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Energy Disputes in a Disruptive World – A Take on Business and Human Rights Arbitration

Sun, 2019-07-14 05:07

Julianne Hughes-Jennett

During the London International Dispute Week in May this year (which was covered at the Kluwer Arbitration Blog in depth, see here), a panel on “energy disputes in a disruptive world” focused on the increasing prevalence of claims against energy companies in relation to climate change or for involvement in human rights impacts. I had an opportunity to speak, in particular, on a new initiative to use arbitration to resolve business and human rights disputes: the Elements Paper on the “Hague Rules on Business and Human Rights (BHR) Arbitration” (Rules) (for additional information on the Rules see also here, in a separate post published recently at the Kluwer Arbitration Blog).

The Rules were initiated by the Business and Human Rights Arbitration Working Group, a private group of international practicing lawyers and academics. They aim to create an international private judicial dispute resolution avenue available to parties involved in business and human rights issues as claimants and defendants, thereby contributing to filling the judicial remedy gap in the UN Guiding Principles on Business and Human Rights.

“Human rights disputes” in this context means:

  1. The Victim-Business scenario – the typical scenario in which “victims” bring claims against a company alleging that their human rights have been impacted by the activities of that company. For example, the recent litigation against Vedanta Resource Plc in the United Kingdom (see our blog post here); and
  2. The Business-Business scenario – with the growth of obligations to monitor and conduct due diligence down a business’ supply chain, we can expect to see a rise in disputes between businesses – e.g., where a manufacturer imposes obligations on a contractor or supplier to comply with certain human rights standards in the performance of its obligations and that contractor or supplier breaches those obligations.

Currently, these disputes are resolved by various legal/judicial and non-legal/judicial mechanisms. These can include, in extreme cases where a criminal offence has been committed (e.g., someone has been killed on the instructions or with the knowledge of a company’s executives), criminal proceedings before national courts. However, most commonly, we see claims against companies framed by reference to tort law, as in the recent case before the UK Supreme Court Vedanta PLC and Anor v Lungowe and Ors. v [2019] UKSC 20, in which over 1,800 members of communities affected by pollution from mining operations in Zambia are seeking damages from a UK registered parent company, Vedanta Plc and its Zambian subsidiary on the basis that the UK Plc owes a duty of care in tort to the claimants because of the extent of its intervention in the management of the Zambian subsidiary. The UK Supreme Court decision is a jurisdictional decision providing that the courts of England and Wales have jurisdiction over both the UK company and its Zambian subsidiary, but provides interesting insights into the circumstances in which a duty of care could be said to be owed by a parent company in relation to the activities of its subsidiary.

There also exist a range of non-judicial avenues for resolving BHR disputes, for example, the OECD National Contact Point system provides a forum for complaints by victims and their representatives and seeks to facilitate the consensual resolution of adverse impacts, including through mediation and settlement. The Elements Paper proposes the drafting of arbitration rules that could be used in the context of BHR disputes. The proposal does not call for the establishment of a new arbitration institution or a standing BHR arbitration panel/tribunal.

During my presentation, I flagged some of the potential challenges with respect to the Rules, but also the potential advantages. Inevitably, the issue of consent to arbitration will be challenging for disputes not arising out of an existing contract containing an agreement to arbitrate. In such a scenario, there would need to be a voluntary submission to the arbitral process after the harm or event in question has occurred, which may in practice be difficult to achieve. While the Elements Paper suggests that commercial contracts could specifically identify classes of victims that could initiate or participate in future arbitrations as “third-party beneficiaries“, it is, however, likely to be challenging in practice to provide for such beneficiaries in commercial contracts. There is also the question of what norms or laws would be applied by the arbitral tribunal? Should they include “soft law” such as the United Nations Guiding Principles on Business and Human Rights (UNGPs)? What should happen in the event of a conflict between the applicable law and international human rights law?

The issue of transparency is also of major importance in BHR arbitration. Traditionally, arbitration proceedings are confidential. Still, should transparency be a guiding principle and a default rule of BHR arbitration proceedings, or should it be left to party autonomy (as it is the case in the ICSID Rules)? More fundamentally, is a private forum like arbitration appropriate for resolving human rights disputes?

The supporters of the proposal point to the greater neutrality and impartiality offered by arbitration, which may be welcomed in politically or emotionally charged disputes, and to the possibility of modifying the process to make it more transparent and public.

Conversely, the Rules could be a means to improve access to remedy for victims of human rights under Pillar 3 of the UNGPs, which provides that

“As part of their duty to protect against business-related human rights abuse, States must take appropriate steps to ensure, through judicial, administrative, legislative or other appropriate means, that when such abuses occur within their territory and/or jurisdiction those affected have access to effective remedy”.

Businesses may also be more willing to engage with a dispute resolution process they are familiar with and may feel like they have more control over. Further, the flipside of the challenge of identifying what law/rights and obligations would apply is that this may force the clarification and development of enforceable BHR norms against which business conduct can be measured with a greater degree of certainty.

In conclusion, while we are a long way off from establishing specific arbitration rules for BHR disputes, there was already precedent for the use of arbitration to resolve human rights disputes. The Accord on Fire and Building Safety in Bangladesh (“Accord”) was a legally binding agreement signed in 2013 between global brands and retailers and trade unions in the aftermath of the Rana Plaza building collapse that led to many deaths and injuries. The Accord committed the signatory companies to ensuring a safe working environment in the Bangladeshi textile industry, including independent inspection programs, health & safety committees, and training. The dispute resolution clause in the Accord provided for arbitration. The first two cases under the Bangladesh Accord were filed in July and October 2016 by two Swiss-based non-governmental labour groups against two global brands (also signatories). The labour groups argued, inter alia, that the brands did not require its factories to remedy hazards in a timely manner—leaving thousands of workers in dangerous conditions. The labour group also charged that the brands did not ensure that it was financially feasible for its factories to fix ongoing safety issues, as required by the Accord. The cases settled but offer an interesting case study for how business and human rights arbitrations may work in practice.

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Is The Scope Of Arbitration Agreement In Shareholders’ Agreement Wide Enough? Lessons On Drafting From A Hong Kong Case

Fri, 2019-07-12 19:00

Martin Kwan

Introduction

In the recent Hong Kong decision of Dickson Holdings Enterprise Co Ltd v. Moravia CV and Others [2019] HKCFI 1424, the court considered whether the arbitration agreement contained in the parties’ shareholders’ agreement covered disputes arising from any affairs of the company. As elaborated below, the decision is instructive for how similar arbitration agreements may be interpreted by courts and also provides valuable insights to guide future drafting of arbitration agreements in shareholders’ agreements, especially when the parties intend for the agreement to cover a broad range of disputes. The approach taken by the Hong Kong court is analogous to approaches taken in other jurisdictions, thereby reinforcing the soundness of the court’s approach and the value of this decision as precedent for future disputes.

 

Background

Dickson Holdings Enterprise (“DHE”) and Moravia CV (“Moravia”) set up a Hong Kong company (“Company”) for a property development project in China and all three parties jointly entered into a shareholders’ agreement (“Shareholders’ Agreement”). The relationship of the parties eventually deteriorated. In particular, DHE alleged that Moravia caused the Company’s board to pass a wrongful and arbitrary resolution which resulted in the forfeiture of DHE’s shares. DHE did not receive any notice for the board meeting where this result was decided. DHE thus asserted a claim for unfair prejudice based on a breach of fiduciary duties of directors (for the directors’ exercise of powers for wrongful purposes) and also a claim for breach of the Company’s articles of incorporation (for the failure to give notice of the board meeting and the wrongful application of the forfeiture provisions to paid-up shares).

 

The Arbitration Agreement in Concern

Clause IX of the Shareholders’ Agreement provides the arbitration agreement:

“Any dispute, controversy or claim arising out of or relating to this Agreement, or the breach, termination or invalidity thereof, shall be settled by arbitration under the Hong Kong International Centre Administered Arbitration Rules in force at the date of this Agreement”.

 

The Main Issue

Moravia applied to stay the court litigation in favour of arbitration. However, the argument was moot because claims on breach of fiduciary duties and the articles were not based on the Shareholders’ Agreement. In fact, the court held (at [41]) that the “Shareholders Agreement makes no provision concerning notice of board meetings, payment for shares or forfeiture of shares”. Instead, the Shareholders’ Agreement focused mainly on how the project would be implemented. Thus, the issue was whether the disputes could still be said to be “arising out of or relating to” the Shareholders’ Agreement.

 

The Judgement

The court recognized the approach taken by the English House of Lords (as it then was) in Fiona Trust and Holding Corporation v. Privalov [2007] UKHL 40, providing that the words “relating to” should be interpreted broadly. Nevertheless, the court found it difficult to see how these disputes could fit within the scope of the arbitration agreement. It held that the dispute was out of the scope of the arbitration agreement, and hence the application for the stay was dismissed. Persuasively, the court recognized that, apart from the Shareholders’ Agreement, the parties were also “governed by the company law of Hong Kong as well as the articles of the Company arising simply from the fact that they were shareholders in the Company”. This means the parties are vested with rights and obligations that do not directly arise from the shareholders’ agreement, which may later result in disputes that are to be resolved. On the facts, “the Shareholders Agreement is neither relied upon for the claim nor for the defence”, and the “proprietary rights of a member to its shares in the Company is not the subject matter of the Shareholders Agreement at all, but governed by ordinary company law”.

The court acknowledged (at [40]) that it is possible to draft an arbitration agreement with a wider scope. Thus, the court vitally distinguished between two types of arbitration clause in a shareholders’ agreement, namely (1) a broader clause providing for the right to arbitrate on any corporate affairs, and (2) a narrower one which provides only for the right to arbitrate on matters out of the shareholders’ agreement.

 

Analysis

Hong Kong courts are well-known to have adopted a pro-arbitration approach. However, a natural concern may be whether this case, which holds that the scope of the arbitration agreement was not wide enough, would suggest the court has deviated from such an approach. It is submitted that this is not the case, because the court was seemingly mindful about this and it especially supported its decision with cases from other pro-arbitration jurisdictions.

First, the court cited the Australian decision of ACD Tridon Inc v. Tridon Australia Pty Ltd [2002] NSWSC 896 (where a claim based on the director’s equitable duties was not covered by the scope of the arbitration agreement). It also cited the Singaporean case of BTY v. BUA [2018] SGHC 213 (where the court held that the dispute arose out of the articles, not from the shareholders’ agreement). Thus, the court found precedent to support its holding that the scope of the arbitration agreement in concern would not necessarily cover every dispute.

This approach is not only adopted in Australia and Singapore. In Canada, the same arguments were made and the same decision reached in Bouchan v. Slipacoff, 2009 94 OR (3d) 741 — 58 BLR (4th) 96 (where the court held that the arbitration agreement in question was not wide enough to cover a claim on oppression of shareholder, but could only cover disputes on the interpretation of the shareholders’ agreement).

 

Takeaways

It is tempting to think that just because a shareholders’ agreement regulates the relationship between the shareholders themselves and the company, it will cover any disputes on corporate affairs such as unfair prejudice. This assumptive view should be abandoned. Whilst the arbitrability of unfair prejudice has long been confirmed since the English decision in Fulham Football Club (1987) Ltd v. Richards [2011] EWCA Civ 855, the scope of the arbitration agreement remains a vital issue not to be ignored (the scope was not a concern in Fulham, as it was held to be very wide, as stated at [91], which provides valuable insights on drafting).

Firstly, in terms of drafting, the Hong Kong court suggested (at [40]) that had a broader coverage to include disputes on corporate affairs been intended, a better clause could have been drafted.

An exemplar arbitration clause was analysed by the Hong Kong court in Newmark Capital Corporation Ltd and Others v. Coffee Partners Ltd and Another [2007] 1 HKLRD 718 and provided:

“Whenever any difference arises between the Company on the one hand and any of the members or their executors, administrators or assigns on the other hand, touching the true intent and construction or the incidence or consequences of these Articles or of the Act, touching anything done or executed, omitted or suffered in the pursuance of the Act or touching any breach or alleged breach or otherwise relating to the premises or to these Articles, or to any Act or Ordinance affecting the Company or to any of the affairs of the Company such difference shall, unless the parties agree to refer the same to a single arbitrators, be referred to two arbitrators one to be chosen by each of the parties to the difference and the arbitrators shall before entering on the reference appoint an umpire”.

(Readers are reminded that this clause is taken from the company’s articles of incorporation, and such a clause would need to be adapted for a shareholders’ agreement.)

Secondly (or alternatively), parties may consider expanding the scope of the shareholders’ agreement itself (for example, incorporating provisions on corporate governance). This is because depending on the drafting of the arbitration agreement, the scope of it is usually dependent on the scope of the shareholders’ agreement. In the present case, the Hong Kong court noted that there were only “limited provisions with regard to the affairs of the Company” and hence the claims were out of the scope.

This solution has previously been adopted in a Canadian dispute. In Swanson v. Mitchell Bay Properties Ltd., 2002 BCSC 1434, the shareholders’ agreement contained a number of provisions on corporate governance. Similarly, it was alleged that the claims on breach of fiduciary duties were out of the scope of the arbitration agreement. However, the court held that the shareholder’s agreement was wide enough to cover those claims, because it has touched on corporate governance.

In conclusion, this important Hong Kong decision reminds parties and lawyers should pay more attention to whether the scope of the arbitration agreement contained in a shareholders’ agreement is wide enough.

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The Brave New and Old World of Arbitration: CEA’s Code of Best Practices

Fri, 2019-07-12 03:00

Mihaela Maravela (Assistant Editor to the Acting Editor) and Alexandru Stanescu

In June 2019, the Spanish Arbitration Club (“CEA”) launched a new Code of Best Practices in Arbitration (the “Code”). This post briefly describes the scope of the Code and provides insights on the specific best practices proposed by CEA. The initiative is commendable, as it reflects the CEA community experience and tackles hot topics in international arbitration.

The Spanish Arbitration Club is a non-profit association dedicated to promoting the use of arbitration as a method of conflict resolution. CEA’s second purpose is to develop arbitration in Spanish and Portuguese or with an Ibero-American component.1)More about CEA on https://www.clubarbitraje.com/quienes-somos/. jQuery("#footnote_plugin_tooltip_9593_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9593_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Code is the result of the work carried for almost two years to adjust CEA’s Code of 2005 to the challenges of today’s arbitration practice. As such, the Code is the natural response to the growing interest in adopting codes of ethics or codes of conduct for arbitrators, counsel, and other participants in the process.

The Code’s philosophy puts at the forefront the aspiration of arbitration users that all participants in the proceedings adhere to enhanced standards of independence, impartiality, transparency and professionalism. The Code brings a novel perspective, as it includes, in addition to the recommendations for the arbitration institutions, – as the 2005 CEA Code did -, new ones for the participants in the arbitral process: arbitrators, counsel, experts, funders. The Code is non-binding soft law which can become binding if adopted by the parties through their arbitration agreement or during the arbitration proceedings.

 

Recommendations related to arbitration institutions

Confidentiality has been traditionally presented as one of the advantages of commercial arbitration. However debates have been, for example, on whether this implies that the award should not be published, or could be published after some time, and/or with the name of the parties and other sensitive information redacted.2)For a more detailed discussion see, Alexis Mourre, Arbitral Jurisprudence in International Commercial Arbitration: The Case For A Systematic Publication Of Arbitral Awards In 10 Questions, 28 May 2009, Kluwer Arbitration Blog. jQuery("#footnote_plugin_tooltip_9593_2").tooltip({ tip: "#footnote_plugin_tooltip_text_9593_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Over the last years the need to strike the right balance between confidentiality and transparency has been voiced. On one side, confidentiality provides the protection of commercial and other business interests of the parties. On the other side, transparency is voiced to inter alia, ensure efficiency of the process, strengthen the legitimacy of the system, increase consistency and certainty. The question on where the balance should be placed received various answers: for example (i) the SIAC rules as amended in 2016 positioned that the awards should be published only upon consent of the parties and the tribunal, (ii) ICC adopted an opt-out approach to the publication of awards, in the 2019 Note to parties and arbitral tribunals on the conduct of the arbitration under the ICC Rules of Arbitration.

The CEA Code tips the balance in favor of transparency and recommends that all the awards are published shortly after being approved, anonymizing the name of the parties, but keeping the name of the arbitrators and of the counsel. In certain cases that justify confidentiality, the award could be published only as an excerpt, keeping the name of the arbitrators and of the counsel.3)Rec. 62, 63, C.BB.PP/CEA 2019. jQuery("#footnote_plugin_tooltip_9593_3").tooltip({ tip: "#footnote_plugin_tooltip_text_9593_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Taking a stance on the highly discussed issue of diversity in appointment of arbitrators, the Code gives prevalence to parties’ choice. The Code does not remove party appointment – a measure that has been positioned to respond to challenges of diversity. However, the Code provides for the arbitration institution to establish objective criteria for a selection process that promotes diversity, in particular in terms of age, gender and origin.

The Code includes recommendations that arbitration institutions take measures to adequately protect personal data.4)Rec. 40, 41, C.BB.PP/CEA 2019. jQuery("#footnote_plugin_tooltip_9593_4").tooltip({ tip: "#footnote_plugin_tooltip_text_9593_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Given the strong emphasis on data protection in the EU via the GDPR, such recommendations are in line with global privacy endeavors. Such rules also create a strong incentive for arbitration institutions to digitalize and create sound internal procedures, especially in relation to cybersecurity, automation and flow of information.

 

Recommendations related to the arbitral process

Arbitration institutions could envisage adopting arbitration rules similar to the Code’s, in order to increase the foreseeability and, thus, the legal certainty that arbitration offers to its users, as the arbitration institutions play an important role in the promotion, development and legitimacy of the arbitration.

CEA recommends that the parties use the model arbitration clause. Additionally they should consider certain recommendations such as: (i) the seat or place of arbitration should be in a jurisdiction that ratified the New York Convention of 1958; (ii) arbitrators should apply the (rules of) law, rather than decide ex aeqo et bono (in equity); (iii) hybrid clauses are a no-go, such as those submitting certain disputes to arbitration and others to litigation.

