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Investor-State Mediation: Insight and Inspiration from the First Virtual Pre-Intersessional Meeting of UNCITRAL WGIII

Mon, 2021-01-18 00:16

There may have been a lot of government restrictions limiting physical gatherings this year, but these restrictions surely did not limit our enthusiasm in gathering (virtually and intellectually) for the first-ever United Nations Commission on International Trade Law (‘UNCITRAL’) Working Group III (‘WGIII’) Pre-Intersessional Meeting. The virtual event, with the theme “The Use of Mediation in ISDS”, was successfully held in Hong Kong on 9 November 2020, attracting more than 500 registrations from over 74 countries.

The panel discussion among the promising line-up of ISDS experts engaged with UNCITRAL’s ongoing work on ISDS reform and the speakers indicated a hope that the event could contribute to the Secretary’s preparatory work on the topic and pave the way for further discussions to be held by WGIII. This post provides an overview of the Pre-International Meeting, highlighting some of the key themes, including challenges to ISDS mediation, multi-tiered dispute resolution, hybrid models for ISDS, and possible reform options.

Videos of the event and related materials are available here. Interested readers may also visit this page for more Kluwer blog posts on investor-state mediation.

 

Overcoming challenges to ISDS mediation

The first panel (Shane Spelliscy as moderator, and Justin D’Agostino, Meg Kinnear, Professor Jaemin Lee, and Mairée Uran Bidegain as speakers) discussed the challenges associated with the use of mediation in ISDS and how to overcome these challenges. The panel observed that the overall settlement rate for ISDS is quite low relative to settlement rates in commercial litigation and arbitration. Various reasons for this were discussed, including the lack of incentives for early settlement, the lack of coordination and consensus between different ministries and officials, and inadequate awareness and confidence in mediation generally.

The panellists then moved on to consider the ICSID mediation mechanism and the Korean experience in ISDS mediation. The panel concluded with a number of proposals to overcome the challenges that had been identified. These include, among other things, developing internal awareness about mediation as well as capacity to mediate and having more detailed treaty provisions to provide a stronger foundation for mediation in future.

 

Multi-tiered dispute resolution

The second panel (Dr Anthony Neoh QC SC JP as moderator, and Wolf von Kumberg, Professor Jack J. Coe Jr., and Ronald Sum as speakers) considered the use of mediation as part of a multi-tiered dispute resolution process. The panellists first examined the multi-tiered provisions in a few bilateral agreements, such as the Comprehensive and Economic Trade Agreement (CETA). They pointed out that while these provisions appear to be intended to encourage the use of mediation in conjunction with arbitration, obstacles may arise. One example is the fact that these systems are often geared towards preparing for arbitration during cooling off periods.

In light of the obstacles, the panel proposed a number of solutions to make the multi-tiered dispute resolution process more effective. The proposals include considering the use of Med/Arb/Med models; continuing the evolution of institutional frameworks; and designing more effective mediation protocols.

Finally, the panel explored the innovative aspects of the investment mediation rules under the CEPA (Closer Economic Partnership Arrangement) between Mainland China and Hong Kong SAR, highlighting the requirements in relation to the qualifications and skills of CEPA mediators, the provisions on enforcement of mediated settlements, confidentiality, and the compulsory Mediation Management Conference procedure. The panellists suggested that the CEPA mediation mechanism, which is a clear set of rules with an open and transparent mechanism affording protection to foreign investors, may be a potential model for reference for UNCITRAL’s work in future.

 

Hybrid Models for ISDS

The third panel (Natalie Morris-Sharma as moderator, and Barton Legum, Francis Xavier SC, Cao Lijun, Blanca Salas-Ferrer, and Professor Hi-Taek Shin as speakers) considered the use of hybrid models, which are dispute resolution mechanisms involving both arbitration and mediation, in resolving ISDS disputes. The panel discussed a number of legal issues arising from the use of hybrid models. For instance, some hybrid ISDS provisions fail because the language is unclear. Another potential issue is that mediation and arbitration are not kept separate from one another. This can be problematic where confidential information or admissions from mediation get intertwined with the arbitration proceedings, with the result that the arbitral award may be challenged on due process grounds.

A number of recommendations emerged from the panel session. The panel recommended mandatory mediation because, among other benefits, it provides a valid basis for state respondents to have recourse to alternative approaches outside arbitration without the need to worry about criticisms or allegations of corruption. It also helps to preserve the relationship between the investor and the State. Another recommendation is the development of a permanent investment court structure, which is capable of bringing much needed predictability and structure to mediation.

The panel also considered the potential for arbitrators to also act as mediators in ISDS cases. The panel acknowledged the potential benefits of such practice, such as time and cost savings. However, in light of some of the issues raised earlier, such as concerns over confidentiality as well as impartiality of arbitrators when mediation fails and arbitration resumes, the panel suggested a cautious approach for ISDS cases whereby only the presiding arbitrator will act as mediator, with the understanding that if mediation fails, he or she will resign and a new president will be appointed.

 

Reform options for ISDS mediation

The fourth panel (Anna Joubin-Bret as moderator, and Alejandro Carballo-Leyda, Charlie Garnjana-Goonchorn, and Dinay Reetoo as speakers) discussed the possible reform options for ISDS mediation. The panel highlighted three broad categories of recommendations – (1) improving the legal framework; (2) capacity building; and (3) leveraging mediation’s synergy with other ISDS reform options.

It was suggested that there is a need to improve the legal framework for investor-State mediation at both the international and domestic levels. At the international level, the panel called for the development of model treaty clauses and ISDS mediation protocols. As for the domestic level, there needs to be better domestic institutional frameworks to facilitate the use of mediation by States.

Capacity building is important for a variety of reasons. For instance, it helps to demystify the use of mediation as a means of resolving ISDS disputes (in particular, it helps address concerns relating to corruption and concerns that the government is not acting in the best interest of the people if it agrees to settle). Capacity building can be achieved through education and promotion initiatives, such as conducting training courses and promoting the literature cited and developed in the Working Group III process.

Lastly, the panel considered the synergy of mediation with other possible ISDS reform options. In particular, the panel highlighted the potential of an Advisory Centre on International Investment Law (‘ACIIL’). The panellists considered that an ACIIL can (1) help state officials understand mediation; (2) take on the role of both neutral institution and legal advisor to provide an evaluation as to whether and when mediation is appropriate; and (3) facilitate the mediation process (by proposing mediators and ensuring that State representatives have the appropriate authority to negotiate and reach an agreement).

 

The way forward

Following a Q&A session in which the audience eagerly participated, the event finally came to an end. Just like the novel format of this first-ever virtual Pre-Intersessional Meeting, the ideas emerging from the panel discussion proved equally forward-looking and there was a lot of food for thought for everyone. It is hoped that all these discussions could give us some inspiration on how we can shape the future of ISDS mediation going forward and contribute to the work of WGIII as well as the ongoing dialogue among the wider ISDS community.

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The Contents of the Brazilian Arbitration Journal, Volume XVII, Issue 68 (December 2020)

Sat, 2021-01-16 22:03

In this issue, the Brazilian Arbitration Journal pays tribute to Professor Theophilo de Azeredo Santos, one of the pioneers of arbitration in Brazil, in a Note In Memoriam by Selma Ferreira Lemes and Fabiane Verçosa.

This edition also marks the last one coordinated by our Editor-in-Chief Flavia Mange, who has diligently and competently directed the RBA in these last years. Our sincere gratitude to Flavia. Fabiane Verçosa will replace her in the conduction of the Journal’s activities.

In its National Doctrine section, the Journal introduces the work of José Victor Palazzi Zakia, who examines the possibility of a party lacking financial resources to disregard the effects of the arbitration agreement. Moreover, Heitor Vitor Mendonça Sica and Wilson Pimentel analyze and compare the cost allocation regime of judicial proceedings and arbitration proceedings in Brazil. The Professors Kazuo Watanabe and Daniela Monteiro Gabbay address the admissibility and adequacy of collective arbitration as a mechanism for access to justice in the capital markets and its procedural aspects.

Whereas in the International Doctrine section, Brian D. Burstein presents a forecast on how disputes regarding investments in renewable energy will evolve in the context of climate urgency.

In the Nacional Judicial Case Law section, Natália Mizrahi Lamas discusses a judgement, delivered by the São Paulo Court of Appeal, that ruled on the setting aside of an arbitral award on the grounds of a failure, perpetrated by the President of the Arbitral Tribunal, of his duty of disclosure. Luis Fernando Guerrero comments on a decision rendered by the Superior Court of Justice regarding the existence of an arbitration agreement between the parties and the consequent derogation of the state court’s jurisdiction. In addition, Giovana Perette Leites assesses the judgement of the Superior Court of Justice concerning the transferability of arbitration clauses by subrogation.

In the International Judicial Case Law section, James E. Berger, Charlene C. Sun and Paula Miralles de Araujo provide insights into the U.S. Court of Appeals for the Fourth Circuit’s decision on the use of section 1782 in aid of foreign commercial arbitrations and thoughts for the Brazilian arbitration scenario.

In the General Information, Ana Paula Montans introduces LCIA’s new Arbitration Rules in force since 1 October 2020. Fernando Freire Lula de Souza reports the Young Practitioners Forum of the 19th CBAr International Arbitration Congress. Furthermore, Luíza Kömel and Maúra Guerra Polidoro present their notes on the 19th CBAr International Arbitration Congress – “Arbitration and Digital Transformation”.

The Article “Ethics of the International Arbitrator” by Professor Martin Hunter is this edition’s Arbitration Classic, containing an introductory note by Renato Stephan Grion and Thiago Del Pozzo Zanelato.

Lastly, the present edition includes Thiago Marinho Nunes’s review of the book “Vinculações Arbitrais”, authored by Paulo Magalhães Nasser.

Stay safe in these times of pandemic!

João Bosco Lee, Director

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Representation of Venezuela in Investment Arbitration

Sat, 2021-01-16 00:09

Nicolas Maduro was “reelected” President of Venezuela for the constitutional period from 2019 to 2025. This presidential election was the subject of serious questions by large representative sectors of Venezuelan society, as well as by the United States, the European Union, and most Western Hemisphere countries. Given this situation, Juan Guaidó, as head of the National Assembly of Venezuela, announced that he would assume the powers of the executive branch, and was sworn-in as Interim President of Venezuela on January 23, 2019.

On the same day that Guaidó took the oath, the US government expressly recognized him as President and rejected the legitimacy of Maduro, which was followed by the governments of more than 50 countries, including the US, the UK, Canada, Japan, Switzerland, Israel, Australia, South Korea, almost every Member State of the European Union, and most Latin American nations.

Despite the above, Maduro continues to control the real and effective functions of the government. In addition, Maduro is backed by some countries of a certain geopolitical weight such as China, Russia, Turkey, Cuba, and Iran.

This unusual political situation leads to the introduction of the problem that this post seeks to address: who holds the right to represent Venezuela in investment arbitrations?

 

A brief overview of two disputes under the ICSID Convention in which the problem has been presented

This dilemma has already arisen in several ICSID cases. The first case is ConocoPhillips v. Venezuela (ICSID Case No. ARB/07/30) for which, the tribunal issued its final award on 8 March 2019. On 16 April 2019, the law firm Curtis, Mallet-Prevost, Colt & Mosle LLP (“Curtis”), claiming to act on behalf of Venezuela, submitted a rectification request, alleging that there were errors in the final award. Curtis enclosed with its request a power of attorney to represent Venezuela, granted by Hernández, Special Attorney appointed by the Guaidó Administration.

However, on 19 April 2019, the law firm De Jesús & De Jesús (“De Jesús”) submitted a letter to the tribunal, in which it stated that on 7 March 2019, De Jesús had been granted a power of attorney to represent Venezuela by Muñoz, Attorney General appointed under the authority of the Maduro Administration. Interestingly, in the 19 April 2019 letter, De Jesús made the following statement: “on behalf of the Republic the Application that was previously submitted by our colleagues from Curtis, which you will find enclosed.”

In short, two separate law firms claimed to be the exclusive representatives of Venezuela in the same dispute. How did the tribunal address this issue? The tribunal determined that there was no conflict because both law firms had filed the same request for rectification.

In the case of Global Values v. Venezuela (ICSID Case No. ARB/13/11), the same issue arose during the annulment proceedings. The Special Attorney appointed by the Guaidó Administration filed a request alleging that only Guaidó had the authority to assert the interests of Venezuela, seeking to exclude the Attorney General of the Maduro Administration. The Ad Hoc Committee rejected this request, considering that the Special Attorney appointed by the Guaidó Administration did not demonstrate – even though he had the burden of doing so – that he represented an independent government exercising effective authority and control within Venezuela. In this regard, the Ad Hoc Committee clarified that the recognition that several states of the international community had given to Guaidó did not demonstrate the effectiveness of his authority.

 

How should future tribunals address this issue?

It is an inherently political exercise to assess the legitimacy of one’s claims of being the rightful government of a sovereign State. Recognition, or lack thereof, of one particular government over another has significant implications, including with respect to a country’s sovereignty and independence, and its ability to engage with the international community. It is worth questioning whether arbitral tribunals are the appropriate bodies to make determinations as to which political leader has the right to represent a sovereign nation. Moreover, it seems undesirable to burden tribunals with the task of recognition of governments, given that the implications of such recognition are of significant political importance. There is, in addition, an attendant risk that different tribunals will arrive at divergent views, adding to the political turmoil.

Prima facie, it would appear that the Maduro faction is the de facto government of Venezuela because it exercises effective authority within the country. This has probably been the reason Russia, China, Turkey, and Iran, among other States, have granted recognition to the Maduro government.

Despite this, Guaidó’s international status as de jure President has been recognised by the governments of more than 55 countries, including almost all major trading nations and host countries with large investment flows. On that basis, it is possible that the national courts of those States may treat officials appointed by Guaidó as the only legal representatives of Venezuela. US Courts have taken this approach in Rusoro Mining Limited, Gold Field Limited v Venezuela and OI European Group v. Venezuela. In these cases, the respective domestic courts held that the decision of what government is to be regarded as representative of a foreign State is a political rather than judicial decision; as such, they recognized the Guaidó government lawyers as the appropriate representatives of Venezuela because the United States has recognized Juan Guaidó as the Interim President of Venezuela.

This approach taken by the US national courts, accompanied by the possibility that other national courts may follow suit, raises particular concerns about enforceability of arbitral awards. Arbitral tribunals are not empowered to enforce the pecuniary obligations imposed by their awards. Such power only belongs to courts of the countries in which the award is intended to be enforced. Therefore, it may well be that a court of one of the countries whose government has expressly recognized Guaidó as president will need to set aside a final international arbitration award issued as part of an arbitral process where the representation of Venezuela has been denied to lawyers appointed under the authority of Guaidó.

As such, it may be prudent for arbitration tribunals to hear the arguments of counsels empowered by both factions when they each ask to act on behalf of Venezuela. It could also help ensure that the different perspectives on key issues in a matter are fully represented, allowing the arbitral tribunal to obtain a better understanding of the facts. Of course, such an approach, albeit more politically neutral, is not without its risks and setbacks.

Firstly, this approach could lead to increased costs and delays. Tribunals would need to proactively mitigate that risk by drafting procedural orders with strict parameters.

Secondly, this approach could make it difficult and expensive for claimants to defend their case, considering they will have to simultaneously respond to submissions made by both factions. In the disputes mentioned above where this issue has arisen, the competing submissions did not lead to issues relating to substantive law or facts, because the substance of each faction’s submission was identical. In the event that the two factions take conflicting positions in future disputes, tribunals would be faced with the unenviable position of having to balance their political neutrality with ensuring procedural justice for the claimant.

Nevertheless, it would not be justified for an arbitration tribunal to make such a significant political decision (i.e., who has the right to govern Venezuela), simply to make the arbitration process less procedurally complicated for claimants. Instead, tribunals would most likely have to focus on setting strict boundaries for how each Venezuelan political faction may engage in the dispute.

It is worth noting, of course, that if a tribunal finds that counsels of one faction did not present their case with diligence and in good faith, in due compliance with the applicable rules of professional conducts and ethics, then the tribunal would be able to exclude them from the proceedings, keeping in mind that some ICSID decisions support a tribunal’s powers to exclude counsel from arbitrations in compelling circumstances, e.g., Hrvatska Elektropriveda d.d. v Republic of Slovenia.

The existing political crisis in Venezuela will undoubtedly raise some concerns for arbitral tribunals presiding over disputes involving Venezuela. It remains to be seen whether future tribunals would be able to take the politically neutral approach that ICSID tribunals have opted for thus far.

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2020 Review: Latin America and Commercial Arbitration

Fri, 2021-01-15 01:00

Corruption, annulment of arbitral awards and court intervention mark the main developments for 2020 in Latin America.  Our contributors this year reported on the most important judicial decisions and legislative measures impacting the legal framework of various jurisdictions in the region.

A new ‘hot topic’ arising from the COVID-19 pandemic is the interplay between arbitration and insolvency.  This has led to the creation of a new arbitration platform Arbinsol, as well as a new IBA Arbitration Committee group, which will issue a toolkit for arbitrators and counsel to provide a framework for identifying the various issues that might arise when a party to an arbitration is subject to insolvency proceedings, and which will be accompanied by a series of National Reports.  In this regard, Lucila Marchini provided an overview of the current legal framework in Latin American jurisdictions.

Below, we will discuss the most relevant developments in the region.

 

While Mexico faces a tumultuous regulatory battle, commercial arbitration appears unaffected

During late 2019 and the first quarter of 2020, Mexico’s regime issued a series of decrees to modify renewable energy regulations which adversely impacted national and international companies operating in Mexico.  As Fernando Pérez-Lozada anticipated earlier this year, these measures subsequently led to the companies’ recourse to local courts for temporary injunctions against the government measures, as well as threats of investment claims against the country.

Despite the regulatory battle between private companies and the Government, it appears that commercial arbitration remains unaffected.  In fact, Sylvia Sámano Beristain, Secretary General of the Arbitration Center of Mexico (CAM) reports that disputes relating to energy and oil and gas have actually increased in the center.  Ms. Sámano also shared with our team that CAM plans to amend its Arbitration Rules of 2009 to offer an updated framework that meets all the current trends of the arbitration practice including the participation of tribunals’ secretaries, expedited procedures, and third-party funding.

