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2019 in Review: International Investment Agreements and Human Rights

Sat, 2020-02-08 04:58

Nicholas J. Diamond (Assistant Editor)

Several developments in 2019 highlighted the increased presence of human rights considerations in international investment law. As described by our contributors, however, tensions persist.

The 2019 Netherlands Model Agreement, released in March, represented a notably progressive approach to reflecting human rights considerations in foreign investment, as explained by our contributors. This development builds on related drafting considerations for model agreements, as described by our contributors.

The revised draft of a legally binding instrument to regulate under international human rights law the activities of transnational corporations and other business enterprises (TCs/OBEs), released in July, marked crucial progress toward evolving investor obligations regarding human rights on the international plane.

Finally, the much-anticipated final text of the Hague Rules on Business and Human Rights Arbitration was released in December following a public consultation period, as described by our contributors. The final text created a novel pathway for arbitration of business and human rights disputes, as explained by our contributors. We learned from our contributors that challenges remain, but prior experience using arbitration to resolve human rights disputes may offer instructive lessons.

In addition to these developments, several new international investment agreements (IIAs) were signed in 2019, many of which contain preambular text or substantive provisions relevant for human rights. This post provides an overview of these new IIAs, with a focus on their potential implications for human rights considerations in international investment law.

 

New IIAs

According to the UNCTAD as of January 2020, 14 new IIAs were signed in 2019, all of which are not yet in force. The texts of 10 of these 14 IIAs are publicly available. Nine of these 14 IIAs—or nine of the 10 IIAs with a publicly available text—contain preambular text or substantive provisions relevant for human rights. Specifically, this post highlights five categories: (1) preambular text; (2) corporate social responsibility (CSR) provisions; (3) general exceptions provisions; (4) provisions preserving regulatory autonomy; and (5) non-lowering of standards provisions. In some instances, explicit reference is not made to human rights, but the language used is as an interpretative matter nonetheless relevant for human rights.

These developments represent a continuation of trends from prior years. However, 2019 is notable for both the volume of such inclusions across newly signed IIAs and the share of newly signed IIAs in which they appear. As such, these developments both further normalize the presence of human rights considerations in IIAs and advance the broader trend toward reflecting human rights considerations in international investment law.

 

Preambular Text

The preamble to an IIA informs the general object and purpose of the instrument. Article 31(1) of the Vienna Convention on the Law of Treaties requires that the provisions of an IIA be interpreted in view of its object and purpose. Two new IIAs signed in 2019 refer to human rights or specific human rights instruments in their preambles. The CARIFORUM States-United Kingdom EPA broadly refers to the parties’ commitment to respect human rights. Additionally, the EU-Vietnam IPA refers to specific international instruments, affirming the parties’ commitment to the Universal Declaration of Human Rights. In isolation, such preambular text has minimal interpretative impact. However, it can play a supplemental role alongside substantive provisions to inform an interpretation of the instrument that supports the relevance of human rights considerations.

 

Corporate Social Responsibility

IIAs may include substantive provisions regarding CSR that refer to human rights. These provisions are typically nonbinding or directed to State parties, rather than investors. Several new IIAs signed in 2019, such as the Brazil-UAE BIT,  refer to the OECD Guidelines for Multinational Enterprises, which captures recommendations from governments to multinational enterprises on responsible business conduct. Moreover, several IIAs also identify voluntary principles to guide investor conduct, such as respecting the internationally recognized human rights of individuals involved in the investor’s business activities.

At present, such provisions likely have limited practical impact on investor conduct, owing to their voluntary nature or indirect application to investors. However, considered alongside efforts to establish binding human rights obligations for TCs/OBEs on the international plane, they further evidence an ethos of an evolving foreign investment regime that increasingly recognizes the close connection between investor conduct and human rights.

 

General Exceptions

General exceptions provisions permit a State to lawfully undertake actions that would otherwise be inconsistent with its obligations under the IIA. Such provisions often identify public policy objectives which, even if they do not specifically reference human rights, can be interpreted to shield regulatory measures intended to respect, protect, or fulfill the host State’s human rights obligations on the international plane. Indeed, such provisions played a critical role in the various investment disputes that arose following the economic crisis in Argentina in the early 2000s, many of which included human rights considerations.

Many of the new IIAs signed in 2019, such as the Brazil-Morocco BIT, except measures taken for the maintenance of “public order” which, if broadly construed under certain factual scenarios, could be relied upon to justify measures intended to respect, protect, or fulfill human rights obligations. Moreover, several IIAs, such as the Armenia-Singapore Agreement on Trade in Services and Investment, also specifically except measures “necessary to protect human, animal or plant life or health”.

Given that such provisions intend to address a spectrum of situations, not just those impacting human rights, their open-textured language is perhaps appropriate. Narrowing such provisions by, as example, including specific human rights references, would risk undercutting their broader purpose, as well as unduly preferencing State interests, which may be more properly addressed through other provisions, such as those preserving regulatory autonomy, below.

 

Preserving Regulatory Autonomy

Regulatory autonomy, also sometimes called the right to regulate, refers to the “regulatory space” that States enjoy regarding their domestic activities, limited primarily by domestic legal or political constraints. This open-textured authority is particularly relevant for domestic economic activities. It is also the primary way that States provide for the satisfaction of their human rights obligations arising on the international plane.

A few new IIAs signed in 2019, such as the Australia-Hong Kong Investment Agreement, contain preambular text that seeks to preserve regulatory autonomy to “safeguard public welfare, and protect legitimate public welfare objectives”, and one specifically refers to public health in this regard. Others contain substantive provisions that seek to preserve regulatory autonomy. The Brazil-Ecuador BIT, for example, even specifically refers to human rights in this regard.

Such provisions, especially where explicitly connected to human rights in the investment context—and, better still, specific human rights instruments—may prove especially relevant in disputes challenging certain State measures. They may, however, create tensions with substantive investor protections regarding, as example, expropriation, the balance between which a tribunal would have to determine under the facts of the dispute.

 

Non-Lowering of Standards

IIAs may contain substantive provisions that preclude States parties from lowering regulatory standards, including with respect to human rights, for purposes of attracting foreign investment. For example, the CARIFORUM States-United Kingdom EPA precludes State parties from “lowering domestic environmental, labour or occupational health and safety legislation and standards or by relaxing core labour standards or laws aimed at protecting and promoting cultural diversity”. The Brazil-Ecuador BIT contains a similar provision and even specifically refers to human rights in this regard.

 

Looking Ahead

Human rights considerations increasingly arise in discussions around the evolution of international investment law. IIAs continue to play a foundational role in this trend, as noticeably progressed by newly signed IIAs in 2019. The extent to which disputes arise under the abovementioned IIAs in the coming years, and whether such disputes include human rights considerations, will crucially bear on the trajectory of efforts to gradually align human rights and investment interests.

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New Arbitration Rules of the Finland Chamber of Commerce – more expeditious and effective proceedings

Fri, 2020-02-07 02:00

Sampsa Seppala

The Finland Chamber of Commerce has recently revised its Arbitration Rules and the Rules for Expedited Arbitration to address the growing demands of the competitive world of commercial arbitration, as reported by the Arbitration Institute of the Finland Chamber of Commerce ( “FAI” or the “Institute”) in its article from December 2019. The revised Rules, which entered into force on 1 January 2020 (the “2020 Rules”), seek to provide for more expeditious and effective proceedings.

While Finland is internationally not as well-known as an arbitration destination as its western neighbour, Sweden, it has recently been able to build its reputation as a neutral location for the resolution of international disputes. In terms of FAI’s statistics for the last 5 years, its annual caseload has ranged between 52 and 79 new arbitration requests, of which 22-36 % of such cases have had an international element. In 2019, the exact number of cases was 67. Although already an arbitration-friendly state, Finland has also, in addition to the revision of the Rules, commenced efforts to renew the Finnish Arbitration Act from 1992, as discussed in this post. As for the revised 2020 Rules, the most important amendments will be covered below.

 

Changes to the Rules adopted in 2013

Compulsory advance on costs

In comparison to the previous Arbitration Rules and the Rules of Expedited Arbitration (hereafter the “2013 Rules”), the Institute will now require an advance on costs in all arbitration proceedings, and not only in international disputes. Previously, it was within the Institute’s discretion to order an advance to be paid in domestic disputes.

In the past and in arbitrations governed by the 2013 Rules, the parties were entitled to propose an advance to be fixed in domestic arbitrations as well, but the Institute was not bound by such a proposition (cf. FAI’s Arbitrator’s Guidelines). In practice, an advance was effectively only ordered in domestic cases when requested by all parties or under otherwise special circumstances, for example if it was clearly foreseeable that the parties would not be able to fulfil their payment obligations at the end of the arbitration. The detailed rules concerning an advance were formerly found under Article 48 of the 2013 Rules (now covered under Article 50 of the 2020 Rules).

When no advance was fixed by the Institute, arbitral tribunals would nevertheless previously often request an advance from the parties to secure the payment of their fees and expenses. However, in these situations the advance would only cover the fees and expenses of the tribunal, but not the administrative fee of FAI. Consequently, the purpose of the modification is to ensure that in all arbitration proceedings (both domestic and international) all estimated costs of the arbitration are covered by the advance. The amendment also works to ensure a more equal treatment of arbitrators from different professional backgrounds, i.e. attorneys and other legal professionals, as previously attorneys working at law firms were mainly the only ones who had the opportunity to utilise designated client fund accounts as a means to retain advance payments.

 

Electronic delivery

Another key amendment with respect to the streamlining of the proceedings is a modification according to which case documents may be transmitted to the Institute by electronic means alone or by way of a single hard copy. Under the 2013 Rules, documents had to be delivered in multiple hard copies. Naturally, the Institute as well as the arbitral tribunals will still have the possibility to request transmissions in hard copies when this is considered necessary. Additionally, written statements, notices and other communications may be transmitted in any manner that provides a record of the transmission under the 2020 Rules. The wording, specifically found under Article 4 of the 2020 Rules, is intended to allow the adoption of new means of communication and other technologies and, by doing so, address future needs pre-emptively, without a need for further revisions to the 2020 Rules.

 

Added flexibility between standard and expedited rules

Another tool with which the 2020 Rules add flexibility is the possibility to refer a case under the FAI Arbitration Rules to the FAI Expedited Arbitration Rules and vice versa. This referral, enabled under Article 10 of the 2020 Rules, will be possible prior to the confirmation of any arbitrator, is subject to the approval of the parties and is not dependent on any specific financial thresholds as is the case with, for example, the ICC’s expedited procedure (cf. Art. 30 of ICC’s Rules of Arbitration). The parties can even utilise a new model arbitration clause called “the combined clause”, which leaves the ultimate choice of the applicable Rules to the discretion of the Institute. This makes a clear distinction between the 2020 Rules and the 2013 Rules under which the Expedited Arbitration Rules could only be applied if the parties had specifically agreed to their application. Under the 2013 Rules, it was also not possible to refer an ongoing arbitration proceeding to be conducted under the Expedited Rules. The purpose of this addition is to increase the use of the Expedited Arbitration Rules in small and simple cases wherein a full-fledged procedure would not necessarily be the most practical decision. In the aforementioned article, FAI has reasoned the revision as follows:

“When drafting an arbitration clause, parties are often unable to foresee the type of dispute that may potentially arise out of their agreement. For this reason, parties opt for proceedings under the FAI Arbitration Rules more often than expedited proceedings. This means that the FAI Expedited Arbitration Rules, which provide for a procedural framework that is particularly appropriate for small and simple disputes, have remained underutilized. The 2020 Rules aim to encourage the use of expedited proceedings by adding flexibility to the choice between the two sets of Rules”.

In comparison to standard proceedings, in expedited arbitration proceedings the dispute is decided by a sole arbitrator and the arbitral award is rendered within three months from the date on which the sole arbitrator received the case file from the Institute. Another key feature of expedited proceedings under the 2020 Rules is the absence of oral hearings unless one of the parties specifically requests that oral hearings take place and the sole arbitrator deems them necessary. Moreover, the arbitral award shall not contain the reasoning of the sole arbitrator unless a party has requested a reasoned award within the time limit set by the sole arbitrator. The costs of expedited proceedings are also generally lower than those of standard proceedings. It is, however, worth noting that expedited proceedings have, to this date, been relatively rare (only a few cases each year). This is most likely the case due to the fact that disputes governed by the standard Arbitration Rules are generally resolved within 8-9 months after the case file has been transferred to the respective arbitral tribunal.

 

Shortening of time limits and added procedural control under standard proceedings

The 2020 Rules look to expedite the arbitration proceedings by shortening the default time limits for the appointment of a three-member tribunal from 15 days to 10 days. Arbitral tribunals will now also be required to hold the case management conference in principle within 21 days (14 days for expedited proceedings) from the date on which the arbitral tribunal received the case file from the Institute. These changes can be found under Articles 19 and 30 of the 2020 Rules.

With respect to the efficiency of the proceedings, the 2020 Rules also explicitly state under Article 49 that where a party has failed to comply with the orders or other directions of the arbitral tribunal, the tribunal may take such failure into account in its allocation of the costs of the arbitration. To be clear, tribunals also had the option to do this under the 2013 Rules, but this ability was not specifically mentioned in the rules. By way of this amendment, the 2020 Rules work to encourage the parties to act in a manner which promotes the expedience and efficiency of the proceedings.

 

Confidentiality orders

Lastly, the 2020 Rules explicitly provide arbitral tribunals with the power to issue confidentiality orders. Although the 2013 Rules required the parties to keep confidential the documentation related to the proceedings, subject to certain exceptions, the powers of the arbitral tribunal to issue confidentiality orders were not previously explicitly regulated. Comparatively, under Article 51 of the 2020 Rules, arbitral tribunals now have explicit jurisdiction to render such orders, should this prove to be necessary.

 

Conclusion

In a nutshell, the 2020 Rules continue in the footsteps of the 2013 Rules by creating a more attractive option for the resolution of both international and domestic commercial disputes. The FAI Arbitration Rules and the FAI Rules for Expedited Arbitration have proven to be very competitive in an international comparison in terms of speed and cost-efficiency. According to FAI’s statistics, the average duration of arbitration proceedings under the FAI Arbitration Rules was 9 months in 2018. The modifications made in the 2020 Rules will certainly further improve the efficiency and speed of FAI arbitrations.

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Could an Arbitral Award Rendered by AI Systems be Recognized or Enforced? Analysis from the Perspective of Public Policy

Wed, 2020-02-05 21:00

Guillermo Argerich, Juan Jorge and María Blanca Noodt Taquela

Questioning About the (Inexorable?) Future

Could artificial intelligence (AI) carry out decision-making? Is it just a matter of time? Will AI replace human arbitrators? Further, will emotional intelligence always trump AI, or will AI enhance the arbitral process?

Despite the topicality of the subject, the arbitration rules remain silent about AI. However, there is also no express provision regarding the human quality of arbitrators. Does this open the door to AI? In particular: should the recognition or enforcement of an award rendered by these systems be denied on the basis of public policy grounds contained in the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958)?

 

Public Policy under the New York Convention: Importance of Global Values

According to article V(2) b of the New York Convention, the competent authority in the country where recognition and enforcement is sought may refuse them, if the arbitral award is contrary to the public policy of his or her country.

To answer whether the use of AI for decision-making would imply a violation of such public policy, it is worth starting from the premise that public policy is a variable concept, which continuously evolves to meet the changing needs of political, social, cultural and economic contexts.

The notion of public policy has been considered vague and hard to define. Despite that, to overcome this inconvenience we may resort to globalization, which first appeared as an economic phenomenon, but has later been evidenced in numerous aspects, including political, cultural, legal and ideological concepts. Thus, we can speak of global values that prevail in a global society and that influence the evaluation of international public policy at the time of deciding on the recognition and enforcement of foreign arbitral awards.1)See: M. B. Noodt Taquela / A. M. Daza-Clark, “The Role of Global Values in the Evaluation of Public Policy in International Investment and Commercial Arbitration” in: V. R. Abou-Nigm / K. McCall-Smith / D. French (eds.), Linkages and Boundaries in Private and Public International Law, Oxford, Hart, 2018, pp. 121-144; M. B. Noodt Taquela, “Incidencia de los Valores Globales en la Evaluación del Orden Público Internacional en el Reconocimiento y la Ejecución de los Laudos Arbitrales Extranjeros”, in: Jurisprudencia Argentina 2019–I, Buenos Aires, Abeledo Perrot, 2019, pp. 1187-1193. jQuery("#footnote_plugin_tooltip_8254_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8254_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In fact, assuming that countries share some essential values, it seems difficult to imagine a successful defence based on public policy since there will be a coincidence between the prevailing conceptions in the country of the seat of the arbitration, the country whose law is applicable to the substance of the dispute and the country where the recognition and enforcement of the foreign arbitral award is intended.

Furthermore, the existence of global values may be one of the reasons for which there are relatively few decisions in which public policy is debated as grounds for refusing recognition or enforcement of foreign arbitral awards. In addition, we believe that the existence of global values recognized by most countries may explain why some awards set aside in the country of the seat of the arbitration were later enforced in other countries.2)See: France, Cour de cassation, Chambre civile 1, 03/23/1994, “Hilmarton (I)”; United States of America, District Court, District of Columbia, 07/31/1996, “Chromalloy Aeroservices and The Arab Republic of Egypt”; France, Cour d’appel de Paris (1re Ch. C), 09/29/2005, “Direction générale d’ aviation civile de l’Emirat du Dubai v. Bechtel”; United States of America, District Court, District of Columbia, 03/17/2006, “Termorío SA ESP, et al.”, “Plaintiffs v. Electrificadora del Atlántico SA ESP, et al.”; France, Cour de cassation, 06/29/2007, “Société PT Putrabali Adyamulia c. Société Rena Holding et Société Mnogutia Est Epices”. jQuery("#footnote_plugin_tooltip_8254_2").tooltip({ tip: "#footnote_plugin_tooltip_text_8254_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); When these global values are not respected by the judge of the seat of the arbitration, such as by annulling an award based on conceptions deviating from these values, then the “international community” allows its enforcement in other countries. Note that this case law arose only in the mid-1990s, precisely when globalization was at its peak. Interestingly, there is no record of judgments having enforced annulled awards during the first decades of application of the New York Convention.

Within these global values, party autonomy is of particular importance, as it is a cornerstone of arbitration. This is reflected in the need for relying on a valid arbitration agreement to get the parties to subject themselves to arbitration, and in the fact that party autonomy prevails over most arbitration rules, provided that the essential principles of due process are respected.

 

AI and Decision-Making in Arbitration

Remembering that the principles of public policy reflect the needs and values upheld by a society at a given time, it should be noted that AI applied to decision-making is still at an embryonic state, and therefore some obstacles may appear in the way of recognition or enforcement of an award rendered by those systems. In fact, arbitration practitioners could raise ethical reasons because of the absence of human qualities (e.g.: emotions) or due process defences based on the so-called “black box”, which refers to the impossibility of directly explaining the results or predictions of the AI system.

Emotions such as empathy, or even anger, play an important role in legal decision-making. In addition, it seems that we assume that there is an intrinsic value in being heard by a human being, who is subject to duties of justice and respect.3)K. Maxwell, “Summoning the Demon: Robot Arbitrators: Arbitration and Artificial Intelligence”, Practical Law Arbitration, 2019. Link: http://arbitrationblog.practicallaw.com/summoning-the-demon-robot-arbitrators-arbitration-and-artificial-intelligence/. jQuery("#footnote_plugin_tooltip_8254_3").tooltip({ tip: "#footnote_plugin_tooltip_text_8254_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Nappert, however, relativizes this point: it is no less true that such emotions often lead to nonsense and resolutions contrary to the ideal of justice.4)S. Nappert, “The challenge of artificial intelligence in arbitral decision-making”, Practical Law, 2018. jQuery("#footnote_plugin_tooltip_8254_4").tooltip({ tip: "#footnote_plugin_tooltip_text_8254_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Despite a certain scepticism, some authors consider that if the applicable rules do not expressly prohibit AI systems to act as arbitrators, and there is an agreement of the parties regarding those, the public policy defence would not be successful in refusing recognition of an arbitral award.5)I. Ng Šega / V. Benedetti del Río, “Chapter 8: When the Tribunal is an Algorithm: Complexities of Enforcing Orders Determined by a Software under the New York Convention”, in: K. Fach Gomez / A.M. Lopez-Rodriguez (eds.), 60 Years of the New York Convention: Key Issues and Future Challenges, Alphen aan den Rijn, Kluwer Law International, 2019, p. 131; C. Sim, “Will Artificial Intelligence Take Over Arbitration?”, Asian International Arbitration Journal, 2018, p. 3. jQuery("#footnote_plugin_tooltip_8254_5").tooltip({ tip: "#footnote_plugin_tooltip_text_8254_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Others go further and relativize any prohibition that might exist in this sense: It has been said that if the parties trust AI, then who has authority to stop them from using it, particularly in arbitration where freedom of choice is paramount? Ultimately, all responses will depend on the reception of local courts to technology, and the importance attached to a global value such as party autonomy.

An interesting paper carried out on the basis of the Korean legal regime concluded that an arbitral award rendered by AI could face certain inconveniences (or at least queries) for reasons of public policy, given that the Korean Arbitration Act, subsection 36(2)2(b), states that the court may set aside an award that “is in conflict with the good morals or other public policy of the Republic of Korea.”6)P. Billiet / F. Nordlund, “A new beginning – Artificial intelligence and arbitration”, Korean Arbitration Review, 2018, pp. 27-29. jQuery("#footnote_plugin_tooltip_8254_6").tooltip({ tip: "#footnote_plugin_tooltip_text_8254_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Ways forward

As can be seen, to use AI systems as arbitrators, normative certainty is extremely important. For AI to be successfully integrated in the international arbitration system, its definition should be crystallized and thus be offered as an option devoid of practical and theoretical uncertainties.