 

Recommendations related to arbitrators

The Code promotes a higher degree of transparency. It reinforces the standard of independence and impartiality of arbitrators, which is essential for arbitration to continue to be a proper dispute resolution mechanism and selected as such. To this end, the Code targets disclosure duties via an extensive questionnaire (31 questions) for the arbitrators as to possible connections between arbitrators and the parties, with the dispute, with the counsel of the parties, with the other arbitrators or with other persons involved in the arbitration, such as third-party funders, witnesses, experts or the arbitration institution.5)Rec. 84 C.BB.PP/CEA 2019. jQuery("#footnote_plugin_tooltip_9593_5").tooltip({ tip: "#footnote_plugin_tooltip_text_9593_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The Code also takes a stance on the debated issue of party appointed arbitrators. As a general view, the purpose thereof is to have a balanced and fair panel while understanding various cultural or local particularities. The Code states that the party-appointed arbitrators have no duty to ensure that the case of the party appointing them is adequately understood by the other members of the tribunal, or any other special obligation or function concerning the case of the party appointing them, save if otherwise agreed by the parties.6) Rec. 73 C.BB.PP/CEA 2019. jQuery("#footnote_plugin_tooltip_9593_6").tooltip({ tip: "#footnote_plugin_tooltip_text_9593_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Recommendations related to counsel

The recommendations take into account that counsel is subject to a variety of deontological or ethical rules. Counsel should strive for the arbitration proceedings to be time and cost-effective. For example, after the tribunal’s constitution, if there are changes with regard to the initial legal team, the arbitrators may reject such modification by reasoned decision, after hearing the parties, with a view to safeguard the integrity of the proceedings. The Code explains what is considered to impair the proceedings.7)Rec. 111, 112 C.BB.PP/CEA 2019. jQuery("#footnote_plugin_tooltip_9593_7").tooltip({ tip: "#footnote_plugin_tooltip_text_9593_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Counsel must refrain from knowingly making false statements, both in written pleadings and in oral submissions, or from submitting witness statements and expert reports they know to contain false information.

Unlike the IBA Guidelines on Party Representation in International Arbitration, that refer only to submissions on facts, the Code recommends that counsel refrain from knowingly citing inexistent legal authorities or from distorting their true meaning through incomplete or tendentious citations.8) Rec. 118 C.BB.PP/CEA 2019. jQuery("#footnote_plugin_tooltip_9593_8").tooltip({ tip: "#footnote_plugin_tooltip_text_9593_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Recommendations related to experts 

The Code provides that experts should preserve the objectivity and independence of their opinions. For this, the Code recommends a non-exhaustive list of fifteen questions on potential areas of disclosure by experts, with reference to possible connections with the parties, with the dispute, with the counsel designating them, or with other stakeholders involved in the arbitration, such as third-party funders, witnesses or arbitration institution.

The Code takes a step forward and proposes that experts include in their report aspects both in favor and aspects that may prejudice the party appointing them, and that they maintain an objective distance from all parties involved in the arbitration.9)Rec. 133, 134 C.BB.PP/CEA 2019. jQuery("#footnote_plugin_tooltip_9593_9").tooltip({ tip: "#footnote_plugin_tooltip_text_9593_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Code adds that the expert will act with respect and loyalty to the arbitrators and all parties.10)Rec. 147 C.BB.PP/CEA 2019. jQuery("#footnote_plugin_tooltip_9593_10").tooltip({ tip: "#footnote_plugin_tooltip_text_9593_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Recommendations related to third party funders

The Code posits that the party receiving funds or any other type of financing from a third party in connection to the results of the arbitration should disclose the identity of the funder in the request for arbitration or within a reasonable term, in case financing is obtained at a later stage. The recommendation is meant to protect the independence and impartiality of the arbitrators that would be then capacitated to disclose any relationship with the funders.

This rule goes in line with the standards in the IBA Guidelines on conflicts of interest in international arbitration, that require parties to disclose the existence of the funder at the earliest opportunity. The disclosure of funders for the purposes of conflicts of interest has been a matter of interest in the arbitration community and had been tackled in the last couple of years by ICC,11)The 2019 ICC Note to parties and arbitral tribunals on the conduct of the arbitration under the ICC Rules of arbitration refers to a duty of the arbitrators to disclose relationship with any entity having a direct interest in the dispute or an obligation to indemnify a party for the award, but does not include an obligation for the party to disclose the existence of the third-party funder. The arbitrators are encouraged to consult the Secretariat which may assist the arbitrators in this regard. jQuery("#footnote_plugin_tooltip_9593_11").tooltip({ tip: "#footnote_plugin_tooltip_text_9593_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and other institutions, such as ICSID with the proposal for amendment of the ICSID rules released in March 2019.

For the time being, the Code recommends a limited disclosure, in that the beneficiary party should only inform the tribunal and the other party about the existence and the identity of the funder. However, should the tribunal consider relevant, the funded party ought to submit additional confidential information, especially the economic conditions of the transaction.12)Rec. 154-156 C.BB.PP/CEA 2019. jQuery("#footnote_plugin_tooltip_9593_12").tooltip({ tip: "#footnote_plugin_tooltip_text_9593_12", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The authors are co-founders with others of the Romanian Chapter of the Spanish Arbitration Club.

References   [ + ]

1. ↑ More about CEA on https://www.clubarbitraje.com/quienes-somos/. 2. ↑ For a more detailed discussion see, Alexis Mourre, Arbitral Jurisprudence in International Commercial Arbitration: The Case For A Systematic Publication Of Arbitral Awards In 10 Questions, 28 May 2009, Kluwer Arbitration Blog. 3. ↑ Rec. 62, 63, C.BB.PP/CEA 2019. 4. ↑ Rec. 40, 41, C.BB.PP/CEA 2019. 5. ↑ Rec. 84 C.BB.PP/CEA 2019. 6. ↑ Rec. 73 C.BB.PP/CEA 2019. 7. ↑ Rec. 111, 112 C.BB.PP/CEA 2019. 8. ↑ Rec. 118 C.BB.PP/CEA 2019. 9. ↑ Rec. 133, 134 C.BB.PP/CEA 2019. 10. ↑ Rec. 147 C.BB.PP/CEA 2019. 11. ↑ The 2019 ICC Note to parties and arbitral tribunals on the conduct of the arbitration under the ICC Rules of arbitration refers to a duty of the arbitrators to disclose relationship with any entity having a direct interest in the dispute or an obligation to indemnify a party for the award, but does not include an obligation for the party to disclose the existence of the third-party funder. The arbitrators are encouraged to consult the Secretariat which may assist the arbitrators in this regard. 12. ↑ Rec. 154-156 C.BB.PP/CEA 2019. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Roebuck Lecture 2019: Has Arbitration Always Been Favoured in England?

Thu, 2019-07-11 01:54

Kateryna Honcharenko

The Roebuck lecture, delivered this year on 13 June 2019, is an annual gathering of renowned scholars, practicing lawyers, arbitrators, students and arbitration enthusiasts. It pays tribute to Professor Derek Roebuck MCIArb, the arbitration historian who made an invaluable contribution to the Institute’s work and development, in particular as editor of the CIArb’s prestigious academic Journal.

This year the Institute was honored to invite the current editor of the Journal, Professor Stavros Brekoulakis (Queen Mary University of London; 3 Verulam Buildings), as the speaker. The purpose of his presentation was to demonstrate that, throughout history, English law and the judicial system, notwithstanding popular misconception, adhered to a policy that favored promotion and use of arbitration, rather than restricted it. Tracing back the development of arbitration in England supports and elaborates on current debates as to the legitimacy of arbitration and strengthens its future positions, in particular taking into account UK’s current uncertainty in light of Brexit.

Professor Brekoulakis started with the purpose of his research: to highlight a misconception that English law in 17-19th centuries did not favor pro-arbitration policies and that they have only been taking place within the last few decades, with a climax after adoption of the 1996 Act. The general perception of the judicial and legal approach to arbitration seemed to be antagonistic and “jealous” of arbitration (Scott v. Avery), in particular due to a rapid rise of common law and, as a result, authority of courts. The perception of arbitration as a threat to such authority, therefore, by most accounts, prevailed.

To the contrary, Professor Brekoulakis stated that arbitration in the last few centuries developed hand in hand with common law and English courts.

 

Background

Professor Brekoulakis’ survey of arbitration begins in the 17th century, when merchants, attracted by lower price and time efficiency of arbitration, chose it as a method to resolve their disputes, before resorting to litigation. Arbitration was also a default dispute resolution provision in construction and insurance contracts. At those times, arbitration agreements already contained the number of arbitrators, as well as their preferred specialization.

Historical writings show that not only private parties, but also the Government and even the Crown sought to resolve their disputes by means of arbitration, conducted swiftly and voluntary by individuals, entrusted to this end by their community. Arbitrators easily assumed jurisdiction over cases, even notwithstanding parties of different nationalities.

 

Peace and Trust

Communities preferred for disputes to be resolved by compromise decisions, serving as a basis for the prevailing nature of arbitration over litigation among people: arbitral proceedings involved not only a review of the bare facts of a case, but also the overall picture of relationships between parties. A sensitive and individual approach to each case was thus guaranteed and supported the desire for a sense of peaceful community. For these reasons, at the end of the 17th century, the advantages of arbitration were considered by merchants as the best way to not only resolve disputes, but also maintain peaceful environment in the trading community.

Two main types of arbitration eventually developed: submission of the parties to arbitration and reference to arbitration by courts. Decisions in arbitration initiated by submission were, however, not enforceable. This issue was resolved by a later commitment of parties to enter into an arbitration agreement in case disputes arise. This, however, still bound parties to go to courts to enforce awards and thus implied additional costs.

Reference of the parties to arbitration was made at the complete discretion of courts, which negated the time and cost savings of arbitral proceedings.

 

English Arbitration Acts

The first Arbitration Statute (the Locke Act) was adopted by the Parliament in 1698, as a response to an unfavorable arbitration environment and provided the first legal basis “for Promoting of Trade and for rending the Awards of Arbitrators the more effectual in all Cases” (John Locke). Parties, therefore, got an opportunity to resort to arbitration without the necessity to commence litigation.

A third type of arbitration, statutory arbitration, was introduced by the Act and increased the number of arbitrations in the 18th century, while subsequent Acts contributed to the policy favoring arbitration: statutory powers to refer the parties to arbitration, where their disputes were covered by an arbitration agreement, were first embodied in the 1854 Act, followed by making all arbitration agreements irrevocable in the Act of 1889 and giving power to arbitrators to grant interim relief in the 1950’s Act.  By the 1979 Act, arbitral awards could no longer be subject to a judicial review for the matters of law. Finally, the process reached its pinnacle with the adoption of the 1996 Act, which complexified the awards’ challenge procedure.

 

Position of the English Courts

Despite the revolutionary arbitration acts, arbitration agreements still lacked protection, whereas private agreements could not overshadow the jurisdiction of English courts. Therefore, the theoretical mechanisms to refer disputes to arbitration existed, however the tools were not yet in harmony. The matter of enforceability of arbitration agreements, for example, was first delved into in the Scott v Avery (1856).

Even though arbitration in 17-18th centuries could not be perceived as a pure alternative to courts’ jurisdiction, allegations regarding hostility to arbitration are not grounded, since the latter already operated as a part of English judiciary system.

Professor Brekoulakis brought the attention of the audience to the courts’ perception of arbitration in previous centuries, describing it as “cautious trust”.  The incentive was the respect of English courts to party autonomy and overpressure by hundreds of thousands of cases brought for litigation annually. This, however, did not strengthen hand of arbitration as a mechanism, since arbitration agreement were not irrevocable until the 19th century: private agreements could not be a substitute for judicial power.

 

Comparative Analysis

Everything is relative, however, and boundaries put on arbitration in England pale by comparison to those presented in some other jurisdictions. Here the authority of a state, restrictions of private arrangements, historical circumstances and governing constitutions are inextricably connected with the reluctant acceptance of the usefulness of arbitration. This was due to, in particular, to political and judicial instability in young, developing governments.

For instance, in the French Code of Civil Procedure, created after the French Revolution, arbitration posed a threat to the rule of law and was widely restricted. One could not imagine a possibility for arbitration to thrive in those circumstances. Professor Brekoulakis here cited French Cour de Cassation, whose position was that efficiency of arbitrators cannot be compared to that of judges in terms of impartiality and skills.

The US jumped on the same bandwagon in the 18-19th centuries. The ability of arbitrators to handle complex cases where significant experience and knowledge was required to give parties a valuable advice was questioned. Throughout 19-20th centuries arbitration agreements were considered as non-conforming to US public policy.

Likewise, in 1930s in Germany, one of the aims of national socialists’ regime was to limit use of arbitration. An attempt to resolve a dispute outside a court proceeding was viewed as an attempt to circumvent the ruling government.

 

Conclusion

“So, why does it matter to challenge the prevailing narrative about the traditional hostility of English courts and law to arbitration?” Professor Brekoulakis asked the audience. The discussion is foundational for examinations of the legitimacy of arbitration or possible arbitration reforms. Some also argue that arbitration is one of the wheels in the neoliberalism vehicle. The latter statement implies that the initial idea of arbitration was to outweigh the power of state courts and governments.

Considering legislative developments and historical circumstances, arbitration in England, on the contrary, was not a project originally kept tightly reined from 17th century, though not restricted or abolished by courts and the government themselves. Rather, it developed as an ancillary part of the judicial system. Only with the passing of a long period of time did arbitration gain momentum and became an independent alternative to litigation, by means of gradual adjustments of legislation.

This conclusion gives us an opportunity to brighten dark predictions of a possible Brexit future and believe that absence of antagonism between English courts and arbitration, even far back in the past, might secure the position of arbitration in the future.

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Section 1782 Discovery: Recent Decisions Highlight Splits in the Second Circuit

Wed, 2019-07-10 03:00

Julia Sherman

The use of 28 U.S.C. Section 1782 to obtain through U.S. courts evidence in support of foreign proceedings is at its zenith. But a number of questions regarding the scope of the statute are still open. As recent decisions from the United States Federal Court for the Southern District of New York (SDNY) demonstrate, considerable uncertainty remains regarding (a) the post-Intel meaning of “foreign or international tribunals” under Section 1782, (b) the extraterritorial reach of the statute, and (c) the impact of applicant delay on a district court’s exercise of its discretionary power to grant discovery. The time may be ripe for the Second Circuit Court of Appeals (Second Circuit) to weigh in on the post-Intel scope of Section 1782 discovery.

 

For Use in a Foreign or International Tribunal

First, recent SDNY decisions indicate that the question of whether private arbitrations constitute a “foreign or international tribunal” for purposes of Section 1782 discovery appears no closer to being resolved in the Second Circuit. The ambiguity is twofold. In the first place, there is the pressing question of whether the Second Circuit’s pre-Intel decision on this issue in NBC v. Bear Stearns, which held that Section 1782 discovery cannot be provided for use in private arbitrations, is still controlling in light of the Supreme Court’s reference to “arbitral tribunals” in Intel. But even in a world where NBC is good law, uncertainty exists regarding which arbitral institutions should properly be considered “private” arbitral bodies in 2019.

As discussed in a prior post on the subject published on the Kluwer Arbitration Blog, in Children’s Investment Fund Foundation, Judge Broderick of the SDNY held in January 2019 that a tribunal formed under the rules of the London Court of International Arbitration (LCIA) is a “foreign or international tribunal” for Section 1782 purposes. In so holding, Judge Broderick declined to follow NBC’s finding that a commercial arbitration administered by a tribunal acting under the rules of the International Chamber of Commerce (ICC) does not fall within the scope of Section 1782, and looked instead to the dictum in Intel from Professor Hans Smit that “the term ‘tribunal’ includes investigating magistrates, administrative and arbitral tribunals, and quasi-judicial agencies, as well as conventional civil, commercial, criminal, and administrative courts”.

Judge Broderick’s opinion is consistent with Judge Marrero’s 2016 decision in Kleimar, the SDNY’s only previous post-Intel decision on the private arbitration question. In Kleimar, Judge Marrero notably held that the London Maritime Arbitration Association is a “foreign tribunal” for Section 1782 purposes, implicitly determining that NBC was not controlling post-Intel.

However, any notion that the case law in the SDNY was settling following Kleimar and Children’s Investment Fund Foundation was dispelled with Judge Furman’s decision in February 2019 in Hanwei Guo, which held that an arbitration before the China International Economic and Trade Arbitration Commission (CIETAC) does not satisfy the “for use” requirement of Section 1782. There, Judge Furman summarily rejected the notion that the dictum in Intel overturned NBC. Expressly dismissing the approaches taken by his colleagues, he stated that NBC was still good law, and thus was binding upon the district court until overturned by the Second Circuit or Supreme Court.

Applying NBC to the application at hand, Judge Furman assessed the degree to which CIETAC could be said to be “an arbitral body established by private parties.” Reviewing CIETAC’s history, he acknowledged that it presented a closer question than the ICC proceedings did in NBC, as CIETAC “was originally established by an entity of the Chinese government”. However, in his view, today’s CIETAC was “closer to a private arbitral body” than a governmental or intergovernmental tribunal. Accordingly, under NBC, the CIETAC proceedings were outside the scope of Section 1782.

Hanwei Guo indicates that the scope of the “for use” requirement in the Second Circuit post-Intel is still far from clear. Further, it highlights two key questions for the Second Circuit: first, whether NBC is still good law; and second, if it is good law, which proceedings should be considered “private” arbitrations. If CIETAC was a close question for the court, one wonders how a commercial arbitration administered by the Permanent Court of Arbitration, established by states during the Hague Peace Conferences, might be viewed under NBC.

While the Second Circuit has yet to weigh in on these issues (and noting also that uncertainty exists within and across other Circuits on this question), the stark split in the SDNY illustrated by these cases suggests that the issue may shortly be before it. Both the unsuccessful respondents in Children’s Investment Fund Foundation and the unsuccessful petitioner in Hanwei Guo have since filed notices of appeal. Accordingly, the Second Circuit may soon provide answers to at least some of these questions.

 

Extraterritorial Application of Section 1782

Another split exists within the Second Circuit, and indeed even within the SDNY, regarding whether Section 1782 can be applied extraterritorially to obtain discovery of documents located outside of the United States. At least four decisions in the SDNY have held that the statute has no extraterritorial application, while two SDNY decisions and a decision of the District of Connecticut have held in favor of extraterritoriality. In the February 2019 opinion in Hulley, an SDNY magistrate judge added further color to the debate, finding in favor of extraterritoriality while noting this uncertainty.

In the Hulley application, former Yukos shareholders sought documents from White & Case LLP in relation to Dutch court proceedings arising from the Yukos Arbitration. White & Case, for its part, contended that the bulk of the documents sought—if they exist at all—are likely overseas, and likely privileged.

Considering the extraterritoriality question at the outset, the SDNY magistrate judge acknowledged the split within the Circuit. The opinion also observed that dicta from the Second Circuit’s pre-Intel decision in Sarrio suggested that its view was that Section 1782 could not reach documents abroad, while the Second Circuit’s 2018 decision in Kiobel assumed (without holding) the same.

In the Hulley magistrate judge’s view, however, the more persuasive reasoning was that expressed by the Eleventh Circuit in its 2016 decision in Sergeeva v. Tripleton. There, the Eleventh Circuit noted that the Federal Rules of Civil Procedure authorize extraterritorial document production where those documents are within the custody or control of the party before the U.S. court, and that applying this rule in the Section 1782 setting would be consistent with the Supreme Court’s 2016 decision in Nabisco on the extraterritorial reach of RICO. Accordingly, the magistrate judge held in Hulley that Section 1782 can compel production of documents located outside of the United States in accordance with the Federal Rules of Civil Procedure.

