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Current Issue of the Journal of International Arbitration

Sun, 2017-03-12 17:49

Maxi Scherer

Issue 34, Volume I

ARTICLES SECTION

Ank Santens & Jaroslav Kudrna, The State of Play of Enforcement of Emergency Arbitrator Decisions

Abstract: The 2015 Queen Mary/White & Case International Arbitration Survey found that 79% of respondents considered the enforceability of emergency arbitrator decisions to be the most important factor influencing their choice between state courts and emergency arbitration when seeking urgent relief before the constitution of the arbitral tribunal. Given that the enforceability of emergency arbitrator decisions is a major concern for users of international arbitration, it is useful to explore the state of play of the enforcement of these decisions. This article provides an overview of all cases reported globally to date involving a request for enforcement of an emergency arbitrator decision and discusses key questions that arise in that context. The authors conclude by analysing the impact of the enforceability of emergency arbitrator decisions on whether users should seek emergency relief from an emergency arbitrator or a state court.

Beata Gessel-Kalinowska Vel Kalisz, UNCITRAL Model Law: Composition of the Arbitration Tribunal Re-considering the Case upon Setting Aside of the Original Arbitration Award

Abstract: In this article, the author analyses the question whether it is possible for the arbitrators, after their original award had been annulled, to sit on the arbitration tribunal hearing the case again, to reconsider the case, and to issue a second award in the same case in light of the UNCITRAL Model Law regulations. This question is addressed from two basic perspectives. The first one relates to arguments rooted in the functus officio principle, especially in reference to rectification and remission proceedings, as laid down in relevant regulations. The second perspective, meanwhile, encompasses the ethical principles and usages concerning appointment of arbitrators in international commercial arbitration, including the concept of prejudgment. In her conclusions, the author rejects a blanket prohibition on re-appointment of arbitrators, arguing that it does not duly account for all the nuances of the notion of impartiality in the context of actual practice.

Jakob B. Sorensen & Kristian Torp, The Second Look in European Union Competition Law: A Scandinavian Perspective

Abstract: Under European Union (EU) law, arbitrators and national courts are obligated to apply, ex officio, EU competition law. Also according to EU law, any failure by an arbitral tribunal to apply such rules, or any erroneous interpretation or application hereof, constitute grounds for setting aside the subsequent award, if and when such measure is dictated by the Member State’s procedural rules. This article examines the relevant procedural rules in Denmark and Sweden based on two recent decisions by the national Supreme Courts. It concludes that under Scandinavian procedural law, courts will generally limit their inquiry to a superficial review of the premises of the award and will only reluctantly set aside an otherwise valid award based only on matters of merit. The main purpose of the article is to provide an up-to-date analysis of the position of the Scandinavian courts, thus helping to ‘map’ the European arbitration landscape. Even so, we have attempted to include and contribute to a few of the main discussions concerning the landscape in which the decisions were rendered in the introductory section. In the last section, we build on the reasoning of the two Supreme Courts in order to propose a framework for understanding the interplay between national and EU law, at least in the Scandinavian countries.

César R. Ternieden, Tarek Badawy & Sarwat Abd El-Shahid, Arbitrability and Choice of Law in Transfer of Technology Agreements under Egyptian Law

Abstract: This article analyses the mandatory provisions of Article 87 of the Egyptian Trade Law of 1999 concerning the arbitration of disputes on transfer of technology agreements, and attempts to shed light on this problematic topic of Egyptian law, particularly in light of the dearth of relevant Egyptian jurisprudence. This article demonstrates the contradiction between the Egyptian Supreme Constitution Court’s view of the ‘mandatory’ nature of the Arbitration Provision of Article 87(1) and the plain language of the statutory provision, that is not synchronized with the current Egyptian Arbitration Law. Most importantly, the Supreme Constitutional Court’s judgment of 2007 is not yet finally conclusive with respect to the ‘mandatory’ nature of the arbitration provision, as it did not issue an interpretive decision. Absent the full legal consequences of an official interpretive decision by that Court, the Supreme Constitutional Court’s view should be considered obiter dictum, and parties should carefully consider pursuing the argument that the clear language of the statute dictates that they remain free to refer disputes related to transfer of technology agreements to arbitration with the seat of their choice, particularly in light of the ambiguities in the Egyptian Arbitration Law.

Philippe Hovaguimian, The Res Judicata Effects of Foreign Judgments in Post-Award Proceedings: To Bind or Not to Bind?

Abstract: This comparative analysis explores the question of preclusive effects arising from arbitration-related judgments, particularly when a foreign court has already ruled upon an issue relevant to the grounds for refusal under Article V of the 1958 New York Convention. It argues that arbitration-related judgments like exequatur or non-annulment decisions, along with the res judicata and estoppel effects arising from them, can be subject to recognition in other countries. The article thereby rejects some of the views contending that various legal obstacles stand in the way of such recognition, including its compatibility with the 1958 New York Convention. However, risks of forum shopping and undue imbalances in the parties’ rights ultimately support restricting this recognition of judgments rendered at the arbitral seat only. Such judgments should be able to preclude the re-litigation of identical issues in non-seat countries as a matter of res judicata and estoppel.

BOOK REVIEWS

International Commercial Arbitration Handbook (ed. Stephan Balthasar) (2016), reviewed by Volker Triebel

Reto Marghitola, Document Production in International Arbitration (2015), reviewed by John V.H. Pierce

Practising Virtue: Inside International Arbitration (eds. David D. Caron, Stephan W. Schill, Abby Cohen Smutny & Epaminontas E. Triantafilou), reviewed by David Pusztai & Philip Devenish

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The Winner of 2017 GAR Awards for Best Innovation?: Transparency & Diversity

Sat, 2017-03-11 23:16

Lucy Greenwood, Catherine Rogers, Mirèze Philippe and Michael McIlwrath

Last week GAR released the shortlist for its 2017 award for “best innovation by an individual or organization”. What is notable about this year’s shortlist is that of the ten innovations on the list, six directly address transparency and/or diversity in international arbitration. From an online directory of African arbitration practitioners, to the launch of “Dispute Resolution Data”, which offers 100 data points on cases heard by a variety of institutions, to a clarion call to increase the number of women appointed to tribunals, international arbitration may be finally shaking off its ‘pale, male and stale’ image. The 21st century makeover that international arbitration has needed for so long may at last be here.

We are, of course, delighted that three innovations in particular have been recognized by GAR this year: the Pledge, Puppies or Kittens and Arbitrator Intelligence. All three are close to our hearts. As champions of these three projects, we are writing this collective blog post because we believe that the process of selecting a single project as the award winner blurs the collective purpose of our work.

Each adopts a different approach and methodology, but they all three aim—individually and cooperatively—to promote diversity and transparency. For this reason we believe that, whichever innovation among the many deserving shortlisted projects actually receives the actual award at the GAR Gala in Milan, 2016 marked a year for great strides in innovations promoting Transparency and Diversity.

The Equal Representation in Arbitration Pledge was the first global initiative to address the under-representation of women in international arbitration which gained traction within the community. Not only did it chime with growing dissatisfaction with the status quo, but it was also backed by sufficient resources to garner support on a global scale. Signatories to the Pledge commit to increase, on an equal opportunity basis, the number of women appointed as arbitrators, with a view towards reaching the goal of full parity. Specifically, signatories promise to take steps to ensure that, whenever possible, committees, governing bodies and conference panels in the field of arbitration include a fair representation of women; that lists of potential arbitrators or tribunal chairs include a fair representation of female candidates; and that arbitral institutions include a fair representation of female candidates on rosters. The Pledge currently boasts 1627 signatories and anecdotally, has caused a major change in approaches to appointing female arbitrators. The Pledge Steering Committee will release a statistical analysis on the one-year anniversary of the launch of the Pledge to determine whether the Pledge has resulted in real change.

While the Pledge encourages greater consideration of diverse candidates, it is, of course, difficult to consider someone about whom little is known. Better access to information is also what the market wants. A recent study by Berwin Leighton Paisner found that a staggering 92% of respondents indicated that they would welcome more information about new and less well-known candidates, and a whopping 81% wanted to be able to provide feedback about arbitrator performance at the end of cases. The other two projects – Puppies or Kittens and Arbitration Intelligence – seek to help address this information gap.

The attraction of the article “Puppies or Kittens? How To Better Match Arbitrators To Party Expectations?”, published in the Austrian Yearbook on International Arbitration and co-authored by Michael McIlwrath, Lucy Greenwood and Ema Vidak Gojkovic, was not merely in its quirky title. A practical step towards greater transparency and diversity, the co-authors, suggested, would be for arbitrators themselves to publicly disclose their preferences with respect to certain issues relevant to the conduct of proceedings. They argued that by just answering a short questionnaire, arbitrators could help parties better select candidates that match their expectations, and, in doing so, also “promote diversity by allowing parties to better assess newer entrants and consider them alongside arbitrators whose soft skills they know through reputation and word of mouth.” The arbitrators would not be asked about their views on substantive legal issues. Rather, the Puppies or Kittens approach suggests arbitrators volunteer information on their attitudes towards issues of case management, to delegation of work to tribunal secretaries, to settlement discussions, to disclosure, and to costs, amongst others. This simple proposition stimulated debate at conferences, on list servs, at cocktail parties and in print during the year. While we are aware of only a few arbitrators who have so far adopted the proposal, what is clear is that it touched a nerve. As Lucy Greenwood says “No other industry operates by appointing skilled workers without a truly informed understanding of how they will carry out the work”.

Probably the largest-scale project currently underway is Arbitrator Intelligence (AI). AI’s stated mission is to promote transparency, fairness, and accountability in the selection of international arbitrators, and to facilitate increased diversity in arbitrator appointments. The primary means for AI to achieve these ends is its newly developed Arbitrator Intelligence Questionnaire (IQ). The purpose of the AIQ to approximate—through systematically gathered responses—the kinds of information that are currently sought by parties through ad hoc, person-to-person phone calls during the arbitrator selection process. Once collected, data from AIQ responses will be analyzed and results will made available to arbitration users, counsel, institutions, and also arbitrators through “AI Reports”.

One central premise of AI’s work is that lack of information is one of the primary impediments preventing expansion of the pool of arbitrators to include newer, and more diverse candidates. Imagine, for example, a female arbitrator who performed exceptionally well in her first few debut arbitrations. Because the arbitrations and resulting awards are confidential, her demonstrated abilities are unknown and unknowable outside that small group of parties and counsel who were directly involved in those first few cases. Future parties will only be able to consider her fully if they are lucky enough to come across one of those parties or counsel in their ad hoc research during the arbitrator selection process.

Now, reimagine that at the end of those few cases, the parties and counsel provided feedback through the AIQ about this arbitrator’s excellent case management and decision making. Imagine further that their feedback and related data analytics were then available to other parties (and institutions) who may want to consider this new arbitrator for a future case. AI believes this systematically collected information about this arbitrator’s performance will make it more feasible for parties (and institutions) to give her meaningful consideration for future appointments, and for her to compete on a meritocratic basis with other more established arbitrators.

And the Winner Is….

These three initiatives described above challenge the status quo. Each adopts a different methodology and approach. But all three, both individually and collectively (along with several other short-listed nominees), aim to help international arbitration to meet the increasingly challenging environment it confronts in the 21st Century by increasing Diversity and Transparency.

The full list of the nominations for best innovation is set out below. No matter how you vote, please sign up for the Pledge at www.arbitrationpledge.com, visit www.arbitratorintelligence.com to support the Arbitrator Intelligence Questionnaire, and (for arbitrators) be open about whether you prefer Puppies or Kittens.

The nominations for best innovation – 2017 GAR Awards
• “Dispute Resolution Data” – founded by former American Arbitration Association president Bill Slate – goes live. It offers 100 data-points on every case heard by a variety of institutions, including the ICC
• Africa International Legal Awareness unveils an online directory featuring practitioners from the continent with expertise in the field
• The launch of the Equal Representation in Arbitration Pledge – a call to increase, on an equal opportunity basis, the number of women appointed as arbitrators
• Gabrielle Kaufmann Kohler and Michele Potestà suggest that the UN Convention on Transparency in Treaty-based Investor State Arbitration (Mauritius Convention) could be basis for reform to investor-state arbitration system
• Michael McIlwrath, Lucy Greenwood and Ema Vidak Gojkovic propose that arbitrators should identify their procedural preferences and case management techniques in a questionnaire
• HKIAC offers free hearing space where at least one party to an arbitration, mediation and conciliation is listed on the OECD Development Assistance Committee List
• Sundaresh Menon suggests a role for the Chartered Institute of Arbitrators as a “robust and independent” central disciplinary body with “bite” to investigate allegations of arbitrator misconduct
• Swiss Chambers’ Arbitration Institution unveils a revolutionary new “turbo” arbitration clause allowing parties to super-expedite proceedings
• Barry Leon’s proposal for a “deemed consent” to arbitration in national bankruptcy and insolvency laws and corporate statutes
• Arbitrator Intelligence – Catherine Rogers’ initiative to level playing field when it comes to the selection of arbitrators through information and feedback on their performance

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ICCA Celebrates 40 Years of the Yearbook Commercial Arbitration

Fri, 2017-03-10 23:26

Lauren Voges

In 1976, ICCA published the first ICCA Yearbook Commercial Arbitration, compiled and edited by Professor Pieter Sanders, assisted by Professor Albert Jan van den Berg. In the introduction to this first edition, Prof. Sanders wrote, “This Yearbook is the first of a series of at least five… .” Forty years later, the Yearbook is 41 editions strong and has opened the way to other ICCA publications, notably the International Handbook on Commercial Arbitration (first published in 1984), as well as the ICCA Congress series (from 1982) and the ICCA Guide to the 1958 New York Convention (launched in 2010).

“I started the idea of ICCA Publications and the first publication was the ICCA Yearbook,” said Prof. Sanders in a 2011 interview with the current General Editor of the Yearbook and founding partner of Hanotiau & van den Berg, Albert Jan van den Berg. Prof. Sanders was appointed editor of the Yearbook during the 1975 ICCA Congress in New Delhi, or as he explained in the same interview, “I was not appointed to be the General Editor, I appointed myself!”

During its infancy, the ICCA Yearbook was a project developed almost solely by Sanders and van den Berg. In an interview published in the April 2016 ICCA Newsletter, van den Berg fondly recalls his role in shaping the Yearbook: “I became Piet Sanders’ assistant… when he returned from the ICCA Congress in New Delhi [in 1975] he told me he’d made a proposal that ICCA should produce a yearbook on commercial arbitration to report on developments in arbitration worldwide and that I should assist him.”

By 1977, van den Berg had been working on the Yearbook in the attic of Sanders’ home in Schiedam, a suburb of Rotterdam, for two years. He went on to get his doctorate at Aix-en-Provence and in 1980 went into law firm practice. Through all this, he continued to work on the Yearbook (albeit not from Sanders’ attic) and in 1986, took over the position of General Editor of ICCA Publications from Sanders.

During its 40-year lifespan, the Yearbook has grown from a series of reports on developments in commercial arbitration to a prestigious periodical that includes more than 2,000 reported decisions on the 1958 New York Convention. “The Yearbook has a wide network of loyal correspondents and contributors, which allows for the publication of court decisions from a continually increasing number of jurisdictions, some of which are applying the New York Convention for the first time,” explains Ms Silvia Borelli, Managing Editor of ICCA Publications. While many can proudly claim to have contributed to the Yearbook, few can claim a hand in the editorship of the publication. In its 40-year history, the Yearbook has had only two General Editors, Sanders, who passed away at the age of 100 in 2012, and van den Berg, and two Managing Editors, Judy Freedberg followed by Borelli, who has held the position since 2007.

When prompted for comment on the Yearbook’s 40-year anniversary, both van den Berg and Lise Bosman, ICCA Executive Director, commented on the enduring uniqueness of the Yearbook. “Quality, detail and an ever-expanding reach are its trademark,” added Borelli. Whether its unique nature or high-quality content are to thank for the Yearbook’s graceful ascent into middle age, we look forward to the next 40 years of its journey through commercial arbitration.

Are you an ICCA Member? ICCA Members are entitled to a 10% on the Yearbook Commercial Arbitration. Head to KluwerArbitration.com to order your copy.

This article was originally published on arbitration-icca.org. ICCA is a worldwide non-governmental organization (NGO) dedicated to promoting and developing arbitration, conciliation and other forms of international dispute resolution.

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The Revision of Article 257 of the UAE Penal Code: A problem also for Party-Appointed Experts?