As Kemelmajer de Carlucci points out, novelty and temporariness characterize an increasingly complex society to which, in order to be able to adapt, the Law must be more elastic and receptive to interference from different variables.7)A. Kemelmajer de Carlucci, “El lenguaje en el Código Civil y Comercial argentino”, La Ley, 2019-E, pp. 6, 11. jQuery("#footnote_plugin_tooltip_8254_7").tooltip({ tip: "#footnote_plugin_tooltip_text_8254_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

At this point, we are faced with two possible paths: the creation of an avant-garde legal framework for arbitration and AI; or the modification of existing international treaties (in addition to national legislation and arbitration rules). It seems that this last option is not the most appropriate, especially with respect to the New York Convention.

Rightly, in 2006, the UNCITRAL Working Group II (Arbitration) warned that “formally amending or creating a protocol to the New York Convention was likely to exacerbate the existing lack of harmony in interpretation and that adoption of such a protocol or amendment by a number of States would take a significant number of years and, in the interim, create more uncertainty”. Therefore, UNCITRAL prepared a recommendation concerning the interpretation of article II, paragraph 2, and article VII, paragraph 1, of the New York Convention. Here, the soft law technique triumphed over a hard law solution that probably would have not prospered.

Should an AI regulation follow the same path? Instead of modifying the New York Convention, some authors propose certain amendments to the UNCITRAL Secretariat Guide on the New York Convention, as “intends to be a more dynamic tool that allows for the adjustment of the provisions of the Convention, to the mutable necessities of the international arbitration system and its changing application by local courts”.8)J. Tirado / A. Acevedo / G. Cosio, “Chapter 18: Time for a New NY Convention? Was Albert van den Berg Right?”, in: K. Fach Gomez / A.M. Lopez-Rodriguez (eds.), 60 Years of the New York Convention: Key Issues and Future Challenges, Alphen aan den Rijn, Kluwer Law International, 2019, p. 310. jQuery("#footnote_plugin_tooltip_8254_8").tooltip({ tip: "#footnote_plugin_tooltip_text_8254_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Although the future is unknown, an unavoidable certainty appears to emerge: AI must be studied and regulated, and either admitted or prohibited (totally or partially), bearing in mind both justice and efficiency.

References   [ + ]

1. ↑ See: M. B. Noodt Taquela / A. M. Daza-Clark, “The Role of Global Values in the Evaluation of Public Policy in International Investment and Commercial Arbitration” in: V. R. Abou-Nigm / K. McCall-Smith / D. French (eds.), Linkages and Boundaries in Private and Public International Law, Oxford, Hart, 2018, pp. 121-144; M. B. Noodt Taquela, “Incidencia de los Valores Globales en la Evaluación del Orden Público Internacional en el Reconocimiento y la Ejecución de los Laudos Arbitrales Extranjeros”, in: Jurisprudencia Argentina 2019–I, Buenos Aires, Abeledo Perrot, 2019, pp. 1187-1193. 2. ↑ See: France, Cour de cassation, Chambre civile 1, 03/23/1994, “Hilmarton (I)”; United States of America, District Court, District of Columbia, 07/31/1996, “Chromalloy Aeroservices and The Arab Republic of Egypt”; France, Cour d’appel de Paris (1re Ch. C), 09/29/2005, “Direction générale d’ aviation civile de l’Emirat du Dubai v. Bechtel”; United States of America, District Court, District of Columbia, 03/17/2006, “Termorío SA ESP, et al.”, “Plaintiffs v. Electrificadora del Atlántico SA ESP, et al.”; France, Cour de cassation, 06/29/2007, “Société PT Putrabali Adyamulia c. Société Rena Holding et Société Mnogutia Est Epices”. 3. ↑ K. Maxwell, “Summoning the Demon: Robot Arbitrators: Arbitration and Artificial Intelligence”, Practical Law Arbitration, 2019. Link: http://arbitrationblog.practicallaw.com/summoning-the-demon-robot-arbitrators-arbitration-and-artificial-intelligence/. 4. ↑ S. Nappert, “The challenge of artificial intelligence in arbitral decision-making”, Practical Law, 2018. 5. ↑ I. Ng Šega / V. Benedetti del Río, “Chapter 8: When the Tribunal is an Algorithm: Complexities of Enforcing Orders Determined by a Software under the New York Convention”, in: K. Fach Gomez / A.M. Lopez-Rodriguez (eds.), 60 Years of the New York Convention: Key Issues and Future Challenges, Alphen aan den Rijn, Kluwer Law International, 2019, p. 131; C. Sim, “Will Artificial Intelligence Take Over Arbitration?”, Asian International Arbitration Journal, 2018, p. 3. 6. ↑ P. Billiet / F. Nordlund, “A new beginning – Artificial intelligence and arbitration”, Korean Arbitration Review, 2018, pp. 27-29. 7. ↑ A. Kemelmajer de Carlucci, “El lenguaje en el Código Civil y Comercial argentino”, La Ley, 2019-E, pp. 6, 11. 8. ↑ J. Tirado / A. Acevedo / G. Cosio, “Chapter 18: Time for a New NY Convention? Was Albert van den Berg Right?”, in: K. Fach Gomez / A.M. Lopez-Rodriguez (eds.), 60 Years of the New York Convention: Key Issues and Future Challenges, Alphen aan den Rijn, Kluwer Law International, 2019, p. 310. 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: The Decision-Making Process of Investor-State Arbitration Tribunals
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2019 In Review: Noteworthy Developments in the United States

Tue, 2020-02-04 21:00

Giorgio Sassine (Assistant Editor for Canada and the United States) and Kiran Nasir Gore (Associate Editor)

2019 was an important year for international arbitration developments in the United States, both in the commercial and investment context.  Some of the more far-reaching developments included the deepening circuit court split on whether “manifest disregard” of the law is a grounds to refuse enforcement of an award, the first U.S. Court of Appeals decision post-Intel, addressing whether an international arbitration tribunal is a “foreign or international tribunal” within the framework of 28 U.S.C. Section 1782, and jurisprudence and thought leadership events on the topic of corruption.  We also witnessed (and continue to witness in 2020) the effect of the United States’ “America First” policy.

As we move into the next decade, 2020 promises to be another exciting year for international arbitration developments in the United States.  This year, the U.S. Supreme Court has already heard oral arguments regarding whether a non-signatory to an arbitration agreement can compel arbitration.  Moreover, we look forward to seeing what may develop with the framework for Section 1782 discovery, following the Sixth Circuit’s recent holding.  We are also entering an election year in the United States, which may have implications for domestic politics and foreign affairs.  Each of these topics is discussed in more detail below.

 

  1. Key Developments Relating to the New York Convention and Arbitrability

2019 saw several key developments concerning the New York Convention, as codified in the U.S. by the Federal Arbitration Act (FAA), and also the broader concept of arbitrability.

 

A. Interpretation and Application of the New York Convention vis-a-vis the Federal Arbitration Act

The writing requirement pursuant to Article II(2) of the New York Convention in the context of non-signatories was considered by the Eleventh Circuit in Outokumpu Stainless USA, LLC, et al. v. GE Energy Power Conversion France SAS, Corp.  As explained by our contributor, Outokumpu entered into supply contracts for mill motors that appended a subcontractor list with mandatory suppliers, one of which was GE.  Each supply contract contained an arbitration agreement.  When the motors failed, Outokumpu commenced suit against GE and GE sought to compel arbitration.  The Court held that “there was no arbitration agreement in writing within the meaning of the Convention between Outokumpu and GE,” reasoning that “private parties … cannot contract around the Convention’s requirement that the parties actually sign an agreement to arbitrate their disputes in order to compel arbitration.”

Oral argument was heard by the U.S. Supreme Court on January 21, 2020 and the core issue under consideration is whether the New York Convention “permits a non-signatory to an arbitration agreement to compel arbitration based on the doctrine of equitable estoppel.”  We can anticipate a decision on this question within the next few months.

The concept of “manifest disregard” of the law as a grounds for refusing enforcement of an international arbitration was considered by the Second Circuit in Weiss v. Sallie Mae, Inc.  As explained by our contributors, the Second Circuit accepted the manifest disregard of the law argument as a valid basis for challenging awards.  This further cements a circuit split within the U.S., where certain Circuit Courts, including the Eleventh Circuit, will not accept “manifest disregard” of the law as a valid basis for vacating an arbitral award because it is not expressly provided as a ground under the FAA.  This issue continues to ripen and we can expect that it will, in the coming years, be considered and clarified by the U.S. Supreme Court.  This will be a welcome development, as the U.S. Supreme Court has not considered the matter since 2008, when in Hall Street Assocs., LLC v. Mattel, Inc. as summarized by our contributors, the Supreme Court “ruled that the only bases for vacating an arbitral award are the ones expressly stated in the FAA, which does not included manifest disregard, but declined to rule that manifest disregard was dead.”

 

B. Arbitrability

During 2019, the U.S. Supreme Court considered key principles of international arbitration in Schein, Inc. v. Archer & White Sales, Inc.  The holding in Schein maintains that “courts must respect the terms of the arbitration agreement as written and that, if the parties agreed, an arbitral tribunal has the power to decide questions of arbitrability.”  In summary, The Court maintained its holding in First Options, that “courts should not assume that the parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so.”

We also learned what can happen when state law is not drafted with arbitration mind, reinforcing the importance of choosing a respected arbitral seat.  In Stemcor USA, Inc., this dichotomy was front and center when a party attempted to use state law legal procedures to attach property to support an arbitration award.  Stemcor USA, Inc. involved breaches of multiple contracts due to failures to deliver pig iron.  As a result, Daewoo International Corp. filed an action in Louisiana federal district court to compel arbitration and sought writs of attachment.

While arbitration is often touted as an efficient and quicker way to resolve a dispute, the writ of attachments spawned litigation that ran on for years, as a result of jurisdictional issues, appeals, and the Fifth Circuit certifying the question to the Louisiana Supreme Court.  “Finally, more than six years after getting the attachment, and with three District Court Decisions, three Fifth Circuit decisions, and a Louisiana Supreme Court decision, Daewoo got to hold onto its pig iron proceeds.”

 

  1. Advancements in the Global Discovery Debate

Perhaps the greatest headline-making development during 2019 involved 28 U.S.C. Section 1782, the statutory provision which permits a U.S. district court to order testimony or produce documents in aid of a proceeding before a “foreign or international tribunal.”  Several of our contributors covered new developments, which highlight the deepening circuit split over whether such discovery may be provided to aid a private international arbitration tribunal.   During 2019, a New York federal district court judge allowed such discovery in aid of an LCIA arbitration, another New York federal district court judge declined such discovery in aid of a CIETAC arbitration, the federal district court in the District of Columbia denied a request for production of documents, while allowing a request for written answers by way of interrogatories (as discussed in the following section of this post), and the Sixth Circuit allowed discovery in aid of a DIFC-LCIA arbitration.

As 2019 developments alone create a more deeply entrenched debate, practitioners are working arduously to further relevant jurisprudence and its understanding.  At the end of 2019, the first book considering Section 1782 discovery as an independent discipline was published.  Meanwhile, early this year, the Second Circuit is expected to settle internal disparity among the district courts over which it has jurisdiction through the much awaited appellate decision in In re Hanwei Guo.  Guidance of the U.S. Supreme Court is become increasingly welcome by U.S. practitioners.  Meanwhile, as Section 1782 discovery continues to proliferate, practitioners cannot help but wonder how it might interact with more global views of disclosure and discovery, particularly in light of the French blocking statute and GDPR compliance.

 

  1. Allegations of Bribery and Corruption in Arbitration Proceedings

Issues of corruption were addressed in U.S. international arbitration jurisprudence.  In Vantage Deep Water Co. v. Petrobras Am., Inc., a Texas federal district court denied Petrobras’ motion to vacate Vantage Deepwater Drilling’s arbitral award based on corruption of the underlying contract.  Petrobras submitted that the award should be set-aside pursuant to the Inter-American Convention on International Commercial Arbitration.  While Petrobras argued that the bribery violated U.S. public policy (one of the narrow exceptions to enforcing an arbitral award under U.S. federal law), the Court “took the view that public policy did not refer to any international notion but rather should be examined with respect to Texas law.  In this case, Petrobras continued with recognizing the agreement with the knowledge of the bribery allegations, and thus, ratified the agreement under Texas law.”  As explained by one of our contributors, the case is particularly “notable in that it squarely acknowledges that a state actor or state-owned entity should not use their own misconduct as a defense, particularly when they later ratified that conduct.”

In re Application of The Islamic Republic of Pakistan v. Arnold & Porter Kaye Scholer, LLP demonstrated that various compelling and current issues can intersect in the context of any one case.  The federal district court for the District of Columbia considered Pakistan’s request for Section 1782 discovery from an investor’s American counsel in aid of an ICSID arbitration and pending criminal investigations in Pakistan against the backdrop of corruption allegations.  As explained by our contributor, the Court ultimately denied the request for production of documents, recognizing that the jurisdictional reach of the ICSID tribunal and Pakistani criminal authorities encompassed the scope of relevant materials and, moreover, that attorney-client privilege might undermine the substance of the request.  However, Pakistan’s request for written answers by way of interrogatories was granted.

Reflecting the arbitration community’s increasing interest in bribery and corruption in arbitration proceedings, such allegations were also considered during the ILA American Branch Investment Law Committee’s conference titled “What to Do About Corruption Allegations?  Debating the Options for Investment Law” held on February 19, 2019 in Washington, D.C.  The conference addressed the resolution of corruption allegations in international investment arbitration following the Metal-Tech Ltd. v. Uzbekistan and Spentex Netherlands, B.V. v. Uzbekistan awards.  In the aftermath of those awards, the field of investment arbitration has grappled with questions regarding the proof of corruption and response to findings of corruption.  Those awards combined flexible evidentiary techniques for assessing corruption allegations with the outright dismissal of the arbitration upon finding corruption.  The conference addressed whether and to what degree investment arbitration should follow such approaches to addressing corruption.

 

  1. Domestic and Regional Developments – Carrying Global Significance

Upon his return to the Blog, our General Editor, Prof. Roger Alford, highlighted United States v. Novelis, where the U.S. Department of Justice’s Antitrust Division pursuant to the Administrative Dispute Resolution Act of 1996 (and the Antitrust Division’s implementing regulations) “took a novel approach of using arbitration to challenge [a] merger” for the first time in U.S. history, which typically sues in federal court.

While foreign policy is not usually a focus of the Blog, its interaction with international disputes cannot be denied.  During 2018 and 2019, we have seen a number of developments initiated by the U.S. “America First” protectionist approach to economic sanctions and we enter 2020 with a changed view of the landmark 2015 Joint Comprehensive Plan of Action (JCPOA) Iran nuclear deal.  The U.S. walked away from the deal in 2018, and in response, Iran decreased its compliance efforts.  This created a ripple effect in the world of extraterritoriality, conflict of laws, and secondary sanctions.

In recent weeks, global headlines were made when the E.U. partners of the JCPOA indicated their intent to invoke the deal’s dispute resolution mechanism.  On the private dispute resolution side, challenges concerning available claims and defenses may emerge as international actors encounter disputes related to their international activities. Our contributors directly considered the dilemma and practical concerns faced by international arbitrators.  This is a new and emerging area of law to be closely watched by global practitioners.

Meanwhile, “NAFTA 2.0,” the U.S.-Mexico-Canada Trade Agreement (USMCA), continued toward ratification and entry into force.  As reported in our 2018 year in review post, this is a significant regional development as the USMCA’s Chapter 14 departs from NAFTA’s Chapter 11, both in terms of procedure and substance of protections available to prospective investors.  As reported earlier on the Blog by assistant editor Enrique Jaramillo, the significant advancements made in recent weeks likely mean the USMCA will enter into force in May 2020.  It is also likely time for practitioners to consider the timing of legacy claims under original NAFTA, before it is no longer in force, and its interaction with the USMCA as it enters into force and heralds a new era in regional investor-state dispute settlement.

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The Contents of Journal of International Arbitration, Volume 37, Issue 1, 2019

Tue, 2020-02-04 02:00

Maxi Scherer

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

 

Markus PETSCHE, Restrictive Interpretation of Investment Treaties: A Critical Analysis of Arbitral Case Law

This article critically discusses the recourse to the principle of restrictive interpretation (in dubio mitius) by treaty-based investor-state arbitral tribunals. Although its status as a rule of international law is at best controversial, in dubio mitius has been applied by a number of arbitral tribunals interpreting umbrella clauses and most-favoured-nation (MFN) provisions contained in investment treaties. This article shows that restrictive interpretation is inappropriate and undesirable. It highlights, first of all, that no rational justification for in dubio mitius exists and that the sovereignty-based rationale put forward is obsolete, illogical and largely dysfunctional. It also shows that restrictive interpretation frequently clashes with other, more fundamental, rules of treaty interpretation and that in dubio mitius interpretation of investment treaties has an inherently discriminatory effect on investors.

 

Kabir A.N. DUGGAL & Rekha RANGACHARI, A Challenger Approaches: An Assessment of the Prague Rules on the Efficient Conduct of Proceedings in International Arbitration

It is no secret that some lawyers, and perhaps civil law lawyers in particular, have felt frustration with the status quo of the evidentiary processes of international arbitration, premised primarily on the International Bar Association (IBA) Rules on Taking of Evidence in International Arbitration (‘IBA Rules’). This outcry was vocalized at the Russian Arbitration Association’s Conference held in Moscow in April 2017, which ultimately contributed to the formation of a Working Group that developed the Rules on the Efficient Conduct of Proceedings in International Arbitration (‘Prague Rules’). This article strives to elucidate the mechanics of the Prague Rules. An understanding of these new provisions, however, cannot be achieved in a vacuum; as such, much of the analysis will touch upon the IBA Rules and their relationship to the Prague Rules. This article provides a critical, comparative analysis of the Prague Rules.

 

Jose F. SANCHEZ, Applying the Model Law’s Standard for Interim Measures in International Arbitration

Commentators and practitioners regard Article 17A of the Model Law on International Commercial Arbitration as the international standard for interim measures in international arbitration. Practitioners apply Article 17A often, even when the jurisdiction whose law is relevant to the case has not adopted it as domestic legislation, and even in emergency arbitrations and in investment treaty arbitrations.

To apply Article 17A correctly, however, practitioners must look at Article 2A(1) of the Model Law, which orders practitioners applying any Article of the Model Law, including Article 17A, to follow several mandatory principles of construction. Specifically, Article 2A orders practitioners to have ‘regard’ to the ‘international origin’ of the Model Law, ‘the need to promote uniformity in its application,’ and ‘the observance of good faith.’

Those principles of construction of Article 2A(1) have four specific and mandatory consequences on the application of the standard set forth in Article 17A, namely, that practitioners (1) must consider Article 17A’s travaux préparatoires, and must apply Article 17A in a way that does not contradict those travaux préparatoires; (2) must consider, but are not bound to follow, the publicly-available decisions by courts and arbitrators around the world that have applied Article 17A and the scholarly writings that have analysed it; (3) cannot construe Article 17A only under the canons of construction that they would apply to a domestic statute in the jurisdiction relevant to the case; and (4) must factor in equitable considerations.

This article helps practitioners with the first two of those four consequences. Specifically, to help practitioners apply the standard for interim measures set forth in Article 17A uniformly and correctly, i.e. in a way that complies with Article 2A’s mandatory principles of construction, this article analyses the travaux préparatoires of Article 17A, the scholarly writings that have analysed that article, and the publicly available decisions by courts and arbitrators around the world that have applied it, including decisions issued by arbitrators acting for the International Centre for Settlement of Investment Disputes (ICSID), the Permanent Court of Arbitration (PCA), and excerpts of non-publicly available decisions issued by arbitrators acting for the International Chamber of Commerce (ICC) and the Stockholm Chamber of Commerce (SCC).

For the reader’s convenience, this Article analyses the travaux préparatoires and applicable authorities separately for each of the following elements of Article 17A’s standard: burden of proof; urgency; likely harm not adequately reparable by an award of damages; balance of convenience; reasonable possibility of success on the merits; jurisdiction; and other elements and considerations.

That analysis results in several principles of construction relevant to each element of Article 17A’s standard. The article ends with a chart – effectively a cheat sheet for practitioners – that lists those principles of construction for each element of the standard, and explains the rationale of those principles. It is the author’s hope that this chart will help practitioners apply each element of Article 17A’s standard correctly and uniformly.

 

Alireza SALEHIFAR, Rethinking the Role of Arbitration in International Tax Treaties

The dispute resolution system of Double Tax Agreements (DTAs) has been a major focus for both tax authorities and researchers around the world. For several years Article 25 of the Model Tax Convention of the Organisation for Economic Co-operation and Development on Income and on Capital (‘OECD Model Tax Convention’), and Article 25 of the United Nations Model Double Taxation Convention between Developed and Developing Countries (‘UN Model Tax Convention’) had relied on a negotiation-based Mutual Agreement Procedure (MAP) as the only mechanism for the resolution of disputes arising from a tax treaty. In order to improve the function of the MAP mechanism, the OECD, in 2008, and the UN Tax Committee, in 2011, introduced a binding ad hoc arbitration clause in Article 25(5) of their respective Model Tax Conventions. However, the OECD and UN Model Tax Conventions have reserved very limited role for arbitration in resolving tax treaty disputes. After establishing that the inclusion of the current arbitration clauses in the OECD and UN Model Tax Conventions have not assuaged the tensions created by divergent interpretation or application of rules espoused in DTAs, this article examines possible techniques for improving the dispute resolution system of DTAs.

 

Lars MARKERT & Raeesa RAWAL, Emergency Arbitration in Investment and Construction Disputes: An Uneasy Fit?