The opinion in Hulley is consistent with (among others) the June 2018 SDNY opinion in Accent Delight, which similarly relied on the Eleventh Circuit’s reasoning. At the same time, as noted above, several  other  decisions in the SDNY have also come out the other way. The unsuccessful petitioners in Hulley are currently seeking to overturn the magistrate judge’s opinion, and thus attention will need to be paid to the district court judge’s forthcoming decision on the application.

Nevertheless, the Hulley opinion reveals how this area of the Section 1782 jurisprudence is also far from settled and suggests that the extraterritorial reach of discovery under the statute may be another question ripe for the Second Circuit’s docket.

 

Delay in Pursuing Section 1782 Discovery

In addition to the issue of extraterritoriality, the February 2019 Hulley opinion is notable for its discussion of applicant delay in pursuing Section 1782 discovery.

In considering the discretionary Intel factors, the Hulley court concluded that the first three factors (participant in the foreign proceeding; nature and receptivity of the foreign tribunal; and circumvention of foreign proof-gathering restrictions) generally weighed in favor of the production of certain unprivileged documents by White & Case. Yet the magistrate judge ultimately denied the application due to applicant’s delay of almost six years in seeking the documents—a consideration that the judge felt did not fit neatly into any of the Intel factors—combined with a finding under the fourth Intel factor that the request was unduly intrusive/burdensome.

The consideration of the applicant’s delay in seeking Section 1782 discovery is not entirely novel. The Second Circuit has indicated that an “inexcusably untimely” request would not be consistent with the statute’s “twin aims” of “providing efficient assistance to participants in international litigation and encouraging foreign countries by example to provide similar assistance to our courts”, and district courts in other circuits have raised questions regarding the timeliness of requests in their general consideration of the discretionary Intel factors.

However, the Hulley opinion advances this area of Section 1782 jurisprudence by explicitly identifying delay as a distinct element from the four Intel factors for courts to consider when exercising their discretionary power under the statute. Whether other courts will build on this discussion and establish delay as a separate discretionary factor to be assessed when reviewing applications for Section 1782 discovery remains to be seen.

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The Contents of the ASA Bulletin, Volume 37, Issue 2 (June 2019)

Tue, 2019-07-09 21:12

Matthias Scherer and Catherine Anne Kunz

We are happy to report that the latest issue of the ASA Bulletin is now available and includes the following articles and cases:

ARTICLES

Elliott GEISINGER, Simplicity and Sophistication (Of Furniture, Nails, Screws and Glue)

In his message, ASA President Elliott GEISINGER lauds the art of simplicity and questions the necessity of some of the proposed revisions of Chapter 12 of the Swiss Private International Law Act governing international arbitration in Switzerland.

Philip WIMALASENA, The Publication of Arbitral Awards as a Contribution to Legal Development – A Plea for more Transparency in International Commercial Arbitration

Philip WIMALASENA calls for more transparency in commercial arbitration through the systematic publication of arbitral awards. WIMALASENA analyses the structural prerequisites of a comprehensive publication practice and makes concrete recommendations for the anonymous publication of arbitral awards.

Thomas LEGLER, Arbitration of Intellectual Property Disputes

Thomas LEGLER outlines the benefits of arbitration for intellectual property (IP) disputes, discusses recent developments, such as the European Union’s future Unitary Patent Court system, and provides an overview of the specific arbitration procedures available in that field before examining the possibilities offered by blockchain technologies, in particular smart contracts.

Johannes LANDBRECHT, Strong by Association: Arbitration’s Policy Debates, Mandatory Rules, and PIL Scholarship

Building on a recent publication by Sagi PEARI, Johannes LANDBRECHT submits that arbitration could benefit more from private international law (PIL) thinking. LANDBRECHT highlights five developments in general PIL thinking and demonstrates how they might apply also in arbitration, in particular when dealing with mandatory substantive rules.

Michael WIETZOREK, Luxembourg’s Rejection of the French Approach to the Recognition and Enforcement of Annulled Arbitral Awards

Michael WIETZOREK analyses the series of recent decisions rendered by the Luxembourg Court of Appeal in the internationally well-known Pemex and Gold Reserve cases, which reject the French courts’ approach to the recognition and enforcement of annulled arbitral awards.

Falco KREIS, Markus KAULARTZ, Smart Contracts and Dispute Resolution – A Chance to Raise Efficiency?

In their article, Falco KREIS and Markus KAULARTZ present the basics of blockchain technology and smart contracts before shedding light on the dispute resolution mechanism suitable to that technology and exploring whether efficiency could be increased further through the automation of the dispute resolution process.

Eliane FISCHER, Flavio PETER, The Consequences of a Tribunal Secretary’s Breach of Duties – the Games of Thrones Edition

Taking inspiration from the epic series Games of Thrones, Eliane FISCHER and Flavio PETER provide an overview of the remedies available in cases where a tribunal secretary exceeds his/her powers or lacks independence and impartiality.

DECISIONS OF THE SWISS FEDERAL SUPREME COURT

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Innovation in Dispute Resolution: Sci-Fi or Future Reality?

Tue, 2019-07-09 03:00

Maria Polakova

Report from a Workshop Hosted by Squire Patton Boggs and Delos on 30 May 2019 in Prague

It has been a while now that buzzword of innovation has made its way into the traditionally conservative legal world. While a number of smart tech tools for lawyers such as contract automation or document management systems with numerous integrated functionalities are already out there, a question mark arises as to whether innovative tools of this kind can ever be of major significance in dispute resolution. And with the surge of AI and the appearance of AI-based tools capable for example of identifying risk clauses in due diligence reviews or of a smart review of case-law, a new question has arisen as to whether the very process of dispute settlement can one day be driven by artificial as opposed to human—intelligence. However, as most dispute lawyers surely feel, the biggest hurdle for innovation and tech solutions in dispute resolution—and specifically in international arbitration—is that each dispute1)Save perhaps of generic disputes related to the same topic such as disputes for non-payment of utility fees and the like. jQuery("#footnote_plugin_tooltip_6623_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6623_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); has a very specific factual matrix whilst the legal arguments used by opposing sides also tend to be far from straightforward. Dispute resolution, therefore, in most cases represents a highly individualized legal field and thus prima facie does not appear as a prime candidate for commoditization towards which most current innovative legal tools are headed.

It is with these wider issues in mind that Squire Patton Boggs joined forces with Delos — the arbitration institution which received the prestigious GAR Award for Innovation from 2018, in order to host a workshop titled “Innovation in dispute resolution: sci-fi or future reality?”. The ambition of the workshop was to bring legal and tech minds together to discuss whether, and if so how, dispute resolution is fit for innovation. The workshop was organized within the framework of a larger event, the Innovative Legal Services Forum held annually in Prague which has already gained a reputation for bringing together legal innovators from around the world.

The workshop was held in the morning of 30 May 2019 in a lovely setting of an art deco ballroom of the Grand Hotel Bohemia in downtown Prague, as if to somehow symbolize the clash between tradition and innovation. The event spread for three hours and included two debates focusing respectively on the “today” and the “tomorrow” of dispute resolution.

The first debate, which I had the pleasure to moderate, was centered on the status-quo of innovative techniques as applied in dispute resolution. As pointed out during the opening remarks, if the meaning of innovation is making things better, easier and more efficient, then international arbitration, in fact, represents innovation in its own right. This is because the very concept of arbitration was designed with the aim to provide a better and quicker alternative to court dispute resolution, and thanks to the miracle of the New York Convention, this concept has become both international and transnational. But even so, international arbitration has become a subject of numerous criticisms for being too expensive, too elitist and not even so quick as traditionally advertised. The question thus legitimately arises as to how innovative techniques can make arbitration more efficient, less costly and overall more accessible.

The first debate kicked off with Lucia Raimanova, counsel with Allen&Overy based in Bratislava, Slovakia. As a high-profile arbitration lawyer in a law firm which has openly embraced legal tech, Lucia offered her practical insights on a variety of tech and non-tech innovative techniques she has experienced: From AI-powered document review tools designed to make the review of huge quantities of documents quicker and thus less costly to a variety of innovative techniques relating to project management, such as flexible project-based staffing for cases enabling the involvement of non-full-time lawyers and support staff. Hafez Virjee, the president of Delos, then shared his perspective on innovation in disputes from the point of view of an arbitration institution. Hafez started off from a premise that innovation need not necessarily be just about technology; on the contrary, there are a number of non-tech innovative ideas and tools which may improve the landscape of disputes.  Hafez gave an example from the Delos rules regarding registration of contracts: In everyday life, arbitrations get complicated by the fact the original contract with an arbitration clause gets lost or a dispute arises between the parties as to which version of the contract is the authentic one – and such complications occur more often than one would think. Delos thus came up with a simple idea that contracts which include a Delos arbitration clause may be registered with Delos for the purpose of a potential dispute (and if such a dispute indeed arises, it then benefits from lower arbitration fees). This simple idea indeed epitomizes the gist of true innovation: The innovative idea surely need not be complicated, but it does need to be practical and address real daily needs of dispute resolution users. Finally, Olivier Mosimann, partner with the second largest Swiss law firm Kellerhals Carrard based in Basel, offered his perspective on innovation in evidentiary matters. As he explained, efficient and persuasive presentation methods by counsel at hearings, such as augmented or virtual reality which are already being used not just in arbitration but also before courts in some countries, represent a true innovation in the presentation of evidence specifically in cases of high technical complexity where verbal or graphic presentations simply do not do enough to explain the factual issue at stake.

A lively discussion with the audience followed. Questions primarily focused on the current experience and challenges relating to the use of document review tools, specifically in the context of dispute lawyers’ willingness to entrust substantial amounts of document review work to a “machine” rather than to junior associates and the related issues of liability for error. As Lucia Raimanova pointed out, these concerns become much less relevant in a world where document review tools have a lesser probability of error than human associates.

After the break, the workshop continued with a more futuristic debate focusing on the landscape of disputes tomorrow. The panel discussion brought together tech and AI experts and lawyers and it was moderated by Rostislav Pekař, partner with Squire Patton Boggs based in Prague and the firm’s co-head of investment arbitration practice.

This round was opened by an NLP expert Otakar Smrž, a PhD holder from the Charles University in Mathematical Linguistics and a former research scientist for IBM, and who currently leads innovative efforts in MSD as an Associate Director for Emerging Technologies. Otakar gave a broad introduction of recent advances in AI and natural language processing (NLP) and elaborated on specific NLP technologies that may already have matured enough for practical utilization in dispute resolution: named entity recognition, document summarization, question answering, text classification, semantic entailment. Next to speak was Tomáš Polák, a data scientist with a Prague-based consultancy firm Profinit. Tomáš is also involved in efforts to apply AI&NLP methods to dispute resolution based on semantic entailment techniques. Tomáš dove into more concrete technical details of some NLP methods and explained the basic concepts behind neural networks. Specifically, Tomáš described how words and sentences can be turned into numbers and vectors before being processed by an NLP algorithm and illustrated it on the example of the TF-IDF (term frequency – inverse document frequency) scoring method applied to a search in a publicly available investment arbitration award. As he concluded, AI&NLP techniques have a lot to offer to dispute resolution users, for example by substantially reducing the time and costs needed to process large quantities of diverse documents.  However, because each dispute is factually and legally different and thus features a specific set of documents, the development of truly efficient tools requires close cooperation between tech experts and dispute lawyers whose focused and targeted feedback is needed to properly train such tools. At least until the sci-fi idea of a universal AI tool has truly materialized. The debate was closed with the remarks of Izzat-Begum B. Rajan, who has recently joined the Pharo Foundation as its COO in Africa. Izzat has experienced disputes from a multitude of perspectives in her rich professional life – as a lawyer, in-house counsel as well as a consultant and a certified trainer in mediation and alternative dispute resolution for the AKDN (not mentioning her black belt in judo). Izzat engaged in a lively brainstorming exercise and offered the audience several inspiring scenarios of the future of dispute resolution, including a world where the AI&NLP methods previously introduced drive us into a future where dispute resolution becomes partially or fully automated. Again, a lively discussion followed, centering primarily on sharing of visions for the future of dispute resolution.

All in all, the workshop has made clear that innovation in disputes is not only possible, it is already happening. But it has also made clear that real innovation is not something that dispute lawyers should just observe and wait for to happen. Improving the landscape of disputes in both tech and non-tech sense requires efforts by dispute lawyers to identify real needs of dispute users, to think of simple ways to remedy existing drawbacks, and finally, to learn to speak a common language with tech experts in order to make real and full use of what tomorrow’s world can offer.

References   [ + ]

1. ↑ Save perhaps of generic disputes related to the same topic such as disputes for non-payment of utility fees and the like. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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An Overview of Chile’s International Investment Agreement Program

Mon, 2019-07-08 03:08

Charles ('Chip') B. Rosenberg and Eduardo Bruera

Chile is one of the most dynamic states in Latin America.  The World Bank has observed that “Chile has been one of Latin America’s fastest-growing economies in recent decades”.  And foreign direct investment has increased significantly in recent years.  As investment interest in Chile grows, it is important for both investors and international law practitioners to understand Chile’s international investment agreement (“IIA”) program, particularly as it has evolved in recent years.

Notably, on February 5, 2019, the Amending Agreements to the Canada-Chile Free Trade Agreement (“CCFTA”) entered into force, updating several key provisions of the CCFTA, including in its investment chapter.  For example, the amended CCFTA now contains a dedicated article on corporate social responsibility (“CSR”) that reaffirms the parties’ commitment to globally endorsed CSR standards.  It also includes procedural enhancements to the investor-state dispute settlement mechanism with respect to a host of modern considerations, including preliminary objections, awarding of costs, ethical considerations, third-partying funding, and transparency.

The amendment of the CCFTA was in line with Chile’s IIA program in recent years.  Historically, Chile’s IIA program centered on bilateral investment treaties (“BITs”).  Between 1991 and 2000, Chile signed more than 50 BITs with states such as Bolivia, France, Germany, Malaysia, Spain, the UK, and Venezuela.  However, since 2000, Chile has signed only a handful of BITs, opting instead to concentrate on comprehensive FTAs with investment chapters.  In fact, Chile has signed at least 10 FTAs with investment chapters since 2000 with states such as Argentina, Colombia, Korea, and the United States, as well as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“CPTPP”) with Australia, Brunei, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.

The differences between Chile’s BITs and FTAs are important and worth considering.  The investment chapters in Chile’s FTAs are much more detailed than Chile’s BITs.  There also are several substantive differences that become apparent when evaluating Chile’s BIT and FTA regimes holistically.

Dual Nationals:  The vast majority of Chile’s BITs protect dual nationals.  However, a notable exception is the Germany BIT, which provides in its Protocol that the treaty “shall not apply to investors who are nationals of both Contracting Parties”.  Another exception is the Switzerland BIT, which provides that the treaty “shall not apply to investments of natural persons who are nationals of both Contracting Parties unless such persons have at the time of the investment and ever since been domiciled outside the territory of the Contracting Party in which the investment was made”.  The France BIT also contains a unique provision in its Protocol which specifies that the treaty “shall not apply to investments made by natural persons who are nationals of one of the Contracting Parties and who, at the date of investment in the . . . other Contracting Party, have their domicile in the territory of that other Contracting Party for more than five years, unless the necessary funds for the investment come from abroad”.

Several of Chile’s FTAs protect dual nationals but only if the investor satisfies the dominant and effective nationality test.  For example, the U.S. FTA provides that a “a dual national shall be deemed to be exclusively a national of the state of his/her dominant and effective nationality”.

Fair and Equitable Treatment:  Nearly all of Chile’s BITs contain fair and equitable treatment (“FET”) protections unqualified by the minimum standard of treatment under customary international law.  For example, the Croatia BIT provides that “[e]ach Contracting Party shall extend fair and equitable treatment to investments made by investors of the other Contracting Party on its territory”.  However, there are a few notable exceptions.  For example, the Uruguay BIT provides that “[e]ach Party shall accord covered investments treatment in accordance with customary international law, including fair and equitable treatment”.

By contrast, nearly all of Chile’s FTAs expressly limit the FET standard to the customary international law standard.  For example, the U.S. FTA provides that “[e]ach Party shall accord to covered investments treatment in accordance with customary international law, including fair and equitable treatment”.  The U.S. FTA specifies that “[f]or greater certainty . . . the customary international law minimum standard of treatment of aliens as the minimum standard of treatment to be afforded to covered investments” and that FET does “not require treatment in addition to or beyond that which is required by that standard, and do not create additional substantive rights”.

Umbrella Clause:  Chile generally has included umbrella clauses only in its BITs with European states.  For example, the Greece BIT provides: “Each Contracting Party shall observe any other obligation it may have entered into with regard to investments of investors of the other Contracting Party”.

None of Chile’s FTAs contain umbrella clauses, reflecting a broader trend in investment treaty practice.

Most Favored Nation (“MFN”) Clause:  The vast majority of Chile’s BITs include an MFN clause but do not specify whether the clause applies to the dispute settlement provisions in the treaty.  That said, there are two notable exceptions.  The Uruguay BIT provides that “[f]or greater certainty, the Parties agree that [the MFN clause] is not applicable to procedural or jurisdictional matters”.  Conversely, the UK BIT provides that “[f]or the avoidance of doubt it is confirmed that the [MFN] treatment . . . shall apply to the provisions of Articles 1 to 10 of this agreement”.

Several of Chile’s FTAs expressly provide that the MFN clause does not apply to dispute settlement.  For example, the Argentina FTA provides that “[f]or greater certainty, the [MFN] treatment . . . is not applicable to procedural or jurisdictional matters”.

Statute of Limitations:  Chile’s BITs rarely contain a statute of limitations.  The notable exception is the Uruguay BIT, which provides that “[n]o claim may be submitted to arbitration . . . if more than three (3) years have elapsed from the date on which the claimant had or should have been aware of the alleged violation . . . and known that the claimant . . . suffered losses or damages”.

In contrast, all of Chile’s FTAs contain a statute of limitations.  The most common term is 3 years.  The only exceptions are the Colombia FTA (39 months) and the CPTPP (3 years and 6 months).

*          *          *

Investors and international law practitioners involved with Chile related investments should understand Chile’s IIA program.  While it is foremost critical to assess and apply the language of the specific BIT or FTA at issue, understanding Chile’s IIA practice – and in particular whether Chile deviated from its IIA practice – can be an important supplementary means of interpretation to ascertain the meaning of the BIT or FTA.

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Can You Enforce an Agreement Involving Bribery? From World Duty Free v. Kenya to Vantage Deep Water Co. v. Petrobras Am., Inc.

