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The EU Plurilateral Draft Termination Agreement for All Intra-EU BITs: An End of the Post-Achmea Saga and the Beginning of a New One

Sat, 2019-11-30 21:40

Nikos Lavranos

On 24 October 2019, the European Commission announced that the EU Member States have reached agreement on a plurilateral treaty for the termination of all ca. 190 intra-EU bilateral investment treaties (BITs). The agreement follows the political Declarations of the Member States issued in January this year in which they explained the consequences they are drawing from the Achmea judgment of the Court of Justice of the EU.

It will be recalled that on 6 March 2018 the Court of Justice ruled in the Achmea case that the investment arbitration clause contained in intra-EU BITs is incompatible with EU law, which effectively put an end to the intra-EU BITs (more KAB posts on the interim developments regarding intra-EU BITs can be found here).

More specifically, the Achmea judgment means that European investors cannot bring a claim against EU Member States for claiming compensation in case of expropriation, an unfair or discriminatory treatment that resulted in damages to the investors.

Since the Achmea judgment was issued the European Commission has been pushing the Member States to terminate all their intra-EU BITs as soon as possible. Whereas some Member States, in particular Central and Eastern European Member States, have been already in the process of terminating some of their intra-EU BITs, the truth is that nonetheless most of the remaining ca. 190 treaties are still in force today.

However, in January this year, the EU Member States issued three political Declarations. In those Declarations, all Member States announced their intention to terminate all their intra-EU BITs by 6 December this year. In addition, most of the Member States extended the effect of Achmea also to intra-EU disputes within the context of the Energy Charter Treaty (ECT), while a handful of Member States argued that it would be more appropriate to wait until the Court of Justice has explicitly ruled on the compatibility of the ECT arbitration clause with EU law, which has not been the case yet. In a separate Declaration, Hungary rejected the application of the Achmea judgment to the ECT altogether.

Following up on their promise in January, a few weeks ago, the Member States negotiated under the supervision of the European Commission a plurilateral agreement for the termination of the intra-EU BITs (Termination Agreement). In essence, the Termination Agreement regulates two issues:

  1. how the existing intra-EU BITs are to be terminated, including their sunset clauses, and
  2. how to deal with new, pending and concluded arbitration proceedings.

While the text of the Termination Agreement has not yet been officially published, a draft agreement has been leaked, which will be used for the analysis below.

 

Termination of Intra-EU BITs, Including Sunset Clauses, All at Once

The Termination Agreement simply states that all intra-EU BITs, which are listed in an annex, are terminated by this agreement. In addition, it also states that the sunset clauses contained in the intra-EU BITs “shall not produce legal effects”.

Sunset clauses are provisions that protect investments made prior to the termination of the BIT in question for a certain period, usually for an additional 10-20 years after the termination. The purpose of the sunset clauses is to protect the legal expectations of investors who made their investments based on the existence of the respective BITs.

Moreover, the Termination Agreement further states that the BITs and their arbitration clauses are “inapplicable” from the date on which the last Member State joined the EU, i.e., as of 1 January 2007.

Interestingly, the termination agreement only requires ratifications of two Member States in order to enter into force. Also, a provisional application of the Termination Agreement is envisaged.

Consequently, it can be expected that the Termination Agreement will enter into force within the next months.

 

Concluded Arbitrations Remain Untouched

The Termination Agreement states that all intra-EU BIT arbitrations which were concluded before the Achmea judgment, i.e. before 6 March 2018, will remain untouched. In other words, it does not foresee in a retroactive effect for arbitration proceedings that have definitely been concluded with a final award or settlement agreement prior to Achmea. This will also include an award that has already been issued in the pending proceedings (commenced before 6 March 2018), but not yet definitively enforced or executed, if the investor undertakes not to start proceedings for its recognition, execution, enforcement or payment in a Member State or in a third country or, if such proceedings have already started, to request that they are suspended.

 

The Fate of Pending Disputes

The situation is completely different for pending disputes, meaning arbitration proceedings that were initiated prior to the Achmea judgment, i.e. before 6 March 2018 and which have not yet been concluded.

For these pending disputes, the Termination Agreement provides for a so-called “structured dialogue”. This “structured dialogue” allows the investor to initiate a settlement procedure with the Member State concerned, but only within six months from the termination of the respective BIT.

The settlement procedure is to be overseen by an “impartial facilitator” “with a view of finding between the parties an amicable, lawful and fair out-of-court and out-of-arbitration settlement”.

The facilitator shall be selected by common agreement between the investor and the Member State concerned. Interestingly, besides being independent and impartial, the facilitator must explicitly possess in-depth knowledge of Union law, but not in-depth knowledge of investment law. If the disputing parties fail to agree on a facilitator, an appointing authority, which in the draft text has been left open in brackets, shall appoint the facilitator.

The facilitator shall reach a settlement agreement within six months, but parties can agree to a longer period. It is noteworthy that any settlement agreement must take into account the rulings of the Court of Justice of the EU as well as definite decisions of the European Commission. The latter apparently aims to ensure that State aid Decisions of the European Commission, like the ones in the famous Micula case, are not ignored by the facilitator.

Finally, the Termination Agreement provides that the settlement procedure shall be impartial and confidential.

Interestingly, the Termination Agreement does not explain what happens with the dispute if no settlement agreement has been reached. Is the investor allowed to continue the arbitration proceedings or is the dispute suddenly terminated as well?

Besides the access to a facilitator, the Termination Agreement also mentions access to national courts of the Member States within six months of the termination of the respective BIT, even if the time-limits for bringing actions under domestic laws have expired. However, and at the same time, the Termination Agreement stresses that this possibility shall not be construed as creating “any new judicial remedies, which would not be available to the investor under the applicable national law”.

Consequently, this appears to be a very limited option for investors to bring their claim before domestic courts of Member States, which they could have done in any event but have deliberately chosen not to do in the first place.

 

No “New” Intra-EU Disputes

The Termination Agreement simply states that “arbitration clauses [in intra-EU BITs] shall not serve as legal basis for new arbitration proceedings”. New arbitration proceedings are defined as proceedings initiated on or after 6 March 2018, i.e. post-Achmea judgment. This apparently means that dozens of intra-EU BIT proceedings that were initiated post-Achmea are qualified as null and void by this Termination Agreement, despite the fact that most intra-EU BITs are still in force and legally binding on the Member States. In other words, the Termination Agreement imposes a retroactive effect on arbitration proceedings that have been initiated up to almost two years ago. One can seriously question whether such a retroactive effect is compatible with the Rule of Law and the jurisprudence of the European Court of Human Rights. Indeed, some months ago – regarding a slightly different context – in its Opinion on the investment court system (ICS) as contained in CETA, the Court of Justice explicitly prohibited any retroactive effect of joint binding interpretations of the CETA parties. Therefore, it would have been more appropriate and reasonable to qualify “new” arbitration proceedings as those that are initiated after this Termination Agreement has entered into force.

 

Intra-EU ECT Cases Are not Covered

It is noteworthy that this Termination Agreement explicitly states in the Preamble that it does not apply to intra-EU ECT disputes. Instead, the Termination Agreement states that the Member States will deal with this issue at a later stage, presumably in the context of the on-going modernization process of the ECT.

As is well known, Spain and many other EU Member States are facing dozens of intra-EU ECT claims. Their efforts to convince ECT arbitral tribunals to decline their jurisdiction or to toss out pending cases have not been successful yet.

Therefore, it can be expected that the Member States will try to find ways to escape their legal obligations under the ECT.

 

Conclusion

This Termination Agreement marks the culmination of the European Commission’s and several Member States’ efforts over the past decade to abolish intra-EU investment arbitration proceedings from the European legal order.

Prima facie, the agreement indeed puts a definite end to all pending and new arbitration proceedings that have been initiated post-Achmea, with only very limited transitional measures, which, in addition, are designed to be particularly unattractive to investor-claimants.

However, the question must be asked whether the legal expectations of investors and their rights as contained in those BITs are sufficiently respected. In particular, the way the sunset clauses and all post-Achmea disputes are simply declared null and void as of 2007 is hardly in conformity with the Rule of Law and the Vienna Convention on the Law of Treaties.

After all, the very purpose of the sunset clause is to kick in when the BIT is terminated. If the Member States want to avoid that, they must first take out the sunset clauses in all BITs and then terminate the modified treaties. Indeed, this has been done before on a few occasions.

In sum, while this Termination Agreement, when it enters into force, puts an end to intra-EU BITs disputes within the next few months, several legal aspects raise a number of serious questions as to the conformity with the Rule of Law and the legitimate expectation of investors-claimants, which probably will have to be clarified by domestic courts and eventually the Court of Justice of the EU.

 

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The New Ivorian Investment Code: Tinkering with an Imperfect System or Pioneering a Path?

Sat, 2019-11-30 02:00

Jonathan Ripley-Evans, Jenalee Harrison and Marie Terrien

Investor-State Dispute Settlement (ISDS) is facing significant opposition in its current form. Whilst some parties are engaged to find new common ground, others have unilaterally implemented measures aimed at ousting investor-state arbitration altogether.

Over time, more and more attention has been paid to the International Centre for the Settlement of Investment Disputes (ICSID) and its apparent lack of meaningful African representation, particularly in disputes involving African States. In an attempt to address the problem of African participation (amongst others), Côte d’Ivoire has released its revised Investment Code (2018-646).

At a high level, the 2018 Investment Code strives to promote socially responsible investment and employment by encouraging regional development and improving local content whilst increasing the competitiveness of the local business. Social responsibility and legal compliance are preconditions to receiving benefits under the 2018 Code.

Investors are encouraged to rely on local enterprises in exchange for certain benefits offered under the new regime. The new code also provides for the establishment of a dedicated Investment Promotion Agency, aimed at streamlining investment procedures.

The Government believes that the reform will strike the right balance between granting a return for investors on the one hand, and protecting the State’s interests through a mechanism of cooperation and shared growth, on the other.

However, this apparent positive development may mean little absent tangible protection of investments. To fully assess the enhancement of protection afforded to investors under the 2018 Code, one needs to consider the position under the 2012 Code.

 

Dispute Resolution under the 2012 Investment Code

Under article 20 of the 2012 Code, any dispute between natural or legal persons, whether foreign or Ivorian, relating to the application of the 2012 Code was to be submitted to the courts of Côte d’Ivoire or to an arbitral tribunal, unless settled amicably.

Whilst the mention of the amicable settlement was noble, the ambiguity surrounding its implementation rendered the provision relatively ineffective. Attempts at amicable settlement were not mandatory and conciliation required separate agreement between the parties on procedure.

The 2012 Code recognised the binding nature of agreements and treaties relating to the protection of investments and Côte d’Ivoire consented, through the mechanism of article 20, to the submission of investment disputes to ICSID.

The 2012 Code was a clear embrace of the principles espoused under the Washington Convention and this area is where, under the 2018 Code, one sees the most significant departure from the previous regime.

 

Dispute Resolution under the 2018 Investment Code

Article 20 of the 2012 Code has been entirely re-written, the principles of which are now found in article 50 of the 2018 Code.

Article 50 requires that parties “shall endeavour to resolve [their dispute] through amicable negotiations“. Ostensibly to clarify the ambiguity of the 2012 Code, the 2018 Code now makes it mandatory for parties to endeavour to resolve any dispute regarding the interpretation or execution of the 2018 Code, through amicable negotiations. It may, however, be argued that one form of ambiguity has been exchanged for another as the word “endeavour” is notoriously open to interpretation.

To complicate matters further, a time limit is imposed upon such amicable negotiations. If no agreement is reached by the parties within twelve months, the text provides that the Conciliation Regulations of the United Nations Commission on International Trade Law (“UNCITRAL”) shall apply. No guidance is given as to what constitutes the commencement of the amicable negotiation period which may lead to further uncertainty.

It would appear that the 12-month negotiation period, rather than constituting an extended period of mandatory negotiation, simply acts as a “long-stop” date, after which, the parties must proceed to Conciliation under the rules of UNCITRAL.

Notwithstanding the obligation to endeavour to resolve issues amicably, the parties may, by agreement, submit a dispute to arbitration.

The glaring omission from the 2018 Code is the withdrawal of the express consent to ICSID arbitration. Whilst Côte d’Ivoire remains a signatory to the Washington Convention, the Investment Code can no longer be relied upon as a source of consent by the host state to an ICSID arbitration. This omission appears deliberate and seeks to address one of the strongest criticisms against the current format of ISDS – the lack of African participation.