Thu, 2017-03-09 17:36

John Gaffney

The Federal Law No. 7 of 2016 recently amended Article 257 of the UAE Penal Code to impose criminal liability on arbitrators, experts and translators who issue decisions and opinions contrary to the duties of impartiality and neutrality. The amendment became effective on 18 October 2016. As we have seen in the last few months, the international arbitration community has expressed its understandable concerns and criticisms in relation to the revision of Article 257, especially as regards its implications for arbitrators in the UAE.
What may have gone unnoticed, however, are the implications of the revision to Article 257 for party-appointed experts in arbitration proceedings. This may be because it is assumed that prior to its revision, Article 257 applied to all experts. This is not so. The former version of Article 257 applied only to court-appointed experts.
Article 257 previously stated that “[t]he expert, who, appointed by the judicial authority in a civil or criminal proceeding, asserts a fact that is contrary to the truth or gives knowingly a false interpretation thereof, shall be punishable by confinement for a minimum period of one year.” In its revised form, Article 257 now stipulates that “anyone who […] submits a report […] in favor of or against a person, in contravention of the requirements of the duty of neutrality and integrity, while acting in his capacity […] [as an expert] […] selected by the parties, shall be punished by temporary imprisonment”.
Hence, party-appointed experts in arbitration proceedings may be held criminally liable for any alleged failure to comply with the duty of neutrality and integrity stipulated in the revised Article 257. This is problematic. Generally, parties appoint experts to submit reports in order to support their claims. Thus, the recent revision to Article 257 may expose party-appointed experts more readily to criminal charges, since an obstructive party may claim that the payment by a party to that expert necessarily implies that the expert’s report will be biased in favor of that party.
Indeed, it may be argued that prima facie the payment by any party to its appointed expert in an arbitral proceeding would give rise to that expert issuing a “report […] in favor of or against a person, in contravention of the requirements of the duty of neutrality and integrity,” since party-appointed expert reports tend to favor the position of their party and contradict the position of the other party. The fact that an expert is appointed and remunerated by a party does not necessarily mean that the expert lacks independence, but the retainer of an expert may give rise to a presumption that the resulting report would contravene Article 257, which obviously would be an intended consequence of the revision.
Moreover, the scope of the expert’s duties has been extended from not “assert[ing] a fact that is contrary to the truth or gives knowingly a false interpretation” to not contravening the “the duty of neutrality and integrity” of the expert. UAE law does not define what “integrity” and “neutrality” actually mean. The absence of a definition in the UAE law thus may make it easier for an expert to be wrongly accused of acting of bias in preparing a report for the party that appointed him, even where the expert conscientiously endeavored to exercise independence in preparing his report. The revision of Article 257, thus, may be abused as an additional ground to disrupt the proceedings. This would also be regrettable.
If the recent revision of Article 257 is to be modified, as urged by the international arbitration community, it is respectfully submitted that not only should arbitrators be excluded from its scope, but also party-appointed experts.

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State Corruption in ICSID BIT Arbitration: Can it be Estopped?

Wed, 2017-03-08 17:04

Matt Reeder

ICSID tribunals have refused to hear the merits of investment treaty claims if a corrupt act was involved in contract formation, even where that corruption involved state actors. Consequently, the arbitral system—which was designed to ensure the neutral and apolitical resolution of investment disputes, inadvertently incentivizes states to “promote a corruption scheme in order to establish in advance the [corruption defense].” In an article I wrote, published at 27 American Review of International Arbitration 311, I propose a practical 3-step approach to estopping states who are complicit in the corrupt act from asserting this defense in partial reliance on their own corruption. I discuss the basic arguments supporting this approach below.

  1. Claimants must distinguish the seminal ICC case that recognized the corruption defense in the context of international arbitration.

In that case, ICC Case 1110 (1963), Judge Lagergren held that a contract between private parties in which they agreed to bribe a public official was non-arbitrable for lack of jurisdiction. Many subsequent tribunals have relied on this opinion as standing for the proposition that a successful corruption defense is a complete bar to an arbitral award. I believe that this is an overbroad interpretation of ICC Case 1110 for several reasons.

First, unlike BIT claims, Case 1110 involved a private contract which was drafted for an invalid purpose. BIT claims will always involve contracts where a government is a party, and will have a legitimate purpose—even where corruption is involved during contract formation. Second, BIT claims lack a key policy justification for completely barring claims subject to a corruption defense. As judge Lagergren pointed out, when corruption creeps into a contract, both parties accept the risk that they cannot recover if the other party breaches. In BIT arbitration, the state is almost always the defending against an investor’s claim of breach. Consequently, and unlike in case 1110, when corruption creeps into a contract formed under a BIT, only the private investor accepts the risk that it cannot recover if the state breaches. This disproportionate allocation of risk cuts against the purpose of treaty-based investment arbitration.

  1. Litigants must analogize to existing ICSID jurisprudence recognizing the estoppel doctrine.

The doctrine of estoppel is no stranger to ICSID tribunals. The Fraport tribunal pointed out that a tribunal should “hold a government estopped from raising violations of its own law as a jurisdictional defense when it knowingly overlooked them and endorsed an investment which was not in compliance with its law,” and Desert Line Projects actually applied the doctrine to a jurisdictional challenge. The Waguih case offers insight into when an ICSID tribunal might find that a state “knowingly overlooked” a material fact relating to the legality of contract formation under a BIT. There, the tribunal estopped Egypt from claiming ignorance of a fact that—if timely raised—would have been a jurisdictional bar to arbitration. Egypt was estopped because the Egyptian judiciary knew of the material fact. In reaching this conclusion, the tribunal stated as a general principle of international law that “the conduct of any State organ shall be considered an act of that State,” even when such conduct is illegal or exceeds the authority of the state organ. Claimants could strengthen their argument by demonstrating some ex post knowledge of the corrupt act giving rise to a contract and plead some sort of theory of constructive knowledge or ratification. Ionnis Kardassopoulos v. Georgia seems to support such an argument. The policy justification for ruling in such a way is also apparent. Bruce Klaw argues compellingly that BITs hold great promise for serving as tools to hold states accountable to avoid and prevent the payment or receipt of bribes.

  1. Claimants must justify a departure from the results in World Duty Free and Metal-Tech.

Both World Duty Free and Metal-Tech are much talked about ICSID decisions. World Duty Free was a contract-based claim where the ICSID refused to reach the merits because the contract was formed after bribes were paid to the Kenyan President. Metal-Tech was a BIT claim where the tribunal refused jurisdiction because pass-through “lobbyists” were used to pay bribes to Uzbek officials in order to get and keep the investment contract. To successfully estop a corrupt state’s corruption defense, litigants must justify a departure from these results.

Claimants must argue that a facially enforceable contract that was formed after some corrupt acts is not void ab initio, but is merely voidable. This echoes the argument above relating to Case 1110, emphasizing the important difference between a contract made for an illegal purpose and a contract whose formation involved an illegal act. World Duty Free provides a vehicle for this argument in its heavy reliance on Lord Mustill’s principles of avoidance.

Claimants also must argue that the acts of high-ranking government officials or a head of state should, under international law, impute knowledge to the state, as outlined in Waguih—even if the acts are is illegal or exceeds the official’s authority.

Claimants also must specifically plead estoppel. While this may seem like an obvious exhortation, the World Duty Free decision dispensed with all of the claims that were plead (which did not include estoppel) and then declined to consider any other grounds for relief.

Finally, when faced with a clear-cut case involving corruption, a claimant must abandon attempts to legitimize the corrupt conduct. Metal-Tech serves as a cautionary tale for litigants who choose this path. There, the tribunal implied that it was presented with insufficient evidence of corruption, but — as discussed previously on this blog — relied on its sua sponte evidence gathering to find that corruption was present. To avoid this result, a claimant should, in clear cases, admit that the act leading to contract formation was illegal, and in so doing, implicate the defendant state’s officials in the act. This places the defendant in the uncomfortable position of either (1) arguing that the act was lawful or (2) conceding that the act was unlawful but attempting to disclaim knowledge or responsibility in order to justify a corruption defense and rebut arguments in favor of estoppel. In this same vein, complainants should not shy away from supporting a high burden of for proving corruption. This is because the more apparent the corruption was, the harder it will likely be for a state to disclaim knowledge or responsibility for participating in or ratifying that act.

Conclusion

Given the right set of facts, and a careful litigation strategy, it seems that the time may have come for an ICSID tribunal to estop a corrupt government from relying on its own corruption as a defense to liability under the terms of a BIT. Such a result would remove the perverse incentive for states to support—or at least deliberately ignore—corruption in the context of international investment contracts and better align the practice and intent of international investment arbitration.

Of course, apportioning an award in a case involving corruption is the topic of an entirely separate conversation, potentially involving a “flexible approach” that includes restitutionary remedies and proprietary remedies….

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S.18 of the Arbitration Act 1996 – When And How To Use It – Silver Dry Bulk Co Ltd (Claimant) v Homer Hulbert Maritime Co Ltd (Respondent), 13 January 2017.

Tue, 2017-03-07 17:05

Jonas Habert

Betto Seraglini – on secondment at Enyo Law LLP

S.18 of the Arbitration Act 1996 – When And How To Use It – Silver Dry Bulk Co Ltd (Claimant) v Homer Hulbert Maritime Co Ltd (Respondent), 13 January 2017.

S. 18 of the Arbitration Act 1996 (the “Act”), on the power of the courts to appoint an arbitrator, has been portrayed in Noble Denton Middle East v Noble Denton International Ltd [2010] EWCH 2574 as a “gateway” provision.

Mr Justice Males further developed this idea in the “Silver Dry Bulk” case and noted that “[s. 18] provides a way of getting an arbitration started, or at least prevents arbitral proceedings from being aborted by a failure in the agreed appointments process, but does so without requiring the final determination of issues affecting the arbitral tribunal’s jurisdiction […] (applying the kompetenz-kompetenz principle).” The decision provides an interesting, if unusual, illustration of when and how s. 18 can be used.

Background

Silver Dry, a Maltese company, had purchased a vessel from Homer Hulbert for a price of USD 66.5 million pursuant to a Memorandum of Agreement dated 1 February 2011. Homer Hulbert was a company which had been incorporated in the Marshall Islands for the purpose of this very transaction. It was a 100% owned subsidiary of the Sinokor Group, a Korean ship owner and operator.

Silver Dry claimed that the purchase price it had paid included a secret commission to Hannibal Gadaffi who at the time of the transaction was controlling Silver Dry’s holding company, the General National Maritime Transportation Company.

In the notice of arbitration, Silver Dry appointed its arbitrator. Pursuant to the relevant arbitration clause, Homer Hulbert had 14 days to appoint its own arbitrator failing which the arbitrator designated by Silver Dry would become the sole arbitrator to determine the proceedings. This clause, which may look unusual to non English practitioners, is in fact not uncommon in maritime arbitration and simply reflects the terms of s. 17 of the Act. Homer Hulbert – having been dissolved before the serving of the notice of arbitration – did not respond to Silver Dry’s notice and the latter’s designated arbitrator therefore became the sole arbitrator.

The arbitration clause did not provide for any arbitral institution such as the ICC or the LCIA to administer the arbitration proceedings. Had the proceedings been governed by institutional rules, these rules would have remedied the issue of the appointment of the arbitrator. Because the arbitration was ad hoc, it was necessary for the parties to introduce an appointment mechanism in the clause.

The sole arbitrator held a procedural hearing which Silver Dry (as claimant) and Sinokor attended (Silver Dry had taken steps to ensure that the notice of arbitration reached Sinokor). The respondent, Homer Hulbert, did not attend. Silver Dry indicated at the procedural hearing that it might later apply to join Sinokor to the arbitration. The sole arbitrator asked Silver Dry to prepare a Memorial addressing the jurisdictional issues and the merits of its case.

Silver Dry then applied to the English courts for an order under s. 18 of the Act that an arbitral tribunal had been validly constituted to determine its dispute with Homer Hulbert.

In the normal course, the purpose of an application under s.18 is to ask the court to facilitate the constitution of the arbitration tribunal. What is unusual in this case is that Silver Dry was seeking confirmation that the appointment of the sole arbitrator was valid, as a preliminary step to joining Sinokor as a party to the proceedings.

The Decision

Justice Males (i) verified whether the arbitral tribunal would have jurisdiction to determine the issue, (ii) confirmed that Silver Dry satisfied the conditions of s. 18 of the Act itself and (iii) assessed whether he was ready to use his discretionary powers under s. 18(3).

Justice Males dismissed Silver Dry’s application for an order directing that the tribunal had been validly constituted.

(i) Would the arbitration tribunal have jurisdiction to determine the issue?

Justice Males had first to decide between conflicting cases on the standard of proof required to establish a valid arbitration agreement for the purposes of a s. 18 application. One set of case law led by the case of Noble Denton required that a good arguable case had to be proven (or an arguable case in Man Enterprise Sal v Al-Waddan Hotel Ltd [2013] EWHC 2356). A more recent case however held that a lower threshold would be more appropriate with regards to the principle of kompetenz-kompetenz (Crowther and another v Rayment and another [2015] EWHC 427).

Mr. Justice Males followed the decision of the High Court in Noble Denton regarding the standard of proof required in an application for the appointment of an arbitrator under s. 18 of the Act. Where there is an issue as to whether a tribunal has jurisdiction, the court has the power to make the orders listed in s. 18(3) of the Act if the applying party can show that it has a “good arguable case” that a tribunal would have jurisdiction to hear the case. Mr. Justice Males explained that a good arguable case is a case that is “more than merely arguable but need not be one which appears more likely than not to succeed”.

Applying this principle, Justice Males held that there was a good arguable case that Homer Hulbert continued in existence for the purpose of being a respondent in the arbitration proceeding and therefore a good arguable case that a tribunal would have jurisdiction to determine the issue. His main reason for reaching this conclusion was based on submissions made by Silver Dry in an expert report produced by a former Attorney General of the Marshall Islands who “[appeared] to be well qualified to express that opinion which has not been tested by cross-examination”. Underlining the low threshold required to make a successful application under s. 18, despite his reliance on the expert report, Justice Males noted that the arguments put forward in the expert opinion faced “formidable difficulties”.

(ii) Are the conditions required under s. 18 satisfied?

This is where Silver Dry’s application failed. Under s. 18 of the Act, the powers vested in the courts relating to the appointment of an arbitrator can only be exercised if there has been “a failure of the procedure for the appointment of the arbitral tribunal”. Justice Males held that no such failure had occurred. It was not material that Homer Hulbert had not cooperated or appointed its own arbitrator since the arbitration clause itself provided its own solution to this. The clause expressly provided that in the event of a respondent not appointing its own arbitrator within 14 days of the claimant appointing its arbitrator, the claimant’s arbitrator would become the sole arbitrator. The arbitration clause had operated in the way it was intended to since Silver Dry’s appointed arbitrator had automatically been appointed sole arbitrator.

(iii) Discretionary power of the court

Despite reaching the conclusion that the conditions under s. 18 had not been satisfied, Justice Males went on to explain why, had he held that a failure had occurred, he would not have used his discretionary power under s. 18 of the Act in any event. Justice Males commented that there was no need for an arbitrator to be appointed or for any appointment to be revoked. The sole arbitrator had been conducting the proceedings since his appointment. By means of its application, Silver Dry was attempting to obtain an endorsement from the courts of its position (i.e. that the arbitral tribunal had been validly constituted) with a view to later joining Sinokor into the arbitration proceedings. Justice Males commented that a court order determining whether or not the tribunal had been validly constituted would depend upon whether Homer Hulbert continued to have sufficient existence to be a party to the arbitration. Issuing an order holding the arbitral tribunal had been “validly constituted” would go beyond the “good arguable case” test. To hold that the arbitral tribunal had been validly constituted was therefore, an issue which needed to be decided by the arbitral tribunal.

Conclusion and remarks

A few important guidelines on s. 18 can be drawn from this decision:

– A suitably compelling expert opinion provided by a party applying to the court can be sufficient to show a “good arguable case” that a tribunal would have jurisdiction to determine the issue. Justice Males explained that Silver Dry’s arguments faced formidable difficulties but still held that there was a “good arguable case”. This also shows that the threshold is still relatively low and answers some of the worries regarding the principle of kompetenz-kompetenz expressed in Crowther v Rayment (see above).

– A failure to appoint an arbitrator in ad hoc proceedings may not amount to a failure in the appointment procedure if the arbitration clause is well worded or pre-empts the failure and provides a workable solution which was the case here.