Sat, 2019-07-06 19:17

Diogo Pereira

Discussions of corruption carry strong moral sentiments.  After all, the abuse of public office for private gain erodes people’s trust in government and institutions, makes public policies less effective and fair, and siphons taxpayers’ money away from schools, roads, and hospitals. More generally, broad-based corruption weakens the foundations of a healthy economy, degrades social norms, and undermines civic virtues.  Unsurprisingly, it is easy to provoke outrage with a nuanced or concise discussion of this issue.

 

Illegality and Corruption in Commercial and Investment Arbitration: A One-Sided Proposition?

In the context of international commercial arbitration, illegality and corruption can serve as a basis to deny jurisdiction or admissibility of a dispute, can be dispositive of claims on the merits, and can serve as a basis to deny enforcement. Arbitral practice is well developed on issues relating to illegality of underlying contracts with notable commercial cases like Fiona Trust & Holding Corp v. Privalov, which provide rich discussions of foundational arbitral principles such as kompetenz kompetenz, and severability, which are necessary for a tribunal to even entertain allegations of illegality and corruption. See Fiona Trust & Holding Corp v. Privalov, [2007] UKHL 40. Similarly, cases such as Soleimany v. Soleimany provide for the unenforceability of an arbitral award based upon a contract that was illegal in the jurisdiction of enforcement. See Soleimany v. Soleimany [1999] Q.B. 785, 798.

In investment arbitration, the number of cases involving allegations of corruption is increasing.  One of the most notable examples, which reads like a Hollywood script, is the case of World Duty Free v. Kenya. In that case, the claimant’s only witness, Mr Nassir Ibrahim Ali of Dubai, testified to the following facts relating to how the concession contract had originally been procured:

 “protocol in Kenya required that I should in addition make a “personal donation” to President Moi. … X advised me that the appropriate donation … was US$2 million. I was further advised by him that the donation should be in cash. … I brought [part of the cash in Kenyan shillings] to my meeting with President Moi in a brown briefcase. When we entered the room where the President received us, [I] put the briefcase by the wall and left it there. After the meeting [I] collected the briefcase from where [I] had left it. On the departing journey I looked in the briefcase and saw that the money had been replaced by fresh corn”.

This case was disposed of on the merits in favor of Kenya under the skilled representation of Jan Paulsson and Constantine Partasides. The tribunal noted that, due to the bribery, the respondent Kenya:

“was legally entitled to avoid and did avoid legally … the Agreement  … [and] [t]he Respondent, Kenya, did not lose its right to avoid the said contract by affirmation or otherwise … under these applicable laws;” (emphasis added)

This award, while widely commended, has not been without criticism and has raised valid concerns. While anti-corruption norms are important, legitimate concerns about fairness arise if tribunals privilege anti-corruption laws over all other normative considerations. After all, the payment of a bribe is not a unilateral act and always implicates at least two guilty parties.  Notwithstanding its pari delicto nature, it is also concerning to notice that it is usually the host states or government entities that allege corruption as a defense against allegations of their own later misconduct.1)It is important to note here that government officials who accept bribes do not necessarily do so in their official capacity and as a result their conduct is often not attributable to the State. jQuery("#footnote_plugin_tooltip_7518_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7518_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The availability of a remedy to the host state only where both are involved in the illegitimate conduct can be seen as unfair and can also create a moral hazard.  After all, a cynical State could conclude that it should encourage an act of corruption at the inception of an investment to inoculate themselves against future investor claims.

 

Vantage Deep Water Co. v. Petrobras Am., Inc.

On 17 May 2019, in Vantage Deep Water Co. v. Petrobras Am., Inc., the U.S. District Court for the Southern District of Texas (the “Court”) denied Petrobras’ effort to vacate an arbitration award obtained by Vantage Deepwater Drilling on the basis that the underlying contract was procured through bribery.

By way of background, petitioners (“Vantage”) and respondents (“Petrobras”) entered into an eight-year Agreement for the Provision of Drilling Services (“DSA”), for which performance of offshore drilling services commenced on 2 December 2012. On 27 October 2014, Vantage and Petrobras executed the Third Novation and Amendment Agreement to the DSA (“Third Novation”) which provided that all disputes were to be resolved before the International Centre for Dispute Resolution (“ICDR”) of the American Arbitration Association (“AAA”). See Vantage Deepwater Company et al v. Petrobras Americas Inc. et al, Civ. Action No. 4:18-CV-02246.

Petrobras’ premature termination of the DSA on 31 August 2015 led Vantage to commence the arbitration proceeding. During the arbitration, Petrobras argued “that the DSA was void or unenforceable for allegedly being procured through bribery”. Notwithstanding, the majority found Petrobras liable to Vantage for US$615.62 million. On 8 July 2018, Vantage petitioned the Court to confirm the final award under U.S.C. §§ 301-307. Subsequently, Petrobras filed a response opposing confirmation of the final award, arguing that it should be set-aside under two provisions of Article V of the Inter-American Convention on International Commercial Arbitration of 30 January 1975 (the “Inter-American Convention”).

Petrobras argued that Article V(2)(b)2)Article V(2)(b) allows a signatory country to refuse enforcement of an award if such enforcement would conflict with public policy. jQuery("#footnote_plugin_tooltip_7518_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7518_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); of the Inter-American Convention provides such ground to refuse enforcement because it would violate public policy to require a party to pay for damages resulting from a contract that was invalidly obtained by bribery. However, the Court noted that defenses to enforcement of the Inter-American Convention are construed narrowly and there is an “empathetic federal policy” in favor arbitral dispute resolution. Although Petrobras argued that confirming the award involving a contract procured through bribery would violate the public policy of the United States, that was not the case. The Court stated a public policy defense is only applied where enforcement would violate the forum state’s most basic notions of morality and justice. The Court here took the view that public policy did not refer to any international notion but rather should be examined with respect to Texas law. In this case, Petrobras conducted a bribery audit two months before executing the Third Novation. This, the Court explained, is evidence that Petrobras continued with recognizing the agreement with the knowledge of the bribery allegations, and thus, ratified the agreement under Texas law. Therefore, the question before the Court was whether enforcing a contract alleged to have been procured through bribery—and subsequently ratified by the non-bribing party—would violate public policy.

The Court cited further case law and explained that public policy does not favor allowing a party engaged in fraud to attempt to use fraud as a defense to a valid arbitration in favor of its alleged co-conspirator. Thus, enforcement of the final award did not violate public policy where the parties who were alleged to have mutually engaged in some misconduct during the formation of a contract, particularly when that contract was later ratified. As a result, the Court granted Vantage’s petition to confirm the arbitral award.

 

The Competing Roles of International Arbitrators

In its treatment of allegations of bribery and illegality, the District Court’s opinion in Vantage Deep Water Co. is consistent with the decisions of previous commercial and investment tribunals at both the merits and enforcement stages. Notably the tribunal in World Duty Free specifically noted that there was no subsequent affirmation of the contract in question that would have compromised the state party from avoiding the contract. Nevertheless, this case is notable in that it squarely acknowledges that a state actor or state-owned entity should not use their own misconduct as a defense, particularly when they later ratified that conduct.

The intersection of anti-corruption norms and international arbitration raises important theoretical questions about arbitration and exposes inherent tensions. Arbitration arises out of an agreement between parties, but at the same time, arbitrators must consider issues that could impact the wider public. Questions of corruption in particular straddle the line between civil and criminal law and raise questions of public interest that extend beyond the limits of party autonomy. This intersection exposes the reality that arbitration lies at the center of divergent claims of authority and arbitrators must delicately balance competing functions. As repugnant as bribery is, a finding of bribery is not necessarily dispositive of a case. International tribunals must consider various important public and private legal principles in reaching their decisions. Future cases will continue to grapple with the contours of these principles as they are fundamental and of recurring importance.

The views in this post represent the view of the author only and do not represent the view of De Almeida Pereira.  This post was prepared with the invaluable support of Wilson Carneiro, Summer Associate at De Almeida Pereira in Washington DC.

References   [ + ]

1. ↑ It is important to note here that government officials who accept bribes do not necessarily do so in their official capacity and as a result their conduct is often not attributable to the State. 2. ↑ Article V(2)(b) allows a signatory country to refuse enforcement of an award if such enforcement would conflict with public policy. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Ssangyong v. NHAI: Supreme Court of India Fixing Some Troubles, and Creating Some?

Sat, 2019-07-06 00:00

Shivansh Jolly and Sarthak Malhotra

The decision of the Supreme Court of India (“SC”) in Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India (NHAI) (“Ssansyong”), has led to three notable developments: (1) it clarifies the scope of the “public policy” ground for setting aside an award as amended by the Arbitration and Conciliation (Amendment) Act 2015 (“2015 Act”), (2) affirms the  prospective applicability of the 2015 Act and (3) adopts a peculiar approach towards recognition of minority decisions.

Facts

The dispute arose out of a contract between the parties for construction of a four-lane bypass on a National Highway in the State of Madhya Pradesh. The appellant, Ssangyong Engineering, was to be compensated under the contract for inflation in prices of components to be used in construction of the highway. The agreed method of compensation for inflated prices was the Wholesale Price Index (“WPI”) following 1993 – 1994 as the base year. However, National Highways Authority of India (“NHAI”) subsequently issued a circular revising the WPI to follow 2004 – 2005 as the base year for calculating the inflated cost, which was disputed by Ssangyong. The parties referred this dispute to a three member arbitral tribunal. The majority award upheld the revision of WPI as being within the terms of the contract. The minority decision opined otherwise, and held that the revision was de hors the contract. Aggrieved by the majority finding, Ssangyong unsuccessfully challenged the award as being against public policy before Delhi High Court, and consequently sought remedy from the SC in appeal.

Scope of “Public Policy” under Section 34

The public policy ground under Section 34 (2)(b)(ii) (challenge to domestic awards) and Section 48(2)(b) (conditions for enforcement of foreign awards) of the 1996 Act became a cause for concern due to a broad interpretation given to the phrase “fundamental policy of Indian law” by the SC in ONGC Ltd. v. Western Geco International Ltd. (“Western Geco”) – one of the three explanations given to public policy under the aforesaid provisions. This has already been discussed here. The impact of Western Geco, and later Associate Builders v. DDA (“Associate Builders”) following Western Geco, was such that “fundamental policy of Indian law” was left to be exploited for refusing enforcement to foreign awards, and allowing domestic awards to be reviewed on merits. This was changed by the 2015 amendments. The SC in the Ssangyong case held that the broad interpretation given to “fundamental policy” in Western Geco does not find place under Section 34, as amended by the 2015 Act. It relied on the 246th Report of the Law Commission of India which stated that public policy ground cannot have the same scope under Section 34 and Section 48 [para 18]. The Report further stated that even though grounds of court intervention in a domestic award ought to be wider, the same was recognized by introducing “patent illegality” in Section 34(2A) by the 2015 Act without making the same amendment to Section 48. The SC also relied on the Supplementary to the 246th Report which was released in February 2015 as a consequence of the SC’s judgments in Western Geco and Associate Builders [para 20]. The Report stated that the amendments to Section 34 ‘were suggested on the assumption that other terms such as “fundamental policy of Indian law” or conflict with “most basic notions of morality or justice” would not be widely construed.

Therefore, the SC held that the wide import given to “fundamental policy of Indian law” in Western Geco and Associate Builders is improper, and not in accordance with the intent and purpose of the amended Sections 34 and 48 of the 1996 Act [para 23]. The SC also clarified that the following interpretation be given to the respective species of public policy under Section 34(2)(b)(ii), and to “patent illegality” under Section 34(2A):

  • “fundamental policy of Indian law” – contravention of a law protecting national interest; disregarding orders of superior courts in India; principles of natural justice such as audi alteram partem (in line with Renusagar Power Co. Ltd. v. General Electric Co.) [paras 23 – 25];
  • “most basic notions of morality or justice” – the SC adopted the ratio of Associate Builders wherein it was observed that an award would be against justice and morality when it shocks the conscience of the court; morality, however, would be determined on the basis of “prevailing mores of the day” [para 24];
  • “patent illegality” – illegality which goes to the root of the matter, but excluding erroneous application of law by an arbitral tribunal or re-appreciation of evidence by an appellate court. However, this ground may be invoked if (a) no reasons are given for an award, (b) the view taken by an arbitrator is an impossible view while construing a contract, (c) an arbitrator decides questions beyond a contract or his terms of reference, and (d) if a perverse finding is arrived at based on no evidence, or overlooking vital evidence, or based on documents taken as evidence without notice of the parties [paras 26 – 30].

The SC also affirmed its findings in BCCI v. Kochi Cricket where it held that the 2015 Act amending Section 34 is entirely prospective in nature and shall apply to applications filed on or after 23.10.2015 (date of commencement of the 2015 Act), even if arbitration proceedings were commenced prior to the said date [paras 10 – 12]. This would allow parties to such arbitrations to also benefit from the findings of the SC in Ssangyong, eliminating exploitative use of “public policy” and “patent illegality” to unduly interfere with domestic and foreign awards.

Minority Decisions

The SC in Ssangyong set aside the judgments of the Single Judge and Division Bench of the Delhi High Court. It also exercised its plenary power under Article 142 of the Constitution of India to declare the minority decision as the award between the parties. Article 142 gives the SC power to make such orders which may be necessary for doing “complete justice” in a case. This power has been deliberately left undefined and elastic enough to grant suitable reliefs in a given situation [Delhi Development Authority v. Skipper Construction Company]. However, the prevailing view is that the SC cannot by-pass statutory considerations while exercising its power under Article 142 [Supreme Court Bar Association v. Union of India].

The SC’s approach in Ssangyong raises questions about the overall efficacy of the remedy available to the parties under Section 34 of the 1996 Act.

It is the prevailing position that the Act does not allow Indian courts to modify an award while dealing with a Section 34 application [Delhi Metro Rail Corporation Ltd. v. Delhi Airport Metro Express].1)An appeal against the judgment is currently pending in the Supreme Court. jQuery("#footnote_plugin_tooltip_2301_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2301_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The SC appeared to have endorsed this scheme of the Act when it observed that if the majority award was set aside, the parties would have to re-agitate their claims afresh before a new arbitral tribunal [para 49]. The Court further stated that the delay in resolution of disputes between the parties caused due to the foregoing would be contrary to the objective of 1996 Act, i.e. to promote speedy resolution of disputes. However, the Court overcame the limits prescribed under Section 34 by exercising its plenary power under Article 142 and declared the minority decision as the enforceable award between the parties.

The precedential value of this judgment is limited in light of the previous SC decision of State of Punjab v. Rafiq Masih where it observed that orders under Article 142 do not constitute a binding legal precedent. Nevertheless, it raises an important issue of the power of the Indian courts to effectively deal with an application for setting aside an award. There have been instances in the past where courts have set aside majority awards and upheld the minority decision as the award between the parties. [Modi Entertainment v. Prasar Bharati; ONGC v. Interocean Shipping]. The SC’s approach of invoking its plenary power under Article 142 to declare the minority decision as the award between the parties suggests that the approach adopted by the courts in the past to uphold minority decisions was not proper. It further appears to be against the principles enunciated by it in previous cases that Article 142 cannot lose sight of the provisions of a statute.

As such, the Ssangyong judgment appears to indicate that if a majority award is set aside by a court under Section 34 of the 1996 Act, the minority decision cannot be upheld and the parties shall have to commence arbitral proceedings afresh. On the other hand, the approach of the SC in Ssangyong may lead the parties to agitate the dispute up to the SC in the hope to revive minority decisions through Article 142 of the Constitution of India. It is therefore necessary to bring in suitable clarifications / amendments to the Act to address this uncertainty.

 

The views of the authors expressed above are purely independent, and do not necessarily reflect the views of their organisations

References   [ + ]

1. ↑ An appeal against the judgment is currently pending in the Supreme Court. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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ISDS As a Means of Addressing Challenges for the BRI in Central Asia

Thu, 2019-07-04 18:53

Tiange "Tim" Chen

Background

Since its announcement in 2013, China has invested more than US $120 billion into the target countries along the Belt and Road Initiative (“BRI”) on infrastructure projects ranging from ports and railroads to pipelines. Central Asia will become part of nearly the entire major trade corridor identified under the BRI. Hence the BRI presents a rare opportunity for Central Asian countries to attract foreign investment and to upgrade their Soviet-era infrastructure. Yet, at the Second Belt and Road Forum held in Beijing during the last weekend in April, Chinese President Xi Jinping went to great lengths to reassure foreign leaders, many of them from Central Asia, that the BRI was not a debt-trap amid growing fear of loan defaults in BRI-related projects. Specifically, Xi promised to establish a “debt-sustainability framework” and to encourage compliance with international infrastructure-contracting standards.

These reassurances notwithstanding, the debt fears associated with the BRI are very much alive and are cited by many observers as the primary basis for potential legal disputes arising out of the BRI. Particularly in Central Asia, China’s dominance in inbound FDIs and imports means that a number of Central Asian states bear an unusually high debt burden to Chinese investors.1)The Council on Foreign Relations have published an index on BRI countries’ debt to China. In 2017, debts to China represent 12.1%, 42.3%, 24.0%, 16.9% and 7.1% of GDP for Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan, respectively. jQuery("#footnote_plugin_tooltip_8559_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8559_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

This post considers challenges and solutions for these tensions and draws from the analysis presented at a panel discussion called “China’s New Route to the Silk Road: Challenges and Opportunities for the Eurasian Region” held in April 2019 in Washington, DC as part of the American Bar Association’s Section of International Law Annual Conference (“ABA Conference”). The panel consisted of Olga Boltenko (Partner, Fangda LLP – Hong Kong), Matthew Erie (Associate Professor, University of Oxford), Dmitry Lysenko (Counsel, Baker McKenzie LLP – Moscow), Richard Hoagland (former U.S. Ambassador), and Madina Tursunova (Partner, Legalmax Law Firm – Tashkent), and was moderated by Diana Tsutieva (Associate, Foley Hoag LLP – Washington, DC).

 

A. Challenges Presented by the BRI in Central Asia

Legal disputes arising in the BRI context present several unique challenges:2)As many of the challenges that BRI poses for the Central Asian countries remain uncertain, some of the panelists have interestingly drew comparisons to the experience of some Southeast Asian countries to provide some insights. For example, Sri Lanka’s handing over of the Hambantota port to a Chinese SOE for failure to pay off its debt and Malaysia’s renegotiation of its East Coast Rail Link suggested that the debt fear would only continue, and that future disputes, especially investor-state ones, would be a very likely outcome. jQuery("#footnote_plugin_tooltip_8559_2").tooltip({ tip: "#footnote_plugin_tooltip_text_8559_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

  • First, the BRI disproportionately involves state-backed players or sovereign governments themselves. At the ABA Conference, Ms. Boltenko observed that BRI projects are predominantly built by Chinese investors, and such projects are disproportionately backed by Chinese state financiers, especially the China Development Bank, the Silk Road Fund and the China EXIM Bank. On the other side, many of the projects are directly backed or guaranteed by the BRI-targeted countries, especially in Central Asia.
  • Second, legal institutions along the BRI routes are still embracing international dispute resolution. It would take time for investors to build confidence in these domestic legal systems. There are also significant challenges created by the different legal systems involved in the cross-border BRI projects. Ms. Tursunova pointed out that the BRI creates significant risks for investors because many of the large projects’ contracts are negotiated and executed separately on a country-by-country basis, meaning that investors sometimes have to fight in different fora with different countries at the same time.
  • Third, the Chinese’s preferred way of friendly consultation, rooted deeply both in culture and in its international legal instruments, remains a barrier for non-Chinese counterparts to bring the Chinese parties before an arbitration panel, rather than a negotiation table. While the Chinese Government has signed dozens of MOUs with BRI countries, these MOUs are not legally binding, and almost none of them introduce any specific or new dispute resolution mechanism. This is not unique for bilateral or multilateral agreements signed between China and Central Asian countries. As pointed out by Mr. Lysenko at the ABA Conference, no agreement within the Eurasian Union framework or any of the economic cooperation agreements between Russia and the Eurasian countries contain any form of binding dispute resolution mechanism.