 

Important developments in the arbitration landscape in Chile

On April 2, 2020, Chile’s legislative body enacted an Emergency Law to regulate how courts and arbitral tribunals would function during the state of emergency declared by President Piñera. This law grants arbitral tribunals the power to suspend hearings unless due process is affected; it also allows a party to rely on an impediment attributed to a situation caused by the pandemic to excuse its non-compliance with a procedural deadline. Pablo Correa and Liat Tapia discuss whether the provisions of the Emergency Law apply to international arbitrations seated in Santiago.  Specifically, the authors analyze whether the suspension of evidentiary terms would apply to arbitrations where the evidence is not submitted during a specific procedural phase but it accompanies the parties’ written submissions.

Macarena Letelier Velasco, Executive Director of the Center for Arbitration and Mediation of Santiago (CAM Santiago) shared her views on the arbitration landscape in Chile. Impressively, CAM Santiago is the only center in Latin America that has its own Rules on the use of Dispute Boards; it implemented a remote work system in response to the COVID-19 pandemic; provided the local community with 1,000 online, pro bono mediations for cases with disputes not higher than US$ 100,000, and very recently launched a book compiling Chilean arbitral jurisprudence from 2002 to 2020.

Finally, on September 14, 2020, the Chilean Supreme Court entered a final judgement in case CCF SUDAMERICA SPA resolving a complaint appeal (recurso de queja) against a lower court’s rejection of an appeals recourse against a domestic arbitral award. In this case, the parties agreed in their arbitration agreement that an appeal and certiorari recourses would be admissible against the final award.  Once the award was issued, the losing party brought an appeal which the Appellate Court of Santiago dismissed. However, the Supreme Court later reversed the decision.  Cristián Conejero, Juan M. Rey Jiménez de Aréchaga and María Jesús Hadwa discussed this decision which, on the one hand, endorses the basic premise that consent is the cornerstone of arbitration, but on the other hand, ignores basic principles of international arbitration, i.e. the finality of arbitral awards and the fact that annulment is the sole remedy against arbitral awards.

 

In Colombia, the Council of State stands out for its review and annulment of awards

Three important decisions stand out for commercial arbitration in Colombia.  The first refers to the Ruta del Sol II case whereby a domestic arbitral tribunal declared a concession contract null and void due to corruption in its procurement; despite the fact that the concession contract had already been terminated through the parties’ mutual agreement.  On October 8, 2020, the Council of State (the “Council”) upheld the validity of the award.  Juan Sebastián Arias and Laura Lamo discussed the importance of the tribunal’s determination for future cases in Latin America relating to public contracts procured through unlawful practices.

The second important precedent refers to the February 27, 2020 Council’s decision on the GECELCA case.  The Council annulled an international award due to the tribunal’s failure to comply with the agreed arbitral procedure.  During the arbitration, the tribunal denied the claimant to produce an expert report in response to the expert evidence the respondent filed with its rejoinder submission.  The Council considered this to be a departure of the parties’ procedural agreement, without considering the materiality of the tribunal’s order on the underlying merits decision.  Alberto Madero and Manuela Sossa reported on this judgement which departed from previous standards set forth by Colombia’s Supreme Court of Justice on the annulment of arbitral awards, and adopted a more expansive criterion to annul international awards based on procedural defects.

Finally, on a more positive note, on October 28, 2020, the Council rejected a tutela petition sought by the Refinería de Cartagena SA (Reficar) against a domestic arbitral award rendered against it.  The dispute referred to a contract for the expansion of the refinery.  In dismissing Reficar’s petition, the Council pointed to the exceptional nature of this type of relief against arbitral awards.

 

Achieving transparency continues to be a priority for Peru’s arbitration community

In recent years, arbitration users began to raise queries concerning the legitimacy of arbitration because of the lack of publicly available information, especially with respect to arbitrators and their accountability. Some of these queries arose from the uncovering of bad practices and acts of corruption associated to the Lava Jato investigation.  As a result, the National and International Arbitration Center of the Lima Chamber of Commerce (the “LCC Arbitration Center”) developed transparency mechanisms to guarantee the legitimacy of arbitration such as the “Faro de Transparencia” initiative (discussed here).  The Transparency Lighthouse is a publicly accessible digital platform aimed at providing public access to key pieces of information with regard to arbitrations administered by the LCC Center (including the arbitrators’ information).

Additionally, on January 24, 2020, Peru enacted the Emergency Decree No. 020-2020, (the “Decree”) which amended the Arbitration Act to provide protections to any arbitration in which the Peruvian Government is involved.  Rafael Boza reported earlier this year the content and risks of this new legislative development over commercial arbitration in the country. The recitals of the Decree state that the Arbitration Act is “not well suited” for arbitrations in which the state is a party, and declare that the purpose of the amendments is to “assure transparency.”  Among others, the Decree (i) bans ad-hoc arbitration in cases in which the state is a party; (ii) hints the possibility of a state arbitral institution; (iii) requires that a judge granting provisional measures (an attachment or injunction) obtains security for such remedy (thereby making it harder for a private to obtain interim relief against a governmental entity); and (iv) limits the capacity of individuals to serve as arbitrators.

 

Brazil continues to be active in arbitral developments

As one of the most active jurisdictions in Latin America, Brazil did not disappoint this year.  First, Pedro Guilhardi and Amanda Bueno Dantas reported on a judicial decision favorable to the secrecy of arbitral proceedings in Brazil.  The dispute arose out of a summons from the state’s tax authority against the Centro Brasileiro de Mediação e Arbitragem (CBMA) to exhibit documents concerning arbitrations proceedings it had administered. Albeit not relying on confidentiality protections inherent to arbitration, on February 12, 2020, the Regional Federal Court of the Second Region enjoined the tax authority from seeking disclosure of the Center’s documents.

Second, on August 11, 2020, the Court of Appeals of the state of São Paulo annulled an arbitral award on the Fazon case on grounds that the chair of an arbitral tribunal had failed to timely disclose his appointment to another arbitration by one of the parties. The arbitration started in 2015, and a final award in favor of the respondent was issued in February 2018. Before deciding the claimant’s request for clarification, the arbitral tribunal issued a procedural order informing the parties, for the first time, that in August 2016, the chair of the tribunal had accepted an appointment as co-arbitrator by the respondent in a different proceeding. Guilherme Rizzo Amaral discussed the court’s reasoning and potential implications for future judgements on this subject.

Finally, another development worth noting is Brazil’s new Franchising Law (in force as of March 27, 2020) which expressly provides that franchising disputes may be subject to arbitration.  This has brought a lively debate in the country (discussed by Caio de Faro Nunes and Victoria Romero here) of whether this express reference was necessary at all, and whether its scope now addresses the issue of arbitrability of adhesion contracts – given that franchise agreements can often take the form of adhesion contracts.

 

Venezuela – is the integrity of arbitration in danger?

On February 20, 2020, the Constitutional Chamber of the Venezuelan Supreme Court of Justice (the “Court”) issued an interlocutory judgment ordering the Business Center for Conciliation and Arbitration (CEDCA) to stay an arbitration and to forward the arbitration file in order to decide on a request for “avocamiento” filed by one of the parties before the Court.  Avocamiento refers to the Court’s power to take over the review of a case from the lower judicial courts, or reassign it to a different court when certain exceptional circumstances are met.

As Luis Capiel and Alicia Larrazabal discuss here, the fact that the Court decided to stay the arbitration and could eventually take over the resolution of the case is troubling because the court could effectively seize the decision on the merits from the arbitral tribunal.  Naturally, this development raised concerns from the Venezuelan Arbitration Association, which issued a statement condemning the decision; as well as from the IBA Arbitration Committee which sent an open letter to the President of the Caracas Bar Association expressing concerns that this decision may result in a “disquieting precedent” for arbitration in Venezuela.

To date, the Court’s decision on the request for avocamiento is still pending.

 

Conclusion

As gleaned from this review, the developments for the region in 2020 mainly focused on decisions from the states’ judiciaries and measures enacted by their legislative bodies.  This has raised concerns regarding the intervention of courts in arbitration proceedings as well as their reasoning for annulment of arbitral awards.

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Imposing Virtual Arbitration Hearings in Times of COVID-19: The Swiss Perspective

Thu, 2021-01-14 00:36

On 6 July 2020 the Swiss Federal Tribunal has issued a decision in which it has held that the COVID-19 pandemic does not serve as a sufficient justification to impose virtual hearings in state court proceedings against a party’s will. With a view to field of arbitration, the question thus arises whether the respective reasoning of the highest Swiss court may have any impact on the practice of arbitral tribunals seated in Switzerland.

In this post we submit that the reasoning of the Swiss Federal Tribunal is based on specific state court related premises which do not properly reflect the flexibility and further features of arbitration proceedings. Therefore, the decision of the Swiss Federal Tribunal cannot be transposed to international arbitration and arbitral tribunals may, under specific circumstances such as the COVID-19 pandemic, order the holding of virtual hearings against the will of a party.

 

Background

It was interesting to see how differently state courts on one hand and arbitral tribunals on the other hand reacted to the lockdowns imposed by the COVID-19 pandemic in large parts of the world in spring 2020. Whilst local courts were forced to temporarily suspend operations, numerous arbitral tribunals swiftly adapted to the new normal by shifting the proceedings into virtual space. Accordingly, various international arbitration institutions, including the ICC, have been proactively encouraging arbitral tribunals to conduct virtual hearings. The implementation of remote settings was straightforward where both parties were in consent with virtual proceedings.

But can the COVID-19 pandemic serve as a sufficient justification for arbitral tribunals to impose the holding of virtual hearings on a party actually insisting on a physical interaction with the witnesses?

Swiss arbitration law does not address this issue. A party having objected to the holding of a virtual hearing may feel that it was not in a position to properly present and develop its case on a remote basis. It may therefore be inclined to challenge the arbitral award on the basis of a perceived violation of its right to be heard pursuant to Art. 182(3) of the Swiss Private International Law Act (“PILA“).1)See Saunders, Chapter 7: COVID-19 and the Embracing of Technology: A ‘New Normal’ for International Arbitration, in Calissendorff/Schöldström (eds), Stockholm Arbitration Yearbook 2020, Volume 2, p. 108. jQuery("#footnote_plugin_tooltip_3396_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3396_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Arbitral tribunals should, therefore, refrain from imposing virtual hearings without regard to due process considerations.

Yet, these fundamental procedural rights need to be balanced against the principle of procedural efficiency.2)Art. 15(7) Swiss Rules; Berger/Kellerhals, International and Domestic Arbitration in Switzerland, 3rd ed., Bern 2015, p. 419 no. 1204. jQuery("#footnote_plugin_tooltip_3396_2").tooltip({ tip: "#footnote_plugin_tooltip_text_3396_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Despite the reported breakthroughs in the development of COVID-19 vaccines, it remains unclear at what point in time unrestricted travelling and physical contacts will become possible again. It can thus not be excluded that a party’s insistence on holding a conventional hearing will unduly delay the respective arbitration process.

 

The decision of the Swiss Federal Tribunal

The Swiss Federal Tribunal has recently addressed the conflicting interests of physical interaction and procedural efficiency in the context of state court litigation. In its decision DFT 146 III 194 dated 6 July 2020, the Swiss Federal Tribunal upheld the appeal of a party who had objected to the lower court’s order to virtually conduct the main court hearing via Zoom. The highest court in Switzerland found that, contrary to other instances for which the law explicitly provides for the possibility to use electronic means, there is no legal basis in the Swiss Civil Procedure Code (“CPC“) to hold the main hearing virtually against the will of a party (DFT 146 III 194 cons. 3.2 and 3.6.). To underline this finding, the Swiss Federal Tribunal pointed out that the publicity of civil proceedings (Art. 54 CPC) could not be ensured when hearings were to be held electronically (DFT 146 III 194 cons. 3.5.). However, the current project for the revision of the CPC foresees the possibility to take certain evidence by video conference.

 

Comment

Yet, it does not appear that the reasoning of the Swiss Federal Tribunal can be directly transposed to the field of international arbitration. Quite to the contrary, the publicity of state court proceedings is often one of the concerns leading parties to choose the largely confidential arbitration proceedings over litigation (see Art. 44 Swiss Rules). Art. 25(6) Swiss Rules even explicitly provides that arbitration hearings shall be held in camera unless the parties agree otherwise.

Moreover, Swiss arbitration law as codified in chapter 12 of the PILA is known for its flexibility leaving a wide discretion to arbitral tribunals in shaping the proceedings.3)Liatowitsch, Schiedsgerichtsbarkeit: 12. Kapitel IPRG und das UNCITRAL Model Law on International Commercial Arbitration, in Bonomi/Ritaine (eds.), La loi fédérale de droit international privé: vingt ans après, p. 218 et seq. jQuery("#footnote_plugin_tooltip_3396_3").tooltip({ tip: "#footnote_plugin_tooltip_text_3396_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This discretion is solely limited by the parties’ common agreement, their right to be heard and the principle of equal treatment (Art. 182(2)(3) PILA).4)Stacher, Einführung in die internationale Schiedsgerichtsbarkeit der Schweiz, Zurich 2015, p. 21. jQuery("#footnote_plugin_tooltip_3396_4").tooltip({ tip: "#footnote_plugin_tooltip_text_3396_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Accordingly and as opposed to the CPC, the PILA does notably not provide for a catalogue of constellations in which arbitral tribunals may make use of electronic means of communication, thereby implicitly excluding other applications. Hence, it does not appear that a party’s right to a hearing necessarily implies the entitlement to physical interaction.5)Scherer, Chapter 4: The Legal Framework of Remote Hearings, in Scherer/Bassiri, et al. (eds), International Arbitration and the COVID-19 Revolution, p. 418. jQuery("#footnote_plugin_tooltip_3396_5").tooltip({ tip: "#footnote_plugin_tooltip_text_3396_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This seems to be even more so where the right to be heard must be weighed against the principle of procedural efficiency, such as in times of a pandemic.

It was on the basis of such considerations that the Austrian Supreme Court, in a recent decision, previously discussed on the blog, came to the conclusion that the imposition of a virtual hearing against the will of an arbitrating party did not violate the right to be heard. In support of this finding, the Austrian Supreme Court referred to Art. 6 of the European Convention on Human Rights (ECHR) and pointed out that this provision not only grants the right to be heard but also the right to effective legal protection. It concluded that, in case of an impending standstill of the judiciary, video conferencing may be an effective way to reconcile these potentially conflicting principles.

The binding nature of the ECHR in Switzerland leaves no room for Swiss based arbitral tribunals to ignore considerations of this kind.6)Göksu, Schiedsgerichtsbarkeit, Zurich 2014, p. 695. jQuery("#footnote_plugin_tooltip_3396_6").tooltip({ tip: "#footnote_plugin_tooltip_text_3396_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Moreover, the long-lasting reputation of Switzerland as a place for efficient and flexible arbitration proceedings gives additional reason to believe that the Swiss Federal Tribunal would be inclined to likewise consider virtual hearings to be compatible with the right to be heard. This expectation seems to be further supported by a general tendency in international arbitration to increasingly grant arbitral tribunals the competence to order the holding of virtual hearings if the circumstance so require.7)Saunders, Chapter 7: COVID-19 and the Embracing of Technology: A ‘New Normal’ for International Arbitration’, in Calissendorff/Schöldström (eds), Stockholm Arbitration Yearbook 2020, Volume 2, p. 108; Scherer, Remote Hearings in International Arbitration: An Analytical Framework, in Scherer (ed.), 2020 Journal of International Arbitration, Volume 37, Issue 4, p. 420 et seq.; see references cited in Gielen/Wahnschaffe: Die virtuelle Verhandlung im Schiedsverfahren, in SchiedsVZ 2020, 257, p. 262. jQuery("#footnote_plugin_tooltip_3396_7").tooltip({ tip: "#footnote_plugin_tooltip_text_3396_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); As from 1 January 2021, arbitral tribunals acting under the revised ICC Rules will even be explicitly authorised by the parties, after consulting them, to conduct “any hearing […] remotely by videoconference, telephone or other appropriate means of communication” (Art. 26(1) ICC Rules 2021).

It is to be expected that this forward-thinking approach will further strengthen the reputation of international arbitration as a flexible and effective means to resolve cross-border commercial disputes.

References   [ + ]

1. ↑ See Saunders, Chapter 7: COVID-19 and the Embracing of Technology: A ‘New Normal’ for International Arbitration, in Calissendorff/Schöldström (eds), Stockholm Arbitration Yearbook 2020, Volume 2, p. 108. 2. ↑ Art. 15(7) Swiss Rules; Berger/Kellerhals, International and Domestic Arbitration in Switzerland, 3rd ed., Bern 2015, p. 419 no. 1204. 3. ↑ Liatowitsch, Schiedsgerichtsbarkeit: 12. Kapitel IPRG und das UNCITRAL Model Law on International Commercial Arbitration, in Bonomi/Ritaine (eds.), La loi fédérale de droit international privé: vingt ans après, p. 218 et seq. 4. ↑ Stacher, Einführung in die internationale Schiedsgerichtsbarkeit der Schweiz, Zurich 2015, p. 21. 5. ↑ Scherer, Chapter 4: The Legal Framework of Remote Hearings, in Scherer/Bassiri, et al. (eds), International Arbitration and the COVID-19 Revolution, p. 418. 6. ↑ Göksu, Schiedsgerichtsbarkeit, Zurich 2014, p. 695. 7. ↑ Saunders, Chapter 7: COVID-19 and the Embracing of Technology: A ‘New Normal’ for International Arbitration’, in Calissendorff/Schöldström (eds), Stockholm Arbitration Yearbook 2020, Volume 2, p. 108; Scherer, Remote Hearings in International Arbitration: An Analytical Framework, in Scherer (ed.), 2020 Journal of International Arbitration, Volume 37, Issue 4, p. 420 et seq.; see references cited in Gielen/Wahnschaffe: Die virtuelle Verhandlung im Schiedsverfahren, in SchiedsVZ 2020, 257, p. 262. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Interviews with Our Editors: In Conversation with Sylvia Sámano Beristain, Secretary General of the Arbitration Center of Mexico – CAM

Wed, 2021-01-13 01:35

Welcome to the Kluwer Arbitration Blog, Ms. Sámano!  We are grateful for this opportunity to learn more about the Arbitration Center of Mexico – CAM; the type of disputes it handles and the way it is addressing recent developments, such as the COVID-19 pandemic and the adoption of new policies from the Andrés Manuel López Obrador (AMLO) administration. 