This article examines the compatibility of emergency arbitration with (1) investment treaty disputes and (2) construction disputes, respectively. The article begins by giving a brief synopsis of the evolution of emergency arbitration, following which its suitability to investment treaty disputes and construction disputes is considered. The authors provide critical analysis of the compatibility of the emergency arbitration procedure with pre-arbitral requirements in both of these categories of disputes. The authors conclude that the practices surrounding emergency arbitration need to be developed further, and specifically, the issues surrounding enforcement need to be resolved.

 

Kayihura Muganga DIDAS, John Mwemezi RUTTA & Claire Umwali MUNYENTWARI, Striking a Balance Between Assistance and Interventionism: The Role of Courts in Rwanda-Seated Arbitrations

The African Arbitration Association was established in 2018 and its headquarters is in Kigali, Rwanda. This choice of location signals that Rwanda has made meaningful strides in improving its arbitration environment, at least in the opinion of African states. Many questions will arise as to whether Rwanda-seated arbitrations do indeed rest in a legally friendly environment, and receive optimum support of courts which act to foster the efficiency and effectiveness of arbitrations.

The interplay between courts and arbitral tribunals in dealing with Rwanda-seated arbitrations is the subject of this article. Party autonomy, which broadly underscores the freedom of the parties to decide how their disputes should be resolved, is one of the most important principles in arbitration. This principle naturally translates to the autonomy of the arbitral process and notably the freedom of this process from undue judicial interference. While courts are indispensable in the success equation of the arbitral process, too much judicial intervention in matters of arbitration may have serious repercussions on the efficiency of arbitration. This article examines the autonomy of the arbitral process under the law and practice of arbitration in Rwanda. In doing so, the article discusses different practices in the leading places of arbitration on the interplay between courts and arbitral tribunals in dealing with matters of arbitration and compares these with the corresponding law and practice governing Rwanda-seated arbitrations. It concludes that, with the pro-arbitration stance often demonstrated by the courts in Rwanda and their sparing involvement in the arbitral process, the arbitration environment is as friendly as it is in most other states that are signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention, 1958).

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How Do We Get the Best Out of Cross Examination in Arbitrations? Views from the SCL-CIArb India Conference

Sun, 2020-02-02 23:00

Thayananthan Baskaran and Shruti Sabharwal

Introduction

The Society of Construction Law India and the Chartered Institute of Arbitrators India Branch together held an International Conference on Construction Law and Arbitration in New Delhi, India in December, 2019. The conference was well attended by practitioners and participants from various jurisdictions.  Needless to say, the construction industry is one of the fastest growing industries on a global scale. Disputes wise, it takes precedence both in terms of the complicated or technical nature of merits and the quantum of monies involved.

The opening address of the conference was delivered by Honourable Ms Justice Indu Malhotra, presently a judge of the Supreme Court of India. Justice Malhotra alluded to the global state of affairs in the construction and infrastructure industry and how alternative disputes mechanisms, such as arbitration, are the preferred ways to resolve disputes in the sector. She emphasized India’s commitment to be an arbitration friendly jurisdiction and referred to several decisions of the Indian Supreme Court passed in the last five years in support of this commitment. Justice Malhotra concluded her speech by throwing light on the latest amendments of 2019 to India’s Arbitration and Conciliation Act, 1996 (“the Act”) (see further discussion in previous post). As a member of the High Level Committee in the Ministry of Law and Justice to review Institutionalization of arbitration mechanism in India, she discussed the issues relating to institutionalization of arbitration, accreditation of arbitrators and changes to the timeframe prescribed for completing proceedings under Section 29A of the Act.

This blog focusses on the panel discussion held on Cross Examination of Fact and Expert Witnesses. The panel comprised of Amarjit Singh Chandhiok (Senior Advocate, President of Council for Conflict Resolution – Madhyam); Thayananthan Baskaran (Partner at Baskaran, Kuala Lumpur); Jess Connors (Counsel at 39 Essex Chambers); and Shruti Sabharwal (Principal Associate at Shardul Amarchand Mangaldas). The panel was chaired by David Brynmor QC (39 Essex Chambers).

David started the session by introducing the topic and asked whether cross examination was an art, as it is commonly referred to or an acquired skill.

 

Overview of Cross Examination in International Arbitration

Jess gave an overview of cross examination in international arbitration. She raised the pertinent issue as to whether a party must necessarily introduce witnesses and whether every witness should be cross examined. She explained that every witness should serve a purpose beyond that found in documents. A witness could be used to explain the context of a document on record, the understanding of the parties when they entered into a contract, information from meetings or events not documented or to prefer the opinion of an expert. As for cross examination, it was suggested that one must consider how much of the witness testimony was relevant to the case and whether or not cross examining a witness could lead to a dangerous situation. Importantly, as in several international arbitrations, the use of the chess clock method by tribunals should also lead to counsels considering which witnesses and what part of their testimonies are priorities or critical to deal with. Jess also referred to the often confusing practice of introducing documents at the time of cross examination. She highlighted a number of factors to bear in mind, during cross examination, like who created and received the document in question, when, what was the context and was there a response before confronting the witness with it. Another aspect which was interesting was Jess’s advice on how documents could be used in a cross examination – mainly to point out inconsistencies in the witness’s own testimony or in the testimony of other witnesses. Quite rightly, she emphasized the nature of the cross examination to tell the Tribunal a story which is not always so clear in the documents. Jess concluded by encouraging counsels to use the process to speak to the tribunal, especially since in international arbitrations, tribunal members tend to be sophisticated, hailing from different jurisdictions (civil and common), different cultures, etc.

 

Hot Tubbing of Expert Witnesses

Thaya spoke on experts and hot tubbing in international arbitration. He began with an introduction on hot tubbing, or witness conferencing as it is more formally called. Essentially, this approach involves evidence being given by witnesses concurrently and in confrontation with each other. Thaya then spoke about the advantages of hot tubbing, in particular, how it helped to narrow down the issues and allow the witnesses to respond to these issues simultaneously in a collegiate atmosphere. He also noted potential drawbacks to hot tubbing, for example, where the quality of evidence may be affected, and proceedings disrupted, where witnesses in conference prove to be unfriendly, hostile, or even rude to each other. Thaya concluded by suggesting that the advantages of hot tubbing can be best achieved if all parties concerned are suitably prepared. Hot tubbing may remain, though quite rarely nowadays, a relatively novel process to some parties concerned. To overcome this, the experts and the counsel should familiarize themselves with the process. Besides, counsel should describe the hot tubbing process to the expert, so that the expert knows how the hearing room will be set up, how the questions will be posed, who is allowed to ask questions, and that the expert may be under cross examination during the whole of the hot tubbing process, and they will not be allowed to discuss their evidence with anyone (including counsel) during breaks.

 

Cross Examination Techniques for Fact and Expert Witnesses 

Shruti then took the floor to provide some tips for cross examination of fact and expert witnesses. She referred to important considerations to bear in mind while preparing for a cross examination in an international arbitration. These included a multi-cultural setting of both tribunal members and witnesses, language and time considerations. She stressed on the use of leading questions and how it was helpful in controlling the process and witness response. She also advised that counsel should prepare a plan in advance for each witness with a clear objective of what is required to be established. Counsels should be fully prepared to bring out the critical inconsistencies in the witness’s own testimony, in the testimonies of different witnesses or inconsistencies based on the documents on record. She warned counsels against using cross examination as a fishing expedition given the dangers of receiving new evidence one may be unprepared for. Speaking on construction arbitrations in particular, Shruti also guided the audience in the use of technical documents, a common feature of construction arbitrations, during cross examination, which the tribunal members may be unfamiliar with. She suggested that correspondence be used so as to give context to the technical documents and to segregate documents into issues and sub-issues to avoid confusion. Interestingly, she pointed out that the sequence of the questions should also be framed in a manner where the first and last set of questions should be most impactful to create a lasting impression in the minds of the tribunal members.

 

Experienced Practitioners’ Outlook

Amarjit aptly concluded the panel discussion with specific instances in cross examinations from his long career. Not only did he advise the audience on using every witness to make a precise point but he also suggested that counsels should know when to stop pursuing a line of cross examination. Amarjit alluded to the dangers of badgering a witness for answers and suggested the use of cross examination with documents on record to build a story for the tribunal. He also suggested the limited use of techniques such as questioning the credibility of a witness unless counsels were sure of establishing a lack of personal knowledge or expertise. As regards expert witnesses, Amarjit agreed that hot tubbing could be an effective tool but must be approached with caution. He agreed with Thaya that hot tubbing of experts may not be helpful where experts are using completely different methodologies to arrive at their opinions.

Once the panel had concluded their discussions, David opened the question and answer session for the audience. Questions ranged from hot tubbing techniques to whether cross examination could be done away with in arbitration proceedings to the use of confidentiality clauses, all of which were discussed and answered by the panelists.

 

Conclusion

Given that cross examinations continue to play a vital role in arbitrations, the session was well appreciated by the audience comprising both in-house legal officers and practitioners alike. It is needless to state that adopting the correct techniques in conducting cross examinations can go a long way in the outcome of a case. The emerging trends such as adoption of the chess clock methodology, hot tubbing of experts and introduction of witness panels for fact witnesses are techniques, which are increasingly being adopted in proceedings. This is to enable a more efficient system of cross examination, which, when unregulated, has the potential to take up several days, if not weeks on average. No longer do parties have the patience and time, not to mention the money to spend on protracted legal battles in courts or before tribunals. Counsels are more accountable today as to how proceedings are managed. Conferences such as this allow a free exchange of ideas which goes a long way towards the fine tuning of arbitration processes in the construction/ infrastructure industry, which continues to emerge as the largest disputes sector in the world.

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The Current Framework of Consolidation in Arbitration in Bosnia and Herzegovina: No Sustainability Without Reform

Sun, 2020-02-02 02:00

Naimeh Masumy and Edita Marić

Consolidation of arbitral proceedings is commonly regarded as a procedural device designed to deal with the challenges associated with complex cases. It is a method that combines multiple proceedings and harmonizes the final outcome of the disputes that bear significant resemblance, thus eradicating the risk of having contradictory awards rendered on a closely related set of facts. As such, it contributes to consistency as well as procedural and cost efficiency.

However, this post does not build upon the “intuition” that consolidation is inherently advantageous procedure and is cognizant of some of the apparent shortcomings presented by such practice. The post recognizes that the urge to aggregate proceedings must not amount to an abuse of discretion, and nor should it undermine the viability of individual-specific conditions to each case. That said, the ambiguity surrounding the proceeding of consolidation under the legal framework of Bosnia and Herzegovina (‘BiH’) prevents such practice to strike a proper balance between the party autonomy and the necessity of harmonization of arbitration awards.

This blog post first highlights some of the shortcomings associated with the current legal framework of BiH with respect to the consolidation proceedings. Then, it proceeds to elaborate upon the possible adverse implications of such open-textured and abstract regulations on the practice of arbitration. Finally, it proposes some factors to be considered in a much-needed reform.

 

Consolidation under BiH Legal Framework

BiH has a fairly unique and complex legal system due to its multi-layered constitutional regime. Consequently, its lex arbitri is fragmented, and is to be found in several different enactments. More precisely, the relevant provisions are not contained in one stand-alone arbitration act or in several different arbitration-dedicated enactments. Rather, they form part of several different acts of civil procedure, including the Civil Procedure Act of the Federation of Bosnia and Herzegovina 2003 (‘FBiH CPA’), the Civil Procedure Act of the Republic of Srpska 2003 (‘RS CPA’), and the Civil Procedure Act of the Brčko District 2003 (‘District CPA’). All these operate in conjunction with each other and form the national arbitration legal framework.

The concept of consolidation appears in all of these codes, none of which provides a detailed and comprehensive account of the circumstances under which the consolidation ought to be ordered. For instance, the FBiH CPA allocated a section to arbitration (Articles 433-453), but these do not address any issues regarding consolidation. The matter of consolidation is addressed in Article 83 of the FBiH CPA, but this provision deals exclusively with court proceedings, and it provides judges in this regard with substantial discretion. Moreover, the Arbitration Court with the Foreign Chamber of Commerce of Bosnia and Herzegovina (‘Arbitration Court’) briefly refers to the concept of consolidation in Article 40 of its institutional rules (Rules on Organization and Work of the Arbitration Court – hereinafter ‘Rules’) without any significant elaboration.

None of the above provisions envisage further conditions as to the degree to which consolidation is permitted and whether the decision to consolidate is subject to appeal. The vagueness surrounding how the circumstances under which consolidation is permitted has provoked confusion with respect to the nature of consolidation as a procedural or administrative practice. This characterization has a significant bearing on the possibility of challenging an award later on, and also on the rules that the consolidation decision will be subject to. Turning back to Article 83 of the FBiH CPA, while exclusively dealing with the court’s approach to consolidation, this Article captures the legislator’s intent to treat consolidation as a purely administrative process. It requires no consent from the parties, and the court enjoys almost unfettered discretion to determine whether consolidation is justified or not.

It is noted in the Commentary to the FBiH CPA that parties often sought consent to consolidation as a tactic to delay the process and obstruct the smooth operation of the proceeding. Even in cases where one party would grant consent, the opposing party would refuse to do so for no valid reason. As a result, in order to expedite the proceedings, the recent amendments to the Federation CPA removed the requirement of parties’ consent and conferred wide discretion onto court to determine the viability of the consolidation decision. The amendment introduced a number of factors to be taken into account when deciding in relation to consolidation. However, it does not contain information on whether further reasoning is required nor does it stipulate an avenue for a party to appeal the consolidation decision, and the court’s decision is believed to be final.

It is not clear what kind of implications this provision may have on the practice of consolidation within the arbitration context. However, it can be argued that the BiH legal framework, in the absence of hard guidance, is leaning towards treating consolidation as more of an administrative process where judges are afforded wide discretion in making such determination. The practice of ordering consolidation within the arbitration context, both under the BiH institutional and ad hoc arbitration frameworks, is rare. It is perhaps because of the lack of specificity and the ambivalent nature of this procedure that prevented it from being regarded as a useful procedural device to elevate harmony and increase cost-efficiency.

 

Consolidation Practice and Its Adverse Implications on the Arbitral Proceedings

The abstract and open-textured language of consolidation contained in BiH lex arbitri and institutional rules may have negative implications on arbitration in a number of significant ways. Namely, the scope and ambit of the power of arbitral tribunal emanate from the arbitration agreement. Therefore, this consent-driven process would normally prevent the introduction into the proceedings of claims or parties which are not within the scope of the agreement that the contracting parties had agreed to and which forms the mandate of the arbitral tribunal.

The broad scope of the consolidation concept within the BiH legal framework and the lack of sensible constraints on the power of arbitrators may undermine dedication to individual fairness and diminish the party’s autonomy over its case. If the arbitrators are delegated with the prime responsibility of consolidation with no precise and delineated standards, then they may make such determination in an unfettered manner, thus running the risk of rendering the decision in an arbitrary or partial fashion.

If the language of the rules is skewed in favour of consolidation, then there would be some impetus to submerge the individual features of cases. That is, if the disputes are not handled based on their specificity and sensitivity, this may effectively deny meaningful access to justice by deflecting attention from features that distinguish cases from one another. Consolidation may also substantially affect the rights and interests of the parties by impacting discovery incentives on both sides. It may also adversely impact compensation consideration by leaving the strongest claims with insufficient or inadequate compensations, thereby negatively impacting the equilibrium of the parties.

Since the existing regulations provide extensive discretion for arbitrators without advancing coherent guidelines, it is not clear what actions may amount to an abuse of discretion. Thus, the notion of consolidation under BiH rules bears re-examination to ensure proper balance of party autonomy and harmonization of arbitration decisions.

 

The Need for Comprehensive Reforms: Taking into Account Some Critical Considerations

As the above analysis shows, the current legal framework of consolidation in BiH is plagued by opacity regarding the scope of arbitrator’s power and the underlying nature of consolidation. It requires comprehensive reforms to account for a more efficient and sophisticated framework that is consistent with the archetype of modern international standards. In this regard, the arbitration framework of Montenegro, a neighbouring country with a comparable legal system, seems to strike a much better balance between the competing interests by setting out clear guidelines as regards consolidation in Article 11 of the Arbitration Rules of the Arbitration Court at the Chamber of Economy of Montenegro. The mentioned Article 11 recalls the importance of the parties’ consent, and it is on this foundation that any future reform in BiH ought to be built. To this end, we offer some critical considerations that the legislators in BiH ought to take into account when, and if, they decide to rehaul their approach to consolidation in arbitration proceedings.

Firstly, it is important that the application of consolidation practice enshrines a focused and confining regime that articulates the nature of consolidation, the availability of appeal mechanisms either through court or arbitral tribunal, and the necessity that the order be accompanied by reasoning. Defining the nature of consolidation and formulating guidelines with respect to reasoning will remove the possibility of having a different substantive law apply to different cases and will promote the harmonization of the consolidation process.

Secondly, the practice of consolidation should not be self-executing, and the arbitrators should at least adhere to rule-based standards that are sensitive to the competing interests of commonalities, specificity, party autonomy and harmonization. The current framework with its ambiguous and self-executing language seems to tip the scale more in favour of expanding arbitrators’ authority while diminishing party autonomy. Finally, introducing a formula-based threshold that contains conditions that trigger consolidation proceeding will compel arbitrators to adhere to objective standards instead of relying on a wide latitude of discretion to determine the viability of their decision.

 

Conclusion

There exists a strong need to amend the current legal framework of BiH to incorporate standards that enhance the practice of consolidation in the realm of arbitration. Adopting standards that are analogous to those of the modern archetype of consolidation, in particular those that prescribe precise and specific standards, would fortify the practice of consolidation in BiH. To this end, we have suggested several factors to be taken into account in the much-needed reform. If these were to be heeded by the legislators in BiH, the country’s arbitration framework, in our view, would be materially improved.

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Recap of the Pechstein Saga: A Hot Potato in the Hands of the Sports Arbitration Community

Sat, 2020-02-01 02:00

Dorothée Goertz

The recent public hearing at the Court of Arbitration for Sport (‘CAS’) involving the World Anti-Doping Agency (‘WADA’) on one side, and the Chinese swimmer Sun Yang and the Federation Internationale de Natation (‘FINA’) on the other, has been plagued with controversies. In the anticipation of the award (expected in early 2020), this seems to be an appropriate time to provide a recap on another sports arbitration saga that has turned the world of sport on its head: the Pechstein case.

Indeed, the most recent developments of the case led to a decision of the European Court of Human Rights (ECtHR), which acknowledged that the right of Mrs. Pechstein to a public hearing, deriving from the provisions of Article 6§1 of the European Convention on Human Rights (‘ECHR’), had been violated. This decision led to a change in the provisions of the CAS Code, which regulates the arbitration process in front of the CAS, allowing now athletes to request a public hearing “if the matter is of a disciplinary nature.”1)CAS Code, Article R 57. jQuery("#footnote_plugin_tooltip_6803_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6803_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Mr. Sun Yang was the first to use this possibility, launching a new era of CAS procedures. Although this being the step in the right direction, the truth of the matter is that the crucial concerns raised by the Pechstein case still remain unaddressed by CAS.

 

Background

Mrs. Pechstein is a German professional ice-skater who participated in the 2009 World Championship organised by the International Skating Union (‘ISU’). Based on the results of an anti-doping test sampled after the championship, Pechstein’s blood parameters were deemed as “irregular.” Consequenly, the ISU disciplinary commission sanctioned her for anti-doping violation with a two–year ban from competitions. Pechstein contested the sanction in front of the CAS, in accordance with the CAS arbitration clause contained in the ISU’s anti-doping regulations, by challenging the ground taken into consideration by the ISU disciplinary commission to establish an anti-doping violation. Nevertheless, the CAS confirmed the ban.2)CAS 2009/A/1912, award of 25 November 2009. jQuery("#footnote_plugin_tooltip_6803_2").tooltip({ tip: "#footnote_plugin_tooltip_text_6803_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Swiss Supreme Court Refuses to Set Aside the Award

Pechstein filed an action to set-aside the CAS award in front of the Swiss Federal Tribunal (‘SFT’),3)Swiss Federal Statute on Private International Law, Art. 191. jQuery("#footnote_plugin_tooltip_6803_3").tooltip({ tip: "#footnote_plugin_tooltip_text_6803_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); contesting the ban and challenging the legality of the CAS award on the ground of the lack of independence and impartiality of the CAS vis-à-vis the sports bodies. Pechstein claimed that, in this matter, it was primarily about the interests of the International Olympic Commitee (IOC) and the ISU, which through the problem of doping were concerned that the economic value of the Olympic Games and their sports would be jeopardized. Consequently, as Pechstein argued, they simply sought to make a point that they had an uncompromising stance when it came to the issue of doping. The SFT rejected the challenge, confirmed that the CAS was a real arbitral tribunal, which has been its constant position since 2003, (SFT, decision of 27 May 2003, 129 III 445) and affirmed that legitimate doubts as to the independence of the CAS had not been substantiated (SFT, decision of 10 February 2010, 4A_612/2009).

