treaty Cases Involving UNESCO Listed Sites

While the UNESCO listing of the Roşia Montană site came after the hearing in Gabriel Resources v. Romania, there have been a number of earlier cases where tribunals have had to consider the relevance of this cultural designation in determining an investor’s rights.

This issue featured significantly in the proceedings in Thomas Gosling and other v. Republic of Mauritius (ICSID Case No. ARB/16/32), determined in February 2020.  In that case, the claimants alleged that Mauritius had infringed the UK-Mauritius BIT by not granting them the right to build a luxury tourism development in Le Morne, an area in southwest Mauritius that was used as shelter for runaway slaves in the 18th and 19th centuries.  The State had initially provided the claimants with a letter of intent to issue a tourism development certificate.  At the same time however, the State was pursuing UNESCO listing for Le Morne.  After having the application for UNESCO listing twice rejected, the State submitted a further application for listing to UNESCO that stated that development at the site would not be permitted.  Following that statement, the site was approved by UNESCO.  The claimants argued, inter alia, that the revised UNESCO application, which excluded the possibility of future development at Le Morne, constituted an expropriation of their contractual rights.  The majority dismissed the claim.  However, this was not due to the UNESCO listing, but rather on the basis that the State had not yet granted the claimants any development rights nor provided them with any assurances that could give rise to a treaty violation.

Other tribunals have also had to grapple with the relevance of a UNESCO World Heritage Listing for an investment dispute, with varying results.  For example:

  • In Compañia del Desarrollo de Santa Elena SA v. Republic of Costa Rica (ICSID Case No. ARB/96/1), Costa Rica reclaimed property owned by American investors in order to expand the Santa Rosa National Park in the Guanacaste Conservation Area. The investors brought proceedings claiming that the State had expropriated their investment without providing compensation.  While the proceedings were pending, Costa Rica applied for and received UNESCO World Heritage Listing for the Guanacaste Conservation Area.  The tribunal accepted that the property had been expropriated and ordered the State to pay the investors fair market value.  The tribunal noted that while takings for environmental reasons may constitute takings for a public purpose, this does not affect the State’s obligation to pay compensation (Award, February 17, 2000, para 71).
  • In Southern Pacific Properties (Middle East) Limited v. Arab Republic of Egypt (ICSID Case No. ARB/84/3), the Investors had commenced excavation and construction works to build a tourism complex at the pyramids of Giza, when they uncovered artefacts of archaeological importance. The Egyptian Government then declared the land surrounding the pyramids to be “public property” , and withdrew approval for the project.  Two years later, the Pyramid Fields became a World Heritage Listed site.  The Investors later instigated proceedings claiming that the State had expropriated its investment. Similar to the Tribunal in Saint Elena v. Costa Rica, the Tribunal in this case found that there had been expropriation, but that the taking was in the public interest as it was for the purpose of protecting the State’s antiquities (Award, May 20, 1991, paras 158).  Interestingly however, the Tribunal limited the award of damages to lost profits accrued up to the date that the site was listed as a World Heritage site.  Its rationale for doing so was that the sale of land on a heritage listed site is illegal under Egyptian and international law, and that “any profits that might have resulted from such activities are consequently non-compensable” (Award, May 20, 1992, paras 190-191).
  • In Parkerings-Compagniet AS v Republic of Lithuania (ICSID Case No. ARB/05/8), the Municipality of Vilnius in Lithuania granted the Investor the right to construct parking facilities in the historic city center of Vilnius, a World Heritage Listed site. However, the Municipality later terminated the agreement, due to both technical difficulties and concerns regarding the effects that the project would have on the city’s archaeological heritage.  The Municipality then signed an agreement with a Dutch company for construction of the parking lot.  Relevantly, the Dutch company’s construction plans did not involve excavating under the historic city centre.  The Investor brought proceedings, claiming that Lithuania had breached the 1992 Lithuania-Norway Bilateral Investment Treaty.  The Tribunal however found that the State had not breached its obligations under the treaty, and “historical and archaeological preservation and environmental protection could be and in this case were a justification for the refusal of the [Claimant’s] project” (Award, September 11, 2007, para 392).

 

Takeaways for Investment Law and Cultural Heritage Law

This brief survey of investment law cases involving UNESCO World Heritage Listed sites shows the difficult task that tribunals face in seeking to balance what can be two competing areas of international law.  This challenge is not unique to international cultural heritage law, as tribunals are often required to undertake similar tasks in disputes involving, for example, international human rights law, or international environmental law.

It is clear from this brief survey that tribunals do recognize the legitimacy and, indeed, the value in States taking steps to protect their cultural and natural property.  However, while such actions may be necessary, this does not necessarily relieve States of their obligations under investment law – with these tribunals holding that investors must be compensated for any rights that are transgressed in the process of the State attempting to protect its cultural property.  However, the measure of compensation may vary depending on when the site is listed by UNESCO and whether the tribunal takes this cultural designation into account in determining the investors’ loss.

It remains to be seen whether the designation of Roşia Montană on the World Heritage List at such an advanced stage of proceedings in Gabriel Resources v Romania will be considered by the tribunal in that case.  However, with the number of natural and cultural sites inscribed on UNESCO World Heritage Listing continuing to increase, the issue of how investor’s rights will be balanced against the State’s obligations under the 1972 World Heritage Convention will inevitably come up again, and it will be interesting to see how tribunals continue to balance cultural heritage against an investor’s rights under international law.

More from our authors: International Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
by Gary B. Born
€ 509


Estonia: Public Policy Must Be Interpreted Narrowly

Sat, 2021-10-09 00:30

The 168 parties to the New York Convention, including Estonia, have made a promise to recognize and enforce foreign arbitral awards. One of the few grounds – and probably the most discussed one – to refuse the recognition and enforcement is, under Article V(2)(b) of the New York Convention, the contradiction to the public policy of the country where the recognition and enforcement is sought. The New York Convention Guide admits that public policy forms part of a wider range of tools that allow a court to protect the integrity of the legal order to which it belongs.

Estonia has demonstrated itself to be an arbitration friendly country by defining public policy in a narrow way.

 

Selected case law on public policy

In case 2-18-4731 the Supreme Court of Estonia explained that not all of the country’s mandatory provisions constitute public policy, but only those that reflect the core values of the country’s legal system.

In the same decision, the Supreme Court dealt with enforcement of an arbitral award rendered in a case where the respondent – that was about to become bankrupt – did not dispute the claim. The decision also notes that it was possibly the parties’ joint intent to rapidly obtain an enforcement deed against the respondent before the start of bankruptcy proceedings. This would allow the claimant to have an automatically acknowledged claim in the bankruptcy procedure. The court found that these circumstances do not result in a conclusion that the arbitral award contradicts public policy. Since arbitral awards obtained in Estonia in proceedings where the parties do not argue about the existence and extent of the claim are enforceable, the same should be applied to foreign arbitral awards. Hence, an allegation that the parties have used arbitration to achieve an advantage in the domestic bankruptcy proceedings does not render the arbitral award unenforceable.

Previously, in case 2-16-15675, the Supreme Court had also outlined that the recognition and enforcement of an arbitral award does not contradict public policy merely because the domestic laws of the country where the recognition and enforcement is sought were not followed – in this case, the procedure of service under Estonian law. The Supreme Court opined, however, obiter dictum that Article V(2)(b) of the New York Convention might be triggered where Estonian law does not allow to arbitrate the type of disputes at all. Sections 718 and 7181 of the Estonian Code of Civil Procedure respectively render the residential lease, employment termination and consumer credit disputes non-arbitrable and provide for strict rules applicable to arbitration agreements with consumers.

In contrast, when defining public policy, the Supreme Court found in an earlier case 3-2-1-186-15 that the independence of the arbitrator is a core value of the legal system and constitutes public policy. Estonia would not recognize an arbitral award rendered by an arbitrator who would simultaneously protect the interests of one party.

 

Conclusions

In summary, Estonian courts define public policy in a narrow way. They see arbitrator’s independence and impartiality, as well as non-arbitrability of some disputes, as core values of Estonia’s legal system. An award that contradicts any of these values is not recognized and enforced pursuant to Article V(2)(b) of the New York Convention. Most of the other mandatory provisions do not fall within the scope of Estonia’s public policy and are not grounds to refuse the recognition and enforcement of a foreign arbitral award.

More from our authors: International Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
by Gary B. Born
€ 509


Aligning Human Rights in Business with International Commercial Arbitral Rules

Sat, 2021-10-09 00:00

This year marks the 10th anniversary of the UN Guiding Principles on Business and Human Rights (“UNGPs”), which set out the duties of States and responsibilities of companies to embed human rights considerations in business activities. Of the three Pillars in the UNGPs, Pillar II (principles 11-24) specifically sets out human rights principles by which businesses should abide, including responsibilities to:

  • Avoid infringing on the human rights of others and address adverse human rights impacts (Principle 11);
  • Seek to prevent or mitigate adverse human rights impacts even if they have not contributed to those impacts (Principle 13);
  • Have a human rights due diligence process in place, including the remediation of adverse human rights impacts (Principles 15 and 22); and
  • Seek ways to honor internationally recognized human rights when faced with conflicting requirements (Principle 23).

Despite the enactment of these principles, the scorecard for the first decade has been rather disappointing. According to the UN Working Group on Business and Human Rights, business-related abuses are still a major concern and a source of deep frustration. Child labor implicates 160 million children worldwide. Other abuses range from one-bathroom-break rules to slavery to torture.

As was recognized at UNGPs’ inception, “there is no single silver bullet solution to the institutional misalignments in the business and human rights domain” and all social actors “must learn to do many things differently.” For these reasons, UNGPs have been adopted by standard-setting bodies in the corporate,  investment and accounting communities. In this same line, bar and trade groups are mapping out implementation strategies of UNGPs.

The commercial arbitration community, however, has been largely non-committal. As a recent report on UNGPs notes, commercial arbitration is seen as a “problematic forum” for resolving human rights-related disputes. According to the report, this is due to various features of commercial arbitration, including its “confidentiality, lack of transparency and participation by affected stakeholders, and the lack of human rights expertise of commercial arbitrators.”

While the new Hague Rules on International Arbitration of Business and Human Rights Disputes have been justifiably hailed as a milestone in providing a new forum for human rights matters, as with any arbitral rules, the Hague Rules kick in only if the underlying contract so provides or the parties so agree post-dispute.

Against this backdrop, this post examines the possibility of aligning UNGPs with pre-existing international commercial arbitral rules such as those promulgated by the ICC, ICDR, SIAC, LCIA, UNCITRAL, and HKIAC, with a view to assisting businesses in enhancing their human rights practices.

This post will shed a light on questions such as: (a) should an arbitral tribunal be empowered to consider evidence of human rights violations without fear of breaching its duty to render an enforceable award? and, (b) what if arbitral rules were amended to specifically include language authorizing tribunals to factor in human rights considerations as akin to trade usages?

Such a reference will enable global corporations to assign increased risk factors to human rights abuses (especially when transacting in countries where such abuses are more prevalent). Business decision-makers will thus be able to financially justify reducing human rights abuses.

There are numerous concerns raised by the application of human rights principles to commercial arbitrations; however, such legitimate fears should not be insurmountable, provided that participants are willing to endeavor, with an open mind, to “do many things differently”.

Below are some likely objections and answers to the integration of human rights in international commercial arbitration:

 

Objection 1: Arbitral rules are no place for substantive, non-contractual rights.

Many of the widely-used arbitral rules such as Article 21 of the ICC Rules, SIAC Rule 39 and Article 34 of the ICDR Rules require tribunals to consider trade usages in their determination of liability. According to some practitioners, these types of provisions “underscore arbitration’s historic roots in, and objective of, providing resolutions of disputes in a manner that accords with commercial expectations and practices.” In turn, globally recognized standards are routinely proffered as evidence of trade usages. Given the universally accepted nature of fundamental human rights, UNGPs could be considered analogous to trade usages if deemed applicable to the contract. Accused parties would be hard pressed to argue it is not industry practice to respect human rights in conduct relating to the contract at issue.

The international arbitration community should not disregard the power of institutions to impact business human rights practices. Arbitral rules typically provide that the current version govern even where the operative contract predates rules amendments. Tribunals and national courts have held that a reference to an institution or its rules means the rules themselves form part of the parties’ agreement by incorporation. And, while tribunals’ rulings are sometimes vacated as contrary to national law or public policy, arbitral rules themselves are rarely questioned under party autonomy principles.

One might argue that institutions lack a mandate to meddle in human rights issues. However, institutions are becoming increasingly proactive in shaping arbitration’s operative framework. NIMBY phenomena could be avoided if leading institutions joined forces, as many did last year in issuing their “Arbitration and COVID-19” joint statement.

 

Objection 2: Victims won’t benefit. What’s the point?