– In any case, the courts will usually respect the power of the arbitral tribunal to decide on its own jurisdiction. s. 18 of the Act should not be used to seek a court ruling which may assert whether or not a tribunal has been validly constituted.

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Global Geopolitics and International Energy Arbitration: a Report from the 4th Annual ITA-IEL-ICC Joint Conference

Mon, 2017-03-06 23:58

Mark Stadnyk

ITA

The 4th Annual Joint Conference on International Energy Arbitration, co-hosted by the Institute for Transnational Arbitration (ITA), the Institute for Energy Law (IEL), and the International Court of Arbitration of the International Chamber of Commerce (ICC), took place on January 12-13, 2017, in Houston, Texas. Under the guidance of conference co-chairs Suzana Blades (ConocoPhillips, Houston), Juliet Blanch (independent arbitrator, London) and Jim Tancula (Mayer Brown, Chicago), panelists analyzed the many challenges and opportunities at the intersection of global geopolitics and international energy arbitration. The conference provided a unique platform for senior arbitrators and leading practitioners from energy companies, law firms, and arbitral institutions to debate a wide range of topics, including the fate of international trade treaties like the Trans-Pacific Partnership (TPP), alternative and renewable sources of energy, the call for specialized procedures for energy arbitration, and global geopolitics.

Energy Disputes in a Depressed Price Environment

A major theme permeating the conference was the impact of the low oil price environment on international energy disputes. A panel of corporate general counsel, moderated by Suzana Blades and comprising Hewitt Pate (Chevron Corporation, San Ramon), Marcia E. Backus (Occidental Petroleum, Houston), Janet Langford Carrig (ConocoPhillips, Houston), and Alan Crain (recently retired from Baker Hughes, Houston), shared their experiences addressing the challenges of a low price environment, including heightened cost sensitivities and an increasing number of disputes. Panelists highlighted the cascading effects of a material reduction in corporate legal department budgets which necessitated the adoption of cost-reducing measures (like modern e-discovery technologies to more efficiently identify and classify documents) as well as the cooperation by external counsel in reducing rates. In the panelists’ view, while there was a material increase in litigation and arbitration in the current price environment, no one type of dispute pre-dominated.

Panelists agreed that one issue requiring increased persistence and innovation in the depressed price environment is enforcement of arbitral awards. Marcia Backus, Mark Lowes (KBR, Houston), and Michael Kim (Kobre & Kim, New York/Seoul/London) shared ‘war stories’ on enforcement of major international arbitral awards and judgments. Backus gave an overview of efforts to obtain payment by Ecuador on an approximately US$ 1.1 billion award in favor of Occidental Petroleum. She highlighted the value of creative post-award settlement structuring, including exchanging discounts on the award amount for prompt cash payment and waiver of potential state immunities and other claims against Oxy in Ecuador. Lowes, for his part, focused on KBR’s long-running efforts to enforce an ICC award against Pemex. Despite annulment of the award by the courts at the seat of arbitration (Mexico), the U.S. federal appeals court for the Second Circuit recently upheld a lower court’s decision to recognize and enforce that annulled award in the U.S. Kim, whose practice includes a focus on enforcement, shared his game plan and strategy for obtaining payment. Where sophisticated commercial parties have hidden assets, Kim recommended identifying “points of consumption” (e.g., an award debtor’s home) which can then open avenues of investigation into hard-to-find networks of shell structures supporting that consumption (e.g., offshore companies paying for the home). He also counseled award creditors to educate themselves on alternatives to judicial freezing of assets, including freezing by police in certain jurisdictions. In certain jurisdictions, these alternatives may be instant or, in any event, significantly faster.

Enhancing Efficiency and Reducing Costs in Energy Disputes

Continuing with the theme of assessing the implications of the low price environment, conference participants and attendees also evaluated whether specialized arbitrators, forums, and procedures in energy arbitration could enhance efficiency and reduce costs. A panel moderated by Tomas Vail (White & Case, London) and including Professor Peter Cameron (University of Dundee), Ginny Castelan (King & Spalding, Houston), Lauren Friedman (Kirkland & Ellis, New York), and Aaron Rofkahr (Chevron Upstream, San Ramon) considered the use of specialized fora for energy disputes, lists identifying experienced energy arbitrators, and bespoke procedural rules, like time limits on rendering awards. The majority of panelists and audience members expressed skepticism about the utility of specialized institutions and rules, voicing concern that such mechanisms might not be suitable for the diverse range of disputes arising in the energy sector. To the extent that energy arbitration users desired reform – for instance, time limits on rendering arbitral awards or restrictions on document production – the panelists cautioned that such measures should build in flexibility to allow users and arbitrators to take account of the breadth and potential complexity of energy disputes.

The issue of enhancing efficiency and reducing costs also arose before another panel on managing the arbitral tribunal and process, moderated by James Tancula and comprising of Rocío Digón (ICC International Court of Arbitration, SICANA, Inc., New York), Mark Kantor (independent arbitrator, Washington), Clyde W. Lea (Reed Smith, Houston), and Dietmar W. Prager (Debevoise & Plimpton, New York). These panelists also indicated a general preference against imposing procedural limitations in an arbitration clause (e.g., limiting document production or reliance on experts) so that counsel and arbitrators would have the discretion to implement appropriate procedures on a case-by-case basis. Rocío Digón also gave an overview of the ICC’s upcoming Expedited Procedure Rules for cases under US$ 2 million, which aimed to give arbitrators and parties the tools necessary to reduce time and costs.

Taken together, the panelists and conference attendees’ preferences for preserving arbitral tribunals’ procedural flexibility suggest that the onus is on arbitrators and counsel to actively manage the arbitral process. This responsibility includes, where appropriate, considering and implementing cost- and time-saving procedural devices (such as those in the new ICC Expedited Procedure Rules) suitable to the dispute at hand.

International Trade Treaties ‘In the Pipeline’

Conference participants also devoted extensive attention to the fate of a number of international trade treaties ‘in the pipeline,’ including the TPP and the Comprehensive Economic and Trade Agreement (CETA) between the European Union and Canada. Laurence Shore (Herbert Smith Freehills, New York) delivered the conference’s “Year in Review” in which he analyzed the top 2016 developments in international energy arbitration. Shore identified the rulings and trends that will, in his view, have the most important influence on energy arbitration in 2017 and beyond. Shore contrasted the waning influence of the TPP, which was likely to be stymied by the incoming U.S. administration, with the CETA, which is going forward.

Some conference attendees viewed the push-back to the TPP, and to investor-state arbitration in treaties like the CETA, as part of a broader trend of states rejecting or seeking to circumscribe arbitration of foreign direct investment disputes. Countries like Ecuador and Bolivia have terminated a significant number of their bilateral investment treaties (BITs), and others—particularly in Latin America—have denounced the ICSID Convention. In a luncheon interview conducted by Professor Catherine A. Rogers (Penn State Law), Professor William (Rusty) W. Park (Boston University School of Law) opined that international arbitration was nevertheless in its “Golden Age,” and was not on the wane despite often-vociferous opposition and criticism. He viewed the contemporary push-back to investor-state arbitration as a part of a cyclical trend, and saw its predecessor in the 19th century “Calvo Doctrine” whereby Latin American countries, in particular, eschewed arbitration of international investment disputes. Other conference attendees and participants shared his optimism that, despite mounting opposition to investor-state arbitration and, indeed, to international trade treaties like the NAFTA, there remained a meaningful role for arbitration—both in the resolution of international trade disputes and in enhancing the rule of law.

Renewable Energy: Incentives and Arbitration

Another important topic receiving extensive attention at the conference was renewable energy. Shore, in his “Year in Review,” opined that 2016 was striking for the significant number of high-stakes energy disputes in that area, including a large number concerning nuclear and solar projects in Europe. Their outcomes will impact and define a state’s right to regulate in a number of sensitive areas, including renewable energy and climate change. Shore focused on Charanne and Construction Investments v. Spain, the first decision on the merits in a stream of disputes by solar investors against Spain, Italy, and the Czech Republic. For Shore, the partial victory for the state could set an important precedent with respect to the scope of fair and equitable treatment (FET) obligations and, in particular, whether general legislation aimed at promoting solar investment could generate legitimate expectations of stability for foreign investors that would be enforceable under the FET standard.

More broadly, these solar and nuclear cases demonstrate how international arbitration is intimately intertwined with geopolitics and states’ efforts to encourage renewable sources of energy. In the conference’s keynote presentation, Sarah Ladislaw (Center for Strategic & International Studies, Washington) discussed oil price forecasts and the influence of the geopolitical environment on the energy industry, as well as the impact of alternative or renewable energy sources on the oil and gas industry in the short and long terms. Ladislaw’s wide-ranging presentation also addressed the effect of the Paris Agreement on climate change. In her view, China and India—despite their extensive emissions—were nevertheless keen to play a leading role in developing renewable production technologies, like nuclear and solar energy, as well as in developing clean energy consumption methods, like electric cars. The large number of pending nuclear and solar arbitrations testify to arbitration’s continued role at the cutting edge of these efforts.

Conclusion

Issues at the forefront of international relations and domestic policy—openness to international trade, encouragement of renewable energy sources, cyber security—are all intertwined with the energy sector. As in years past, the conference tasked leading arbitration practitioners from a diverse range of professional backgrounds to debate technologies, doctrines, and techniques to address these and other challenges. Developments proposed for the energy sector and debated at the Houston conference can be expected to be at the cutting edge of the development of international dispute settlement.

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Jurisdiction of Investment Tribunals Over Host States’ Counterclaims: Wind of Change?

Mon, 2017-03-06 00:36

Elena Burova

The beginning of 2017 has already been remarkable to contribute to discussions regarding counterclaims in investment arbitration: two recently finalized cases against Latin America states (Urbaser et al. v The Argentine Republic, ICSID Case No ARB/07/26 ; Burlington Resources Inc. v Republic of Ecuador, ICSID Case No. ARB/08/5) provide several noteworthy points for further debates on the host states’ counterclaims towards investors.

While both the jurisdictional and merits findings in these cases worth particular attention, this post looks at them primarily from the jurisdictional perspective.

Urbaser et al. v The Argentine Republic

The counterclaim by the Argentine Republic related to the Claimants’ investment obligations under the concession contract for water and sewage services in the Province of Greater Buenos Aires. Respondent alleged that by failing to make the agreed investments, Claimants violated the principles of good faith and pacta sunt servanda under both Argentine law and international law, but more importantly – basic human rights to water and sanitation, which affected the health and the environment of people in that area. The Tribunal found itself competent to hear Argentina counterclaim, but rejected it on the merits.1)For a more detailed analysis of the merits part of the award in Urbaser from human rights perspective, see Edward Guntrip. jQuery("#footnote_plugin_tooltip_6944_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6944_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Asymmetric nature of BITs: too categorical understanding of investment treaties

First of all, the Tribunal rejected the Claimants’ objection regarding the asymmetric nature of BITs that, in the Claimants’ view, prevented a host state from invoking any right based on the BIT. Claimant asserted that since BITs do not impose obligations upon investors, a right to counterclaim ‘would run counter to the object and purpose of treaty arbitration, which is to grant the investors a one-sided right of quasi-judicial review of national regulatory action’.

The Tribunal, referring to the dispute resolution clause of the Spain-Argentina BIT:

‘Disputes arising between a Party and an investor of the other Party in connection with investments within the meaning of this Agreement shall, as far as possible, be settled amicably between the parties to the dispute’ (Article X (1))

interpreted it as not indicating that a state party cannot sue an investor in relation to a dispute concerning an investment, as opposed to dispute resolution provisions in the treaties from the arbitral decisions invoked by Claimants (eg, Roussalis v Romania; Amco v Indonesia (II)), that are more narrowly drafted. Also, in the merits part of the award, the Tribunal reiterated that such a categorical understanding of the nature of the BIT, as Claimant suggests, is wrong.

Scope of consent: not restricted without express exclusion of counterclaims agreed by both parties

The Tribunal then moved to rejecting the Claimants’ objection regarding the scope of their acceptance of the offer to arbitrate, that, according to the Claimants, was limited only to disputes arising from damage caused to their investment, ruling out any potential losses by Argentina. Noting that Claimants admitted that their acceptance did not explicitly excluded counterclaims, the Tribunal pointed out that it would be contradictory to further admit that Claimants would be able to render the right to counterclaims nonexistent merely by restricting the acceptance to their own claims.

There was no indication that the offer to submit to arbitration could be split into any parts and Article 46 ICSID Convention does not open the door for any unilateral determination of the Tribunal’s competence. Moreover, even if assuming that Claimants had restricted its acceptance of the offer in any way, this would result in no agreement being concluded between the parties to arbitration. The Tribunal probably made this conclusion based on the basic principles of contract formation (‘mirror image rule’) that an acceptance with modifications is a rejection of an offer and constitutes counteroffer.

Connection with original claims: factual link is sufficient

The Tribunal also dismissed the Claimants’ objection that the Respondent’s counterclaim had no connection with its original claims, as required under Article 46 ICSID Convention. In a manner, somewhat different from the most of the previous arbitral practice (eg., Saluka v Czech Republic; Sergei Paushok v Mongolia), it was highlighted that the factual link between original and ancillary claims would suffice to establish jurisdiction over counterclaims. This conclusion represents a considerable move from interpreting overrestrictively connection requirement as implying both legal and factual nexus and, thus, deserves welcoming.

Cooling-off periods and local courts requirement: not applicable for counterclaims

The Tribunal also addressed quite an unconventional objection to counterclaims regarding failure to comply with preliminary steps for negotiation and submission to the jurisdiction of local courts by Respondent. Pointing at the Claimants’ own failure to comply with domestic litigation requirement and its further success in arguing the irrelevance of this step, the Tribunal found it purposeless to require the same from Respondent. As regards cooling-off period for counterclaims, the Tribunal also found it unreasonable to request Respondent to attempt prior settlement, particularly, in light of the Claimant’s criticism for not raising counterclaims as soon as the arbitration commenced.

Although quite understandable under the circumstances of the case at hand, the answer to the potential objections regarding cooling-off period for counterclaims does not seem unequivocal in investment arbitration. Hypothetically, if respondent state raises counterclaims even long after the start of arbitration by claimant, it can still attempt at settling them amicably, which may also give respondent some leverage over the original claims. However, a careful look at the wording of the cooling-off period requirement is essential, as this step may be imposed only on claimants, depending on the exact formulation.

Burlington Resources Inc. v Republic of Ecuador

Ecuador raised two types of counterclaims against Claimant: environmental counterclaims related to the alleged contamination of soil and groundwater on the land sites that Claimant exploited, and infrastructure counterclaims related to the standards of maintenance of oil fields and equipment. The Tribunal granted both Respondent’s counterclaims, ordering Ecuador USD 41.7 million as a set-off for Burlington’s claims.2)For a more detailed analysis of the merits part see Jarrod Hepburn, Successful Counterclaim In Burlington v. Ecuador Breaks New Ground jQuery("#footnote_plugin_tooltip_6944_2").tooltip({ tip: "#footnote_plugin_tooltip_text_6944_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

No jurisdictional objections from claimant, but still some food for thought

In jurisdictional regard, the instant case stands out from the most of the previous investment cases dealing with counterclaims: at the outset of the proceedings Claimant committed not to raise any jurisdictional objections to Ecuador’s counterclaims. The parties to arbitration reached an agreement that they both would commit to the jurisdiction of the Tribunal over counterclaims, with the exclusion of jurisdiction of any other arbitral tribunals or national/international courts, ‘so as to ensure maximum judicial economy and consistency’.

Nevertheless, the Tribunal still examined Ecuador’s counterclaims as to its compliance with the requirements under Article 46 ICSID Convention and concluded that these conditions were met. ‘Within the scope of consent’ condition was met obviously due to the parties’ manifest agreement and ‘otherwise within the jurisdiction of the Center’ condition was met due to the compliance with Article 25 ICSID Convention.

As regards ‘arising directly out of the subject-matter of dispute’ condition, it was also met, as the counterclaims related to the same investments (in Block 7 and 21) that Claimant addressed in the principal claims. The Tribunal did not go to examine whether the counterclaim and the principal claim were based on the same legal instruments. It is possible to infer from it that the Tribunal interpreted the ‘connection’ requirement under Article 46 as implying factual nexus, rather than legal.

Key takeaways

Taken that the backgrounds in both cases are quite specific (in Urbaser – broadly worded BIT dispute resolution clause, in Burlington – the agreement regarding the jurisdiction over counterclaim between the parties), they are not likely to become game changers in the arbitral practice on the host states’ counterclaims. Nevertheless, both cases provide some important points for respondent states to take note of.