 

Pechstein Goes to Germany, but Apex Court Recognises the Award

Pechstein started proceedings in Germany, her home-state jurisdiction, in order to have the ban recognised as invalid and to get awarded damages for material and moral prejudices. The Munich Regional Court accepted jurisdiction on the ground that the CAS arbitration clause was invalid as it had not been signed under free will. According to the tribunal, the monopoly of the ISU and the hierarchical structure of international sport led to a structural imbalance that made it impossible for Pechstein to refuse the CAS arbitration clause if she wanted to enter the competition and exercise her profession. Nevertheless, the tribunal decided that it was bound by the findings of the award since Pechstein seized the CAS herself and did not challenge CAS’ jurisdiction earlier in the proceedings.4)Munich Regional Court, decision of 26 February 2014, 37 O 28331/12. jQuery("#footnote_plugin_tooltip_6803_4").tooltip({ tip: "#footnote_plugin_tooltip_text_6803_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Thereafter, the Munich Higher Regional Court accepted jurisdiction on the ground that the CAS clause was invalid, albeit on another basis. In the court’s opinion, the signature of the CAS clause violated the provisions of German competition law. The ISU has a dominant position on the market for access to international speed-skating championships. In requiring the signature of a CAS arbitration clause, the ISU had abused its position insofar as the unequal designation of the potential arbitrators to a closed-list (made by the International Council of Arbitration for Sport (‘ICAS’) whose structure remains structurally dominated by the sports bodies)5)CAS Code, Article S4. jQuery("#footnote_plugin_tooltip_6803_5").tooltip({ tip: "#footnote_plugin_tooltip_text_6803_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); embeds a structural imbalance of CAS’ procedures – such that the athletes would not choose the CAS clause under normal competitive circumstances. Since it stripes the athlete of her fundamental right to seize the national courts, the intensity threshold required for the recognition of an abuse of dominant position is exceeded. The provisions of German competition law being part of the German public order, the award cannot be recognized, and hence the leave for appeal was granted.6)Munich Higher Regional Court, decision of 15 January 2015, U 1110/14 Kar. jQuery("#footnote_plugin_tooltip_6803_6").tooltip({ tip: "#footnote_plugin_tooltip_text_6803_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The German Federal Tribunal reversed the appeal: considering that Pechstein entered voluntarily into the arbitration agreement – there had been no coercion. The ISU is a monopolist on the market but it did not breach competition law provisions when it made the participation of an athlete to a sports competition dependent on the signature of a CAS arbitration agreement because CAS’ processes contain sufficient guarantees safeguarding athletes’ rights and CAS awards are subject to review by the SFT. CAS Code’s provisions do not create a structural imbalance when it comes to appointing the arbitrators for the individual arbitral tribunal since the sports associations and the athletes do not stand on two opposite sides with fundamentally antithetical interests. In particular, the fight against doping is in the interest of both the associations and the athletes. In the German Federal Tribunal’s view, so are the advantages brought by the CAS of a uniform international system of sports arbitration, with uniform standards and speedy decisions.7)German Federal Tribunal, decision of 7 June 2016, KZR 6/15. jQuery("#footnote_plugin_tooltip_6803_7").tooltip({ tip: "#footnote_plugin_tooltip_text_6803_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

From Germany onto Strasbourg – Pechstein before Europe’s Human Rights Court

Pechstein brought the case to the ECtHR. The Court declared itself competent to hear the case and decided that, although not imposed by law but by the provisions of the ISU’s regulations, the CAS arbitration could be considered as having been imposed on Pechstein as she had no other choice than to accept the CAS clause or give up the exercise of her profession at an international level. The CAS arbitration consequently should fulfil the guarantees mentioned in Article 6§1, including the right to a decision by an independent and impartial tribunal. The ECtHR identified the issue raised by Pechstein of the alleged structural imbalance between the athletes and the sports bodies in the appointment of the CAS arbitrators, but decided that the evidence that this resulted in an actual bias of the majority of the arbitrators appointed to the CAS closed list was not substantiated. The court thus decided that the CAS was independent and impartial.

 

A Pyrrhic Victory for Sports Arbitration Community?

Until now, diverging approaches have seemingly been taken and various views expressed by different jurisdictions on both issues raised. The assessment of these aspects is of actual importance as it touches upon the trust in the CAS system, hence upon the legitimacy of the CAS itself and of international sports disputes settlement regime in general. Indeed, the CAS since its creation in 1983 by the IOC has been gaining influence within the field, seeing its case-law increase every year and having been designated as the appeal instance in doping matters by the World Anti-Doping Code (‘WADC’). The 2005 UNESCO Convention against Doping in Sport that helps ensure the effectiveness of the WADC has been very successfully ratified worldwide (187 parties).

Consent of the parties to arbitration is considered by most arbitration laws as the cornerstone of arbitration, on which rests the legitimacy of the arbitrator’s power to decide on the matter and the validity of the arbitral award.8)Nigel Blackaby, Constantine Partasides et al., Redfern and Hunter on International Arbitration, 6th Edition, Oxford University Press 2015, 2.01, 2.63, 10.36. jQuery("#footnote_plugin_tooltip_6803_8").tooltip({ tip: "#footnote_plugin_tooltip_text_6803_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); It might be so that international arbitration is adapted to the needs of international sports dispute settlement and all the actors involved: the flexibility, specialization and speed of its procedures are well suited to the rhythm and globalization of sport and the aspect of uniformity of procedures brings also a crucial aspect of equal treatment into the process. Nevertheless, there is a need for clarity and common ground approach to the issue of (imposed) consent, which shows a clear deviation from the fundamentals of arbitration. The fact that it leads to such divided assessments is an issue in itself.

Moreover, the aspect of independence and impartiality of the CAS arbitrators is pivotal for the trust in and legitimacy of the system. Arbitration seems well-suited in this connection too, bringing the opportunity to settle disputes smoothly “within the family of sport.”9)Ian Blackshaw, The Court of Arbitration for Sport: An international Forum for Settling Disputes Effectively “Within the Family of Sport,” Entertainment Law, Vol. 2 No 2. Summer 2003, pp. 61-83. jQuery("#footnote_plugin_tooltip_6803_9").tooltip({ tip: "#footnote_plugin_tooltip_text_6803_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Nevertheless, the strong dissent in the ECtHR’s opinion challenging the exclusively subjective approach of the majority of the Court confirms that appearance, hence an objective assessment, counts. Such aspect is crucial when it comes to independence and impartiality and is a key factor for the trust in the system of those who are accountable to it. The CAS, apparently willing to implement changes as it drastically did in 1994 on the impetus of the SFT Gundel’s decision, should take the issue related to the ICAS’ role and impact on CAS’ processes very seriously and engage into appropriate reforms considering athletes’ needs – even more so due to its rising position within the world of international sport and to the nature of the disputes brought before it, some of them directly impacting athletes’ lives and reputation.

References   [ + ]

1. ↑ CAS Code, Article R 57. 2. ↑ CAS 2009/A/1912, award of 25 November 2009. 3. ↑ Swiss Federal Statute on Private International Law, Art. 191. 4. ↑ Munich Regional Court, decision of 26 February 2014, 37 O 28331/12. 5. ↑ CAS Code, Article S4. 6. ↑ Munich Higher Regional Court, decision of 15 January 2015, U 1110/14 Kar. 7. ↑ German Federal Tribunal, decision of 7 June 2016, KZR 6/15. 8. ↑ Nigel Blackaby, Constantine Partasides et al., Redfern and Hunter on International Arbitration, 6th Edition, Oxford University Press 2015, 2.01, 2.63, 10.36. 9. ↑ Ian Blackshaw, The Court of Arbitration for Sport: An international Forum for Settling Disputes Effectively “Within the Family of Sport,” Entertainment Law, Vol. 2 No 2. Summer 2003, pp. 61-83. 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: The Decision-Making Process of Investor-State Arbitration Tribunals
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International Arbitration: Is Pakistan Finding New Avenues?

Thu, 2020-01-30 23:02

Hassan Raza

Recently, the Center for International Investment & Commercial Arbitration inaugurated its Young Arbitration Group in Pakistan in a conference which attracted foreign panelists who efficaciously explained the theory and practice of international arbitration, highlighting the room for improvement in Pakistan. This has been summarized in a prior post on the Blog, which also explained that the conference was a success and foreign participants also had an opportunity to acquaint themselves with the Pakistani arbitration environment, which is the focus of this post. In particular, this post will discuss case laws and analyse how the Pakistani courts are playing their part in rectifying the negative image of arbitration in Pakistan.

Pakistan faces considerable criticism when it comes to (i) enforcement of contracts involving foreign parties; (ii) enforcement of foreign arbitration agreements; and (iii) enforcement of foreign awards. For the first category, the Reko Diq dispute1)The Supreme Court of Pakistan in its judgment of Maulana Abdul Haq Baloch versus Government of Balochistan (PLD 2013 Supreme Court 641) declared the Chagai Hills Exploration Joint Venture Agreement dated 23-7-1993 (and all its addendums, ancillary agreements, novation agreements and any licenses issued) involving international investors to have been executed contrary to Pakistan’s local law and therefore set aside as illegal and void. jQuery("#footnote_plugin_tooltip_2238_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2238_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and the Rental Power Plants’ dispute2)The Supreme Court in its judgment (2012 SCMR 773) set aside the Implementation Agreements (and all other connected agreements) involving international investors as they were held to be executed in violation of law and on grounds of corruption. jQuery("#footnote_plugin_tooltip_2238_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2238_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); are notable examples. For the latter, a list of Pakistani precedents is open to criticism for disregarding the settled principles for enforcement of foreign arbitration agreements and awards, which will be discussed below in the context of recent pro-arbitration judgments, such as in the cases of Travel Automation (2006), Lakhra Power Generation (2014), Louis Dreyfus (2018) and Orient Power (2019).

 

Enforcement of Contracts Involving Foreign Parties

Traditionally, a Pakistani party would seek to override the contractual terms to the detriment of a foreign party by challenging the contract before the local courts on various grounds including breach of law and public policy. However, in Lakhra Power Generation versus Karadeniz Power-ship Kaya Bey3)2014 CLD 337; a case that stems from the Rental Power Plant’s dispute. jQuery("#footnote_plugin_tooltip_2238_3").tooltip({ tip: "#footnote_plugin_tooltip_text_2238_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); the High Court held that even though the Supreme Court had declared the main contract to be void, the arbitration agreement had survived due to ‘doctrine of separability’, which could be enforced under the New York Convention, 1958 (“Convention”) by the foreign party once it had exhausted the remedies before the ICSID Tribunal.

Likewise, in Louis Dreyfus Commodities versus Acro Textile Mills (PLD 2018 Lahore 597), the High Court refused to accept the award debtor’s challenge to the arbitration agreement, and the award, on the basis that Articles II and IV of the Convention cannot be intertwined with any grounds under Article V to enhance the grounds of challenge to the award. The Court also declared the agreements to be valid under Article V(1)(a) after: (i) confirming ownership of the award debtor’s email address which was used to negotiate the agreements and appoint an arbitrator; and (ii) drawing in-court comparison of the award debtor’s signature to resolve the question of execution of agreements.

 

Enforcement of Foreign Arbitration Agreements

Foreign arbitration agreements have also been disregarded in Pakistan for reasons including forum non-convenience and preference to domestic special law4)Akbar Cotton Mills versus Ves/Ojuanojo Objedinensije Tech (1984 CLC 1605 (SB) and 1987 MLD 600 (DB)); Transcomerz Ag versus Kohinoor Trading (1988 CLC 1652); and Pakistan Insurance Corporation versus KotAddu Power (2002 MLD 829). jQuery("#footnote_plugin_tooltip_2238_4").tooltip({ tip: "#footnote_plugin_tooltip_text_2238_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });. But in Travel Automation versus Abacus International (2006 CLD 497) enforcement of arbitration agreements was confined to Article II of the Convention and detached from local arbitration agreements under Section 34 of the Arbitration Act, 1940 because after the adoption of the Convention, judicial discretions were extinguished and confined to Article II of the Convention. This position has been upheld by the Pakistan Courts in later judgments5)Far Eastern Impex versus Quest International Nederland (2006 CLD 153); Cummins Sales and Service versus Cummins Middle East (2013 CLD 291 (SB) and 2015 CLD 1655(DB)); Abid Associated versus AREVA (2015 MLD 1646). jQuery("#footnote_plugin_tooltip_2238_5").tooltip({ tip: "#footnote_plugin_tooltip_text_2238_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });.

At the court of first instance in Pakistan, the author is aware of two matters6)Olympus International versus Vinci Construction Grands Projects (Suit No. 318/14); and Capital Strategies Group versus Thyssenkrupp Elevators AG (Suit No. 78/2017). jQuery("#footnote_plugin_tooltip_2238_6").tooltip({ tip: "#footnote_plugin_tooltip_text_2238_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); (and has represented a client in one) in which the court has summarily rejected suits filed by domestic parties based on lack of proper jurisdiction, as the main contracts included arbitration agreements requiring international arbitration, the result of which would be enforced under the Convention.

 

Enforcement of Foreign Arbitral Awards

Originally, Pakistan recognized the Convention on the Execution of Foreign Arbitral Awards (“CEFAA”) through the Arbitration (Protocol and Convention) Act, 1937 (“1937 Act”) which was interpreted by local courts to create discretion for interference with foreign awards. For example, in the judgment of Yangtze versus Barlas Brothers (PLD 1960 Supreme Court 573), the Supreme Court declined enforcement of an award passed by the London Court of Arbitration because Pakistan had not recognized the United Kingdom as party to CEFAA. The judgment of Continental Grains Co. versus Naz Brothers (1982 CLC 301) followed suit. A further in-depth analysis of this issue can be found in the author’s previous post on the Blog, including the misuse of discretion in Taisei Corporation versus A.M. Construction (PLD 2012 Lahore 455) (“Taisei Corporation I”) which applied the mechanism for enforcement of domestic arbitral awards to foreign awards in disputes where the foreign award was made pursuant to an arbitration agreement that incorporated Pakistan law as the curial law and thus opening foreign awards to objections beyond Article V of the Convention.

This appears to have been modified. First, as explained above in the context of enforcement of contracts, the judgment of Louis Dreyfus enforced the foreign arbitral award under the Convention. The Court correctly settled the jurisprudence of the Convention with the help of foreign judicial precedents, and also candidly adopted the UNCITRAL Secretariat Guide on the Convention, both of which conclude that the award creditor has to show prima facie existence of an arbitration agreement on the basis of which the foreign award has been made and the onus is on the award debtor to raise and prove objections under Article V of the Convention. A similar ‘pro-enforcement bias’ was offered in the judgment of Dhanya Agro-Industrial versus Quetta Textile Mills (2019 CLD 160).

Another aspect that must be highlighted is the development of a strong opinion against challenging foreign awards in the same manner as domestic awards, such as in the case of Taisei Corporation I. In Orient Power Company versus SNGPL (2019 CLD 1082), where the High Court rejected the interpretation offered in the Taisei Corporation I and held that an arbitral award passed in another contracting state would be a foreign award under the Convention irrespective of the fact that the governing law of the arbitration agreement is Pakistan law. The Court also rightly held that Taisei Corporation I erroneously relied on an earlier judgment of the Supreme Court in Hitachi Limited and another versus Rupali Polyester and others (1998 SCMR 1618), which had been passed under the 1937 Act and CEFAA, both of which are inapplicable (the 1937 Act was repealed with effect from 2005) after the Convention was adopted by Pakistan. Similarly, in another judgment titled Taisei Corporation versus A.M. Construction (2018 CLD 2058) (referred to as Taisei Corporation II), the High Court did not subscribe to the earlier interpretation in Taisei Corporation I.

 

Conclusion

On balance, while there is a need for improvement in Pakistan to align with international standards, in the author’s opinion, it appears that commercial judges in Pakistan have discovered a direction to develop the jurisprudence of international arbitration. The three important pillars for any foreign investor, i.e. (i) respectability of the terms of the contracts, (ii) recognition and (iii) enforcement of foreign arbitration agreements, and of awards, appear to be set into motion by aligning judicial precedents with correct interpretation of laws and appreciating international trends in an attempt to reposes trust by the foreign investors in Pakistan. The legal fraternity will increasingly be required to display high quality commercial aptitude and, where judges are involved, they must further ensure their independence in legal analysis. Simultaneously, Pakistan also needs more commercial judges to timely and effectively adjudicate matters involving international parties. In the coming years, the author hopes the international parties would be more receptive to doing business in Pakistan, which in turn, should develop the scope for effective international dispute resolution in Pakistan.

References   [ + ]

1. ↑ The Supreme Court of Pakistan in its judgment of Maulana Abdul Haq Baloch versus Government of Balochistan (PLD 2013 Supreme Court 641) declared the Chagai Hills Exploration Joint Venture Agreement dated 23-7-1993 (and all its addendums, ancillary agreements, novation agreements and any licenses issued) involving international investors to have been executed contrary to Pakistan’s local law and therefore set aside as illegal and void. 2. ↑ The Supreme Court in its judgment (2012 SCMR 773) set aside the Implementation Agreements (and all other connected agreements) involving international investors as they were held to be executed in violation of law and on grounds of corruption. 3. ↑ 2014 CLD 337; a case that stems from the Rental Power Plant’s dispute. 4. ↑ Akbar Cotton Mills versus Ves/Ojuanojo Objedinensije Tech (1984 CLC 1605 (SB) and 1987 MLD 600 (DB)); Transcomerz Ag versus Kohinoor Trading (1988 CLC 1652); and Pakistan Insurance Corporation versus KotAddu Power (2002 MLD 829). 5. ↑ Far Eastern Impex versus Quest International Nederland (2006 CLD 153); Cummins Sales and Service versus Cummins Middle East (2013 CLD 291 (SB) and 2015 CLD 1655(DB)); Abid Associated versus AREVA (2015 MLD 1646). 6. ↑ Olympus International versus Vinci Construction Grands Projects (Suit No. 318/14); and Capital Strategies Group versus Thyssenkrupp Elevators AG (Suit No. 78/2017). 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: The Decision-Making Process of Investor-State Arbitration Tribunals
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Limits of Arbitral Competence: Lessons from a Hungarian Domain Name Dispute

Thu, 2020-01-30 02:00

Zoltán Novák

For a number of years, most Hungarian domain name disputes have been decided by an Alternative Dispute Resolution Forum (hereinafter: ‘Forum’) operated by the Council of Hungarian Internet Providers (‘Internet Szolgáltatók Tanácsa’, abbreviated as ‘ISZT’). Although the procedure conforms to the Uniform Domain Name Dispute Resolution Policy established by the Internet Corporation for Assigned Names and Numbers (‘ICANN’), its origins in Hungary go back to a 2003 Hungarian Supreme Court decision, which held that an agreement referring domain name disputes to arbitration under the rules set up by ISZT was null and void. The decision – rendered in setting aside proceedings against an arbitral award – touched upon interesting questions about the source and limits of arbitral competence, which remain valid to this day. This post will summarize the said decision and analyze the question of whether the submission by a domain name applicant to arbitration of all disputes concerning the domain name in question can constitute a valid offer to arbitrate with third parties claiming that the registered domain name infringes on their rights.

 

The Road to the Supreme Court

It is important to note at the outset that no government or governmental organization is in charge of the Domain Name System (‘DNS’). The worldwide DNS is managed through a hierarchical structure under the command of ICANN, a US-based non-profit entity, which has contracts with accredited registries around the world to administer domain names in the corresponding top-level domains. The Governmental Advisory Committee to ICANN has adopted a general principle that DNS is a public resource in the sense that domain names must be managed in the public interest. Nevertheless, domain name administration is still under limited state or public policy control and in most countries subject to self-regulation.

In this hierarchical system, ISZT serves as the registry for the country-code top-level domain for Hungary, .hu. For this purpose, ISZT set up its Domain Registration Rules and Procedures (‘Registration Rules’) requiring domain name providers – so-called registrars – to apply them as general terms in the individual domain name registration contracts they concluded with domain name applicants under the .hu domain. The Registration Rules also included dispute resolution provisions referring domain name disputes to what was called an ad hoc arbitral procedure under ISZT’s own rules.

The domain name at issue in the dispute was registered by a registrar (‘Registrar’) on behalf of an applicant (‘Applicant’) according to the Registration Rules. A few months later another company (‘Complainant’) called on the Applicant to cease using the said domain name, arguing that it was identical to its well-established company name. After the Applicant failed to comply with the demand, the Complainant requested arbitration under the ISZT Rules, which resulted in upholding the Complainant’s claim. The Applicant applied to a state court for the setting aside of the arbitral award and the case ultimately came before the Hungarian Supreme Court.

 

The Reasons for the Supreme Court Decision

After considering a variety of reasons, the Court ultimately set aside the award on the basis that the arbitral proceedings under the ISZT Rules were ad hoc in name only. Upon a close examination of the Rules, the Court concluded that they in fact provided for the proceedings to be administered by ISZT as a permanent arbitral institution. Under Hungarian law, however, permanent arbitral institutions could only be established by a chamber of commerce – while ISZT was nothing more than an association. The Court thus held that, by submitting the dispute to an institution whose operation was not mandated by statute, the arbitration agreement itself was in violation of law and therefore invalid.

In dicta, moreover, the Court also held that submission to arbitration by the domain name applicant of any and all disputes concerning the domain name through a mere acceptance of ISZT’s general terms violated Hungarian law and public policy. As the Registration Rules had to be applied to every registration of a domain name under the .hu top-level domain, the Supreme Court interpreted these Rules as compulsory regulations for the whole sector of domain name delegation. The Court argued that such a “compulsory” stipulation of arbitral competence violated both the Hungarian arbitration legislation and the Constitution.

First, the Hungarian Arbitration Act in force back then provided that a specific range of cases may only be reserved for the exclusive jurisdiction of an arbitral institution by statute. Since the Registration Rules seemed to give exclusive competence in this area to arbitral tribunals under the auspices of ISZT without such statutory mandate, the Rules were found to be in breach of the Arbitration Act and therefore invalid.

Second, considering that the Constitution bestowed on everyone the right to resort to a state court – and that such fundamental rights could only be regulated in an Act – the Supreme Court held that, by establishing an exclusive competence of an arbitral institution for the whole sector of domain name delegation, the Registration Rules deprived applicants from this constitutional right. In this regard, the Court seemed to implicitly agree with ICANN’s Governmental Advisory Committee that domain names are to be treated as public resources and concluded that, by delegating all domain name disputes to the realm of private justice without a statutory mandate, the self-regulation of the sector went too far. In this sense, the argument was based on public policy considerations.

 

Criticism of the Supreme Court Decision

While the Court’s conclusion had merit, its argumentation, in the view of this author, was mistaken. What the Court considered to be public policy reasons for the invalidity of a submission to arbitration through the acceptance of the Registration Rules could more helpfully be analyzed in terms of party consent to arbitration.