 

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

I truly appreciate being part of this interview, thank you for the invitation.

Since 2016, I have been serving as Secretary General at the Arbitration Center of Mexico. I directly oversee the administration of the arbitration proceedings and all the other academic activities at the center.

I studied law at National Autonomous University of Mexico. Before practicing arbitration, I worked at law firms concentrating on commercial, civil and environmental law matters. My involvement in arbitration started through an LLM degree at Hong Kong University, where I had the opportunity to witness the development of international arbitration.

I was lucky enough to have the opportunity to intern at the ICC Hong Kong office. During those months, I honed in on everything I learned through the LLM, and realized the importance of administered arbitration.

Over the last few years, I have been teaching arbitration at different law schools throughout Mexico. This has provided me with a platform to always keep studying and researching legal issues related to arbitration.

 

  1. Please tell us more about CAM’s users and their disputes. What kind of parties do you usually serve, and are there particular industries or types of disputes prevalent among them?

The arbitrations at CAM are mostly domestic. The highest percentage of disputes relate to construction contracts. The second largest percentage is related to commercial contracts and thirdly to franchise contracts. In the last few years, due to Mexico’s energy reform of 2013, there have been new types of controversies related to electricity and the oil and gas industry.

 

  1. What percentage of CAM arbitrations relate to international disputes?

Even though most arbitrations are domestic, over the last years, there has been an increase of international cases that have been administrated in English. About 5% of our cases are international, and have involved parties from Europe, North America and Latin America.

 

  1. Apart from the administration of arbitrations, what other initiatives does the Center undertake to promote the use of arbitration in Mexico?

In the academic area, the Center has two main projects:

  • Moot Mexico competition – which was organized in 2002, with the goal of providing students with a practical insight into arbitration procedures. Renowned universities from Mexico as well as other countries, such as Guatemala, Perú, Colombia and Honduras, currently participate in this competition. This project is fantastic as it involves universities, practitioners, law firms and the Center. We all participate and enrich the development of the arbitration practice in the region. The results are already visible, as there are many arbitration practitioners who started their career participating in Moot Mexico.
  • The essay competition, “Guillermo Aguilar Álvarez”, was launched in 2020, to encourage young practitioners to research and write an essay in Spanish about commercial and investment arbitration. The result of the first edition was very positive, we received over30 essays from authors throughout 11 or more countries.

This competition provides a US$ 5,000 prize for the first place winner; additionally, due to the collaboration with Tirant lo Blanch, the top 5 essays will be published. The competition will be offered annually with the aim of increasing arbitration related scholarships in the Spanish language.

In addition to these projects, we constantly collaborate with universities, lawyer associations and other arbitral institutions in the organizing of seminars and courses.

 

  1. In your experience, what is the approach by Mexican courts to annulment and enforcement actions? Are they considered arbitration-friendly?

The Mexican judicial system can definitely be considered as arbitration-friendly. Since 1993, Mexico counts with regulations consistent with the UNCITRAL model law on International Commercial Arbitration. Commercial arbitration is regulated in Mexico’s Code of Commerce, specifically articles 1415 to 1480. During the latest reform to the arbitration regime in 2011, the amendments focused on promoting a clearer text regarding the process to request interim measures.

Regarding local and federal court approaches to arbitration, the result has been positive as courts generally recognize awards, and only annul awards if the limited terms established in the law are found.

Furthermore, there are currently several decisions from the courts which have confirmed the limited intervention courts may have in arbitration, and the role of the courts regarding annulment and enforcement of the award. These decisions refer to relevant topics such as the enforcement of arbitration agreements, the recognition of the exclusive competence of the judge of the seat regarding the annulment of the award, and the recognition of the competence-competence principle.

 

  1. The election of Andrés Manuel López Obrador (AMLO) was seen by many as a turning point in Mexico’s politics toward a more nationalistic ideology. Have measures taken by the AMLO administration impacted commercial arbitration in Mexico in any way, for example, in terms of frequency or availability?

Taking into consideration the Center´s statistics over the last 3 years, the number of cases have been growing at an average rate. However, it is noticeable that cases related to specialized controversies such as telecommunications, energy projects and intellectual property issues, that have been referred to the center have increased.

I believe that the effects of the energy reform of 2013 will continue to have an impact in the increase of arbitration cases in Mexico, as many foreign companies began businesses in the country and trusted arbitration as the most efficient mean for solving disputes.

 

  1. In recent years, Mexico has been fairly active in the international arena, concluding treaties with a direct impact on international disputes (USMCA, ICSID, EU-Mexico FTA). How do you think these measures will change the arbitration landscape in Mexico and what measures is the CAM taking to face such changes?

The conclusion of these treaties has a stronger impact on investment arbitration. Without a doubt, a new era for investment arbitration is coming. With a variety of BITs and FTAs in existence, I consider that there will be a growth in national practice in this forum.

Regarding commercial arbitration, I trust that these treaties will boost international arbitrations in which a Mexican jurisdiction may be selected as a seat. As I mentioned previously, Mexico has a suitable framework for arbitration and is ready to become a renowned seat for international arbitration.

With this in mind, specifically in CAM, we plan to amend our Arbitration Rules of 2009. The aim is to offer an updated framework that meets all the current trends of the arbitration practice such as the participation of tribunals’ secretaries, expedited procedures, and third-party funding.

 

  1. The COVID-19 health crisis has caused and is expected to keep causing unprecedented disruptions to several sectors of the economy and business relationships. How is the Center facing the challenges brought by this new reality?

These past months have been challenging and at the same time have strengthened the advantages of an arbitration process. Even though for the last few years we have provided the option of conducting 100% remote procedures, there still was some resistance from some practitioners. The pandemic has now evidenced that the whole arbitration process may be completed through electronic means.

The tools we have for managing arbitrations are: (i) the use of an electronic file in which all parties involved may access the documents of their proceeding, and (ii) an internal guide to assist in the administration of remote hearings and electronic exchange of documents.

In addition to the administrative actions, taking into consideration the economic situation caused by the pandemic, the Center offered a reduction of 25% on the cost of all arbitrations. This policy has been available since June 2020, and will remain in effect until June 2021. Our initiative has been well received by businesses. There have been instances in which parties did not have an arbitration agreement in place, decided to adopt one, and refer the controversy to arbitration.

A positive response has also been received from the arbitrators who have accepted appointments and fulfilled their role with the highest professional quality. This shows that the Mexican arbitration community is committed in supporting arbitration as a true effective and efficient means for dispute resolution.

Thank you for your time and perspectives – we wish you and CAM continued success!

 

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

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Is Arbitration Helping or Hindering the Protection of the Environment and Public Health? Salient Questions from the 6th Edition of the Casablanca Arbitration Day

Tue, 2021-01-12 00:13

The Casablanca International Mediation and Arbitration Centre (“CIMAC”) convened its sixth edition of the Casablanca Arbitration Day (“CAD”) on December 3, 2020. The virtual CAD presented four panels focusing on one burning issue: “Is Arbitration Helping or Hindering the Protection of the Environment and Public Health?” This question deepens the discussion focused on during the 2019 CAD, “Is Arbitration Contributing to the Revolution?”

 

Is Commercial Arbitration Apt to Resolve Environmental Issues?

The first panel dove into the main theme of the CAD focusing on international commercial arbitration, inquiring whether it is apt to resolve environmental issues. The panel was composed of Ms Lucy Greenwood (Greenwood Arbitration), the mastermind behind the Greener Arbitration Pledge, and Mr Patrick Thieffry (Independent Arbitrator), co-chair of the ICC Task Force on “Arbitration of Climate Change Related Disputes”. It is worth noting that the Report of the Task Force was published last year on “Resolving Climate Change Related Disputes through Arbitration and ADR”.

The speakers retraced the historical development of environmental disputes to consider the procedural and substantive suitability of commercial arbitration to resolve those disputes. Mr Thieffry reminded attendees that, historically, arbitrators performing an adjudicative function were not primarily concerned with environment protection issues. They gained, however, significant experience in the domain (climate change and environment-related disputes) by the wide range of disputes referred to them, including disputes arising out of environmental representations and warranties, mining and infrastructures industries, among others.

As to the suitability of commercial arbitration for environmental disputes, both panelists concurred that it provides for a guarantee of expertise already tested, for example, in disputes arising out the UNFCCC’s Green Climate Fund and the Kyoto Protocol. Arbitration rules, if necessary, may be amended to encourage parties to appoint arbitrators with relevant expertise and knowledge of environmental law. Such an option – a sample clause – was proposed in the Report above-mentioned, in the context of an ICC proceeding. Commercial arbitration provides mechanisms such as emergency arbitration and interim measures which play a major role in urgency characterizing environmental and climate change related disputes. It is also marked by confidentiality, as awards and decisions are not always published. Ms Greenwood argued that for the sake of “social acceptability”, confidentiality rules should accommodate transparency and public participation through existing mechanisms such as amicus curiae.

As both speakers observed, when it comes to arbitrating environmental disputes, the problem is less a question of regulations than a question of applicability. There are indeed more than 2,000 laws and covering environment and climate change related issues. Ms Greenwood stressed in this regard the role played by domestic courts, compelling States to reduce their greenhouse gas emission, e.g. Urgenda Foundation v The Netherlands. In the same vein, Mr Thieffry mentioned the practice of the French Conseil d’Etat, which, in a recent landmark decision dated November 19, 2020, compelled France to take concrete measures to meet the 40% greenhouse reduction target. With these court-ordered greenhouse gas emission reductions, disputes are likely to rise sharply in the coming years. Arbitration is well suited to deal with them.

 

Arbitrating in a More Environmentally-Friendly (and Healthier) Way 

The second discussion revolved around the significant carbon footprint of international arbitration and the different ways the arbitral community could overcome such challenge. This topic welcomed panelists Ms Laetitia De Montalivet (Director, Arbitration and ADR, Europe, ICC International Court of Arbitration) and Professor Dr Maxi Scherer (Special Counsel, Wilmerhale, London / Member of the Court of Arbitration of CIMAC).

Professor Dr Scherer addressed the underestimation of the impact of arbitration on the environment and recalled figures on the carbon footprint of the arbitration industry. She referred to a study conducted by Campaign for Greener Arbitrations Steering Committee which revealed that up to 20,000 trees would need to be planted to offset the effect on the environment of the carbon footprint of one medium-size arbitration.

This issue recently made its way on the arbitration scene mostly thanks to Ms Greenwood who campaigned for the Green Pledge and emphasized the importance of being able to arbitrate in a more environmentally-friendly way by following the nine concrete steps of the Pledge, such as avoiding traveling by air, corresponding only through electronic means and requesting that electronic rather than hard copies of documents be provided.

Based on her significant experience at the ICC, Ms De Montalivet further provided insight on the role of institutions in reducing the carbon footprint of international arbitration. She recalled the ICC’s strong commitment to the objectives of the Paris Agreement and the Sustainable Development Goals (“SDGs”), which is reaffirmed in its strategy to promote sustainable and inclusive economic growth in the context of responsible trade on the political level, but also on an essential personal and corporate level.

Ms De Montalivet suggested that one of the answers to reducing the carbon footprint of arbitration is to always take a critical look at consumption patterns and take modest yet concrete measures. At the ICC in general, and at the Court of Arbitration in particular, the ICC staff has been integrating new practices for several years now in a charter of good conduct, in daily gestures and in arbitration practices. This commitment resulted, among others, in a total digital revolution of the ICC and in the launching of the ICC application. Such commitment to “Greener Arbitration” will also be reflected in the new 2021 ICC Arbitration Rules.

In an interactive debate, the panelists and the audience later discussed the environmental issues that still come with the digital industry and expressed concerns about the carbon footprint of digital communications. If eliminating excess paper and flying less are major contributions towards improvement, the digital industry itself is, however, not carbon neutral and its impact on the environment, increasing exponentially with the development of the new technology uses, is not to be underestimated.

Indeed, it is worth noting that this digital evolution requires infrastructures that consume substantial energy. Ms De Montalivet recalled estimations stating that in 2023, digital technology will use about 20% of the world electricity, taking into consideration that two-thirds of the world’s electricity is produced using fossil fuels. Added to this energy-consuming process, the need for equipment, plastics, metal spares, raw material issues, geopolitical conflicts over access to these resources and the issue of electronic waste, the carbon impact of the digital industry is not to be underestimated. Thus, there are points of vigilance with the digital asset, and faced with these exponential needs, one question remains: is the digital a hope or threat to the environment?

The panel also addressed other concerns that come with the use of digital tools. Some pertain to procedural aspects of such use: whether arbitrators can impose a paper-less arbitration process on the parties and vice-versa. Some other concerns are health oriented. Indeed, one additional aspect to address would be the health impact of digital use, with the appearance of concepts such as “zoom fatigue” and how to limit it.

 

Protecting the Environment through Investment Arbitration

The third panel discussed the protection of the environment through investment arbitration. Professor Jorge Vinuales (University of Cambridge) and Professor Arnaud de Nanteuil (University Paris Est Créteil) empirically shared three figures with the audience:

  1. treaties that have clauses or references to the environment are about 10%;
  2. from 2008, 89% of treaties contained references or clauses relating to the environment;
  3. between 15 and 20% of all cases have an environmental component.

Professor Arnaud de Nanteuil explained that environmental questions in investment arbitration have gone through four evolutions. In the first stage of investment arbitration, environmental issues were not considered because arbitrators did not give deference to state measures citing to Metaclad. In the second stage, the cross-polinization of investments in environment related fields (i.e. the peak of disputes in renewable energies, with the example of the Spanish ECT saga) helped in the numerical growth of environmental issues in investment arbitration.

In a third stage, environmental provisions have permeated investment treaties, in the preambles with references to international conventions, and subsequently in the bodies of treaties, for instance with obligations towards the investors. The Moroccan Model BIT of 2019 is a prime example of making sustainable development a condition for the application of the treaty, for instance the preamble elevates sustainable development to an overarching goal, as well as forming part of the definition of investment “contributing to the sustainable development of the host country” (article 3.3.). Finally, the last phase of the evolution points to the consideration of environmental issues by arbitral tribunals.

Professor Jorge Viñuales referenced the Morocco-Nigeria 2016 BIT, as a remarkable instrument that raised the precautionary principle to the level of international law. He indicated that an alternative way to deal with the application of specific environmental clauses is to recuperate non compliance in the damages phase, by reducing compensation. The panelists collectively concluded  ]that environmental clauses should continue to be included in investment treaties, favoring more concise language, as opposed the more elusive clauses that are currently common.

 

Procedural Challenges and Substantive Aspects of Covid-19 Related Disputes

The last session touched upon the topic du jour “COVID-19 and Arbitration” with a focus on procedural and substantive aspects of virtual hearings. On the procedural aspects, the challenges and protocol for virtual hearings were discussed. Jalal El Ahdab (Bird & Bird) pointed out that visas could be an issue, however virtual hearings tackle this hurdle especially in the Gulf region or politically sensitive states.

Whilst there has been a cost reduction regarding travels and accommodation, online platforms with golden standards signify a new line of costs. Overall as regards big cases, Dr. Mohamed Abdel Wahab (Zulficar & Partners) stressed that there is still a significant cost saving.

Protocols are still a work in progress, with a common denominator of protocols is the use of technology. Dr. Wahab presenting the 2020 Africa Arbitration Academy Protocol on Virtual Hearings in Africa, explained that the Protocol opted for goals rather than specific requirements. He highlighted that there is now a new constant element which is the presence of technical service providers. The audience raised the point that some witnesses may be less forthcoming in testifying through a screen. This point ultimately will depend on whether the arbitral rules allow it or not, as discussed on the Blog by Dr. Wahab here, noting that the newly adopted ICC rules explicitly provide the tribunal with the power to conduct a virtual hearing at article 26(1).

This point tied the discussion to the second part of the panel, which focused on how Covid-19 is impacting the substance of arbitration proceedings. Although investors are considering claims related to Covid19 measures, Dr Wahab pointed out that options should be weighed before the filing for a dispute. This view echoes the prudent prognostics expressed in other conferences organized 11 months after Covid-19 was declared a global pandemic. Beyond Covid-19, Dr. Wahab predicted there would be a rise in disputes in biotechnology and the construction sector post-pandemic.

 

Conclusion

The CAD differentiated itself from global virtual events by gathering speakers involved in dispute resolution in the MENA region to bring a regional flavor. The CAD also continued its tradition to center discussions on one critical central theme, with a particular focus this year on the environment, and inter-connected topics such as virtual hearings. In his Closing remarks, Laurent Lévy recalled it is about time to adopt a proactive and not a reactive attitude, referencing to UNCTAD’s 2020 International Investment Agreement Reform Accelerator, whereby Morocco is mentioned extensively in the inclusion of environmental provisions. The interactive nature of the CAD signified the involvement of the arbitral community with environmental concerns, thus contributing to the revolution.

 

Disclosure: the participants all spoke at CAD in their personal capacity.

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Covid-19 and Investment Treaty Claims by Insolvency Administrators

Mon, 2021-01-11 00:02

COVID-19 has already destroyed many businesses, and insolvencies will only increase as governments withdraw temporary protections. Recent decisions highlight the potential for external administrators of these insolvent companies to use investment treaty arbitration to recover assets, even from the state that appointed the administrators.

Generally, external administrators are appointed by directors, creditors or courts to administer companies that are unable to pay their creditors. Those administrators can either help the company try to survive or liquidate the company’s assets to pass on to creditors. Either way, insolvency administrators often pursue claims on behalf of the companies. Sometimes, these claims are under investment treaties.