Firstly, the approaches of tribunals both in Burlington and Urbaser indicate a long-awaited move from the restrictive interpretation of connection criterion in Saluka v Czech Republic, where the Tribunal required the same legal instrument underlying both the claim of investor and the counterclaim of host state. That interpretation has been heavily criticized as leading to it being near-impossible for states to succeed with counterclaims.

Moreover, another significant step forward is the confirmation by the Tribunal in Urbaser of the principal wrongness of categorical understanding of BITS’ nature as asymmetric and only protecting investments through rights exclusively granted to investors. It was also confirmed that BITs are not international investment law in isolation, fully independent from other sources of law (both national and international) that might provide for rights the respondent can invoke before an international arbitral tribunal. The fact that the Tribunal in Burlington gave protection to Respondent’s right both under Ecuador domestic and international law is meaningful in this regard as well.

References   [ + ]

1. ↑ For a more detailed analysis of the merits part of the award in Urbaser from human rights perspective, see Edward Guntrip. 2. ↑ For a more detailed analysis of the merits part see Jarrod Hepburn, Successful Counterclaim In Burlington v. Ecuador Breaks New Ground function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors:

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Facing the Next BIT Negotiations: Argentina’s Approach to the FET Standard

Sat, 2017-03-04 17:10

Nahila Cortes

Argentina recently entered into a new Bilateral Investment Treaty with Qatar. After 15 years of absence in this type of negotiations and several claims the country faced since the economic and financial crisis of 2001, Argentina sat again in the BIT negotiation table. This was a unique opportunity for Argentina to start from scratch, and especially set the terms to balance the State’s right to regulate and the investors’ expectations. In this context, this article seeks to understand to what extent Argentina’s tumultuous investment arbitration past influenced the negotiation of this newly signed BIT (and future ones), in the sense of narrowing the investors’ standing to assert claims against the State. Did Argentina negotiate terms to narrow the space for investors to initiate frivolous claims and use expansive interpretations of the BIT? On this post, I will focus on the negotiated FET standard, which has been a popular cause of action against Argentina in recent years.

On its face, the FET clause in the Argentina-Qatar BIT (the “BIT”) shows a more restrictive approach than the ones in previous BITs entered by Argentina. Article 3.3 states that the “FET is to be interpreted and applied as the treatment provided to aliens in accordance with the principles of customary international law.” Almost all the prior BITs signed by Argentina contained an unqualified (independent) FET clauses (such as the BIT Argentina-US or Argentina-Armenia), which opened the door to debate on whether the clause should be interpreted in the light of the minimum standard of treatment (“MST”) under customary law, or in an autonomous way, on a case-by-case basis, by reference to general notions of fairness and equity. Depending on the position adopted, the legality of the State’s regulatory actions affecting a foreign investment will have different standards of approval. In the first approach, the liability threshold for the State is set very high and requires the State conduct to be egregious, outrageous, shocking, or otherwise extraordinary (Neer case). Differently, the adoption of the second approach lets the arbitrators interpret the clause with a more lenient standard, which normally translates in the search for conduct that breaches basic notions of transparency, predictability, stability, and legitimate expectations, as well as arbitrary and discriminatory conduct, thus enabling the review of wide categories of governmental actions with a lower liability threshold.

The terms of this BIT seem to restrict potential FET claims. By linking the FET provision to the MST, the BIT sets a higher liability threshold for the States’ actions affecting a foreign investment. Additionally, other provisions included in the BIT balance the State’s regulatory power with the investor’s expectations. For instance, (a) art. 4.4 denies the possibility to import through the MFN clause, FET and dispute settlement provisions accorded to investors of any third state under treaties signed by a Contracting Party prior to the entry into force of the BIT; (b) art. 10 expressly recognizes the Contracting State’s right to regulate; and (c) the preamble backs up this balance by stating that foreign investment should be consistent with the promotion of the economic development of the State, that it is the intention of the States to create and maintain favorable conditions for investment by investors of the other Contracting Party, and to encourage the sustainable development of the Contracting Parties.

Despite the above, this is not a final triumph of the State to avoid major claims under FET. Important issues surrounding the FET clause were not addressed; therefore, the text does not block potential claims that could even cast doubt on apparent negotiated balance. First, the standard on which the FET must be analyzed is not defined. There is still an ongoing discussion on whether the interpretation of the MST should be limited to the Neer and Robert Azinian cases (see also Glamis Gold and Genin), where it was held that the State’s conduct should amount to egregious or outrageous conduct, or to an evolving customary law (see Waste Management).

Second, the lack of definition and the indeterminate content of the FET might bring serious issues, even if linked with MST. Arbitrators could opt for a broad interpretation to determine the content of the provision, enabling them to review FET claims based on different factors. Originally, the content of the FET was linked to denial of justice or extreme abuse of persons. The sources to determine the content of the MST relied on the pronouncement of mixed commissions that emphasized in these two factors. Afterwards, the concept evolved and arbitrators started to consider the investor’s legitimate expectations within the analysis of FET and expanded the interpretation of the content. Nowadays, there are several factors that are likely to be analyzed to determine if there has been a breach of the FET. In Lemire v. Ukraine, the tribunal considered several factors such as whether the State failed to offer a stable and predictable framework; made specific representations to investors; denied due process to investors; did not provide transparency in the legal procedure or in State’s actions of State; acted either in a way that evidenced abuse of power, coercion or other bad faith conduct; or in an arbitrary, discriminatory or inconsistent way.

Moreover, a broad interpretation on the content and factors to analyze under the FET umbrella diminishes the stringency of the MST (if we consider the MST from the Neer case viewpoint). The Neer case can be helpful to analyze a FET claim based on denial of justice, but the Neer’s lens won’t help much to analyze other factors, such as legitimate expectations, which is becoming a strong factor under which investors are relying. Consequently, there might be a tendency to make the MST more flexible under certain factors (e.g. legitimate expectations and transparency), thus reducing the threshold for the State’s responsibility. In the effort to limit a broad interpretation and guide arbitrators to stick to the MST, some BITs such as US Model BIT or US-Uruguay BIT links the FET provision to MST and expressly includes “denial of justice” as an example of a breach of FET.

Finally, this BIT (as in most BITs) set forth neither the consequences of a breach of the FET nor the consequential provisions for reparation. Besides from the ILC Draft Articles on State Responsibility, there is nothing in relevant BITs that provides a mandate to the arbitrators to pronounce themselves about the degree of liability and the forms of reparation. Some arbitrators could link the breach of FET to the Chorzow standard of compensation (see CMS, Azurix). However, this reasoning is debatable because Chorzow is based on an illegal seizure of assets and the consequence of an expropriation, which is different from an FET‘s breach.

It is good news that Argentina is back on the negotiation field. From the State’s perspective, the wording of the BIT evidences a better approach to balance the State’s right to regulate and investors’ rights. However, and as in most BIT, there are still important topics related to the FET clause that remain to be a concern: the content of the MST, the lack of definition and content of the FET, and the absence of a link between the FET and the reparation provision. The wording of the BIT limiting a broad and expansive interpretation is certainly welcomed, but these concerns should be addressed. Otherwise, the apparent effect of a balanced wording between the State’s right to regulate and the investor’s right to have their investment protected could be diminished.

**The views expressed herein are the views and opinions of the author and do not reflect or represent the views of Allende & Brea or any other organizations to which the author is affiliated.

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How Much (More) Transparency Does Commercial Arbitration Really Need?

Fri, 2017-03-03 23:29

Victoria Pernt

Schoenherr

The tug-of-war between transparency and confidentiality was a subject of lively discussions at the 2017 Vienna Arbitration Days.

Vienna Arbitration Days is Austria’s leading arbitration conference. Every year, it brings together arbitration practitioners and academics from around the world to discuss ADR developments. The presentations and panel discussions are followed by the “World Café”, which offers the conference participants a forum to contribute their own views. The participants rotate between several tables; each table focused on a different topic. Table moderators and secretaries invite young practitioners and silverbacks alike to offer their opinions, covering a wide range of perspectives.

For its 10th anniversary, the 2017 Vienna Arbitration Days asked whether arbitration needed repositioning. This contentious question centers on transparency, as it also addresses the criticism that arbitral proceedings, hearings, and decisions should be made public so as not to jeopardize the integrity of the justice system.

A panel of arbitration practitioners and in-house counsels opened the transparency discussion by introducing three categories of transparency:
(i) “Organizational Transparency” asking arbitral institutions to be more transparent in their case management and decision-making;
(ii) “Legal Transparency” asking for publication of arbitral decisions; and
(iii) “Transparency of Proceedings” asking for public proceedings and hearings.

The panel discussion soon revealed that arbitration users want to have their cake and eat it too. The in-house counsels confirmed that they choose arbitration for its (perceived) confidentiality, and oppose more transparency. However, according to the 2015 Queen Mary survey, arbitration users’ suggestions for improving arbitration all require more transparency. It appears that, despite acknowledging the benefits of transparency, parties remain reluctant to air their own dirty laundry in public.

I had the opportunity to follow up on that discussion with the World Café participants as secretary of the Transparency table, moderated by Iain Quirk.

Our table’s discussion revealed that these two objectives – transparency and confidentiality – are not necessarily mutually exclusive. They could and should coexist. In our efforts to pin down just how much (more) transparency commercial arbitration really needs, the final answer was: actually, not much (more).

How did we reach that conclusion? Analyzing organizational transparency, legal transparency, and transparency of proceedings individually, the World Café participants noted that promising efforts to render commercial arbitration more transparent are already underway. These would offer the desired benefits of transparency without sacrificing confidentiality.

For instance, the amended Article 11(4) of the ICC Rules now addresses the demand for more Organizational Transparency. It allows the ICC Court to provide reasons for its decisions in certain matters (e.g. appointment, removal, challenge, or replacement of an arbitrator). Since June 2016, the ICC has also been publishing the names of arbitrators serving in ICC administered cases.

Institutions have also sought to achieve more Legal Transparency. An important example is the opt-out provision of Article 41 of the Rules of Arbitration and Conciliation of VIAC (Vienna Rules), which permits the VIAC to publish anonymized summaries or extracts of awards, unless the parties object. The VIAC published a selection of 60 awards. In the VIAC’s words, this was “one first step” in its endeavor to “draw back the curtains and thereby provide greater insight into the work of the institution as well as that of arbitral tribunals appointed under its auspices”.

The World Café participants, regardless of their level of experience, identified Legal Transparency as crucial for the arbitration community. Students and young associates seek a comprehensive body of law to learn from. Experienced practitioners rely on case law to formulate arguments and discern trends in jurisprudence. Arbitrators appreciate guidance by an established body of law; which certainly also fosters legal certainty and predictability.

Thus, there already are efforts for more transparency in commercial arbitration, to the extent beneficial.

The World Café participants, however, recognized a lesser need for Transparency of Proceedings in commercial arbitration. This, because the benefits of transparency must be weighed against parties’ legitimate interest in having their disputes heard in swift and confidential proceedings. A market need that commercial arbitration does and should fill.

In this context, the World Café participants considered an endeavor to transport the UNCITRAL Rules on Transparency to commercial arbitration to be overreaching.

The UNCITRAL Rules apply to treaty-based investor-state arbitrations. These arbitrations affect public funds and interests, such as environmental protection. The UNCITRAL Rules provide that the public should learn about such disputes already upon their initiation. This also permits third parties, such as NGOs, to contribute to the proceedings.

While a line may be hard to draw, commercial arbitrations typically do not involve public funds or interests that justify involving the public early on. Moreover, commercial parties opt for arbitration precisely because they wish to protect their business and trade secrets, and to conceal pending disputes from competitors.

Thus, taking into account the parties’ legitimate choice to resolve their private disputes in confidential proceedings, most World Café participants opposed more Transparency of Proceedings. They found ex post publication and scrutiny to satisfy the request for transparency, and to protect the public’s legitimate interests.

Most World Café participants thus welcomed the efforts towards transparency that are underway, but denied the need for (much) more transparency in commercial arbitration.

It can therefore be concluded that transparency efforts in commercial arbitration, although welcome, should know their metes and bounds. If commercial arbitration introduces mandatory transparency of proceedings comparable to the UNCITRAL regime, parties may opt to resolve their disputes in mediation or State courts instead. Transparency concerns thus should be properly tended to, albeit without sacrificing one key selling point of commercial arbitration: confidential proceedings.

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Kluwer Mediation Blog – February Digest

Fri, 2017-03-03 02:38

Anna Howard

Brexit, biases, workplace mediation, the wisdom of uncertainty, profound apologies: these are just a handful of the topics addressed by writers at the Kluwer Mediation Blog last month. Below are a few words on, and a link to, each post.

In A Mediator’s Pitch, John Sturrock explores how, as we look ahead in an uncertain world, we might identify and communicate our micro-niche, our particular speciality. John invites us to consider what is unique about us, our story, about our ideas and our brand.

In The Wisdom of Uncertainty: On Grey Zones in Mediation, Ian Macduff explores uncertainty both within and about mediation and asks the challenging and powerful question: “What are the areas of doubt and uncertainty that we have?”

In A Little Friendliness Goes a Long Way in Workplace Mediation With Teams, Greg Bond shares his experience of team mediation inside companies and organisations and identifies some of the particular challenges of this type of mediation.

In The Profound Apology, Greg Rooney considers the essential ingredients of a profound apology and examines how a mediator might facilitate the process of giving a profound apology.

In The Mediator Who Planted Trees, Martin Svatos shares an allegorical tale of how destruction and adversity can be defied by single-handed, persistent effort and identifies how this tale captures the essence of a mediator’s work.

In Mediation Act 2017, Rafal Morek considers the recent Irish Mediation Bill, with a focus on two duties in this Bill: (i) lawyers’ duty to advise on mediation, and (ii) parties’ obligation to consider mediation and the associated cost sanctions for failing to do so.

In How to Mutually Gain Experience in Mediation? Mentoring Young Mediators: A Win-Win Situation, Daphne D’Hennezel interviews the highly regarded French mediator, Claude Amar, on his experience of mentoring young mediators.

In What Can Mediators Do To Help Parties Overcome Their Biases, Catherine Brys explores some of the perception and cognitive biases relevant to conflict as well as the interaction between biases and conflict. Catherine identifies how mediators might help parties to overcome their biases and use a problem-solving conflict resolution approach.

Given the high level of interest in our posts which address Brexit, Maria Kendrick (Visiting lecturer and PhD candidate at King’s College London) prepared a detailed analysis of the Supreme Court’s decision on the Brexit process.

Finally, Maryam Salehijam, a PhD researcher at the Transnational Law Centre of the University of Ghent, is undertaking research on the familiarity of legal professionals (including lawyers and third-party neutrals) with dispute resolution clauses which provide for non-binding ADR mechanisms such as mediation and conciliation. A short description of Maryam’s research and a link to her survey can be found here.

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What Role Shall Play the Qatar Financial Center Civil and Commercial Court under the new Qatari Arbitration Law?

Wed, 2017-03-01 17:06

Minas Khatchadourian

The Qatar Financial Center Civil and Commercial Court (“QFC Court”) is considered a Qatari on-shore Court established in 2009 and modelled on leading international corporate courts. Under the new Qatari Arbitration Law (“Law n. 2 of 2017”), the QFC Court has a very decisive role to play.

By Agreement of the Parties, the QFC Court can be appointed jointly as a forum to hear requests relative to nominate an arbitrator/ or chairman of the arbitral tribunal; to replace a nominating authority in case of the latter failure to do so; to decide on the challenge of an arbitrator raised by either party; to terminate the mandate of an arbitrator under specific circumstances; to suspend the arbitration proceedings; and to make necessary corrections or to give interpretation of the award in case the re-composition of the arbitral tribunal is impossible.

Furthermore, the new law has granted to the QFC Court the competence to examine the requests raised by the loosing party to challenge an award by way of action of nullity. The causes to seek nullity coincide with the same ones mentioned for setting aside the arbitral award under the UNCITRAL model law (as revised in 2006). The time limit to raise the action for nullity is one month (instead of three months in the UNCITRAL Model law) from the day the award is notified to the Parties.

As for the execution judge at the QFC Court, his role is pivotal as he shall be in charge of ordering interim or conservatory measures upon the request of a party either before the constitution of the arbitral tribunal or after the start of the proceedings. This new Qatari provision is crucial, as it enables the execution judge (called under the new law the “competent judge”) to assist the parties in critical times where it is necessary to order some conservatory measures in case of urgency.