Several objections can be raised against the Supreme Court’s reasoning. Firstly, the Registration Rules of ISZT did not, in fact, purport to compulsorily regulate the whole sector of domain name delegation. Nothing prevented Hungarian domain name applicants from registering a domain name under a top-level domain other than ‘hu’. For instance, the applicants were free to opt for domain names under ‘.com’, in which case the Registration Rules with their provision of binding arbitration simply did not apply.

Secondly, although the decision correctly concluded that the Applicant’s acceptance of the Registration Rules could not bind the Applicant to submit to arbitration any and all disputes in connection with the domain name, it presented legally questionable arguments to justify this conclusion. In fact, the justification was to be found not so much in constitutional law or public policy as in the ordinary law of contracts.

The acceptance of the Registration Rules in and of itself could only establish an arbitration agreement between the Applicant and the Registrar, the parties to the domain delegation agreement. With regard to third parties, the domain applicant’s acceptance of the Registration Rules could at most be regarded as a “standing offer” to arbitrate that the third party could later accept. Construction of the acceptance of the Registration Rules as a “standing offer” to arbitrate, however, fails for two main reasons.

Firstly, the acceptance of the Registration Rules by domain name applicants was not addressed to third parties. From the latter’s point of view, the acceptance of the Registration Rules by the applicant could at most be regarded as a unilateral, unaddressed legal declaration. Now, both the previous and the current Hungarian Civil Code provide that unaddressed, unilateral declarations have legal effect only insofar as explicitly specified by statute. Regarding domain name applications or related submissions to arbitration, however, there is no such statutory provision. Therefore, the submission to arbitration could not have legal effect with regard to third parties to whom it was not addressed.

Secondly, pursuant to both the Hungarian arbitration legislation and the New York Convention, an arbitration agreement must relate to “a defined legal relationship”. In an application for domain registration, however, the only defined legal relationship is between the applicant and the registrar. From an arbitration law perspective, a general reference to possible future disputes that may arise between the applicant and third parties concerning the domain name cannot be regarded as sufficiently defined.

For these two reasons, the acceptance of the Registration Rules by the domain name applicant cannot be regarded as a standing offer to arbitrate that any third party in any way affected by the domain registration could later accept. This is a more compelling reason why the Registration Rules could not establish a binding arbitration agreement between the Applicant and the Complainant.

 

What Has Happened Since?

Following the Supreme Court’s decision, ISZT amended its Registration Rules. Most importantly, the amendment established the Forum – involving an ISZT-mandated body of adjudicators – to hear disputes between domain name applicants and third parties1)In Hungary, third parties can claim under any right to use the disputed domain name (which can be trademark, competition law or even the general law of persons). jQuery("#footnote_plugin_tooltip_7644_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7644_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); claiming that the registered domain name infringes on their right to use that name.

In accordance with ICANN’s Uniform Domain Name Dispute Resolution Policy, the filing of a domain registration request by a domain name applicant is considered submission to the Forum’s jurisdiction even in relation to third parties. If a complainant claims that the domain name infringes on their rights, the Forum has jurisdiction to order the cancellation or transfer of the disputed domain name, which registrars then must implement. Importantly, however, the Forum’s decisions can be challenged before state courts, in which case the registrar shall suspend the implementation of the ruling for the pendency of the court procedure. The changes, in effect, mean that the previous compulsory arbitration procedure was replaced by a special adjudicatory process, which, although still binding on the domain applicant, now merely serves as a first instance forum with the possibility to resort to court.

Although parties are still free to refer their disputes to arbitration under the ISZT Rules, the setup of the Forum has significantly decreased the number of cases settled by arbitration.

References   [ + ]

1. ↑ In Hungary, third parties can claim under any right to use the disputed domain name (which can be trademark, competition law or even the general law of persons). 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: The Decision-Making Process of Investor-State Arbitration Tribunals
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Brazilian Court of Appeals Finds ‘Manifestly Illegal’ Arbitration Agreement As An Exception To Kompetenz-Kompetenz

Tue, 2020-01-28 23:59

Emily Westphalen

On September 10, 2019, in considering an interlocutory appeal to stay arbitration proceedings, the Espírito Santo Court of Appeals decided to grant an exception to the competence-competence principle on grounds that the arbitration agreement was prima facie “manifestly illegal”. (Interlocutory Appeal No. 0013950-80.2019.8.08.0012, injunctive relief issued on September 10, 2019).

 

Background

In 2001, the appellants Amphilophio de Oliveira Júnior and others (the “Appellants”) formed a privately-held corporation, called Hospital Meridional (the “Hospital”). The Appellants and other partners concluded a Shareholders Agreement (the “Shareholders Agreement”), which guaranteed the shareholders the exclusive right to provide the services of their respective specialties within the Hospital.

The Shareholders Agreement had a term of 20 (twenty) years from its renewal in July 2006 and, in addition to binding the shareholders and their successors, also established that the shareholders of the same medical specialty should have preference in the acquisition of the shares held by other partners.

The shareholders consolidated the control of the Hospital into a single legal entity, Vitória Participações S.A. (the “Holding”), which held more than 90% (ninety percent) of the Hospital’s shares. However, the Appellants, as the minority shareholders, had the exercise of their corporate rights constrained, as the Holding tried compelling them to dispose of their shares, without observing the preference provisions in the Shareholders Agreement.

In addition, the Holding refused to renew the lease of spaces inside the Hospital, where the Appellants carried out their activities, and tried to dilute their corporate participation through abusive increase of share capital.

Consequently, the Appellants filed a series of lawsuits against the Hospital and the Holding (the “Appellees”), all of which were successful. Seeing these results, the Holding, using its power of control of the Hospital, unilaterally amended its bylaws to include a clause providing for arbitration in the event of any disputes. The Appellees then requested an arbitral institution to commence arbitration against the Appellants, in order to determine whether the filing of the aforementioned actions constituted an abusive act.

The Appellants sought to stay the arbitration proceedings, on the grounds that they had never consented to arbitration. Based on the competence-competence principle, the Court of First Instance refused to stay the arbitration proceedings. The Appellants submitted an interlocutory appeal to the Espírito Santo Court of Appeals seeking a provisional suspension of the arbitration proceedings.

 

The Espírito Santo Court of Appeal’s Decision

In accordance with the Brazilian Code of Civil Procedure, in order to grant the provisional request to suspend the arbitration proceedings, the Espírito Santo Court of Appeals considered whether the following requirements were present: (i) the relevance of the Appellant’s reasoning (fumus boni juris) and (ii) the possibility of serious harm to the Appellants (periculum in mora) if the arbitration proceedings continued.

First, the Espírito Santo Court of Appeals examined Article 4 of the Brazilian Arbitration Act (Law No. 9,307/1996), which requires prior acquiescence by the parties to an arbitration agreement. As the Court of Appeals explains:

“Indeed, consent is an inseparable element of the arbitration jurisdiction, even more because it concerns a limitation to the guarantee of the right to access to justice, enshrined in art. 5, XXXV of our Constitution, which has the status of mandatory clause and, as such, is not subject to implicit waiver”.

Second, the Court of Appeals analysed Brazilian Corporate Law (Law No. 6,404/1976.), and briefly discussed whether the Appellees could unilaterally amend the Hospital’s bylaws and subject the Appellants to arbitration proceedings.

Pursuant to article 136-A of the Brazilian Corporate law, the approval of the insertion of an arbitration agreement in the bylaws shall observe the quorum of article 136 of the same law, which requires the approval of shareholders representing at least half of the voting shares. Article 136-A also provides that any dissenting shareholder shall have the right to withdraw from the company through the reimbursement of the value of their shares, pursuant to art. 45 of the Brazilian Corporate Law.

In this case, the Court of Appeals found that the facts demonstrate how the arbitration clause was (i) inserted in the bylaws ex post facto of the events in dispute, (ii) not in accordance with the procedure provided under the Brazilian Corporate Law, and (iii) consequently, the Appellants never consented to arbitration.

The Court of Appeals clarified that it was “not unaware of the kompetenz-kompetenz principle contained in article 8 of the Brazilian Arbitration Act…”, however, the Court also found that the competence-competence principle “does not have an absolute character, remaining to the Judiciary the prerogative of declaring the nullity of an arbitration commitment whose content is manifestly illegal….”

The Court reasoned that “the adoption of kompetenz-kompetenz in this case would only serve to materialize the aggravating damages” to the Appellants, as they would have to pay the initial fees of the arbitration estimated at R$ 242,770.00 (two hundred and forty-two thousand, seven hundred and seventy reais), only to later question the validity of the pathological arbitration clause, which, in the Court of Appeal’s opinion is “a behaviour completely disconnected from the principle of objective good faith.”

As a result of the arbitration clause included in the bylaws not having the proper consent of the Appellants, the Court of Appeals agreed that the Appellants had a plausible right and suffered the risk of serious harm should the arbitration continue. The Espírito Santo Court of Appeals thus, repudiated the lower court’s decision and determined the provisional stay of the arbitration proceedings.

 

Comment

In Brazil, once the arbitration commitment is established, as a rule, it is the arbitrator’s responsibility to decide their own competence, due to the so-called competence-competence principle, enshrined in the sole paragraph, of article 8 of the Brazilian Arbitration Act:

“It will be up to the arbitrator to decide of ex officio, or at the provocation of the parties, the questions about the existence, validity and effectiveness of the arbitration agreement and the contract that contains the arbitration clause”.

Nevertheless, the Brazilian Superior Court determined in 2016 that:

“The Judiciary may, in cases where a “pathological”, i.e., manifestly illegal, arbitration agreement is prima facie identified, declare the nullity of this agreement, regardless of the state of the arbitration proceedings.” (REsp 1602076/SP, Rel. Ministra NANCY ANDRIGHI, TERCEIRA TURMA, julgado em 15⁄09⁄2016, DJe 30/09/2016)

At a first glance, exceptions to kompetenz-kompetenz might seem dangerous to arbitration in Brazil and to the country’s status as pro-arbitration. However, this case demonstrates the way in which the Espírito Santo Court of Appeals applied the exception as the Superior Court intended it to be: a narrow limit to the effects of kompetenz-kompetenz. Accordingly, despite the decision of the interlocutory appeal being without prejudice to a new examination after the parties exchange full pleadings, the application of the manifestly illegal exception in this case promotes confidence that arbitration proceedings cannot be used to circumvent due process.

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Failure to Proceed Diligently with Arbitration Relevant in Assessment of Damages

Mon, 2020-01-27 20:00

Foo Joon Liang and Raina Lee Pay Wen

The dilatory tactics of some claimant parties in conducting arbitration proceedings can often be frustrating and can result in unnecessary costs and expenses. In the judgment of Jaks Island Circle Sdn Bhd (“Jaks Island”) v. Star Media Group Bhd (“Star Media”) and AmBank (M) Berhad (“AmBank”) [Originating Summons No.: WA-24C(ARB)-11-02/2018] issued in 2019, the Malaysian High Court considered a party’s failure to proceed diligently with the arbitration to be relevant in assessing damages arising out of an undertaking given to the Court pursuant to an ad-interim injunction.

 

Case summary

The original dispute arose between Jaks Island and Star Media in relation to a breach of a sale and purchase agreement. Star Media issued notices to AmBank and UOB to call on the unconditional on-demand performance bond furnished by Jaks Island.

On 23 February 2018, Jaks Island filed two separate originating summonses, seeking an injunction to restrain Star Media from receiving the bank guarantees in the sum of RM25 million each from AmBank and UOB.

These originating summonses were filed pursuant to Section 11(1)(h) of the Malaysian Arbitration Act 2005 (“Act”) which states that:

 

11.    Arbitration Agreement and Interim Measures by High Court

 1)       A party may, before or during arbitral proceedings, apply to a High Court for any interim measure and the High Court may make the following orders for: … h) an interim injunction or any other interim measure.

In obtaining the ad-interim injunction pending the hearing proper of the injunction, Jaks Island gave an undertaking as to damages to preserve the status quo of the matter. However, the Malaysian High Court dismissed the injunction.

Aggrieved by the High Court’s decision, Jaks Island appealed but its appeals in the Court of Appeal and the Federal Court were dismissed with costs. Consequently, Star Media applied to the High Court for an inquiry of damages pursuant to the undertaking given by Jaks Island at the High Court.

In considering whether to enforce the undertaking, Justice Lee Swee Seng (as his lordship then was) relied on the principles enunciated from the Federal Court’s decision of GS Gill Sdn Bhd v Descente Ltd [2010] 4 MLJ 609, that:

i. If an interlocutory injunction is wrongly granted, the trial judge should make an order for inquiry of damages on the undertaking given by the plaintiff applying for the interlocutory injunction;

ii. The plaintiff has to provide reasons as to why the undertaking given should not be enforced; and

iii. Special circumstances exist that justify such an order.

Based on the above principles, the High Court held that:

i. Jaks Island failed to provide a cogent reason as to why the undertaking should not be enforced; and

ii. it was not a special circumstance to refuse enforcement of an undertaking even if the arbitration award “may very well be in favour of” Jaks Island and Star Media has to refund the money it received under the bank guarantees. The Court considered that if this was otherwise, it will discourage businesses from using bank guarantees to allocate risk.

In the circumstances, the enforcement of undertaking should not be prolonged until the disposal of the arbitration.

What was noteworthy was that the High Court took into consideration the delay in the arbitration proceeding. The Notice of Arbitration was issued by Jaks Island to Star Media on 6 March 2018 and as at the date of the decision (i.e. 19 June 2019), an arbitration tribunal had not been constituted.

Jaks Island’s counsel argued that the delay in progress was due to the lack of response from Star Media on its proposed arbitrators. However, the High Court rejected the argument. The court held that default provisions in most arbitration rules would have dealt with this situation and such lack of response was not a cogent reason for not proceeding with the arbitration, unless the arbitration agreement did not incorporate any arbitration rules.

 

Default provisions under the Arbitration Act 2005 should have applied

It was argued by Jaks Island that the arbitration could not proceed further because Star Media did not respond to its list of proposed arbitrators. However, we submit that if parties could not agree on the appointment of arbitrator, parties should rely on Section 13 of the Act as a recourse, namely, when parties failed to agree on the procedure, application can be made to the Director of the Asian International Arbitration Centre (“AIAC”) to appoint an arbitrator1)Section 13(5)(b) of Arbitration Act 2005. jQuery("#footnote_plugin_tooltip_8184_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8184_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

If the parties have agreed on the procedure for appointment of arbitrator, but a party failed to act as required under such procedure; or parties are unable to reach an agreement under such procedure; or a third party, including an institution failed to appoint an arbitrator, any party may request the Director of AIAC to take the necessary measures2)Section 13(6) of Arbitration Act 2005. jQuery("#footnote_plugin_tooltip_8184_2").tooltip({ tip: "#footnote_plugin_tooltip_text_8184_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In the event the Director of AIAC fails to act within 30 days from the request, any party may apply to the High Court to appoint an arbitrator3)Section 13(7) of Arbitration Act 2005. jQuery("#footnote_plugin_tooltip_8184_3").tooltip({ tip: "#footnote_plugin_tooltip_text_8184_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Therefore, Jaks Island could have proceeded diligently with the arbitration even if Star Media failed to respond to its proposals on the arbitrator.

 

Would Jaks Island have a better chance under the Arbitration (Amendment) Act 2018?

Jaks Island’s originating summonses were filed before the coming into force of the Arbitration (Amendment) Act 2018 on 8 May 2018. Section 11(1)(h) has now been removed from the Act.

With the Arbitration (Amendment) Act 2018, a party can now apply to the arbitrator4)Section 19(2)(a) of Arbitration (Amendment) Act 2018. jQuery("#footnote_plugin_tooltip_8184_4").tooltip({ tip: "#footnote_plugin_tooltip_text_8184_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and/or the High Court5)Section 11(1)(a) of Arbitration (Amendment) Act 2018. jQuery("#footnote_plugin_tooltip_8184_5").tooltip({ tip: "#footnote_plugin_tooltip_text_8184_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); for an interim measure to “maintain or restore the status quo pending the determination of the dispute”. Although there is an overlap between Section 11(a) and 19(2)(a) of Arbitration (Amendment) Act 2018, Section 11(2) in both the Act and Arbitration (Amendment) Act 2018 allows party to apply to the High Court for the same interim measure in the event that the arbitrator dismisses the application.

However, the High Court is bound by the finding of facts by the arbitrator and is not empowered to reconsider the finding of facts by the arbitrator. This is confirmed by the High Court in IJM Construction Sdn Bhd v Lingkaran Luar Butterworth [2018] 7 MLJ 341 that:

 

…part of the arbitrator’s ruling or decision on interim measure other than the findings of fact are open to reconsideration and fresh decision by the High Court under a s.11(1) application.”

In this regard, reference can be made to a recent Court of Appeal’s decision in Obnet Sdn Bhd v Telekom Malaysia Bhd [2019] 6 MLJ 707 where the Court of Appeal set aside a High Court’s order that allowed Telekom Malaysia Bhd’s (“TM”) application for discovery of a settlement agreement (“Discovery Application”).

The High Court allowed the Discovery Application notwithstanding that the arbitrator had dismissed TM’s discovery application and that it is bound by the finding of facts by the arbitrator. The Court of Appeal held that the High Court has no jurisdiction to interfere with the arbitrator’s finding of facts.

The Court of Appeal further found that the relief sought under Section 11 of the Act must be interim in nature. Where the relief sought under the Discovery Application is permanent in nature, this would have exceeded the court’s jurisdiction under Section 11 of the Act. In these circumstances, the learned judge in the High Court ought to have dismissed the Discovery Application.

The Court of Appeal also held that Section 11 of the Act 2005 is “designed to support and facilitate the arbitral process and not to displace it. The approach, in the context of s.11, must be not to encroach on the procedural powers of the arbitrators but to reinforce them.”

Hence if an application was instead made to the tribunal pursuant to Section 19(2)(a) of the Arbitration (Amendment) Act 2018, assuming an undertaking as to damages had been given, Jaks Island may have a better chance of delaying the inquiry of damages to the conclusion of the arbitration. Jaks Island’s exposure to damages, if any, would also have been delayed accordingly.

 

For further information on arbitration in Malaysia, see here

 

References   [ + ]

1. ↑ Section 13(5)(b) of Arbitration Act 2005. 2. ↑ Section 13(6) of Arbitration Act 2005. 3. ↑ Section 13(7) of Arbitration Act 2005. 4. ↑ Section 19(2)(a) of Arbitration (Amendment) Act 2018. 5. ↑ Section 11(1)(a) of Arbitration (Amendment) Act 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: The Decision-Making Process of Investor-State Arbitration Tribunals
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2019 in Review: Noteworthy Developments in East and Central Asia

Sun, 2020-01-26 20:00

Theresa Tseung (Assistant Editor for East and Central Asia) and Arie C. Eernisse (Assistant Editor for East and Central Asia)

Gong Xi Fa Cai! The Year of the Earth Pig has drawn to a close. In what was certainly an auspicious and lucky year for arbitration developments in East and Central Asia, we take a closer look at five key developments:

 

1. Initiatives in PR China to boost arbitration

In southern coastal China, the Outline Development Plan for the Guangdong – Hong Kong – Macao Greater Bay Area was announced on 18 February 2019, with the aim to develop cities of the Pearl Delta Region in the Southern coast of China into a megapolitan focusing on innovation, technological advancement and economic development. Increased needs for dispute resolution services arising from the region are anticipated as the Greater Bay Area foresees growth in foreign investment, maritime-related transactions, infrastructure and construction projects, and demand for intellectual property development in support of its development strategy.

Formerly, there were no provisions in the PR Chinese legal framework that expressly permit foreign arbitral institutions to administer cases seated in mainland China. On 6 August 2019, the Framework Plan for the New Lingang Area of the China (Shanghai) Pilot Free Trade Zone was published which paved the way for foreign arbitration and dispute resolution institutions to set up operations in that area. Specifically, registered institutions will be permitted to administer arbitrations involving civil and commercial disputes, and to implement rules to allow interim measures such as preservation of assets and evidence in favour of both PR China and foreign parties (see further discussion in previous post).

Progress was also made with regard to online dispute resolution (“ODR”) in PR China. As explored in the post on ODR, China has made strides towards utilisation of artificial intelligence tools for online courts, arbitration and mediation for cross-border small value disputes in particular. In this regard, our previous post has discussed the launch of online platforms by arbitral institutions such as the Guangzhou Arbitration Commission which aim at improving flexibility, efficiency and time-effectiveness of arbitral proceedings in response to the exponential growth of e-commerce in mainland China. As technology rapidly advances, the use of AI-arbitrator may no longer be a myth but a real possibility in the foreseeable future.

 

2. Resolving trade tensions in Northeast Asia

Trade tensions between Korea and Japan increased significantly during the summer of 2019 and, at the height of these tensions, the Blog explored avenues for resolving the dispute in a two-part series of articles (Part I and Part II). Our contributors first explained the nature of the dispute, which arose when Japan introduced measures affecting exports to Korea of three chemicals used by Korean companies to make semiconductors, memory chips and displays for consumer electronics. They then analyzed the various dispute resolution possibilities that the two countries and their affected corporations may resort to, including inter-state arbitration, WTO dispute settlement, investor-state dispute settlement or mediation.

 

3. Central Asian jurisdictions continued to enhance arbitration infrastructure

Kazakhstan internationalised its international arbitration law in January 2019 (see rough translation in English of the Law) to align it with international conventions and practice. The more important 2019 amendments relax the requirements for the arbitration agreement, enable foreign law to be chosen to govern the dispute, allow the tribunal to use foreign law to determine the governing law, reduce the grounds for annulment of an award, internationalise the grounds for refusing to recognise an award, and restrict a state party’s revocation of consent to arbitration.

The Astana International Financial Centre (“AIFC”) in Kazakhstan came into existence in 2018, and the efforts to reform Kazakhstan’s international arbitration law (described above) were also aimed at bolstering the AIFC’s International Arbitration Centre. Similarly the Tashkent International Arbitration Centre in Uzbekistan, which was established in November 2018, began administering disputes.