 

B. Possible Solutions

Faced with these unique challenges, the choice on venues and choice of the appropriate dispute resolution mechanism are critical questions. 

 

  1. Venues for Dispute Resolution

Both China and the Central Asian countries recognize the potential of BRI disputes. China has been establishing ISDS options, including the establishment of a new International Commercial Court and CIETAC’s publication of new investment arbitration rules. At the same time, two newly established arbitration centers are filling in the vacuum in Central Asia, i.e., the Astana International Financial Centre (AIFC) and International Arbitration Centre and the Tashkent International Arbitration Centre (TIAC).

However, as discussed previously on this Blog, while the Chinese and Central Asian governments have high hopes for the value of these new institutions, many traditional challenges associated with these options, including perceived lack of trust, transparency or judicial experience, cannot be effectively addressed any time soon.

As such, it remains unlikely that major players would choose these new institutions over more established arbitration seats, given that the new institutions not only lack experience and expertise, but also could see potential difficulties for parties in enforcing their awards. In my view, the preferred venues would likely continue to be HKIAC and SIAC, where BRI-oriented programs and rules are well-established. Through its BRI Commission the ICC could also see an increased caseload based on disputes coming out of this Central Asian region.

 

  1. Protection through Regional BITs

In addition, BITs are particularly valuable for addressing cross-border disputes. As recognized by some, consistent with the rise of Chinese outbound investment and the development of BRI, Chinese investors may increasingly choose to take advantage of protection measures under international investment treaties for their investments. This trend arguably reassures Chinese investors in using dispute resolution mechanisms in BITs to resolve BRI disputes.

Within the Central Asian region, China has BITs with the following countries:

 

BIT with China Effective date Generation Central Asian countries Kazakhstan Y 1994 2nd Uzbekistan Y 2011 (updated) 3rd Kyrgyzstan Y 1995 2nd Turkmenistan Y 1995 2nd Tajikistan Y 1994 2nd Afghanistan X – – Caspian countries/regional players Russia Y 2009 3rd Turkey Y 1994 2nd Iran Y 2005 3rd Azerbaijan Y 1995 2nd Armenia Y 1995 2nd Georgia Y 1995 2nd Mongolia Y 1993 2nd

 

A key issue with the many BITs that China signed with Central Asian countries is that they are mostly the so-called 2nd generation BITs, those that was negotiated and signed by China and its partners during the 1990s after China accession to ICSID.3)See also Gallagher & Shan, China Investment Treaties: Policies and Practice, Oxford University Press 2009. jQuery("#footnote_plugin_tooltip_8559_3").tooltip({ tip: "#footnote_plugin_tooltip_text_8559_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); These 2nd generation BITs provide better protection for investors under the National Treatment standard. While 2nd generation BITs are not as toothless as the 1st generation ones, which usually cover amount-of-compensation disputes arising out of expropriation cases only, the terms of these 2nd generation BITs remain vague and are difficult to interpret. Chinese BITs also did not adopt the U.S. model of using negative lists for BIT negotiations until the late 2000s.

While these Chinese BITs, as do many legal instruments executed by the Chinese government, have their unique “Chinese characteristics”, including the emphasis on consultation and mediation, and many carve-outs for investment protections (especially in the older BITs), they do provide a framework for investors to seek relief from State actors. For example, Huawei’s recent attempt to build a case against the Czech Republic under the China-Czech BIT could be seen as a bellwether on the potential for settling BRI disputes under IIAs.

 

Concluding Thoughts

While Chinese BITs are often textually ambiguous and frequently overlooked, they do provide an available avenue for ISDS under the BRI framework. As debt fear continues and legal uncertainty persists, BIT-based dispute resolution in traditional venues might be one of the more credible choices for ISDS in the region.

References   [ + ]

1. ↑ The Council on Foreign Relations have published an index on BRI countries’ debt to China. In 2017, debts to China represent 12.1%, 42.3%, 24.0%, 16.9% and 7.1% of GDP for Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan, respectively. 2. ↑ As many of the challenges that BRI poses for the Central Asian countries remain uncertain, some of the panelists have interestingly drew comparisons to the experience of some Southeast Asian countries to provide some insights. For example, Sri Lanka’s handing over of the Hambantota port to a Chinese SOE for failure to pay off its debt and Malaysia’s renegotiation of its East Coast Rail Link suggested that the debt fear would only continue, and that future disputes, especially investor-state ones, would be a very likely outcome. 3. ↑ See also Gallagher & Shan, China Investment Treaties: Policies and Practice, Oxford University Press 2009. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Take-Aways from the Copenhagen Arbitration Day 2019

Thu, 2019-07-04 03:00

Andrew Poole

 

The Danish Institute of Arbitration (DIA) and ICC Denmark hosted Copenhagen Arbitration Day earlier this year. Discussion took place on a wide range of topics such as the criticism of arbitration, diversity and the Prague Rules.

The day began with three lunchtime seminars. The first took place at the University of Copenhagen, where four speakers focused on investment arbitration in a post-truth world.

Jan Heiner Nedden of Hanefeld Rechtsanwälte noted that the criticism of arbitration, which was centered on issues such as transparency, legitimacy and the alleged favouring of investors, was mainly based on rumours, inaccurate information and tenuous assumptions. He stated that it was up to the arbitration community to change arbitration’s reputation and highlighted that investment, rather than commercial, arbitration bore the brunt of the criticism.

Steffen Hindelang of the University of Southern Denmark supported the position that there was not an overwhelming favouring of investors in investment arbitration by showing that nearly half (47%) of the already concluded intra-EU investment arbitration cases, between 1987 and 31 July 2018, were decided in favour of a state. However, he noted that statistics could be used to argue almost any position on this.

Ole Spiermann of Bruun & Hjejle followed by noting that the statistics overlooked “no clear winner” outcomes such as if an investor were awarded less than anticipated, and so suggested that states may benefit more than what is generally perceived. He also added that the current criticism might be a reaction to the high praise of investment arbitration when it first began.

Joanna Jemielniak of the University of Copenhagen next highlighted the EU’s strong support of its Investment Court System, which is often portrayed as a response to arbitration’s criticism. However, she noted that this new system still relies heavily on existing arbitral rules. She also anticipated the importance of the CJEU opinion on the Investment Court System in the EU-Canada trade agreement, discussed in the Kluwer Arbitration Blog post here.

At the second seminar held at Gorrissen Federspiel, Henriette Gernaa discussed the importance of nationality, forum and legal traditions. She noted that international arbitral procedure could often reflect regional styles and illustrated her case by presenting different configurations regarding seat, arbitrator nationality, party nationality, etc. and queried to what extent the differences could affect factors such as disclosure, experts and tribunal proactivity. She suggested that a single international style could aid predictability for users as well as reduce the likelihood of overly regulated and extensive arbitration clauses, while emphasising that any interplay between international and regional practice should focus on what serves the users best.

The third seminar took place at Kromann Reumert, where the former president of the Danish Supreme Court, Torben Melchior, highlighted the advantages of Danish arbitration including: lower DIA costs, pro-enforcement judgments and Denmark’s top ranking in the World Justice Project’s Rule of Law Index. Frank Bøggild of Kromann Reumert then followed and spoke about the rise of M&A arbitrations owing to issues such as warranty breaches and shareholders’ liability, and the consequent increase in toughened rhetoric, horse-trading of claims and forensic expertise. He advised that topics such as discovery and standard arbitration clauses should be commonly considered when drafting M&A agreements.

After lunch, the day continued at the 17th century Old Stock Exchange. The host speakers, Steffen Pihlblad, Secretary-General of the DIA, and René Offersen of DLA Piper and of the ICC International Court of Arbitration, focused on diversity. Steffen discussed the United Nations Sustainable Development Goal 5 of gender equality, the Arbitration Pledge and that proportionally, the DIA selects more women arbitrators than parties do. René highlighted that the ICC Court has gender parity among its members for the 2018-2021 term, and that its scrutiny process supports the quality of awards, noting that awards should be “self-explanatory and convincing”.

The first keynote speech picked up on regional perspectives, with Peter Rees QC of 39 Essex Chambers providing a commentary on the Prague Rules. He highlighted that the rules state that they supplement the agreed procedure, rather than replace it (see here for a previous Kluwer Arbitration Blog post comparing the Prague Rules with the IBA Rules). However, he also remarked that the rules focused on the tribunal’s proactivity, for instance the tribunal can decide which witnesses to call and how they are examined. Regarding oral evidence in particular, he stated that any decision to limit cross-examination must be taken carefully as a tribunal needs to be sceptical about documents. In support of his case, he provided two engaging examples where witness examination had crucially changed the interpretation of the evidence.

Dan Terkildsen of Lundgrens next moderated a panel of four. Johan Tufte-Kristensen of the University of Copenhagen began by discussing confidentiality; he highlighted that different jurisdictions and institutions can vary in their approaches, and there are different degrees of confidentiality, from privilege to trade secrets to NDAs. He discussed possible solutions ranging from procedural orders to confidentiality agreements to unilateral statements. He also raised the possibility that penalties could be agreed if confidentiality were to be breached.

Anna-Maria Tamminen of Hannes Snellman followed and focused on different considerations for witness evidence. For instance, three issues which can come into play are: 1) how the evidence is gathered (whether from notes, documents or interviews); 2) who gathers the evidence (whether in-house or external counsel, with their own jurisdictions and personal styles); and 3) why the evidence is gathered (to prove facts, help the narrative or assist in understanding technical aspects?). Moreover, regarding how evidence is received, cognitive bias based on whether the claimant or the respondent called the witness could arise. The understanding of the evidence could be affected by issues such as leading or open questions, whether a tribunal tells a witness that it is acceptable to say “I don’t know”, or how counsel responds to a witness’ responses, such as by summarising or just a nod of the head. Lastly, Anna-Maria highlighted how individuals may remember facts differently. She exemplified this by starting her presentation with three reasons why she liked visiting Copenhagen, and ending the presentation by asking the audience members which reasons they had remembered.

Jon Stokholm, Justice of the Danish Supreme Court, focused on witness statements. He discussed the Danish approach of not generally having them, and of rather relying on examination-in-chief and cross-examination so that a judge is able to obtain an immediate impression of the witness. He noted that written statements could be expensive, time-consuming and restrict a witness’ memory, but was also aware that a lack of statements could lead to misunderstanding because of the limited ability to prepare. He recommended that the earlier the terms of evidence were discussed, the better, as there could be different opinions on issues such as whether the parties or the tribunal question the witness, and whether a witness statement is admitted or dismissed if it does not give rise to cross-examination.

Lastly, a technological perspective was voiced by Kasper Mortensen of Kammeradvokaten/Poul Schmith. He highlighted the finding in a 2017 ICC Commission Report on IT in international arbitration, that the absence of negative data suggested that IT use in arbitration was relatively problem-free. Regarding recognised challenges, he provided practical tips such as if a party sends out files in a non-standard format, that party should also provide software so that the recipients can read the files and if there are numerous files, to ensure that there is an appropriate filing system to facilitate identification.

Dr Inka Hanefeld of Hanefeld Rechtsanwälte gave the second keynote speech on inherent powers, which she said could both reinforce and comfort practitioners when in doubt as to what to do. She observed that there was no single accepted approach, as the need and basis of inherent powers can depend on institutional rules and jurisdictions. She also suggested that inherent powers found by tribunals can anticipate institutional rules, such as the power to effect summary proceedings under the ICC rules. She concluded by noting that the scope of inherent powers was uncertain, but she suggested that their understanding could allow for a realisation of arbitration’s full potential and counter due process paranoia (see here and here for previous Kluwer Arbitration Blog posts on inherent powers and due process paranoia, respectively).

At a dinner held at the Royal Danish Library, Georg Lett of DLA Piper ended the day with a speech on arbitrators’ impartiality, which highlighted the influence of culture and legal traditions on arbitration.

 

Concluding Remarks

Denmark bridges the legal traditions of common and civil law systems, such as by emphasising the importance of advocacy on the one hand and by limiting disclosure on the other. The international speakers and audience for the Copenhagen Arbitration Day attested to this mix of traits, and afforded a balanced hub for reflection on different arbitral practices, not least demonstrated by the Prague Rules, seen by some as a civil law response to the IBA rules’ favouring of common law. This neutral position, alongside Danes’ flair for English and the day’s success, herald strong foundations for future developments and discussion. The next edition of the day is scheduled for 2 April 2020.

 

The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of Gorrissen Federspiel.

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Colombia’s Constitutional Court Conditions Ratification of the Colombia-France BIT to the Interpretation of Several Provisions of the Treaty

Thu, 2019-07-04 01:33

Eduardo Zuleta and María Camila Rincón

In June 2019, Colombia’s Constitutional Court (the “Court”) issued a communication informing its decision on the constitutionality of the BIT between Colombia and France (the “BIT”) signed on July 10, 2014. In an unprecedented decision, the Court adjudged that the BIT is compliant with the Colombian Constitution (the “Constitution”) but conditioned its ratification to the state parties’ issuance of a joint interpretative note of several provisions, including those regarding fair and equitable treatment (“FET”), national treatment, most favored nation (“MFN”), and expropriation.

In the past, the Court subjected the approval of the FTA between Colombia and South Korea to the issuance of a unilateral interpretative declaration to interpret section A(2) of Annex 8C so as to preserve the powers of the Colombian Central Bank. However, this is the first time that the Court conditions the approval of several clauses of the BIT to the adoption of a joint interpretative declaration, or in absence thereof, to a renegotiation of the BIT.

Three out of nine justices of the Court issued dissenting opinions basically considering that the Court exceeded its constitutional powers.

 

The Court’s decision

The Court considered, generally, that the BIT is compliant with the Constitution. Nonetheless, it concluded that certain interpretations of the text of the BIT may be inconsistent with constitutional principles such as the obligation to provide equal treatment to foreign and national investors and their investments, and not to discriminate the former vis-à-vis the latter. In turn, the Court warned that to ratify the BIT, the state parties had to either adopt a joint interpretative declaration or renegotiate the treaty to comply with the decision of the Court.

 

Fair and Equitable Treatment

Article 4 of the BIT provides that:

“Each Contracting Party shall accord fair and equitable treatment in accordance with applicable international law to investors of the other Contracting Party and its investments in its territory. For greater certainty the obligation to accord fair and equitable treatment includes, inter alia:

a) the obligation not to deny justice in civil, criminal or administrative proceedings in accordance with due process;

b) the obligation to act in a transparent, non-arbitrary and discriminatory manner as regards investors from the other contracting Party and its investments”. This treatment is consistent with the principles of foreseeability and legitimate expectations (…)”.

The Court concluded that the language of this clause is vague and undetermined and therefore contradicts constitutional principles of legal certainty and good faith. Hence, this provision must be interpreted by the state parties to clarify whether “international law” refers to customary international law, treaty law, or both, and if it refers to customary international law, to which “instruments” does custom refer to. Moreover, the Court considered that the expression “inter alia” must be interpreted restrictively, in an analogical and not additive sense. Finally, it concluded that the concept of “legitimate expectations” is compliant with the Constitution only to the extent that (a) the expectations arise from specific and repeated acts carried out by the host state to induce an investor to make or maintain investments in its territory; and (b) the expectations are breached as a result of the investment being affected by abrupt and unexpected changes made by public authorities.

 

National treatment and MFN

Akin to other national treatment and MFN clauses included in multiple International Investment Agreements ratified by Colombia, Article 5 of the BIT provides that each contracting party shall grant to the investments of investors of the other contracting party made in its territory, a treatment not less favorable than that accorded, in like circumstances, to investments of its own investors or to investments of investors of another third state. According to Article 5(3) of the BIT, this obligation does not prevent the contracting parties from adopting justified, necessary and proportional measures to guarantee public order in the event of serious threats to fundamental interests of the states.

For the Court, the terms “similar circumstances” and “necessary and proportional” are vague and uncertain. According to the Court, the former must be interpreted in a way that encompasses all relevant circumstances –including differentiated treatment directed to pursue legitimate public policy objectives– and the latter should be interpreted in a way that respects the autonomy of national authorities to guarantee public order and protect legitimate public policy objectives.

Also, the Court concluded that the practice accepted by some international investment tribunals to import through the MFN clause provisions from other treaties ratified by the host state of the investment, threatens the powers of the President of Colombia to direct international relations and negotiate treaties, as embodied in Article 189.2 of the Political Constitution. Consequently, the Court declared the expression “treatment” to be compliant with the Constitution insofar as it is interpreted to preserve the competences of the President.

 

Expropriation

Article 6(2) of the BIT provides for the definition of indirect expropriation. Under this provision, a case-by-case analysis must be performed in order to determine whether a measure or series of measures adopted by one of the contracting parties constitute indirect expropriation, considering, among others, the consequences of the measure in the legitimate expectations of the investor. Furthermore, it provides that measures adopted to safeguard legitimate public policy objectives do not constitute an indirect expropriation insofar as such actions are necessary and proportional.

The Court found that the expressions “legitimate expectations” and “necessary and proportional” pose difficulties due to their vagueness and dissimilar application by international investment tribunals. Accordingly, it concluded that these terms must be interpreted under the same conditions required by the Court as regards Article 4 with respect to the concept of “legitimate expectations”, and Article 5 regarding the expression “necessary and proportional”.

 

Preliminary Comments

Although the full text of the judgment has not been released yet by the Court, the official communication reporting the decision raises several questions and comments. The following is a brief initial reaction to the official summary issued by the Court. But of course, it will be necessary to wait for the full text of the judgment to perform a full evaluation of the Court’s reasoning.

In its analysis of Article 4 of the BIT, the Court emphasized on the need to specify which are the “instruments” comprising customary international law in order to clarify the concept of “international law”. This request is far from clear. The Court seems to assume that customary international law is contained in a set of treaties or international instruments. If this is the case, the task entrusted to the contracting parties by the Court is almost impossible to comply with since there is no set of treaties or instruments that embodies customary international law.