In place of an express reference to ICSID, the 2018 Code now provides for the submission of an investment dispute to the Arbitration Centre of the Common Court of Justice and Arbitration (“CCJA”) of the Organization for Harmonization in Africa of Business Law (“OHADA”). Unfortunately, however, such submission requires further agreement between the parties which is likely to present challenges in the future.

The 2018 Code also implements a “fork in the road” mechanism in terms whereof a disputant is bound to elect one method of dispute resolution, waiving any right to resort to an alternative forum.

 

Conclusion

Notwithstanding the existence of certain ambiguities, the 2018 Code has not only addressed most of the shortcomings of the 2012 Code (insofar at least as dispute resolution is concerned), but it has presented what appears to be a viable alternative to ICSID arbitration.

Rather than resorting to drastic measures such as the outright termination of BITs or the renunciation of all forms of investor-state arbitration, the 2018 Code seeks to protect the interests of the country whilst providing protection to investors in a manner more palatable to the African state.

ICSID arbitration remains a possibility under the 2018 Code but importantly, it is no longer the preferred option. Côte d’Ivoire has made a clear statement in support of African seated arbitrations by incorporating a reference to the CCJA.

There is no doubt that the 2018 Code appears to be a step in the right direction, the requirement that the parties reach an agreement before a submission to arbitration, places the dispute resolution mechanism of the 2018 Code at risk. For this reason, investors may still require a more deliberate and express commitment to the protection of investments from the government than is offered in the 2018 Code.

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The Contents of the Asian International Arbitration Journal, Volume 15, Issue 1

Sat, 2019-11-30 00:00

Lawrence Boo and Gary Born

The contents of this issue of the journal is now available and includes the following contributions:

 

Eunice Chua, ‘Enforcement Of International Mediated Settlement Agreements In Asia: A Path Towards Convergence’

In 2014, the United Nations Commission on International Trade Law (‘UNCITRAL’) first considered a proposal for the development of a multilateral convention on the enforceability of international commercial settlement agreements reached through conciliation (defined to include mediation). The goal of this project was to encourage international mediation in the same way that the New York Convention facilitated the growth of arbitration. The work of UNCITRAL Working Group II has resulted in two instruments – the Singapore Convention on Mediation; and Model Law on International Commercial Mediation and International Settlement Agreements Resulting from Mediation. In Asia, where continued growth of cross-border trade is expected, the potential for these UNICTRAL instruments to facilitate the resolution of cross-border commercial disputes and support economic growth is immense. With a focus on jurisdictions such as China, India, Hong Kong and Singapore, this article discusses the convention and amended model law, and examines how far down Asia is on the path towards convergence in the enforcement of international mediated settlement agreements.

 

Stavroula Angoura, ‘Arbitrator’s Impartiality under Article V(1)(D) of the New York Convention’

An arbitrator’s lack of impartiality provides grounds for non-recognition of a foreign or non-domestic arbitral award under Article V(1)(d) of the New York Convention where the parties’ agreement or the law of the arbitral seat required impartial arbitrators. This contribution examines the structure and content of Article V(1) (d) of the New York Convention through the lens of arbitrator’s alleged bias. In the vast majority of such cases, courts have rejected objections to recognition under Article V(1)(d), including on grounds of waiver. Complaints about the qualification of an arbitrator’s impartiality must be invoked initially during the arbitration proceedings. The party cannot resist the enforcement on the grounds of irregular composition of the arbitral tribunal, in cases where it participated in the arbitral proceedings without objection or failed to exhaust all legal remedies at the seat of arbitration within the time limits prescribed by the applicable national law. Complicated issues arise when there is conflict between parties’ agreed composition as to the qualification of impartiality of the tribunal and mandatory law of the arbitral seat. The effect of bias on the arbitral award or the issue of waiver are also taken into consideration by the courts when assessing the defence of the irregular composition of the arbitral tribunal.

 

Judy Li Zhu, ‘Time to Loosen up on Ad Hoc Arbitration in China?’

While ad hoc arbitration is accepted in most jurisdictions as a non-institutional form of arbitration, the Chinese Arbitration Act does not recognize ad hoc arbitration and judicial practice shows a clear pro-institutional arbitration stance. A recent judicial opinion permitting ad hoc arbitration among enterprises incorporated within pilot free trade zones in China re-ignited some interest in formalizing its use. This article discusses the desirability and possibility of such a move.

 

The issue also includes two book reviews. Low Pou Leen has reviewed the ‘Handbook of ICC Arbitration (4th Edition): Commentary and Materials’, by Thomas H. Webster & Michael W. Bühler (Sweet & Maxwell, 2018). Piergiuseppe Pusceddu has reviewed ‘The Liability of Arbitral Institutions: Legitimacy Challenges and Functional Responses’, by Barbara Alicja Warwas (T.M.C. Asser Press, The Hague, 2016).

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ICSID and Open Justice: Two Steps Forward, One Step Back

Fri, 2019-11-29 01:00

Sonja Heppner

The ICSID reform bells are ringing. ICSID has long been working on its latest rule amendment project, intent on modernising, simplifying and streamlining the ICSID rules also in light of ongoing criticisms of the investment arbitration system as a whole. From November 11-15, 2019, ICSID held what it hopes to be the final, or at least penultimate, consultation with ICSID Member States on Working Paper #3 before the amended rules are placed before the Administrative Council for a vote. In its introduction, Meg Kinnear, ICSID Secretary-General, promises that the text in Working Paper #3 “offers a modern, sophisticated and balanced set of investment settlement rules that will ensure both due process and an effective process” (para 6). While efficiency has always been a promise of arbitration and its realisation is desirable, this post focuses on whether the latest reform proposal will ensure due process, as suggested.

Due process includes the right to a fair hearing. As has consistently been held by the European Court of Human Rights (1995, para 33; 1998, para 42; 2001, para 55; 2006, para 39; 2016, para 22; 2018, para 189), one of the elements of a fair hearing is that it takes place in public. In the words of the United States Supreme Court, it is public access that renders hearings fair by discouraging the misconduct of participants (Richmond Newspapers 448 US 555, at 569). The knowledge that hearings are subject to review in the forum of public opinion functions as an effective restraint on participants in this context (In re Oliver 333 US 257, at 270). Review refers here to public scrutiny, i.e., members of the public observing a hearing. The principle of open justice is not absolute, however. It only prescribes that hearings are presumptively open to the public, subject to a contrary determination by a competent court or tribunal. That the principle of open justice is applicable to investment arbitration in the first place is due to the law-making function of arbitrators, an argument I advanced here, here (pp 128-129) and here. Both the wording and the comments to the proposed ICSID Arbitration Rule (AR) 64 reveal that ICSID has not embraced the principle of open justice just yet. AR 64(1) (proposed) reads:

The Tribunal shall determine whether to allow persons in addition to the parties, their representatives, witnesses and experts during their testimony, and persons assisting the Tribunal, to observe hearings, after consulting with the parties.

While this rule would eliminate the existing option for a disputing party to block the openness of hearings (see existing ICSID Arbitration Rule 32(2) – potential openness “[u]nless either party objects”), it does not go far enough in securing public access, in my opinion. Shifting the decision-making power in relation to the openness of arbitral hearings to Tribunals, while a step in the right direction, would only alter the identity of the decision-maker. Working Paper #3 even acknowledges that the proposed AR 64 would merely permit a Tribunal to address whether hearings shall be open to the public. The proposed new Arbitration Rules do not prescribe a presumption of openness, leaving Tribunals with an unfettered discretion to conduct hearings behind closed doors. If Tribunals remain under no obligation to hold arbitral hearings in public, there is a risk, however small, that Tribunals will continue to conduct them in camera, even if only to appease the disputing parties. The proposed AR 64(2) does not alleviate this dilemma either, as it merely requires Tribunals to establish procedures to prevent the disclosure of confidential or protected information to persons observing the hearings. There will be no persons observing the hearings, if the Tribunal decides not to allow public access.

It is telling that the proposed Arbitration Rules define confidential or protected information to which the public is not to have access, without providing any guidance as to when hearings are to be open to the public. Even if, arguendo, it is to be assumed that the latest ICSID reform proposal was written with a presumption of open arbitral hearings in mind, absent an explicit provision to this extent, the proposal remains less ambitious than it could be and less ambitious than the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration, which, in Article 6(1), prescribe the presumptive openness of arbitral hearings. That the ICSID rule amendment project lags behind the Rules on Transparency was a point already made by the European Union and its Member States in relation to Working Paper #2 (see para 20, here). The same is true for WP #3 which, in a step forward from WP #2, only abolishes the possibility for a disputing party to single-handedly block the openness of hearings, without, at the same time, introducing a presumption of openness. The ICSID Arbitration Rules fall short of the principle of open justice in this regard which requires such a presumption of openness.

That the proposed Arbitration Rules in Working Paper #3 diverge from the principle of open justice is also evident from the wording of the proposed AR 65 which defines confidential or protected information as, among other things, information that is protected from disclosure by agreement of the parties. This definition would allow the disputing parties to agree on the confidentiality of any information in relation to the dispute, rendering arbitral hearings private in the process, arguably in violation of the principle of open justice which, in self-governing groups, requires the law-making court or tribunal to determine whether hearings are to be held in camera. This loophole is a step back and, if not fixed, exposes the ambiguity with which ICSID is approaching reform. Given the high demand for public access to hearings, ICSID seems intent on amending its Arbitration Rules, yet at the same time unwilling to depart from the principle of party autonomy in relation to public access. The hesitation can of course be explained with the premium that is placed on party autonomy in arbitration and the need to find a two-third majority among ICSID Contracting States for the amendment of the Arbitration Rules (Article 6(1)(c) of the Convention). The less radical the change, the more likely it is that it will find favour with the multitude of Contracting States. Yet, if the Rules are amended as proposed, and provided the parties are able to reach a consensus on confidentiality, the Rules might not increase the transparency of hearings in practice, given the lack of a presumption of openness and the power of the parties to designate any information as confidential or protected.

This approach stands in stark contrast to the Rules on Transparency, which, while not perfect either, at least introduce a presumption of open hearings and curb party autonomy in relation to the designation of information as confidential or protected. What is more, Article 1(3)(a) of the Rules on Transparency, if applicable, disallows disputing parties to derogate from the same Rules, except to the extent permitted by the underlying investment treaty. Given that Article 44 of the ICSID Convention permits disputing parties to divert from the Arbitration Rules in effect on the date on which the parties consented to arbitration, the ICSID Convention itself would have to be amended, if transparency is to be guaranteed to the same extent as under the Rules on Transparency. Revising the Convention would require unanimity among Member States. Yet, even if that step is ultimately not taken, there is no reason why the amendment of the ICSID Arbitration Rules should not be more ambitious in their aim to ensure due process – both an explicit guarantee that hearings are to be presumptively open to the public, subject to a contrary determination by the Tribunal, coupled with a narrower definition of confidential or protected information would be steps in the right direction. In sum, the principle of open justice has not found adequate protection in the latest ICSID reform proposal just yet. There is thus still room for improvement if the aim is to ensure due process.

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Salient Features of the Colombian Constitutional Court’s Review of Awards in International Arbitrations

Wed, 2019-11-27 20:14

Santiago Talero-Rueda

In its recent decision T-354/2019, the Colombian Constitutional Court, through one of its chambers, declared that arbitration awards, issued in international arbitrations seated in Colombia, may be subject to constitutional challenges by means of the so-called acción de tutela.1)The acción de tutela is similar to the so-called recurso de amparo, a constitutional injunction widely known in different Latin American countries and Spain. jQuery("#footnote_plugin_tooltip_1649_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1649_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

As described in another post 2)Said post addressed some relevant issues contained in Decision T-354/2019, such as the interplay between the New York Convention of 1958 and the Court’s decision; and the unsupported equivalence, drawn by the Court, between domestic and international arbitration awards. This new post addresses other aspects arising from Decision T-354/2019, such as its constitutional inconsistencies and a potential enlargement of the scope of international public policy regarding tutelas in Colombia against awards in international arbitrations. jQuery("#footnote_plugin_tooltip_1649_2").tooltip({ tip: "#footnote_plugin_tooltip_text_1649_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, the Court decided that the tutela was inadmissible in the case, because the claimant had not exhausted the appropriate legal remedies against the final arbitration award. 3)Pursuant to article 107 of the Law 1563 of 2012 – Colombian Arbitration Statute-, annulment proceedings, against arbitration awards, are the only judicial mechanisms in order to challenge said decisions in relation to international arbitrations seated in Colombia. In general terms, Colombia adopted the UNCITRAL Model Law on International Commercial Arbitration with the amendments contained in its 2006 review. Pursuant to the Colombian Constitution, the tutela, in turn, has a residual character, in the sense that it only becomes available when the claimant has exhausted the appropriate legal remedies before the judicial courts. jQuery("#footnote_plugin_tooltip_1649_3").tooltip({ tip: "#footnote_plugin_tooltip_text_1649_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Namely, when the Constitutional Court rendered its decision, the annulment proceedings, against the award, were still pending before the Third Section of the Colombian Council of State –Consejo de Estado, Sección Tercera. However, the Court upheld the claimant’s right to re-submit the case, for its further review, once the Consejo de Estado rendered its decision regarding the annulment of the award.