In Kyrgyzstan, the government proposed institutionalizing arbitration as a mechanism for improving access to justice and addressing pervasive corruption. The government has proposed developing a system of dispute settlement between entrepreneurs and administrative state bodies in the International Arbitration Court of Kyrgyzstan.

In Georgia the Supreme Court upheld a permissive ICC arbitration clause, sending a clear pro-enforcement message.

Further several notable conferences, fora and events touched on issues of importance to arbitration Central Asia.

In April 2019, at the American Bar Association’s Section of International Law Annual Conference arbitration practitioners and others shared insights on challenges to Central Asia arising from China’s Belt and Road Initiative, including through the investor-state dispute settlement mechanism. Also in April 2019, arbitration practitioners and others took part in the inaugural Tashkent Law Spring Legal Forum, which featured several panels that focused on international arbitration. On a related note, one of our contributors detailed damages considerations that are especially pertinent to Central Asian investment disputes.

At the Paris Arbitration Week’s second edition of Jeantet “Arbitrating in CEE and CIS” roundtable, practitioners discussed issues of transparency, accountability and choice of arbitrators. In May 2019, a Young ICCA Workshop was held in Bishkek, Kyrgyzstan, prompting reflection on the state of arbitration law and practice in Kyrgyzstan. In November 2019, leading arbitral institutions in the region participated in the Belt and Road Arbitration Institutions Roundtable Forum in Beijing.

 

4. Significant challenges to growth of arbitration in Central Asia

Obstacles hindering the growth of arbitration in Central Asian jurisdictions continued to exist.

In Armenia, the Civil Appeals Court found that arbitral tribunals do not have competence over the issue of contract invalidity. In 2014, Armenia’s highest court found that only state courts may exercise jurisdiction over the issue of contract invalidity. Thereafter, the Parliament amended the Civil Code in 2015 to provide that civil rights may be protected by a court or arbitral tribunal. Notwithstanding that, our contributor opined that the latest court decision in April 2019 indicates the court practice of rejecting the jurisdiction of arbitral tribunals over the contract invalidity issue appears to remain intact.

In Uzbekistan, the Supreme Court and lower courts refused to accept a UK-based company’s claim for recognition and enforcement of an arbitral award based on dubious jurisdictional grounds. The courts referred to Article III of the New York Convention, quoting that “each contracting state shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon….”  The court rejected jurisdiction under Article 249 of Economic Procedural Code and refused to conduct a hearing.

In Azerbaijan, analysis of the legal framework and recent developments suggests that, while the state has liberal and pro-arbitration legislation concerning recognition and enforcement of foreign arbitral awards, the actual application of the laws may not reflect that.

 

5. Relentless drive to improve Hong Kong’s arbitration framework

As reported in our Blog, following the publication of the Code of Practice for Third Party Funding of Arbitration in December 2018, the amendments to Arbitration Ordinance (Cap. 609) came fully into force on 1 February 2019 (save for provisions which relate to third party funding of mediation), thereby expressly permitting parties the use of third party funding for arbitrations in Hong Kong.

Previously, international commercial parties had no choice but to arbitrate in mainland China if they wish to ensure the availability of interim measures in the PR China (see posts here and here). Since the Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong Special Administrative Region was brought into force on 1 October 2019, the courts of each jurisdiction may now award interim measures in support of arbitrations seated in the other territory (see also commentary from the Mainland China perspective: Part I and Part II). Parties have swiftly begun utilising this instrument by filing with the Hong Kong international Arbitration Centre (“HKIAC”), five applications for interim measures to be ordered by courts in mainland China, with the first of such orders granted by the Shanghai Maritime Court on 8 October 2019.

These widely welcomed developments to Hong Kong’s arbitration framework stand to bolster its reputation as a key arbitral seat for international disputes, despite recent public unrest in the territory as discussed in our previous post.

Our live coverage of Hong Kong Arbitration Week also continued for the second year. We kicked off our coverage with a vivid conversation with Joe Liu of HKIAC and concluded it with a heartfelt interview with Winnie Tam, Senior Counsel. We also invited three next-generation arbitration practitioners in Hong Kong to provide their views on the future of arbitration in Hong Kong. Topics covered by our other contributors included the suitability of arbitration for resolving private equity, financial services and insurance disputes, proliferation of institutional rules, as well as sustainability of arbitration.

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Hungary: Setting Aside Arbitral Awards in the Last 25 Years – A Pro-Arbitration Approach with Minor Derailments

Sun, 2020-01-26 01:57

Richard Schmidt

Two and a half decades have passed since Hungary harmonised its arbitration law with UNCITRAL Model Law (‘Model Law’) in 1994. This marked a giant leap forward, especially as the adopted provisions were made applicable not only in international, but in purely domestic arbitrations as well. This post analyses the Hungarian case law on setting aside procedures that has been produced since the country adhered to the Model Law.

As will be shown by examining the standard of review and the selected grounds of annulment set forth by Article 34 of the Model Law (adopted verbatim in Hungary), apart from some judicial decisions that were rather exceptions than the rule, the Hungarian courts have usually adopted a pro-arbitration approach in the last 25 years.

 

Background

With the fall of communism in 1989-90 in Hungary, the country started its European integration process in the early 1990s. The termination of the Moscow Treaty of 1972 governing arbitration in Comecon1)The Council for Mutual Economic Assistance (Comecon) was an international organisation under the leadership of the Soviet Union. jQuery("#footnote_plugin_tooltip_4246_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4246_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); countries on 14 October 1994 and the entry into force of the Hungarian Arbitration Act2)Hungarian Act LXXI of 1994 on Arbitration. jQuery("#footnote_plugin_tooltip_4246_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4246_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); (‘Arbitration Act’) two months later, on 13 December 1994, were two major symbolic steps on this road.

Hungary was not only the first country from the so-called Eastern Bloc to import the Model Law into its legal system, but also a pioneer among the Model Law jurisdictions by making it applicable to both international and purely domestic arbitral proceedings.

 

Jurisdiction

In an early case (BH 1998.11.550), in which the arbitration proceedings took place in Germany, and the award-debtor tried to get the award annulled in Hungary, the Supreme Court established that Hungarian courts do not have jurisdiction to set aside awards rendered in proceedings where the place of arbitration was abroad, save where the tribunal applied the Hungarian law.

Even if this exception left open the door to the extraterritorial application of the Arbitration Act, there have not been any domestic decisions diverging from the mainstream direction of the Model Law.

 

Exhaustive List, No Review of the Merits

In another annulment case (BH 1996. 159), the plaintiff failed to indicate the precise grounds of challenge. The Hungarian Supreme Court decided that the eventual unfavourable outcome of arbitration or a general reference to an unfounded decision of the tribunal shall not be a ground for setting aside, since the exhaustive list of grounds of annulment may not be modified.

In another case (EH 2008.1705), a legal dispute arose as a result of the project delay between the employer and the main-contractor of a works contract for the realisation of an industrial plant. The Supreme Court again noted that there is no place to review of the merits of the arbitral award by reconsidering in the annulment procedure whether the actual take-over of the plant, excluding the delay and liquidated damages, occurred or not.

Overall, these decisions are a telling illustration that the guiding principles of setting aside procedures in Hungary were laid down in conformity with the spirit of the Model Law.

 

Invalidity of Arbitration Agreement – Article 34(2)(a)i)

In the mid-2000s, the Internet Providers’ Council’s (‘IPC’) set up an ‘ad-hoc’ arbitration tribunal, effectively absorbing all domain-related disputes under its jurisdiction. In a setting aside procedure against one of its awards, the Supreme Court (BH 2004.73) qualified this tribunal as a de facto arbitral institution created without proper legal basis and declared the underlying arbitration clause invalid.

Unlike in some other jurisdictions (e.g., Austria) where setting aside of an award denying jurisdiction despite the existence of a valid arbitration agreement is possible3)UNCITRAL 2012 Digest of Case Law in the Model Law on International Commercial Arbitration, p.138. jQuery("#footnote_plugin_tooltip_4246_3").tooltip({ tip: "#footnote_plugin_tooltip_text_4246_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, the Supreme Court (BH 2009.10.299) ruled that an alleged erroneous denial of jurisdiction by the arbitral tribunal may not lead to the setting aside of the award, even if the state court had already terminated the litigation in respect of the same claim.

While preventing the fragmentation of arbitral institutions was a wise decision in the IPC case because the knowledge-concentration is crucial in small jurisdictions such as Hungary, when it comes to erroneous denial of jurisdiction, it would have been more appropriate for the Supreme Court to take the Austrian approach. Even if Austria is in minority amongst the Model Law jurisdictions, the review of negative jurisdictional decisions better serves the parties’ right to access to justice, which, all things considered, is a fundamental right.

 

Denial of Opportunity to Present the Case – Article 34(2)(a)ii)

In the period examined, numerous award-debtors were successful in arguing that they were unable to present [their] case.

For example, the award was set aside (BH 2016.122) based on this ground in a case where the request for arbitration had not been sent directly to the defendant, despite what the rules of procedure of the institution had set out. In another case, the same result was reached (EH 2010.2150) as the request for arbitration was sent to the service agent of the shareholder and not directly to the foreign defendant.

Another wave of judgments annulled the arbitral awards on the same ground. Examples of these are cases where the tribunal reclassified factual or legal issues like the invalidity of a commercial contract (EH 2011.2421), or the method of calculation of purchase price in a post-merger dispute (EH 2008.1794), failing to inform the parties of such developments.

While annulling awards because of postal service issues may seem to be too formalistic, the approach of the Supreme Court to set aside arbitral decisions because of reclassifying issues should be welcomed since these awards were made by breaching the parties’ most fundamental procedural rights in arbitration.

By forbidding the reclassification of factual or legal issues, the Supreme Court successfully prevented the emergence of ‘surprise awards’ which could have a detrimental effect on domestic arbitration, undermining any reasonable expectation regarding foreseeability.

 

Scope of Submission and Incorrect Procedure – Article 34(2)(a)iii)-iv)

The wrong delimitation of the scope of the submission to arbitration caused rarely any problem in practice. However, there is an abundance of cases within the last 25 years where the award was annulled by reason of incorrect procedure.

From the 2000s, the Supreme Court started to elaborate its jurisprudence in relation to the arbitration clauses in standard terms. In B2B relations these clauses could be invoked only if they were individually negotiated by the parties (EH 2007.1624) while in B2C relations there was a presumption that individual negotiation had not happened (BH 2012.296).

This resulted in the setting aside of more arbitral awards based on incorrect procedure, and eventually, in the unfortunate step of the lawmaker to render consumer disputes generally non-arbitrable in the New Hungarian Arbitration Act, with effect from 1 January 2018.4)Hungarian Act LX of 2017 on Arbitration. jQuery("#footnote_plugin_tooltip_4246_4").tooltip({ tip: "#footnote_plugin_tooltip_text_4246_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Sometimes, the Supreme Court took perhaps a too conservative approach, for example, when it annulled the award made by two arbitrators (BH 2010.96), after the third withdrew from office during the deliberation, reproaching to the truncated tribunal that it failed to wait for a new arbitrator appointment.

Some years later the Supreme Court went even further (BH 2017.126) by annulling an award because of the non-respect of the deliberation in a ‘closed session’ rule set forth by the rules of procedure of an arbitral institution.

The above decisions, especially the last one, indicates too strong formalism which is irreconcilable with the mode of operation of modern arbitration. In the contemporary world, the sessions of arbitral tribunals are mostly ‘virtual’, organised with the aid of modern telecommunications technologies. Thus, it goes without saying that a Supreme Court decision, by reproaching the lack of personal presence of arbitrators at deliberation, is hardly reconcilable not only with the spirit of the Model Law, but also with the realities of modern-day arbitration.

 

Violation of Public Policy – Article 34(2)(b)

It was laid down in the mid-1990s that the violation of public policy can lead to the setting aside of the award only in case of a manifest and serious infringement of the basis of the social-economic order. In addition, to annul an arbitral award on this ground, the violation of public policy shall go beyond the bilateral relationship of the parties to infringe the public interest of the whole society (BH 1997.489).

In a decision from the early 2000s (BH 2003.3.127), which was subsequently strongly criticised by the academics and practitioners because of its too extensive interpretation of public policy, the award was annulled because the arbitral tribunal awarded unusually high attorney’s fees in a high-volume arbitration. This, according to the Supreme Court, was “unacceptable for the social common sense”.

Fortunately, in the following years, Hungarian courts took a more pro-arbitration approach, and they were reluctant to set aside arbitral awards on the basis of public policy in case of a minor breach of procedural or substantive law (BH+ 2006.84), or when the award failed to clarify the contradictions of the expert opinion (BH 2006.257).

Similarly, the request for annulment was dismissed in a case in which the arbitral tribunal disregarded the motions for evidence submitted by one of the parties (BH+ 2015.220). The same result was reached when the arbitral award suffered from an error in calculation (BH+ 2006.460), and also when the limitation period of a claim was wrongly calculated (BH 2017.411).

 

Conclusion

The examination of the Hungarian case law on setting aside of arbitral awards in the last 25 years shows that, after setting a strong foundation in respect of the guiding principles (e.g., no review of the merits and an exhaustive list of annulment), sometimes minor derailments took place. The excessive conservatism in relation to arbitration clauses in standard terms, the reluctance to accept modern telecommunication technologies, or the broad interpretation of the public policy to cover high attorney’s fees are illustrative examples for this.

Fortunately, due to the Supreme Court’s intervention, the institutional landscape has not become too fragmented, the era of ‘surprise awards’ did not materialise, and in the vast majority of cases, the Hungarian courts were able to apply the pro-arbitration philosophy in practice, thus making Hungary an arbitration-friendly Model Law jurisdiction.

References   [ + ]

1. ↑ The Council for Mutual Economic Assistance (Comecon) was an international organisation under the leadership of the Soviet Union. 2. ↑ Hungarian Act LXXI of 1994 on Arbitration. 3. ↑ UNCITRAL 2012 Digest of Case Law in the Model Law on International Commercial Arbitration, p.138. 4. ↑ Hungarian Act LX of 2017 on Arbitration. 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: The Decision-Making Process of Investor-State Arbitration Tribunals
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A Comparative Analysis of Content-of-Laws Inquiry and Its Importance for International Commercial Arbitration

Sat, 2020-01-25 01:59

Pelin Baysal and Muzaffer Atar

How is the content of laws determined, and by whom, in international commercial arbitration?

This topic mainly concerns an old legal assumption: iura novit curia, the Latin legal maxim for “the court knows the law”. While somewhat reasonable and predictable on the face of it since anyone can reasonably expect the court to know the law, the assumption paves the way for some serious practical consequences: If the court knows the law, parties are mostly expected to furnish the facts alone and leave the establishment of the law to the courts who are not bound by the legal arguments advanced by parties. At extremes, a court can also apply the law which has never been argued by any party who may be inevitably deprived of their right to be heard.

The maxim “iura novit curia” allows courts an investigative approach to the determination of the law and is mostly known as a reflection of investigative (inquisitorial) legal tradition as followed by civil law countries. On the contrary, common law tradition is generally thought to place importance on the adversarial setting where parties are expected to ascertain and even prove the law as if it is a factual matter. As an extension of the civil law approach, Turkish Law dictates that a judge determines the content of foreign law and applies the same to the dispute on its own motion.1)See the Law No. 5718, Article 2/1 which reads as follows “judge applies the conflict of laws rules and the applicable foreign law as per such rules on his own motion”. jQuery("#footnote_plugin_tooltip_6766_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6766_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Common Law approach, on the other hand, applies a completely different treatment when it comes to the application of foreign law. For example, in England, the judge resolves the dispute according to English Law unless the contents of the applicable foreign law are sufficiently proven by the concerned party.2)In the same direction see Bumper Development Corporation v Commissioner of Police of Metropolis [1991] 1 WLR 1362, 1368. jQuery("#footnote_plugin_tooltip_6766_2").tooltip({ tip: "#footnote_plugin_tooltip_text_6766_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In arbitration, “iura novit curia” translates as “iura novit arbiter” for the same purposes. And the distinction between common and civil law approaches plays a vital role. If not perceived correctly by arbitrators or counsels, the shortcomings could lead to the annulment of an award.

 

Points to Consider: How Major Legal Orders Responded to the Content-Of-Laws Inquiry for International Commercial Arbitration Purposes?

In Sweden, the Svea Court of Appeal ruled in 2004 that arbitrators are not bound by the parties’ actions regarding legal provisions and arguments,3)See the case T 7866-02 dated 27 August 2004. jQuery("#footnote_plugin_tooltip_6766_3").tooltip({ tip: "#footnote_plugin_tooltip_text_6766_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); meaning that arbitrators can apply legal norms without having been previously referenced by either party. This is the same for Switzerland with a slight difference. Unlike the Svea Court of Appeal, Swiss courts made clear that arbitrators are only free to ascertain the content of law as long as this does not come as a surprise to the parties.4)See Federal Tribunal Decision of 30 September 2003, 4P.100/2003. jQuery("#footnote_plugin_tooltip_6766_4").tooltip({ tip: "#footnote_plugin_tooltip_text_6766_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); For Switzerland seated arbitrations, arbitrators can rely on any norm of the law notwithstanding this being raised by the parties. However, if parties cannot be expected to anticipate the application of this norm, they should be given an opportunity by the arbitrators to address their arguments. French courts follow the same lines with strict deference to principe de la contradiction.5)See Revue de l’arbitrage, 2010 p. 112, 3 Dec 2009, Cour d’appel de Paris (Pôle 1 – Ch. 1). jQuery("#footnote_plugin_tooltip_6766_5").tooltip({ tip: "#footnote_plugin_tooltip_text_6766_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Moving on to common law countries, we see that the adversarial approach is applied in contrast with civil law countries. In other words, it is expected to see that arbitrators are under no obligation to ascertain the content of the applicable law. While this is the case, it is very interesting that the Arbitration Act of England under Art. 34 allows the tribunal to choose freely which approach is to be followed. That is to say, arbitrators can follow the inquisitorial approach in an arbitration seated in England. However, this comes with a caveat: Generally applicable norms must be observed. For example, parties must be given the opportunity to present their case and be heard. This means that arbitrators should solicit further submissions from the counsels on the legal grounds that were not invoked by the parties. The Hong Kong Arbitration Ordinance also provides a similar legal treatment.6)See § 56(7) of the Hong Kong Arbitration Ordinance. jQuery("#footnote_plugin_tooltip_6766_6").tooltip({ tip: "#footnote_plugin_tooltip_text_6766_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); That is to say, arbitral tribunals are also granted the right to ascertain the content of the law without confining themselves to parties’ submissions. Nevertheless, Hong Kong courts also opined that if arbitrators are to ascertain the content of the applicable law on their motion, they need to consult the parties and grant them the opportunity to make further submissions.

 

How Should Arbitrators and Party Counsels React to the Content-Of-Laws Matter?

No harmonised set of rules has been achieved globally so far in terms of how the sources of law are found and applied. But seeing how this relates to international commercial arbitration is a mysterious task. In fact, international commercial arbitration settings mostly witness the interplay between different legal regimes and traditions. This is especially so when the seat is different from the law applicable to the merits and arbitrators come from completely different legal systems. At the meeting point of all different legal references, arbitrators must decide which method to adhere to: Should they apply the inquisitorial or the adversarial approach in terms of determination of substantive law applicable to the merits? And more importantly – on what basis is this determination to be made?

The ICC Dispute Resolution 2018 Statistics (See here) shows that 842 new cases are registered in 2018 with the laws of 114 different nations, states, provinces and territories are chosen as the law applicable to parties’ contracts while these arbitration proceedings are seated in over 60 countries. The statistics indicate a possible clash between the substantive law applicable to the contract and the lex arbitri. Different laws mean different resolutions to the content-of-laws inquiry. In other words, the following questions arise: Should arbitrators follow the method employed by the courts of substantive law? Or should they follow the method employed by the courts of lex arbitri?

It goes without saying that parties hold the ultimate control over establishing the content of the applicable law according to the principle of procedural autonomy. They can opt for limiting the arbitrators’ authority to rely on only the legal sources pleaded by the parties or for the opposite. In other words, parties would be wise to determine how the law will be ascertained and by whom, i.e. solely by parties, arbitrators or by both. This selection can be made by striking the right balance between two extremes: adversarial or inquisitor approach. In the absence of such agreement, the most practical approach would be to fall back on lex arbitri as was also suggested by Christian Collantes in this blog post, while the writer sees the application of iura novit arbiter as the duty of arbitrators with some certain limits.

This practical approach follows a very basic requirement: Not to have the award set aside. As the courts of the seat will hear any potential annulment action, it is wise to follow its principles. But the enforceability of an arbitral award does not end with not being set aside by the seat. It only begins there and is followed by further scrutiny from the enforcement courts. In other words, the arbitral award, which is based on a legal norm that has never been advanced by parties, could escape judicial scrutiny of the seat which follows iura novit curia. However, the same arbitral award may be denied enforcement by the courts where enforcement is sought due to violation of due process, i.e. not providing an opportunity to parties to mount their arguments against such legal norm. While it is practically impossible to ascertain if iura novit arbiter is adhered to in each and every possible enforcement venue, it is advised to be precautious by acting as if it does not exist and by providing ample opportunity to parties in order for them to exercise their right to be heard.

 

Conclusion

Drifting across all different approaches, one can realise a very clear pattern common to all possible options despite the clear divergence in the nature of adversarial and inquisitorial methods: Arbitrators should consider not only the lex arbitri but also all possible laws of states where enforcement may be sought when determining its mandate as to the content-of-laws inquiry. Particular focus must be invested in the process for the arguments that may come as a surprise to parties who should be given a fair opportunity to mount their arguments on legal norms first introduced by arbitrators. The most vigilant practice would be to permit parties to opine on all new legal norms brought by arbitrators. Counsels, on the other hand, must be cautious that they play a significant role in the determination of law and should invest equally in the process even when this seems to be the duty of arbitrators.