In addition, the QFC execution judge shall be in charge of ordering the enforcement of arbitral awards, whether rendered in Qatar or abroad. The debtor of the award shall be able to seek its non-enforcement by bringing proof on the parties’ incapacity, the invalidity of the arbitration agreement, the irregular appointment or composition of the arbitral tribunal, the violation of due process principle, the ultra-petita nature of the award, etc. Similarly, the QFC execution judge shall have the authority – by its own motion – to refuse the enforcement of an award in case the subject-matter is unarbitrable under the Qatari law or the award is contrary to the public policy in Qatar.

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International Investment Arbitration Across Asia: A Symposium

Wed, 2017-03-01 04:03

Ana Ubilava

Recent developments in the international investment scene have also impacted the Asian region. Notably, China and Southeast Asia have emerged not just as growing foreign direct investment (FDI) recipients but also as major sources of outbound FDI. In parallel, the Asian region experienced a proliferation in international investment agreements (IIAs). Asian countries were initially hesitant toward investor-state dispute settlement (ISDS) mechanisms. Later, however, as Asian countries began encouraging inbound and then outbound FDI, they started committing to treaties with ISDS mechanisms. Unlike some countries from other regions, which changed their course of action towards ISDS provisions after their first-ever ISDS cases, most of the ASEAN member states have continued incorporating ISDS provisions even after their initial encounters with ISDS claims.

On 16 February 2017, the Centre for Asian and Pacific Law at the University of Sydney (CAPLUS) and the Sydney Centre for International Law (SCIL) co-hosted a symposium on the theme: “International Investment Arbitration Across Asia”. The symposium, sponsored also by the Sydney Southeast Asia Centre and Herbert Smith Freehills, brought together leading experts of international investment law from Southeast Asia, North Asia, India and Oceania. The symposium re-examined the historical development of international investment treaties in the Asian region, focusing on whether and how the countries may be shifting from rule takers to rule makers. A focus was on the ASEAN(+) treaties, including the (ASEAN+6) Regional Comprehensive Economic Partnership (RCEP) at an advanced stage of negotiations, and the Trans-Pacific Partnership (TPP) Agreement, which was discussed more broadly as an urgent topic in the wake of the change of direction by the US under the new administration. Participants at the symposium also elaborated on the experiences of Asian countries with ISDS mechanisms, and the attitude towards ISDS before and after first major investor-state arbitration (ISA) cases in the region. The many speakers and discussants for the event further explored possible future trajectories of international investment treaty policymaking of Asia-Pacific countries, especially China, Japan, Korea, India, Australia and New Zealand.

Dr Luke Nottage (University of Sydney) delivered an opening speech, surveying pan-Asian FDI, major treaties (including the TPP) and ISDS patterns. Dr Nottage provided an overview of the increased inbound and outbound investments in the Asian region with a special focus on Southeast Asia. He also talked about the rule of law indicators in the ASEAN member states, corruption perceptions and consistency in their investment treaty making, as well as the timing of the first ISDS claims against ASEAN member states on the signing on IIAs. Dr Nottage suggested that these ISDS cases may have had less impact on subsequent signing bilateral investment treaties (BITs) and Free Trade Agreements (FTAs) by Asian countries compared to other parts of the world.

Dr Julien Chaisse (Chinese University of Hong Kong) joined this speech to outline the current state and future development trajectories of TPP, RCEP and the G20 Guiding Principles for Global Investment Policymaking. Dr Chaisse emphasized the importance of the TPP with regard to ISDS provisions and further elaborated on current issues with respect to the US and the TPP. He contrasted the Malaysian and Vietnamese experience, stating that their participation in TPP was a result of intensive negotiations and a huge commitment. Vietnam also incorporated parts of the TPP draft into negotiations to conclude an FTA with the EU. “TPP is not dead”, Dr Chaisse concluded, expressing his belief in the TPP at least as a benchmark for ongoing and future IIAs. With regard to RCEP, Dr Chaisse stressed that it remained an ASEAN (not Chinese) initiative, and emphasised the treaty’s complexity and importance, the success of which greatly depends on cooperation among all ten ASEAN member states. Lastly, Dr Chaisse analyzed characteristics and future implications of the G20 Guiding Principles for Global Investment Policymaking.

Deeper factors responsible for the evolving treaty practices were scrutinized by Dr Lauge Poulsen (University College London). Including reference to the Asian region, Dr Poulsen addressed motives of the governments signing up to treaties that constrain their regulatory authority and expose them to potentially expensive arbitration claims. A commonly assumed expectation of developing countries was that BITs would attract more FDI. Dr Poulsen pointed out two new empirical aspects for this, as well as risks associated with concluding such investment agreements, and questioned whether governments considered them before being bound by such agreements. This argument further led to the conclusion that although ISDS claims did not necessarily stop the process of signing the international investment treaties, they considerably slowed down the process.

Dr Shiro Armstrong (Australian National University) presented the results of the econometric study, in collaboration with Dr Nottage, which examined the impact of investment treaties and ISDS provisions on FDI. The study found that on aggregate, while both weaker and stronger ISDS provisions have a positive impact on FDI, the effect of weaker ISDS provisions is more pronounced. Dr Nottage added that disentangling the factors at play and drafting policy implications remains a complex task, and both authors expressed concerns about the quality of the existing data on FDIs and other methodological issues. Making a virtual appearance via a Skype call from Bangkok, Dr Jason Yackee (University of Wisconsin) extended such methodological concerns, after presenting his preliminary research on the correlation of Thailand’s commitments to ISDS with an increase in FDI, where results differed greatly depending on whether OECD or Thai government data was used. Dr Yackee urged participants to think outside the box to come up with new research strategies for future analysis of this controversial policy question.

Insightful observations on the ASEAN(+) treaties, including RCEP, were added by Dr Diane Desierto (University of Hawaii, by Skype from Stanford). Dr Desierto discussed strategies, norms, institutions and politics of the regional investment treaties. Dr Desierto also discussed some common features and ISDS provisions of the ASEAN in Southeast Asia as well as the risks of parallel proceedings associated with the fragmented investment treaty instruments in the Asian region. Elaborating the topic, Jurgen Kurtz (University of Melbourne) presentation focussed on South East Asian investment treaty practice. Dr Kurtz critiqued the assumption of isomorphism underpinning that practice arguing instead that unique political economy considerations (especially drivers of internalization of costs) have shaped distinctive (and at times, innovative) treaty choices.  ASEAN’s bold positioning of collective investment rules however have suffered from internal contradictions, not least the puzzling practice of reverse open regionalism. Dr August Reinisch (a discussant from the University of Vienna) sketched some parallels and contrasts between ASEAN and EU investment treaty developments, particularly with regard to the approaches now to ISDS provisions agreed within EU member states as well as with the rest of the world.

A succession of experts then deliberated on the investment treaty practices of other significant Asia-Pacific countries. Dr Julien Chaisse analysed the investment policy of China, stating that “there are many rules leading to Beijing”. Reflecting on the current events in relation to Prime Minister Abe’s meeting with the President Trump, Dr Tomoko Ishikawa (Nagoya University) reviewed Japan’s current investment treaty regime. In particular, she focused on treaty practices before and after 2010, identifying novelties added by the TPP, not previously common in Japan’s practice. The case of Korea was presented by Dr Joongi Kim (Yonsei Law School). Dr Kim addressed three important areas: the extensive investment treaty practice of Korea; the ISDS cases where Korea was respondent but also now the claimant investor’s home country; and the trade and FDI inflows versus outflows. In addition, trends in the international investment regime globally and within Asia cannot be fully understood now without touching on India’s new Model BIT. Dr Prabhash Ranjan (South Asian University) explained the highly controversial ISDS and related provisions in the December 2015 Model BIT. Dr Ranjan set out the background to India’s novel approach and addressed some of the key issues of the new Indian Model BIT, recently accepted by Cambodia.

Topics presented at the symposium were not limited to “Asia” in the narrow or formalistic sense. Amokura Kawharu and Dr Luke Nottage offered a comparative study of key areas of the existing treaties for Australia and New Zealand, closely integrated economically with the Asian region and even more so bilaterally. They ended up examining the potential to facilitate more EU-style treaty innovations in the Asia-Pacific region and the influence these two countries collectively might have on such processes. The final main speaker of the symposium, Adjunct Professor Donald Robertson (Herbert Smith Freehills) addressed the relation of investment treaties with governance, focusing on principles of best-practice regulation, which sparked considerable potential for further debate.

Justin Gleeson SC, former Solicitor-General and leader of the team that successfully defended the Philip Morris claims against Australia, offered concluding remarks to sum up the symposium. He noted that despite the diversity of the objectives of the speakers, the core aim of these studies remained the same: “it is all about human wellbeing across the planet”.

The symposium therefore offered an excellent platform to share new findings and discuss ideas related to challenges and opportunities related to the investment treaty regime and associated peculiarities in the wider Asia-Pacific region. This marked a thought-provoking continuation of intellectual debate from a related previous conference on “International Investment Arbitration and Dispute Resolution in Southeast Asia” hosted by Chulalongkorn University on 18 July 2016, focusing on the experience of individual ASEAN member states. The research presented at both conferences, also related to an Australian Research Council project over 2014-7 (for Trakman, Armstrong, Kurtz and Nottage), will be brought together in a book on “International Investment Treaties and Arbitration Across Asia” to be co-edited by Dr Chaisse and Dr Nottage.

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Termination of BITs and Sunset Clauses – What Can Investors in Poland Expect?

Tue, 2017-02-28 04:09

Agnieszka Zarowna

A year ago, on 25 February 2016, it was reported that Poland intends to terminate its Bilateral Investment Treaties (“BITs”; see initial comments here). Earlier this year, by a resolution of 5 January 2017, an interministerial Working Group on Polish investment policy was officially established to, among other things, review and analyse existing BITs (as recently commented on here).

As we learn from the reasoning to the draft of this resolution issued on 27 October 2016, the fate of Polish BITs hinges on whether these were concluded with other EU Member States (such “intra-EU BITs” are likely to be terminated, in order to carry out Poland’s position announced by its Committee of European Affairs on 3 June 2011), or with non-EU Member States (these “extra-EU BITs” are to be upheld, renegotiated, or terminated). Poland currently has over 60 BITs in force, including with all EU Member States save for Ireland and Malta (since no BIT was ever concluded with these States), and Italy (since Italy terminated its BIT with Poland in 2013).

Foreign investors in Poland covered by investment protection under those BITs that will survive the review by the Working Group and will be upheld, can sleep safe and sound. However, foreign investors currently protected under many Polish BITs, including all intra-EU BITs, may – sooner rather than later – wake up in a quite different legal landscape. This entry highlights the potential termination process of the treaties and the implications it may have for investors in Poland.

Termination Process

While the Vienna Convention on the Law of Treaties (“VCLT”) lists various scenarios that result in a treaty ceasing to be in force, this entry focuses on two modes of terminating treaties as set out in Article 54 VCLT that Poland is most likely to rely on.

First, under Article 54(b) VCLT a treaty may be mutually terminated at any time by consent of all the parties after consultation with the other contracting States. With respect to intra-EU BITs, it appears that Poland’s preferred option would be the simultaneous termination thereof by all EU Member States. Given that the political and economic interests of the 28 States do not seem to be sufficiently aligned with respect to the role and fate of these treaties (considering that the European Commission’s repeated calls to terminate BITs have not been successful to date), such a coordinated annihilation of intra-EU BIT regime seems unlikely. Even when a proposal for a comprehensive phasing out of intra-EU BITs was made in April 2016, it suggested replacing the system rather than extinguishing it, and did not appear to meet with a wider interest from other EU Member States.

On a more moderate scale, Poland is likely to approach its counter-parts to proceed with a “BIT-by-BIT” termination by consent. Since at least some States, including some EU Member States, can be expected to share Poland’s willingness to extinguish BITs, this strategy may result in the mutual termination of at least some of the BITs in question.

To date, the only Polish BITs that have been terminated were those with Italy, as noted above, and Finland (replaced by a subsequent BIT in 1998). However, in the course of 2016, Poland received notices from the Czech Republic and Romania regarding the mutual termination of their respective BITs with Poland (together with sunset clauses), while Denmark was reported to be considering a similar notice. It will certainly be interesting to see what Poland’s approach to the BIT concluded with the UK will be, as the UK’s investment protection climate may also change in the aftermath of Brexit.

Second, under Article 54(a) VCLT, a treaty may be terminated unilaterally if it so provides. Polish BITs typically provide for an option of unilateral termination by notice. Notice must be provided to the other Contracting Party, upon expiry of which the treaty ceases to be in force. Some treaties further specify that the notice may only be given after the expiry of the initial period (of 10 to 30 years) for which a treaty was concluded, or after specified subsequent periods (of 5 to 30 years), if any. For example, the Netherlands-Poland BIT may be terminated only upon notice of at least six months before the date of expiry of the initial period of 15 years (which lapsed in 2009) or of each subsequent 10-year-long period of validity (the current period will end in 2019).

Implications of Termination

One question arising in the case of Poland terminating its BITs is what implications this has on the rights of foreign investors.

In the case of a unilateral termination, during the notice period as stipulated in a BIT, any obligations Poland assumed thereunder would remain in force and Poland would remain responsible for any treaty violations that occur prior to or during the notice period.

In addition, even where a BIT is terminated, many Polish BITs include sunset clauses, which stipulate that a treaty will continue to be effective for a further period from the date of the termination in respect of investments made before that date. For example, the Netherlands-Poland BIT provides that investments are protected for a period of 15 years after termination.

Poland would therefore remain liable for any treaty violations throughout the sunset period, where so provided. This approach appears to be uncontroversial. For example, in Marco Gavazzi and Stefano Gavazzi v. Romania (ICSID Case No. ARB/12/25), the investors initiated arbitration under the Italy-Romania BIT in 2012 after the treaty had already been terminated in 2010, but while the sunset period was still running. Reportedly, the effectiveness of the sunset clause was not disputed.

Sunset clauses clearly apply in the case of a unilateral termination of a treaty. One issue is whether, in the event of termination by consent, the Contracting States may agree to terminate the treaty together with its sunset clause or modify the latter with the effect of shortening the relevant sunset period. There are precedents indicating that States may seek to avoid prolonging effects of sunset clauses. Recently, the Czech Republic, Indonesia, and Peru terminated at least some of their BITs together with the sunset clauses.

If Poland wanted to extinguish its BITs sooner rather than later (and some BITs provide for a survival period as long as 20 years), it is likely to invite its counter-part to terminate the sunset clause. It would not be surprising given that, back in 2008 when replying to Italy’s notice of (unilateral) termination of the Italy-Poland BIT, Poland suggested terminating the BIT by consent and agreeing on an early extinguishment thereof.

Whether or not such a termination or modification of a sunset clause would be effective towards investors protected under a BIT constitutes a point of contention. In a scenario where Poland agrees with the other Contracting State to terminate the BIT together with its sunset clause, and an investor initiates arbitration only thereafter, then it would ultimately be for the tribunal to decide whether the termination of the sunset clause extinguished the investor’s rights. It appears that this issue has not yet been tested by international arbitral practice.

Good arguments can be made for both sides. In principle, Poland could argue that States are “masters” of any such treaty between them, and they may freely alter or terminate any of its provisions, including sunset clauses, if they so agree. Potentially, Poland could strengthen its position by claiming that there will be a superseding treaty (e.g., one of the trade agreements, including an investment chapter, currently being negotiated by the EU) or a similar regime (e.g., EU law with regard to intra-EU BITs), ensuring that investors’ rights will be protected despite the termination of the treaty.

Investors, on the other hand, would claim that they have direct (rather than derivative) rights under the treaty, which cannot be terminated at whim. The nature of investors’ rights and the effect of any treaty modification or termination should be analysed under the terms of a particular treaty. For example, it could be considered in this context whether a rather uncommon wording of Article 12(3) Mongolia-Poland BIT (stipulating that any revision or termination thereof “shall be effected without prejudice to any right or obligation accruing or incurred under this Agreement prior to the effective date of such revision or termination”) would be supportive of investors’ position.

One consideration regarding the implications of the termination of sunset clauses on investors’ rights would be whether investors have already exercised their rights under a BIT by commencing arbitration. Although Article 70(1) VCLT indicates a presumption against any retroactive effect of termination, such a presumption can nevertheless be rebutted by the parties’ consent to the contrary. However, it may be difficult to convince a tribunal that has already been seized by an investor that a subsequent treaty termination, effectively pulling the rug out from under the investor, was effective. A stronger argument could be made where investors have not yet commenced arbitration at the time of termination.