Such claims have been less controversial when the insolvency administrator had the same nationality as the foreign investor. So, for example, Thailand did not object to the claim by the German company, Walter Bau, under the investment treaty between the two countries, even though it was pursued by a German insolvency administrator (but Thailand – like other respondent states in similar situations – did argue that the insolvent claimant should provide security for any adverse costs award). Indeed, the administrator ultimately won an award of over €30 million for Walter Bau’s creditors.

However, claims pursued by administrators of the same nationality as the respondent state have been more controversial.

Such claims are facilitated by investment treaties that confer a right on a company in the state hosting the investment to claim against that state, so long as it is controlled by an investor from another party to the treaty. Thus, Article 26 of the Energy Charter Treaty (“ECT”) gives standing to claim against a “Contracting State” to a “national of another Contracting State”, but provides that such a national includes a local company so long it is “controlled by Investors of another Contracting Party”. Indeed, the ICSID Convention, which provides the platform for many investment treaty arbitrations, contains similar wording in Article 25(2)(b).

These provisions were recently relied on by the Italian administrator of the Italian company to pursue a claim against Italy – the very state whose courts appointed it.

Eskosol was one of many companies affected by some European countries withdrawing incentives to produce solar energy. After Eskosol became insolvent, its administrator commenced arbitration with Italy in 2015 under the ECT. Even though Eskosol and the administrator were Italian, Eskosol argued it had standing to claim against Italy under the ECT and ICSID Convention provisions noted above because it was 80% owned by a company incorporated in Belgium (which, with Italy, is a party to the treaties).

Italy challenged that standing, arguing that Eskosol could not be foreign controlled as it had an Italian administrator. The tribunal the challenge (but ultimately denied the merits of the claim).

The tribunal acknowledged at paragraph 234 that “[i]t is of course true that a bankruptcy receiver exercises significant influence over the management of a company’s assets, under the supervision of a bankruptcy court, while the company remains in bankruptcy proceedings”. But it went on to state that “the receiver does not exercise such authority on his own behalf, making him the ultimate party-in-interest to the company’s fate, and therefore supporting some conclusion that it is his nationality that properly should govern for ECT and ICSID Convention purposes”.

For the tribunal, “the receiver acts essentially as trustee or agent – not as a principal – on behalf of those with dominant legal and financial interests in the company (e.g. shareholders and priority creditors)”. Moreover, “[t]hat agency … is a temporary power, not a permanent one, and it remains in place only so long as the entity remains in bankruptcy”.

The tribunal was also guided by the objects and purposes of the ECT and the ICSID Convention, which, according to the arbitrators, include “facilitating the neutral resolution of disputes between investors and States, regarding those States’ treatment of investments made within their borders”. The tribunal said in paragraph 236 that it would be inconsistent with this object and purpose “to divest local companies that indisputably were owned by foreign investors from the ability to pursue potentially well-founded ECT claims, simply because of a collapse in the company’s economic fortunes, particularly in circumstances where it is alleged that the collapse was attributable to the State’s own wrongful conduct”.

These conclusions of the tribunal are consistent with another recent decision.

In the dispute between the Latvian company PNB Banka and Latvia under the Latvia-United Kingdom investment treaty, the tribunal considered an argument by British shareholders of the bank that their lawyer, rather than the bank’s Latvian insolvency administrator, was the proper representative of the claimant in the arbitration.  In a January 2020 procedural order,  the tribunal allowed the administrator to represent the bank, at least until the end of the jurisdictional phase when it would revisit the issue if required.1)The details of the January 2020 order are reproduced in AS PNB Banka and others v Republic of Latvia, ICSID Case No ARB/17/47, Decision on the Proposals to Disqualify Messrs James Spiegelman, Peter Tomka and John M. Townsend, 16 June 2020, at paragraph 43. jQuery("#footnote_plugin_tooltip_1505_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1505_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

While PNB Banka and Eskosol highlight the possibility of using investment treaties as a means for external administrators to recover insolvent companies’ assets, even from the states that appointed them, the precise scope for investment treaties to provide relief in these circumstances is still not yet known. Public decisions until now have not addressed critical questions that naturally arise from such claims. For example, no tribunal has yet publicly addressed if there are any limits to an insolvency administrator pursuing a claim in which its own appointment is one of the state’s measures that is challenged in that claim. Accordingly, the precise utility of investment treaties to external administrators of the many companies that have been, and that will be, ruined by COVID-19 is also not yet known.

References   [ + ]

1. ↑ The details of the January 2020 order are reproduced in AS PNB Banka and others v Republic of Latvia, ICSID Case No ARB/17/47, Decision on the Proposals to Disqualify Messrs James Spiegelman, Peter Tomka and John M. Townsend, 16 June 2020, at paragraph 43. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the COVID-19 Revolution
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2020 in Review: Institutional Reform Efforts and Developments in Investment Arbitration

Sun, 2021-01-10 01:00

Introduction

In spite of delays and shifting priorities owing to the pandemic, institutional efforts to reform the investor-state dispute settlement (ISDS) regime have continued throughout 2020.

In this post, we look back at our coverage of the work of UNCITRAL Working Group III (“WGIII”) on investor-State arbitration reform, especially in light of the 2021 reform agenda. Recognizing a paradigm shift, we also reflect on the rise of investor-State mediation as a precursor or alternative to arbitration.

 

The 39th session of the UNCITRAL Working Group III

The 39th session of the UNCITRAL Working Group III (”WGIII”) was scheduled to take place in New York from 30 March to 3 April 2020 but was postponed due to the unfolding COVID-19 situation. The session later convened from 5 to 9 October 2020 in Vienna (WG report here), focusing on the following areas of reform:

  • dispute prevention and mitigation as well as other means of ADR;
  • treaty interpretation by States parties;
  • security for costs;
  • means to address frivolous claims;
  • multiple proceedings including counterclaims; and
  • reflective loss and shareholder claims (together with the OECD).

Throughout 2020, our Blog contributors reflected on reform proposals to address these issues – with the most popular lens being to examine whether, in practice, the proposals are fit to achieve the overarching goals driving the reform process.

 

Discussions on the Multilateral Investment Court and Appellate Mechanism

In a post dated March 2020, Marike R. P. Paulsson observed that in addressing the criticism of the current system of ISDS, WGIII has established two pathways: one is the (total or partial) replacement of the system; and the second is incremental reforms within the system. The first pathway proposes two alternatives. One is the Multilateral Investment Court (“MIC”) that replaces the system in total and the other is the Appellate Mechanism (“AM”) that replaces crucial parts of the system such as annulment mechanisms, enforcement, and finality of awards. Both are premised on the idea of abandonment of party autonomy; and with that the right of disputing parties to appoint an arbitrator.

Assessing the AM proposal’s ability to achieve overarching reform goals, Paulsson noted that while an AM could improve consistency in substantive norms application (and therefore contribute to confidence in ISDS), much of the motivation for reform has been driven at the backdrop of duration and costs. Conversely, the introduction of an AM would incidentally increase both, requiring further consideration about its fitness for purpose.

Similarly, assessing the MIC proposal, Fernando Dias Simões queried whether the creation of a MIC without the traditional party-appointed arbitrator regime, could by and of itself, really succeed in its goal of de-politicizing ISDS “by break[ing] the link between disputing parties and adjudicators”. Simões argued that a political element will inevitably be associated with any dispute that involves public policy, with no irrefutable evidence that international judges are more independent and impartial than arbitrators. To that end, Simões advocated for certain procedural tools to mitigate the risk of politicization.

Even though the negotiation process on the MIC has been slow and “one cannot predict when an implementable conclusion will be reached,” Andreea Nica observed that there had been a strategic shift in the WG’s engagement on the MIC proposal, with “what initially looked like delegations anchored in rigid positions now resembles a common engineering exercise in search for solutions.”

It remains to be seen whether Nica’s optimism is borne out at the 40th session, scheduled to take place in February 2021, where the Working Group is expected to continue its consideration of the following reform options: (i) selection and appointment of ISDS tribunal members (ii) appellate mechanism and enforcement issues; and (iii) the draft Code of Conduct (discussed below).

 

Discussions on incremental reform

Turning to efforts for incremental reform within the existing ISDS system, our Blog contributors, similar to above, have applied a fitness-for-purpose lens to discussions with respect to security for costs and counterclaims.

Leading up to the 39th session, the General Assembly Secretariat had issued a note on issues to be considered on the topic of security for costs and frivolous claims. Examining the proposed reforms to the security for costs regime against its intended purpose of reducing frivolous claims, Johan Sidklev and Bruno Gustafsson argued that while a loosening of the strict standards for granting security for costs may be warranted, it is ultimately of limited utility for averting frivolous claims in ISDS.

In separate posts here and here, Anna De Luca, and Nicholas Diamond and Kabir Duggal, discussed the role of counterclaims in ISDS, particularly as a possible avenue for holding investors accountable for alleged human rights violations.

Luca observed WGIII’s silence on the issue of counterclaims due to its standing as “inextricably intertwined with substantive aspects”, thereby falling outside the scope of procedural ISDS reform. However, noting that the WGIII has not foreclosed such consideration, Diamond and Duggal find that counterclaims could play a role in advancing certain civil and political rights, such as the right to a fair trial.

Discussions relating to ISDS and both security for costs and counterclaims have previously been covered in the Blog – see here and here.

 

Code of conduct for arbitrators

An important development in 2020 was WGIII’s publication of a draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement. This document was prepared jointly by the ICSID and UNCITRAL Secretariats, partly in response to concern over arbitrators’ independence and impartiality. Its text provides policymakers with a range of options on issues including disclosure obligations, repeat appointments, issue conflicts, and more.

Our contributors reported on this development here and here. The WGIII will further consider the draft Code of Conduct in its 40th session.

 

All reforms don’t lead to arbitration: the rise of investor-State mediation

This year we have seen a stronger push towards expanding the ISDS reform agenda to explore alternative mechanisms for settling investor-State disputes – in particular, investor-State mediation.

In a series of posts, contributors to the Blog marked the entry into force of the Singapore Convention on Mediation (“Singapore Convention”), by reflecting on mediation as an alternative to arbitration.

Contributor Rachel Tan welcomed the revamped mediation regime established by the Singapore Convention, highlighting the fact that the Convention introduces to mediation a characteristic that has long contributed to arbitration’s popularity: enforceability. The Singapore Convention –“in substance the mediation equivalent to the New York Convention” – now enables settlement agreements between parties to be directly enforced across national borders. Teamed with what she considers to be the inherent benefits of mediation (i.e., the possibility of a more holistic outcome and of a settlement by consensus), Tan purported that the process established by the Singapore Convention “compels a deeper look at dispute resolution design for investor-State disputes”, encouraging a tipping of balance in favour of mediation.

While the Singapore Convention’s entry into force has amplified the focus on investor-State mediation, an increasing appetite for this mechanism has been demonstrable in recent years, making its way to even WGIII discussions.

Reflecting on WGIII discussions on mediation, Charalampos Giannakopoulos argued for the importance of institutionalising mediation to “introduce a degree of internal monitoring and transparency in a process that is often conducted under complete confidentiality”.

In support of this hypothesis, Mr Giannakopoulos cited a 2018 survey indicating that States were generally reluctant to mediate due to, among other reasons, an unwillingness to assume responsibility for voluntary settlements, and the fear by government officials of being subjected to allegations for corruption or prosecution.

Further examining the broad acceptance of confidentiality in investor-State mediation, Esmé Shirlow situated this practice against increasing calls to reform the perceived lack of transparency in investor-State arbitration. Cautioning against reforming one mechanism without considering the unintended consequences for others, Dr Shirlow highlighted the need for a holistic and integrated approach to ISDS reforms.

 

Conclusion

Dr Shirlow’s word of caution fits well within what has emerged as a strong theme among our contributors covering ISDS reform in 2020: a call to carefully balance interests, and to ensure that the different reform proposals, in attempting to fix specific problems, do not end up undermining the overarching goals at the very heart of the reform process.

Going into 2021, we will continue to monitor the development of these highly-debated issues – both in institutional reform processes – and through their manifestation at the regional and bilateral level, as was evident from our coverage of the new dispute settlement paradigms established by the USMCA and ECT modernization process.

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Investment Protection in the EU-UK Trade and Cooperation Agreement

Sat, 2021-01-09 00:13

The EU-UK Trade and Cooperation Agreement (“TCA”), concluded on 24 December 2020 and provisionally applicable since the end of the transition period on 31 December 2020, regulates the relationship of the EU and the UK after Brexit. It forms a basis for an evolving relationship between the Parties and may further change, depending on scrutiny by the European Parliament or upon review by the Parties (Articles SERVIN.1.4 and FINPROV.3 of the TCA). It contains limited substantive protections for the Parties’ investors and no investor-state enforcement mechanism. The TCA cannot be directly invoked before domestic courts, and its dispute resolution mechanism is limited to a “WTO-like” state-to-state arbitration.

This is a striking move away from recent treaties concluded by the EU with third states, such as CETA with Canada or the recently agreed in principle Comprehensive Agreement on Investment (“CAI”) with China. These provide for or envisage further negotiations on investor-state dispute resolution (“ISDS”) mechanisms in the form of investment court systems, that the EU aims to replace by a single Multilateral Investment Court. It also remains to be seen what position the UK will adopt with respect to ISDS in its future trade agreements.

The fate of the bilateral investment treaties (“BITs”) concluded by the UK with certain EU member states before their accession to the EU remains uncertain. The same is true for the recognition and enforcement of intra-EU BIT awards in the UK.

 

The scope of investment protection included in the TCA

The crux of the matter is set out in Part Two (Trade, Transport, Fisheries and Other Arrangements), Heading One, Title II of the TCA (Services and Investment).

The TCA includes a strict definition of protected investors. Namely, an “investor of a Party” is defined as a natural or a legal person of a Party that seeks to establish, is establishing or has established an enterprise with a view to creating or maintaining lasting economic links in the territory of the other Party. Mere shell companies are excluded, as legal persons must be engaged in “substantive business operations” in their home state (Article SERVIN.1.2(h), (j) and (k)).

Also, the investment protection standard of the TCA does not apply to air services or related services (with some exceptions), to audio-visual services, to national maritime cabotage and inland waterways transport, or to measures regarding public procurement and subsidies (Article SERVIN.1.1(5)-(7)).

 

Substantive standards of protection under the TCA

The standards of protection under the TCA are similar to those under the WTO, but differ from the protection available under the CETA. These substantive standards of protection include:

  • market access, which is limited to the prohibition of a number of enumerated limitations such as those concerning the number of enterprises that may carry out a specific economic activity, the participation of foreign capital or the types of legal entity through which an investor may perform an economic activity (Articles SERVIN.2.2/3.2);
  • national treatment (Articles SERVIN.2.3/3.4);
  • most favoured nation treatment (“MFN”) with respect to investors of a third country and their enterprises (Articles SERVIN.2.4/3.5). Under the MFN provision, investors will not be able to import ISDS procedures provided for in other international agreements (Article SERVIN.2.4(4)). This means that investors will not be able to invoke the TCA before an independent arbitration tribunal (see also Article SERVIN.2.4(5) regarding additional limitations to the MFN clause); and
  • provisions preventing the introduction of: nationality restrictions for senior personnel (Article SERVIN.2.5); enumerated performance requirements based on trade, such as to export a given level or percentage of goods or services or to purchase, use or accord a preference to goods produced or services provided in its territory (Article SERVIN.2.6); requirements that a service supplier has a local presence as a condition for the cross-border supply of a service (Article SERVIN.3.3).

These standards of protection do not apply to non-conforming measures and exceptions which are listed, respectively, by the EU and the UK (Article SERVIN.2.7/3.6). As an example, the obligation to grant national treatment does not require the EU to extend to UK investors the treatment granted in an EU member state to natural persons or residents of another EU member state pursuant to the Treaty on the Functioning of the European Union (“TFEU”). The TCA also includes a denial of benefits clause (Article SERVIN.1.3).

The TCA does not include a Fair and Equitable Treatment (“FET”) provision nor a clause protecting against expropriation. However, the TCA does not affect the application of the European Convention on Human Rights (“ECHR”) (see also Article LAW.GEN.3), which protects, amongst others, the right to property (Article 1 of Protocol No. 1 to the ECHR).

 

Absence of ISDS mechanism but “WTO-like” state-to-state arbitration

Disputes arising under most of Part Two of the TCA are subject to a state-to-state arbitration mechanism (cf. Part Six of the TCA (Dispute Settlement and Horizontal Provisions)). This is an exclusive mechanism, meaning that the EU and UK courts will have no jurisdiction for the resolution of disputes under the TCA (Article INST.29(4A)). This answers the UK’s demand to end the jurisdiction of the Court of Justice of the European Union (“CJEU”) under the TCA (and so differs to the dispute resolution provisions of the earlier concluded Withdrawal Agreement, which provided for jurisdiction of the CJEU; see more here). Also, any interpretation of the TCA given by the courts of either the EU or the UK shall not be binding on the courts of the other Party (Article COMPROV.13(3)).

The TCA includes additional explicit limitations to the role of the arbitration tribunal in state-to state-arbitration under the agreement. Its decisions cannot add to or diminish the rights and obligations of the Parties under the TCA (Article INST.29(3)). In addition, the arbitration tribunal shall have no jurisdiction to determine the legality of a measure alleged to constitute a breach of the TCA under the domestic law of a Party. Also, no finding made by the arbitration tribunal shall bind the domestic courts or tribunals of either Party as to the meaning to be given to the domestic law of that Party (Article INST.29(4)).

As mentioned above, the TCA does not contain an ISDS mechanism, and it expressly provides that it cannot be construed as conferring rights or imposing obligations on investors or be invoked in the domestic legal systems of the Parties (Article COMPROV.16). Investors facing state measures contrary to the TCA will thus have to convince the UK or the EU to take on their case before the arbitration tribunal in state-to-state arbitration. Investors will have the possibility to file amicus curiae submissions once an arbitration is instituted (Article INST.26(3)). The arbitration tribunal shall consider such amicus curiae submissions (Article INST.26(3)), but shall not be obliged to address, in its report, the arguments made therein (Annex INST: Rules of Procedure for Dispute Settlement, para. 41).