References   [ + ]

1. ↑ See the Law No. 5718, Article 2/1 which reads as follows “judge applies the conflict of laws rules and the applicable foreign law as per such rules on his own motion”. 2. ↑ In the same direction see Bumper Development Corporation v Commissioner of Police of Metropolis [1991] 1 WLR 1362, 1368. 3. ↑ See the case T 7866-02 dated 27 August 2004. 4. ↑ See Federal Tribunal Decision of 30 September 2003, 4P.100/2003. 5. ↑ See Revue de l’arbitrage, 2010 p. 112, 3 Dec 2009, Cour d’appel de Paris (Pôle 1 – Ch. 1). 6. ↑ See § 56(7) of the Hong Kong Arbitration Ordinance. 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: The Decision-Making Process of Investor-State Arbitration Tribunals
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The Philippine Arbitration Day: A Barometer of the State of Philippine Arbitration

Fri, 2020-01-24 02:00

Jay Patrick Santiago and Sarah Sison

The year 2019 was a milestone year for alternative dispute resolution (“ADR“) in the Philippines. It saw the inaugural Philippine Arbitration Convention organized by the Philippine Institute of Arbitrators (“PIArb“) on 25 November 2019 (the “Arbitration Day“), the signing of the Convention on International Settlement Agreements Resulting from Mediation (the “Singapore Convention“), the implementation of domestic statutes promoting arbitration, and the launch of a new arbitral institution.

 

Panel discussions

The panel topics at the Arbitration Day were as follows:

  1. Arbitration as an Effective Mode of Resolving Commercial Disputes“, with panelists representing both the business community and the arbitration community;
  2. How Do I Start a Career in Arbitration?“, with young and senior arbitration practitioners sharing their insights and experiences; and
  3. Developments in International Arbitration“, wherein speakers from China, Hong Kong, Malaysia, and Singapore shared updates and developments.

In particular, the final panel discussion highlighted the need for the Philippines to keep up with other arbitration-friendly jurisdictions.

The Philippines already possesses the basic requirements of a reliable arbitration jurisdiction. It is a “Model Law” jurisdiction, a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, boasts reliable local arbitral institutions, possesses a pool of competent arbitration practitioners (via PIArb and the panels of local arbitral institutions), has a business community that is open to exploring alternatives to litigation, and a supportive judiciary.

However, there is still room for the Philippines to do much better as a choice jurisdiction for ADR.

First, the Philippines has unfortunately yet to adopt the 2006 revisions to the 1985 UNCITRAL Model Law on International Commercial Arbitration. Like many jurisdictions, its ADR laws are silent on third-party funding and recognition of emergency arbitrator decisions. The proposed amendments to the 16-year-old ADR law, Republic Act No. 9285 (the “ADR Act“), has been with the Office for Alternative Dispute Resolution (“OADR“) since 2017. The OADR is an agency under the Department of Justice that is tasked to propose amendments to the ADR Act to the Philippine Congress.

Second, despite the promulgation of the Special Rules of Court on Alternative Dispute Resolution (the “Special ADR Rules“) in 2009, some judges are still unfamiliar with the courts’ role in relation to arbitral proceedings. Improvements are expected with the Supreme Court’s pronouncements in Fruehauf and Mabuhay (discussed below).

Third, with the Philippines’ signing of the Singapore Mediation Convention, there now appears to be ambiguity as to the application of what was arguably the most innovative feature of the ADR Act, i.e. an enforcement mechanism for mediated settlement agreements.1)See ADR Act, Sec. 17(c); Special ADR Rules, Rule 15. jQuery("#footnote_plugin_tooltip_9698_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9698_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Guidance from the legislature or the courts will be required on this.

Separately, the Arbitration Day also covered another hot topic, “West Philippine Sea Arbitral Award- What’s Next?“, which was addressed by the keynote speaker Supreme Court Senior Associate Justice Antonio T. Carpio and a reaction panel. This topic relates to PCA Case No. 2013-19 (The Republic of the Philippines v. The People’s Republic of China) where a tribunal, in 2016, affirmed the Philippines’ entitlements over parts of the South China Sea. To date, China, which refused to participate in the arbitration and disputed the arbitral tribunal’s jurisdiction, has not complied with the arbitral award. The panel discussed the Philippines’ post-award remedies, bearing in mind the absence of an enforcement mechanism under the United Nations Convention on the Law of the Sea, and proposed courses of action that range from pragmatic to patriotic, in light of the present diplomatic relations between the Philippines and China.

 

The Philippines: a fertile ground for ADR

The Philippines has been consistently moving towards a more arbitration-friendly regime, which has bolstered confidence and interest in arbitration. In particular, there has been a significant shift in the courts’ attitude towards arbitration.

In 2016, the Supreme Court ruled in Fruehauf Electronics Philippine Corporation v. Technology Electronics Assembly and Management Pacific Corporation2)G.R. No. 204197, 23 November 2016. jQuery("#footnote_plugin_tooltip_9698_2").tooltip({ tip: "#footnote_plugin_tooltip_text_9698_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); that simple errors of fact, law, or fact and law committed by the arbitral tribunal are not justiciable errors. In that same case, the Supreme Court declared the need to uphold the autonomy of arbitral awards as an overriding public policy. Accordingly, courts are precluded from revising an arbitral award in a particular way, revisiting the tribunal’s findings of fact or conclusions of law, or otherwise encroaching upon the independence of an arbitral tribunal.

In late 2018, the Supreme Court ruled in Mabuhay Holdings Corporation v. Sembcorp Logistics Limited3)G.R. No. 212734, 5 December 2018. jQuery("#footnote_plugin_tooltip_9698_3").tooltip({ tip: "#footnote_plugin_tooltip_text_9698_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); that mere errors in the interpretation of law or factual findings do not suffice to warrant refusal of enforcement on public policy grounds. To rely on public policy grounds, the illegality or immorality of the award must reach a level where enforcement of the same would be against the State’s fundamental tenets of justice and morality, or would blatantly be injurious to the public or the interests of the society.

In 2019, the Philippines took a leap in promoting arbitration through its domestic legislation. The Revised Corporation Code,4)Republic Act No. 11232. jQuery("#footnote_plugin_tooltip_9698_4").tooltip({ tip: "#footnote_plugin_tooltip_text_9698_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); which came into effect in February 2019, expressly states that the articles of incorporation or by-laws of a corporation may contain an arbitration clause. Intra-corporate disputes are therefore now expressly arbitrable under Philippine law.

In addition to the foregoing developments, the relatively slow pace of Philippine court litigation has also encouraged the business community to turn to ADR. The judiciary has made efforts to speed up court litigation, but only time will tell whether these efforts translate into greater efficiency in practice. In the meantime, the business community increasingly recognizes the advantages of ADR, particularly its certainty and speed.

The significant turnout and the panel topics at the Arbitration Day reflect the increased interest in ADR from the Philippines’ business and professional communities. The business community’s growing awareness of arbitration was evident at the Arbitration Day’s panel discussion on “Arbitration as an Effective Mode of Resolving Commercial Disputes“, where all panelists endorsed the use of arbitration in resolving business disputes. The panel discussion on “How Do I Start a Career in Arbitration?” was aimed at addressing the professional community’s interest in ADR in response to clients’ needs.

However, the authors believe that more intensive information campaigns on the benefits of arbitration remain necessary to achieve more widespread awareness of arbitration within the business community. Local professionals must also be exposed more to arbitration and receive more training, so that they will be able to recommend arbitration to their clients and competently advise and/or represent parties in domestic and international arbitrations.

It should also be noted that recent “negative publicity” relating to the government’s compliance with arbitral awards could dampen the business community’s confidence in arbitration. In late 2019, the Philippine government, in particular the Office of the President, refused to comply with an arbitral award finding the Philippine government liable to one of Metro Manila’s water utility concessionaires. While it appears that the water concessionaire no longer intends to pursue enforcement proceedings against the Philippine government, it would have been interesting to see how the courts resolve an enforcement petition against the Philippine government, considering the Supreme Court’s pronouncements in Fruehauf and Mabuhay.

 

New arbitral institution: a double-edged sword?

The Arbitration Day also provided a platform for the introduction of the newest arbitral institution in the Philippines – the Philippine International Center for Conflict Resolution (“PICCR“).

Formally established in early 2019, the PICCR was formed with the support of the Integrated Bar of the Philippines (“IBP“) and could prove to be a welcomed competitor to the Philippine Dispute Resolution Center, Inc. As the mandatory law society for Philippine-qualified lawyers, the IBP has chapters all over the Philippines. With the IBP’s vast network, the PICCR has the potential to more effectively promote ADR across the Philippines.

Carefully choosing an arbitral institution that one would support is crucial. If not managed properly, arbitral institutions could be used to promote a particular group’s business or personal agenda. Inexperienced leadership and case management teams could also cause delays in arbitral proceedings. This could erode ADR users’ confidence in arbitration.

As for the PICCR, the experienced leadership of Mr. Donemark Calimon, PICCR Secretary-General and immediate past president of PIArb, can hopefully allay any such concerns.

 

From 2020 and beyond

The Arbitration Day is intended to be an annual event. PIArb is already planning the next one, which is scheduled to be held in the fourth quarter of 2020. It promises to be a bigger event, alongside two arbitration conferences in the Philippines – the Regional Arbitral Institutes Forum and the CIArb Young Members Group (East Asia Branch) Annual Conference.

The Arbitration Day will continue to be a litmus test for the Philippines’ appetite for ADR. More importantly, the Arbitration Day provides a much-needed platform for arbitration stakeholders to meet and exchange ideas, network with one another, and show the world that the Philippines continues to be an arbitration-friendly jurisdiction.

References   [ + ]

1. ↑ See ADR Act, Sec. 17(c); Special ADR Rules, Rule 15. 2. ↑ G.R. No. 204197, 23 November 2016. 3. ↑ G.R. No. 212734, 5 December 2018. 4. ↑ Republic Act No. 11232. 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: The Decision-Making Process of Investor-State Arbitration Tribunals
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China’s Top Court Says No to Arbitrability of Private Antitrust Actions

Thu, 2020-01-23 02:00

Kai-chieh Chan

Private antitrust actions were long thought to be non-arbitrable due to the public law character of antitrust law, though the scope of non-arbitrability has been reduced to varying extents in different jurisdictions.

For instance, US courts had long adhered to the so-called “American Safety doctrine”, which limited the arbitrability of domestic antirust disputes.1)American Safety Equipment v J.P. Maguire & Co., 391 F. 2d 821 (2nd Cir., 1968). jQuery("#footnote_plugin_tooltip_6609_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6609_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The scope of this doctrine was subsequently undermined by the US Supreme Court in Mitsubishi Motors v Soler, 473 US 614 (1985) (for a previous analysis on the Kluwer Arbitration Blog, see here and here).

In China, arbitrability of antitrust actions was largely un-elucidated by the courts. This blog post reports and analyzes the Supreme People’s Court’s first-ever take on the matter. In it, the Court effectively said no to arbitrability of antitrust actions, at least for those arising out of vertical restraints in the domestic context.

 

Arbitrability of Antitrust Claims before the Supreme People’s Court’s Decision: A Tale of Two Cities

The general issue of arbitrability of disputes in China is governed by Articles 2 and 3 of the Arbitration Law of the People’s Republic of China (“Arbitration Law”). Article 2 states that “equal subjects of law” may arbitrate “contractual disputes and other disputes”; Article 3, in turn, expressly excludes the arbitrability of family law and administrative disputes. The Anti-Monopoly Law of China (“Anti-Monopoly Law”) contains no mention of arbitration.

The first significant decision concerning the arbitrability of antitrust claims in China was Nanjing Songxu Technology Co., Ltd. v Samsung China Investment Co., Ltd., issued by the High Court of Jiangsu on August 29, 2016 ([2015] Su Zhi Min Xia Zhong No. 00072) (“Songxu Case). The case concerned a contract to distribute Samsung’s products in Jiangsu province. During the performance of the contract, the distributor, Songxu Technology, filed a tort claim against Samsung China, on the basis that the latter abused its dominant market position by tied selling, price fixing and implementing market allocation schemes. Samsung China, on the other hand, raised a jurisdictional objection based on the arbitration clause contained in the agreement.

Referring to Article 2 of the Arbitration Law, the court of first instance ruled that the matter is arbitrable since the parties are “equal subjects of law”. However, on appeal, the High Court of Jiangsu overturned the lower court’s ruling on three grounds: firstly, the Anti-Monopoly Law and other related rules do not mention the possibility of arbitration as a way of settling antitrust claims; secondly, there was no judicial precedent accepting arbitrability of antitrust claims in China; and thirdly, antitrust claims cannot be arbitrated since antitrust laws aim to protect interests of the public and third parties.

The High Court of Jiangsu’s decision has been criticized (see here for one available in English). These criticisms were largely based on the trend that an increasing number of jurisdictions permit antitrust claims to be arbitrated. It was also pointed out that, although China’s antitrust laws do not explicitly allow these claims to be arbitrated, they do not exclude such possibility either.

The next significant decision was issued in June 2019. In Shell China Co. Ltd. v Shanxi Changlin Co., Ltd ([2019] Jing Min Xia Zhong No. 44), dated June 28, 2019 (“Changlin Case”), the High Court of Beijing held that an antitrust claim was arbitrable. Shanxi Changlin, a distributor of Shell’s engine oil in northern Shanxi province, brought a tort claim against Shell China based on the alleged vertical restraints imposed by the latter. The court of first instance supported the view of the High Court of Jiangsu, finding that it has exclusive jurisdiction over the antitrust claims.

But the decision was reversed on appeal. The High Court of Beijing, pointing to a valid arbitration clause that covers “any disputes relating to the contract”, held that Shanxi Changlin, whose claims are “closely associated with the rights and duties stipulated in the distribution contract”, must be compelled to arbitrate. The court did not address the reasoning invoked by its counterpart in Jiangsu.

 

The Supreme People’s Court’s Decision in Huili Case

Shell China was involved in a third and unrelated case on appeal before the Supreme People’s Court.

On August 21, 2019, the Supreme People’s Court ruled that antitrust claims were non-arbitrable in the case of Shell China Co. Ltd. v Huili Hohhot Co., Ltd. ([2019] Zhi Min Xia Zhong No. 47) (“Huili Case”).  (While the decision is yet to be officially published online, a copy of it has been disclosed by Huili Hohhot’s legal team here.) The court of first instance held the antitrust claim to be non-arbitrable on the same ground as that of Jiangsu High Court.

On appeal, the Supreme People’s Court agreed with the High Court of Jiangsu’s reasoning and added that private antitrust actions are distinct from claims based on contract. The court’s reasoning resembles that of the American Safety case decided by the US Second Circuit Court of Appeals half a century ago. It seems that the absence of a clear mention of arbitration in the relevant agreements played a crucial role in the court’s decision.

The court also seemed to suggest that, unless explicitly provided otherwise, claims concerning “public interest” are non-arbitrable under Article 2 of the Arbitration Law.2)See e.g. the case of Hemofarm DD et al. v Jinan Yongning Pharmaceutical Co. Ltd. ([2008] Min Si Ta Zi No. 11), where Article 2 was applied to decide on issues of arbitrability (per Article V(2) of the New York Convention) concerning an ICC award seated in Paris. jQuery("#footnote_plugin_tooltip_6609_2").tooltip({ tip: "#footnote_plugin_tooltip_text_6609_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This entails significant enforcement risks not only to tribunals seated in China, but also for those seated internationally.

 

Beyond Huili Case: One Step Forward, Two Steps Back?

As the first and only decision of the Supreme People’s Court on the matter, the Huili Case is arguably the leading authority on the arbitrability of antitrust claims in China. It is submitted, nevertheless, that the jurisprudential value of the case must be taken with a grain of salt.

Firstly, both decisions of the Supreme Court and High Court of Jiangsu invoke the absence of previous domestic precedent admitting the arbitrability of antitrust claims. However, it is regrettable that the Supreme Court could not take the High Court of Beijing’s decision into account, since its hearings were held one month prior to the publication of the latter.

Secondly, the common law doctrine of stare decisis arguably does not exist in China stricto sensu. Under the current “case guidance” system established since 2010, the Supreme People’s Court publishes dozens of cases that it regards as constituting jurisprudence constante, which possess “factual binding effect”. (This is the view held by Judge Zheng Liu of the Supreme People’s Court (see here).) As such, nothing will be settled unless Huili Case is officially listed as one of them. Considering the criticisms surrounding the Supreme People’s Court’s approach and the increasingly pro-arbitration stance of the Chinese judiciary (as previously reported on the Blog here), one may wonder if this will ever happen.

Lastly, the jurisprudence on this is likely to evolve with the anticipated amendment of the Arbitration Law and the future judicial interpretations of private antitrust actions.

One way to get around the current jurisprudential chaos is to adopt a principles-based method rather than a rules-based one. Instead of categorically choosing between different approaches, the tribunal may refer to the Supreme People’s Court’s decision that, while antitrust claims may be non-arbitrable, the Supreme People’s Court also leaves room for distinguishing between contract claims and antitrust claims. The tribunal may then decide, on a case-by-case basis, on the proximity between the claim at hand and purely antitrust claims. The more the claim is related to contractual performance, the more it is arbitrable.

The Supreme People’s Court’s decision can also be distinguished on the basis that it only concerns vertical restraints. In such cases, public authorities may be more willing to step in to protect domestic distributors with less bargaining power against local subsidiaries of multinational corporations. By contrast, antitrust disputes between more “equal” bodies may still be arbitrable: this possibility would include other forms of monopolistic activities ranging from horizontal agreements to the concentration between undertakings.

With the dominance of international trade and commerce involving China, future developments on the arbitrability of antitrust related claims in China will be followed closely.

References   [ + ]

1. ↑ American Safety Equipment v J.P. Maguire & Co., 391 F. 2d 821 (2nd Cir., 1968). 2. ↑ See e.g. the case of Hemofarm DD et al. v Jinan Yongning Pharmaceutical Co. Ltd. ([2008] Min Si Ta Zi No. 11), where Article 2 was applied to decide on issues of arbitrability (per Article V(2) of the New York Convention) concerning an ICC award seated in Paris. 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: The Decision-Making Process of Investor-State Arbitration Tribunals
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Highlights from the 2019 Rules of the Milan Chamber of Arbitration

Thu, 2020-01-23 00:15

Gustavo Minervini

On 1 March 2019 the Milan Chamber of Arbitration issued its amended Arbitration Rules (the “2019 Rules’”) with the aim of improving “the efficiency and the rapidity of arbitral proceedings [while] ensuring the necessary guarantees.”  This objective follows the current international trend.  Indeed, in the last decade, several arbitral institutions have revised their rules in order to guarantee that arbitrations are conducted in an expeditious and cost-effective manner, without sacrificing fairness and reliability.  Pursuant to Article 45 of the 2019 Rules, these apply to arbitration proceedings instituted after 1 March 2019 unless otherwise agreed by the parties in accordance with Article 832 of the Italian Code of Civil Procedure (“ICCP”), or in specific instances as set forth by the 2019 Rules themselves.  Although the revisions introduced several changes to the CAM Arbitration Rules, only the most significant ones are analysed below.

 

Third Party Funding (“TPF”)

TPF is a method of financing an arbitration where all or some of the funds required to cover the expenses of the proceedings are provided by an entity that is not a party to the dispute (the funder), to one or more of the arbitration parties (the funded).  A very important issue related to TPF concerns the disclosure of a TPF agreement to verify the arbitrators’ impartiality and independence, which could be compromised by a conflict of interest between one of the arbitrators and the third-party funder.  On this issue, the international legal framework is diversified.  While some arbitral institutions require the parties to mandatorily disclose the existence of a TPF agreement and the identity of the funder (e.g., 2018 HKIAC Administered Arbitration Rules and 2017 CIETAC International Investment Arbitration Rules), most of them only recommend that the parties disclose this information (e.g., 2016 CAM-CCBC Arbitration Rules), or recognize that arbitral tribunals have discretion to order such disclosures (e.g., 2017 SIAC Investment Rules).  Overall, it can be argued that there is an international trend towards greater disclosure of TPF agreements.  The 2019 Rules join such a trend by requiring in Article 43(1) that a party “funded by a third party in relation to the proceedings and its outcome shall disclose the existence of the funding and the identity of the funder.” (Emphasis added.) This development is more than welcome.  Indeed, the disclosure of a TPF agreement is a fundamental step in verifying the arbitrators’ impartiality and independence, which are deemed to guarantee the fairness and integrity of the arbitral procedure.  Such disclosure must also be considered from the perspective of transparency.  Indeed, as highlighted by the ‘ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration’ in its 2018 Report, the disclosure of TPF agreements allows all parties to an arbitration to precisely identify all the players and interests involved in the proceedings.

 

Interim or Provisional Measures

A second important development of the 2019 Rules relates to the power of arbitral tribunals to order interim or provisional measures.  Article 26 of the 2019 Rules reads as follows:

  1. (…) the Arbitral Tribunal may issue all urgent and provisional measures (…) that are not barred by mandatory provisions applicable to the proceedings. 2. In any case, unless otherwise agreed by the parties, the Arbitral Tribunal (…) has the power to adopt any determination of provisional nature with binding contractual effect upon the parties.

While Article 26(1) was already included in the 2010 Rules (Article 22), Article 26(2) represents a significant innovation.  In order to understand such amendment, it is fundamental to examine Article 818 of the ICCP, which provides that “arbitrators are not entitled to grant attachments, or any other form of interim relief, unless the law provides otherwise.”  According to most authors and case law, this provision is a mandatory rule of the Italian lex arbitri whose ratio legis is found in the private nature of arbitration, and in the lack of coercive powers of arbitrators.  Due to this outdated and criticisable provision, arbitrators are not allowed to order any provisional relief unless strictly provided by law.  The only statutory exception to Article 818 is Article 35(5) of the Legislative Decree 5/2003 on Corporate Arbitration, which “empowers arbitral tribunals to suspend the effects of shareholders’ meeting resolutions when their validity is challenged in arbitration.” (L. Radicati di Brozolo and M. Sabatini, Arbitration Guide on Italy, available here). Therefore, under Italian lex arbitri, the parties seeking interim relief must necessarily involve national courts, which have the exclusive power to grant it, even after the constitution of the arbitral tribunal.