One could argue that because arbitration is inter-partes, the application of UNGPs may not benefit non-party victims. However, a reference to human rights considerations should still have an indirect, deterrent effect. Further, a tribunal’s finding that a company violated UNGPs could have a binding, collateral estoppel effect in subsequent or parallel proceedings involving the victims themselves, especially in arbitration-friendly jurisdictions where corporations are often headquartered.

Given tribunals’ broad power to fashion remedies, evidence of UNGP violations could even in some cases lead to an order directing the breaching party to correct its wrong and/or compensate victims. Tribunals might even provide an avenue for victims to join in as third-party beneficiaries or necessary parties, enabling them to obtain relief in the arbitral proceeding itself.

 

Objection 3: Since commercial arbitration is private, will victims even know?

Due to arbitration’s confidential and private nature, victims may never even learn of a finding implicating them. Certain arbitral rules such as SIAC Rule 39 have robust built-in confidentiality protections. That said, in practice, the confidentiality of arbitral proceedings is increasingly called into question, as parties sometimes compromise the confidentiality of proceedings or the award. Taking a page from the Hague Rules mentioned above, arbitral rules could include a carveout allowing evidence of human rights violations a higher degree of transparency in the proceedings.

 

Objection 4: Is this an improper importation of equitable principles?   

One could argue that such provisions grant tribunals equitable powers whereas many arbitral rules prohibit tribunals from deciding as amiable compositeur absent consent. However, such a scenario is unlikely where the reference to human rights or UNGPs is expressly made in the rules, which are considered part of parties’ agreement by incorporation. Parties will remain free to modify or opt out as prescribed in other parts of the various arbitral rules. A tribunal should thus have comfort that it is not acting beyond its mandate from the parties.

 

Objection 5: Delay, costs, and existential threats: will there be user support for this proposal? 

Injecting human rights concepts into arbitral rules could reduce the predictability of the outcomes, delay proceedings and increase costs, at a time when the arbitration community is striving to do the opposite. Amidst a renewed debate on international commercial courts and the Hague Choice of Court Agreements Convention, such references could discourage arbitration. However, if fairness, security, or conflicts of interest are worthy of consideration in arbitral proceedings, human rights deserves its own seat at the table. Moreover, the risk of counsel or parties abusing human rights issues is mitigated by already-existing rules empowering tribunals to determine relevance, weight, admissibility, and materiality of evidence.

 

Objection 6: Will it be a toothless addition?

UNGPs use predominantly permissive language (e.g., “should” and “responsibility” instead of “shall” or “duty”). While human rights will not likely confer a separate cause of action for breach of UNGPs until codified in national laws, the commercial arbitral community should begin somewhere. Empowering counsel and parties to proffer, and tribunals to consider, evidence of UNGPs or human rights considerations would be a good starting point.

Notably, Commentary to UNGP 11 notes: “The responsibility to respect human rights…exists over and above compliance with national laws and regulations protecting human rights.

 

Conclusion:

The most frequent opposition might be “it’s just not done.” As others have noted, we must “learn to do many things differently.” Commercial arbitration should not be considered a problematic forum in businesses’ efforts to promote human rights.

Throughout history, arbitration has flourished in societies that prioritized human rights, and floundered in those that did not. The arbitration community owes its existence to a humane society. Even if the most we achieve is giving rhetorical power to business’ human rights decisions, that would be a start. Ultimately, we need to find ways to do our share.

 

More from our authors: International Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
by Gary B. Born
€ 509


Arbitrability of IPR Disputes through the Lens of the Iranian Legal System

Fri, 2021-10-08 00:00

A significant number of disputes related to Intellectual Property Rights (“IPR”) that have been settled by arbitration are reflected in the 2011-2020 World Intellectual Property Organization (“WIPO”) Caseload Summary. The expansion of the notion of arbitrability to include IPR disputes in recent years illustrates the global trend toward arbitration of IPR disputes despite concerns over the capability of resolving such disputes through arbitration in some jurisdictions, which include Iran, Brazil and South Africa.

This post explores the Iranian approach to the аrbitrаbility of IPR disputes. In doing so, this post will briefly explain the intellectual property landscape of Iran before discussing the arbitrability of IPR disputes in Iranian intellectual property and arbitration legislations.

The IPR Legal Regime in Iran

IPR essentially deal with creativity and innovation. The IPR regime seeks to “balance the moral and economic rights of creators and inventors with the wider interests and needs of the society” through legislation. In the Iranian legal system, the main legislature related to IPR at the domestic level currently are the Act for the Protection of Authors, Composers and Artist Rights 1970, Patents, Industrial Designs and Trademarks Registration Act 2008, the Act on translation and reproduction of books, publications and audio works 1974 and the Act on the protection of rights of computer software creators 2000.

At the international level, Iran is a member of WIPO and has acceded to key intellectual property treaties such as the the Paris Convention for the Protection of Industrial Property, the Madrid Agreement and Protocol for International Registrations of Trademarks, the NICE Agreement for International Classification of Goods and Services, Lisbon Agreement for the Protection of Appellations of Origin and their International Registration. In the context of copyrights, however, Iran has not signed the Berne Convention for the Protection of Literary and Artistic Works. Hence, Iran has not gone as far as the west with respect to its intellectual property legislation.

Arbitrability refers to whether a dispute is capable of resolution by arbitration or whether it can only be adjudicated through the domestic courts. Generally, non-arbitrability is dependent on a number of factors and each state determines whether a dispute is arbitrable by considering its own economic, social and legal circumstances The arbitrability of IPR disputes in the existing Iranian IPR regulations and in the current arbitration legislations will be discussed below.

Arbitrability in the IPR Legislation

Neither of the existing IPR domestic legislation in Iran expressly prohibits recourse to arbitration for IPR disputes. However, pursuant to article 59 of the Industrial Designs and Trade Marks Registration Act, “disputes related to the application of this Act and the relevant bylaws shall fall within the scope of jurisdiction of the general courts of Tehran that shall be designated by the head of the Judiciary within a maximum period of six months, from approval of the present Act”. The wording of this provision is ambiguous and leads to confusion as to whether it provides for the exclusive jurisdiction of the courts in resolving disputes falling under this statute or whether it merely comments on the exclusive jurisdiction of Tehran general courts. Legal scholars note that this article is concerned with the exclusive jurisdiction of the courts of Tehran in cases where they are the only or chosen dispute resolution forum, and not the exclusive jurisdiction of the courts over IPR disputes. This particular article should be read alongside other articles like 18, 41 and 29 dealing with the jurisdiction of the courts over disputes regarding the annulment of the registered patents and trademarks. Therefore, it would seem that only those IPR disputes that require registration at the Iranian Industrial Property Office are to be exclusively settled in the courts. Under this interpretation, state sovereignty and the right of a state to legislate in the public domain is preserved when IPR disputes are arbitrable and article 59, as mentioned above, is indicative of the exclusive jurisdiction of domestic courts over some IPR disputes.

Arbitrability in Iran’s Arbitration Legislation

The criteria for arbitrability is mainly set forth in the Iranian Civil Procedure Code and Law on International Commercial Arbitration 1997 (“LICA”). Article 496 of the Iranian Civil Procedure Code provides an illustrative list of the non-arbitrable disputes, which include disputes related to insolvency, marriage, divorce and paternity. Additionally, article 34.1 of LICA stipulates that if “[t]he subject matter of the dispute is not capable of settlement by arbitration under the laws of Iran”, the arbitral award is unenforceable, null and void. There is no express reference as to whether IPR disputes are arbitrable in the arbitration legislations.

There is also a restriction under article 139 of Constitution which requires authorization from the board of Iranian Ministers/Parliament before disputes pertaining to public and state properties can be referred to arbitration. Yet, this article is vague as to the arbitrability concept. Its wording gives rise to doubts as to which disputes may be arbitrable. Indeed, Iranian courts have interpreted the wording in different ways. For instance, the First Instance Court had ruled that there was no restriction on referring disputes involving governmental companies to arbitration and article 139 was merely applicable to governmental properties (judgement number 8809970228700102, 3 May 2009). However, in the same case, the Appeal Court reversed this and held that since the party was an insurance company and the shares belonged to the government, the properties also belonged to the government. Therefore, the dispute was not deemed to be arbitrable.

More importantly, the Comprehensive Draft Bill on Arbitration (“Comprehensive Draft Bill”) was recently drafted with contribution by the Judiciary and the Iran Chamber of Commerce in order to foster the use of arbitration in light of the Sixth Development Plan which sets out the general goals and the economic, cultural and social development plans of Iran for 2016 to 2021. The Sixth Development Plan has also adopted a pro-arbitration policy by stating that arbitration should be promoted in Iran. At the time of writing, the Comprehensive Draft Bill has not yet been ratified in the Parliament but can be relied on to better understand the latest approach of the legislator. Article 5.3 of the Comprehensive Draft Bill states that “if one of the parties is a governmental entity like Industrial Patent Office or the Ministry of Culture and Islamic Guidance, the IPR disputes are not arbitrable”. In other words, both disputes that require registration in the governmental authorities like the disputes related to the registered IPR, patents, designs or trademarks are not arbitrable. This is due to the exclusive jurisdiction of the Iranian domestic courts over some registered IPR disputes. Disputes related to marriage, divorce, paternity, custodianship and insolvency are also considered non-arbitrable pursuant to articles 5.1 and 5.2.

Further, according to the note in article 5 of the Comprehensive Draft Bill, “the disputes related to infringement of rights, transfer of rights, exploitation privileges and similar to these issues are arbitrable”. For the first time, Iranian legislation contains a provision on the resolution of IPR disputes in Iran that expressly allow for it to be arbitrable. Contrary to the registered IPR that are territorial in nature, disputes regarding the transfer of trade secrets, for example, which do not require to be registered and have private and confidential nature do not raise the sovereignty or public policy defense. The logic behind this categorization here is to avoid a situation where the arbitrators invalidate actions undertaken by the governmental authorities in response to the respondents’ challenging the registered IPR and initiating a jurisdictional defense.

While disputes concerning breaches of IPR, assignments of ownership or interpretation of license agreements ought to be arbitrable, challenges on the validity of IPR should not be resolved through arbitration. Given the fact that the issues of validity and ownership of IPR are associated with enforcement by the governmental IPR offices, the protection of these rights is territorial. These include, for instance, patents that are granted by a government for an invention.

On the global front, public policy restrictions and accordingly reservation of the exclusive jurisdiction of the state courts are the major grounds for the non-arbitrability of certain types of IPR disputes. It seems that the prescribed arbitrability of the IPR disputes in the Comprehensive Draft Bill are not merely concerned with whether they fall within the ambit of public policy. Instead, it is whether they fall under the exclusive jurisdiction of the national tribunals over registration of these rights.

Concluding Remarks

The current position on the arbitrability of IPR disputes under Iranian law still remains unsettled. It remains to be seen whether the Comprehensive Draft Bill will eventually be ratified in the Parliament or not. No specific case law has been reported in this regard and future case laws would be welcomed to clarify the issues discussed above.

However, the existing domestic regulations and the Arbitration Bill suggests that the types of IPR disputes need to be differentiated. To this effect, only the disputes related to a governmental entity or those that require registration should be deemed non-arbitrable. It is recommended that the domestic laws include express provisions which authorize the resolution of certain IPR through arbitration. In other words, there exists a strong need to modify the current legal framework for arbitration in order to have an enhanced arbitration-friendly environment to resolve complex IPR disputes more efficiently and effectively. Until such a reform is achieved, parties should take into account whether the applicable law of their contract and the law of the state where the award will finally be enforced recognizes the arbitrability of the IPR or not.

At the international level, the heavy caseload, highly technical subject matter of disputes, as well as agility, neutrality, specialty and confidentiality of the proceedings are reasons to shift towards arbitration as the preferred forum of dispute resolution for IPR disputes. In Iran, however, some of the IPR practitioners are not yet acquainted enough with the peculiarities of arbitration and prefer litigation. Hence, more initiatives should be taken to promote training in arbitration generally as well as for the IPR disputes.

More from our authors: International Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
by Gary B. Born
€ 509


Can Derivative Action Claims Be Arbitrated? Scenes From A Convoluted Indian Approach

Thu, 2021-10-07 00:00

There is no statutory provision that covers derivative actions by shareholders in India. However, the chapter on Prevention of Oppression and Mismanagement in the Companies Act, 2013 (“the Companies Act”) comes the closest. While Indian courts have generally adopted a stance against the arbitrability of oppression and mismanagement matters (Rakesh Malhotra v. Rajinder Malhotra, Sporting Pastime India Ltd. v. Kasturi & Sons Ltd.),  their stance on derivative action suits is unclear. At the outset, oppression, mismanagement, and class action claims are considered to be quite different from typical derivative action suits in the Indian context because of two reasons: (1) derivative suits implicate corporate/economic rights of the shareholders instead of their personal rights; and (2) due to this, in oppression, mismanagement, and class action lawsuits, the shareholders file applications on behalf of members for personal reliefs to protect themselves, whereas in derivative actions remedies are sought on behalf of the company. In that regard, the rationale to justify the non-arbitrability of oppression and mismanagement matters cannot always apply to derivative action suits. Thus,  derivative action claims were first held to be arbitrable in “Rashmi Mehra”) by the Bombay High Court that distinguishes them from oppression and mismanagement cases.