The state-to-state arbitration mechanism provides for ad-hoc arbitration (potentially with the assistance of a registry in the future, see Annex INST: Rules of Procedure for Dispute Settlement, para. 9a), but the applicable procedural rules are set out in the TCA (Part Six and Annex INST). These rules can be further amended by the Partnership Council (Article INST.34A(2)). In a way, reminiscent of the WTO dispute settlement process (although without an Appellate Body and with shorter timelines), the proceedings start by “good faith” consultations between the EU and the UK, which may last 30 days. The Parties can decide to prolong these consultations or refer the matter to an arbitration tribunal consisting of three independent arbitrators.

 

Procedures for state-to-state arbitration under the TCA

Unless the Parties agree on the composition of the arbitration tribunal within an allotted timeframe (Article INST.15(2)), each Party shall appoint an arbitrator from the sub-list for that Party established pursuant to Article INST.27 (such list is yet to be compiled, but a similar list has recently been compiled for the Withdrawal Agreement). If a Party fails to appoint an arbitrator from its sub-list or if the Parties do not agree on the (non-EU/UK national) chairperson of the arbitration tribunal, the co-chair of the Partnership Council from the complaining Party shall select the relevant arbitrator by lot from the respective sub-list.

The arbitration tribunal may make use of assistants, who may be permitted to be present (but not take part) in the deliberations (Annex INST 14). Also, the drafting of any decision and report shall remain the exclusive responsibility of the arbitration tribunal and shall not be delegated (Annex INST 15). These provisions may be a reply to the Russian Federation’s setting aside arguments regarding the role of the assistant to the tribunal in the Yukos arbitration.

According to Article INST.29(1), the arbitration tribunal can decide by majority vote. In no case shall separate opinions of arbitrators be disclosed.

The arbitration tribunal has up to 160 days to render a ruling on the basis of an interim report (and address eventual comments by the Parties) (Article INST.20). The rules to be used for the interpretation of the TCA are customary rules of interpretation under public international law (Article COMPROV.13). It is not clear whether rulings of the arbitration tribunal under the TCA, the definition of which also refers to the interim report (Article INST.20(6)), may be considered arbitral awards for the purposes of the New York Convention.

In case of a finding of a breach of the TCA by the arbitration tribunal, the respondent Party must take the necessary measures to comply immediately with the arbitration tribunal’s ruling or notify the complaining Party of the length of the reasonable period of time required for compliance or agree to provide temporary compensation. In certain cases, a Party can even engage in cross-sector proportionate retaliation, including the suspension of parts of the TCA (Articles INST.21 to INST.25).

Mirroring the absence of standing for investors before the arbitration tribunal, the rulings of the tribunal are only binding on the EU (leaving it unclear whether this includes the EU member states as such) and the UK; they cannot create rights or obligations with respect to investors (Article INST.29(2)).

Article INST.2(2)(e) of the TCA also provides the Trade Partnership Committee with powers to explore the most appropriate way to prevent or solve any difficulty that may arise in relation to the interpretation and application of the TCA. The Partnership Council may even adopt decisions which shall be binding on the Parties and on the arbitration tribunal (Article INST.4).

Other topics covered by the TCA (relating to the level playing field on, inter alia, labour and social standards as well as environmental protection) are subject to a procedure before a Panel of Experts.

 

Recent trends in the EU and UK treaty landscapes

Perhaps surprisingly, although in line with its “WTO plus” context, the TCA departs from recent treaties concluded or currently negotiated by the EU – including with Mexico, Canada, Vietnam, and Singapore – which provide for ISDS mechanisms in the form of investment court systems (that the EU aims to replace by a single Multilateral Investment Court; see more here). As further discussed here, in its Opinion 1/17 of 30 April 2019, the CJEU distinguished such investment court systems from the conclusions it reached in Achmea with respect to arbitral tribunals established under intra-EU BITs, and ruled that CETA’s investment court system is compatible with EU law.

The absence of an ISDS mechanism in the TCA is even more striking in light of the announcement made by the EU and China in the context of the conclusion in principle of the CAI on 30 December 2020, that their common objective is “to work towards modernised investment protection standards and a dispute settlement that takes into account the work undertaken in the context of UNCITRAL on a Multilateral Investment Court”. According to the European Commission’s summary of the CAI, whose legal text is not yet published, the CAI includes a commitment by both sides to pursue negotiations on investment protection and investment dispute settlement within two years of its signature and provides for a state-to-state dispute resolution mechanism similar to the one contained in the TCA.

It remains to be seen what the UK’s policy will be with respect to the inclusion of ISDS mechanisms in trade agreements with third states. While the UK was historically in favour of the inclusion of such mechanisms, the International Trade Committee of the House of Commons requested to carefully consider and fully evaluate specific alternatives to conventional ISDS provisions in a July 2019 report on UK investment policy.

Before the TCA, the UK concluded another trade agreement, the Comprehensive Economic Partnership Agreement (“CEPA“), with Japan. Akin to the EU-Japan Economic Partnership Agreement (“EPA“), the CEPA does not contain provisions on investment protection and ISDS. However, if either Party concludes an agreement containing such provisions with a third party (negotiations on this subject are ongoing between Japan and the EU), the CEPA allows the other Party to request a review of the investment provisions in the CEPA with a view to the possible inclusion of such provisions.

 

The BITs concluded by the UK with EU member states and the enforcement of intra-EU BIT awards in the UK

The TCA leaves unresolved the fate of the BITs concluded between the UK and 12 EU member states (namely Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland (unilaterally denounced by Poland on 22 November 2019, but the agreement contains a 15 year-sunset clause), Romania, Slovakia and Slovenia) prior to their accession to the EU. As the UK did not sign the 5 May 2020 agreement for the termination of BITs between EU member states (see more here) – and although the European Commission issued a reasoned opinion to the UK on this issue – these BITs have remained intact.

Finally, it also remains to be seen whether the UK will attract more interest when it comes to enforcement of intra-EU BIT/ECT awards now that it left the EU (on the new developments with respect to the intra-EU application of the (revamped) ECT, see more here). As a nod in this direction, the UK Supreme Court ruled in early 2020 in the Micula case, i.e. with respect to an ICSID award rendered by a tribunal constituted under the 2002 Sweden-Romania BIT, that the UK’s enforcement obligations under the ICSID Convention could not be affected by the EU duty of sincere co-operation, as the UK’s ratification of the ICSID Convention preceded its accession to the EU (see more here).

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Dealing with Public Policy Concerns and Due Process: The Rising Arbitrators Initiative Tackles a Thorny Issue

Fri, 2021-01-08 21:10

On 1 October 2021, the Rising Arbitrators Initiative brought together an esteemed group of arbitration practitioners for the organization’s inaugural event, which tackled due process concerns.

The event, which was divided into two sessions to allow participants to join from Asia, Australia, Europe, Africa, and the Americas, addressed substantive and procedural due process.

 

Substantive Due Process

The first session, which was kicked off with a keynote speech by Yves Derains, addressed substantive due process. In his keynote, Yves Derains started by distinguishing between three national concepts of public policy: (i) public policy within the applicable law (rules that the parties cannot contract out from); (ii) public policy as defined in private international law; and (iii) national mandatory rules defining their own scope of application.  Parallel to the national concepts of public policy, Mr. Derains highlighted truly (transnational) international public policy rules, such as the prohibition of corruption, forced labour, etc.  He then moved to the concept of applicable law in arbitration, which is more difficult because the arbitrator has no forum and thus no lex fori.  Mr. Derains distinguished between situations where the parties have chosen the applicable law and those where, in the absence of choice by the parties, the arbitrator is free to determine the applicable law. According to Mr. Derains, the principle of iura novit curia is somewhat an “artificial concept” because it is not possible to say that a judge knows the law; rather, a judge has general knowledge of the law.  Pursuant to this principle, when the parties do not prove the law, a judge can make his or her own inquiries about the law applying to the merits of the case. But an arbitrator is not in the same position as a national judge; hence, according to Mr. Derains, the principle of iura novit curia (iura novit arbiter) does not apply in arbitration in the same way it applies in national State court proceedings.

As a matter of principle, an arbitrator cannot refer to public policy rules not raised by the parties without submitting them first for comment by the parties, in light of the principle of due process.  Where the parties have specified the applicable law but have contracted out of a certain public policy rule, arbitrators should think twice before raising this rule.  This is because in arbitration the parties are free to designate any law, including one that does not include this public policy rule.  If the parties have not chosen the applicable law, Mr. Derains suggested that an arbitrator should not choose to apply a rule of public policy that would effectively nullify the parties’ contract.  Further, an arbitrator should only consider raising public policy rules other than those belonging to the applicable law, if the former could render the award unenforceable.  Mr. Derains concluded that if an arbitrator wants to raise public policy rules sua sponte, he should seek comments from the parties on the same for due process reasons, bearing in mind that he is not the guardian of any legal system.  According to him, arbitrators should raise public policy rules if there is a risk of non-enforcement of the award and if truly international public policy is at stake.

Paul Tan moderated a panel comprised of Dr Crina Baltag, Isabelle Michou, and Sara Koleilat-Aranjo. Dr Crina Baltag touched upon “due process paranoia”.  She cautioned against abuse of the rules of due process by a party to the detriment of the efficiency of proceedings, noting a decision of the Hong Kong Court of Appeal in Pacific China Holdings Ltd (In Liquidation) v Grand Pacific Holdings Ltd [2012] 4 HKLRD, which found that the requirement that a party be granted a full opportunity to be heard does not mean that the party is entitled to present its case at any point in time for any length of time. Sara Koleilat-Aranjo explained that “due process paranoia” may also have regional considerations.  She explained that, according to the UAE’s Federal Supreme Court, notification of procedural correspondence and submissions is a matter of public policy (unlike in other jurisdictions).  A defect in notification, which may be particularly relevant where one party seeks to avoid notification or refuses to participate, may lead to annulment of an award. Isabelle Michou addressed new emanations of “due process paranoia” created by the COVID-19 crisis, invoking the recent decision of an UNCITRAL tribunal in The Estate of Julio Miguel Orlandini-Agreda and another v Bolivia (PCA Case No. 2018-39) to refuse a request for suspension of proceedings due to the COVID-19 crisis while granting the parties extensions for further steps in the arbitration.  She also noted that the issue of virtual hearings can give rise to disputes between the parties – with one party urging for suspension until an in-person hearing is possible and another urging a virtual hearing.

 

Procedural Due Process

The second session, which tackled procedural aspects of due process, began with a keynote by Carolyn Lamm.  Noting that due process rests at the heart of the integrity of any arbitral proceeding (and the confidence that parties have in the process), she addressed a number of areas in which procedural due process issues may arise, for example:

  • Waiver of due process challenges: While most all systems provide for an automatic waiver if due process issues are not properly raised, Ms. Lamm argued that, even if such a waiver occurs, an arbitrator or tribunal should consider whether its conduct is sufficiently balanced to avoid any challenge of the award.
  • Bad Faith Tactics: Lamm also warned against bad faith tactics, which, she said, have become more prevalent in international arbitration.  She urged arbitrators to be up front with the parties when they perceive bad faith tactics.  She noted that arbitrators can use their powers (for example, interim cost awards or adverse inferences) where such tactics go unchecked (for example, where one party obstructs access to documents).
  • Transparency: Lamm also urged arbitrators to be up front where they believe that there is a central issue that the parties have not addressed.

The panel that followed Ms. Lamm’s keynote was moderated by Andrea Carlevaris. Flavia Mange argued that arbitrators should agree to consider transnational principles and other soft laws subject to the agreement of the parties.  She noted that the principle of iura novit curia is such a procedural law principle, although, like Professor Derains, she cautioned that it is advisable to consult the parties before applying any such principles. Montserrat Manzano echoed the comments of the keynote speaker, noting that arbitrators should make the parties aware, for example, of how it expects evidence to be adduced.  She explained, however, that arbitrators’ discretion – even to ascertain the contents of the applicable law – is not absolute and must obey three limitations: (i) the confines of the mission granted by the parties (ultra petita), (ii) foreseeability (i.e. the idea that a party should not be taken by surprise with respect to issues that may influence decision-making, and (iii) due process. While all panellists agreed that parties should be given a fair chance to address the applicable law, Tai-Heng Cheng looked at “What is a fair chance?” and “How should that chance be given?”  He explained that these questions should be resolved by the arbitrators as a matter of consensus from a position of knowledge.  He added that, following the hearing, the arbitrators should assess whether any further points of law should require elaboration.  He stressed that, even where such a point should arise in deliberation, it is important to canvas that issue with the parties.

*          *          *

The Rising Arbitrators Initiative is a new organization founded by Rocío Digón (Legal Consultant, White & Case), Ana Gerdau de Borja (Senior Associate, Derains & Gharavi), and Alexander G. Leventhal (Of Counsel, Quinn Emanuel), which seeks to support arbitration practitioners under 45 who either have already received their first appointment as an arbitrator or have at least seven years of professional experience in the practice of international arbitration by inter alia creating a support network and encouraging best practices. Its Advisory Council, which is presided by Yves Derains (Derains & Gharavi) and Carolyn Lamm (White & Case), also includes Andrea Carlevaris (BonelliErede), Chiann Bao (Arbitration Chambers), Essam Al Tamimi (Al Tamimi & Company), Gabriela Alvarez-Avila (Curtis, Mallet-Prevost, Colt & Mosle), Isabelle Michou (Quinn Emanuel), Mohamed Abdel Wahab (Zulficar & Partners), Renato Grion (Pinheiro Neto), and Tai-Heng Cheng (Sidley Austin). The Executive Committee is comprised of Dr Crina Baltag (Stockholm University), Flavia Mange (Mange Gabbay), Joanne Lau (Allen & Overy), Kabir Duggal (Arnold & Porter), Montserrat Manzano (Von Wobeser y Sierra), Paul Tan (Clifford Chance Asia), Sara Koleilat-Aranjo (Al Tamimi & Company), and Shirin Gurdova.

The Rising Arbitrators Initiative is currently organizing its next series of events on the promises and perils of first appointments, with events in North America, South America, Europe, Asia, and Africa. On 21 January 2021, the Rising Arbitrators Initiative’s founders will interview incoming ICC Court of Arbitration President Claudia Salomon. To learn more, click here.

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The Conflicting Lore of Applicable Law: How Australian and Chinese Courts Determine the Governing Law of Arbitration Agreements

Fri, 2021-01-08 00:18

The doctrine of separability of arbitration agreements recognises that an arbitration clause contained in a broader agreement is separate and valid despite the invalidity of the rest of the agreement. The doctrine also raises a fundamental question: what is the governing law of the separable arbitration agreement as compared to the remainder of the contract in which it is found?

This question has vexed commentators and practitioners alike for a number of years because there is a myriad of different views.  The Supreme Court of the United Kingdom gave some much needed guidance in its recent decision of Enka v Chubb (see summary here). The Court determined that the parties’ explicit choice of law in respect of the overall contract also applies to the arbitration agreement.  However, the Court stated that in the absence of an explicit choice, there is a presumption in favour of the law of the seat of the arbitration, being the law that has the “closest connection” to the arbitration agreement. This approach has not been adopted by courts in other jurisdictions, such as in Singapore (see here).

The diversity of approaches to the governing law of the arbitration agreement may, depending on the enforcing court, lead to inconsistent outcomes around the world. This could also result in an outcome that is contrary to the parties’ intention when selecting the governing law of their overall contract.

While the doctrine of separability and the question of the applicable law governing the arbitration agreement may seem more theoretical than practical, determining with precision the proper governing law of the arbitration agreement is important. This is not only to ensure the proper interpretation of arbitration agreements, but also to assess the substantive validity of arbitration agreements and the recognition of arbitral agreements.

Article II(1) of the New York Convention obliges national courts to:

“… recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration”.

Article II(3) of the New York Convention obliges national courts to refer the parties to arbitration, upon request of one of the parties,  “unless it finds that the said agreement is null and void, inoperative or incapable of being performed.”  Unlike Articles V(1)(a) and V(2)(a) of the New York Convention, Article II provides no guidance as to what law governs the question of the validity of the arbitration agreement or the arbitrability of disputes referred to arbitration under it.

Because of this lacuna, national courts have taken inconsistent and sometimes idiosyncratic approaches to assessing the validity of arbitration agreements and arbitrability of disputes.  In some cases, national courts determine these questions by reference to the law governing the arbitration agreement chosen by the parties, and in other cases, national courts ignore the parties’ choice of law and determine these questions by reference to the law of the enforcing court. In this post, we will examine three decisions of the Australian and Chinese courts where these issues have arisen.

 

The conflicting Australian case law

Article II of the New York Convention is incorporated into Australian law under section 7 of the International Arbitration Act 1974 (Cth) (Arbitration Act). According to section 7, Australian courts are obliged to enforce arbitration agreements and stay court proceedings in favour of the parties’ choice to submit their dispute to arbitration.  That obligation is, however, subject to the following exceptions: a court is not obliged to enforce the arbitration agreement if “the arbitration agreement is null and void, inoperative or incapable of being performed” or if “the proceedings [are not] capable of settlement by arbitration.”  Like the New York Convention, the Arbitration Act is silent as to the law to be applied by the court in determining whether the arbitration agreement is “null and void, inoperative or incapable of being performed” or whether the dispute is not “capable of settlement by arbitration.”  This lack of clarity has given rise to two competing and conflicting lines of authority.

In Recyclers of Australia Pty Ltd v Hettinga Equipment Inc (2000) 100 FCR 420, the Federal Court of Australia considered an agreement governed by Iowa law. The Court determined that:

[t]he question arising under s 7(2) [of the IAA] is whether the proceeding involves the determination of a “matter” that, under the arbitration clause, is capable of settlement by arbitration.  As the arbitration clause and the sale agreement are to be governed, construed and interpreted “under the law of the State of Iowa’”, the issue of whether any of the matters involved in the proceeding are arbitrable under the clause is to be determined in accordance with the law of Iowa” (at para 10).

The reasoning in Recyclers v Hettinga was cited by the Federal Court subsequently in Casaceli v Natuzzi SpA (2012) 292 ALR 143 regarding a contract and arbitration agreement governed by Italian law.  In that case, the Court rejected the Applicant’s argument that the question of arbitrability ought to be determined by reference to Australian, not Italian, law (at para 38).