Additionally, the Court does not explain how it comes to what appears to be its own definition of “legitimate expectations”. There is no reference in the Court’s communication to the interpretation of the BIT in the light of the Vienna Convention on the Law of Treaties (VCLT), to which both Colombia and France are parties.

As to the MFN clause contained in article 5 of the BIT, the clarifications requested by the Court seem more as requests for modifications or additions to the BIT than mere interpretative declarations. The Court demands the MFN clause to be interpreted so as to bar the possibility of importing of provisions incorporated in other international investment agreements (IIAs). While, Article 5(4) of the BIT already excludes the application of the MFN clause to import clauses of “definitions” (such as Article 1 of the BIT) or dispute settlement mechanisms incorporated in other IIAs, the BIT does not exclude substantive–or any other–provisions. Thus, the question is whether broadening the scope of limitations to the MFN clause as requested by the Court, would constitute an addition to the BIT rather than an interpretation.

This decision has dramatically changed the Court’s longstanding position regarding IIAs and may have several effects.

First, if the Parties wish to pursue the ratification of the BIT, the representatives of Colombia and France will have to negotiate again either a joint interpretative declaration or the language of the BIT. The question, of course, is whether France will follow the Court’s requests.

Second, the judgment of the Court may become evidence of state practice on how Colombia interprets provisions such as “similar circumstances” or “legitimate expectations”. For better or worse, this may have an impact on on-going and future investment arbitrations against Colombia.

Third, the Court drew a red line for Colombia in the negotiation and ratification of IIA. It is most likely that the Court will not approve similar clauses as the ones incorporated in the BIT without further interpretation. The bottom-line question is whether this judgment opens the door for the Court to impose on Colombia’s executive branch, and particularly on the President as head of the international relationships of Colombia, the Court’s views as to the contents of future IIAs.

 

Conclusion

The official communication suggests that the Court abrogated the competence to redefine the text of certain provisions of the BIT invading the competence granted to the President of Colombia by the Constitution. Furthermore, it seems that most of the interpretations requested by the Court cannot be addressed through a joint interpretative declaration but require an amendment to the treaty and therefore a new negotiation of its terms. The complete decision may, or may not, shed light on the position of the Court and on whether it exceeded its powers.

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Future Profits vs Cost: When do Tribunals Consider a Damages Claim Too Speculative?

Tue, 2019-07-02 21:30

Marion Lespiau

Recently published arbitral awards provide insight into Tribunals’ reasoning when the quantum of a claim is challenged for being too uncertain or speculative.

Typically, Claimants will not only claim costs incurred up to the date of the breach or expropriation, but they will also claim compensation for future profits in a but-for scenario. However, a recurring challenge raised by Respondents and/or their experts, in particular where a project or business has little or no track record of profits, is that future projections are too speculative, so that Claimants’ compensation should be limited to costs already incurred.

I provide below examples of recent arbitral awards where this point was raised, and I summarise the reasoning adopted by Tribunals in each case.

Generally, it appears that Tribunals use several criteria to assess future projections, including (i) the past track record of the project or business, (ii) the length of the projections, (iii) the ability to continue operating, and to operate profitably, over the projection horizon, (iv) the stability and predictability of future revenue and costs, and (v) the availability and reliability of evidence to support projections. Recent decisions show, however, that these different criteria are not weighted equally, and that Tribunals tend to focus more on future profitability than past performance.

 

Ability to generate future cash flows

Tribunals have refused to compensate investors for future profits when there was insufficient evidence that the projects could generate positive cash flows. In Bear Creek Mining Corporation v. Republic of Peru (ICSID ARB/14/21), Bear Creek, a Canadian mining company, claimed US$224.2 million in damages following the revocation in 2011 of its mining concessions for the Santa Ana silver mining project in Peru.

The concessions had been granted in 2007 and 2008. The Claimant had started exploration activities and had applied for a mining permit. The Claimant sought to prove that the project would have been able to move into the production phase but for the actions of the Respondent and claimed the fair market value of the project using the Discounted Cash Flow (DCF) method. According to the Respondent, the use of an income-based measure of value, such as DCF, would be highly speculative given that the asset was not a going concern and had no history of operations or profitability.

The Tribunal considered that the evidence presented by the Claimant was insufficient to support their claim that a hypothetical purchaser of the project would have been willing to pay a price based on DCF projections. Moreover, the Tribunal was unconvinced that there was evidence that the project had an ability to produce profits. The Tribunal awarded Bear Creek its sunk investment costs of US$18.2 million.

Similarly, in Clayton and Bilcon of Delaware Inc. vs. the Government of Canada (PCA Case No. 2009-04), the Claimants acquired in 2004 a quarry in Nova Scotia to develop alongside a marine terminal. In 2007, the project failed its governmental Environmental Assessment (EA) so could not proceed. The Claimants considered that they were unfairly treated by the Government of Canada during the EA process and filed a claim under NAFTA. The Claimants argued that their project would have passed the EA process had it been treated fairly and claimed US$443 million in compensation for future profits over the life of the project (50 years). The Respondent pointed out that the obtention of the EA was not certain and that the project may have failed anyway regardless of the NAFTA breaches.

The Tribunal found that the Claimant failed to prove there was sufficient certainty that the EA would have been granted or that the project would have been economically viable. The Tribunal awarded compensation for loss of opportunity which it estimated at US$7.0 million on the basis of costs incurred before it became clear the EA would not be obtained.

 

Stability and predictability of future cash flows

In five solar power cases against Spain, Tribunals awarded compensation for lost future profits even if the power plants did not have a long history of operations. In Eiser Infrastructure Limited and Energia Solar Luxembourg S.à.r.l vs. the Kingdom of Spain (ICSID ARB/13/36), the Claimants requested compensation for the loss in value of their investments in three Concentrated Solar Power (CSP) plants following a change in feed-in tariff incentives enacted by Spain in 2013. The plants had been operating since May 2012.

The Claimants based their calculation on the cash flows that would have been generated by the CSP plants over their useful life (40 years according to the Claimants) had the original incentive legislation been maintained. Respondent claimed that the DCF method was not appropriate due to the long time-period of the projections (25 years according to the Respondent) which made assumptions used in the DCF model highly uncertain. Instead, the Respondent relied on the Regulatory Asset Base (RAB) of the plants, i.e. the cost of building and maintaining the plants.

The Tribunal considered that power stations have a relatively simple business model, producing electricity whose demand and long-run value can be analysed and modelled in detail based on readily available data. They also noted that the plants were still in operation. The Tribunal concluded that the Claimants could be compensated for lost future profits over a 25-year period.

 

A focus on the future

Some Tribunals have put a clear emphasis on the future profitability of a project or business as opposed to their history. In the words of the Tribunal in East Mediterranean Gas S.A.E. v. Egyptian General Petroleum Corporation and Egyptian Natural Gas Holding Company and Israel Electric Corporation Ltd (ICC, 18215/GZ/MHM):

[Respondent] has, additionally, raised an objection as to the accuracy of a DCF model, given the lack of record of [Claimant]’s profitability. The Tribunal sees no reason for concern. The important fact is not whether [Claimant] can prove its profitability in the past, but rather whether it is reasonable to presume that, were it not for [Respondent]’s wrongdoing, it would have obtained a foreseeable stream of income in the future.

This approach is illustrated in Process and Industrial Developments Limited v. The Ministry of Petroleum Resources of the Federal Republic of Nigeria (January 2017). In that case, the parties entered into a 20-year Gas Supply and Processing Agreement (GSPA) in 2010, whereby Nigeria would supply Wet Gas to P&ID (the Claimant) which would process it in a newly-built facility and return it in the form of Lean Gas.

Nigeria did not make the necessary arrangements for the agreed supply of Wet Gas, including building the necessary pipelines. In March 2013, the Claimant treated this as a repudiation of the GSPA. By that date, the Claimant estimated that it had invested US$40 million in the project, although it had not yet acquired the land or built the facility.

The Claimant estimated that the project would produce a net profit of US$5 billion to US$6 billion over a 20-year period. The Respondent objected stating that the Claimant should only be entitled to nominal damages as it had not fully performed its obligations under the GSPA at the date of the repudiation. The Respondent also insisted that damages could only be awarded for a period of three years as the Claimant had a duty to mitigate its loss and it should have pursued other investment opportunities.

Despite the repudiation occurring at a very early stage of the contract, the Tribunal considered that there was no evidence that the Claimant would not have performed its obligations if it had been supplied with Wet Gas. In other words, in a but-for scenario, the evidence indicated that Claimant would have been able to operate a profitable business, and the lack of past operating history was not a decisive factor for the Tribunal in the circumstances. The Tribunal awarded full compensation over the full length of the contract, so US$6.6 billion before interest.

In conclusion, these cases illustrate the approach taken by Tribunals to decide whether the Claimants should be compensated for their future profits or only for the costs already incurred. As shown above, Tribunals tend to focus on the evidence supporting the ability of a project or business to produce future profits rather than on their past performance and rely heavily on the particular facts of each case.

 

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PRC Courts’ Stance on Requests to Stay Enforcement Proceedings Pending Challenges at the Seat of Arbitration

Mon, 2019-07-01 19:00

Tereza Gao and Edison Li

Introduction

In international arbitration, winning an award is not the end of the story.  Instead, a favorable business outcome depends on successful enforcement of the award in the jurisdiction(s) where the opponent’s assets are situated.  Unfortunately for the winning party, the losing party may delay or even avoid enforcement by raising challenges and instigating proceedings in various forums.  The winning party may be hauled up in national courts to fend off frivolous challenges, wasting valuable time and potentially allowing the losing party to dissipate its assets and evade successful enforcement.

To reduce uncertainties in the time between an award and its successful enforcement, many jurisdictions make efforts to provide clarity.  Hong Kong courts, for example, have repeatedly demonstrated reluctance in granting a temporary stay of enforcement and have conditioned any granted stay on the losing party paying security to minimize potential prejudice caused to the winning party’s interests.  Similarly, in the U.K., judicial precedents attempt to set out certain relevant factors in deciding whether to suspend enforcement proceedings.

In the People’s Republic of China (“PRC“), however, safeguards to the winning party’s enforcement interests in the face of post-award challenges are less clear.  As will be explained below, one recent case decided by the Shenzhen Intermediate People’s Court (“Shenzhen Court“) is an exemplar on this exact issue.  While this decision, like all PRC court decisions, is not binding on future cases, Hong Kong Water Solutions v. Shenzhen Tall & Stout (“Hong Kong Water Solutions“) sheds light on how PRC courts might deal with applications to suspend enforcement proceedings.

 

PRC Courts’ Discretion to Suspend Enforcement Proceedings

In the PRC, as with other New York Convention member states, the decision on whether to stay an enforcement proceeding and/or order security is a matter that lies within the court’s discretion.  Article VI of the New York Convention stipulates that:

“If an application for the setting aside or suspension of the award has been made … the authority before which the award is sought to be relied upon may … adjourn the decision on the enforcement of the award and may also … order the other party to give suitable security”.

Consistently, Article 83 of the Supreme People’s Court (“SPC“) Minutes of the Second National Working Conference on Trial of Foreign-related Commercial and Maritime Cases (2005) (“Article 83“) provides that:

“… People’s Courts may suspend recognition and enforcement proceedings of a foreign award if setting aside proceedings are pending overseas.  If [corresponding] foreign courts would not refuse to recognize and enforce the award under the same circumstances, People’s Courts shall treat the award reciprocally”. (emphasis added)

We are not aware of any case that has expressly referred to Article 83.  Neither can Article 83 form a legal basis to PRC court decisions.  Article 83 is nevertheless helpful in the sense that, by adopting the word “may,” it confirms the wide discretion of PRC courts under Article VI of the New York Convention to suspend enforcement proceedings pending setting aside proceedings overseas.

 

What Are the Factors That Are Likely to be Considered by PRC Courts Deciding Requests to Suspend Enforcement Proceedings? 

For the first time in the history of PRC court practice, in a 2018 judgment, Hong Kong Water Solutions, the Shenzhen Court refused the losing party’s application to suspend the enforcement proceeding, while the validity of the award was being challenged in the U.S.

As part of the relevant factual background, the parties submitted their dispute to an ICDR tribunal in Los Angeles.  In 2015, the tribunal entered an award favorable to Hong Kong Water Solutions (the “Award Creditor”).  Shenzhen Tall & Stout (the “Shenzhen Award Debtor”) and Taiwan Tall & Stout (the “Taiwan Award Debtor“) subsequently failed to pay the award.  In 2016, the Award Creditor applied to the Shenzhen Court for recognition and enforcement of the award against the Shenzhen Award Debtor (because it presumably had assets in the PRC).

Around the same time, the Award Creditor also applied to the Los Angeles County Superior Court (“L.A. Court“) to confirm the validity of the award, where the Taiwan Award Debtor raised objections.  Following the L.A. Court’s confirmation of the validity of the award, the Taiwan Award Debtor filed an appeal in early 2017.  During pendency of the U.S. appeal, the Shenzhen Award Debtor requested the Shenzhen Court to suspend the enforcement proceeding on the basis that the award could be annulled at the seat of arbitration.

In response, the Award Creditor applied for an order that suspension of the enforcement proceeding should only be granted on the condition that the Shenzhen Award Debtor provide security.  The Shenzhen Court, exercising its discretion under Article VI of the New York Convention, directed the Shenzhen Award Debtor to provide security in the equivalent amount of the awarded damages.  However, the Shenzhen Award Debtor failed to do so and no suspension order was made.

The Shenzhen Court subsequently recognized and enforced the award.  In refusing to suspend recognizing and enforcing the award, the Shenzhen Court considered and balanced the following factors:

  • Security: The Shenzhen Award Debtor failed to provide the security as requested.
  • Circumstances of the Annulment Proceeding: Despite the ongoing appeal, the L.A. Court had already confirmed the validity of the award. Further, while the Taiwan Award Debtor applied to annul the award, the Shenzhen Award Debtor did not make the same application in the U.S.  Evidence available was insufficient to show that the award would be set aside in any event.

This appears to be the only publicly available case in which a PRC court has been asked to suspend enforcement of an arbitral award on the basis of setting aside proceedings overseas. While it is difficult to generalize PRC court practice on suspension of enforcement proceedings based on this case alone, Hong Kong Water Solutions serves as a useful guide as to the factors that may be taken into account by PRC courts.

Among the factors to be considered, the provision of adequate security by the award debtor appears to be a prerequisite for enforcement proceedings to be suspended.  This is directly distilled from the Shenzhen Court’s reasoning, and is also consistent with the positions set out in a few provisions of law governing awards made in certain regions.  One example is Article 17 of the Provisions of the SPC on the Recognition and Enforcement of Arbitral Awards Made in Taiwan (2015), which provides that enforcement proceedings of arbitral awards made in Taiwan “shall” be suspended if the award debtor can provide both adequate security and evidence that an application for setting aside the award has been accepted by courts in Taiwan.  The same approach also applies to awards made in Macau pursuant to Article 9 of Arrangement between the Mainland and the Macau SAR on Reciprocal Recognition and Enforcement of Arbitration Awards (2007).  Thus, for awards made in Taiwan and Macau at least, and as also seen in Hong Kong Water Solutions, enforcement proceedings will unlikely be suspended if award debtors fail to meet the prerequisite by providing adequate security.

The circumstances of the setting aside proceeding at the seat of arbitration also appear to be relevant to PRC courts’ consideration in enforcement proceedings.  As shown in Hong Kong Water Solutions, in deciding whether to suspend enforcement proceedings, PRC courts may give weight to whether the award debtor raised its own challenges, whether the court at the seat has already made a ruling, and the prospect of the annulment proceedings.  Article 83 also appears to suggest similar considerations.  In addition to confirming the “discretion” to suspend enforcement proceedings as prescribed in Article VI of the New York Convention, Article 83 further requires PRC courts to “reciprocally” enforce an award if “foreign courts” (note the provision is not itself clear as to which foreign courts it refers to) would not suspend enforcement proceedings under the same circumstances.

 

Takeaway

In dealing with challenges to enforce arbitral awards, PRC courts have discretion to suspend the enforcement proceeding pursuant to Article VI of the New York Convention.  However, it remains challenging to discern, based on Hong Kong Water Solutions alone, how PRC courts will exercise their discretion and what factors are likely to be considered in suspending enforcement proceedings pending annulment proceedings overseas.  Moreover, the provisions which appear to be exactly on point either arguably do not have legislative effect or govern only awards made in specific regions.

It is yet to be seen whether any statute, SPC interpretations or guiding cases may come into effect to provide further guidance on this issue in the PRC.  It will also be interesting to see if future cases fall within the same line of reasoning as in Hong Kong Water Solutions.  The limited information available appears to suggest a trend in PRC court practice to request the provision of security as a prerequisite, among various factors, to stay enforcement proceedings pending setting aside proceedings in other jurisdictions.

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Against Indian Parties Choosing a Foreign Seat

Mon, 2019-07-01 03:20

Vishvesh Vikram and Shubham Jain

The question whether two Indian parties can choose a foreign seat of arbitration has become far too obfuscated with some recent judicial pronouncements. This article seeks to argue that the scheme of Indian Arbitration and Conciliation Act (“Act”) itself does not permit it.

In India, enforcement of arbitral awards is covered in two parts under the Act. Part I of the Act covers arbitrations with their seat in India, including international commercial arbitrations. Part II of the Act covers arbitrations which are seated outside India. Even though the Act mentions the word “place” instead of “seat”, the Supreme Court has clarified in Bharat Aluminium Company v. Kaiser Aluminium Technical Services [(2012) 9 SCC 552] that it refers to seat only, except for Section 20(3), where the word “place” refers to the venue.

International commercial arbitration is defined in terms of involvement of a party who is either a national, a resident, a body corporate, or government, of another country.

The uncertainty caused by various High Court and Supreme Court judgments on this issue has previously been discussed in detail elsewhere. The argument for allowing Indian parties to choose a foreign seat stems from two judgments – Sasan Power Limited v North American Coal Corpn India Pvt Ltd [(2016) 10 SCC 813, “Sasan Power”] and Reliance Industries Limited v Union of India[(2014) 7 SCC 603, Reliance Industries”]. In Sasan Power, the Madhya Pradesh High Court had allowed two Indian parties to choose a foreign seat. However, the Supreme Court, on appeal, clarified that the question did not expressly arise because of a foreign element in the case (NACCIPL was the subsidiary of an American company). Even in Reliance Industries, the Supreme Court did not venture into the discussion whether two Indian parties could choose a foreign seat – the judgment merely enforced an award where two Indian parties were seated outside India. On the basis of the ruling in Sasan Power, the Delhi High Court also allowed two Indian parties to choose a foreign seat in GMR Energy Limited v. Doosan Power Systems India [2017 SCC OnLine Del 11625].