 

Review of Judgments

The status quo changed when the Bombay High Court delivered its judgement in Onyx Musicabsolute.Com Pvt. Ltd. v. Yash Raj Films Pvt. Ltd. & Ors. (“Onyx”) after dealing with an application under (“the Act”), which was essentially in the nature of a derivative action. Section 9 of the Act deals with interim measures that can be granted by the Court before or during the arbitral process, or any time after the arbitral award is made but before its enforcement. In Onyx, the plaintiff and defendant no. 1 formed defendant no. 2 as a joint venture, each holding 50% of the shares. Thereafter defendant no. 1 and no. 2 entered into a licensing agreement where mobile rights of films produced by the former would be licensed to the latter. Certain disputes arose due to defendant no. 1 allegedly breaching the agreement and licensing certain films to a third party instead of defendant no. 2. Arbitration proceedings were initiated, pending which an injunction was requested by the plaintiff under Section 9 to bar defendant no. 1 from licensing rights to the third party. The court refused to enjoin defendant no. 1 under Section 9, citing two reasons: first, the license agreement containing the arbitration clause was between the defendant no. 1 and 2 and not the plaintiff, which disentitled it from invoking said clause; and second, since the Section 9 petition was essentially in the form of a derivative action, it was much better suited for a public forum and not a private mode of dispute resolution such as arbitration. Interestingly, it did not refer to Rashmi Mehra, a judgment delivered by the same court only a couple of years earlier.

Onyx was later distinguished in Rajiv Vyas v. Johnwin Manavalan Groge Mandavalan & Ors. (“Rajiv Vyas”) and Welspun Enterprises Ltd. v. ARSS Infrastructure Projects Ltd. ( “Welspun”). In Rajiv Vyas, the petitioner (holding approx. 33.3% of the total shares) and the respondents entered into a shareholders’ agreement to form an entity for their business. When the respondents tried to alienate certain rights of the company, the petitioner initiated arbitration proceedings and filed an application under Section 9 of the Act to restrain the respondents from acting against the interests of the company. Since the shareholders’ agreement contained an arbitration clause and the conduct of the respondents affected not only the company but also the petitioner, the court allowed the Section 9 application. Welspun also relied on Rajiv Vyas instead of Onyx, thereby allowing the Section 9 application despite the petition partly containing requests to protect the personal rights of the shareholders, and partly to protect the company’s. It reasoned that if there is a shareholders’ agreement between the shareholders, and if one shareholder wants to protect his rights as well as the rights of the company itself by virtue of any breach committed by another shareholder, he would be entitled to pursue arbitration provided such shareholders’ agreement contains an arbitration clause.

 

Observations and issues

There are two elements that could make a derivative action claim arbitrable, each associated with certain challenges.

First: There should be an agreement to arbitrate between the shareholders, or the shareholders and the third party against whom reliefs are to be claimed on behalf of the company. This does not seem to be as rigid a rule as Onyx makes it out to be, since, in Rashmi Mehra, the contract did not contain an arbitration clause. Instead, there were several interconnected contracts, only one of which provided for an arbitration agreement. The court held that since the contract containing the arbitration clause was the backbone of the entire transaction, a shareholder could invoke arbitration under an ancillary agreement and bring derivative action matters before the tribunal. A similar argument could be made in favour of arbitrability of the derivative action claim in Onyx as well. As mentioned before, the plaintiff-shareholder was not a party to the breached licensing agreement, but rather the defendants no.1 and no. 2 (the company) were. However, the license agreement stated that it would remain valid as long as the JV agreement concluded between the plaintiff, defendants no. 1 and no. 2 remained in full force and effect. Therefore, applying the interconnectedness test laid down by Rashmi Mehra, even if the plaintiff was not a party to the license agreement, it could have derived the right to arbitrate on behalf of the company through the JV agreement since the validity of the former was wholly dependent on the validity of the latter, making it the “backbone” of the entire transaction.

In a way, this reasoning is in concert with the very nature of what a derivative action claim is: a shareholder simply acting in the shoes of the company to secure its interests. Since the derivative action is brought on behalf of the company, the shareholder would be bound by the company’s intention to arbitrate even if the shareholder is not a specifically-stated party. This is the very principle In re: Salomon Inc. Shareholders’ Derivative Litigation relied on to allow arbitrability of derivative claims in the US, adducing that since the company is the true plaintiff in a derivative action, a pre-dispute arbitration agreement between the company and a third-party would inevitably bind the shareholders to arbitration as well.

Second: According to Onyx even if an arbitration clause exists, the court can refuse referral of the dispute to the tribunal on the ground that it is better suited to adjudication by the public forum, implying that public policy is affected. This rationale seems rather regressive, especially considering that in the US, it is already well-established that shareholders of close, privately-owned corporations can arbitrate derivative claims. For example, in Lane v. Abel-Bey, a New York court explicitly dismissed the contention of public policy precluding arbitration of derivative action claims, holding instead that this would not be the case in privately owned, close corporations. This was also the situation in Onyx, where the company on behalf of which the plaintiff-shareholder approached the court was a private, closed one. Further, refusing arbitration of derivative claims on the premise of public policy, especially in a private company with merely two shareholders, would go starkly against party consent, a principle so dearly held on a pedestal by the court itself.

Another problem flows from the decisions of Rajiv Vyas and Welspun. Both decisions considered the Section 9 applications as affecting the shareholders’ as well as the company’s rights. It was considered to be a derivative action only in part, which was enough to permit arbitration. In fact, Rajiv Vyas distinguished itself from Onyx on this very ground, surprisingly so since an injunction similar to the one in Onyx was sought by a shareholder with even less shareholding than the plaintiff-shareholder in Onyx. Yet, the court opined that not granting the injunction would cause irreparable injury not only to the interests of the company but also to the plaintiff in his capacity as a shareholder. Similar reliefs were claimed in both, but the court reached a different conclusion in Rajiv Vyas, reasoning that the reliefs claimed were in part personal and in part derivative, making the dispute amenable to arbitration. This approach of the court seemingly stands against the test of Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya (“Sukanya Holdings”), which held that a cause of action cannot be bifurcated when referring a dispute to arbitration. If, on the other hand, the court considered Rajiv Vyas to be an exception to Sukanya Holdings, there seems to be no reason for the court to refuse arbitration for even fully derivative claims that affect solely the corporation’s rights. Nevertheless, there appears to be no straitjacket criteria to determine which reliefs claimed in the name of the company are derivative or personal. These need to be culled out by the judiciary as the test for arbitrability of derivative claims hinges on the same.

 

Concluding remarks

Onyx has been used time and again by courts to refuse arbitration of derivative claims despite it being untenable and flawed. Given that Indian courts have started adopting a general policy in favour of arbitration, there is no reason why derivative action claims cannot be arbitrated when the requisite intent is present. Since the Companies Act does not provide for derivative action claims, such claims continue to rely on judicial determinations only, which as demonstrated in this post, have faced differing interpretations and approaches. It is high time the Indian judiciary adopts an approach consistent with international standards regarding the arbitrability of derivative claims.

 

 

More from our authors: International Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
by Gary B. Born
€ 509


The Future of International Arbitration: The Road to Greener Arbitration and Reflections on the upcoming 2022 NAI Arbitration Rules and Recently Revised Arbitration Rules

Wed, 2021-10-06 00:47

On 15 September 2021, the Netherlands Arbitration Institute (NAI) and Young NAI organized a webinar that focused on the upcoming 2022 NAI Arbitration Rules and also covered other developments related to green arbitration, transparency, diversity and efficiency in international arbitration. Allen & Overy hosted the webinar, with Marieke van Hooijdonk opening the event.

 

The 2022 NAI Arbitration Rules

The webinar commenced with a presentation on the forthcoming 2022 NAI Arbitration Rules by Gerard Meijer (Chair of the NAI) and Camilla Perera-de Wit (Secretary General of the NAI). Key features covered included:

  • The creation of a Court of Arbitration at the NAI, alongside the NAI’s existing bodies. The idea is that the NAI Court would perform the tasks that are presently assigned to the NAI Administrator. The advantage would be to have special external members in the Court, who could be involved where the NAI appoints an arbitrator, this in order to safeguard a widely supported, objective appointment process, in all respects (in terms of quality, conflicts, repeat appointments, diversity, etc.).
  • Under Article 13 of the 2022 NAI Arbitration Rules, the mechanism for the default appointment of arbitrators – i.e., the appointment of an arbitrator if a party fails to appoint an arbitrator – will no longer use a list procedure, but be through direct appointment by the NAI.
  • In relation to challenges to arbitrators, the NAI intends to introduce a fee for the challenging party and to facilitate the challenges against members of the Challenge Committee. The NAI also intends to sanction abuse of rights in relation to (repeat) challenges. Lastly, where a challenge to an arbitrator is upheld, the NAI will provide a determination as to what should happen to that arbitrator’s fees.
  • Opt-out expedited rules, which will apply if the amount in dispute does not exceed EUR 2 million. The expedited rules will provide for the appointment of a sole arbitrator through the list procedure, one round of written submissions and a single virtual hearing. Awards will have to be rendered within 5-6 months after the date of the case management conference (CMC).
  • Although virtual hearings were already possible under Article 21(10) of the 2015 NAI Arbitration Rules, the 2022 NAI Arbitration Rules will confirm the option in a more prominent way. The NAI also intends to explicitly reference The Hague Video Conference and Virtual Hearing Guidelines 2020, jointly drafted by the NAI and the Dutch Arbitration Association.
  • Article 44(5) of the 2022 NAI Arbitration Rules will provide a basis for the scrutiny of arbitral awards by the NAI.
  • Parties who agree to arbitration with a place of arbitration in Amsterdam may designate the Netherlands Commercial Court as the appropriate court for any post-award – and sometimes even pre-award – court litigation, enabling the parties to conduct the proceedings in English. The NAI and the Netherlands Commercial Court have drafted a model clause for this . The NAI is also looking into the possibility of including in its Rules that, absent party agreement otherwise, Amsterdam will be the standard place of arbitration for arbitrations conducted in the English language. In such situations this would then allow the parties to fully agree to arbitration related litigation at the Netherlands Commercial Court, even after the arbitral award is rendered.
  • In order to improve transparency, the NAI is currently looking to provide for the publication of decisions on challenges to arbitrators, alongside the publication of appointments of arbitrators in NAI arbitrations. Furthermore, the NAI is looking to provide for the disclosure of third party funding in arbitral proceedings.
  • The NAI will include provisions on data protection and cybersecurity in the 2022 NAI Arbitration Rules.
  • The 2015 NAI Arbitration Rules already established a move from hard-copy communication to electronic communication. Taking this further, the 2022 NAI Arbitration Rules will provide for the possibility of rendering e-awards, as permitted by the Dutch Arbitration Act. The NAI is also exploring fully incorporating the Green Protocols in the 2022 NAI Arbitration Rules.

 

Keynote speech: green arbitration

The panel discussion on the 2022 NAI Arbitration Rules was followed by a keynote speech by Lucy Greenwood, arbitrator and initiator of the Campaign for Greener Arbitrations. Ms. Greenwood referred to climate change and set out what arbitration professionals can do to address it. According to Ms. Greenwood, arbitral institutions have key role in encouraging changes and promoting initiatives to facilitate greener arbitrations; such as allowing virtual hearings to limit (air) travel and providing for digital submissions. To assist in implementing these changes, the Campaign for Greener Arbitrations has drafted Green Protocols, which provide guidance on how stakeholders can adopt more environmentally sustainable behaviours.

 

2nd panel discussion

Ms. Greenwood’s keynote was followed by a panel discussion, which included Thomas Stouten as moderator, Bregje Korthals Altes-van Dijk, Jacomijn van Haersolte-van Hof, Vanessa Foncke and Sophia von Dewall.

The panel first discussed sustainability measures in arbitral proceedings. The panel agreed that arbitral institutions should take a leading role in relation to sustainability, while being mindful that a one size fits all-approach may not be appropriate (e.g., with regard to the use of virtual hearings or the use of platforms for the submission of documents).