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The 2017 ICAC Corporate Dispute Arbitration Rules: Collective Redress in Action

Mon, 2017-02-27 03:35

Rustem Karimullin

As of 1 February 2017 shareholders in a Russian company may refer their corporate law disputes to arbitration. Still, except for disputes from share purchase agreements or those involving securities registrars, having an arbitration clause in a company charter, a shareholders’ agreement (“SHA“), or elsewhere which submits corporate disputes to arbitration is not enough. A mandatory part of such an arbitration clause is a designation of valid corporate arbitration rules which are issued by a permanent arbitration institution and duly filed with the RF Ministry of Justice. Otherwise, an arbitration agreement will be deemed incomplete and pathological.

In line with this development, on 1 February 2017, the International Commercial Arbitration Court (“ICAC“, or abbreviated in Russian as “MKAS“) at the RF Chamber of Commerce and Industry enacted the Arbitration Rules for Corporate Law Disputes (“ICAC Corporate Rules“). Although the ICAC Corporate Rules are rather detailed, they are to be applied along with the standard rules of the Russian leading international arbitration provider – the revised 2017 ICAC International Commercial Arbitration Rules (discussed here), or the 2017 ICAC Domestic Arbitration Rules, respectively (see the Russian versions of all the ICAC Rules here).

The ICAC Corporate Rules fully implemented the new mandatory legislative provisions, (discussed here). They also developed this reform further by adopting some additional provisions required for fostering legal certainty as provided in civil procedure rules on corporate disputes (e.g., rules on the res judicata effect of an award for all shareholders), and provisions which are supposed to guarantee smooth handling of multi-party arbitration (e.g., rules on the appointment of a tribunal and consolidation).

The following key features of the ICAC Corporate Rules are reviewed herein: the types of corporate disputes which are arbitrable, the scope of bylaw arbitration clauses, disclosure duties, tribunal formation, and rules on joinder and consolidation.

Arbitrable Corporate Disputes

The application of the ICAC Corporate Rules is available in a broad range of corporate disputes over a legal entity established in Russia. A dispute may relate to:

  1. the formation, reorganization, and liquidation of an entity;
  2. shareholders’ claims for the recovery of damages incurred by the entity;
  3. shareholders’ claims in regards to void/voidable transactions involving the entity;
  4. civil (but not employment) law relations with directors, especially regarding their appointment, dismissal, and liability;
  5. agreements regarding corporate governance, including SHA;
  6. securities issues;
  7. decisions on the void resolutions of a corporate body;
  8. disclosure of information to shareholders;
  9. other arbitrable disputes (see the list of non-arbitrable corporate disputes here).

Also, when agreed by the parties, disputes arising from the formation and management of shareholding in an offshore company might be submitted for settlement under the ICAC Corporate Rules.

Corporate Bylaw Arbitration in Russia

According to a Russian statutory requirement (see more here), an arbitration clause for resolving corporate disputes can only unanimously be included by the shareholders into the company’s charter.

Moreover, under the ICAC Corporate Rules, a default scope of operation of an arbitration clause included into the company’s charter shall extend to:

i) the company;

ii) company’s members, including prospective members, who have acquired a share in the company by its purchase or inheritance after its inclusion into the charter, and former shareholders, which remain bound by the arbitration clause which was valid during their shareholding;

iii) directors, including prospective and retired directors, in relation to their corporate rights and obligations.

This provision may be relevant for a statement of claim, in which a claimant should generally identify any person who has an interest in the outcome of the dispute (interested person) known to it, i.e. a party to an arbitration agreement, whose rights or duties may be affected by an award.

Interestingly, executive directors usually do not sign any document reflecting their acceptance of the charter. Under the Russian Labor Code, a company and an executive director must sign an employment agreement, which, considering explicit non-arbitrability of all employment disputes, usually does not contain an enforceable arbitration clause. Thus, even where directors have constructive knowledge of the public charter’s arbitration clause, this might not be taken into account by a Russian court. Also, some aspects of directors’ mandate, such as their appointment or dismissal, and the recovery of harm caused by their activities to the company, are covered by both corporate and labor laws. Hence, parties should consider this when pursuing arbitration in Russia against executive directors who are not managing shareholders, or when they are commencing disputes against them which might simultaneously be qualified as labor law disputes.

Extensive Disclosure Duties

A proper service of notifications regarding arbitration proceedings is particularly important in corporate arbitration. An award has the res judicata effect for all shareholders, irrespective of their actual participation in proceedings.

For this reason, an ICAC corporate award should include information regarding all interested parties and it should be rendered in compliance with the following three statutory duties (described here):

(i) the ICAC needs to inform the company about the filed claim,
(ii) the ICAC needs to disclose this information online via its website, and
(iii) the company has to inform interested persons and the share registrar about the commenced proceedings.

In addition to the three disclosure duties, the company is obliged within 15 days upon receiving the claim to report to the ICAC Secretariat on notifications which they delivered to specific shareholders.

Moreover, in some cases, such as a challenge of the corporate decisions or the company’s transactions, or the recovery of harm from shareholders, the claimant is required to notify its fellow shareholders and the company before commencing arbitration. Failure to take the respective reasonable measures may result in the dismissal of the case.

Appointing a Tribunal

Unlike under the 2017 ICAC International Arbitration Rules (see here), according to which a decision of the ICAC Appointment Committee is used as a fallback mechanism in case the group of claimants and/or the group of respondents cannot agree on their arbitrator, in corporate multi-party arbitration the following restriction on who can serve on the tribunal is imposed: arbitrators should be elected from the ICAC list of arbitrators and specialized in corporate law.

To ensure their participation in the appointment of the tribunal, the parties are advised to include a mechanism for the selection of arbitrators into the arbitration clause. A joinder application must be filed within 60 days from the ICAC online publication of the claim if it wishes to participate in the nomination of an arbitrator.

Joinder

Any shareholder or other interested person who is not initially involved as a claimant or a respondent may join arbitral proceeding at any stage. However, the joining party should accept the arbitral proceeding as it is and is not authorized to raise any objections as to the events before the joinder date. As a result of late joinder, the party might be deprived of a possibility to challenge an arbitrator, or to request the repetition of an arbitral hearing, or to file submissions within applicable deadlines.

Also, only after the joinder, an interested person is to be informed on the progress of the arbitral proceeding. Furthermore, upon the joinder, the joining party may file additional claims against the claimant or the respondent if such claims fall under the same arbitration agreement, and they are linked to the initial claim from the standpoint of substantive law. Finally, the joining party might reject a voluntary dismissal, confession of a claim, and settlement and, thus, block certain final dispositions of a matter. It is, therefore, highly advisable to join arbitral proceedings at the earliest possible moment in the proceedings.

In the end, the award will be binding for all interested persons, irrespective of whether they actually joined the arbitral proceeding and actively participated. Even when they do not join, interested persons may apply for a certified copy of the award.

Obligatory Consolidation for Parallel Proceedings

Pending ICAC corporate cases with similar subject-matter must be consolidated and settled within a single proceeding. This prevents a scenario in which a company is subjected to multiple disputes based on the same events. The proceeding that were initiated first takes priority, in the sense that subsequently submitted claims are automatically considered as applications for joinder to the first proceeding. The Rules provide some examples to illustrate cases with similar subject-matter, such as claims for the recovery of damages caused to the company by the same respondent or by the same void transaction.

Summary

As an innovative and promising device, the ICAC Corporate Rules are opening the door to the legal feasibility of arbitrating corporate claims in Russia. Shareholders may benefit from the use of tailored-made arbitration rules, arbitrators’ business expertise and language knowledge, the confidentiality of arbitration, and other efficient features of the ICAC Corporate Rules. Corporate arbitration in Russia, due to its limited use in the past, is not expected to be utilized to resolve shareholder claims on any widespread basis quite soon, but still it is clearly gaining new legitimacy as an alternative method for their handling through the enactment of the ICAC Corporate Rules.

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International Financial Services and Small States: Conference Report

Sat, 2017-02-25 23:44

Patricia Backhausen and Conti von Hirsch

WilmerHale

A conference titled ‘International Financial Services and Small States’ was held at Wilmer Cutler Pickering Hale and Dorr’s London office on 30-31 January 2017, jointly organised by the firm’s International Arbitration Practice Group and the Centre for Small States, Queen Mary University of London. The conference followed on from the ‘Integration and International Dispute Resolution in Small States’ conference in May 2016.

The conference took the form of a keynote address, three discussion panels and a reflection panel. One of the panels, chaired by Gary Born, focused on the use of international arbitration in financial matters and its relevance for Small State International Financial Centres (SS IFCs).

The two forms of tax dispute resolution

Carlos Ramos-Mrosovsky (Freshfields Bruckhaus Deringer) considered the two different forms of resolving tax disputes: negotiation between the states themselves pursuant to a tax treaty (the most widespread form), and arbitration pursuant to investment treaties. In view of the taxpayer’s lack of involvement in and control over the state-to-state negotiation procedure, Mr Ramos-Mrosovsky explained that, if possible, it was preferable for an individual to lodge a claim under a BIT. However, this was a big ‘if’, as there are a number of difficulties associated with bringing a tax claim under a BIT.

The first hurdle is establishing that a tax claim is arbitrable under the terms of the BIT: when compared to typical BIT clauses, tax disputes do not obviously fit within the scope of investment arbitrations – indeed many BITs explicitly exclude tax matters (e.g. the Hong Kong-New Zealand BIT), subject to certain exceptions, such as in the context of expropriation.

The second hurdle is proving that the measure really is a tax. The definition of what constitutes a tax matter will depend on whether domestic or international law is applied, and Mr Ramos-Mrosovsky highlighted how arbitral tribunals had reached differing conclusions on this point (in Occidental Petroleum v. Ecuador a domestic law definition was applied, whereas an international law definition was applied in Burlington Resources v. Ecuador).

The third hurdle is demonstrating that the tax dispute is admissible under the BIT. To qualify for the protection of the BIT, the individual must show that the tax in question is illegitimate. As a starting point, there is a basic presumption of validity in favour of legislative measures adopted by a state, which has a sovereign right to impose such tax measures as it deems appropriate (El Paso Energy v. Argentina, at 290, 295). However, a measure might trigger the protection of the BIT if it was not a bona fide tax, but was rather an action “taken only under the guise of taxation, but [that] in reality aims to achieve an entirely unrelated purpose” (Yukos award, at 1407). Similarly, a tax might trigger the protection of the BIT if it was discriminatory (Burlington Resources v. Ecuador), or “extraordinary, punitive in amount or arbitrary in its incidence”(En Cana v. Ecuador, at 177) such that issues of indirect expropriation arise.

Arbitration in the financial sector

Claudia T Salomon (Latham & Watkins LLP) then discussed the extent to which arbitration has been adopted by the financial sector, a topical issue in the light of the November 2016 ICC Report on ‘Financial Institutions and International Arbitration’.

Ms Salomon, who co-authored the ICC Report, emphasised that it was unhelpful to speak of the financial ‘sector’ as a distinct sector: the suitability and popularity of arbitration varied greatly across the various branches of finance (derivatives, securities, M&A, project finance etc.), which were therefore best considered independently of each other as standalone sub-sectors. It was wrong, then, to speak of a general aversion to arbitration in the financial sector.

For especially complex and highly technical disputes (e.g. M&A, project finance), the possibility of choosing a panel with the required level of expertise was highlighted as a very attractive feature of arbitration, and financial institutions were particularly open to using arbitration for such disputes. The ease of enforcement was another important consideration, especially as financial institutions increasingly look towards emerging markets for growth. Confidentiality was a factor for certain transactions, though in general the desire for precedent prevailed.

However, finality was seen as a double-edged sword: financial institutions often preferred litigation precisely because it afforded the possibility of an appeal. Ms Salomon saw this as a potential opportunity for SS IFCs to differentiate themselves from other jurisdictions by incorporating the possibility of appealing an award into their arbitration procedure. Another perceived advantage of litigation was that litigation allows for a more expeditious disposal of straightforward proceedings such as simple debt actions. Ms Salomon again saw no reason why similar procedures could not be incorporated into arbitration legislation.

Financial dispute resolution and SS IFCs

Francoise Hendy (FRANHENDY Attorneys), however, showed little enthusiasm for the idea of SS IFCs embracing tax arbitration. In her view, the current system of tax dispute resolution worked well and she saw little need for change.

Ms Hendy also warned of the importance for SS IFCs of fostering good relationships with larger states and considered that treaty-based negotiation was more conducive to this, as well as allowing for more creative and flexible solutions, and at considerably less expense. Negotiation also obviated the need for creating a whole infrastructure for financial arbitration from scratch, something that presented particular difficulties for SS IFCs given their constraints on human capital.

The last point led chair Gary Born to question whether financial arbitration ought rather to be considered as a form of financial service itself that formed part of the overall “palette of offerings” of financial services provided by SS IFCs. Mr Born pointed to the examples of Hong Kong, Switzerland and Singapore as evidence of the close link between dispute resolution services and financial services.

However, Ms Hendy maintained that there was little point in SS IFCs going to the trouble of creating the necessary infrastructure. Addressing Mr Born’s point that the availability of dispute resolution services might make an SS IFC’s overall financial services package more attractive, Ms Hendy acknowledged that it was important not to fall behind the competition in this regard, but argued that it was not important to do more than the competition. Only where an SS IFC wanted to differentiate itself by carving out a niche for itself as a jurisdiction renowned for financial arbitrations might it make sense to invest in an arbitration infrastructure.

The special status of SS IFCs

The discussion between Ms Hendy and Mr Born fed into one of the main themes of the conference, namely the special status of SS IFCs on the global stage.

Professor Christopher Bruner (Washington and Lee University), in his keynote address, outlined how certain small states had succeeded in establishing themselves as dominant centres for international finance. Their lack of natural resources and human capital had created a reliance on international financial services as a way of participating in the global economy.

The discussion of the impetus on small states to create and support IFCs led to a wider panel discussion of how the global economy, in turn, benefited from SS IFCs by virtue of the tax neutrality, flexibility, simplicity and creditor friendliness that they afforded. Geoff Cook (Jersey Finance) and Richard Hay (Stikeman Elliott LLP) outlined the important role played by SS IFCs in funding the investment-gap in Africa by acting as intermediaries between investors and emerging markets. Professor Richard Murphy (City University London), however, was far more critical of the role of SS IFCs in the global economy, in particular because of their status as what he termed “secrecy jurisdictions”: jurisdictions which enabled tax avoidance and money laundering without any accountability.

The criticised lack of transparency surrounding SS IFCs – in particular, the general unavailability of information regarding the beneficial ownership of companies – gave rise to problems of perception. SS IFCs were generally characterised in the media as being parasitic, entrenching poverty in developing countries and facilitating tax evasion and money laundering. The panel agreed in attributing this in large part to the role of NGOs and other “false prophets” in publishing damning information based on misleading data. The panelists agreed that commissioning research of their own would allow SS IFCs to challenge the established narrative with evidence-based arguments that highlighted the positive role that SS IFCs played,

Tax reform and closing remarks

The legal architecture of the international tax reform agenda, as set out in the work plans of the OECD Global Forum on Transparency and Exchange of Information, the OECD Base Erosion and Profit Shifting (BEPS) and the EU Good Tax Governance Initiative, was another focus for discussion.

Reflecting on the conference Susie Allegre (Doughty Street Chambers) emphasised the opportunity for SS IFCs to pioneer a business and human rights framework while Professor Petra Butler (Co-Director, Centre for Small States) reminded the participants of the lack of human capacity which limited what reforms small states could implement.

The conference programme containing a full list of all the speakers can be found here.

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Arbitration in Hong Kong: The Year of the Monkey in Hindsight

Fri, 2017-02-24 18:03

Matthew Townsend

HK45

As Hong Kong enters the year of the Rooster, its arbitration community can look back on a year of the Monkey in which the territory’s institutions and authorities implemented a number of initiatives aimed to promote arbitration, and its courts rendered several pro-arbitration decisions.

Third party funding for arbitration in Hong Kong

In November 2016, the Hong Kong Law Reform Commission (“LRC”) released a report in which it recommended that third party funding of arbitration (“TPF”) should be expressly permitted for arbitrations seated in Hong Kong.

The report, which also recommends TPF be permitted for services provided in Hong Kong in aid of arbitrations with a foreign seat, comes in the wake of an extensive public consultation (covered in last year’s update on the year of the Sheep).