In light of the foregoing, Article 26(2) could play an important role in arbitral proceedings seated in Italy.  According to this provision, arbitral tribunals could order provisional determinations binding the parties as if these were contractual obligations.  Therefore, if one of the parties fails to comply with the ordered measures, the other party – although it cannot seek enforcement before national courts – could eventually seek damages for breach of contract.  From this perspective, the ability of the 2019 Rules to improve the efficiency and expeditiousness of proceedings administered by the CAM will likely be tested soon.

 

Emergency Arbitrators (“EA”)

Following the practice of several arbitral institutions such as the ICC and LCIA, Article 44 of the 2019 Rules introduced the figure of EA – namely, an arbitrator appointed by the arbitral institution to issue interim measures which cannot await the constitution of the arbitral tribunal. The 2019 Rules empower parties to an arbitration proceeding where a tribunal is not yet in place, to request the CAM to appoint an arbitrator empowered to adopt measures as provided by Article 26.  Specifically, in conjunction with Article 26, Article 44 allows the EA to adopt, even inaudita altera parte (i.e., without the other party involved), binding interim or provisional measures.  However, the EA provision under Article 44, by derogation from Article 45, only applies to proceedings where the arbitration agreement was concluded after the entry into force of the 2019 Rules, i.e., after 1 March 2019.  This derogation is more than justified given the innovative nature of Article 44.

The CAM’s determination to establish an efficient and expeditious procedure is apparent from Articles 44(2)-(4), which dictate that EA decisions should be issued within 20 days from the date of application.  Furthermore, under Article 44(4), the EA can order measures inaudita altera parte if there are “prior disclosure risks causing serious harm to the applying part.”  However, in this case, the EA has to schedule a hearing within 10 days of ordering the interim relief in order to grant due process rights to the parties.  During this hearing, the EA will confirm, amend or revoke the measures previously granted.

In this regard, the CAM followed the international trend towards empowering EAs to take all necessary measures to ensure that delays in the constitution of the arbitral tribunal does not seriously affect the parties’ positions.

However, not all that glitters is gold!  There are at least two problematic questions concerning EAs that deserve more attention:

  1. First, it is not clear whether the EA is vested with the power to issue provisional determinations that have binding contractual effects between the parties. One could maintain that the lack of any specific provision to this effect precludes such a power. However, it is argued that, by way of reference to the ‘measures and determinations provided by Article 26’, Article 44 authorizes the EA to issue such interim relief.  Moreover, it would not make much sense to introduce the figure of EA without vesting him with the power to issue interim any interim or provisional relief under the Italian lex arbitri.
  2. Second, Article 44(8) provides that an EA’s order can be “challenged, amended or revoked before the Arbitral Tribunal once constituted.”  There are several possible interpretations of the difference between a challenge and a revocation, but the 2019 Rules provide no clue.  In this sense, it is not clear which kind of instruments/procedures are available to the party contesting an EA’s order once the Arbitral Tribunals has been constituted.

Greater clarity in the 2019 Rules would have resolved both of these important questions.

 

Final Remarks

In conclusion, the amendments to the CAM Rules deserve to be endorsed.  Indeed, it seems clear that the revisions have taken into account some of the most relevant developments and latest trends in international arbitration with the aim of enhancing their legitimacy and promoting Italy as a venue for international arbitration.  The three innovations examined above should all contribute to further the integrity and transparency of CAM proceedings, as well as their efficiency and expeditiousness.  This process could arguably increase awareness of the CAM as a suitable and efficient option to settle international disputes.  However, an important controversial issue concerning interim and provisional measures must be pointed out.  Under the 2019 Rules, it is unclear if the possibility to seek damages for breach of contract under Article 26(2) will increase the spontaneous compliance by the parties with the ordered measures.  If this is not the case, then the arguable need to involve an Italian court to obtain the damages arising from such breach of contract could defeat the purpose of Article 26(2), since it would be more convenient for the parties to seek interim relief directly from Italian courts.

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2019 In Review: A View From North Africa

Tue, 2020-01-21 19:00

Mohamed H. Negm (Assistant Editor for the MENA Region) and Zahra Rose Khawaja (Assistant Editor for the MENA Region)

Here at Kluwer Arbitration Blog, we are pleased to reflect on a number of significant and exciting developments in international arbitration, with impact on the North African region. In this post, we recap these developments and their implications; and, of course, also thank our esteemed authors who have enabled us to bring coverage of events in this emerging region to the wider international arbitration community.

 

1. Developments in Investment Arbitration: Framework and Experience

This past decade has been important for regional developments in investment arbitration. Not only have Arab states gained more experience with the resolution of investment disputes during the 2010’s, but they have also actively worked toward revising the available framework through the Organisation of Islamic Cooperation (OIC).

 

A. Impact of Arab Spring on International Investment Arbitration

The uprisings of the Arab Spring and political changes resulting therefrom have had a quantifiable and significant impact on the international investment arbitration landscape, with a surge of new investment cases against Arab states. The number of newly filed ICSID cases from the Arab World indeed rose sharply in the period from 2011 to 2019.

While Arab respondent states have become increasingly diverse, Egypt has remained the most frequent respondent state with 22 new cases filed against it between 2011 and 2019. Behind Egypt, Algeria was confronted with 5 new cases in the 2011-2019 period. Morocco was confronted with 4 cases and Tunisia was confronted with 2 cases.

Despite the increasing number of new cases filed against Arab respondent states, the outcomes have not always been favorable for investors. A number of cases brought by investors have been dismissed on jurisdictional grounds (e.g. National Gas) or resulted in liability decisions in favor of the respondent state (e.g. Veolia). An even larger number of cases have settled (at least 12 since 2011, e.g. Bawabet Al Kuwait, Sajwani, Indorama, and LP Egypt), which leads one to question whether investment arbitration may have been increasingly employed during this period as a tactical mechanism for obtaining amicable settlement. In the years to come, it will be interesting to see how the legacy of these experiences will influence the approach taken by Arab respondent states in future investment arbitrations.

 

B. Organisation of Islamic Cooperation (OIC) Developments

Egypt, Libya, Tunisia and Morocco are the North African countries that have ratified the OIC Agreement, which provides for investment protections such as prohibition of unlawful expropriation and most favored nation treatment. It also includes an ad hoc investor-state arbitration provision (Article 17), which will operate “[u]ntil an Organ for the settlement of disputes arising under the Agreement is established.”

As explained by our contributors in 2019, the OIC Agreement provides that if a party to the dispute does not appoint an arbitrator, the OIC Secretary General will make the appointment on the party’s behalf. However, the Secretary General has refused to make such appointments due to political pressure from some OIC member States. In a recent case, the Secretary-General of the Permanent Court of Arbitration (PCA) designated an appointing authority in an OIC arbitration by applying the UNCITRAL Arbitration Rules. This was despite the absence of any reference to these Rules in the OIC Agreement, and the fact that placing the constitution of tribunals in the hands of the PCA is contrary to the spirit and the objectives of the OIC.

This led to the question as to whether the OIC would establish a permanent “organ” for the settlement of disputes to resolve the issue of potential interventions in OIC arbitrations. In a recent post, our contributors reported on developments shared by Dr. Mouhamadou Kane, Project Lead and Manager for the OIC at a program hosted by Columbia Law School. During the program, Dr. Kane confirmed that a draft (which is not yet publicly available) investment protocol for the OIC Investment Dispute Settlement Organ is likely to be adopted by ministers of OIC member States in March 2020. This development has importance regionally and globally, and it will be interesting to see if the final protocol adopted by the OIC draws on the current global reform efforts concerning investor-state dispute settlement, including topics addressed through the ICSID rule revision process and the work of UNCITRAL Working Group III.

 

2. North African Arbitral Institutions

One of the highlights of our coverage of the North African region on the Kluwer Arbitration Blog in 2019 was our interview with Dr Ismail Selim, Director at the Cairo Regional Centre for International Commercial Arbitration (CRCICA). In his interview, Dr Ismail kindly gave our readers a guided tour of the institution he describes as the “Godfather” of arbitration in the MENA region and Africa. In explaining the advantages to users of administering an arbitration via CRCICA, Dr Ismail pointed to the Centre’s highly experienced counsels, cost effectiveness and neutrality vis a vis the host state in investment arbitrations, and through guaranteeing party autonomy in appointing tribunals.

Our 2019 coverage of North Africa shone a spotlight on a number of up and coming arbitral institutions, which are developing as regional alternatives to some of the more well-established global players. Two such institutions, both of which are located in Morocco, are:

  • The Casablanca International Mediation and Arbitration Center (CIMAC), which was instituted in late 2014. With an internationally composed, diverse panel of arbitrators, facility with proximity to major economic hubs, clear flexible rules, cooperation Agreement with the Vienna International Arbitration Center (meaning that cases can be managed by either center), it is well placed to serve North Africa and beyond.
  • The International Court of Maritime and Air Arbitration (CIAMA), established in September 2016 as a specialist maritime and air arbitration centre for the MENA region. CIAMA was designed to be a reliable and secure choice for parties engaged in maritime, shipping and aviation disputes in the MENA region.

We also analysed the Rules of the Egyptian Sports Arbitration Center, which envisage that arbitral awards should be subject to (a) an appeal; and (b) an annulment action (internally within the same arbitral institution itself). The Rules further provide that the internal annulment regime applies to any arbitral award whether seated in Egypt or abroad. In other words, the Rules have an extraterritorial reach beyond the borders of Egypt whereby they apply to domestic and foreign arbitral awards alike. Egyptian courts’ perspective on these provisions will be discussed in further detail later in this post.

 

3. National Level Developments

A. Morocco as a New Hub

We have witnessed a number of developments in Morocco in 2019, as it seeks to draw on its position as a cardinal point between the Middle East and North Africa. We explored the potential for Morocco to develop into a hub for international arbitration in the region, owing to its lead as a diplomatic power in Africa and its experience in investment and commercial arbitration. Morocco has been an Observer to the Economic Community of West African States (ECOWAS) since 2005, and recently filed an application to join the organization as a member. It is also in the process of joining OHADA and is an existing member of the OIC. Morocco is also one of the oldest players in the investment and commercial arbitration scene. It was the very first state to be part of an ICSID arbitration under the Washington Convention of 1965, as well as one of the early signatories of the ICSID Convention. The definition of an investment under the ICSID Convention (known as the “Salini test”) was formulated in a prominent case to which Morocco was a party (Salini v. Morocco).

We will keep a watching eye on Morocco as it seeks to fulfill its potential as an emerging hub for international arbitration in the region.

 

B. Egyptian Courts’ Perspectives on Contemporary Arbitration Controversies

There have been various contemporary controversies concerning arbitration that have triggered heated debates before the Egyptian courts:

  • Arbitrators’ Conflict of Interest: On 11 June 2019, the Egyptian Court of Cassation clarified that the presumption of knowledge of the challenging party of any arguably suspicious facts arises only when the arbitrator in question discloses such facts at the time of officially accepting his appointment. Accordingly, if the challenged arbitrator fails to prove that the challenging party already knows these suspicious facts, then it cannot be said that the challenging party has waived its right concerning this ground. The Egyptian Court of Cassation has aligned its views with international arbitration practices as it defined the standard of arbitrators’ independence and impartiality as the one constituting “a real danger of bias”, or raising “justifiable doubts”.
  • Enforceability of Arbitral Anti-Suit Injunctions: The Egyptian Court of Cassation is currently reviewing the Cairo Court of Appeal’s judgment concerning the enforcement of an arbitral interim measure ordering one party to arbitration to refrain from suing a third-party guarantor bank regarding the liquidation of a letter of guarantee issued in favor of the said party. The Cairo Court of Appeal held explicitly that interim orders are covered by the New York Convention, provided that (1) the interim order is final; (2) the interim order is issued based on a valid arbitration agreement; (3) both parties were offered the opportunity to present their case in the arbitration; and (4) the interim order does not violate the Egyptian public policy. Upon applying these criteria, the Cairo Court of Appeal determined that the order satisfied all of these requirements.
  • Judicial Nature of Arbitration: Although the nature of arbitration is still a matter of debate in the Egyptian legal system, the arbitration-friendly jurisprudence of Egyptian courts now supports the idea that the arbitration process is indeed of a judicial nature. As discussed by our contributors, recently the Cairo Court of Appeal held that arbitration is a technical means with a judicial nature that aims to settle a dispute. To that effect, if arbitration is to be considered of judicial nature, the Egyptian Supreme Constitutional Court would have the final word in cases where the same dispute is filed before an arbitral tribunal and the other side files the same dispute before a domestic court. In this scenario, the Supreme Constitutional Court would have the final word on which proceedings would continue and which would be terminated.
  • Annulment of Sports Arbitration Awards: In December 2018, the Cairo Court of Appeal ruled that annulment actions concerning arbitral awards issued by the Egyptian Sports Arbitration Center (as discussed earlier in this post) are inadmissible. The Court explained its position by stating that the annulment procedures under the Egyptian Arbitration Law No. 27 of 1994 do not apply to sports arbitration awards as the latter follow a special regime for annulment as provided for under the new amendments to the rules of the Egyptian Sports Arbitration Center. Nonetheless, on 24 December 2019, the Egyptian Court of Cassation decided to refer relevant provisions of the Rules of the Egyptian Sports Arbitration Center to the Supreme Constitutional Court to decide whether they conform with Egypt’s Constitution. In its recitals, the Court of Cassation held that the Rules of the Egyptian Sports Arbitration Center contravene the Egyptian Constitution while excluding the review of its arbitral awards through annulment actions by any domestic courts, whether Egyptian or foreign-based.

Based on these recent developments, it is evident that the Egyptian courts are aligned with best international arbitration practices, seeking to drive legal developments in this direction.

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Macau Ups Its Game: A Discussion on the New Arbitration Law 2019

Mon, 2020-01-20 23:00

Chiraag Shah, Pietro Grassi and Ziqi Qi

The Macau Special Administrative Region of the People’s Republic of China (“Macau”) has seen a dramatic decrease of foreign direct investment in the last few years. According to data from the Macau Statistics and Census Service, foreign direct investment dropped 79.9% in 2017 compared to 2016.

In order to attract more investment, Macau needs to strengthen its competitiveness and appeal to overseas investors, particularly amongst Lusophones. Legislative reform needed includes promulgation of investor-friendly legislation that incorporates best international practices, as well as modern and effective dispute resolution techniques for investment disputes. In this vein, Macau published a new arbitration law, Law no. 19/2019 (the “New Arbitration Law”) on 5 November 2019, which will come into force on 4 May 2020.

The New Arbitration Law unifies the laws governing domestic and international arbitrations seated in Macau by replacing Decree-Law 29/96/M (for domestic arbitrations) and Decree-Law 55/98/M (for international commercial arbitrations). It also implements practices and standards in accordance with the UNCITRAL Model Law. A number of noteworthy developments are highlighted below.

 

Ability to opt into emergency arbitrator mechanism

The emergency arbitrator mechanism did not exist in the previous legislative regime. The New Arbitration Law allows parties to appoint an emergency arbitrator in their arbitration agreement or in any other subsequent agreement (Chapter 3 of the New Arbitration Law). The emergency arbitrator can deal with applications for urgent interim relief before constitution of the arbitral tribunal. Once constituted, the arbitral tribunal will take over from the emergency arbitrator.

 

Procedure for court’s assistance in taking of evidence

Article 61 of the New Arbitration Law makes it clear that an arbitral tribunal, or any of the parties with the approval of the arbitral tribunal, may apply to the local courts for assistance with obtaining evidence from another party or even a non-party to the arbitration. The application shall identify the facts that would justify such request, the issues to be covered by the evidence, as well as the documents to be presented and/or the persons to be questioned. The actual process of collecting the evidence will be run by the Macanese courts, which will then submit all information gathered to the arbitral tribunal. Previously, although Article 27 of the Decree-Law 55/98/M provided that an arbitral tribunal or any of the parties with the approval of the arbitral tribunal, could apply to the local courts for assistance with obtaining evidence, it did not explicitly provide for the taking of evidence with the courts’ assistance in relation to a non-party.

 

Possibility to appeal an award before another arbitral tribunal

The previous arbitration regime allowed parties to a Macau-seated arbitration to appeal an award before a local court (Article 34(2) of the Decree Law 29/96/M). The New Arbitration Law has abolished that possibility and provided, as a pro-arbitration move, that arbitral awards are no longer subject to appeal before a local court (Article 67(1) of the New Arbitration Law). The only exception is where there is an agreement between the parties before the award is rendered that such award may be appealed to another arbitral tribunal (the “Appeal Agreement”). The New Arbitration Law does not determine the scope of the Appeal Agreement, for example, whether the scope of appeal would be limited to points of law or would extend to finding of facts. The parties must set out the scope and limits of such appeal in the Appeal Agreement, since failure to do so would render the Appeal Agreement null and void. The requirement that any appeal process must be agreed upon on specific terms will safeguard the finality of the arbitration process while preserving parties’ autonomy.

The New Arbitration Law is not the only existing instrument that allow parties to appeal an award before a newly constituted arbitral tribunal. The Optional Appellate Arbitration Rules of the American Arbitration Association (“AAA”) allow parties to agree on the possibility to appeal an award before a newly constituted AAA arbitral tribunal, which may then review decisions on the ground of “an error of law that is material and prejudicial”, or  “determinations of fact that are clearly erroneous” (Rule A-10). However, it is observed that parties in practice rarely agree to such appeal possibility before another arbitral tribunal. The effect of this feature of the New Arbitration Law in practice is uncertain.

 

Recognition and enforcement of interim measures issued outside Macau

The New Arbitration Law also provides that, the procedure for the recognition and enforcement by the local courts of interim measures issued by a foreign-seated tribunal, shall be the same as for interim measures issued by a Macau-seated arbitral tribunal (Article 44 of the New Arbitration Law). The additional requirements applicable to such procedure relate to the presentation of the original order for interim measures, or a certified copy of such order, to be accompanied by a translation into Chinese or Portuguese (i.e., the two official languages of Macau) (Article 44 combined with Article 72 of the New Arbitration Law). This was not explicitly stated in the previous legislation.

 

Recognition and enforcement of arbitral awards issued outside Macau

The New Arbitration Law echoes the Chinese declaration of 19 July 2005 that the New York Convention shall apply to Macau. Consistent with such declaration, the New Arbitration Law allows for the recognition and enforcement of foreign arbitral awards and lists specific limited grounds for refusing recognition and enforcement (Chapter 8 of the New Arbitration Law), which are the same grounds as those set out in the New York Convention. Once an arbitral award is recognized, the courts can enforce it pursuant to regular civil procedural laws.

The mutual recognition and enforcement of arbitral awards between Mainland China and Macau remains unchanged under the New Arbitration Law. Pursuant to the Supreme People’s Court Arrangement between the Mainland and the Macau Special Administrative Region on Reciprocal Recognition and Enforcement of Arbitration Awards, Mainland Chinese awards are enforceable in Macau and vice versa.

 

Obligation to publicize arbitral awards involving public administration

In line with international practice, the New Arbitration Law does not preclude arbitrability of disputes involving public administration. Whilst the previous statutory regime did provide for the arbitrability of disputes involving the public/government sector, Article 77 of the New Arbitration Law provides greater transparency by requiring the Government of Macau, through the Directorate of Justice Affairs, to publish online all arbitral awards related to (i) an administrative contract, (ii) liabilities of government authorities or its officials arising from acts of public management, or (iii) property rights or legally-protected interests.

 

Comments

The enactment of the New Arbitration Law is an important step for Macau’s development into a viable and preferred seat of arbitration between Chinese- and Portuguese-speaking parties. From the perspective of the Lusophone business community, the fact that Portuguese is one of its official languages may gain Macau an advantage over nearby jurisdictions such as Hong Kong. Although the New Arbitration Law has made significant progress in promoting Macau as a pro-arbitration venue, it arguably still falls short in a number of respects.

Firstly, in comparison with the Hong Kong Arbitration Ordinance (Cap. 609) which expressly adopts UNCITRAL Model Law provisions (although with modifications and supplements), Article 7(2) of the New Arbitration Law simply provides that UNCITRAL Model Law can be used in support of interpretation of the New Arbitration Law. Whilst the distinction may not be obvious at first glance, it offers arbitral tribunals and Macanese courts a wider discretion when interpreting the New Arbitration Law which may potentially lead to inconsistent decisions.

Secondly, the New Arbitration Law has not incorporated some of the recent arbitral developments such as provisions addressing third-party funding. Third party funding was made possible in Hong Kong in February 2019 (see discussion in an earlier post).

Thirdly, the New Arbitration Law does not expressly deal with several practical issues that may arise during the course of an arbitration. These include the general and specific powers of an arbitral tribunal, the death of an arbitrator, provisions relating to the award of costs and interest, and provisions governing the liability of an arbitral tribunal.

Lastly, as discussed earlier on the Blog, the Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong Special Administrative Region enables Chinese courts to grant interim measures in respect of Hong Kong-seated arbitrations that are administered by qualifying institutions. Under such Arrangement, a party to an eligible arbitration against a Chinese counterparty would have in its toolkit the possibility of attaching assets, requesting injunctions, and preserving evidence in Mainland China through the Chinese national courts.  However, the same possibilities are currently not available with regard to Macau-seated arbitrations.

For the time being, whilst the New Arbitration Law is undoubtedly a significant step forward for Macau, there remain gaps in its legislative setting that are yet to be closed.

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