The panel then discussed the introduction of a registry fee in the NAI Arbitration Rules with regard to the challenge of arbitrators. One of the speakers noted that this could be a good instrument to avoid frivolous challenges, but wondered whether a flat fee would be the most desirable approach. The same speaker argued that an hourly fee rate would be preferable. Another speaker stated that the NAI is yet to decide between a flat fee or an hourly rate. If the NAI chooses to establish a flat fee, it should be low enough so as to ensure that parties have proper access to challenge proceedings. The third speaker concurred with the first speaker, while the last speaker questioned if a registry fee would form a sufficient hurdle to prevent frivolous claims. In the last speaker’s opinion, devising other mechanisms can also assist in deterring parties from abusing challenges.

The panel then discussed the change to the role of the list procedure in case of direct appointments by the NAI. One of the speakers emphasized that the proposed changes do not mean that the list procedure would disappear: parties would still be able to agree on the application of the list procedure. However, only where a party fails to appoint an arbitrator will the arbitrator be appointed directly by the NAI. That same speaker mentioned that the change will have several benefits. The direct appointment will enhance efficiency while the direct appointment of an arbitrator by the NAI Administrator will also contribute to increased diversity. Two of the other speakers largely concurred, with one agreeing that an NAI Court should be designated as the appointing body instead of the NAI Administrator. The last speaker advocated maintaining the current use of the list procedure and stated that the list procedure is a unique selling point of Dutch arbitration, which is gaining popularity internationally. Whilst said speaker recognized the difficulties that arise with regard to the application of the list procedure, that person urged not to underestimate the importance of it, even as a fallback appointment mechanism. All panel members agreed that the list procedure would need to be maintained, as also envisaged, in case of multi-party arbitration.

The panel also discussed the thresholds for the applicability of expedited rules. One of the speakers observed that CEPANI maintains a different threshold for expedited proceedings than the one suggested in the 2022 NAI Arbitration Rules. Another speaker confirmed this, while emphasizing that it can be difficult to establish criteria for the application of expedited proceedings. That person expressed doubt as to whether a monetary value is an appropriate threshold, as disputes of lower values are not necessarily less complex. An alternative could be to establish more flexible criteria. UNCITRAL circumvented these problems by making expedited proceedings opt-in, but the speaker argued that this may reduce the utility of these proceedings, as parties would have to opt-in to them in advance, concluding that a financial threshold would still be the best option. A third speaker concurred that establishing a threshold may be challenging and encouraged offering the possibility of expedited proceedings, but argued that flexibility is needed. That person asserted that the rules should also allow for a rejoinder as well as other available options that would be applied at the discretion of the arbitrators. Another speaker noted that establishing a threshold remains a process of trial and error. The threshold in the NAI proposal is based on its own experience and experiences of other arbitration institutes. Finally, the last speaker urged the NAI to consider the impact of the threshold and stated that, with the proposed threshold, the measure would likely affect a large number of cases and would impose a rather big difference from the procedural route that parties might expect when agreeing to arbitration under the NAI Rules.

The panel discussions ended with a summary of the discussions and the conclusion that, although the panel members made some critical remarks regarding some of the details of the proposed amendments to the NAI Arbitration Rules, the overall approach was rather positive.

More from our authors: International Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
by Gary B. Born
€ 509


In Memoriam: Dr Minas Khatchadourian (1958-2021)

Tue, 2021-10-05 00:41

Dr Minas Khatchadourian left this world for the heavenly abode in July 2021. This news was a great shock to the Middle Eastern legal community. In particular, his loss will be significantly felt in Egypt – his home country – and Qatar – where Dr Khatchadourian spent the last ten years as the General Legal Counsel of the Qatar International Arbitration and Conciliation Centre (QICCA).

Dr Khatchadourian was a prominent lawyer with expertise in different Middle Eastern jurisdictions. He also served as an arbitrator within and outside of QICCA, and worked as a visiting faculty member at several universities in Egypt and Lebanon.

Dr Khatchadourian was born in Alexandria, Egypt, where completed his primary and secondary education. Thereafter, he proceeded to complete his undergraduate degree in law from Alexandria University in Egypt. He then obtained a Master’s degree in international business law from Cairo University. Subsequently, Dr Khatchadourian obtained his doctorate degree in international trade contracts and arbitration from the University of Montpellier I in France; as part of that degree, he wrote a thesis on litigation and arbitration arising out of international commercial contracts. In 2003,  he completed a diploma in European Law from Lyon Lumière Law School, University of Lyon III. Dr Khatchadourian was proficient in Arabic, French, English and Armenian.

His extensive academic qualifications demonstrated his interest in international commercial law and arbitration. He carried this passion into his practice, first in public service, when he was an Attorney at the State Lawsuit Authority in Egypt, and then in private practice, as the Managing Partner of the law firm Galal, Massoud and Khatchadourian. Dr Khatchadourian has worked on some notable cases both as counsel and arbitrator during his professional career. For example, he acted as counsel in a $200 million dispute related to the Muscat International Airport, as an arbitrator in a CRCICA (Cairo Regional Centre for International Commercial Arbitration) arbitration concerning a high-value dispute related to a petrochemical distribution agreement, and as counsel in a CRCICA arbitration relating to a $300 million dispute on a major cement plant in Egypt.

Undoubtedly, Dr Khatchadourian’s made his biggest contribution to the Arab arbitration community as QICCA’s General Legal Counsel. He held this position from June 2011 until his untimely death in July 2021. During this productive ten-year period, QICCA maintained its position as one of the leading arbitral centres in the region and the most commonly-used centre in Qatar. He endeavoured to improve the case administration team at QICCA by actively recruiting and training new case managers over the years and guiding them wherever necessary. He also introduced other administrative measures to ensure that the institution operated swiftly and efficiently during the covid-related lockdown in Qatar in 2020.

However, at the forefront of his efforts was the drafting and publication of QICCA’s updated conciliation and arbitration rules in 2012. Given his vast knowledge of commercial arbitration and familiarity with international best practices, Dr Khatchadourian (successfully) advocated the need to adopt the UNCITRAL Arbitration Rules to bring QICCA at par with other leading institutions in the world. During 2020 and 2021, Dr Khatchadourian was also part of QICCA’s task force working on a further update of its arbitration rules, so as to address remote hearings and other covid-related amendments. Unfortunately, Dr Khatchadourian will not see his efforts come to fruition but QICCA is grateful to him for his guidance and support during the process.

Amongst his other engagements, Dr Khatchadourian participated in a working group of the International Centre for the Settlement of Investment Disputes (ICSID) which is undertaking a Rules and Regulations Amendment Project, to modernise the 2006 Rules currently in force. He also advised on the Greater Arab Free Trade Area project, as well as the Economic Free Zones Law of Qatar. He sat as a member of the Editorial Board of the World Journal of Arbitration.

Dr Khatchadourian was known to be a man of great rectitude and integrity. He will always be lauded in Qatar (and more widely, in the Middle East) for his contributions to the arbitration community, and his infectious personality will be dearly missed.

More from our authors: International Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
by Gary B. Born
€ 509


Interviews with Our Editors: Reflecting on Arbitration Down Under with Georgia Quick, President of the Australian Centre for International Commercial Arbitration

Mon, 2021-10-04 00:21

Georgia Quick is a senior partner in Ashurst’s dispute resolution group and joint head of the firm’s Australian international arbitration practice. Dual qualified in Australia and England & Wales, she has been extensively involved with the Australian Centre for International Commercial Arbitration (“ACICA”), having joined the Board in 2010 and sat as a Vice President on the Executive Committee since 2015. She was appointed ACICA’s new President in June 2021. Her practice focuses on complex construction, energy & resources disputes.

 

Thank you, Georgia, for joining us today!

 

  1. Congratulations on your appointment as President. You have had a long-standing and active involvement with ACICA for over a decade, including through various leadership roles on the Board and Executive Committee. How has the institution changed over this time?

In the past decade, ACICA has undergone significant change. This has followed on from the tremendous work of past presidents Dr Michael Pryles AO, Prof. Doug Jones AO and Alex Baykitch AM, and the success of hosting the ICCA conference in Sydney in 2018. In more recent times, the executive and secretariat under the presidency of Brenda Horrigan have expanded in the following ways:

    1. The introduction of State Committees.
    2. The inception of the ACICA Council.
    3. Enhancement of the Judicial Liaison Committee.
    4. An active Practice & Procedures Board.
    5. A larger and more active secretariat with increased caseloads and claim values.

Bringing on Deborah Tomkinson as Secretary-General has also been instrumental in implementing long-lasting structures and initiatives into ACICA. Deborah is an experienced arbitration practitioner who practised international arbitration at three major law firms both in Australia and the Middle East. She is enthusiastic and committed to promoting international arbitration.

 

  1. As ACICA’s recently elected President, would you like to share with our readers your vision for the future of the institution? Are there any specific issues or initiatives that you and your team would like to focus on over the next two years?

The vision is to continue our recent growth and to leverage off the high-quality legal system and resources we have in Australia, including market-leading skills in construction and energy and resources law. This ensures Australian and foreign parties alike are confident in selecting the ACICA Arbitration Rules 2021, Australian arbitrators and counsel, as well as our major cities as arbitration seats. COVID-19 has shown us all that any perceived tyranny of distance need not be so.

ACICA’s key projects over the next two years include:

    1. Increasing ACICA’s outreach domestically with legal organisations and other corporates and industry organisations. This includes the work of our State Committees to help ensure that ACICA is truly engaging nationally, with greater focus on our users’ experience with a more active User’s Council.
    2. Increasing ACICA’s outreach internationally in Asia and also the Pacific region, where the work by the Asian Development Bank has meant that a number of our neighbours have recently updated their arbitration acts and adopted the New York Convention.
    3. Continuing ACICA’s work on the Judicial Liaison Committee, working hand-in-hand with the Australian judiciary to harmonise arbitration-related practices, and assisting with judicial outreach and education in relation to arbitration.

 

  1. Let’s discuss ACICA’s newly revised Arbitration Rules and Expedited Arbitration Rules. This is now the fourth iteration of the institution’s rules since ACICA was formed back in 1985. What do you see as the key benefits for arbitrations conducted under the new rules compared to previous iterations? How would you compare the new rules with those of other arbitral institutions around the world?

We updated ACICA’s Arbitration Rules and Expedited Arbitration Rules to reflect best practice in international arbitration and increase efficiency overall. Given the rapid evolution of international arbitration, the ACICA Rules Committee, chaired by James Morrison and Malcolm Holmes QC, and composed of practitioners with experience from a number of major arbitration jurisdictions, have been constantly looking to when a rules update is appropriate; balancing keeping pace with reasonable levels of certainty.

Additionally, like other institutions (including the LCIA and ICC), ACICA adapted to the new virtual work environment. While we had already modernised the proposed 2021 Arbitration Rules (through electronic filings and data protection), the ACICA Rules 2021 now expressly empower tribunals to hold virtual hearings.

Some of the other bigger changes ACICA has made include:

    1. Introducing the ability of a party to file a single arbitration for multi-contract arbitrations (Article 18), similar to the HKIAC, ICC, SCC and SIAC rules. Article 18 allows for this to occur even if the contracts are not between the same parties, however only if they meet the other criteria set out in Article 16.
    2. Increasing efficiency by allowing the Secretary-General (rather than ACICA) to confirm the nomination of an arbitrator under certain circumstances. This allows ACICA to resolve questions of independence, impartiality and availability before any arbitrator is appointed.
    3. Requiring tribunals to introduce the possibility of using alternative dispute resolution mechanisms, including mediation, or to suspend proceedings for such a discussion at the request of a party (Article 55).
    4. Finally, like other institutions (e.g. HKIAC, ICC) we have required the disclosure of third-party funding arrangements, including law firm contingency fees (Article 54).

The Arbitration Rules 2021 ensure ACICA continues to have up to the minute best practice rules. To some extent the rules between the major arbitral institutions share common high standards, but the implementation of those rules and the service and resources provided will distinguish them.

The amendments made in the Arbitration Rules 2021 underscore the commitment ACICA has to international best practice and improving user experience, in as efficient a manner as possible. Compared to other institutions, we offer our services at a relatively low cost and are ‘light touch’. Australian international arbitration lawyers have a reputation for being conscientious practitioners, and ACICA’s team is no exception.

Our focus will continue to be our users. Working with a group of experienced practitioners based across the Asia-Pacific region, ACICA has continued to develop a toolkit of guidance notes and sample documents to assist users, regardless of their experience or practice background. We hope these materials will be of use to those conducting arbitrations in the region, even outside of the ACICA Rules. Further, in 2018, ACICA founded ACICA45 for the purpose of encouraging more junior practitioners to engage with arbitration and to meet other practitioners. ACICA45 also has a number of recorded webinars on our website setting out the life cycle of an arbitration.

 

  1. What are some of the key market trends you are seeing in international arbitrations specific to the Oceanic region?

The 2020 Australian Arbitration Report confirms that the leading sectors for international arbitrations involving Australian parties are construction, oil & gas, mining and resources and transport. There are a number of joint venture related disputes for all of these sectors.