The case was about an arbitration award referring to a dispute between a public utilities company –mainly owned by the Colombian State- and a Chinese consortium, regarding a contract for the construction of an electric generation facility in Colombia. The arbitration tribunal, which was constituted under the rules of the Center of Arbitration of the Chamber of Commerce of Bogotá, found partially in favor of the Chinese consortium. It declared that the Colombian public utilities company had breached the contract. As a result, the Colombian party began annulment proceedings before the Consejo de Estado, Sección Tercera and, soon after, also filed the constitutional challenge or tutela, against the award, before the Fourth Section of the Consejo de Estado. While the annulment proceedings were pending, said section of the Consejo de Estado denied the tutela. Upon the claimant´s appeal to the Fourth Section’s decision, the Fifth Section of the Consejo de Estado ratified the lower court’s decision. Consequently, the claimant requested the Constitutional Court to review the lower courts’ decision, notwithstanding the fact that the Consejo de Estado, Sección Tercera, was –and is- still reviewing the annulment request.

Technically speaking, the ratio decidendi, of the Constitutional Court’s ruling, dealt with the residual character of the tutela against arbitration awards. However, the legal grounds set forth in its decision, raise several concerns regarding the judicial review, for constitutional reasons, of awards arising from international arbitrations having their seat in Colombia.

 

Case law prior to decision T-354/2019

The Constitutional Court has rendered several decisions about tutelas against arbitration awards in Colombia, especially in the field of domestic arbitrations. Decision T-354/2019 is perhaps the first time in which the Court addressed, in a rather detailed manner, the tutela within the field of international arbitration.

These are some of the main features of the case law prior to said decision:

  • Pursuant to the Colombian Constitution –article 116-, arbitrators are considered State judges in each particular case. Thus, since judicial decisions may be subject to constitutional review under the acción de tutela, the arbitration awards follow the same fate (See Decisions SU-500/2015 and SU-033/2018);
  • The tutela protects a party against a current or potential breach of its fundamental rights. As to arbitration matters, the tutela against awards is frequently invoked for alleged breaches of both due process and the parties’ fundamental right to seek justice;
  • Despite the fact that arbitrators and judges perform the public function of justice adjudication, the former derive their powers from the parties’ arbitration agreement –principio constitucional de habilitación-, while the latter’s’ powers stem from the law (See Decision C-378/2008). Therefore, awards and judicial decisions are not completely identical for the purposes of the tutela. As to arbitration awards, the requirements for the tutela are stricter than those applicable to judicial decisions, since arbitration is a “(…) scenario in which the parties express their will to pull away from ordinary justice and to abide by the decision rendered by the arbitration tribunal.” (See Decision SU-500/2015);
  • Accordingly, arbitration awards in Colombia are not subject to a review on the merits. Neither the annulment proceedings nor the tutela are scenarios for said review. By doing so, the courts would end up deciding a case, both against the parties’ private autonomy and article 116 of the Constitution (See Decisions SU-174/2007 and SU-500/2015); and
  • Tutela against awards is subject to two sets of requirements: (i) general admissibility requirements –i.e. exhausting annulment proceedings-; and (ii) the existence, in the case, of specific grounds of protection, known as vías de hecho, which amount to manifest or gross mistakes made by the arbitrators (See Decisions C-590/2005 and SU-817/2010). These vías de hecho may be factual, substantive, organic or procedural. They cover, inter alia, a manifestly undue assessment of evidence; the application of a non-existent rule of law; the manifest lack of jurisdiction of the arbitrators; and a severe breach of the procedural framework applicable to the case. Importantly, said defects must directly breach fundamental rights and the claimant must prove that the defects have a direct impact on the arbitration award-–arguably except for the organic vía de hecho, which consists in the arbitrators’ manifest lack of jurisdiction to solve the dispute.

 

Salient features of the Constitutional Court’s decision: a new methodology for the review of awards in international arbitrations

Decision T-354/2019, which characterizes the tutela as “highly exceptional” in international arbitration, contains salient features regarding the constitutional review of awards in international arbitrations having their seat in Colombia.

First, the decision reaffirmed the principles of supremacy and territoriality of the Colombian Constitution, which had been applied by the Constitutional Court in previous cases related to arbitration (See Decision C-347/1997). Under a constitutional standpoint, this means that the tutela may operate in relation to domestic and international arbitrations seated in Colombia, irrespective of the status of the arbitrators as judges, public authorities or private parties exercising a public function. In other words, the Court has endorsed a “territorialist” approach vis-à-vis arbitration rather than a delocalized or detached approach, regarding the constitutional review of awards.

Second, the Court, in a rather curious analysis, decided that the different requirements (exhausting annulment proceedings, and existence of vías de hecho), regarding the tutelas, apply when the case is solved totally or partially under Colombian substantive law. Conversely, when the case is solved under a foreign substantive law the specific grounds of protection or vías de hecho are not applicable. The Court did not explain why or how it reached these methodological conclusions.

Third, in those cases solved under foreign substantive law, the constitutional review must be done only by examining the award vis-à-vis international public policy. Since international public policy is a ground of annulment of arbitration awards in Colombia, then the constitutional review must necessarily take place after the competent court –i.e. Consejo de Estado– renders its annulment decision.

Fourth, unlike the Colombian Supreme Court of Justice which applies international public policy restrictively, the Constitutional Court adopted a “cumulative approach” regarding Colombian case law on this matter. Thus, the Constitutional Court declared that international public policy, applicable to the constitutional review of awards, would cover, inter alia, the good faith principle; the abusive exercise of rights –abuso del derecho-; due process; impartiality of the arbitrators; and the protection of fundamental rights. Moreover, the Court upheld the procedural as well as substantive character of international public policy in Colombia.

Fifth, the Court declared that an expert report, incorporating irregular evidence, may be covered by a tutela in any case, in so far as the evidence had an impact on the arbitrators’ decision.

 

Concluding remarks: Is the Constitutional Court overlooking the Colombian Constitution?

Despite the Court’s attempt to describe the tutela as a “highly exceptional” remedy against awards in international arbitrations, the fact is that Decision T-354 leaves some questions open regarding international arbitrations seated in Colombia. It is unclear why the Court selects a different methodology for the constitutional review of awards depending on the application of Colombian or foreign substantive law to the merits of the dispute. For example, if an arbitration tribunal applies Colombian law to the merits, there would be no reason why international public policy could not be applicable to the constitutional assessment of the case.

In any case, the “cumulative approach” taken by the Constitutional Court regarding international public policy, may enlarge the latter’s scope, thereby prejudicing the restrictive position taken by the Supreme Court within proceedings for the recognition of foreign arbitration awards. In practice, when addressing a tutela against an award in an international arbitration seated in Colombia, the Constitutional Court may end up reviewing a wide range of procedural or substantive issues, falling within the scope of “international public policy”, thereby increasing both the legal uncertainty of the arbitration award and the likelihood of setting aside the arbitrators’ decision.

In the author’s opinion, the Constitutional Court should revisit its case law based on constitutional grounds, instead of creating new methodologies for the constitutional review of awards. In this respect, the Court’s case law has consistently and repeatedly stated that party autonomy is a constitutional principle applicable to arbitration. Thus, pursuant to said principle, State justice cannot decide on the merits of a case. Paradoxically, the same case law has declared that the tutela is only successful if the claimant proves that the alleged irregularity has affected the outcome of a case. This necessarily entails a judicial review on the merits. Said contradictory findings have taken place because the Court has equated –with some exceptions- the arbitration awards and the judicial decisions for the purposes of the tutela. In other words, the Constitutional Court has not realized that the constitutional principle of party autonomy or principio de habilitación should exempt the claimant from proving that the alleged irregularity has affected the outcome of a case.

Accordingly, if tutela is purported to be “highly exceptional”, then the Court should limit it as much as possible. The constitutional assessment could be restricted only to the organic vía de hecho. The other vías de hecho or methodological options could be disregarded. This would enhance finality and predictability within the fields of domestic and international arbitrations seated in Colombia.

References   [ + ]

1. ↑ The acción de tutela is similar to the so-called recurso de amparo, a constitutional injunction widely known in different Latin American countries and Spain. 2. ↑ Said post addressed some relevant issues contained in Decision T-354/2019, such as the interplay between the New York Convention of 1958 and the Court’s decision; and the unsupported equivalence, drawn by the Court, between domestic and international arbitration awards. This new post addresses other aspects arising from Decision T-354/2019, such as its constitutional inconsistencies and a potential enlargement of the scope of international public policy regarding tutelas in Colombia against awards in international arbitrations. 3. ↑ Pursuant to article 107 of the Law 1563 of 2012 – Colombian Arbitration Statute-, annulment proceedings, against arbitration awards, are the only judicial mechanisms in order to challenge said decisions in relation to international arbitrations seated in Colombia. In general terms, Colombia adopted the UNCITRAL Model Law on International Commercial Arbitration with the amendments contained in its 2006 review. Pursuant to the Colombian Constitution, the tutela, in turn, has a residual character, in the sense that it only becomes available when the claimant has exhausted the appropriate legal remedies before the judicial courts. 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 Contents of Journal of International Arbitration, Volume 36, Issue 6, 2019

Wed, 2019-11-27 18:00

Maxi Scherer

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

 

Kathrin BETZ, Stéphane BONIFASSI, Nadia DARWAZEH & Mark PIETH, Navigating Through Corruption and Money Laundering in International Arbitration: A Toolkit for Arbitrators and Counsel

Arbitral tribunals and counsel have to address corruption and money laundering with ever increasing frequency in both commercial and investment arbitration. In light of the growing regulation and awareness in this area, as well as the risk that an award may not be enforceable, arbitrators can no longer shy away from dealing with corruption and money laundering. Since no clear guidelines were available to arbitrators and counsel in the past, it was more often than not a daunting task to work through such complex issues. Earlier this year, the Competence Centre for Arbitration and Crime of the University of Basel and the Basel Institute on Governance published a Toolkit that will assist arbitrators and counsel in navigating through issues of corruption and money laundering. In this article, the authors, who were closely involved in the conception and drafting of the Toolkit, share the background and the aims of the Toolkit and provide a brief overview of its workings.

 

Jörg RISSE, The Future of Arbitration: A Poet’s Prophecy

In this poetic epistle, the author hopes to ‘contribute to the discussion, help in finding a solution, and entice meaningful action’ in the backlash to investor-state arbitration as a result of the Transatlantic Trade and Investment Partnership (TTIP) negotiations and the European Court of Justice (ECJ) Achmea decision.

 

Michal KACZMARCZYK & Joanna LAM, Sociology of Commercial Arbitration: Tools for the New Times

In this study, the authors argue for a more refined methodology in research on commercial arbitration. Drawing on new developments in international commercial arbitration, they seek to create a typology of various aspects of legal conflict resolution and, as a consequence, to increase the relevance of empirical work on this topic. The article identifies three key areas of tensions, which generate new developments in commercial arbitration and cannot be addressed from the perspective of the existing sociological paradigms. First, the tension between procedural formality and flexibility can be observed, as reflected in the well-established judicialization trend, combined with a recent renewed interest in mediation and ‘soft’ hybrid procedures. Second, the confluence of global and local factors (as seen in the American and Asian ‘waves’ in arbitration) affects, inter alia, the professional culture of arbitration practitioners. Finally, the tension between public and private interests and values, which influences procedural preferences and solutions in the field of commercial arbitration, can be identified.

 

Gautam MOHANTY & Raghav BHARGAVA, Separability of Arbitration Agreement in Mutual Termination of Contracts in India: A Legislative Guideline

The separability for an arbitration agreement from the underlying contract is a well-established theory in commercial arbitration by courts and arbitral tribunals across the globe. However, the position becomes complex in circumstances where the underlying contract is mutually terminated between the parties. Jurisdictions across the globe have adopted a different approach to this kind of separability either through legislative provisions or judicial decisions. Unfortunately, the position remains rather unclear in India due to conflicting judicial decisions of the Bombay High Court and lack of any authoritative ruling by the Supreme Court of India. This article aims to conduct a comparative analysis of various national systems as well as international rules and arbitral institutions regarding this theory and to suggest the way forward for India.