Hong Kong law does not permit TPF for litigation, except in limited circumstances, but some Hong Kong practitioners consider it an open question as to whether TPF is permissible for arbitrations in Hong Kong. In its report, the LRC recommends amendment to the Arbitration Ordinance (Cap. 609) (the “Ordinance”) to resolve this issue.

The report also makes a number of other recommendations, including that clear standards be developed to apply to TPF funders operating in Hong Kong. These should in turn address issues such as capital adequacy, confidentiality, disclosure, privilege, conflicts of interest, control of the arbitration by the funder and the grounds for termination of TPF arrangements.

As for the implementation of these standards, and other regulations, the LRC recommends that for an initial period of three years a “light touch” approach should be adopted in line with international practice and in accordance with Hong Kong’s needs and regulatory culture. A body authorized under the Ordinance should issue a code for TPF Funders (“Code”), and upon the conclusion of the initial period should issue a report reviewing the Code’s operation and making further recommendations.

The LRC further recommends that a funded party be required to give written notice, to the other party and relevant institution, of its funding agreement, and the identity of the funder.

The report also considers the, much debated, question of whether a tribunal should be empowered to make orders for costs and security for costs orders against a TPF funder. It recommends that there is no need to give a tribunal the power to order security for costs against a TPF funder, as the powers of a tribunal under the Ordinance to order a party to give security for costs afford adequate protection. As for the question of whether tribunals should be entitled to make costs orders against a TPF funder, the report makes no immediate proposals but suggests that the issue be considered during the initial three-year period of the Code’s operation.

Hong Kong confirms arbitrability of IP rights

In recognition of the increasing volume of disputes relating to intellectual property rights (“IPR”), Hong Kong has introduced new amendments to the Ordinance, confirming that IPR disputes may be resolved by arbitration, and that it is not contrary to Hong Kong public policy to enforce arbitral awards involving IPR.

At present, there is no specific legislative provision addressing the arbitrability, or otherwise, of IPR in Hong Kong. The Arbitration (Amendment) Bill 2016 (the “Bill”), introduced into the Legislative Council on 14 December 2016, would insert such provisions by way of a new Part 11A containing new Sections 103A-J.

The new sections variously: define terms relating to IPR disputes (Sections 103A-C); confirm that such disputes may be arbitrated (Section 103D); clarify the status of licensees who are not party to the arbitration (Section 103E); and provide that an arbitral award may not be set aside, or refused enforcement, only because the award involves an IPR. (Section 103F-G). Sections 103I-J concern patents, and provide inter alia that the validity of a patent may be put at in issue in arbitral proceedings.

The Bill also coincides with a recent initiative of the Hong Kong International Arbitration Center (HKIAC) to create a panel of arbitrators for IPR disputes. HKIAC’s new panel comprises more than thirty experts with expertise related to IP.

HKIAC

The year of the Monkey saw the HKIAC implement a number of initiatives, including, on 15 December 2016, releasing data on the costs and duration of a HKIAC arbitration.

The statistics also coincide with similar recent releases by other leading arbitration institutions including the Singapore International Arbitration Centre (“SIAC”), the Arbitration Institute of the Stockholm Chamber of Commerce (“SCC”), and the London Court of International Arbitration (“LCIA”). They therefore offer a basis for comparison.

Although the standard caveats apply regarding differences in sampling and collation methodology, it would appear that:

• The median duration of an HKIAC arbitration of 11.6 months, is broadly comparable to that of the SIAC, but compares favourably to the figures of the LCIA and the SCC.

• Median tribunal fees for HKIAC arbitrations (US$19,587.63) are approximately US$7,300 lower than those for the SIAC, with median administration fees (US$ 9,281.49) approximately US$3,400 higher. Neither the LCIA nor SCC release exactly comparable data.

The results nonetheless would appear to vindicate HKIAC’s claim to be one of the world’s most time and cost-efficient arbitration institutions.

In October 2016, the HKIAC also announced that it shall offer its hearing and meeting rooms to parties free-of-charge in respect of HKIAC-administered dispute resolution proceedings to which one or more of the parties is a State listed on the “Organization for the Economic Cooperation and Development “DAC List of ODA assistance” (“OECD List”).

The OECD List, identities a number of countries which, on the basis of World Bank gross national income statistics, and UN “Least Development Country” categorisation, are eligible to receive official development assistance (“ODA”). Such entities will now enjoy free-of-charge use of the HKIAC’s world class facilities for qualifying disputes.

The HKIAC’s initiative is also a timely one in view of growing attention given to investor state arbitration in Asia, and the fact that many of the countries listed are also part of China’s One Belt One Road outward bound investment initiative.

CIETAC HK

In a noteworthy development for CIETAC’s Hong Kong Arbitration Centre (“CIETAC HK”), a Chinese court has for the first time enforced a CIETAC HK arbitral award in Mainland China.

While CIETAC is China’s busiest arbitration institution, it only established its Hong Kong Arbitration Centre in September 2012. The CIETAC HK’s authority to accept and administer cases was only formalised upon the publication of the 2015 edition of CIETAC’s rules.

The Decision of Ennead Architects International LLP v. Fuli Nanjing Dichan Kaifa Youxian Gongsi (2016) Su 01 RenGang No.1 was rendered on 13 December 2016, by the Nanjing Intermediate People’s Court of Jiangsu Province. In this decision, the Nanjing Court allowed the enforcement of the interest portion of the arbitral award, with which the PRC respondent had already substantially complied. In doing so, the court relied upon a 1999 arrangement between Mainland China and Hong Kong for the mutual enforcement of arbitration awards.

This confirmation that the Chinese courts recognise the validity of, and are prepared to enforce, awards administered by CIETAC HK further cements CIETAC HK as a genuine alternative for arbitration users, seeking the “offshore” resolution of China-related disputes.

Case law

The year of the Monkey also saw a number of pro-arbitration decisions of the Hong Kong courts. These included but were not limited to the following cases:

Astro Nusantara International B.V. and others v PT Ayunda Prima Mitra [2015] HCCT 45/2010) by which the Hong Kong Court of Appeal refused to overturn a Hong Kong Court of First Instance decision refusing enforcement of awards rendered in Singaporean arbitration proceedings, in doing so clarifying certain issues, including the interrelationship between an award debtor’s right, on the one hand, to pursue “passive” remedies against an award, and its duty, on the other hand, to act in good faith in challenging enforcement.

Sun Tian Gang v Hong Kong & China Gas (Jilin) Ltd [2016] HKEC 2128 by which the Hong Kong court confirmed the circumstances in which it will set aside an arbitral award on the grounds that the arbitral process and enforcement violated notions of natural justice, fairness, due process and public policy.

William Lim & anor v Hung Ka Hai Clement [2016] HKCFI 1439; HCA 1282/2016 by which the Hong Kong Court of First Instance stayed litigation proceedings in favour of a reference to arbitration, in so doing rejecting the Plaintiffs’ contention that they were entitled to maintain the court proceedings by virtue of the operation of an “escalation clause”, providing for one or more methods for resolving disputes prior to the commencement of arbitration proceedings.

American International Group and AIG Capital Corporation v X Company (HCCT 60/2015) in which the Hong Kong Court of First Instance refused to set aside an arbitral award despite the Plaintiff’s allegation that the Award had been wrongly decided on the basis of principles of fairness and equity, instead of under the strict law of the relevant agreements.

The HKIAC also published statistics covering the enforcement of arbitral awards in Hong Kong in 2016. The statistics provide a useful cross section of the position in Hong Kong when it comes to enforcement. They show that the Hong Kong courts granted a total of 32 applications for enforcement, Further, whereas five applications were brought to set aside an order granting leave to enforce, only one of those resulted in the court setting aside the order.

Summary

The Year of Monkey was perhaps a year of evolution rather than revolution for arbitration in Hong Kong, 2016 being characterised by the steps taken by various institutions and authorities to build upon the innovations of previous years. Nonetheless these steps confirm the continued commitment of Hong Kong’s arbitration community to maintain the territory’s status as a leading international arbitration seat aligned with, and often setting, international best practice.

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Daman v. Oger: The First Decision of the Dubai-DIFC Judicial Committee (Part 1)

Thu, 2017-02-23 17:33

Gordon Blanke

Earlier this year, the Dubai-DIFC Judicial Committee established by the Ruler of Dubai by virtue of Decree No. (19) of 2016 (also know as the “Judicial Tribunal” or the “Joint Judicial Committee”) rendered its first decision (see Cassation No. 1/2016 (JT) – Daman Real Capital Partners Company LLC v. Oger Dubai LLC, hearing of 19 December 2016, published by the Judicial Tribunal in both English and Arabic). In a previous blog (see http://kluwerarbitrationblog.com/2016/11/29/ruler-of-dubai-establishes-new-judicial-committee-to-resolve-conflicts-of-jurisdiction-between-the-on-and-offshore-dubai-courts-will-it-undermine-the-difc-courts-acquired-status-as-a-condui/), I explored the background and rationale behind the establishment of the Joint Judicial Committee. Suffice it to recall for present purposes that the Committee has been established to resolve conflicts of jurisdiction between the onshore Dubai and the offshore DIFC Courts. In this context, it is important to note that in particular the creeping jurisdiction of the DIFC Courts as a host or conduit jurisdiction for the enforcement of domestic arbitral awards rendered onshore for onward execution against assets of award debtors in mainland Dubai has given rise to concerns of jurisdictional conflict with the onshore Dubai courts (see, e.g., ARB 003/2013 – Banyan Tree Corporate Pte Ltd v. Meydan Group LLC, ruling of the DIFC Court of First Instance of 2nd April 2015). Daman v. Oger is the very first case that has come before the Joint Judicial Committee and as such has prompted the Committee to test its competences under Decree No. (19) of 2016.

By way of background, on this occasion, the Joint Judicial Committee sat in a panel of six judges, three from the DIFC Courts (Dr. Michael Hwang, Chief Justice of the DIFC Courts; Omar Juma Al Muhairi, DIFC Court of Appeal; and Sir David Steel, DIFC Court of First Instance) and the remaining three from the onshore Dubai Courts (Dr. Ali Ibrahim Al Imam, Chief Justice of the Dubai Court of Cassation; Essa Mohammed Sharif, Dubai Court of Appeal; and Jassim Baqer, Chief Justice of the Dubai Court of First Instance), Dr. Al Iman serving as the Committee’s President and hence having the casting vote. The Tribunal was asked to decide which of the two courts, the DIFC Courts or the onshore Dubai Courts, had proper jurisdiction to hear the case. The case, in turn, concerned two parallel actions before the two courts, namely (i) an application for annulment of an underlying DIAC award rendered in mainland Dubai as the seat of the arbitration before the onshore Dubai Courts in their capacity as the curial courts and (ii) an application for the recognition and enforcement of that award before the DIFC Courts for onward execution in the DIFC. Importantly, the action for annulment before the onshore Dubai Courts was served first and as such preceded the action for recognition and enforcement before the DIFC Courts. This gave rise to a concern of conflicting outcomes from the process before the onshore Dubai Courts and that before the DIFC Courts, hence creating a potential conflict of jurisdiction between the onshore Dubai and the offshore DIFC Courts. Importantly, the instant case does not appear to concern the situation where the DIFC Courts serve in their role as a host or conduit jurisdiction in the archetypical sense of that term given that the award debtor and its assets are understood to have been present in the DIFC at all material times (in other words, the question of the DIFC Courts’ competence to order enforcement for onward execution before onshore Dubai Courts in mainland Dubai in an otherwise purely onshore context did not arise in the present circumstances). The natural consequence of this is – in the words of the Joint Judicial Committee that – bar the reference of the merits of the original dispute to arbitration – the DIFC Courts “would [have] be[en] alone the competent courts to entertain the case since the building concerning the dispute (Daman Tower) together with the appellant company [i.e. the award debtor] are located and licensed in the DIFC.” (see p. 3, ruling of the Joint Judicial Tribunal in Cassation No. 1/2016 (JT); read together with Art. 5, Judicial Authority Law).

It is worth mentioning that the DIFC Courts had progressed on a prolonged trajectory of procedural measures against the award debtor, including the imposition of a freezing order, a winding-up order and an order to cease trading in order to safeguard the execution of the DIFC Courts’ order for enforcement against an award debtor that had by and large ceased to be a going concern. In addition, pending a decision on cassation from the Dubai Court of Cassation, the DIFC Courts signaled their disposition to suspend the DIFC enforcement proceedings subject to the timely provision of security for costs by Daman, the award debtor. For the avoidance of doubt, the annulment proceedings before the onshore Dubai Courts are presently still pending cassation. Following the findings of the Dubai Court of First Instance, the Dubai Court of Appeal dismissed Daman’s application for annulment, rejecting concerns that (i) the DIAC Tribunal lacked jurisdiction, (ii) the underlying building contract had been signed without authority, (iii) a pre-arbitral condition precedent had not been satisfied, and that (iv) expert witnesses had wrongly been excluded from the hearing of fact witnesses.

Against this background, the Joint Judicial Committee held in pertinent part as follows:

“Doubtless the case before the Dubai Courts is still pending awaiting decision of the Court of Cassation. Thus the conflict with regards to jurisdiction between the two courts still exists. This conflict should not be resolved by permitting both courts to entertain the case. Pursuant to Article 4 of the Decree No. 19/2016 and for the sake of justice and to avoid contradictory judgements [sic] only one of the two courts should determine to annul or recognize the aforementioned arbitral award.

According to the general principles of law embodied in the procedural laws/Dubai Courts are the competent courts to entertain this case. There is no similarity between this case and the case when it’s [sic] sought to enforce or annul a foreign arbitral award in several jurisdictions pursuant to the New York [C]onvention 1958.

Therefore, the cassation should be allowed and judgement [sic] entered accordingly.”

(see pp. 3-4, ruling of the Joint Judicial Tribunal in Cassation No. 1/2016 (JT))

The Judicial Committee then decided that “1. [t]he case is to be remitted for trial by Dubai Courts” and that “2. DIFC courts should cease from entertaining the case” (see p. 4, ruling of the Joint Judicial Tribunal in Cassation No. 1/2016 (JT)), costs to be borne by Oger, the award creditor.

It is apparent from the Committee’s findings that in order to prevent a potential conflict of jurisdiction that may arise from contradictory outcomes of the prospective decision of the Dubai Court of Cassation and the DIFC Courts’ order to enforce, the Joint Judicial Committee relied on a first-seized rule, according preferential jurisdiction to the onshore Dubai Courts, which were seized in an action for annulment of the subject award before the application for ratification and enforcement being filed with the DIFC Courts. This is an easy way to manage two potentially competing courts of competent jurisdiction for related actions that may produce conflicting outcomes in the event of the courts being seized in parallel. The natural implication of this is that had the DIFC Courts been seized first, the Dubai Courts – as opposed to the offshore counterparts – would have had to desist from entertaining the action. This said, there is an argument for saying that in this latter instance, the award debtor would have been deprived of its statutory right to challenge the award pursuant to Art. 216 of the UAE Arbitration Chapter, onshore Dubai being the seat of the arbitration and hence the natural place for challenging the award. The obvious counterargument is that an award debtor will be able to mount a defense of nullification in response to an application for enforcement under Article 44 of the DIFC Arbitration Law (and hence be given a fair hearing on nullification). In this context, it is important to recall the controversy inherent in this counterargument, which in part has been dismissed in previous constitutional and public policy challenges of the DIFC Courts’ role as a conduit jurisdiction (see http://kluwerarbitrationblog.com/2015/07/22/difc-court-of-first-instance-dismisses-application-for-referral-to-usc-of-purported-constitutional-conflict-between-uae-civil-procedures-code-and-dubai-judicial-authority-law-and-difc-arbitration-law/ and http://kluwerarbitrationblog.com/2015/09/05/host-jurisdiction-status-of-difc-courts-not-contrary-to-uae-public-policy/). Nevertheless, it would be prudent to introduce amendments to the UAE Arbitration Chapter prescribing a time-limit of e.g. three months for challenging an arbitral award after issuance, failing which the award will be considered good for enforcement by the competent courts, including the DIFC Courts. This will allow an award debtor of a domestic award rendered in mainland Dubai sufficient time to apply for nullification before the onshore Dubai Courts in satisfaction of its rights of defense under Article 216. Further, in order to deal with the wider problem of conflicts of jurisdiction between the Dubai and the DIFC Courts, it may be advisable to amend Article 7 of the Judicial Authority Law, which establishes a regime of free movement of judgments, orders and ratified awards between the onshore Dubai and offshore DIFC Courts, to include a first-seized rule in the terms contemplated above. In any event, the Joint Judicial Committee leaves no doubt that at a domestic level, there cannot be a solution à la New York Convention, which allows contradictory outcomes of nullification and enforcement of the same award in different jurisdictions.