Additionally, we are seeing an increase in disputes relating to the shift to renewables, both in the development of these projects and in climate change disputes. With increased corporate social responsibility and an abundance of renewable energy within Australia, an enormous number of renewables projects are being pushed through. As with any wave of development, disputes follow and challenges with grid infrastructure and regulation have made this all the more prevalent.

We also see increased development in the Pacific Islands, with a number recently adopting the New York Convention and engaging in legislative reform, including Fiji, Palau, Tonga and Papua New Guinea.

 

  1. Australia’s strategic, political, and economic pivots towards Asia has been much discussed in the past decade. Do you see arbitration in Australia pivoting towards Asia?

This is not so much a pivot as a reflection of what is already happening. 65% of Australia’s trading partners are Asian countries. A significant number of ACICA’s arbitrations have an Asian-based party.

Geopolitical shifts and perception create ever-growing opportunities for Australia to provide a known safe seat, and for Australian legal practitioners to assist with these matters in the region. This reflects the importance of having a stable and neutral seat, and an international reputation for a strong rule of law, supported by a fair, efficient, and high-quality judicial system.

 

Thank you for your time, Georgia. We wish you and the ACICA leadership team all the very best!

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

More from our authors: International Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
by Gary B. Born
€ 509


Rekindling the Debate on Enforcement of Foreign Seated Emergency Awards in India

Sun, 2021-10-03 00:33

Recently the Supreme Court of India in Amazon.com NV Investment Holdings Inc. v. Future Retail Ltd, (“Amazon v. Future”) took a progressive step by enforcing an emergency order/award rendered by an emergency arbitral tribunal appointed by Singapore International Arbitration Centre (“SIAC”). The Court held that the term ‘arbitral tribunal’ contained in section 17 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) includes an ‘emergency arbitrator’ within its fold. Therefore, the Court held that its order/award is enforceable in India.

However, this case is hardly an authority for the proposition that foreign-seated emergency awards are enforceable in India. This is because Amazon sought to enforce a Delhi-seated emergency award, i.e. though the administering institution was SIAC, the tribunal itself was not foreign-seated.

Provisions enabling enforcement of emergency awards

Section 17(2) of the Arbitration Act, inserted vide the Arbitration and Conciliation Amendment Act, 2015 (“2015 Amendment”), provides by a deeming fiction that any order issued by an arbitral tribunal (seated in India) shall be deemed to be an order of the court and shall be enforceable as such. Therefore, since the arbitral tribunal in Amazon v. Future was domestically seated, it was able to enforce the award under this provision.

However, had the award been rendered by a foreign seated arbitral tribunal, the court could not have relied upon section 17(2) to enforce the emergency award since Part-I of the Arbitration Act does not apply to a foreign seated arbitration (see Bharat Aluminium Company v. Kaiser Aluminium Technical Services; read here for a detailed discussion on the applicability of Part-I to foreign seated arbitrations).

While Amazon v. Future is a shot in the arm for enforcing domestically seated emergency awards, it has rekindled the debate on the enforceability of foreign seated emergency awards in India.

Previous decisions on enforcement of foreign seated emergency awards in India

In 2016, the Delhi High Court in the case of Raffles Design v. Educomp Professional Education (“Raffles v. Educomp”) held that an emergency award by a foreign seated arbitral tribunal was not enforceable under the Arbitration Act and it could only be enforced by filing a suit (¶99). The court held that in the alternative, the party which had obtained a foreign seated emergency award would have to de novo seek interim orders from the domestic court in terms of the emergency award.

This approach goes against the entire basis of lending credibility to awards/orders of emergency arbitral tribunals. The Supreme Court of India in Amazon v. Future (¶32, 35) has recognized the reasons underlying the setting up of emergency arbitral tribunals, which are:

  1. to de-congest an already clogged court system; and
  2. to grant timely and efficacious interim relief to a party.

Thus, there are sufficient policy considerations to recognize emergency awards.

Enforcing foreign seated emergency awards in India: Examining the provisions of the Arbitration Act

The award/order of a foreign seated emergency arbitral tribunal may be enforced in India with the support of certain existing provisions under the Arbitration Act.

  1. Section 27(5)

As originally introduced, Section 17 of the Arbitration Act empowered arbitrators to pass interim orders but did not provide for any mechanism to enforce such orders. (see Sundaram Finance Ltd v. NEPC  India  Ltd.) Against this backdrop, the Delhi High Court in Sri Krishan v. Anand held that under section 27(5) the court had the power to punish a party for contempt at the instance of the arbitral tribunal if the party is in breach of the interim orders passed by the arbitral tribunal.  This interpretation received the imprimatur of the Supreme Court in Alka Chandewar v. Shamshul Ishrar Khan where the court held that the orders of the arbitral tribunal cannot be rendered a dead letter.

Section 27(5) is a salutary provision that does not trace its source to the UNCITRAL Model law but has been incorporated on the lines of section 43(2) of the now-repealed Arbitration Act, 1940. Section 43(2) empowered the court to subject persons guilty of contempt to the arbitrator to the same disadvantages, penalties, and punishments like offences in suits tried before the court. The same provision has now been incorporated legislatively in section 27(5) of the Arbitration Act.

After the 2015 Amendment applied section 27 to foreign seated arbitrations (vide the amendment to proviso to section 2(2)), section 27(5) can a fortiori be used to enforce emergency awards of foreign seated arbitral tribunals, just as it had been pressed into service for enforcing interim orders by domestic tribunals. Not doing so would render the application of section 27 to foreign seated arbitrations otiose.

Even the 246th Report of the Law Commission of India, which formed the basis of the 2015 Amendment, specifically observed that the purpose of the amendment to section 2(2) was to empower Indian courts to exercise jurisdiction under section 27 even to foreign seated arbitrations. Further, in applying section 27 to foreign seated arbitrations, the Arbitration Act has knowingly deviated from the UNCITRAL Model Law, which only intended to apply this provision to domestically seated arbitrations.

It appears from Raffles v. Educomp (supra) that this argument was advanced by the respondent, but was rejected without undertaking a proper examination (¶102). The court reasoned that a person guilty of not following interim orders of a foreign seated arbitral tribunal could not be punished in India.

The court, however, failed to consider that the party breaching the order would be located within the jurisdiction of the court in India where the court can exercise its jurisdiction in personam. Section 27 is a provision to aid the arbitral tribunal where a party or witness is located within the jurisdiction of the court and the court would exercise this power even at the instance of a foreign seated arbitral tribunal. As such, this provision may be resorted to for enforcing orders of a foreign seated arbitral tribunal rendered during the conduct of the arbitral proceedings.

  1. Enforcement as a foreign award

In appropriate cases, an emergency award may even be enforced as a foreign award under Part-II of the Arbitration Act. Under rule Rule 1.3 of the SIAC Rules, 2016 an ‘Award’ is defined to include an award of an Emergency Arbitrator. Similarly, Rule 9.9 of the DIFC-LCIA Arbitration Centre Arbitration Rules, 2021 prescribes that an emergency award shall take effect as an award.

Arguably, the term ‘arbitral awards’ under Article I section 2 of the New York Convention on the recognition and enforcement of foreign arbitral awards (“New York Convention”) is wide enough to encompass an ‘emergency award’ within its fold.

Thus, depending on the nature of the relief granted by the emergency tribunal, a foreign seated ‘emergency award’ may fall within the wide definition of a ‘foreign award’ under section 44 of the Arbitration Act.

An equitable relief granted by the emergency arbitrator may fall within the meaning of an ‘interim award’ and even if an interim award is intended to have effect only so long as the final award is not delivered, such an award may also qualify to be an ‘interim award’, depending on its form (Satwant Singh Sodhi v. State of Punjab ¶6).

In case an equitable emergency award is granted by the arbitral tribunal to prevent an irreparable injury to the applicant, such an order may have the trappings of finality and thus, enforceable as an award. The New York District Court in Yahoo! Inc. v. Microsoft Corp. applied these tests to confirm an emergency award and enforced it. While there have been other cases in the United States refusing to enforce an emergency award, a case-to-case evaluation may be considered by the court and lean towards a pro-enforcement approach so as not to render the emergency award meaningless.

Concluding remarks

It is desirable that Article 17H and 17I of the UNCITRAL Model Law recognizing and enforcing interim orders passed by foreign seated arbitral tribunals be legislatively inserted in the Arbitration Act, akin to the Singapore and Hong Kong legislations, for complete clarity on this subject.

However, until such time that legislators catch up to the international trend, these arguments will aid the enforcement of foreign seated emergency awards so that the orders passed by these tribunals are not rendered unenforceable in India. These interpretations would otherwise be in line with the New York Convention, which binds parties to enforce foreign arbitral awards unless they fall within the limited grounds enumerated under Article V of the Convention.

More from our authors: International Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
by Gary B. Born
€ 509


The Contents of Journal of International Arbitration, Volume 38, Issue 5 (October 2021)

Sat, 2021-10-02 00:00

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

 

Michael Hwang S.C. & Kevin Tan, The Time Limit to Set Aside an Award under Article 34(3) of the Model Law: A Comparative Study

The time limit to set aside an award under the United Nations Commission on International Trade Law (UNCITRAL) Model Law is three months. Although Article 34(3) of the Model Law does not appear to confer upon domestic courts discretion to extend this time limit, some exceptional decisions from Asian Model Law jurisdictions suggest that such discretion exists. This article argues that, notwithstanding these decisions, domestic courts do not have any discretion to extend the time limit to apply to set an award aside. This article also highlights certain recurring fact patterns commonly seen when parties try to argue in favour of such a discretion, and studies how the courts in various jurisdictions have treated these similar situations.

 

Nathalie Allen, Leonor Díaz Córdova & Natalie Hall, ‘If Everyone Is Thinking Alike, Then No One Is Thinking’: The Importance of Cognitive Diversity in Arbitral Tribunals to Enhance the Quality of Arbitral Decision Making

The popularity and longevity of international arbitration depends heavily on the quality of arbitral awards, the arbitral process, and the tribunals appointed by practitioners and institutions. In this article, the authors argue that practitioners and institutions need to consider a more diverse range of candidates for arbitrator appointments, to enlarge and diversify the pool of arbitrators. Not only does diversity make sense from an ethical standpoint, but research has also shown that increased cognitive diversity is required to reduce the risk of biased decision making and improve the quality of awards. More cognitively diverse arbitral tribunals are therefore necessary to preserve the continued legitimacy and success of international arbitration.

 

Morten Broberg & Niels Fenger, Preliminary References to the European Court of Justice by Arbitration Tribunals

When a court or tribunal of an EU Member State is faced with a dispute which gives rise to questions concerning the interpretation or validity of an EU legal measure that must be answered in order for the national court to render its decision, Article 267 of the Treaty on the Functioning of the European Union lays down that, prior to delivering its judgment, this court or tribunal may seek a preliminary ruling from the European Court of Justice. With the increased importance of EU law within those legal fields where arbitration is often used and with the growing number of arbitration proceedings, the preliminary ruling procedure may also be valuable to arbitration tribunals. However, the European Court of Justice has shown a pronounced reluctance when it comes to allowing arbitration tribunals access to use the preliminary reference procedure. This article provides an up-to-date examination of the Court of Justice’s approach to preliminary references from arbitration tribunals, and it considers the pros and cons of opening more up for such tribunals using the preliminary reference procedure.

 

Felix Krumbiegel, The Applicability of the Russia-Ukraine Bilateral Investment Treaty to Crimea in the Light of the Duty of Non-recognition in International Law

According to international law, Russia’s territorial claim over Crimea shall not be recognized as it was brought about by a violation of the prohibition of violence. Despite this obligation, several arbitral tribunals have recently accepted jurisdiction in claims brought by Ukrainian investors under the Russia-Ukraine BIT and declared the Russia-Ukraine BIT applicable. I consider the arbitral tribunals’ reasoning to be inconsistent with the duty of non-recognition. Therefore, I analyze possible alternative ways in which Ukrainian and non-Ukrainian investors can obtain protection for their investments in Crimea under the Russia-Ukraine BIT without implicitly recognizing Russia’s territorial claim over Crimea.

 

Mikhail Batsura, Limits to Party Autonomy in Appointing Counsel in International Commercial Arbitration

The right of a party to appoint its own counsel is an integral aspect of party autonomy and one of the fundamental rights enjoyed by the parties in international arbitration. However, party autonomy is not absolute and has its limitations. This article discusses whether the parties are free to appoint their legal counsel or face any applicable restrictions when making such appointment. The article invites a discussion on an existence of the immutability principle in international commercial arbitration and its tension with party autonomy in the selection of legal counsel (if any). Finally, the article proposes possible solutions for regulation of a party’s right to appoint a counsel of choice.