 

Daniel GARCIA-BARRAGAN, Alexandra MITRETODIS & Andrew TUCK, The New NAFTA: Scaled-Back Arbitration in the USMCA

In December 2018, the United States, Mexico, and Canada entered into the United States-Mexico-Canada Agreement (USMCA), a new multilateral investment agreement to replace the 1994 North America Free Trade Agreement (NAFTA). This article summarizes the differences between the investor-state dispute settlement (ISDS) provisions provided in Chapter 11 of NAFTA and those covered in Chapter 14 of the USMCA from the perspective of the United States, Mexico and Canada. This article covers when an investor can assert claims under the USMCA (including NAFTA claims for legacy investments), what kind of claims can be brought, and what rules govern in USMCA arbitrations. The authors of this article conclude that the USMCA provides diluted ISDS provisions compared to NAFTA’s Chapter 11.

 

Nduka IKEYI & Gabriel ONOVO, Re-examining the Legal Basis for the Co-existence of Federal and State Arbitration Laws in Nigeria

The National Committee on the Reform and Harmonisation of Arbitration and ADR Laws in Nigeria recommended the co-existence of a federal arbitration law (dealing with arbitration arising from international and inter-state transactions) and state arbitration laws (dealing with arbitration arising from intra-state transactions). In arriving at its conclusion, the committee relied on the ‘trade and commerce’ argument as well as the ‘pith and substance argument’. But disagreement exists regarding the scope or application of state arbitration laws vis-à-vis the federal arbitration law. Whilst anchoring our foundational argument on the constitution, we will in this article contend that a conflict of laws approach would provide a valid conceptual framework and the mechanics for the co-existence of a federal arbitration law with state arbitration laws in Nigeria.

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Interviews with Our Editors: Highlighting an Emerging Regional Hub with Ms. Diana Bayzakova, Director of the Tashkent International Arbitration Centre (TIAC)

Wed, 2019-11-27 00:19

Kiran Nasir Gore (Associate Editor) and Maria Fanou (Assistant Editor)

Ms. Bayzakova, thank you for joining us on the Kluwer Arbitration Blog!  We are grateful to have the opportunity to learn more about the Tashkent International Arbitration Centre (TIAC), one of the youngest arbitration institutions, having launched in November 2018, when the President of Uzbekistan signed the Resolution contemplating its establishment under the Chamber of Commerce and Industry of Uzbekistan.

 

  1. Could you give our readers a brief introduction to yourself and your route to becoming Director at TIAC? How do your experiences shape your vision for TIAC? 

I have been practising international arbitration as counsel and as arbitrator for about a decade in various jurisdictions. Gaining such experience of working with various parties and institutions has been incredibly valuable. I was appointed for the first time as a co-arbitrator in international arbitral proceedings under the DIAC Rules of Arbitration at the age of 27, and as a sole arbitrator at the age of 28. In the words of my students, these achievements remind young practitioners, and young female practitioners in particular, that everything is possible with hard work and dedication.

Being ranked as one of the fastest growing economies in the world (each by IMF, World Economic Forum, and Forbes) Uzbekistan is currently undergoing rapid transformation. Returning home at this stage in the history of the country has been an easy and an exciting decision to make!

As to the route of becoming the Director at TIAC, I believe it was the aforementioned experience, exposure to leading global arbitral institutions, combined with local Uzbek expertise, that made me a suitable candidate to assist with the arbitration reforms in the country and to head its first international arbitration center. I take that appointment with great responsibility and view this as an important task in delivering access to justice for potential users of ADR mechanisms not only locally, but also globally due to Uzbekistan’s strategic location in the heart of Central Asia and the involvement in large-scale projects, including those of the Belt and Road Initiative (“BRI”).

 

  1. Can you tell us more about the kinds of users, parties, and industries/ types of disputes TIAC aspires to attract?

TIAC is an international arbitration centre, whose aim is to primarily deliver ADR services to the users with interests in the CIS region.

We work in compliance with the international best practices, and the members of the TIAC’s Supervisory Board, which is composed of leading international arbitration practitioners, are the custodians of the TIAC’s observance of the highest operational standards in its work. It was the Supervisory Board, who actively participated in the development of the TIAC Rules of Arbitration (“TIAC Rules”), and it was upon their recommendation we formed a completely autonomous body within the TIAC’s structure, which is exclusively empowered to administer disputes under the TIAC Rules, and that is the TIAC Court of Arbitration (“TIAC Court”). The Members of the TIAC Court are elected every year with a one-year term, renewable upon mutual consent for up to two additional years. In the beginning of every year, the announcement of the Vacancy of the Member of the TIAC Court is made on major platforms and discussion fora, and the Supervisory Board Members are in charge of voting and selection of the TIAC Court Members. Importantly, under the TIAC Statute, Uzbek nationals can only comprise up to 20% of all the Members of the TIAC Court, and the Members of the TIAC Court cannot act as arbitrators under the TIAC Rules of Arbitration during their term at TIAC.

We are a neutral and independent arbitral institution that is not financed by any government, corporation or any other individual or organization, including the Chamber of Commerce of Industry of Uzbekistan. This puts us in a very unique position when it comes to impartiality and independence in our decision-making. We have gone possibly further than we needed to go, by introducing a very strict rule to avoid any conflict of interest, even the most far-fetched, wherein no member of the TIAC Court can be appointed by both the TIAC Court and the parties to act as arbitrators under the TIAC Rules. The same rule applies to myself as the Director as well as to other staff at TIAC.

Last but not least, despite being possibly the youngest arbitral institution in the world, we are already administering eight cases with foreign element, out of which four have a nexus to China. In these cases, the TIAC Court has already exercised its powers under Article 9.1 (Constitution of the Tribunal) and Article 21.1 (Jurisdiction of the Tribunal). We are currently waiting for the parties to nominate the arbitrators, and in case the parties fail to agree within the time limit, the TIAC Court may exercise its exclusive powers under Article 9.3 of the TIAC Rules. The decision-making by the TIAC Court is conducted through video or audio conference sessions on roughly 15th day of the month, they are being recorded and those practitioners that are interested to learn more about how the discussions and the deliberations are held may join the sessions as observers subject to the execution of relevant Non-Disclosure Agreements.

 

  1. Uzbekistan, for reasons ranging from geography to its historical role as a transportation hub, arises as a strategic partner in the BRI. We have discussed BRI disputes involving Central Asia on the blog in the past, here and here.  Do you perceive TIAC as a means to address challenges and strengthen the BRI as a global initiative?

Absolutely, I have just returned from the TIAC’s roadshow in China, where we visited Beijing, Shanghai and Shenzhen, met with the representatives of the largest Chinese companies, prominent legal and arbitration practitioners, academics and senior judges. We are beyond grateful to Mr. Wei Sun, our Supervisory Board Member from China, for playing an indispensable role in all our activities in China and the roadshow.

During our meetings with the leading arbitral institutions during the Belt and Road Arbitration Institutions Roundtable Forum held in Beijing on 5 November 2019, we have verbalized once again our belief that users would benefit if institutions collaborate and provide to each other local expertise and all possible facilities, and that we stand ready to do all what it takes to address the needs of our users, including those coming from the BRI.

 

  1. Recent years have seen the emergence of many more regional ADR centers. From your perspective, why would an international entity choose TIAC to administer its dispute rather than a more established arbitration institution? Are there any particular benefits or opportunities that arbitration with TIAC and/or TIAC Rules provide?

Routinely virtually all arbitral institutions refer to cost effectiveness as one of their features, and it is a key feature of arbitration in general. However, I think arbitration practitioners would agree, if I say that arbitration is becoming increasingly expensive and not cost effective. What do we mean by cost effectiveness at TIAC? TIAC is possibly the only international arbitration centre, which doesn’t charge its users an administrative fee. Obviously, we also don’t restrict the users in terms of seat selection. In fact, we encourage them to use other jurisdictions as the seat if that is more relevant to their dispute. By selecting to arbitrate under the TIAC Rules, users are also given the chance to choose the method of compensation of their arbitrators, i.e., it can be based on ad valorem method of compensation or based on an hourly rate. Our Panel of Arbitrators is composed of prominent arbitrators that work with other leading arbitral institutions, such as the ICC Court of Arbitration, the Arbitration Institute of the Stockholm Chamber of Commerce, China International Economic and Trade Commission, the Singapore International Arbitration Centre, the Dubai International Arbitration Centre and others. With all of this in mind, we wanted to ensure that our users save on costs and not compromise on quality of arbitrators and the service.

 

  1. Uzbekistan is undergoing a process of rebranding as a significant regional player. This ambition became clear in the Tashkent Law Spring Legal Forum, as we reported in our blog. Do you have any thoughts about the future of international arbitration in Uzbekistan and, more broadly, in Central Asia?

Uzbekistan is willing to become an UNCITRAL model law country, which is an important milestone in fostering its position as a favorable seat for international arbitral proceedings. It is also very important to note as not everyone knows about it, the statistics of the enforcement of foreign arbitral awards under the New York Convention by the local Uzbek courts has been incredibly good, with only one foreign arbitral award being rejected over the past 3 years (2015-2017) on procedural grounds.1)Analytical report (2019) prepared by the Supreme Court of Uzbekistan, the UNDP and the USAID “2019 Recognition and enforcement of foreign court judgments and foreign arbitral awards in the Republic of Uzbekistan: Current status and problems” (in Russian). jQuery("#footnote_plugin_tooltip_8661_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8661_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Even prior to Uzbekistan’s endeavors of becoming an UNCITRAL model law jurisdiction, the Supreme Court of Uzbekistan has maintained the position2)Ibid. jQuery("#footnote_plugin_tooltip_8661_2").tooltip({ tip: "#footnote_plugin_tooltip_text_8661_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); that it has no powers to review the foreign arbitral awards on substantive grounds. Along with other Central Asian states and in light of the BRI, the region offers a lot of untapped potential for various infrastructure and construction projects, which are considered to be two of the main areas, where arbitration is preferred for the resolution of the disputes between the parties. With the growth of importance of arbitration as a means of delivering access to justice, in particular for investors and aforementioned users, we see that this trend will continue to grow.

 

  1. We have seen in the 2019 edition of The Baker & McKenzie Arbitration Yearbook – Uzbekistan that local courts do not yet have much experience with arbitration. How is TIAC partnering with the local legal and judicial community to ensure the enforceability of TIAC’s arbitral awards in Uzbekistan?  Are there common misconceptions about arbitration in Uzbekistan that you are working to remedy?

As a young arbitral institution, it is critically important for us to educate the local and foreign legal community about TIAC in general and the benefits of arbitrating under the TIAC Rules. Also, the events that we held and participated this year, which include the TIAC launch during Paris Arbitration Week in April, participation in the Hong Kong Arbitration Week in October and the Chinese Arbitration Week this month, the roadshows in Uzbekistan and China, the conference of the English Law Society and other seminars and round tables, have helped us establish important links with the legal community locally and abroad and educate them about TIAC’s operational framework. We will continue working hard in this direction to raise awareness among legal practitioners regionally and internationally.

 

  1. In the past few years, we have witnessed the rise of international commercial courts. What are your views on this trend and to what extent do you consider them as competition (or even a threat) to international commercial arbitration?

I am of the opinion that the concept behind the international commercial courts is fantastic, and at the same time it might take some time for the Hague Judgments Convention (or the Convention of 2 July 2019 on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters) to catch up with status of the New York Convention. I also think that arbitration takes the load off the court judges and ensures that users are given the opportunity to select the best of the best in the niche sector or the field, in which their dispute has arisen, and such option may not be necessarily available for the users of international commercial courts.

 

  1. You recently announced that TIAC would host the world’s first International Tech Moot Court Competition. What were the driving factors behind this initiative? Relatedly, does TIAC have a specific interest in resolving disputes in the cryptocurrency industry?

We are definitely thrilled to be holding the first international Nikonov Tech Moot Court competition. Notably, the competition will be held in collaboration with arbitration practitioners connected with Silicon Valley, which would give the students and future practitioners important insights into the problems faced by arbitrators and counsels in the field of technology and educate them about growing importance of the technology and IP. This, we think, will also assist us in building the strong foundation for the administration of disputes in the field of technology, including blockchain, cybersecurity and matters related to artificial intelligence.