For arbitrations seated in India, Section 28 requires that Indian law would be applicable as substantive law except for international commercial arbitrations. Further, Section 34 sub-clause (2A) provides that except for international commercial arbitrations, an award under Part I can be set aside if there is a patent illegality. Patent illegality has previously been defined by the Supreme Court in Associate Builders v Delhi Development Authority [(2015) 3 SCC 49] to mean a prima facie violation of Indian law, or a conclusion that no fair-minded person could reach through reasonable application of a legal provision. The proviso to sub-clause (2A) itself makes it clear that patent illegality cannot be claimed merely for erroneous application of a law or by reappreciation of evidence.

However, enforcement of foreign-seated arbitral awards under Section 48 in Part II does not require any such review. Thus, if two Indian parties are permitted to choose a foreign seat for arbitration, it would imply that they will be permitted to escape scrutiny from an allegation of patent illegality as Part II of the Act will be applicable. Compliance with the substantive law in force is not a precondition for enforcement of an award under Section 48, unless the law completely incapacitates a party or renders the arbitration agreement invalid.

Hence, the argument that two Indian parties choosing a foreign seat would still be subject to Indian law as applicable substantive law, and hence not evade it, cannot be accepted, since violation of substantive applicable law is not a ground for setting aside the award. Given that even parties with a foreign seat can opt for a venue for arbitration in India, permitting Indian parties to opt for a foreign seat may mean that two parties, without even venturing outside India’s borders, would be able to opt out of compliance with Indian law.

Such a view would result in Part I becoming a penalty for those Indian parties who fail to opt for a foreign seat, since only arbitral awards where both parties were Indian can be subjected to review of patent illegality under the present scheme of the Act.

In this case, if two Indian parties were to be permitted to opt for Part II, there would be no incentive for them to choose Part I as both the parties will be free from their obligation to comply with Indian law by simply choosing a foreign seat and thus opting for Part II. Such a view of the scheme would make Part I redundant. Furthermore, the distinction in enforceability between Part I and Part II, insofar as patent illegality is concerned, only exists to ensure that two Indian parties cannot derogate from Indian law. Hence, the scheme of the Act is clear in prohibiting Indian parties from choosing a foreign seat.

The Arbitration and Conciliation Act provides for parties undergoing international commercial arbitration to bypass domestic regulatory mechanisms. If such a scheme was to be envisioned as applicable to two Indian parties as well, then it would result in Part I becoming a penalty for Indian parties for choosing to comply with Indian law. Allowing national parties to opt out of the Indian legal system may have many adverse effects. The authors do not wish to argue for an approach which diminishes the scope for arbitration in India in general. The authors believe sufficient protection is provided to an arbitral award even under Section 34 where it cannot be set aside merely for erroneous application of law or a need for reappreciation of evidence. The authors believe that the Arbitration and Conciliation Act is pro-arbitration even though two Indian parties may not opt for a foreign seat under its scheme.

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The Contents of the Brazilian Arbitration Journal, Volume XVI, Issue 62 (June 2019)

Mon, 2019-07-01 02:00

João Bosco Lee

The present edition of the Revista Brasileira de Arbitragem [Brazilian Arbitration Journal] presents three articles in the National Doctrine section: Laura Carneiro de Mello Senra deals with the arbitrability of cases involving the remuneration of Brazilian federal public servants in which disputes against the Federal Union or a different public entity may arise; Leandro Rigueira Rennó Lima and Ana Luiz de Castro Viana comment on the importance of improving lawyers’ collaborative posture for the development of mediation in Brazil; and Thiago Marinho Nunes studies the use of arbitration as an adequate and efficient dispute resolution method in agribusiness.

In the International Doctrine section, Julia Guimarães Rossetto and Luís Alberto Salton Peretti briefly present their comments on the new international commercial arbitration acts promulgated in Argentina and in Uruguay, which have opted for a dualist system for the treatment of domestic and international arbitrations.

Turning to the National Judicial Case Law section, Guilherme Enrique Malosso Quintana analyses a ruling by the São Paulo Court of Appeal in regard to bankruptcy fraud and the use of protesto to avoid alienation of assets in the context of arbitration. In addition, Fabiane Verçosa comments on a decision by the Brazilian Superior Court of Labor addressing the delicate matter of the use of arbitration for individual labor disputes.

In the International Judicial Case Law section, Bruno Guandalini delves into a judgment of the Supreme Court of the United States on the competence for the definition of arbitrators’ jurisdiction, since Courts of Appeal from different Circuits had been adopting divergent understandings regarding the issue.

The General Matters section entails Resolution n. 4/2018 of Câmara de Conciliação, Mediação e Arbitragem Ciesp/Fiesp establishing the emergency arbitrator procedure. Furthermore, Ana Carolina Weber comments on the 1st edition of the summary of arbitral awards published by Câmara de Arbitragem do Mercado da B3 S.A. – Brasil, Bolsa, Balcão, and Rodrigo Moreira reports the highlights of the 8th ICC Brazilian Arbitration Day, held on 28 March 2019 in São Paulo.

Last but not least, the present edition presents Vitor Silveira Vieira’s review on O Dever de Revelação do Árbitro (in English, The Arbitrator’s Duty of Disclosure) by Ricardo Dalmaso Marques, and Arnaldo de Lima Borges Neto’s review of Tratado de Arbitragem (in English, Treatise on Arbitration), a commentary on the Portuguese voluntary arbitration law, by António Menezes Cordeiro.

Boa leitura arbitral!

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Interviews with Our Editors: Perspectives on Alternative Dispute Resolution from Karima Sauma, Executive Director of CICA – AmCham Costa Rica

Sat, 2019-06-29 19:02

Enrique Jaramillo (Assistant Editor for Latin America) and Kiran Nasir Gore (Associate Editor)

Welcome to the Kluwer Arbitration Blog, Ms. Sauma!  We are grateful for this opportunity to learn more about the International Center for Conciliation and Arbitration (“CICA” for its initials in Spanish), which is celebrating its twentieth anniversary this year (congratulations!), as well as about the dynamic alternative dispute resolution environment of Costa Rica. 

Thank you for this opportunity! I am delighted to be able to contribute to the Kluwer Arbitration Blog.

 

  1. To start, can you briefly introduce yourself and explain your role at CICA?

I am the Executive Director of CICA, based in San José, Costa Rica. I oversee all the Center’s activities, including our case-management services and academic and educational efforts. I am also an adjunct professor at ULACIT University in San José, and the academic director of the “Especialización en Arbitraje CICA-ULACIT”.

Previously, I worked as an Advisor with the Dispute Settlement Team of the Costa Rican Ministry of Foreign Trade, where I was part of Costa Rica’s defense team in claims filed under various treaties and free trade agreements. Prior to joining the Ministry of Foreign Trade, I worked with the international arbitration group at a large international firm in Washington, DC.

 

  1. We understand that CICA is affiliated to, but independent of the Costa Rican-American Chamber of Commerce (“AmCham Costa Rica”). How does this relationship enhance CICA’s ability to educate the arbitration community, and also to serve international and domestic users of your dispute resolution services?

CICA’s relationship with AmCham provides us with the institutional support of a solid, well-respected and long-standing organization, but at the same time, allows us to operate independently to preserve the core principles that guide arbitration. Being a part of AmCham enhances our ability to reach domestic and international users who are Chamber members and need our dispute resolution services (however, you do not need to be a Chamber member to be able to use our services).

It is also the ideal platform to educate a wider audience about alternative dispute resolution (ADR), liaise with the government and other institutions that share our mission, and look for more creative ways to provide our services. It also helps us understand better the needs of our users and allows us to deliver more tailored solutions. More importantly, it ties us to a wider network of AmChams, which has helped us in our regional appeal.

 

  1. Can you tell us more about your users and their disputes? What kinds of parties do you usually serve, and are there particular industries or types of disputes prevalent among them?   How does CICA rely upon this information to enhance its services and approach?   

The types of parties and disputes that are brought before CICA are very diverse, which is one of the great advantages of working in arbitration. Currently, the most popular issues involve construction disputes, real estate agreements, and bank loans, but the industries and topics are usually wide-ranging.

The case-load and topics are generally a reflection of the economic state of the country and the region, so it is important for us to be aware of what is going on in order to provide services that respond to our users’ needs at a particular juncture. In addition to our case-management services, we have focused on expanding our academic efforts, which include conferences and workshops that promote the use of alternative dispute resolution.

We have also seen an increase in international arbitrations that involve companies with a regional presence in Central America, so we are working to strengthen our capabilities in the region.

 

  1. In 2011, Costa Rica adopted its Law for International Arbitration (based on the 2006 UNCITRAL Model Law and available in English here). How has this development impacted CICA’s workload?

The adoption of this Law marked a turning point for arbitration in Costa Rica because it allowed us to finally manage international cases. Since then, Costa Rica has strived to become a hub for international arbitration. CICA has been at the forefront of this process, and leads the way in terms of international cases in Costa Rica. The adoption of this law also meant the need to modify certain aspects of the arbitration process that were rooted in domestic judicial proceedings. To this end, CICA, alongside leading local university ULACIT, created the first and only postgraduate degree in Costa Rica that includes courses on international arbitration. These education efforts are crucial, as they help train professionals to be better equipped at handling the increasing workload of international cases.

Additionally, CICA will unveil later this year our new Arbitration Rules, which represent a notable effort in making our processes more international.

 

  1. Aside from the leading international arbitral institutions, recent years have seen the emergence of many more regional ADR centers. From your perspective, what are the advantages to using a regionally-based ADR center for dispute resolution?  How does CICA stand out among its peers in Latin America?

There are many advantages to using a regionally-based ADR center for dispute resolution. On the one hand, CICA provides first-rate dispute resolution services at a fraction of the cost of the leading international arbitral institutions. This means that we offer high-quality work, with equally high standards, but because we are located in Costa Rica we can offer more competitive rates.

We are also more adept at dealing with the local and cultural aspects of the region, which translates into more efficient and effective processes.

Additionally, we offer a wider selection of arbitrators that have more experience in the region, and whose professional qualifications can make them better suited to hear the dispute at hand.

On the other hand, Costa Rica is a great seat for arbitrations:

  • It has a long tradition of upholding the rule of law, including solid laws that regulate domestic and international arbitrations.
  • Notably, it adopted the 2006 UNCITRAL Model Law to regulate its international arbitrations and is also a member of the New York Convention.
  • Local courts are very respectful of arbitration awards, and generally defer to the decisions of the arbitral tribunals.
  • It is a long-standing and peaceful democracy, known for its political, social and economic stability.
  • It has a very professional workforce, with plenty of experience in alternative dispute resolution.
  • It is geographically privileged, and easily accessible from all the major airports in the world.

 

  1. During the past decade we have seen a number of developments in Latin American arbitration – including an increasing aversion by some countries in the region to investment arbitration. How have these trends impacted Costa Rica generally, and CICA more specifically?

Costa Rica has a strong tradition of creating and upholding public policies that promote foreign investment. This includes the subscription of numerous international investment agreements that contain ISDS provisions. In fact, Costa Rica has faced 11 investor-State arbitrations – one of the highest numbers in Central America – which have, in turn, shed a spotlight on ISDS in the country. However, Costa Rica’s experience with these cases has generally been a positive one.

The fact that Costa Rica has had positive outcomes has assisted in limiting some of the backlash that other countries have faced regarding ISDS. However, investment arbitration cases are frequently reported on, albeit incorrectly, because they involve the government and public policies. This has resulted in the dissemination of a lot of misinformation relating to arbitration. CICA’s mission has been to counter this misinformation through publications, events and workshops that promote the use of alternative dispute resolution and educate with correct information. Additionally, CICA has sought to improve the media’s understanding of arbitration in order to have more accurate reporting.

 

  1. Earlier this year, CICA and Arbitrator Intelligence signed a historic agreement through which CICA became the first Latin American arbitral institution that will use the Arbitrator Intelligence Questionnaire (AIQ) to promote diversity, accountability, and transparency in international commercial arbitration. Can you tell us more about this initiative and how it will support CICA’s core goals?

This is a wonderful initiative that highlights some of the most important efforts that we are currently pursuing. The quality of the decision-makers is paramount to the successful resolution of any case, which is why one of our permanent concerns is to have the best arbitrators possible. The AIQs will assist us in the selection of arbitrators with verifiable data, but will also promote the inclusion of new, more diverse arbitrators, by shedding light on appointments that would otherwise go unnoticed.

At CICA we hope that using tools like the AIQ will help answer some of the users of dispute resolution services’ questions related to issues of accountability, transparency and diversity in international arbitration. We hope that this movement continues to spread to other institutions so that we can truly improve these aspects of international arbitration in a global way.

I am also currently involved with the Equal Representation in Arbitration Pledge and Young ITA (Institute for Transnational Arbitration), which are two organizations that are doing a lot for diversity and the inclusion of younger generations in arbitration. All these initiatives combined will hopefully lead us to real, lasting and positive change.

 

  1. How has CICA sought to celebrate its twentieth anniversary, and what is your vision for CICA during the next twenty years to come?

This year, we are celebrating twenty years of spearheading an ADR movement in Costa Rica and the region. We are proud of leading the way for a more peaceful and amicable way of solving conflicts and hope to continue doing so for many years to come.

Our vision for CICA for the next twenty years involves improving our services, expanding our reach, and liaising with the government and other institutions that share our mission. Specifically, regarding our case-management services, we will continue to incorporate the latest technology to improve the way that we carry out arbitration and mediation processes. Technology will continue to disrupt the way that we currently do things, and ADR is no exception. However, we look at this as an opportunity to become more creative, more efficient, and to develop new and more customizable ways of solving conflicts. Additionally, technology will enable us to expand further and reach more users from different backgrounds and geographical locations.

Additionally, we look to improve existing services by implementing new rules of arbitration (coming out later this year), diversifying our roster of arbitrators, and using more data-driven tools to create better services.

The future also requires that we develop different skillsets in response to changing times, and CICA is playing an important role in promoting and training a new generation of professionals in alternative ways of resolving conflicts and promoting peace. This includes a focus on negotiation and communication tools, as well as other creative ways of handling conflict. We are also working together with the government to develop different programs directed at public officials that will help with this mission. In the years to come, we seek to strengthen our position as an ally in the development of public policies that concern conflict resolution, justice and peace.

I can definitely say that from our point of view, the future looks busy and exciting!

 

Thank you for this opportunity.  We wish continued success to both you and CICA!

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

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The Prague Rules: A Soft Law Solution to Due Process Paranoia?

Sat, 2019-06-29 00:17

Jordan Tan and Ian Choo

The publication of the Rules on the Efficient Conduct of Proceedings in Arbitration (“Prague Rules”) on 14 December 2018 heralded a challenge to the well-established incumbent (i.e. the International Bar Association (“IBA”) Rules on the Taking of Evidence (“Evidence Rules”)) and prompted much debate amongst the arbitral community, including at least six posts on this blog,1)The previous KAB posts are available here, here, here, here, here and here. jQuery("#footnote_plugin_tooltip_9684_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9684_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); but none have quite come out in full support of it. This post suggests that there is much to celebrate about the bold new rules.

Briefly, the key differences relate to the default rules that apply when adducing evidence. While under the Evidence Rules the right to rely on documents, call fact witnesses and appoint experts generally lies with the party, under the Prague Rules parties are encouraged to avoid document production, and the tribunal (rather than the party) calls the fact witnesses and appoints the expert(s).2)For a more detailed discussion, see here and here. jQuery("#footnote_plugin_tooltip_9684_2").tooltip({ tip: "#footnote_plugin_tooltip_text_9684_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Other “novel” features not present in the Evidence Rules include having the tribunal present its preliminary views at an early stage, the principle of iura novit curia, and conferring on the tribunal the power to assist in the amicable settlement of disputes.

 

Challenging a Well-Established Incumbent

There is, of course, inertia in changing what is a well-established way of doing things. One wonders whether the criticism would be quite so strong if the Prague Rules sought to “supplant” other soft law instruments instead. Not all IBA soft law has reached the levels of the tremendous success that the Evidence Rules have. The IBA Guidelines on Conflicts of Interest (“Conflicts Guidelines”) and the IBA Guidelines on Party Representation, for instance, have a more muted reception amongst the international arbitral community. Still, because the Prague Rules invade a space where the Evidence Rules are adopted sometimes almost pro forma, the resistance to change is keener.

 

Filling the “Gap”

The oft-cited goals of soft law include “gap”-filling and harmonisation of international best practices. It is clear that the Evidence Rules sought to do that when it was first promulgated.

Similarly, the Prague Rules seek to fill a perceived “gap” in international arbitration. Cost and the lack of effective sanctions during the arbitral process against dilatory tactics remain the worst characteristics of international arbitration.3)Queen Mary University of London and White & Case LLP, 2018 International Arbitration Survey: The Evolution of International Arbitration (9 May 2018), 7, 8. jQuery("#footnote_plugin_tooltip_9684_3").tooltip({ tip: "#footnote_plugin_tooltip_text_9684_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This “gap” is filled by the Prague Rules insofar as it seeks to codify best practice in arbitral procedure on these issues.

It should be noted that the Prague Rules are far from the first soft law instrument attempting to regulate time and costs in arbitral proceedings. Institutions like the UNCITRAL (Notes on Organising Arbitral Proceedings), the ICC (Appendix IV of the ICC Arbitration Rules 2017) and the College of Commercial Arbitrators (Protocols for Expeditious, Cost-Effective Commercial Arbitration) have all issued guidelines and protocols to deal with issues of time and cost. Even law firms have pitched in – New York-based law firm Debevoise and Plimpton LLP has issued a Protocol to Promote Efficiency in International Arbitration. What is significant about the Prague Rules is that it seeks to codify a set of evidentiary rules, as opposed to being just mere techniques, to achieve this end.

Does the fact that the Prague Rules and Evidence Rules refer to themselves as “Rules” rather than “Protocols” or “Guidelines” suggest that they are of a more mandatory nature? Such a notion would be inaccurate. Rather, soft law instruments “draw their strength from their intrinsic merit and persuasive value rather than from their binding character“.4)Railroad Development Corporation v Republic of Guatemala, ICSID Case No. ARB/07/23, Decision on Provisional Measures, (Oct 15, 2008), ¶32. jQuery("#footnote_plugin_tooltip_9684_4").tooltip({ tip: "#footnote_plugin_tooltip_text_9684_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The arbitral community is a sophisticated one – time will be the ultimate arbiter of whether it gains any traction. But to deny it a chance to enter the fray at all would be unfortunate.

 

Are the Prague Rules a Panacea to Due Process Paranoia?