More from our authors: International Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
by Gary B. Born
€ 509


ARBinBRIEF: New Initiative Kicking Off With A Group Of Trailblazers

Sat, 2021-10-02 00:00

This week has seen the launch of a new initiative – ARBinBRIEF. ARBinBRIEF is a practical video guide on handpicked arbitration issues. ARBinBRIEF aims to provide a concise, yet very informative insight into arbitration-related topics to all members of the arbitration community. The ARBinBRIEF series is divided into seasons consisting of 10 episodes each. Each episode will be recorded during a 15-minute live conversation between two stellar arbitrators and will be made available on the ARBinBRIEF YouTube channel. The episodes will air every fortnight. Attendees of the live event will be able to participate in a (non-recorded) Q&A and networking session thereafter.

 

The kick-off

ARBinBRIEF is a practical video guide that aims to deal with handpicked issues in arbitration. For the kick off event though, the founders of the series decided to take a different approach and learn from those who opted to pursue paths less taken. There is no recipe for success, but success definitely leaves clues. And the panellists left plenty of them. The discussion focused on highlighting the diverse career paths of the speakers, their dedication to initiatives that benefit the entire arbitration community and aim to challenge the status quo, as well as provide for a fulfilling and meaningful professional path.

The kick off took place on 29 September 2021, with a panel titled “Trailblazers: Ambition Meets Extraordinary” featuring a group of extraordinary individuals who have opted for different paths in pursuing their careers and have sought to achieve a purpose that goes beyond themselves:

Olga Hamama (Co-Founder and Partner of V29 Legal) moderated the panel.

 

Surround yourself with role models

Olga started off by remarking that success does not have a fixed recipe. Each path is distinct and extraordinary in its own way. Nadja, as the founder of breaking.through, is one of the people making such diversity visible with her platform.

When Nadja first entered the world of big law fresh out of law school, she noticed that there was a disparity between the number of men and women at the top. Many women would give up on the career of their dreams because they did not see enough role models at the top – someone they could learn from and go to for advice and guidance. That is when the idea for Nadja’s initiative was born. breaking.through publishes portraits of such role models, providing their insights on career-related questions. Within just three years, the platform has become the biggest career platform for women in the field of law in Germany and Switzerland. Because of this success, the team has now grown to 30 members working on additional services offered by breaking.through – events and workshops targeted at developing soft skills as well as mentoring opportunities.

 

Dedicate yourself over time and apply yourself

Amani did not start off her career as a lawyer. Law was her “Plan B” while she pursued her passion as a professional tennis player.

Having been confronted with poor remuneration and a short “shelf-life” as a tennis player, Amani decided to go back to her “Plan B” and pursue law.  A lot of what she learned through tennis formed her into the successful lawyer she is today. Two aspects from those days as a tennis player have particularly influenced her career:

  • the repetitive nature of training where you do not see the results right away and only years later looking back do you realize that you have the tools to achieve what you want if you chisel away at something long enough; and
  • time management skills by learning how to organise her time as an athlete while at the same time continuing her schoolwork.

Amani has now found her way back to sports by acting as an arbitrator on the Basketball Arbitral Tribunal (BAT) and as an anti-corruption hearing officer of the Tennis Integrity Unit. In this context, she spoke about serendipity because the opportunity to come back to sports came only by chance –while substituting a speaker at a DIS40 event and meeting a colleague who ultimately paved the way to her appointment as an arbitrator at BAT.

 

Fight for the things that you care about, but do it in a way that will lead others to join you

Rekha spoke about her experience with building something new – the New York International Arbitration Center. As a non-profit organization, NYIAC promotes and enhances the conduct of international arbitration in New York, offers educational programming, and operates arbitration hearing facilities. When Rekha was offered the role of an Executive Director, she did not know what it meant to work for NYIAC but knew that it offered an opportunity to build something up and grow while doing it. She did not hesitate to jump and take on the challenge.

In 2021, Rekha co-founded the Racial Equality for Arbitration Lawyers (R.E.A.L.) initiative along with other prominent practitioners and diversity advocates. In her words, “it is time to talk about race in the international arbitration community”. By co-founding the R.E.A.L. initiative, Rekha started by simply building a community that would talk about racial issues in arbitration  and would slowly build itself and spread the word around. The R.E.A.L. initiative has now grown to a network of committees and ambassadors promoting its goals around the globe. It also offers scholarships that can be used for a variety of things from courses and workshops to just event attendance – providing opportunities to professionals that would otherwise be beyond reach.

 

Remain resilient and adapt to change

Madeline shared her passion for technology – she always wanted to work in a technology-driven environment. Having started her career in-house working in banking and seeing the need to provide solutions for resolution of disputes, she embraced the opportunity and set up one of the very first online dispute resolution platforms in Tanzania – iResolve.

Madeline shared how working in banking exposed her to the rapid pace of technology and a world where regulation was always lagging behind technological progress. When setting up her own law firm, that gap between regulation and progress made her think about how she could add value to her clients – and that is when iResolve was born. Initially a case management solution, it has now developed into a platform that facilitates mediation, arbitration, and adjudication processes.

Although initially there were challenges in convincing clients to use the platform to manage disputes, in the meantime virtual platforms have been embraced following the pandemic. Madeline’s resilience – the ability to adapt to changes in the face of market and consumer demands, constantly challenging the status quo – was key to her success.

The same virtues contributed to a successful development of the Tanzania Institute of Arbitrators (TIA). In her position as President, Madeline fuelled the developed TIA and arbitration in Tanzania by working with the government and the parliament for the (now adopted) new Tanzanian arbitration law.

 

Have a beginner’s mindset

According to her own description, a “Harvard Lawyer, Oxford Economist turned Founder of ArbiLex passionate about ‘predicting’ law “, Isabel, provided insights into her founder’s journey.

Isabel came up with the idea for ArbiLex after observing how decisions were made at the outset of investor-State cases. These crucial decision-making moments typically revolve around risk assessment. Having a degree in both law and economics allowed Isabel to see that risk differently and spot a business opportunity.

According to Isabel, the structure of ISDS case law lends itself to probabilistic modelling. The idea was therefore to quantify the risks unique the case in such a way that would be understood by financiers. ArbiLex therefore offers prediction services quantifying case risks using machine learning and game theory-inspired models. The venture has now grown further from its inception and offers arbitration finance in addition to the tech-enabled intelligence.

Isabel also noted that law is one of the areas that is slow to adopt new technologies, but the job of an innovator is to understand which groups within the larger sector are the early adopters, the followers, and those that will never adopt the technology. One would only need to find allies among the early adopters and people who share your vision to start.

 

In a very limited time, the speakers provided a lot of insights and useful guidance for any person pursuing a career in international arbitration and beyond. A combination of personal qualities, expertise, and ability to respond to the challenges and everchanging circumstances were just some of the qualities these extraordinary professionals share. As envisaged, the kick-off event captured the spirit of ARBinBRIEF – an attempt to challenge the status quo and develop a practical offering for the arbitration community while carefully listening and responding to the feedback of the users.

For all who missed the event, the recording will be available on the ARBinBRIEF YouTube channel.

The recording of the first episode of Season 1, featuring Wendy Miles and Jennifer Bryant discussing arbitrator appointments will take place on Wednesday 13 October at 3pm CEST.

If you want to keep up to date on the upcoming ARBinBRIEF episode recordings, you can follow ARBinBRIEF on LinkedIn, subscribe to the ARBinBRIEF YouTube channel, or get in touch via email. The ARBinBRIEF team – Elizabeth Chan, Nata Ghibradze, Nadja Harraschain, Olga Hamama, Emily Hay, Iuliana Iancu, Dara Sahab, Olga Sendetska, Mrinalini Singh, Vanessa Zimmermann de Meireles – would be grateful for the support of our community and any feedback along the way.

More from our authors: International Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
by Gary B. Born
€ 509


Paris Arbitration Week: Arbitration and Trade Secrets

Fri, 2021-10-01 00:00

The Silicon Valley Arbitration & Mediation Center (SVAMC) held a virtual panel discussion on Arbitration and Trade Secrets during the Paris Arbitration Week. SVAMC’s CEO, Les Schiefelbein, opened the event and Stan Putter (Partner, Smallegange Lawyers) moderated the panel discussion. The panel included Sana Belaïd (Senior Counsel, Cisco Systems), Ignacio de Castro (Director, World Intellectual Property Organization (WIPO)), Sarah Reynolds (Managing Partner, Goldman Ismail Tomaselli Brennan & Baum LLP), Dr Patricia Shaughnessy (Professor, Stockholm University), and Claire Morel de Westgaver (Partner, Brian Cave Leighton Paisner).

The panellists shared practical perspectives on trade secrets and provided the participants with tools to optimise protection thereof in arbitration.

 

What is a trade secret?

Sana Belaïd opened the discussion by defining a trade secret – it is information, which has an actual or potential economic value and whose secrecy is protected by its owner. In practice, it is information that gives its owner an “edge”. Commercial edge is information based on years of market practice, experience, knowledge of what works in a specific industry, or learning from past mistakes. Technical edge is plans, designs, processes, cost and pricing methods, or formulas.

Ms Belaïd gave a few other examples of the type of information that can constitute trade secrets, such as customer lists, cost and pricing information on production goods, personal information, etc.

She noted that trade secrets may be more valuable than physical assets, as the former guide a company’s commercial efforts on the market.

 

Preservation of trade secrets in arbitration

Claire Morel de Westgaver explained that there are two areas where arbitration and trade secrets intersect: (i) protecting trade secrets during arbitration and (ii) the developing area of trade secret disputes.

On the first point, she explained that there are two relevant aspects: confidentially between the parties and towards third parties. During arbitration, there are three points where confidentiality may be at risk:

  • when trade secrets are at the heart of the dispute there is tension between protecting them and winning the case for their owner;
  • during document production parties might request information constituting trade secrets; and
  • during the pleadings a party may argue that it is unable to present its case without disclosing its trade secrets.

Ms Morel de Westgaver reminded the participants that it is a mistake to assume all arbitrations are confidential. If the applicable law does not provide for confidentiality, it is crucial to put processes in place to make the arbitration as “leak-proof” as possible. This could also concern orders and awards, which can contain confidential information that could be disclosed, for example, in enforcement proceedings. Special attention must also be paid to cybersecurity, to ensure the arbitration is, in fact, secure.

On the second point, Ms Morel de Westgaver noted that trade secret disputes typically relate to alleged misappropriation of trade secrets or improper use of confidential information. Parties may raise different types of claims including breach of contract, e.g. license agreements, non-disclosure agreements, development agreements, manufacturing agreements, consultancy agreements, or even joint-venture agreements. These disputes usually revolve around contract interpretation. A common defence is arguing the claimant and owner of the trade secret had not taken adequate steps to protect its rights.

 

Trade secrets & WIPO

Ignacio de Castro introduced the WIPO arbitration centre, whose work focuses on trade secrets within patent disputes. He noted that he often sees pharmaceutical cases with issues relating to know-how concerning specific manufacturing processes, or IT-related disputes in relation to software licenses or telecoms-matters. WIPO also deals with other commercial disputes, e.g. franchising or distribution disputes.

Mr de Castro explained that he often sees disputes concerning breach of confidentiality obligations. Former employees joining a competitor can also be an important source of disputes, for example in IT disputes regarding source codes or client lists.

Mr de Castro provided some examples of the protective measures that can be adopted regarding trade secrets, e.g. issuing a redacted and unredacted versions of an award, and stated that he regularly comes across protective orders or provisions on confidentiality. Confidentiality advisors have, however, rarely been used although provided for by the WIPO rules.

 

Confidentiality advisors

As a confidentiality advisor, Dr Patricia Shaughnessy explained the importance of this third-party/neutral role. At times called “experts” or “document production managers”, confidentiality advisors are not new and have been around in the United States for well over 40 years.

But why go to an advisor? Arbitrators should maintain their independence and impartiality and protect the right to be heard and equal treatment. They must be careful that they do not receive information that may affect their attitude when the other party is not aware of what that information is. Indeed, a party may not feel comfortable with information being provided to the arbitrators, even if the latter determine that such information is confidential and should not be considered in the adjudication of the dispute. The party’s issue is usually that their opponent’s claim of confidentiality is overly broad or that the information sought to be protected is exactly the information needed for a fair adjudication of the case.

This is when a confidentiality advisor becomes necessary. They assess whether information should be protected as a neutral third party and can provide assistance to the parties and the tribunal without participating in the adjudication of the dispute. Parties would typically agree that the confidentiality advisor should express an opinion on which document protective measures seem justified and which overly broad.

She concluded by pointing out that, of course, advisors must sign a confidentiality agreement, which can be very detailed and perhaps include provisions relating to the destruction of all information within a certain period.

 

The tribunal’s perspective

Sarah Reynolds shared the tribunal’s perspective. She reminded participants that even though arbitration is not public, confidentiality is not necessarily applicable in arbitration proceedings. For example, the Uniform Arbitration Act adopted in most of the US states does not impose confidentiality.