 

  1. As such a young arbitration institution, TIAC has a lot on the horizon. Following the conclusion of a Cooperation Agreement with VIAC, you have announced the signature of a memorandum of cooperation with CIETAC. Can you share with our readers your vision for entering into such agreements?

The logic behind conclusion of these cooperation agreements is primarily the exchange of expertise in case administration and recommendation of leading arbitrators. We also deem it important to foster collaboration to develop TIAC Award Checklists and expertise on matters related to enforcement of TIAC awards in the jurisdictions, where those arbitral institutions are based.

Thank you for your time and perspectives – we wish continued success to both you and TIAC!

 

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

References   [ + ]

1. ↑ Analytical report (2019) prepared by the Supreme Court of Uzbekistan, the UNDP and the USAID “2019 Recognition and enforcement of foreign court judgments and foreign arbitral awards in the Republic of Uzbekistan: Current status and problems” (in Russian). 2. ↑ Ibid. 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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Stay of Enforcement in France: How Restrictive is the Paris Court of Appeal?

Tue, 2019-11-26 01:01

Antoine Cottin

Under French law, the principle is that both a request to set aside an award and an appeal of a decision upholding enforcement (ordonnance d’exequatur) have no suspensive effect (Article 1526(1) of the Code of Civil Procedure, ‘CCP’), so that an international arbitral award is immediately enforceable. However, as an exception, stay or adjustment of enforcement can be granted if such enforcement is “susceptible to severely prejudice the rights of a party” (Article 1526(2) of the CCP). Introduced by the 2011 French reform on arbitration, this provision is aimed at avoiding dilatory proceedings initiated by a party in bad faith to undermine the enforcement of an international arbitration award.

Since its entry into force, Article 1526(2) CCP has been subject to the interpretation of the Parisian judges. Although the provision has first been interpreted very restrictively, the Court has since softened its approach. The recent decision issued on 22 October 2019 (No. 19/04161) by the new international section of the Paris Court of Appeal (16th chamber, 5th section) is remarkable as it takes a halfway nuanced stand.

 

Underlying Arbitration Proceedings and the Request to Stay Enforcement

In the case at stake, the motion to stay enforcement of the award was filed by the Russian Federation on February 2019, following an unpublished Permanent Court of Arbitration (PCA) award rendered on November 2018, which granted US$ 1.1 billion to Oschadbank, a Ukrainian state-owned bank, for the expropriation of its assets in Crimea by the Russian Federation. The request was finally denied by the Court of Appeal.

In support of its application, the Russian Federation claimed that Article 1526(2) CCP’s conditions were met in light of the risk that its rights (and in particular its right to immunity from execution) would be prejudiced by:

  • Oschadbank’s attempts to enforce the award in states that do not guarantee appropriate protection to its immunity from execution (in particular in Ukraine, where the Kiev Court of Appeal has considered in another case that a BIT arbitration clause was a waiver to the immunity from execution),
  • the mass enforcement campaign that it would have to face in several states given that it possesses assets worldwide, as well as
  • the risk of non-restitution of amounts already recovered by the bank.

Russia also sustained that enforcement would be in breach of its immunity from execution as enshrined in Article L.111-1-1 of the Code of Civil Enforcement Procedure (issued from the recent 2016 ‘Loi Sapin II’).

Oschadbank opposed that:

  • Article 1526(2) aims at preventing irreversible damage to the debtor pending a decision on the request to set-aside, and that
  • the risk of enforcement on sovereign assets is not of a nature to justify a stay of enforcement and is rather a question to be addressed by the judge of the place of enforcement of the award.

Oschadbank finally claimed that a risk of “severe prejudice” on the parties’ rights within the meaning of Article 1526(2) CCP is assessed in concreto by the jurisprudence, on the basis of a purely economic and accountable analysis of the situation.

 

The Court’s Oschadbank Decision

In its writ, the pre-trial judge (conseiller de la mise en état) first considered that “although the provision’s wording does not require an assessment of the sole economic consequences of the enforcement” (para. 38), a request to stay enforcement proceedings is to be “restrictively” assessed in order to give its full effect to Article 1526(1) of the CCP. In line with the Court’s previous jurisprudence (8 mars 2012, No. 12/02299, Pierre Cardin; 29 January 2015, No. 14/21103, Gold Reserve), it recalled that stay or adjustment of enforcement does not depend on the serious character of the set-aside request.

Notably, the judge ruled as a general guideline that:

This effective interpretation of Article 1526(2) leads to subordinate the benefit of the stay or the adjustment to an in concreto assessment of the severe prejudice on the rights that the enforcement of the award is likely to generate, so that this risk must be, at the date of the judge’s ruling, sufficiently characterised and that it cannot derive from Article 1526 of the Code of Civil Procedure an option for the judge to grant a party the right to object to the enforcement of an award on a general, abstract or hypothetical ground” (para. 39, free translation from the author).

This statement greatly clarifies the assessment to be conducted under Article 1526(2) of the CCP. Accordingly, the applicant to the motion must establish that:

  • there is a risk related to the enforcement of the award;
  • such risk is sufficiently characterised at the date of the ruling on the request;
  • such risk is likely to generate a severe prejudice on the rights of one of the parties.

The Court examined Russia’s allegations in light of these conditions. It first found that the fact that some foreign laws would not protect Russia’s right to immunity from execution is not a “sufficient” ground for the purpose of characterising a risk of severe prejudice, adding that such a risk is to be assessed by the judge of the place of enforcement. It then turned on to the circumstance that Oschadbank could envisage to initiate enforcement actions in several states and considered that this is not a “relevant” ground either. It specifically noted that in the present case no enforcement action had been engaged by the Ukrainian bank with the effect to severely prejudice Russia’s right to immunity from execution.

Interestingly, the Court also noted that “it is not established nor even sustained that enforcement of the award would be likely to compromise Russia’s financial sustainability” (para. 43, free translation from the author) thus highlighting the great relevance of this argument in order to characterize a risk of severe prejudice under Article 1526(2) of the CCP. The Court then observed that there was no risk of non-restitution since it had not been established that the Ukrainian bank was in financial difficulty. On this basis, the request was denied.

 

A Well-Balanced Decision

In light of the Court’s previous case law, this decision appears particularly well-balanced.

On the one hand, it confirms the Court’s departure from its previous highly-restrictive approach that prevailed until 2013, and that led the Court to rule for instance that the “severe prejudice to the rights” under Article 1526(2) of the CCP was to be assessed “more restrictively” than the sole economic risk or potential financial difficulties incurred by the debtor, i.e. that it was necessary to establish that immediate enforcement would jeopardise the cash flow and put the company in an extremely difficult situation (18 October 2011, No. 11/14286, Mambo Commodities), or that the risk of becoming insolvent and filing bankruptcy and to be deprived of the right to challenge effectively the award does not constitute a severe prejudice of rights since it would not prevent the debtor from pursuing the action to set aside the award through the receiver (13 July 2012, No. 12/11616, CIEC Engineering).

The conditions established by the Court offer more flexibility to the judge seized of a request to stay enforcement. In particular, the requirements that the risk be “sufficiently characterised” and “likely to generate” a severe prejudice of rights seem to cover a broader range of situations and are thus less far-reaching for the applicant. This is further confirmed by the Court’s express statement that the scope of its assessment shall not be exclusively limited to the economic consequences of the enforcement, although no particular guidance is provided in this regard.

The Court’s choice of an in concreto assessment also guarantees that the judge focuses on concrete elements regarding both the situation of the parties and the consequences of the enforcement, which was not always the case with the previous jurisprudence (see, e.g., 23 April 2013, No. 13/02612, Spie Batignolles Nord and 27 March 2014, No. 13/24165, Fairtrade, that granted adjustment of enforcement on the sole basis that restitution could be highly random given that it was a foreign-seated arbitration and that the enforcing party was located abroad).

On the other hand, the decision remains consistent with the spirit and rationale of Article 1526(2) of the CCP, as well as the recent case law of the Court, which only after 2013 started to grant stays or adjustments of enforcement on the basis e.g. that there is a risk of suspension of payments (27 March 2014, No. 13/24165, Fairtrade), that enforcement would constitute a threat on the award debtor’s financial sustainability (3 April 2014, No. 13/22288, Farmex), or that there were allegations of fraud during the arbitration and the award creditor lacks guarantees of restitution (4 July 2014, No. 14/12102, Assurance Pilliot; 3 October 2013, No. 13/07263, CMN).

Indeed, it first confirms that the “severe prejudice on rights” is mainly to be construed from an economic perspective, paying particular attention to (i) the financial sustainability of the applicant, (ii) economic difficulties that the applicant could face in case of immediate enforcement as well as (iii) the risk of non-restitution. Further, in light of the Court’s express prohibition of “general, abstract or hypothetical grounds”, it is now clear that general legal considerations that, for instance, the law of the place of enforcement does not guarantee immunity from execution, or that the applicant is likely to face enforcement actions worldwide are of no relevance unless an economic risk is sufficiently characterised (i.e. it is established that enforcement actions having such effect have already been initiated).

In conclusion, this decision should be welcome as it is consistent with the Court’s traditional restrictive approach, and at the same time provides for a clear framework that was lacking up to now. This framework ensures a more-flexible assessment meanwhile affording high protection to the award creditor and ensuring that enforcement-delaying tactics remain precluded. This approach seems particularly suitable when the stay of enforcement has been initiated by an entity that is so financially powerful (e.g., a State or a global company) that there is no chance that enforcement proceedings create an economic risk.

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USMCA: An Analysis of the Proposed ISDS Mechanism

Tue, 2019-11-26 00:23

Niyati Ahuja

Introduction

The United States, Mexico, and Canada renegotiated the 25-year-old North American Free Trade Agreement (NAFTA) in 2018. As a result of these renegotiations, the parties agreed on new terms to formulate “NAFTA 2.0” or the U.S.-Mexico-Canada Agreement (USMCA) in the United States, the CUSMA in Canada and, the T-MEC in Mexico.

The USMCA aims to strengthen networks of trade, decrease investment barriers, and facilitate commercial exchanges. The USMCA needs to be ratified by each country’s legislature before it can become effective. Mexico ratified the USMCA in June 2019 after Mexico’s senate voted overwhelmingly in its favor. Keeping in mind that USMCA will replace NAFTA, investors who invested in another member’s territory between the date NAFTA came into force and the date of termination of NAFTA may still utilize arbitration in accordance with the NAFTA’s Investor State Dispute Settlement provisions for three years after the termination of NAFTA. The arbitration proceedings which have already begun will be concluded under NAFTA Chapter 1.

Despite the proposed changes, the essence of USMCA remains the same and it is intended that it will continue to serve the purpose that the NAFTA was formulated for. The new investor-state dispute settlement (ISDS) mechanism at Chapter 14 of the USMCA has seen a major overhaul. This post discusses the proposed changes to the ISDS mechanism.

 

Changes to the Investor State Dispute Settlement System

Definition of Investment

The USMCA defines ‘investment’ as an asset that an investor owns or controls that has the characteristics of an investment such as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk. This definition is more descriptive and of a wider scope than the one provided under NAFTA. In Apotex Inc. v. The Government of the United States of America, the NAFTA Tribunal held that significant expenses incurred in: (i) seeking Food and Drug Administration (“FDA”) approval; (ii) purchasing materials and ingredients in the United States intended for the manufacture of products abroad (in this case in Canada); and (iii) conducting litigation and establishing an agent in the United States for the purpose of corresponding with and making submissions to the FDA, were all insufficient to qualify as an “investment” under the treaty.  There have been different awards interpreting whether the ‘investment’ falls within the scope of NAFTA and this was one of those which confirmed a NAFTA tribunal may require higher thresholds to bring claims under the agreement.

 

Parties

One of the most important changes in the proposed agreement is Canada’s withdrawal from the dispute resolution regime as existed under the NAFTA. Under the USMCA, the three parties will only be able to bring claims against each other arising out of unfair trade practices. Apart from that limited exception, the ISDS regime shall be limited to the United States and Mexico. Canadian and Mexican investors will, however, be able to rely on their rights under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which are similar to rights generally available in North American bilateral investment treaties.

 

Claims

NAFTA was the first regional trade agreement to include more extensive investor rights and included indirect expropriation. The USMCA, however, provides more restrictive standards for investors to bring claims than before. It includes a four-year statute of limitations for bringing claims and this period includes a mandatory 30 months of litigation in domestic courts albeit only to the extent recourse to domestic remedies was obviously futile or manifestly ineffective.