The specific goal of the Prague Rules, stated in both the Preamble and the Note from the Working Group, is to increase the efficiency of arbitral proceedings by encouraging a more active role for arbitral tribunals. To do so, the Prague Rules have the following notable provisions:

  1. The Arbitral Tribunal is to have wide powers of case management, including expressing its preliminary views on the case: Article 2.4.
  2. The Arbitral Tribunal and the parties are encouraged to avoid any form of document production, including e-discovery: Article 4.2.
  3. The Arbitral Tribunal may apply legal provisions not pleaded by the parties if it finds it necessary: Article 7.2.
  4. The Arbitral Tribunal and the parties should seek to resolve the dispute on a documents-only basis: Article 8.1.
  5. The Arbitral Tribunal may assist the parties in reaching an amicable settlement of the dispute at any stage of the arbitration unless one of the parties objects: Article 9.1.

At risk of over-simplification, critics have argued that the above provisions fall afoul of the principles of due process – the right to be heard and the right to an independent and impartial tribunal. Such criticism may not be appropriate for at least three reasons.

First, to the extent that the Prague Rules are adopted by the parties in its entirety, it has safeguards built in to ensure that arbitrators comply with procedural rules of natural justice.

  • The mandate of the tribunal generally under the rules already requires the tribunal to be cognizant of due process principles and ensure that they are observed and adhered to. Article 1.4 states: “[a]t all stages of the arbitration and in implementing the Prague Rules, the arbitral tribunal shall ensure fair and equal treatment of the parties and provide them with a reasonable opportunity to present their respective cases“.
  • Similarly, Article 7.2 providing for iura novit curia safeguards the parties’ due process rights by ensuring that “parties have been given an opportunity to express their views in relation to such legal authorities“.

Second, the rules are not completely radical departures from the established arbitral procedure. In fact, most of them find expression in either soft law or arbitral institutional rules.

  • Assistance in amicable settlement is a familiar concept in many arbitral jurisdictions. Article 26 of the 2018 DIS Arbitration Rules provides for the same (other examples are cited on this blog here). It is also found in international instruments like the aforementioned Appendix IV of the ICC Rules, and General Standard 4(d) of the Conflicts Guidelines clearly envisions the possibility of the arbitrator taking on such a role.
  • Iura novit curia is endorsed in Article 22.1(iii) of the LCIA Arbitration Rules (2014).
  • Avoidance of document production is envisioned under Article 25(6) of the ICC Rules, which provides that the tribunal “may decide the case solely on the documents submitted by the parties unless any of the parties request a hearing“.
  • An active role for the tribunal was also contemplated, somewhat ironically, in the Evidence Rules – Article 8.2 of the Evidence Rules provides that the tribunal “shall at all times have complete control over the Evidentiary Hearing“.

In any event, even if the criticism that so many new provisions enshrined in one combined document potentially go too far in establishing a new arbitral procedure, this can be overcome by applying the rules in a piecemeal fashion (such a view was alluded to previously here). Rules which are entirely foreign to the parties can always be opted out of, and the “standard procedure” under the Evidence Rules can apply as a fall-back.

Third, as a matter of principle, if the parties have actually agreed to the rules, it cannot be that adoption of the rules simpliciter amounts to a violation of due process. The New York Convention provides for the refusal of recognition and enforcement for both a failure to observe principles of due process (Article V(1)(b)) and a failure to respect the autonomy afforded to parties in determining arbitral procedure (Article V(1)(d)). If due process paranoia stems from a perceived reluctance by tribunals to act decisively for fear of awards being challenged, the clear mandate given to the tribunal to actively take such measures must surely militate against such fears.

This is classically illustrated by the Prague Rules themselves in situations where the power conferred to the arbitrator appears particularly contentious. For instance, the aforesaid Article 2.4(e) which allows the tribunal to express its preliminary views also states that such views cannot be taken as evidence of the tribunal’s lack of independence or impartiality and cannot constitute grounds for disqualification.

 

The Way Forward

The advent of the Prague Rules affords parties greater variety when choosing their arbitral procedure. More specifically, it articulates a framework for tribunals to play a more active role, which is likely to have the salutary benefits of discouraging dilatory and guerrilla tactics.

As both the Evidence Rules and the Prague Rules note in their preambles, they operate as “guidelines”, and are not meant to limit the inherent flexibility of arbitration. This must be correct – soft law should not be seen as “hard” law, no matter the regularity of use. In this vein, the “challenge” to the status quo also reduces the perception that arbitration has become increasingly judicialized. Arbitration has always prided itself on its inherent flexibility – the reception to the Prague Rules should be no exception.

 

The contributor Ian Choo is currently a practice trainee with Cavenagh Law LLP, which is registered as a Formal Law Alliance in Singapore with Clifford Chance Pte Ltd under the name Clifford Chance Asia. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of Clifford Chance, nor those of its clients.

 

 

References   [ + ]

1. ↑ The previous KAB posts are available here, here, here, here, here and here. 2. ↑ For a more detailed discussion, see here and here. 3. ↑ Queen Mary University of London and White & Case LLP, 2018 International Arbitration Survey: The Evolution of International Arbitration (9 May 2018), 7, 8. 4. ↑ Railroad Development Corporation v Republic of Guatemala, ICSID Case No. ARB/07/23, Decision on Provisional Measures, (Oct 15, 2008), ¶32. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Jurisdiction of Emergency Arbitrator in Investment Treaty Arbitration

Thu, 2019-06-27 19:16

Qian Wu

The use of Emergency Arbitrator (“EA”) procedure is not frequently deployed in investment treaty arbitration, compared to its success in the commercial space. Despite calls for caution, three sets of major arbitration rules have promulgated EA procedure for investment disputes, i.e., Arbitration Rules of Stockholm Chamber of Commerce (“SCC Rules”), SIAC Investment Arbitration Rules (“SIAC IA Rules”), and China International Economic and Trade Arbitration Commission International Investment Arbitration Rules (“CIETAC IA Rules”).

To date, all reported EA investment arbitration cases were conducted under the SCC Rules. Four EA decisions have been published: TSIKInvest v. Moldova (Russia-Moldova BIT), Evrobalt v. Moldova (Russia-Moldova BIT), Kompozit LLC v. Moldova (Russia-Moldova BIT) and Munshi v. Mongolia (Energy Charter Treaty (“ECT”)). At least four EA decisions have been rendered which remain confidential: JKX Oil v. Ukraine (ECT and UK-Ukraine BIT), Griffin v. Poland (Luxembourg-Poland BIT) Puma v. Benin (Belgium/Luxembourg-Benin BIT), and Okuashvili v. Georgia (Belgium/Luxembourg-Georgia BIT, UK-Georgia BIT).

This post submits that the urgency of an EA application should not override the fundamental requirement that the EA must have jurisdiction. This requirement is far from a moot point given that the interpretation of state consent is at stake, and the impact of the EA decision might be significant.

 

The Jurisdiction of EA 

A. Compétence de la Compétence of EA

The EA’s jurisdiction, just like that of an arbitral tribunal, derives from the parties’ consent to arbitrate, namely, the underlying investment treaty (and the applicable arbitration rules). As explained in Evrobalt, the EA “steps in where a tribunal is yet to be constituted” (para. 17). Only if the EA is “satisfied ‘prima facie’ that an arbitral tribunal duly constituted under the arbitration agreement relied on by the applicant may have (or perhaps would have) jurisdiction to hear the merits” could the EA consider the relief requested1)Marc J. Goldstein, A Glance into History for the Emergency Arbitrator, Fordham International Law Journal, Vol. 40(3), p. 780. jQuery("#footnote_plugin_tooltip_1460_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1460_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });.

As a further step, an EA is treated as equivalent to an arbitral tribunal under the Singapore International Arbitration Act (Cap. 143A) (“IAA”). The IAA provides, “‘arbitral tribunal’…includes an emergency arbitrator appointed pursuant to the rules of arbitration …”. Corresponding to the IAA provision, paragraph 7 of Schedule 1 of the SIAC IA Rules stipulates that the EA shall have the powers vested in the arbitral tribunal, “including the authority to rule on its own jurisdiction, without prejudice to the Tribunal’s determination”.

By assuming such role, the EA should have compétence de la compétence to define the boundaries of its own jurisdiction and conduct independent review to safeguard the consensual nature of arbitration.2)Charles N. Brower et al., The Power and Effectiveness of Pre-Arbitral Provisional Relief: The SCC Emergency Arbitrator in Investor-State Disputes, in Kaj Hobér et al. (eds.), Between East and West: Essays in Honor of Ulf Franke, Juris, 2010, p. 68. jQuery("#footnote_plugin_tooltip_1460_2").tooltip({ tip: "#footnote_plugin_tooltip_text_1460_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Yet the EA’s compétence de la compétence should be distinguished from that of an arbitral tribunal due to lack of exclusivity effect: Article 37(5) of the SCC Rules, Rule 27.2 of the SIAC IA Rules and Article 5(4) of Appendix II of the CIETAC IA Rules entitle a party to apply for interim relief from a judicial authority before the constitution of the arbitral tribunal.

 

B. Consent to EA Procedure

  1. Construed Consent

The Russia-Moldova BIT and ECT designate SCC as the arbitral institution. Both came into force before the introduction of EA procedure into the SCC Rules 2010. The issue is whether there is state consent to EA procedure.

The Evrobalt EA stated that, by virtue of the provision defining the temporal application in SCC Rules 1999 (effective at the time of ratification of Russia-Moldova BIT), the Contracting States should have contemplated that SCC Rules effective at the time an arbitration commences would be applicable. Alternatively, the standing offer to arbitrate (i.e., valid for 15 years as defined in the BIT) “should be construed as a dynamic reference to the version of the SCC Rules in effect at the time of the commencement of the arbitration” (para. 30).

That the Contracting States’ “contemplat[ed]” amendment of the SCC Rules was found by the Kompozit EA through (i) signature and ratification of the Russia-Moldova BIT (as the SCC Rules 1988 had been amended and the SCC Rules 1999 were in effect); yet (ii) no specific mention or agreement was made regarding the applicable version.

The CIETAC IA Rules, although worded differently from the SCC Rules, similarly afford room for interpretation of state consent. Article 1 of Appendix II provides that a party could apply for EA “based upon the applicable law or the agreement of the parties”. Article 46 defines “applicable law” as:

  • law or rules of law designated by the parties as applicable to the substance of the dispute; failing such designation, or such designation is in conflict with a mandatory provision of law; or
  • law or rules of law that the arbitral tribunal considers appropriate, including the domestic laws of any relevant State, any applicable rules of international law and trade custom.

Whether the designation of substantive law could manifest the consent to EA procedure could be debated.

The potential need for interpretation of state consent calls for clarification of the standard to be applied. In this regard, the Evrobalt EA emphasized the prima facie basis it adopted when upholding the applicability of SCC Rules 2010. The Kompozit EA “assume[d]” that the amendment of SCC Rules 2010 should be within the Contracting States’ expectation and sustained the deemed consent argument.

 

  1. Express Consent

The SIAC IA Rules require a distinctive agreement to EA procedure. Only if “the Parties have expressly agreed on the application of the emergency arbitrator provisions”, a party would be entitled to invoke the EA procedure under the SIAC IA Rules.

It appears that the “express agreement” does not tolerate any query to state consent. Consequently, if there is any doubt on the existence of the consent, it is likely that (i) an EA application would be rejected by the SIAC Court of Arbitration; or (ii) the EA appointed may decline its jurisdiction. The formulation tends to suggest that such consent should technically be from the disputing parties, i.e., the investor and the host state. Nevertheless, in the context of investment arbitration, it is accepted that any agreed mechanism provided in the treaty should be deemed to be chosen directly by the parties to the arbitration.

Another conceivable form of consent could be a special agreement between the investor and the host state. However, it was noted by the OECD that the government opt-in to allow investor access to EA procedure is possible but unlikely.

 

C. Ratione Materiae and Ratione Personae

These requirements have been frequently argued with various tests employed and significant time devoted. Unsurprisingly, EAs have established that the only the prima facie existence of ratione materiae and ratione personae is sufficient.

In reaching its finding, the EA “based on the submissions made by Claimant” (TSIKInvest, para. 61). Specifically, the Evrobalt EA, referring to Moldova’s response to notice of dispute, noted that “Moldova has not disputed the Claimant’s status as ‘investor’ or its qualifying ‘investment’ in Moldova” and swiftly concluded that Evrobalt had demonstrated, prima facie, that it meets the requirements.

It is worth mentioning that none of the host states in the four cases mentioned above participated in the EA proceedings. EAs accepted investor’s claimed basis for jurisdiction as true and did not conduct separate examination.

 

D. Cooling-off Period

The cooling-off period provision in the Russia-Moldova BIT was unanimously held inapplicable to the appointment of EA. As held by the TSIKInvest EA:

  • It would be procedurally unfair to TSIKInvest and contrary to the purpose of EA procedure; and
  • TSIKInvest seemed to be facing a serious risk of suffering irreparable harm before the expiry of the cooling-off period if interim measures are not granted.

The Kompozit EA highlighted the treaty language that the parties “will try, as far as possible, to resolve such dispute amicably”, noting Moldova’s refusal to engage in settlement discussions, and found that such language does not mandate the exhaustion of 6-month period.

However, such findings may not be conclusive on the issue as the applicability of the cooling-off period is essentially a question of treaty interpretation.3)Koh Swee Yen, The Use of Emergency Arbitrators in Investment Treaty Arbitration, in ICSID Review, Vol. 31(3), p. 542; see also, Joel Dahlquist, Case Comments: The First Known Investment Treaty Emergency Arbitration, Journal of World Investment & Trade, Vol. 17, Issue 2, p. 266. jQuery("#footnote_plugin_tooltip_1460_3").tooltip({ tip: "#footnote_plugin_tooltip_text_1460_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

E. Impact of Institutional Appointment of EA on EA’s Jurisdiction

Under Article 4(2) of Appendix II to the SCC Rules, “[a]n Emergency Arbitrator shall not be appointed if the SCC manifestly lacks jurisdiction over the dispute”.

In Munshi, on the heels of its finding that ratione personae, ratione materiae and state consent to EA procedure had been met, the EA stated that “[t]he Board has therefore already decided that the Emergency Arbitrator does not manifestly lack jurisdiction”, and concluded that the “Claimant has prima facie established jurisdiction …” (para. 33). Some opine that since EA application requires an immediate decision, the EA cannot defer its decision until a final determination on jurisdiction is made – therefore the registration of the application by the institution serves to satisfy this prima facie jurisdiction.4)Kyongwha Chung, Emergency Arbitrator in Investment Treaty Disputes,  accessed on 6 April 2018, pp. 31-32. jQuery("#footnote_plugin_tooltip_1460_4").tooltip({ tip: "#footnote_plugin_tooltip_text_1460_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Others however view the SCC Board’s screening function comparable to that of the ICSID Secretary General when deciding to register an ICSID case, and that it could not ground the EA’s jurisdiction.

In comparison, the SIAC IA Rules aim at avoiding possible confusion or inference as to the jurisdiction of SIAC or EA. They do not set out the threshold for appointing the EA or confer express power to the institution to decide jurisdiction through the vehicle of the EA. Paragraph 3 of Schedule 1 stipulates “[t]he Court shall, if it determines that SIAC should accept the application for emergency interim relief, seek to appoint an Emergency Arbitrator within one day…”.

 

F. Admissibility

Significantly, the Evrobalt EA noted that the EA relief request would be inadmissible if the measure sought is “with effect equivalent to (still less superior than) the definitive relief sought in the main proceedings” which “would amount to disposing of the claim on the merits” (Evrobalt, paras. 37-38). Yet, the relief in EA and that in the main arbitration proceeding must be closely related and the putative rights must “be actionable rights in the main arbitration proceedings” (Evrobalt, para. 43).

  

Jurisdictional Objection Pending EA Proceedings

There are obvious challenges for host states to mount a robust defence in EA proceedings due to factors such as the lack of developed institutional capacity to respond quickly and the potential complex analysis of state consent to EA procedure.

In the four decisions discussed, the host states did not participate in the EA proceedings. In one reported case, Griffin v. Poland, the Polish government challenged the jurisdiction of the EA on the basis that it had not consented to the application of SCC Rules 2010.

It is difficult to object to the EA jurisdiction on the grounds of ratione personae or ratione materiae as the threshold bar is low and largely fact-based. As indicated above, the EAs tend not to make an independent inquiry on the evidence proving such requirements and instead accept the Claimant’s factual assertions.

Accordingly, unless the underlying treaty has envisaged consent to EA, the host state’s first reference should be to the applicable arbitration rules. For instance, under the SIAC IA Rules, in order to apply for the EA relief, express consent is a must. Therefore, arguing the absence of express agreement is an option. The EA, if so appointed, shall examine the consent to EA procedure thoroughly while balancing the urgency of the matter and the imperative requirement to establish express state consent.

The host state may also consider raising an objection, thanks to Rule 25.1 of the SIAC IA Rules, to the existence or validity of the arbitration clause, the applicability of the SIAC IA Rules, or the competence of SIAC to administer the arbitration, and request the objection be referred to the SIAC Court of Arbitration. However, the claimant may well contend that the deliberations of the SIAC Court of Arbitration has no bearing on the pending EA proceeding unless the objection is upheld by the SIAC Court of Arbitration, because Rule 25.1 prescribes only that “[t]he arbitration shall be terminated if the Court is not so satisfied [prima facie that the arbitration shall proceed]”.

 

Concluding Remarks

The emerging application of EA in investment treaty arbitration has afforded effective emergency relief to investors, but at the same time, pose challenges to host states. The published EA decisions discussed above will play leading role in enhancing the understanding of the EA proceedings against sovereign states and their rights and options thereunder.

As potential guidance for both investors and host states, the urgency of the matter will not necessarily expose host states to EA measures if they properly raise a jurisdictional objection at the appropriate time. In this regard, the timeline for the EA procedure under the SIAC IA Rules is 14 days from the appointment of the EA unless extended by the Registrar. The SCC, for its part, allows 5 days from the date of the EA application unless extended by the SCC Board. In this way, both the SCC Rules and the SIAC IA Rules leave room for jurisdictional objection during the EA proceedings, although with different paths and timelines to respond. It shall remain to be seen how these jurisdictional objections play out as the body of EA jurisprudence continues to develop.

References   [ + ]

1. ↑ Marc J. Goldstein, A Glance into History for the Emergency Arbitrator, Fordham International Law Journal, Vol. 40(3), p. 780. 2. ↑ Charles N. Brower et al., The Power and Effectiveness of Pre-Arbitral Provisional Relief: The SCC Emergency Arbitrator in Investor-State Disputes, in Kaj Hobér et al. (eds.), Between East and West: Essays in Honor of Ulf Franke, Juris, 2010, p. 68. 3. ↑ Koh Swee Yen, The Use of Emergency Arbitrators in Investment Treaty Arbitration, in ICSID Review, Vol. 31(3), p. 542; see also, Joel Dahlquist, Case Comments: The First Known Investment Treaty Emergency Arbitration, Journal of World Investment & Trade, Vol. 17, Issue 2, p. 266. 4. ↑ Kyongwha Chung, Emergency Arbitrator in Investment Treaty Disputes,  accessed on 6 April 2018, pp. 31-32. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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