However, in a more recent decision of the Federal Court of Australia in WDR Delaware Corp v Hydrox Holdings Pty Ltd [2016] FCA 1164, the Court stated: “the question of whether a dispute is arbitrable is to be determined by the application of the nation[al court’s] domestic law alone” (at para 125).  While the Joint Venture Agreement in issue was governed by New South Wales law, the Court opined that:

[t]he issue of arbitrability goes beyond the scope of an arbitration agreement.  It involves a consideration of the inherent power of a national legal system to determine what issues are capable of being resolved through arbitration.  The issue goes beyond the will or the agreement of the parties.  The parties cannot agree to submit to arbitration disputes that are not arbitrable” (at para 124).

Given that the three decisions cited above were all made by the same court, there is no clear precedent as a matter of Australian law as to what law a national court should apply in determining the validity of an arbitration agreement and the arbitrability of disputes referred to arbitration under it.

 

Approach of the Chinese courts

Australian courts have entertained the notion that the questions of validity of the arbitration agreement and arbitrability of disputes are matters to be settled by reference to the governing law of the arbitration agreement. Chinese courts on the other hand have applied PRC law when asked to refuse enforcement of arbitral awards on the basis that the underlying arbitration agreement is invalid (see Article V(1)(a) of the New York Convention).

For example, in the 2014 case of Application for the Recognition and Enforcement of Foreign Arbitral Awards between Beijing Chaolaixinsheng Sports and Leisure Co Ltd and Beijing Suowangzhixin Investment Consulting Co Ltd, the Supreme People’s Court refused enforcement of an award rendered by a tribunal operating under the auspices of the Korean Commercial Arbitration Board (KCAB). It did so because the reference to foreign arbitration under the arbitration agreement was invalid as a matter of PRC law.  In that case, a dispute arose between two Chinese entities, one of which was a wholly foreign-owned enterprise (WFOE) registered in Beijing and owned by a Korean national, in respect of a contract for the operation of a golf course in Beijing.  The key issue in the case was whether the status of one of the parties as a WFOE was sufficient to make the agreement ‘foreign-related’ and the reference to foreign arbitration valid as a matter of PRC law.  Despite the parties’ choice for KCAB arbitration in the contract, the Supreme People’s Court refused enforcement of the resulting award on the basis that a purely domestic dispute could not be referred to foreign arbitration. The Court concluded that “the applicable law of the underlying contract and its arbitration clause, whether explicitly or [implicitly] agreed by the parties, shall be deemed as PRC law”, and so the question of the validity of the arbitration agreement was to be determined by reference to PRC law (see more detailed summary of the case here).

 

Conclusion

The lack of clarity in Article II of the New York Convention has certainly given rise to some confusion among national courts.  This has led to inconsistent case law regarding the law applicable to determining the validity of the arbitration agreement and the arbitrability of disputes referred to arbitration under it.

As discussed above, there are cases in both Australia and China where the courts have applied local law in determining the validity and arbitrability of disputes arising under contracts and arbitration agreements that, following a choice of law analysis, would not be governed by that local law.  It is questionable whether the application of the local law of a recognising or enforcing court to determine the validity of an arbitration agreement is the preferred approach.  This may lead to inconsistent outcomes across enforcing courts around the world, potentially undercutting the objectives of the New York Convention to achieve consistency and uniformity in recognising and enforcing arbitral agreements and awards.

Moreover, application of the local law of the enforcing court is likely inconsistent with the intention of the parties to the arbitration agreement. This is because parties would most likely only turn their minds to whether the arbitration agreement is valid according to the law they chose to govern their overall contract, rather than to the various national laws of the innumerable jurisdictions where recognition of the arbitration agreement or enforcement of the award may be sought.

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The Contents of the ASA Bulletin, Volume 38, Issue 4 (December 2020)

Thu, 2021-01-07 23:02

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

 

ARTICLES

Felix DASSER, The Revised Swiss Lex Arbitri: A Story of Two Dozen Jewels

In his message, ASA President Felix DASSER commends the light touch revision of the Swiss lex arbitri which entered into force on 1 January 2021.

Hamish LAL, Brendan CASEY, Josephine KAIDING, Léa DEFRANCHI, Multi-Tiered Dispute Resolution Clauses in International Arbitration – The Need for Coherence

Hamish LAL, Brendan CASEY, Josephine KAIDING and Léa DEFRANCHI submit that more coherence is needed in the treatment of multi-tiered dispute resolution clauses in international arbitration.

Reto Andrea TETTAMANTI, Intertemporales Schiedsrecht. Die für die Revision des 12. Kapitels IPRG relevanten Übergangsbestimmungen

Reto Andrea TETTAMANTI examines the transitional law provisions applicable to the revision of Chapter 12 of the Swiss Private International Law Act (PILA), Switzerland’s lex arbitri.

Simon BACHMANN, The Impact §of Third-Party Funding on Security for Costs Requests in International Arbitration Proceedings in Switzerland. Why and how third-party funding should be considered under the Swiss lex arbitri

Simon BACHMANN assesses the impact of third-party funding on requests for security for costs in international arbitration proceedings seated in Switzerland.

Giulio PALERMO, Panagiotis KYRIAKOU, Leveraging the Standard of Ex Aequo et Bono to Increase Diversity, Flexibility and Efficiency: Insights from the Basketball Arbitral Tribunal

Giulio PALERMO and Panagiotis KYRIAKOU advocate in favour of the ex æquo et bono standard in international arbitration in light of the case law of the Basketball Arbitral Tribunal.

Andreea NICA, Case Note on the Decision of the Swiss Federal Tribunal in Clorox v. Venezuela

Andreea NICA presents the recent decision of the Swiss Federal Supreme Court rendered on 25 March 2020 in Clorox v. Venezuela (4A_306/2019), which is the first time an award in an investment treaty arbitration seated in Switzerland is set aside.

Samantha NATAF, Jurisdiction over Non-signatories, the Irreconcilable Approaches of French and English Courts. Case Note on: (i) English Court of Appeal Decision of 20 January 2020 and (ii) Paris Court of Appeal Decision of 23 June 2020

Samantha NATAF reports on two recent decisions of the English and French Courts relating to the enforcement of the same award which highlight the divergent approaches of the two jurisdictions regarding the law applicable to international arbitration agreements.

Mahmoud Anis BETTAIEB, Le juge tunisien et la promotion de l’arbitrage

Mahmoud Anis BETTAIEB discusses the important role played by the Tunisian judiciary in promoting arbitration as a private dispute resolution mode.

Nadia SMAHI, Due Process Under the Swiss Rules of International Arbitration

Nadia SMAHI analyses due process under the Swiss Rules of International Arbitration and provides an overview of all decisions rendered by the Swiss Federal Supreme Court in relation to Swiss Rules arbitrations seated in Switzerland since June 2012.

 

DECISIONS OF THE SWISS FEDERAL SUPREME COURT

 

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The Chilean Supreme Court’s Heart Is In The Right Place, But Its Arguments Are Not

Thu, 2021-01-07 00:17

The Chilean Supreme Court recently issued a decision that, on its face, respects party autonomy in international arbitration. But, it could do more harm than good.

On September 14, 2020, the Chilean Supreme Court (the “Court”) entered a final judgement in the case CCF SUDAMERICA SPA, Rol Nº 19568-2020 (“CCF Sudamericana” or the “Decision”). The Court’s judgement decided a complaint appeal (recurso de queja) brought by Sudamérica SpA and CCF Sudamérica SpA (“Sudamérica”) against the Appellate Court of Santiago’s rejection of an appeal lodged by Sudamérica against a final award issued by an arbitral tribunal constituted under the rules of the Mediation and Arbitration Centre of the Santiago Chamber of Commerce (the “CAM Santiago”) on February 12, 2020.

Under Chilean Law, international arbitration is regulated by Law 19.971 (the “Ley de Arbitraje Comercial Internacional” or “LACI”). The LACI is inspired in the 1985 UNCITRAL Model Law on International Commercial Arbitration. In particular, articles 1.3 and 1.4 of the LACI that determines when an arbitration is international are exact copies of articles 1.3 and 1.4 of the 1985 UNCITRAL Model Law.

 

Facts of the case

The parties entered into a Share Purchase Agreement (“SPA”) of several companies known in Chile as Farmacias Cruz Verde. The law applicable to the contract was Chilean law and at least one party to the contract set domicile in Mexico. The arbitration clause contained in the SPA submitted all controversies relating to the contract to arbitration in accordance with the International Arbitration Rules of the CAM Santiago, seated in Santiago, Chile. According to the Decision, the terms of reference of the arbitration provided that the final award could be challenged through appeal and certiorari (casación).1)Decision, ¶ 3. (“Todas las disputas que surjan de o que guarden relación con el presente Contrato o la ejecución de los actos aquí pactados o respecto de cualquier motivo relacionado con el presente Contrato, se resolverá mediante arbitraje, de acuerdo con el Reglamento de Arbitraje Comercial Internacional del Centro de Arbitraje y Mediación de la Cámara de Comercio de Santiago, vigente al momento de su inicio”). jQuery("#footnote_plugin_tooltip_8282_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8282_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

During the course of the proceedings, the parties established the rules applicable to the procedure, expressly agreeing that (i) an appeal and certiorari would be admissible against the final award; and (ii) the Civil Procedure Code and the Court Organization Code (Código Orgánico de Tribunales) applied in a subsidiary fashion.

 

The appeal 

After the arbitration tribunal issued its award, Sudamérica filed an appeal against it. Under Chilean Law, the appeal is first submitted to the arbitral tribunal directly, and only then the appeal is brought to the attention of the judicial appellate body. In this case, the arbitral tribunal sent the appeal to the Appellate Court of Santiago.

The Appellate Court of Santiago dismissed the appeal, correctly noting that the appeal was inadmissible, since international arbitration in Chile is regulated under Law No. 19.971 (inspired in the 1985 UNCITRAL Model Law on International Commercial Arbitration), which provides in Article 34 that final awards can only be challenged through annulment.

The appellant then filed a complaint appeal against the Appellate Court of Santiago’s judgement. The Supreme Court proceeded to reject the complaint appeal but invalidated the Appellate Court of Santiago’s judgement. The Court reasoned as follows. First, that the intent of the parties is quintessential in arbitration. Second, that the parties agreed that the applicable remedies against the final award in both the arbitration clause as well as the procedural rules of the case, would be appeal and certiorari. Third, that regardless of the international or domestic nature of the arbitration, the courts must take into consideration the intent of the parties. Fourth, it would be against the parties’ prior acts to disregard the fact that the parties did not mention Law No. 19.971 while drafting the procedural rules applicable to their arbitration. Fifth, in other disputes relating to the same contract, the parties eliminated the reference to the appeal in order to adequate their terms to Law 19.971. Therefore, the Court concluded that both parties considered that the appeal was a valid remedy against the award.

 

The decision and comment 

The best intentions pave the way to hell. As most things in life, the Decision has a bright side, and a dark side.

On the one hand, the Decision defends the basic premise in arbitration that consent is its cornerstone. In this case, the parties (adequately represented by counsel) expressly agreed that, even though one of the parties was domiciled outside Chile (thus fulfilling the internationality requirement of Law 19.971), that (i) appeal and certiorari would be admissible against the final award, and (ii) the Civil Procedural Code (and the Court Organization Code) applied in a subsidiary fashion, without reference to Law 19.971.

On the other hand, the decision ignores basic principles of international arbitration. The fact that annulment is the sole remedy against an international arbitration award is one of the mainstays of international arbitration practice. More so, the fact that this is specifically mentioned in Law 19.971, should be hard to argue that parties could, in this case, contract away from such provision. Having said this, the Decision does not go into whether article 34 of the LACI can be contracted away from, as discussed in other jurisdictions.2)See for instance, Popack v. Lipszyc, 2015 CarswellOnt 8001, 2015 ONSC 3460 discussed here. jQuery("#footnote_plugin_tooltip_8282_2").tooltip({ tip: "#footnote_plugin_tooltip_text_8282_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Between a rock and a hard place. It appears that the Court found itself between the will of the parties, and the text of Law 19.971. The decision will hopefully be treated as a highly fact specific case and will not be treated as an authority in future cases.3)Under Chilean Law, prior court decisions do not constitute precedent. jQuery("#footnote_plugin_tooltip_8282_3").tooltip({ tip: "#footnote_plugin_tooltip_text_8282_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

References   [ + ]

1. ↑ Decision, ¶ 3. (“Todas las disputas que surjan de o que guarden relación con el presente Contrato o la ejecución de los actos aquí pactados o respecto de cualquier motivo relacionado con el presente Contrato, se resolverá mediante arbitraje, de acuerdo con el Reglamento de Arbitraje Comercial Internacional del Centro de Arbitraje y Mediación de la Cámara de Comercio de Santiago, vigente al momento de su inicio”). 2. ↑ See for instance, Popack v. Lipszyc, 2015 CarswellOnt 8001, 2015 ONSC 3460 discussed here. 3. ↑ Under Chilean Law, prior court decisions do not constitute precedent. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the COVID-19 Revolution
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The CCJA’s Ruling in the Case Republic of Benin v SGS Société General de Surveillance SA: A Step Backwards?

Wed, 2021-01-06 00:11

Since its creation, the Common Court of Justice and Arbitration (CCJA) has been at the forefront of promoting international arbitration in Africa, particularly with respect to creating a favourable setting for international and regional arbitration under the Uniform Act on Arbitration adopted by the seventeen OHADA Member States. This momentum continued with the recent adoption of the new Act which entered into force on 15 March 2018 (Uniform Act on Arbitration dated 23 November 2017).1)For a commentary of this new Act, see N. Aka, A. Fénéon and J.-M. Tchakoua, Le nouveau droit de l’arbitrage et de la médiation en Afrique (Ohada), LGDJ, 2018. jQuery("#footnote_plugin_tooltip_6855_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6855_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Yet, these reforms are not always followed and implemented by the courts. A recent example is a judgment rendered by the CCJA on 27 February 2020 (Judgment n° 068/2020, Republic of Benin v. SGS Société Générale de Surveillance SA). Regrettably, the CCJA’s review of the arbitral award is not only inconsistent with its own case law, but also represents a step back in the development of arbitration in the OHADA jurisdiction, by failing to enforce key principles in support of arbitration, such as kompetenz-kompetenz.

 

The Facts

The dispute arose out of a contract between the Republic of Benin and SGS Société General de Surveillance SA (SGS), whereby SGS was to provide training and consultation services in relation to a program for the certification of customs value (referred to as PCV). Issues arose with payment for the services and with the alleged conflict with another contract, for a similar program (referred to as PVI). This ultimately led to two parallel legal proceedings: one before the Cotonou Court of First Instance and one before an arbitral tribunal constituted under the ICC rules. As such, despite the arbitration agreement contained in the contract, the Republic of Benin hurried to initiate proceedings in December 2016 before its own administrative courts. In response, SGS brought an ICC arbitration claim a few weeks later, as provided by the arbitration agreement.

In a rather hasty judgment rendered on 13 February 2017, without both parties even having the opportunity to be heard, the Cotonou Court of First Instance annulled the contract between the Republic of Benin and SGS based on what the Court considered to be a conflict with the PVI contract entered into with a third party, as mentioned above. It was revealed that the President of Benin had a stake in this other entity.

Undeterred and unconvinced by the decision of the Beninese court and other procedural claims brought by the Republic of Benin, the arbitral tribunal rendered an award on 6 April 2018, finding that it had jurisdiction.

The seat of arbitration being Ouagadougou, Burkina Faso, the Republic of Benin attempted to set aside this award before the Court of Appeals of Ouagadougou. On 21 September 2018, the Court of Appeals dismissed the challenge, finding notably that the arbitration agreement was valid and that SGS had not waived its right to resort to arbitration. The Court of Appeals also ruled that the award did not contradict the decision of the Beninese judges, as the Cotonou Court of First Instance and the arbitral tribunal had ruled on different issues, the first having considered the validity of the contract and the latter having examined its performance and interpretation. Therefore, according to the Court of Appeals of Ouagadougou, there was no conflict with a decision having the effect of res judicata and no violation of international public policy.

The Republic of Benin appealed to the CCJA, which rendered a surprising decision in finding that the award was in contradiction with the Cotonou judgment.

 

The CCJA’s disregard of principles of international arbitration and CCJA precedent

In its decision of 27 February 2020, the CCJA decided only on the issue of an alleged violation of international public policy. This issue was framed, before the Supreme Court, in the same terms as before the Court of Appeals of Ouagadougou. The CCJA first recalled that the principle of res judicata – which precludes arbitrators from considering the same claims or issues, opposing the same parties and having the same subject matter – formed part of OHADA international public policy. On that basis and without the nuance of the decision of the Court of Appeals of Ouagadougou, the CCJA held that the award contradicted the Cotonou judgment, as both ruled on an issue arising between the same parties and with respect to the same contract.

By doing so, the CCJA ignored the fact that the first instance decision was under appeal. This highly questionable decision therefore also contradicts CCJA precedent. Indeed, in a landmark decision of 31 January 2011, the CCJA found, having considered the effect of res judicata, that there is a violation of public policy only where an award contradicts a decision that has been finally settled by a state court. This decision implies that all remedies must be exhausted before there can be a violation of public policy, which did not reflect the case between the Republic of Benin and SGS.

In addition, by deciding only on the issue of a purported violation of public policy, the CCJA overlooked critical elements of the case and the positions of the parties.

First, it failed to address the violation of the kompetenz-kompetenz principle. This principle is established by Article 23 of the OHADA Treaty and by Articles 11 and 13 of the OHADA Uniform Act on Arbitration; it had also been reaffirmed in another decision handed down the same day (CCJA, 27 February 2020, judgment n° 064/2020). By failing to address this issue, the CCJA indirectly disregarded the fact that this principle had been violated by the Cotonou Court of First Instance. Though the Cotonou court had not denied the existence of the arbitration agreement, it still decided to retain jurisdiction in spite of it.