 

  • Minimum Standard of Treatment

USMCA has the same standard as provided under the NAFTA. It, however, clearly states that ‘fair and equitable treatment’ and ‘full protection and security’ do not require treatment in addition to or beyond the minimum standard of treatment under customary international law. This is in consonance with the binding interpretation of this provision issued by the NAFTA Free Trade Commission in July 2001. The tribunals in Metalclad Corporation v. The United Mexican States, S.D. Myers Inc. v. Canada, and Pope and Talbot Inc. v. Government of Canada, proceeded on the basis that a breach of the standard can be found for acts that would not be found to have breach the minimum standard treatment at customary international law. It also mentions that an action would not be a breach of the minimum standard of treatment merely because it did not meet the investor’s expectations.

 

  • Expropriation

The USMCA proposes that the expropriation provision will be qualified by a detailed shared understanding of expropriation requiring specific factors to be considered in determining whether an action may constitute either direct or indirect expropriation.

Non-discriminatory regulatory taking, aimed at protecting public welfare objectives, shall not be considered to be indirect expropriation within the scope of the agreement, subject to certain exceptions. Under NAFTA, the provision led to differences in interpretation between tribunals owing to an unclear definition. For instance, in the case of Pope & Talbot, Inc. v. Canada, the tribunal had observed that the test for indirect expropriation was whether the interference was sufficiently restrictive to support a conclusion that the property has been ‘taken’ from the owner. In Metalclad Corp. v. United Mexican States, however, the tribunal had held that the finding of indirect expropriation depended on a party’s reliance on federal governmental representations, the nature of the measures taken by the local government, and the economically harmful effects of those measures. The new agreement seeks to prevent differences in the interpretation of provisions by tribunals.

 

  • Most Favored Nation and National treatment

National treatment and MFN treatment claims shall not be permitted for investments at their establishment or acquisition stage. The National Treatment and Most Favored Nation Treatment provisions include a “public welfare” criterion to situate the “like circumstances” analysis. Thus, in considering whether the relevant treatment is accorded in “like circumstances,” consideration must now be given to whether the treatment distinguishes between investors or investments on the basis of legitimate public welfare objectives.

 

Special regime

A special regime and enhanced ISDS protections have been granted to investment in government contracts in “covered sectors.” Covered sectors include oil and gas, power generation, telecommunications, transportation, and infrastructure. This has been developed to protect industries that are heavily regulated and may be influenced by the presence of state-owned enterprises. Disputes under government contracts do not mandate a waiting period of 30 months prior to the commencement of arbitration.

 

Procedural Aspects

The USMCA includes updated provisions for transparency of arbitral proceedings, with regards to public hearings and public access to documents. Arbitrators appointed to a tribunal to determine claims submitted under the agreement are required to comply with the International Bar Association Guidelines on Conflicts of Interest in International Arbitration, including guidelines regarding direct or indirect conflicts of interest, or any supplemental guidelines or rules adopted by the U.S. and Mexico. Further, in an apparent effort to improve transparency in the decision making process, arbitrators are not permitted to act as counsel or as party-appointed expert or witness in any pending arbitration under the agreement for the duration of the proceedings in which they have been appointed. The agreement also includes new rules for selection of arbitrators.

 

Comments by State representatives

Since the agreement was signed on November 30 last year, it has been criticised and praised almost equally. Canadian Prime Minister Justin Trudeau tweeted after a conversation with his US counterpart that USMCA will “enhance competitiveness & prosperity, while creating new jobs”. Mexican President Enrique Pena Nieto dubbed the deal a “win-win-win” agreement. US President Donald Trump tweeted: “The USMCA is a historic transaction!” In a joint statement, US Trade Representative Robert Lighthizer and Canadian Foreign Minister Chrystia Freeland hailed USMCA as a “modernised” agreement that “will strengthen the middle class, and create good, well-paying jobs”. Mexican Economy Secretary Ildefonso Guajardo called it “a state-of-the-art instrument that will bring great economic benefits to Mexico, Canada and the US”.  

 

Conclusion

While the negotiations were the focus of attention for the terms to be agreed upon by all nations and the heated discussions to reach a consensus, ratification of the agreement by the U.S. Congress is under the limelight again. The Democrats have indicated concerns regarding the agreement and asked for stronger labor, environmental protection, and enforcement provisions under the USMCA. Canada is currently holding off on a formal vote until the agreement has been ratified by the U.S. Congress.

It remains to be seen if less claims arise due to the restrictive ISDS mechanism now proposed under Chapter 14 of the USMCA. For now, to test the waters on the narrower provisions, the immediate requirement is for the United States government to ratify the agreement, which will most likely be followed by ratification by the Canadian government. With the Canadian national elections which took place on 21 October 2019 and Canada promising to follow suit after the American government passes the agreement, the future of the USMCA can only be speculated upon at this stage.

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International Arbitration in Gold Swap Transactions and Syndicated Loans for Infrastructure Projects

Sun, 2019-11-24 20:00

Alejandro E. Leáñez Rieber

Complex arbitration cases in financial transactions might arise within emerging markets involving gold swap transactions and syndicated loans for infrastructure projects. Gold Swaps allow central banks to receive cash from financial institutions in exchange for lending gold during a specific period of time. On the other hand, syndicated loans provide funding for large-scale, capital-intensive infrastructure projects.

 

Gold Swap Agreements

First, there are many ways in which a sovereign central bank (a “Central Bank”) can obtain financing for its operations. One way is by using the foreign gold reserves of the country through gold swaps, which are typically undertaken when the cash taking monetary authority or Central Bank needs foreign exchange but does not wish to sell outright its gold holdings. In this type of swaps the gold is a leveraging device for investment banks. Notably, the Central Bank’s gold subject to the gold swap is held at a neutral and well-recognized jurisdiction, like the Bank of England.

The risks of gold swaps are similar to repos and securities lending in that market risk toward the underlying asset, the gold, remains with the original holder or the Central Bank. If gold prices increase, the volume of gold returned is the same as that swapped, while the same value of the foreign exchange is returned.

A possible international arbitration might arise in connection with gold swap agreements when the Central Bank falls into an event of default (“EoF”) or a termination event due to its failure to pay the investment bank. Additionally, Termination Events include 1) the occurrence of any change or interpretation where the Central Bank’s local law could affect or undermine the applicability of the gold swaps; 2) any governmental authority of the Central Bank takes any steps with a view to, or to the effect of, redenominating the payment or other obligations of either or both parties under the gold swap agreement from dollars to the lawful currency of the Central Bank country.

Generally, these types of disputes are governed by the London Court of International Arbitration Rules (LCIA Rules), with English Law governing the gold swap agreement. Consolidation of disputes is applicable when a related dispute arises before the Request of Arbitration has been served, which might occur in the case of an EoF due to the international sanctions against the Central Bank, that restrict transactions with the investment banks.

For instance, between 2014 and 2016 the Venezuelan Central Bank (the “BCV”) used part of its foreign gold reserves to guarantee financial operations with banks to improve liquidity, with the original intention of repaying the loans in order to keep the gold. The BCV has been involved in several of these gold swap agreements, one of these was with Deutsche Bank AG. In 2016, the BCV had put up to 20 tons of gold as collateral with Deutsche Bank AG. The agreement was set to expire in 2021. In 2019, according to a news article, the BCV defaulted on a US$ 750 million agreement for missed interest payments to Deutsche Bank AG. The missed interest payments caused the early settlement of the agreement, which generated US$ 120 million, this amount represents the price difference from when the gold was acquired to current levels when Deutsche Bank AG took ownership of the collateral. In this case, an international arbitration could arise if the BCV does not agree with the amount of the early settlement of the agreement, or if there are any issues with the interpretation of the EoF or the termination event under the agreement.

 

Syndicated Loans

Second, another type of financing in emerging markets for large infrastructure projects is through syndicated loans (a “Credit Agreement”). In this type of loan, there is (i) a single borrower, the company or a sovereign government that is going to use the loan for a project, and  (ii) several international banks that are going to unload the loan in several installments or pursuant to the conditions established in the loan.

These types of loans are used commonly for large infrastructure projects, especially in circumstances where the project is too large, like a major infrastructure investment for a new airport, subway system or energy project, and the risk of default needs to be distributed between several lenders, or when the project needs a tailored-made lender with experience. Within these syndicated loans usually, a lead bank or underwriter takes part in this loan syndication transaction to guarantee risk mitigation and large exposure.

An international arbitration dispute could arise in case of an EoF established in the Credit Agreement. Nowadays, EoFs include violations of international sanctions, like the ones issued by the United States Treasury Department through the Office of Foreign Assets Control (OFAC), or the Council of the European Union, due to violations of human rights, corruption, and deterioration of democracy in emerging markets. Also, these include trade embargoes or restrictive measures imposed, administered or enforced from time to time by any sanctions authority.

Under the EoFs if the loan proceeds are used by any person, company or government subject to or target of sanctions, or located in a sanctioned jurisdiction the EoF could be violated. Other EoFs include the failure to pay any principal of or interest under the Credit Agreement, if the governmental authority imposes control exchanges affecting the compliance with payments in foreign exchange that would be applicable to the Credit Agreement, or takes any action to condemn, seize, nationalize, expropriate or appropriate all or any substantial part of the property of any loan party, either with or without payment of compensation an EoF could be violated.

An example of projects where this type of disputes may arise is China National Petroleum Corp.’s (CNPC) and Total SA’s withdrawal of their participation in Iran’s biggest natural project between 2018 and 2019 because the Trump administration abandoned the 2015 nuclear accord (the “Joint Comprehensive Plan of Action”) and re-imposed sanctions on Iran. The project was the largest infrastructure development in Iran being developed by foreign investors. In this case, an international arbitration could arise if the credit agreements for the development of the infrastructure project in Iran are conditioned upon sanctions under the EoFs, which could generate disputes regarding the interpretation and extent of the sanctions events within the credit agreements.

Thus, under these scenarios complex international arbitrations might arise within emerging markets involving financial transactions like gold swaps between Central Banks and investment banks, and syndicated loans among governments, its instrumentalities, mayor international companies, and banks.


The views contained in this article only express a personal scenario on possible international arbitration trends.

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New Developments in Proceedings Involving Venezuela: Interim President Guaidó Intervenes Before US Courts

Sat, 2019-11-23 22:00

Sondra Faccio

Interesting developments in disputes involving Venezuela and its national oil company Petróleos de Venezuela S.A. (PDVSA) took place after Juan Guaidò, the president of the Venezuelan National Assembly, took the interim Presidency of the State in January 2019. Since then, he has adopted a series of measures and intervened in a series of proceedings involving Venezuela and/or PDVSA pending before domestic courts and international arbitration tribunals with the express aim of safeguarding Venezuela’s financial interests abroad.

Some of these cases have already been discussed in this Blog; but new developments emerged in the last few months in proceedings involving Venezuela and PDVSA before US courts. These new developments, together with previous cases, allow to take stock of the practice and to discuss the criteria (legitimacy vis-à-vis effectivity) to be applied for the recognition of a foreign government under international law and – more broadly – on the impact that situations of contested government may have on the protection of foreign investments and trade relationships.

Old and new cases involving Venezuelan Interim President Juan Guaidó will be discussed below from this perspective.

 

Guaidó intervenes before US courts and international arbitration tribunals

The motions before US courts have been filed by Juan Guaidó after the US President officially recognized him as Interim President of Venezuela.

The Crystallex case revolves around the Canadian company Crystallex’s attempts to enforce a 2016 ICSID award against Venezuela and to seize the capital-shares of the company PDVH, owned by PDVSA, which is estimated to be Venezuela’s most valuable commercial asset in the US. Crystallex was granted permission to seize PDVSA’s assets to satisfy its credit by a Delaware Court on August 9, 2018.

In subsequent proceedings brought by PDVSA before the US Court of Appeals for the Third Circuit, the Venezuela Interim President intervened to ask the revision of the Delaware Court’s decision on the ground of “changed circumstances.” According to Guaidó, the measures he adopted to preserve “PDVSA’s … independence vis-à-vis the Republic” since his appointment had the effect of abating the State’s control over PDVSA, with the consequence that PDVSA cannot anymore be defined as an alter ego of Venezuela and Crystallex cannot collect its judgment against Venezuela by attaching the property belonging to PDVSA. Crystallex opposed Guaidó’s motion and a hearing took place on April 15, 2019. The US Court of Appeals issued its Opinion on July 29, 2019.