If trade secrets are involved, it is important to have clear procedures in place. First, the tribunal should examine the arbitration clause to see whether it includes terms for protection of confidential information or incorporates any relevant rules. If it does not provide sufficient guidance, the tribunal can issue a protective order detailing such procedures. These orders can be drafted by the tribunal or negotiated by the parties. Ms Reynolds stated that it is better from a procedural fairness and efficiency perspective if guidance is laid out early in the proceedings.

Ms Reynolds also underlined that the tribunal has a range of approaches that it can employ, depending on the party’s priorities and on the degree of sensitivity of the information. For example, she has experienced tribunals require prima facie showing that a breach occurred before requiring disclosure of sensitive information. It is a method that prevents the parties from using arbitration as a way of conducting a fishing expedition. Confidentiality advisors can also be useful. Using an attorneys’ eyes only approach can also be a good solution: the lawyers can bring a claim to the tribunal, without their clients accessing any information. However, it can be cumbersome to manage the redacted versions of the submissions and hearings organization.

Ms Reynolds insisted that good terms of reference and protective orders should guard against external disclosure of the trade secrets; and concluded by saying that the parties can also chose the tribunal based in their previous experience and methods of protecting confidential information.

 

What are the main issues?

The panellists wrapped up their discussion by summing up their conclusions on the main issues related to trade secrets and arbitration.

Ms Belaïd noted that in-house counsel should not assume arbitration is confidential. Furthermore, a trade secret can also be any piece of information: a photocopy, a scribbled note. This information can be monetized especially in today’s knowledge-based economy.

Ms Morel de Westgaver noted the difficulty in balancing winning a case while preserving trade secrets. One party may be trying to preserve a secret while the other party’s main concern may be that the claim is brought in bad faith. Parties may also assert that information contains trade secrets to shield it if it is harmful to their case.

Ms Reynolds said that the main issue is to find the right balance between protecting confidential information and maintaining an efficient process. The more sensitive the information, the more appropriate it is to include layers of protection.

Mr de Castro noted that where trade secret is disclosed, damages are irreversible. Arbitration does not provide a full answer to the situation and even a company with a lot of protection in place may find itself in a difficult situation.

Dr Shaughnessy summed up that it is sometimes difficult to be a confidentiality advisor, e.g. due to not having access to the submissions of the parties, or the need to have a technical expertise in some sectors.

More from our authors: International Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
by Gary B. Born
€ 509


Colombia Prevailed in Two Arbitrations Related to the Financial Sector under the Colombia-US TPA

Thu, 2021-09-30 00:53

Earlier this year, Colombia prevailed in two arbitrations under the Colombia-US Trade Promotion Agreement (“TPA”). The claims were filed by Alberto Carrizosa Gelzis, Felipe Carrizosa Gelzis and Enrique Carrizosa Gelzis (“Carrizosa brothers”) under the UNCITRAL Arbitration Rules, and by Astrida Benita Carrizosa (“Ms. Carrizosa”) under the ICSID Convention.

In both arbitrations Ms. Carrizosa and the Carrizosa brothers alleged that Colombia breached the fair and equitable treatment and national treatment standards, among other provisions of the TPA by undertaking a series of regulatory measures in 1998, and a series of judicial decisions between 2005 and 2014, that affected its investment in Granahorrar, a financial institution in which the claimants were shareholders.

The United States filed a Non-Disputing Party submission in both arbitrations on its interpretation of the relevant provisions of the US-Colombia TPA.

On April 19, 2021, the tribunal constituted under the ICSID Convention decided that it did not have ratione temporis jurisdiction over Mr. Carrizosa’s claims. On May 7, 2021, the tribunal constituted under the UNCITRAL Arbitration Rules rejected the claims presented by the Carrizosa brothers as it alsofound that it did not have ratione personae jurisdiction over their claims.

In both cases, the tribunals ordered the claimants to bear the entirety of the arbitration costs and 50% or more of Colombia’s legal costs and expenses.

 

Facts

Granahorrar was incorporated in 1972 as a subsidiary of Banco de Colombia. Granahorrar was a a financial institution authorized to obtain capital via private savings and to finance the construction industry through loans and mortgages. In 1986, the Carrizosa brothers and their parents, Ms. Astrida Bentia Carrizosa and Mr. Julio Carrizosa Mutis (the “Carrizosa Family”), acquired shares in Granahorrar. Within the following two years, the Carrizosa Family became a majority shareholder in Granahorrar. They indirectly owned 58.76% of Granahorrar. As of October 1998, the Carrizosa Brothers’ stake in Granahorrar amounted to 40.2570%. Ms. Carrizosa, in turn, owned 2.3307% of Granahorrar.

In the late 1990s Colombia suffered an economic crisis. In this context, the Colombian government adopted measures to subject financial institutions to strict supervision. In 1998, Granahorrar suffered a severe liquidity crisis, and thereby sought support from Colombian authorities. In response, the Central Bank provided funds as “temporary liquidity support” (TLS), equivalent to approximately US$194 million at the time. In turn, Fogafín (a Government entity created to protect savings) undertook to guarantee up to approximately US$222 million of Granahorrar’s interbank financing. In exchange, Granahorrar agreed to issue promisory notes to Fogafín valued at 134% of the guaranteed amount.

In the following months, Granahorrar’s financial standing continued to deteriorate. On October 2, 1998, the Superintendency of Finance ordered Granahorrar to raise approximately US$ 99.8 million in new capital to offset its insolvency. Granahorrar, however, did not raise the additional capital. On the next day, October 3, 1998, the Superintendency issued a report to Fogafín concluding that Granahorrar was insolvent and illiquid. On the same date, Fogafín’s board decided that the Government would take over Granahorrar, and ordered the company to reduce the nominal value of its shares to COP 0.01.

Fogafín capitalized Granahorrar and became the majority shareholder in the bank. The financial situation of Granahorrar improved andFogafín sold Granahorrar to the Spanish bank Bilbao Vizcaya Argentaria in 2005.

Following the measures adopted by Colombian authorities, the Carrizosa Family initiated a number of administrative judicial proceedings that culminated in a judgment in 2005,  rejecting the claims on the merits. The Carrizosa Family appealed this decision. Colombia’s Council of State upheld the appeal and ordered the Superintendency and Fogafín to compensate the Carrizosa Family in an amount up to US$ 114 million (the “2007 Judgment”).

On March 5, 2008, the Superintendency and Fogafín filed constitutional injunctions (tutelas) against the 2007 Judgment. On May 26,  2011, the Constitutional Court issued a unanimous judgment, whereby it reversed the 2007 (the “2011 Judgment”). Although the Carrizosa Family requested the annulment of the 2011 Judgment, the Constitutional Court dismissed this request in 2014 (the “2014 Order”).

 

International Claims against Colombia

 The UNCITRAL Arbitration

In the UNCITRAL arbitration proceedings, the Carrizosa brothers requested compensation in the amount of US$ 323 million for the alleged breach of the TPA.

The UNCITRAL Tribunal addressed and upheld the respondent’s ratione personae objection, pursuant to which Colombia alleged that Article 12.20 of the Colombia-US TPA only covered claims filed by U.S nationals, or dual nationals with US dominant and effective nationality.

The UNCITRAL Tribunal analyzed the “dominant and effective nationality” of the Carrizosa Brothers, concluding that the claimants had the burden of proving their dominant and effective nationality. The tribunal decided not only to analyze the critical dates of the arbitration (the date of the alleged breach, and the date of the submission of the Notice of Arbitration), but also the entire life of the Carrizosa brothers. For this purpose, the tribunal undertook an objective factual enquiry rather than considering the subjective appreciations of the Carrizosa Brothers on what they considered their “dominant and effective” nationality to be.

The tribunal analyzed, among other criteria: the habitual residence, place of birth, property, assets, passives, economic center of their business, social life, where have they voted, tax payments, and social security, health and pension payments.

After examining the evidence in the record, the UNCITRAL Tribunal concluded that it was clear that the Carrizosa brothers were not predominantly U.S nationals but Colombian nationals.Thus, the Tribunal held that the Carrizosa brothers were not covered by the TPA.

Accordingly, the UNCITRAL Tribunal decided that it had no jurisdiction ratione personae under Article 12.20 of the TPA and dismissed claimants’ claims. The tribunal further decided that claimants should bear the entirety of the fees and expenses of the PCA, and pay all of the legal costs and expenses of Colombia (save for a US$ 30,000 adjustment).

 

The ICSID Arbitration

On January 25, 2018, Ms. Carrizosa filed a Request for Arbitration with ICSID against Colombia under the US-Colombia TPA, the Colombia-India BIT, and the Colombia-Switzerland BIT, seeking compensation of US$ 40 million for the alleged breach of the TPA.

The tribunal upheld Colombia’s ratione temporis objection. This was based on the fact that the measures that allegedly breached the TPA took place before the TPA entered into force on May 15, 2012. The tribunal concluded that the TPA did not cover the administrative measures adopted by Colombian authorities in 1998, and the 2011 Judgment issued by the Constitutional Court.

The ICSID Tribunal clarified that although the 2014 Order was issued after the TPA entered into force, the claims related to the 2014 Order were not independently actionable The 2014 Order merely rejected the Carrizosa’s Family request to annul the 2011 Decision and therefore left unaltered the outcome of the 2011 Decision. Accordingly, the tribunal concluded that the measures giving rise to the arbitration predated the entry into force of the TPA and were outside of the temporal scope of the tribunal’s jurisdiction.

The tribunal further analyzed Colombia’s objection regarding the three-year limitation period provided in Article 10.18.1 of the TPA. Under Article 10.18.1 of the TPA, no claim may be submitted to arbitration if more than three years have elapsed as from the date on which the claimant first acquired, or should have acquired knowledge of the breach.  Ms. Carrizosa acquired knowledge of the 2014 Order shortly after the Constitutional Court issued said decision on June 25, 2014. Yet, she commenced the arbitration on January 24, 2018, which is more than three years after she acquired knowledge of the alleged breach of the TPA. Consequently, the tribunal concluded that her action was outside the temporary scope of jurisdiction of the tribunal.

To overcome this hurdle, Ms. Carrizosa tried to invoke the TPA’s most-favoured nation (MFN) clause to substitute the three-year period contained in the TPA with the allegedly more favorable five-year period set out in Article 1.5 of the Colombia-Switzerland BIT. The tribunal, however, concluded that it was not within its jurisdiction to apply the MFN clause given that Article 12.1.2(b) of the TPA provides that the subject-matter scope of the tribunal’s jurisdiction on disputes under Chapter 12 (Financial Services) is limited to four substantive provisions of the TPA that do not include the MFN clause.

The tribunal further noted that even if it were to apply the five-year period of the Colombia-Switzerland BIT, the claim would still be time barred given that the events that gave rise to the dispute took place in 1998 and 2011, which is more than five years prior to the Request for Arbitration.

In sum, the ICSID Tribunal dismissed Ms. Carrizosa’s claims and ordered her to bear the entirety of the arbitration costs and expenses, and bear 50% of Colombia’s legal fees and other costs.

 

Final remarks

After prevailing in both arbitrations, Colombia will pursue the recovery of 100% of the arbitrations’ costs and expenses, 100% of the legal fees spent in the UNCITRAL Arbitration, and 50% of the legal fees spent in the ICSID Arbitration. The total sum of the money that Colombia would recover amounts to approximately US$ 2,9 million.

However, the dispute between the Carrizosa Family and Colombia has not concluded. On June 6, 2012, the Carrizosa Family et. al filed a petition with the Inter-American Commission of Human Rights (“IACHR”), alleging that Colombia had breached their due process and property rights in the context of the measures adopted over Granahorrar. They requested, inter alia, that the Constitutional Court Judgment be overruled. In 2016, the Registry of the ICHR rejected the petition given that one of the victims was a legal corporation and thereby the claim fell outside the jurisdiction of the IACHR. The Carrizosa Family  submitted two additional revision petitions on October 4, 2017 and on July 4, 2018, which are pending resolution.

 

 

 

 

More from our authors: International Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
by Gary B. Born
€ 509


Interviews with Our Editors: Illuminating Investment Treaty Arbitration and Institutional Services with Antonio R. Parra, Former Deputy Secretary-General of the ICSID

Wed, 2021-09-29 00:00

Antonio R. Parra led a lengthy and luminous career of international public service, having held various roles in the OPEC Fund and the World Bank. Of special interest to our readers is that from 1990 to 1999 Mr. Parra was Legal Adviser at the International Centre for Settlement of Investment Disputes (ICSID), and then from 1999 to 2005 (when he retired), he was ICSID’s first Deputy Secretary-General. During his service at ICSID, the institution grew in prominence and scale to become the premier institution for investor-State dispute settlement (ISDS). Even still, many working at the ICSID Secretariat speak of the lasting legacy of Mr. Parra’s contribution. It’s an honor and a privilege to have him share his perspective with our readers.