Second, and equally unexpectedly, the CCJA refused to address the issue of the alleged waiver by SGS of the arbitration agreement. According to CCJA case law, the waiver of an arbitration agreement must be unequivocal (see CCJA, 23 July 2015, judgment n° 097/2015), though such waiver may also be tacit. A party may tacitly waive an arbitration agreement by failing to object, based on the existence of a valid arbitration agreement, to the jurisdiction of a state court. Invoking this precedent, the Republic of Benin had argued that the failure by SGS to object to the jurisdiction of the Cotonou Court of First Instance amounted to such a waiver. This failure, however, resulted from the fact that SGS was denied the opportunity to argue its case before the Cotonou court. This was expressly noted by the Court of Appeals of Ouagadougou, which stated that SGS was “not placed, in the procedural circumstances described by it and confirmed by the exhibits, in a position to properly develop its own means“. In addition, SGS immediately claimed the benefit of the arbitration agreement by introducing arbitration proceedings in response to the Republic of Benin’s claim, even before the hearing was held before the court in Cotonou.

The CCJA missed a clear opportunity to build upon persuasive and consistent case law on key issues relating to arbitration. Unfortunately, its decision of 27 February 2020 could have the effect of impairing efforts to construct a quality arbitration ecosystem. The hope is that this decision will not undermine the development of arbitration in the region.

References   [ + ]

1. ↑ For a commentary of this new Act, see N. Aka, A. Fénéon and J.-M. Tchakoua, Le nouveau droit de l’arbitrage et de la médiation en Afrique (Ohada), LGDJ, 2018. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Third-Party Funding Finds its Place in the New ICC Rules

Tue, 2021-01-05 00:01

Third-party funding (TPF) has come a long way from its humble beginnings at the fringes of various jurisdictions, where it was historically a tort and even a crime. Today, the doctrines of champerty and maintenance have been decriminalized and in most jurisdictions no longer fall foul of public policy considerations. TPF is now perceived as one of the key instruments to provide access to justice: In 2013, former President of the UK Supreme Court Lord Neuberger observed that funding is “the life-blood of the justice system” which “helps maintain our society as an inclusive one”.

We are currently seeing the emergence of an ever-growing body of domestic legislation and regulation, e.g. in Hong Kong and Singapore, as well as rules of arbitral institutions, e.g. CAM-CCBC, CIETAC, HKIAC, ICSID (draft Rules), Milan Chamber of Arbitration and SIAC that acknowledge the existence of and the requirement for transparency regarding TPF. The presumption has now shifted – there remain only a few leading institutional rules that do not explicitly address TPF.

Provisions on TPF can also be found in recently-concluded international agreements such as the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union, and soft law, e.g. 2014 IBA Guidelines on Conflicts of Interest in International Arbitration.

Consistent with this trend, the 2021 ICC Arbitration Rules expressly focus on TPF, thereby incorporating into the Rules what was earlier addressed in the ICC’s various iterations of its Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration under the ICC Rules of Arbitration.

 

TPF Is Here to Stay

As the English Court of Appeal observed in the opening sentence of its seminal decision in Excalibur v Texas Keystone: “Third party funding is a feature of modern litigation.” The incorporation of TPF into the 2021 ICC Rules – arguably the gold standard of arbitral institutional rules1)ICC tops most preferred arbitral institute chart (ICC News, 15 October 2015): “Conducted by the Queen Mary University of London, the 2015 survey, Improvements and Innovations in International Arbitration, shows ICC topping the chart of preferred institutions by a significant margin and highlights ICC’s enduring footing as a leader in the field of arbitration for over 10 years.”) (emphasis added). jQuery("#footnote_plugin_tooltip_7944_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7944_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); – further elevates and confirms TPF as an integral part in the development of international dispute resolution. Eduardo Silva Romero, Co-Chair of Dechert’s International Arbitration Global Practice, supports this development: “The inclusion of provisions concerning TPF into the new ICC Rules recognizes funding’s place in the international arbitration landscape.

 

Nothing Worthwhile Ever Comes Easy…

Funders can add significant value, whether they agree ultimately to fund a case or not. An established funder’s decision-making is guided by a myriad of criteria including a case’s prospects of success, the legal budget balanced against a likely awarded quantum and the expertise of counsel. In addition – when they are members of such funding associations – established funders need to uphold ethical and financial standards, for example, those prescribed by the 2018 Code of Conduct for Litigation Funders of the Association of Litigation Funders of England and Wales, and the Best Practice Principles of the International Legal Finance Association.

This often results in funders accepting only a minority of funding applications – some 10% according to the 2018 ICCA-Queen Mary Task Force Report (consistent with the authors’ experience). There is, therefore, a high threshold to overcome when seeking funding. Nonetheless, even if a funding application is declined, a funder’s assessment can be more than worthwhile for lawyers and clients to obtain an independent assessment of a case.

In determining what cases to fund, funders often play the devil’s advocate by stress-testing and subjecting a case to intense scrutiny. The purpose is to ensure it not only has reasonable to strong prospects of success, but that the proceeds can be recovered. Integral to this process is ensuring the lawyers have considered, as far as possible and practicable, the various contingencies and strategies that may arise throughout the life of a case. This in no way interferes with, however, the relationship and decision-making between clients and their lawyers, which remains firmly within their respective control.

This rigorous process is in stark contrast to the misperception that funders may incentivize and finance frivolous claims. On the contrary, established funders act as gatekeepers filtering out unfounded claims, thereby ensuring quality control of exclusively meritorious cases. This incidentally complements the ICC’s renowned award scrutiny, albeit whereas a funder’s assessment is done before agreeing to fund, the ICC reviews an award before it is notified to the parties. This book-ended process ensures, as far as possible, that successful claims are complemented by an enforceable award.

 

Funders Welcome Transparency

In line with the trend towards transparency in international arbitration, Art. 11(7) of the 2021 ICC Rules requires that parties “must” disclose the existence and identity of “any non-party which has entered into an arrangement for the funding of claims or defences and under which it has an economic interest in the outcome of the arbitration.

Disclosure and transparency seek to avoid conflicts of interest between an arbitral tribunal and the parties (or any related parties, including funders), thereby ensuring the enforceability of an award. As concerns funders, this may extend to circumstances where e.g. an arbitrator is a shareholder of a funder, sits on its investment committee or otherwise has advised a funder during its due diligence in a case that is, or may in the eyes of a party may be, related to the arbitration which she/he has been asked to determine.

The obligation to disclose is consistent with a funder’s interest to protect its investment: avoiding conflicts of interest further assures a funder of a return on its investment via an enforceable award (if/when required to be enforced). Investing into an arbitration therefore incentivizes a funder to do all things necessary from the outset to comply with rules and best practices. The 2021 ICC Rules are another step towards allowing funders and parties to work together in a transparent manner, which builds further confidence into the arbitration framework.

 

Scope of Disclosure

At a time where TPF finds itself in the regulatory spotlight for both commercial arbitration and Investor-State Dispute Settlement (ISDS) (e.g. ICSID Rules reform), some stakeholders (notably states) are calling for more comprehensive disclosure obligations, including disclosure of the terms of a litigation funding agreement (LFA) (see e.g. discussions before UNCITRAL Working Group III on TPF in ISDS). This raises a multitude of issues.

Disclosure of the terms of an LFA may give an unfair advantage to an opposing party by revealing, for example, strategic and commercial considerations including the strengths and weaknesses of a case (from a funder’s view). Unless specifically justified in the context of a particular case, there appears little to no good reason why such broad disclosure is required, let alone should become common practice in international dispute resolution. Even if required, protective measures such as the creation of a confidentiality club can serve to protect the parties’ respective interests.

In this context, the 2021 ICC Rules – which require disclosure only of the existence and identity of the funder – strike a sound balance between the interests of transparency on the one hand, and confidentiality on the other.

 

Transparency Can Be a Two-Way Street

Art. 11(7) of the 2021 ICC Rules places the onus to disclose whether a party is funded, on that party. This process may be assisted by having other stakeholders, in particular arbitrators, disclose from the outset and as a matter of practice their interest in any funder(s), whether or not at the time of such disclosure the existence and identity of a funder has been made known in the arbitration. The overarching purpose of such a proposed practice is, again, to avoid conflicts of interest throughout the life of an arbitration, to ensure no arbitrator risks any such conflict if e.g. a funder begins funding at a later stage in the proceedings, and to ensure the enforceability of an award.

 

Conclusion

Funders applaud the ICC for its measured and reasonable approach towards TPF in its 2021 Rules. This bodes well to strengthening TPF’s place in the arbitration community, and overall to the evolution of arbitration as a reliable and robust dispute resolution system.

References   [ + ]

1. ↑ ICC tops most preferred arbitral institute chart (ICC News, 15 October 2015): “Conducted by the Queen Mary University of London, the 2015 survey, Improvements and Innovations in International Arbitration, shows ICC topping the chart of preferred institutions by a significant margin and highlights ICC’s enduring footing as a leader in the field of arbitration for over 10 years.”) (emphasis added). function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the COVID-19 Revolution
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The 2021 ICC Arbitration Rules: Changes to the Arbitral Tribunal’s Powers

Mon, 2021-01-04 00:00

The 2021 ICC Arbitration Rules introduce new procedures, update key provisions, and formalize the existing practices of the ICC Secretariat and the Court in order to allow for greater flexibility, efficiency and transparency in the administration of ICC arbitration cases. We will focus in this post on the changes made under the new Rules to the Arbitral Tribunal’s powers. In particular, we will address the following five key provisions: new Articles 12(9), 13(6), 17(1)-(2), 26, and Appendix IV paragraphs (h)(i).

In proposing modifications to the 2017 Rules, the ICC conducted a thorough revision process by consulting with the relevant stakeholders. The ICC first revealed the proposed modifications to the Commission on Arbitration and ADR at its fall meeting in Seoul on 21 September 2019 and solicited comments from the various National Committees and Commission members. New draft proposals were discussed at the Commission’s meeting in July 2020. In total, the ICC received hundreds of written comments from various National Committees and individual Commission Members. Flowing from this consultation process, on 6 October 2020, the ICC Executive Board approved the revised ICC Rules of Arbitration as proposed by the International Court of Arbitration. On the same day, the ICC released the 2021 ICC Rules in draft form to the public. The new Rules came into force on 1 January 2021 and replaced the existing 2017 ICC Rules.  The ICC Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration under the ICC Rules of Arbitration has also been updated to reflect these changes.

With this in mind, we will shed light on some of the notable changes to the Arbitral Tribunal’s powers in the 2021 Rules.

 

Constitution of the Arbitral Tribunal

New Article 12(9): “Notwithstanding any agreement by the parties on the method of constitution of the arbitral tribunal, in exceptional circumstances the Court may appoint each member of the arbitral tribunal to avoid a significant risk of unequal treatment and unfairness that may affect the validity of the award.

This first and the most controversial change relates to the constitution of the arbitral tribunal itself. The amendment to Article 12(9) endeavours to give the ICC Court the power to appoint all members of the arbitral tribunal when there is an innate inequality or unfairness in the parties’ arbitration agreement. This change addresses exceptional situations where following the parties’ arbitration agreement would result in an unequal treatment of the parties and thus put at risk the enforceability of any award subsequently rendered.  For example, the designation of a co-arbitrator as sole arbitrator in the event of the failure to nominate the other co-arbitrator.

The ICC has already been confronted with such arbitration clauses and has remedied them by referring to the “spirit of the Rules” found in Article 42 of the Rules.  Moreover, it is to be expected that the ICC Court will only exercise the power in this new Article 12(9) in exceptional circumstances and that an arm’s length party agreement on the method of constitution of the arbitral tribunal will not be disregarded.

Nonetheless, there is opposition to the new Article 12(9).  In particular, there are concerns that the ICC has granted itself the authority to disregard an arbitration agreement in the event that it perceives an unfairness.  Those opposing this change consider that the ICC should leave the parties’ arbitration agreement in place and that such issues are better resolved in the course of the arbitral proceedings or at the enforcement stage.  The debate over new Article 12(9) will surely continue and it will be interesting to observe whether other arbitral institutions will follow the ICC in the adoption of this provision.

 

Nationality of arbitrators in treaty-based investment disputes

New Article 13(6):Whenever the arbitration agreement upon which the arbitration is based arises from a treaty, and unless the parties agree otherwise, no arbitrator shall have the same nationality of any party to the arbitration.

The use of the ICC Rules in treaty-based investment disputes has grown substantially in recent years. Therefore, the ICC Rules must be appropriately adapted to reflect the sensitive nature of these investment disputes. More specifically, there is a particular need in investor-State disputes to secure the complete neutrality of the arbitral tribunal by ensuring that no arbitrator holds the same nationality as any of the parties to the dispute. Such a rule is important in treaty-based investment disputes where the arbitral tribunal is likely tasked with assessing the legitimacy of a state’s laws, policies, and public interests. The introduction of Article 13(6) now aligns the ICC Rules with other investment arbitration rules such as Rule 1(3) of the ICSID Arbitration Rules.

 

Party representation  

New Articles 17(1)-(2): “(1) Each party must promptly inform the Secretariat, the arbitral tribunal and the other parties of any changes in its representation. (2) The arbitral tribunal may, once constituted and after it has afforded an opportunity to the parties to comment in writing within a suitable period of time, take any measure necessary to avoid a conflict of interest of an arbitrator arising from a change in party representation, including the exclusion of new party representatives from participating in whole or in part in the arbitral proceedings.

The changes to Article 17 flow from an existing practice in international arbitration where arbitral tribunals commonly insert a similar provision in the Terms of Reference or Procedural Order No. 1.  These provisions require the parties to notify promptly changes of counsel and also allowing the tribunal to act upon changes which may create a conflict of interest. The purpose of the provision is to address upfront any issues related to the change of counsel that may give rise to conflicts of interest or otherwise lead to challenges against the arbitrators. Similar provisions are contained in article 18.4 of the LCIA Rules.

As will be familiar to most readers, this issue was raised in Hrvatska Elektroprivreda d.d. (HEP) v. Republic of Slovenia where it was revealed ten days before the hearing that respondent had chosen a barrister from the same chambers as the president of the tribunal. The tribunal disqualified the barrister on the basis of the overriding principle of “the immutability of properly-constituted tribunals”.1)Hrvatska Elektroprivreda d.d. v. The Republic of Slovenia, ICSID Case No. ARB/05/24, Tribunal’s Decision on the participation of counsel, 6 May 2008, at para. 25. jQuery("#footnote_plugin_tooltip_9131_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9131_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This power is now enshrined in Article 17 and need no longer be expressly included in the Terms of Reference or the Procedural Order No. 1.

However, new Article 17 gives rise to a potential issue.  There is an inherent tension created by making the arbitral tribunal a judge in its own case on matters of representation.  The arbitral tribunal’s interest (i.e., to avoid a conflict of interest and thus having to resign) may be directly at odds with the inherent right of each party to choose its representatives.

 

Remote hearings

New Article 26: “A hearing shall be held if any of the parties so requests or, failing such a request, if the arbitral tribunal on its own motion decides to hear the parties. When a hearing is to be held, the arbitral tribunal, giving reasonable notice, shall summon the parties to appear before it on the day and at the place fixed by it. The arbitral tribunal may decide, after consulting the parties, and on the basis of the relevant facts and circumstances of the case, that any hearing will be conducted by physical attendance or remotely by videoconference, telephone or other appropriate means of communication.

The Covid-19 pandemic affected all walks of life and international arbitration was not spared. As the pandemic spread, working through Zoom, Teams, Skype, and other videoconferencing platforms became our new normal. With in-person hearings precluded for large portions of 2020, parties requested, and tribunals considered, ‘virtual’ hearings. However, the 2017 ICC Rules did not state expressly that the hearing could be held virtually, instead Article 25(2) of the Rules provided that the tribunal “shall hear the parties together in person if any of them so requests”. Indeed, the ICC was quick to act. On 9 April 2020, the ICC issued its Guidance Note on Possible Measures Aimed at Mitigating the Effects of the Covid-19 Pandemic, which clarified in paragraph 23 that hearings may be held virtually under the ICC Rules and now this practice has been formalized in new Article 26.

New Article 26 contains some other interesting elements. Notably, while discretion is given to the arbitral tribunal, it must first consult with the parties before deciding on the format of the hearing. When taking such a decision, the tribunal must consider the relevant facts and circumstances along with the fairness of the proceedings and equal treatment of the parties. Moreover, a careful reading of Article 26 reveals that the arbitral tribunal’s options are not limited to videoconferencing, but also include telephone and “other appropriate means of communication”. These technological options endeavor to avoid prejudicing parties who do not have access to more expensive videoconferencing technologies or adequate internet speeds to support such platforms.  Moreover, these options encourage the parties to use the most suitable mean of communication for their hearing. Finally, Article 26 does not presume that the hearing will be held in person. Indeed, it will be interesting to observe in a post-pandemic world whether international arbitration users will continue to use virtual hearings as a way to reduce the costs of arbitration despite not being constrained to use them.

 

Settlement of disputes  

New Appendix IV paragraph (h)(i): “encouraging the parties to consider settlement of all or part of the dispute either by negotiation or through any form of amicable dispute resolution methods such as, for example, mediation under the ICC Mediation Rules

The changes to Appendix IV are subtle, but significant. The language of paragraph (h)(i) has been strengthened from “informing the parties that they are free to settle” to “encouraging the parties to consider settlement”. The revised provision now vests the arbitral tribunal with more power to guide the parties towards an amicable settlement either by negotiation or through any form of amicable dispute resolution methods, such as, for example, mediation under the ICC Mediation Rules. The question is how the tribunal can extend such an encouragement so that it has an impact on the parties’ behavior, but without the arbitrators feeling that they have exceeded their mandate.

Overall, the 2021 ICC Rules are a welcome revision. The changes to the arbitral tribunal’s powers are precise, reflect the evolution of the ICC Court and the Secretariat’s practices and are consistent with the techniques and procedures that have become the norm in ICC arbitrations.

 

The views expressed in this article reflect those of the authors and not necessarily those of Mayer Brown, Quinn Emanuel Urquhart & Sullivan, or any of their clients.