During the hearing, the Court observed that it is uncertain whether Guaidó is exercising effective authority over PDVSA so as to affect Crystallex’s claim on the ground of changed circumstances. Judge Greenway explained that “…if the new president hasn’t really sort of taken over the firmament of government, it is hard for [the Court] to … say … [this] is a changed circumstance.” In its Opinion, the US Court confirmed “Guaidó’s regime as authorized to speak and act on behalf of Venezuela” following the US President recognition; but also observed that “there is reason to believe that Guaidó’s regime does not have meaningful control over Venezuela or its principal instrumentalities such as PDVSA,” with the consequence that there has been no relevant change of factual circumstances concerning PDVSA’s independence vis-à-vis Venezuela and no impact on Crystallex’s seizure of PDVSA’s assets.

In the Red Tree Investment case, the US District Court for the Southern District of NY decided to stay the proceedings involving the US hedge fund Red Tree Investment and PDVSA and concerning PDVSA’s alleged default on four loan agreements. The US Court’s order to stay followed a motion filed by Guaidó’s Special Attorney General, Mr. Hernandez, on March 27, 2019. The motion pointed out that “[a]lthough the Guaidó government is the sole government recognized by the United States, it does not have full access to the personnel and documents of the government and its instrumentalities.” Accordingly, the US District Court ordered a 120-days stay to “ensure that Venezuela and its agents and instrumentalities are able to make fully informed decisions that protect their interests during this crucial moment in Venezuela’s history.”

As already reported in this Blog, Venezuelan Interim President has also intervened in cases pending before international arbitration tribunals. In the Favianca case, Guaidó’s attorney general asked the ICSID Committee to “not process any submissions signed by individuals acting on behalf of Maduro.” The Committee rejected Guaidó’s request arguing “that [Venezuela] is being represented by attorneys from the Attorney General’s Office ‘as required by [its] domestic law’” and further added that “evidence on record did not justify a change in the status quo” in the Country.

In the case PDVSA v. PETROPAR, an ICC Tribunal seated in Paris decided on a request filed by the Paraguayan State entity, PETROPAR, to stay the proceedings and strike out the Claimant (PDVSA)’s reply on the merits on the ground that the latter represents the views of the Maduro government, which is not recognized by Paraguay. The ICC Tribunal decided in favour of the stay and reserved on the merits. The ICC Tribunal has been keen to decide in favour of the stay considering that Guaidó intervened in support of the request of the Respondent to explore the possibility of negotiating an amicable resolution to the dispute.

 

Effectiveness vis-à-vis legitimacy in the recognition of governments and their impact on pending proceedings

The cases under discussion are significant as they arise from the competing claims of authority of the de facto government of Maduro and the legitimate government of Guaidó to represent Venezuela. They demonstrate the impact that a situation of disputed government may have on the conduction of pending international arbitration and domestic proceedings involving the State or its national companies.

The criterion of legitimacy has emerged in the last decades as “a distinct criterion for the legal recognition of governments” in addition to effectiveness and it seems to have acquired a new momentum in the case of Venezuela. The legitimacy criterium requires the authority of the government to be founded on democracy, the respect of relevant constitutional law and human rights, effectiveness by contrast rests on the government’s capacity to control at least some part of territory and population. In practice, the criterion of legitimacy has been applied to consolidate the authority of disputing governments in absence of effective control over the territory, only in cases where such government had been democratically elected and a significant international consensus emerges as to its legitimacy.1)Marco Pertile, ‘Sul riconoscimento di governo nella crisi venezuelana: la trasformazione alchemica è completa?’; Jean d’Aspremont, ‘Duality of gobernment in Côte d’Ivoire’, Julia Leininger, ‘Haiti, Conflict’, Max Planck Encyclopedias of International Law (October 2008); Jean d’Aspremont, ‘Legitimacy of governments in the age of democracy’, in 38 International Law and Policy (4 January 2007). jQuery("#footnote_plugin_tooltip_1705_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1705_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The application of the criterion of legitimacy necessarily requires the States to make a normative test on the way in which the relevant regime came to power and admits the recognition of the government only if the test is met.

In the case at hand, however, the recognition of the Guaidó regime does not seem to have undergone any normative test by States, nor the Interim President appears to meet the requirements to get a pass mark. Indeed, Mr. Guaidó adopted the interim Presidency of the State under articles 233, 333 and 350 of Venezuela’s Constitution, but he has not won the majority of Venezuela people’s votes through democratic elections for presidency, nor has he taken any concrete steps towards the call for new elections. Moreover, his authority is still disputed within the international community: whereas the majority of the States of the Lima Group, including Paraguay, and the US recognized the interim presidency of Guaidó; a number of States still support the Maduro regime, who remains steadily in control of the territory; and the EU countries issued a joint declaration to support Guaidó only “in order for him to call for free, fair and democratic presidential elections.” Finally, it has been observed that despite States’ “‘recognition’ of Guaidó, few States have been willing to accredit his envoys as representatives of the Venezuelan State,” with the result that Guaidó seems to have collected more political support, rather than recognition in a legal sense.2)S. Talmon, Recognition of Governments in International Law (Claredon Press Oxford 1998) 41-42; R. Janik, ‘European Recognition Practice of Venezuela: the Devil in the Details’. jQuery("#footnote_plugin_tooltip_1705_2").tooltip({ tip: "#footnote_plugin_tooltip_text_1705_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The recognition of the government of Guaidó has not undergone any normative test by international arbitrators and domestic judges. From the point of view of domestic courts, recognition pertains to the executive and the judicial shall only follow. Thus, the recognition of Guaidò by the US President has been accepted by the US Courts as a sufficient element to give the Interim President the authority to speak and act on behalf of Venezuela. Such recognition, however, has not been considered enough to overcome uncertainties as to who has effective control of the Venezuelan State and its instrumentalities; with the consequence, for example, that Guaidó’s motion to set aside Crystallex’s request of enforcement over PDVSA’s assets has been dismissed by the US court.

International arbitration tribunals, by contrast, are usually guided by criteria of realpolitik based on the practical needs of the parties and material factors. Thus, in the case involving PDVSA and PETROPAR, Paraguay’s recognition of Interim President Guaidó has been considered as a matter of fact that, together with the agreement between Claimant and Respondent to suspend the proceedings and the prospects of settlement, have persuaded the ICC Tribunal to decide in favour of the stay.

The ongoing conflict between the Maduro and Guaidó regimes in Venezuela and the reactions of the States vis-à-vis such situation, including the US decision to adopt “maximum pressure on former Maduro regime” and the enactment of sanctions, are expected to give rise to new arbitration proceedings and to further impact on existing cases pending before domestic courts and international arbitration tribunals. Stay tuned.

References   [ + ]

1. ↑ Marco Pertile, ‘Sul riconoscimento di governo nella crisi venezuelana: la trasformazione alchemica è completa?’; Jean d’Aspremont, ‘Duality of gobernment in Côte d’Ivoire’, Julia Leininger, ‘Haiti, Conflict’, Max Planck Encyclopedias of International Law (October 2008); Jean d’Aspremont, ‘Legitimacy of governments in the age of democracy’, in 38 International Law and Policy (4 January 2007). 2. ↑ S. Talmon, Recognition of Governments in International Law (Claredon Press Oxford 1998) 41-42; R. Janik, ‘European Recognition Practice of Venezuela: the Devil in the Details’. 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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Creating Compelling Expert Testimony in International Arbitration Using Visual Aids

Sat, 2019-11-23 01:00

Neil Ashton, Daniel Langley and Elizabeth Davidson

In today’s busy and increasingly digitized world, pictures are the new words. The average human attention span has grown shorter and become more selective. In every facet of society, from the consumer landscape to business meetings, visual storytelling has emerged as key to delivering captivating content that commands a person’s undivided attention.

This trend can also be seen in the courtroom and in international arbitration where the use of visual aids and technology are on the rise. In fact, it is now becoming common for experts to deliver presentations to enhance the traditional, formulaic exchanges with counsel in international arbitration. For example, as shown in a 2018 International Arbitration Survey by Queen Mary University of London, 73% of respondents to the survey claimed to “always” or “frequently” use hearing room technologies (including multimedia presentations and real time electronic transcripts) in international arbitration, and almost all (98%) believed that arbitrators should make use of these tools more often.

(Source: 2018 International Arbitration Survey: The Evolution of International Arbitration, Queen Mary University of London, pages 32-33)

If a picture really is worth a thousand words, how can experts (and their counsel) present their often complex opinions in a clear, concise, and engaging way? This blog post will answer this question by explaining the use of presentations, as well as visual and electronic aids, from a quantum expert’s perspective based on practical experiences, and will discuss the benefits and drawbacks of their use in international arbitration.

 

Using visual aids in direct examination

International arbitration institutions such as the London Court of International Arbitration (LCIA) and International Chamber of Commerce (ICC) provide rules on expert evidence. However, there is limited guidance for how the examination of experts should be carried out, with broad discretion given to the Tribunal to determine how the testimony is conducted. For example, ICC guidance for experts states that “the tribunal will determine whether expert testimony will be allowed, … how long you will be permitted to testify, the limits of cross-examination, and so forth.

Traditionally, the direct examination of an expert has been limited to a small number of procedural questions from counsel to introduce the expert and the key points from their written report. Increasingly, however, this approach is being replaced or supplemented by an oral presentation. This allows experts to explain in their own words the basis for reaching their opinions, to highlight the conclusions as set out in their report, and to address any areas of disagreement with opposing expert(s).

Since visual aids are more impactful with listeners and help with memory retention, it stands to reason that including visual content during direct examination of expert witnesses may help better engage the tribunal and ensure the expert’s opinion is more memorable. It is important to note that presentations may vary in length and format depending on the nature of the evidence, ranging from 10 minutes to over an hour in length, and may include visual and electronic aids, such as PowerPoint presentations, which could include charts, graphs, key points in summary written form, or even animation.

 

Walking the walk – practical experience utilizing visual aids

In our practice providing expert testimony, we have experienced several occasions where it has been beneficial to use one of the methods of examination outlined above. Recent examples include:

1. Delivering an oral presentation as part of direct examination;
2. Preparing PowerPoint slides to accompany oral presentation;
3. Using handouts or ‘demonstratives’, with copies provided to the Tribunal, alongside direct examination questions from counsel;
4. Preparing particular slides and visual aids for use at appropriate points in anticipation of subjects that are likely to arise in direct or cross-examination; and/or
5. Using hearing room technology to bring up exhibits in real-time during witness conferencing.

As a firsthand example, the use of visual aids and hearing room technology recently proved valuable during a witness conferencing session (colloquially known as “hot-tubbing,” an approach increasingly common in international arbitration whereby both experts are examined together). At one point during proceedings, an issue arose that could only be addressed by reference to detailed financial records. We were able to hand up to the tribunal visual representations of relevant key facts we had prepared in advance to support our view, and that helped to more clearly articulate the position. At another point, when challenged by our opposing expert, technology and an immediate visual display of a key document retrieved from the arbitration file enabled us to effectively rebut the relevant point (notably, our client won on these, and all other, points).

 

Guidance on the use of technology in arbitration

Given that good visual aids are persuasive and memorable and, thus, can be helpful in direct examinations of expert witnesses — what guidance for their use is available? Neither the LCIA or ICC rules of arbitration provide specific direction on the use of technology. However, the ICC published a Commission Report on Information Technology in International Arbitration in 2017, which encourages practitioners to consider how technology can be most effectively incorporated into proceedings. The report states that the Task Force “enthusiastically recommends the use of IT in international arbitration whenever appropriate,” while acknowledging that its use is a matter for the parties and the Tribunal to agree upon.

The report advises that each party is responsible for making arrangements regarding PowerPoint slides or other visual aids and must allow themselves sufficient time to prepare and test any technology before the hearing begins. While preparation and testing may appear a simple point, from our own recent attendance at a large-scale hearing where a key technology broke down on several occasions, there is an inherent associated risk when dealing with technology, which is important to keep in mind when deciding whether or not to use visual aids.

 

Benefits and risks of using presentations, visual, and electronic aids

Unreliable technology is not the only risk associated with using visual aids during international arbitration. In fact, there are a number of potentially significant drawbacks/risks, as well as benefits/opportunities, associated with using presentations, visuals, and electronic aids during expert testimony, including the following:

 

Key takeaways

Whilst visual engagement is key to communicating effectively, there is currently limited guidance available as to how visuals can or should be used by experts in international arbitration. In our experience, the heightened impact of bringing data to life in graphics or presentations is well worth the time diverted from focusing wholly on cross-examination. As set out above, the process of synthesizing and summarizing an expert’s views can help the preparation process and assist in the articulation of key points. Further, we believe the natural progression towards using visual and electronic aids to better articulate complex points of view in an easily digestible manner will only continue given the flexibility of international arbitration.