 

  1. Mr. Parra, your vision and leadership have been instrumental to shaping the practice of ISDS. Yet, you have also made significant contributions to academia, having published several books and served ICSID Review – Foreign Investment Law Journal as Managing Editor, and then Editor-in-Chief. In your view, how does academic input influence ISDS practice?

 

The influence of scholarly writings on ISDS practice is clear from a glance at written pleadings and arbitral decisions in the field. Contributions of scholars are frequently cited by parties and arbitrators on the myriad procedural and substantive legal issues that arise in the cases.

In launching the ICSID Review—Foreign Investment Law Journal, Ibrahim Shihata, General Counsel of the World Bank and Secretary-General of ICSID during most of the 1980s and 1990s, observed that such contributions could help to clarify the law applicable to foreign investments and assist in its balanced and progressive development.

The article that Shihata published in that first issue of the ICSID Review, had a large impact on the practice, and in particular growing acceptance, of ISDS at ICSID. Entitled “Towards a Greater Depoliticization of Investment Disputes: the Roles of ICSID and MIGA,” the article was based on a paper that Shihata had presented at a 1985 international arbitration conference in Rio de Janeiro. In the paper, Shihata showed how the ICSID system respected considerations underlying the Calvo Doctrine followed in Latin America, notably by precluding the home State of an investor from espousing its national’s claim if the matter was being or could be dealt with by an ICSID arbitral tribunal.

On re-publication of the article in 1991, Shihata observed that, when he presented the paper six years earlier, only four Latin American countries had signed the ICSID Convention but that the number of Latin American signatories had since doubled (and now encompasses almost all countries of the region).

 

 

  1. Do you believe that the ICSID Convention facilitates and promotes Foreign Direct Investment (FDI) by protecting investments and investors? From your perspective, what are the greatest threats facing the ICSID system and how can they be addressed?

 

Encouraging increased foreign investment certainly was regarded by ICSID’s founders as the basic objective of the ICSID Convention. They did not, however, see ICSID as serving this objective merely by protecting investments. Rather, they considered that the availability of balanced international facilities for the settlement of investment disputes could help to foster an atmosphere of mutual confidence conducive to stimulating greater investment flows. (I am paraphrasing the 1965 Report on the ICSID Convention of the Executive Directors of the World Bank, who had formal responsibility for drawing up the Convention.) The founders were clear-eyed about the impact of the Convention. They foresaw that countries with good investment climates would continue to attract  investments even if they did not become parties to the Convention or use ICSID’s dispute settlement facilities. However, adherence to the Convention could, the founders expected, enable countries seeking more investment to “provide additional inducement” for investment (in the words of the Report of the Executive Directors). The Convention obviously can be counted a success in this respect. The extent to which it may be credited with actual rises in investment flows, a much larger question, is probably impossible to measure, if only because the factors determining investment decisions are so varied and subjective. But given the central role that ICSID plays under most bilateral investment treaties, reference might be made in this connection to studies finding a positive correlation between such treaties and investment flows.

As dangers for ICSID, now approaching its 60th anniversary, I think that many would highlight recent moves, ironically of advanced economy countries, to narrow or even eliminate the scope for recourse to ISDS under their investment treaty arrangements—keeping ISDS only for disputes arising out of Mexico-U.S. investments under the new USMCA; the termination, in view of their ISDS clauses, of intra-E.U. bilateral investment treaties; and the proposal championed by the E.U. to replace ISDS mechanisms with a permanent multilateral investment court (MIC).

For ICSID, these might best be considered opportunities instead of dangers. Retreat from ISDS, in the sense of investment treaty arbitration, may enlarge possibilities for resort to contract-based arbitration, which still represents a significant proportion of ICSID’s caseload. ICSID conciliation and fact-finding facilities may at last find users. If a MIC materializes, it may only be after a long time, given the complexity of the project. But ICSID’s superb infrastructure and skilled Secretariat might make it an ideal host for the MIC. In all these ways, as well as by still administering investment treaty arbitrations, ICSID would be continuing to serve its objective of promoting international investment.

 

  1. In recent years, ISDS has seen backlash from external stakeholders, including NGO activists and journalists, which perhaps has led to a legitimacy crisis and demands for radical reforms. From your perspective, what could be one or two reforms to the ISDS system that would meaningfully address legitimacy-based concerns?

 

It may be useful, when we think about the legitimacy crisis of ISDS, to keep in mind what we mean by legitimacy in this context. In several  of its very good notes on IIA Issues, UNCTAD has referred to the legitimacy of ISDS as its authority, in the eyes of the public at large, to assess the validity of a State’s acts. Because of the structure of investment treaty arbitration, we can only look for that authority in the arbitration and substantive treatment provisions of the underlying treaty. Consternation about the outcome of a case may often best be directed at these provisions as permitting or indeed demanding the outcome. Makers of investment treaties and other stakeholders increasingly recognize the need for greater care in the elaboration of the provisions, especially those on indirect expropriation. Investment treaties however remain a patchwork of varying norms, probably becoming even more diverse as newer treaties slowly replace older ones. A solution might consist in the conclusion of a global investment treaty, though countries may be discouraged from attempting this difficult task again, after the repeated failures to finalize such a treaty at the OECD. A set of non-binding guidelines on the treatment of foreign investment was issued under World Bank auspices in the early 1990s. Reissuance by such a universal organization of widely accepted updated guidelines, for countries to emulate in their investment treaties and laws, might well help to address legitimacy-based concerns about ISDS.

 

  1. Relatedly, recent years have seen significant ISDS reform efforts, including the ICSID rule amendment project and UNCITRAL Working Group III, with significant input from various stakeholders, including the States and investors themselves. From your perspective, what are the top three issues to be addressed?

 

From such ambitious and wide-ranging reform processes, it is difficult to choose just three topics to discuss. Among the many overlapping issues being addressed in the UNCITRAL and ICSID processes, three of particular interest to me are issues relating to challenges of arbitrators, security for costs, and frivolous claims. In these and other respects, the ICSID process is more advanced and focused, dealing just with the institution’s own rules.

In accordance with the ICSID Convention, challenges of an arbitrator for lack of independence, or for ineligibility to serve on the arbitral tribunal, have been decided by the other arbitrators, unless they are equally divided, in which case the challenge has been decided by the Chair of the Administrative Council of ICSID (the President of the World Bank). Having unchallenged arbitrators, at least in the first instance, decide the challenge of their fellow arbitrator has rightly been termed unsatisfactory by the annulment committee in a recent ICSID case.

Requests for a tribunal to direct a party to provide security for costs have been handled within the framework of the article of the ICSID Convention on provisional measures, under which an arbitral tribunal may grant provisional measures to preserve the respective rights of either party. The requests made on this basis for security for costs have seldom been granted. In several instances, the tribunals considered that they could not issue provisional measures in respect of rights that were hypothetical or to be created only in the event of the requesting party prevailing in the proceeding.

By a provision added to its Arbitration Rules in 2006, ICSID introduced a procedure for the early dismissal of claims manifestly lacking legal merit. In subsequent proceedings, the provision has been interpreted as covering claims that are unsustainable from the jurisdictional as well as substantive viewpoints, although this was not clear from the provision (which I feel free to criticize because I was its initial drafter).

These shortcomings, and many others, are addressed in the outstanding package of new amendments prepared by ICSID. Thus, under the new amendments, if unchallenged arbitrators find themselves unable for any reason to rule on the challenge of their colleague, they will be deemed to be equally divided on the challenge, which will then be decided by the Chair of the Administrative Council; orders for security for costs will no longer be treated as provisional measures under the ICSID Convention; and the Arbitration Rules will put beyond doubt the possibility of early dismissal of claims that are manifestly ill-founded as to jurisdiction.

 

  1. In 2009, following unfavorable outcomes in several investment disputes, Ecuador notified the World Bank of its denunciation of the ICSID Convention. Ecuadorian leaders went as far as adding a provision (Article 422) to the Ecuadorian Constitution to prevent future governments from entering new International Investment Agreements (IIAs) that could ‘yield sovereignty’ to international arbitration. Now, a decade later, Ecuador has taken steps to rejoin the ICSID Convention. At the very least, this example illustrates that State views on IIAs and related dispute resolution can evolve over time depending on the context. From your perspective, how can ICSID best be mindful over sovereignty concerns and criticism while promoting the benefits of ISDS? Should we revisit the utility in academic discourse on “de-politicization” of investment disputes?

 

Sovereignty concerns were indeed invoked for Ecuador’s denunciation of the ICSID Convention in 2009. In my understanding, the denunciation was precipitated, not so much by experiences of Ecuador in particular cases, as by the decision in 2007 of members of the Bolivarian Alliance for the Americas—ALBA—to withdraw from the ICSID Convention, a decision acted upon, among ALBA members, by Bolivia and Venezuela as well as Ecuador. Attracting much attention around the time of Ecuador’s denunciation were government statements calling into question the neutrality of ICSID arbitration. As you suggest in your question, it is crucial for such debates to be grounded in fact. In 2010, the same year that the denunciation of Ecuador took effect, ICSID redoubled its efforts to meet this need with the inauguration of its semiannual publication, The ICSID Caseload—Statistics. ICSID has also become very active in offering courses and training on ICSID arbitration to government officials and the public at large. Such efforts have been doing much, to use your words, to promote the benefits of ISDS, particularly ICSID procedures, while remaining mindful of the concerns and criticism.

 

  1. Several times in past posts on the Blog our contributors have commented on whether India should join the ICSID Convention. On this debate, India has emphasized the perception of ICSID being “pro-developed countries” and also underscored the lack of review as a major disadvantage (i.e. the self-contained, detached structure). On the other hand, it has been argued that the Indian economy would benefit from a transparent, reliable, and predictable legal framework for investor/investment protection, and therefore that joining the Convention would “enhance investor confidence and promote incoming investments”. In your view, which of the two better reflects reality and why?

 

On the first side of this debate, I would disagree with the contention that ICSID is “pro-developed country.” Its governing body, the Administrative Council, comprising one representative of each member, each with one vote, is overwhelmingly composed of representatives of developing countries. Moreover, the respondents in ICSID cases, most of them governments of developing countries, have prevailed in more than half of the cases decided by tribunals. It is interesting that, on this side of the debate, the exclusion of review by national courts of ICSID arbitral awards is cited as “a major disadvantage.” The exclusion was put in the ICSID Convention precisely to help governments of developing countries obtain enforcement of awards rendered in their favor without being subject to undue delays or defenses based on local laws. (For compliance with awards rendered against governmental parties, it was considered sufficient that such compliance would, under another provision of the Convention, represent an international law obligation of the government concerned.)

On the other side of the debate, adherence to the ICSID Convention might facilitate increased investment in India but the first of the quoted posts on your Blog considers adherence by India to be “highly unlikely.” It seems from that and the second quoted Blog post that much of the reluctance about joining the ICSID Convention stems from the potential of ICSID claims being brought against India. But adherence to the ICSID Convention does not in and of itself obligate a country to submit all or indeed any of its investment disputes to ICSID. Importantly for an investment exporter such as India, adherence will make its nationals eligible to use ICSID’s dispute resolution facilities for disputes with host countries of their investments abroad. To the extent it is not already doing so, it might be useful for India, in its further consideration about the possibility of joining the ICSID Convention, to keep in view its position as a home country, as well as a host country, for foreign investments.

 

  1. Could you please share with our audience two negative trends and two positive trends you have observed with ISDS the last five years?

 

Two aspects of ISDS nowadays that I would single out for criticism are a continued lack of diversity among members of arbitral tribunals and the continued lack of an international appeals facility such as the one proposed at ICSID in 2004 (in a report written by me). According to my last count, only about 20 percent of the individuals appointed as ICSID arbitrators have been nationals of emerging or developing countries and only about 10 percent women. Responsibility for this rests, of course, mainly with parties to proceedings, who make most of the appointments. In suitable contexts, where parties to investment treaties agreed to incorporate the envisaged appeals facility rules by reference into their treaties (and took steps to make the necessary modification of the ICSID Convention as between themselves), the mechanism might have enhanced the credibility and consistency of ISDS, if only under the particular investment treaty or treaties concerned.

Two positive developments that I would highlight are the growing popularity of investor-State mediation and the intensified attention being paid to ways of cutting the duration of arbitration proceedings. On mediation, I refer especially to the mediation rules that ICSID has included in its proposed rule amendments. On duration, I particularly have in mind the proposed ICSID amendments more extensively stating time limits, counting them more strictly, and offering parties the option of agreeing to expedited arbitration proceedings with shortened timeframes.

 

Thank you, Mr. Parra, for sharing these insightful views.  We appreciate your time and continue to wish you the best!

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

More from our authors: International Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
by Gary B. Born
€ 509