References   [ + ]

1. ↑ Hrvatska Elektroprivreda d.d. v. The Republic of Slovenia, ICSID Case No. ARB/05/24, Tribunal’s Decision on the participation of counsel, 6 May 2008, at para. 25. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Joinder and Consolidation Provisions under 2021 ICC Arbitration Rules: Enhancing Efficiency and Flexibility for Resolving Complex Disputes

Sun, 2021-01-03 00:37

Multi-party and multi-contract complex disputes are now ubiquitous in international arbitration practice. This is unsurprising given the increasingly complex nature of international trade and commerce. Institutional statistics show substantial growth in the number of disputes involving multiple parties and multiple contracts. The 2019 International Chamber of Commerce (“ICC”) Dispute Resolution Statistics reveal that out of the 2,498 parties involved in cases filed in 2019, approximately a third of the cases involved multiple parties (31%), of which the majority (59%) involved several respondents, 24% several claimants, and 17% several claimants and respondents. Although most multi-party cases involved three to five parties (87% of multi-party cases), cases involving six to ten parties represented 11% of multi-party cases. Three cases involved 10 to 30 parties while in two cases, the number of parties exceeded 100.

In order to meet the challenge of administering complex and sophisticated international disputes, the world’s leading arbitral institutions have adopted new rules or introduced amendments in recent years. Joinder and consolidation are two key procedural mechanisms that have been incorporated in leading institutional arbitration rules in order to save time and costs and avoid parallel proceedings and inconsistent decisions.

On 1 December 2020, the ICC officially launched its 2021 Arbitration Rules, which entered into force on 1 January 2021. The new rules make important changes to the 2017 ICC Arbitration Rules including enhancements to the joinder and consolidation provisions, which will be the focus of this blog post. The changes to the rules advance the ICC’s mission of delivering efficient and flexible arbitration services.

 

Article 7: Joinder of Additional Parties

The ICC in its 2012 Arbitration Rules introduced wide-ranging changes in relation to both joinder and consolidation, which were fully maintained in its 2017 Arbitration Rules. In the 2021 version, there is a significant amendment to the joinder provision.

An application to join additional parties after the constitution of the arbitral tribunal is not infrequent in arbitrations. In the 2017 Arbitration Rules, no additional party could be joined after the confirmation or appointment of any arbitrator, unless the consent of all parties, including the additional party, was obtained. This limitation has, to some extent, been relaxed under the 2021 Arbitration Rules by adding a new exception, namely Article 7(5) which states that

Any Request for Joinder made after the confirmation or appointment of any arbitrator shall be decided by the arbitral tribunal once constituted and shall be subject to the additional party having accepted the constitution of the arbitral tribunal and agreeing to the Terms of Reference, where applicable.

In this regard, even if a party at the commencement of the arbitration objects to the joinder of an additional party, the arbitral tribunal now has the power and discretion to permit the joinder where the conditions are met. The possibility of such joinder may arise as the case progresses, particularly where procedural efficiency and the relevance of the final award is bolstered by the joinder of the consenting additional party. The additional party may have evidence central to the dispute or a vested interest in the outcome of the dispute. Such joinder of a relevant party can facilitate the expansion of the scope of the award to cover that additional party’s own prayers for relief. It can also ensure the efficacy of the award by ensuring that the proceedings take into account the effect of the award on other parties. This reduces the need for satellite or parallel proceedings in national courts that dilute the utility and impede the enforcement of the final award.

The requirement that the joined party accept the composition of the arbitral tribunal and the Terms of Reference, where applicable, avoids unnecessary delay, ensures the equality of treatment for all parties in the selection and appointment of the tribunal by way of the joined party’s consent, and eliminates the risk of non-enforcement or setting aside of the award. This also assists to respond to the issues that arose in the case of Siemens AG/BKMI Industrienlagen GmBH v Dutco Construction Company. In this case, the French Cour de Cassation set aside an award, holding that the principle of equality in the appointment of arbitrators was violated. It further held that, as a matter of public policy, the party’s right to nominate an arbitrator by way of agreement to arbitration rules can only be waived after the dispute has arisen.

The new Article 7(5) also sets out a non-exhaustive list of relevant circumstances which should be considered by the arbitral tribunal, including “whether the arbitral tribunal has prima facie jurisdiction over the additional party, the timing of the Request for Joinder, possible conflicts of interests and the impact of the joinder on the arbitral procedure.

Prima facie jurisdiction over the additional party is a paramount condition. Article 7 should be read with Article 6(4), which similarly specifies the requirement that the ICC Court is prima facie satisfied that an arbitration agreement may exist. The new Article 7(5) clarifies that “any decision to join an additional party is without prejudice to the arbitral tribunal’s decision as to its jurisdiction with respect to that party.” The introduction of other relevant factors provides the tribunal with clear guidance and adequate flexibility to make decisions.

 

Article 10: Consolidation of Arbitrations

The amendments on consolidation of arbitrations under Article 10 of the 2021 ICC Arbitration Rules are less substantial and focus more on sharpening and clarifying the rule.

According to consolidation provisions under Article 10(b) of the 2017 ICC Arbitration Rules, consolidation is possible where all the claims in the arbitration were made under “the same arbitration agreement”, namely the same contract. In addition, the original Article 10(c) only permitted consolidation of arbitrations under “more than one arbitration agreement” when the arbitrations involved the same parties, the disputes in the arbitrations arose in connection with the same legal relationship, and the ICC Court found the arbitration agreements to be compatible.

The new Article 10 of the 2021 ICC Arbitration Rules maintains the substance of its prior iteration but broadens the scope to include the circumstance of “same arbitration agreements”. In this regard, the ICC Court may consolidate arbitrations when all the parties to the arbitration have signed the same arbitration agreement or arbitration agreements. Such consolidation does not have to be done between multiple parties to the same and single arbitration agreement. The new Article 10(c) clarifies that consolidation may be available even if the claims are “not made under the same arbitration agreement or agreements”.

This proposed amendment aims at achieving a balance between the necessary flexibility in complex arbitrations and the need to maintain the required predictability by avoiding giving the ICC Court excessive discretion. As a consequence, consolidation will be possible when:

  1. All parties agree – Article 10 (a);
  2. The parties in the arbitrations are not the same but have all signed the same arbitration agreement or arbitration agreements – Article 10 (b);
  3. The parties in the arbitrations are the same, the disputes in the arbitrations arise from the same legal relationship and the ICC Court finds the multiple arbitration agreements under which the claims are made to be compatible – Article 10 (c).

In practice, this revision will be instrumental for managing complex disputes in the construction and energy sector where multiple parties, such as the employer, designer, engineer, main contractor and various subcontractors, are involved and multiple agreements are entered into among these multiple parties, as well as mergers and acquisitions disputes which usually involve a series of transaction documents, and multiple buyers and sellers, or shareholders.

An example of a situation captured by the new Article 10(b) is as follows. Parties A, B, C and D have signed both a Share Purchase Agreement and a Shareholders Agreement. Parties A and B are parties to the first arbitration based on the Share Purchase Agreement and parties A, C and D are parties to a second arbitration based on the Shareholders Agreement. In this scenario, if the Share Purchase Agreement and a Shareholders Agreement contain the same arbitration agreements, consolidation of arbitrations can occur, despite the parties in both arbitrations not being the same.

As to “compatible” arbitration agreements under Article 10(c), the lack of definition of what makes agreements “compatible” provides much needed flexibility and will assist to ensure that the Rules continue to be relevant as commercial disputes evolve. The typical circumstances of incompatible arbitration agreements have thus far included agreements with different mechanisms for the selection and appointment of arbitrators, seat of arbitration, language of arbitration and number of arbitrators. It demonstrates the importance of drafting arbitration agreements in multi-contract situations in identical terms as far as possible.

 

Conclusion 

The 2021 ICC Arbitration Rules reinforce the ICC’s position as a premier global arbitral institution that is nimble and responsive to a rapidly changing economic landscape. By enhancing the efficiency and flexibility of its arbitration rules with carefully considered and well framed amendments, users continue to have their commercial disputes administered with integrity, certainty and transparency.

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2020 in Review: Proper Law of Arbitration Agreement

Fri, 2021-01-01 01:00

2020 saw important case law developments concerning the proper law of arbitration agreements, where the seat of the arbitration is in a different jurisdiction from the governing law of the main contract, particularly in the UK. However, various jurisdictions have adopted different approaches to this issue. It remains to be seen which jurisdictions will follow the latest UK jurisprudence. This year, we covered on our Blog some of these approaches in a few select common law and civil law systems. We summarise below our coverage as well as include further comments from our Europe and Australia editorial teams.

 

Common law approach

English courts

Discussions on the law governing the arbitration agreement may and do arise when jurisdiction of the arbitral tribunal is contested (e.g. whether a party has agreed to submit a dispute to arbitration, as in Svenska Petroleum Exploration AB v Lithuania [2005] EWHC 2437 (Comm), Arsanovia Ltd & Ors v Cruz City 1 Mauritius Holdings [2012] EWHC 3702 (Comm), Kabab-Ji SAL (Lebanon) v Kout Food Group (Kuwait) ([2020] EWCA Civ 6), or whether there is a valid arbitration agreement, as in Abuja International Hotels Ltd v Meridien SAS [2012] EWHC 87 (Comm)), or when anti-suit injunctions are sought (e.g. XL Insurance Limited v Owens Corning [2001], C v D, [2007] EWCA Civ 1282, Sulamerica CIA Nacional De Seguros SA v Enesa Engenharia SA [2012] EWCA Civ 638, Enka Insaat Ve Sanayi AS v OOO “Insurance Company Chubb” & Ors [2020] EWCA Civ 574), at the set aside or at the enforcement stage.

This year saw important developments in the English courts on this issue. In English courts, the applicable law to the arbitration agreement is determined by applying the three-stage test required by English common law conflicts of law rules for determining the law governing contractual obligations (as the Rome I Regulation does not apply to arbitration agreements), namely (i) is there an express choice of law? (ii) if not, is there an implied choice of law? (iii) if not, with what system of law does the arbitration agreement have its closest and most real connection?

First, as reported by our contributor, we experienced at the beginning of the year an emerging focus on the express choice, as the England and Wales Court of Appeal (EWCA) determined in Kabab-Ji that the question can be answered at the first stage not only if exceptionally there is an express choice of the law of the arbitration agreement, but also in other cases. As such, the express choice of law in the main contract may amount to an express choice of law of the arbitration agreement, if the construction of the contract so mandates (essentially “This Agreement” clauses, which means that the law agreed for the main contract covers all clauses, including the arbitration clause). Both the EWCA (para. 90) and the Supreme Court (paras. 43, 52, 60) endorsed this ruling in Enka.

With respect to the second stage of the inquiry, as we have reported on the Blog, we saw the EWCA departing from Sulamerica in its decision handed down in April, as it held the seat of arbitration as an implied choice of law of the arbitration agreement, subject to any countervailing factors in the relationship between the parties or the circumstances of the case (e.g. if the arbitration agreement would be invalid under the law of the seat).

The Supreme Court disagreed and ruled in October this year, as explained on the Blog, that at the second stage of the inquiry, prevalence should be given to the parties’ intention when agreeing on the law of the main contract; where the parties have (expressly or impliedly) chosen the law applicable to the main agreement, it would normally govern the arbitration agreement as an implied choice.

At the third stage, the Supreme Court held in Enka that the arbitration agreement is most closely connected with the law of the seat if the parties had chosen one, as, inter alia, this is the most used connecting factor and it is also consistent with international law and legislative policy, such as the New York Convention.

In practical terms, it means that under English law, as it currently stands, the law of the seat would govern the arbitration agreement in those (presumably limited) cases where parties do not agree (expressly or impliedly) on the law applicable to the main contract. In Enka the majority found there is no express or implied choice for the main contract and, moving to the third stage of the inquiry, determined that the applicable law of the arbitration agreement is English law, as the seat was London.

Also, the UK Supreme Court expressly confirmed the existence of the validation principle under English law to realign UK jurisprudence with the transnational approach to the proper law of the arbitration agreement, as another contributor explained at length.

 

Singapore courts

This year has seen continued discussion (see here, here and here) of the late 2019 decision of the Singapore Court of Appeal in BNA v BNB and another [2019] SGCA 84 (“BNA”). The Court of Appeal overturned the earlier High Court ruling and provided authoritative guidance on the applicable principles in determining the proper law of an arbitration agreement. By applying the three-stage analysis, the Court of Appeal expressly endorsed the approach taken in Sulamérica that in the absence of an express choice of the proper law of the arbitration agreement, the implied choice of law should presumptively be the proper law of the underlying contract.

However, unlike the UK Supreme Court, the Singapore Court of Appeal did not decide on the applicability of the validation principle. Whilst the validation principle was rejected by the High Court, this issue was not considered by the Court of Appeal and arguably it remains unsettled law. Singapore courts may also have to deal with the apparent conflict between Singapore contract law principles and the choice of law principles in the New York Convention.

 

Australia

Australian courts have yet to consider a test to determine the applicable law governing an arbitration agreement in the absence of an express choice of law. Time will tell whether Australian courts will be persuaded by the majority opinions in the UK Supreme Court’s Enka decision, the approach of the Singapore Court of Appeal in BNA, or if a different approach is adopted altogether.

 

Pacific Islands

Whilst the courts in the Pacific Islands have also not had the opportunity to rule on this topic, the Pacific Islands region saw more fundamental developments in arbitration this year. 2020 was the year that saw the Kingdom of Tonga and Palau accede to the New York Convention. They now join other Pacific states to have done the same, such as Fiji, Papua New Guinea, the Marshall Islands and the Cook Islands. With more and more countries acceding to the New York Convention each year, there is an obvious benefit in Pacific Islands’ jurisdictions seeking to streamline their domestic approaches to the position adopted under the New York Convention, for consistency with other jurisdictions.

 

Civil law approach

French courts

We mentioned above the findings of the English courts on the law applicable to the arbitration agreement in Kabab-Ji. The effect was that both the High Court of England and Wales and the EWCA refused to enforce the award on the basis that it was rendered against a non-party to the arbitration agreement. However, as explained in detail by our contributors, on the other side of the channel, the Paris Court of Appeal dismissed the application for the same award to be set-aside, confirming the arbitral tribunal’s findings upholding jurisdiction over a third party to the arbitration agreement. The different solution was triggered by the application of a different law to the arbitration agreement: the English courts applied English law, while the Paris Court of Appeal applied the French law and extended the arbitration agreement to a non-signatory. Our contributors explain that the solution is in line with the French case law allowing such extension if the non-signatory was involved in the performance of the contract.

When determining the law applicable to the arbitration agreement, the Paris Court of Appeal gave prevalence to the law of the seat, on the ground that the parties’ choice in the governing law of the main contract (in this case English law) could not override their ulterior choice in favour of Paris as the seat of arbitration, and French law as (i) the law applicable at the seat of arbitration; and (ii) thus, to the arbitration agreement.

 

Swedish courts

Earlier this year, our Blog revisited a judgment of the Svea Court of Appeal handed down in late 2019. The court considered whether an arbitral award rendered by a tribunal some years earlier should be set aside on the grounds it lacked jurisdiction to decide the dispute.

The court applied a statutory provision in the Swedish Arbitration Act. That provision, in effect, requires that if parties have not agreed on the choice of law for an arbitration agreement, then the law of the forum country applies. In resolving the case, the court arguably applied a strict approach to interpreting whether the parties have agreed on the choice of law for an arbitration agreement, seemingly recognising only explicit statements to that effect within the contract itself.

As the parties had not explicitly agreed on a choice of law for the arbitration agreement (only for the ‘main agreement’), the court found that Swedish law applied as the law of the forum country. From there, the court used customary principles of contract interpretation under Swedish law to find that a valid arbitration agreement existed between the parties. On that basis, there was no reason for the court to set aside the arbitral award on the ground that the tribunal lacked jurisdiction to decide the dispute.

On its face, the statutory provision applied by the court broadly mirrors the approach advocated by Articles V(1)(a) and II(3) of the New York Convention in recognising that, absent the parties agreement as to the governing law of an arbitration agreement, the law of the forum country applies. However, by recognising only explicit agreement as to a choice of law (rather than also implicit agreement), the position in Sweden now arguably departs from the position under New York Convention (see Enka at 129 and 130 and a recent Blog post here). Time will tell whether subsequent decisions in Sweden will interpret the statutory provision in such a way as to better align it with the broader interpretation of Articles V(1)(a) and II(3) of the New York Convention, now supported by the UK Supreme Court in Enka.

 

Conclusion

The common and civil law approaches seem to converge in that where there is no agreement of the parties on the law applicable to the arbitration agreement, the law of the seat would govern it (either by statutory grounds, or by applying the closet connections test). However, as the law currently stands, what differs is a more lenient approach in common law courts – at least the English courts – on what amounts to parties’ agreement (either as an express choice by way of construction, e.g. Kabab-Ji, or by implied choice, e.g. Enka), leaving less cases to be governed by the law of the seat compared to the civil law approach.

The UK courts’ judgments this year provided welcome clarity on how UK courts will seek to determine the governing law of an arbitration agreement where the parties have not made an express choice. However, whether or not the reasoning of the majority is persuasive in developing or clarifying this area of law in other (at least common law) jurisdictions around the world remains to be seen. We look forward to continuing our Blog’s global coverage on this topic in 2021.

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Open Positions: Assistant Editors of Kluwer Arbitration Blog

Wed, 2020-12-30 23:49

The Editorial Board of Kluwer Arbitration Blog announces the opening of three positions with Kluwer Arbitration Blog: Assistant Editor for Europe, Assistant Editor for Middle East North Africa (MENA), and Assistant Editor for Investment Arbitration.

For each respective position, the Assistant Editor reports directly to the coordinating Associate Editor and is expected to (1) collect, edit and review guest submissions from the designated region or issue area for posting on the Blog, while actively being involved in the coverage of the assigned region or issue area; and (2) write blog posts as contributor. The position provides an opportunity to work with a dynamic and dedicated team and liaise with the arbitration community and various stakeholders.

The Assistant Editor will work remotely. Please note that this is a non-remunerated position. If you are interested, please submit a resume and cover letter by email, before 10 January 2021, to [email protected], with cc to Dr Crina Baltag, [email protected]. We will only reach out to shortlisted candidates for an interview.

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