Further, the Judicial Committee’s decision inviting the DIFC Courts to “cease from entertaining the case” may not have as far-reaching implications as may appear at first sight. In the given context, the meaning of these words may not require more than a temporary suspension of the DIFC enforcement proceedings (including all ancillary actions) pending a final ruling on nullification by the Dubai Court of Cassation. This, in any event, would make perfect sense in that should the Dubai Court of Cassation affirm the Dubai Court of Appeal’s rejection of the award debtor’s challenge of the subject award, the DIFC Courts’ will be the natural forum for the enforcement and execution of that award and will as such resume enforcement jurisdiction. This reading would also accommodate the three DIFC Court judges’ dissent on the “second point of the judgment” (see p. 4, ruling of the Joint Judicial Tribunal in Cassation No. 1/2016 (JT)) requiring the DIFC Courts to cease to entertain the case. This reading further finds support in the binary wording of the Joint Judicial Committee when concluding that only one of the two courts, i.e. the onshore Dubai and the offshore DIFC Courts, should determine to annul “or” (as opposed to “and”) recognize the subject award, implying the involvement of two separate jurisdictions for annulment on the one hand and enforcement on the other. In this sense also, there is no reason to believe that the Judicial Committee’s decision jeopardises the DIFC’s acquired status as a conduit jurisdiction.

Finally, in his Order of 1st February 2017 (see Claim No. CFI 013/2016 – Oger Dubai LLC v. Daman Real Estate Capital Partners), Sir Richard Field of DIFC Court of First Instance, having reviewed the decision of the Joint Judicial Committee, ordered further written submissions from the Parties in order to determine whether in the light of that decision, the DIFC Courts had any jurisdiction to “retain or modify the orders it has previously made supplemental to [Oger’s] enforcement application” (ibid, para. 1), essentially sharing the above reading of the decision of the Joint Judicial Committee. Further reporting will follow once Sir Richard Field has rendered a decision on the subject.

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The Australian Centre for International Commercial Arbitration’s Guideline on the Use of Arbitral Secretaries

Thu, 2017-02-23 06:21

Esme Shirlow (Assistant Editor for Australia & New Zealand)

On 1 January 2017, the Australian Centre for International Commercial Arbitration (‘ACICA’) released a new Guideline on the Use of Tribunal Secretaries. This new Guideline addresses a silence in the existing ACICA Arbitration Rules as to the scope for tribunals to appoint arbitral secretaries, and the basis upon which they might be appointed. This post provides an overview of the Guideline and assesses how it compares to guidelines on arbitral secretaries that have been developed by other arbitration institutions.

Overview of the Guideline

ACICA is an international dispute resolution institution operating in the Asia-Pacific region, and based in Sydney, Australia. ACICA facilitates the mediation and arbitration of international commercial disputes, including under its own institutional arbitration rules. The new Guideline will apply from 1 January 2017 to any arbitral secretary appointments made in arbitrations administered by ACICA. This includes arbitrations administered by ACICA under the ACICA Arbitration Rules, as well as those administered under the UNCITRAL Arbitration Rules. The Guideline is also expressly made available for use in non-ACICA administered proceedings, but only after consultation with ACICA.

The Guideline is designed to “encourage transparency with respect to the appointment, duties and remuneration of tribunal secretaries”. To this end, the Guideline covers a range of topics relevant to the use of arbitral secretaries, including their appointment and removal, their duties, and remuneration for their costs and expenses. Consistent with the goal of increasing transparency, the Guideline stipulates particular expectations as to the matters subject to consultation between the tribunal and disputing parties and further identifies a number of matters subject to disputing party agreement. This includes, for example, a requirement that the parties consent to any appointment or modification to the terms of appointment of arbitral secretaries.

The Guideline in Context

With the release of this Guideline, ACICA joins a number of other institutions seeking to better regulate the use of arbitral secretaries in international commercial arbitration. Institutional guidance on this matter has been released, inter alia, by the Stockholm Chamber of Commerce (2017), UNCITRAL (2016), the Hong Kong International Arbitration Centre (2014), and the International Chamber of Commerce (2012). These institutional guidelines respond to broader concerns about the processes by which secretaries are appointed and the duties performed by them in arbitration proceedings. In 2015, for example, 68% of the 763 respondents to the International Arbitration Survey considered that the use of tribunal secretaries was an area which required regulation. Concerns related to the existing state of regulation have been canvassed previously on this blog, including in 2013 and 2016.

The ACICA Guideline thus matches broader institutional attempts to regulate the use of arbitral secretaries. In fact, the structure and content of the ACICA Guideline closely follows, though modifies, the Guidelines on the Use of a Secretary to the Arbitral Tribunal released by the Hong Kong International Arbitration Centre (‘HKIAC’) in 2014. This indicates the propensity for institutions to develop their own approaches on such matters, even where those approaches clearly build upon existing institutional rules and guidelines. This highlights the particular unlikelihood of a uniform standard developing to guide practice in this area in the future. Whilst most arbitral institutions now provide guidance on the appointment and use of arbitral secretaries, important differences in the substance of such regulation remain.

A first key difference amongst the various institutional guidelines is their approach to the requirement for there to be party consent to the appointment of arbitral secretaries. A range of approaches are possible, ranging from there being no requirement that the tribunal even consult with the parties as to the appointment, to a requirement that the parties (or even arbitral institution) agree to such appointment. The ACICA Guideline requires that the tribunal consult with the parties before appointing a secretary, and “only proceed with the appointment of the proposed secretary upon the agreement of the parties”. The SCC Arbitrator’s Guidelines, and Article 24(1) of the 2017 SCC Arbitration Rules, similarly require that the tribunal notify the SCC Secretariat of its intention to appoint an arbitral secretary and conditions that appointment on the consent of the disputing parties. By contrast, other rules and guidelines require only consultation with the parties for appointment. The HKIAC Guidelines and Article 13.4 of the HKIAC Rules, for example, require merely that the tribunal receive and consider the parties’ comments on the proposed appointment before exercising its discretion to appoint a secretary.

A second key difference is how each set of guidelines defines the permissible scope of a secretary’s duties. Guidelines differ both as to substance and the amount of guidance they provide on this issue. The ACICA Guideline takes an approach roughly occupying the middle ground of existing approaches. It addresses the permissible duties of arbitral secretaries by limiting such duties to: “(a) provid[ing] administrative assistance; (b) summar[ing] and/or research[ing] factual and legal issues in the record; and (c) prepar[ing] drafts of procedural orders and non-substantive parts of awards”. The Guideline appears to contemplate the scope for the duties of the arbitral secretary to be extended on the basis of party agreement to that effect. The ACICA Guideline precludes, however, the secretary from exercising “any decision-making functions”. The SCC Arbitrator’s Guidelines, by contrast, appear to envisage a more limited role for the arbitral secretary, extending their duties only to the exercise of “organizational, clerical and administrative functions”. The ICC Note similarly limits the secretary’s functions to “organizational and administrative tasks”, but defines those tasks broadly, including to encompass “conducting legal or similar research” and “attending hearings, meetings and deliberations”. Unlike these three sets of guidelines, the HKIAC Guidelines attempt to regulate in greater detail the permissible scope of a secretary’s duties, providing an itemised 13-point list of the duties that may be performed by the secretary.

A final point of differentiation between the various institutional guidelines is the approach taken in each set to the calculation of the secretary’s remuneration. The ACICA Guideline provides for two options, depending upon whether the tribunal is paid by the hour or by reference to the amount in dispute. Where the tribunal is compensated on an hourly basis, the Guideline provides that the secretary’s fees will be billed separately on the basis of an hourly rate. Where, however, the tribunal’s compensation is based on the amount in dispute, the Guideline provides for the secretary’s compensation to form part of the tribunal’s fees, being shared equally amongst the members of the tribunal unless agreed otherwise. The ACICA Guideline closely follows the approach set out in the HKIAC Guidelines to secretary remuneration but reduces the detail there provided in relation to certain matters such as, for example reimbursement of costs incurred by the secretary and travel allowances. Unlike the ACICA Guideline, the HKIAC Guidelines supplement existing regulation of secretary fees in the HKIAC Arbitration Rules. Schedule 2 of those Rules, for example, stipulates a cap on the hourly rate that can be charged by secretaries to HKIAC proceedings. The adoption of only the structure and content of the HKIAC Guidelines, even if subject to modifications, means that the ACICA Guideline does not benefit from a similar context of regulation. The Guideline therefore leaves certain matters, including the permissible rates a secretary may charge, unaddressed. The ACICA Guideline, in opting for the HKIAC approach to costs, departs from other institutional practice which precludes the direct payment by the disputing parties of a secretary’s fees. The ICC Note, for instance, provides that the engagement of a secretary “should not pose any additional financial burden on the parties”, such that the secretary’s fees must come out of the fees of the arbitrators and “not increase the total costs of the arbitration”.

The Guideline’s Contribution to the Better Regulation of Arbitral Secretary Appointments

Along with the Guideline, ACICA has also launched a Tribunal Secretary Panel. The requirements for applicants to be considered for inclusion on the Panel further the goal of the Guideline to better regulate the appointment of arbitral secretaries to ACICA proceedings. Candidates may be appointed to the Panel for a term of three-years on the basis of an application meeting specified criteria. In particular, the applicant must demonstrate prior experience as a tribunal secretary and completion of a recognised training course. The Guideline and Panel provide a useful resource for disputing parties, arbitrators and secretaries in specific cases. In addition, however, these efforts by ACICA demonstrate serious efforts by the organisation to respond to broader concerns about the processes attaching to the appointment of tribunal secretaries and the functions they perform. The creation of a Panel also indicates a move to professionalise the role of arbitral secretaries. The Panel and Guideline both provide a useful point of information for stakeholders and the broader public. These developments contribute to ongoing discussions as to the proper role of party consent in secretary appointments, the appropriate qualities of arbitral secretaries and the scope of their duties. It will be interesting to see how other institutions weigh in on this debate in the future.

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We Need Your Input! on The Arbitrator Intelligence Questionnaire

Wed, 2017-02-22 01:00

Catherine Rogers

Arbitrator Intelligence

The Arbitrator Intelligence Questionnaire (AIQ) is a feedback questionnaire that will be used by Arbitrator Intelligence (AI) to collect information on case management and decision making practices of international arbitrators. After pilot testing and extensively vetting the AIQ, we are now asking for public comments to help us further refine it.

A demonstration version of the draft AIQ is now available for review on our website. There, you will also find an interactive annotation tool that will allow you to register your comments directly onto the text of the AIQ. Come give us your input!

Why Is the AIQ Needed?

The AIQ is a potential solution to some of international arbitration’s most salient challenges. For example, a recent survey by Berwin Leighton Paisner investigating the lack of diversity in international arbitration found that a staggering 92% of respondents wanted more information about new and less well-known arbitrators, and a whopping 81% of respondents wanted to give feedback about arbitrators at the end of cases.

Respondents to the 2015 Queen Mary Survey on Improvements and Innovations in International Arbitration identified the third worst characteristic of international arbitration as the “lack of insight into arbitrators’ efficiency.” Meanwhile, most responses to the Survey about how institutions could improve international arbitration involved providing more information about arbitrators, how they are appointed, and their decision making.

Finally, and most recently, three out of the 10 Hot Topics in International Arbitration for 2017 identified in a Kluwer blog post – transparency, the arbitrator selection process, and diversity – go to the heart of AI’s mission.

The AIQ is our means to accomplish these aspects of our mission. The idea behind the AIQ is relatively simple: to replicate through systematically gathered feedback the kinds of information that are currently obtainable only through ad hoc, person-to-person phone calls during the arbitrator selection process. More, and more accurate, information about how arbitrators decide cases will empower parties, counsel, and institutions to make better informed choices in selecting arbitrators. It will also reduce information asymmetries that undermine the fairness of arbitrator appointments and facilitate greater diversity by allowing newer arbitrators meaningful opportunities to establish reputations based on their actual performance.

Challenges in Creating the AIQ

To effectively replicate the essential characteristics of telephone research, we faced tremendous challenges in developing both the content of the AIQ and a strategy for implementing it. For starters, when you conduct telephone research about arbitrators, you can ask case-specific questions and follow up questions to fill in details. By contrast, the AIQ must cover all the topics that may be relevant in any particular case and anticipate potentially relevant follow up questions.

Meanwhile, when you make telephone inquiries, you know the identity of the person on the other side of the line and can assess the quality of responses in light of your confidence in that person’s experience and judgment. For the AIQ, we have to develop alternative means for determining relevance and ensuring confidence in the quality of responses, while still maintaining the confidentiality of the responder and of identifying details of the case.

Another challenge in developing the AIQ is preventing what we might call “The Disgruntled Losing Party Problem.” The concern is that, instead of providing fair and objective feedback, disappointed parties might misuse a survey to exact revenge against arbitrators who rendered an unfavorable award. To avoid this problem, our AIQ has to include control questions and other mechanisms to reduce the potential for unfair or inaccurate responses.

Ultimately, all these challenges must be met, but the questionnaire can’t be too long! Meeting these various challenges forced us to think and rethink details of the AIQ, and find innovative solutions to protect confidentiality while assuring quality.

To meet these challenges, we worked for months refining and redrafting questions in consultation with the Penn State Survey Research Center and other experts who are trained in empirical research methodologies. We then extensively pilot tested the AIQ with advisors and friends of AI, and we previewed the AIQ to select groups of in-house counsel, arbitrators, law firms, and representatives from arbitral institutions. The result is a draft version of the AIQ, which is now posted for public comment. Through this process, we hope to get additional feedback from around the globe so we can further refine and improve the AIQ.

Overview of the AIQ

The AIQ is divided into two phases. The first Phase focuses on general background about the case, and can be completed by anyone who has access to the arbitral award or case file. Key data from Phase I will then be prefilled into in the questions in Phase II. For example, the arbitrators’ names will be input in Phase I, along with key dates (like the date the request for arbitration was filed, the date the proceedings were closed, and the date the award was rendered). These data then will be incorporated into the questions in Phase II, which seek more evaluative and analytical feedback and are designed to be completed by an attorney or party involved with the case.

There are several reasons we divided the AIQ into 2 phases. First, it soon became clear that we could not ask all the essential questions we needed to ask and still have a questionnaire that would not be unduly burdensome. Now, each phase can be completed in 15 minutes or less.

Second, because Phase I seeks only objective information derived from awards, it can be used not only to gather information an ongoing basis, but also to extract data from past awards collected by AI. This data from past awards will provide a valuable starting point for analytics about arbitrator decision making.

Give Your Feedback on the AIQ

We need you! Come visit the AI website, where a static presentation version of the AIQ is posted along with annotation software that will enable you and others in the international arbitration community to provide us with interactive comments on the AIQ. Is there any question or response that is unclear? Are we missing a question you think should be included? Or are there questions you think are superfluous, unnecessary, or simply unhelpful?

Our website features Phase II for comment because it asks the most nuanced and complex questions—the questions on which your input will be most valuable. If you only have time to review one of the AIQ’s phases, Phase II is it! But we also welcome your feedback on Phase I, which is available here.

You can also find additional information about the AIQ in our answers to Frequently Asked Questions, which are available here.

Your feedback and input will help us finalize our AIQ before we formally launch it later this summer. In addition to annotating the AIQ on our website, you can also submit comments or questions directly to [email protected]

Conclusion

International arbitration is no longer a cozy little practice among an elite group of insiders who can exchange information by telephone. We now see over 10,000 international arbitration cases annually (just among the major institutions), and thousands of arbitrators who regularly sit in those cases. The telephone is simply not a good means for keeping up with the scope of information implicated by these numbers. The result, unsurprisingly, is that even the largest firms and parties report finding themselves forced to consider or appear before arbitrators with whom they are unfamiliar and about whom they have trouble finding information.

The time has come for a technological and informational upgrade to the entire international arbitration regime. Parties, counsel, arbitral institutions, and even arbitrators need a more reliable, neutral, data-driven resource for sharing information about arbitrators and their decisional history. As an academic-based enterprise, Arbitrator Intelligence is uniquely positioned to meet these challenges on behalf of all stakeholders in the international arbitration community.

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