Ultimately, due consideration should be given to how best to use technology to achieve the desired effect and experts should discuss their plans carefully with counsel well in advance of the hearing. When used appropriately, visual and electronic aids can greatly increase the quality and persuasiveness of an expert’s testimony, which we have seen in practice and experienced first-hand in numerous international arbitrations.

 

Neil Ashton, a Partner with StoneTurn in London, acts as an expert witness, adviser and expert determiner in complex domestic and international litigation, arbitration and mediation.

Dan Langley, a Director with StoneTurn in London, has given evidence in complex commercial disputes before ICC Tribunals in Paris and a LCIA Tribunal in London.

Elizabeth Davidson, an Executive with StoneTurn in London, provides expertise in forensic accounting, financial crime advisory and external audit as part of complex business litigation and international arbitration.

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YSIAC Conference Recap: ARBXTalk by Christopher Chan of Lazada Singapore

Fri, 2019-11-22 04:00

Margaret Huang

For the first time, YSIAC Conference this year featured an ARBXTalk where the speaker was given 18 minutes to present a topic of his or her choice in an inspirational or thought-provoking way.

Mr. Christopher Y. Chan, the General Counsel and Head of Government Affairs at Lazada Singapore, was the speaker at the inaugural event. What started out as a light-hearted talk from him on how to achieve your dreams (like buying that coveted yacht of his) soon descended into a deeper discussion on what it means to be a lawyer today.

 

What it means to be a lawyer today

Mr Chan had 3 tips to offer:

1. Do not pigeonhole yourself.

With disputes becoming more international and cross-border, lawyers can no longer afford to pigeonhole themselves. They need to learn to be able to manoeuvre through sectors or areas which they never have had any experience in and to expand their horizons into the unfamiliar.

He took the rise of the e-commerce as an example. According to Mr Chan, on 11 November this year, Alibaba sold a record of $38 billion worth of goods worldwide in just 1 day and that’s a sharp increase from its sale of $25 billion last year on the same day. The way people are buying things have changed drastically over the years. While most of us would know how to use the online payment functions, how many of us actually take the time to understand how these systems work and the common issues that these operators face? Yet, as problem fixers, lawyers need to constantly keep a curious mind in order to navigate through the latest evolution.

In the same vein, Mr Chan also noted that the practice of law is changing, and in particular, a lot of technologies are now involved in the work of a lawyer. Indeed, lawyers these days have no lack of artificial intelligence that can assist in their daily research and discovery processes. However, what that also means is that lawyers need to re-brand themselves to be able to provide that human touch and intelligence which machines are not yet capable of doing so (e.g. the ability to make a judgment call when there is no data, the ability to stand up in negotiations and “pound the table” when needed, and the ability to command a room).

 

2. Do your homework. 

Mr Chan shared his experience going into the technology sector without any former experience. His advice: do a lot of research on the business and the audience, and prepare as if you are going for trial.

He also disclosed that his first interview question to any lawyer who wishes to work in his company would be “What is the last thing you bought on Lazada?”, and he expects the candidate to, at least, have downloaded and tried the Lazada application. His motto: If you want to work in a ‘tech’ space, you ought to be comfortable with it and curious about it.

Mr Chan emphasised the importance of knowing who your audience is, and before every meeting that he attends, he will do a due diligence search on the Internet on the people he is meeting and try to understand in advance who they are. Similarly, I think that lawyers would do well to find out more about each of the arbitrators’ style before going for any hearing, and keep those in mind when presenting their client’s case.

 

3. Network, network and network.

In the midst of all the lawyering and hard work, Mr Chan reminded young lawyers to take time to build a brand for themselves and to keep expanding their network of contacts. In his words, young lawyers should “dig a well before you are thirsty” so that when an opportunity comes up, you will be the first that comes to mind.

This is not just about building network among fellow lawyers but also with people from different fields. These days, arbitral disputes have become more cross-border and often, in large commercial disputes, parties are always on the lookout for experts to assist them. In my view, lawyers who have the reputation of becoming a “one stop shop” and who can assist to connect people would certainly be favourably looked upon by their clients.

Mr Chan also reminded the audience that in this day and age, the best way to reach out to people is by the use of technologies such as social media and, of course, not forgetting that all of us were at a conference where there is easily 100 of new people around us!

 

Concluding comments

Mr Chan’s injection of his personal experience kept the discussion light-hearted and engaging yet at the same time the short discussion left the young lawyers with much thoughts as to where they want to go next and how best to navigate the new frontiers in arbitration 2.0. His point on having an interest in learning is an important message for young lawyers who aspire to practice across a wide range of sectors. Lawyers cannot be an expert in all fields; yet they are expected to be problem solvers for any and all legal issues that arise. The only way to do that is to build an interest in learning and to research rigorously in order to thoroughly appreciate the nuances and intricacies in the issues that arise.

 

This post concludes our coverage of YSIAC Conference 2019. More coverage from YSIAC Conference is available here.

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YSIAC Conference Recap: This House Believes that Emotional Intelligence Will Always Trump Artificial Intelligence

Thu, 2019-11-21 04:45

Esther Candice Lim

Introduction

Humans versus robots: the YSIAC debate held yesterday as part of YSIAC Conference 2019 sought to address the deep question of what it means for us to be human and the timely question of whether technology can and will, one day, surpass us.

The moderator for the debate was Professor Nadja Alexander (Director, SIDRA). Arguing for the motion were Professor Dr. Maxi Scherer (Special Counsel, Wilmer Cutler Pickering Hale and Dorr LLP) and Mr Adrian Tan (Partner, TSMP Law Corporation) – Human 1 and Human 2 respectively (“Humans”). Arguing against the motion were Mr Todd Wetmore (Partner, Three Crowns LLP) and Mr Rimsky Yuen, SC (Barrister, Arbitrator and Mediator, Temple Chambers) –  Robot 1 and Robot 2 respectively (“Robots”).

 

The starting vote? 85% in favour of the motion and 15% against.

 

First Round of Arguments

Human 1 opened confidently, proclaiming that the votes of the 130 strong audience members demonstrated the “absolute superiority of human intelligence”, which was met with congratulatory smiles all around. She argued that the motion does not mean that emotional intelligence (or human intelligence) will trump artificial intelligence in every instance, conceding that there are obvious situations, such as Google Translate being able to translate 150 languages, where artificial intelligence is superior to human intelligence. Human 1 stated that the ultimate question, therefore, is whether artificial intelligence is superior to human intelligence, to which she argued “no”.

Citing statistical studies, Human 1 argued that while artificial intelligence can assist in routine situations, it is deficient in unprecedented or emergency situations. Put simply, artificial intelligence is a calculation of the likelihood of an event based on existing input data. Human 1 then brought the issue closer to home, with an illustration of an arbitral tribunal making decisions based on probability predicted by a machine. She reasoned that parties would not accept such decisions as they will argue that every case is unique to its own facts. Artificial intelligence also cannot provide reasons as to why it reached a certain outcome, she said.

Human 1 concluded by reading, to the audience’s glee, a nonsensical chapter of a Harry Potter novel written by a program with artificial intelligence, which was met with raucous laughter. Spoiler alert: Ron eats Hermione’s family.

In response Robot 1 first declared that the Robots took the motion to mean whether emotional intelligence will always trump artificial intelligence in the course of decision-making in arbitration, before quickly firing back that “the motion is embarrassed by its own ambition”. Acknowledging Human 1’s concession that emotional intelligence will not always trump artificial intelligence, he argued that human intelligence is fundamentally limited. On the other hand, artificial intelligence, being in its infancy, can only develop and improve moving forward, with the ability to potentially incorporate elements of emotional intelligence as well. Citing an article, he argued that artificial intelligence is capable of self-learning.

Robot 1 canvassed how artificial intelligence can help humans avoid cognitive bias, focusing effect, and omission bias in arbitral decision-making, and how artificial intelligence can be deployed 24 hours every day (much like associates in law firms!). He closed his arguments by stating that emotions are not a substitute for collection and analysis of data and any motion positing the primacy of emotional intelligence over artificial intelligence is an attempt to place intuition over reason.

 

Second Round of Arguments

Human 2 stepped forward, eloquently rebutting Robots’ interpretation that the motion includes the words “decision-making in arbitration”. He said, “I don’t see it but that is the beauty of machine language”. Human 2 argued that if one were to look at the context of arbitration and court disputes, a dispute is, at its core, people disagreeing with other people, and that a key part of dispute resolution is getting people to understand and accept the dispute in question.

Human 2 moved to his argument that the value of humans lies in our imperfections. Illustrating his point with the examples of the Japanese robot priest, Mindar, the Chinese robot monk, Xian’er, the Indian robotic hand in a Hindu temple and the German robot priest, BlessU-2, he argued that when one is in trouble, one does not want someone who is perfect. He said one would want someone who is flawed, and who struggles with the human experience of life. As it is with priests, so it is with lawyers, judges and arbitrators.

Robot 2 countered that if one needs to find the right answer one first has to ask the right question. Citing relatable examples, he argued that the reason why people utilise machines with artificial intelligence is that machines can do a better job than humans.

Robot 2 questioned the yardstick by which we measure the superiority of emotional and artificial intelligence, arguing that it is untrue that artificial intelligence cannot do “good” things such as creating art and music – fields which were thought to be quintessentially in the realm of human intelligence. He addressed Human 1’s illustration on Harry Potter, questioning whether that example truly represents the failings of artificial intelligence or the failings of the human responsible for that particular program. If someone could write a better code and create a better program, perhaps it is only a matter of time before artificial intelligence is able to create the next Hollywood blockbuster. Robot 2 asked whether having reasons is necessarily “good”, for sometimes people do not require reasons but an outcome.

Lastly, Robot 2 invited the audience to question the premise of the motion. He said, “It puts people in the position that A is always against B. I ask why they should be exclusive rather than inclusive. Why should we think in the way the motion represents?”

 

Rebuttal arguments

In rebuttal, Human 1 argued that it is a fiction that artificial intelligence is not prone to human biases, citing an article which reported that an artificial intelligence program was found to have a gender bias vis-à-vis men. She rebutted Robot 1’s argument about limitless learning by stating machine learning means improvement, but one only based on past data at any given moment in time. Hence there is no way machine learning can go beyond what has been done in the past.

Robot 1 swiftly responded by stating that the motion must fail by virtue of Humans’ concession that emotional intelligence cannot, in perpetuity, trump artificial intelligence. “You know when things are getting desperate when someone says vote for me because we are flawed”, he said, closing by proposing that the audience let the machines work at night so that they would not have to.

Finally the Humans and Robots took questions from the audience, which they responded to with another round of clever sparring between Human 2 and Robots 1 and 2.

 

Conclusion

At the end of the spirited debate which traversed humans, robots, and my favourite quote from Human 2, “Do you love me?” the audience were invited to cast their votes once more.

 

The result? 68% for and 32% against.

 

The Robots moved the most minds that day, but it is heartening to know that many still have faith in the relevance of human (or emotional) intelligence. As Robot 2 says, why should artificial intelligence and emotional intelligence even be mutually exclusive in the first place? Artificial intelligence is improving by leaps and bounds. It will no doubt become an even more advanced and widely used tool for lawyers and arbitrators in the near future – not just in legal research, but also in document disclosure and with expert evidence. With the advancement of artificial intelligence programs, it is hoped that lawyers and arbitrators can then spend more time on the human (and some would say most important) aspects of each case: the client’s needs and the effective resolution of the dispute before them.

 

More coverage from YSIAC Conference is available here.

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YSIAC Conference Recap: How to Win an Arbitration

Wed, 2019-11-20 07:30

Yi-Jun Kang

The Young SIAC (“YSIAC“) Conference 2019 took place earlier today in Singapore, attracting young arbitration practitioners from all across the globe. The theme of the 2019 Conference was “Arbitration 2.0 – Navigating New Frontiers in International Dispute Resolution”, which explored the impact of various trends, technologies and innovations in international arbitration.

Nonetheless, while trends may come and go, the goal of an arbitration practitioner remains constant – that is to obtain an ultimate victory in every arbitration. Keeping this overarching goal in mind, the afternoon panel session (‘How to win an arbitration’) explored what means can be used to achieve this and the panellists also shared how to effectively use those means.

The panel was moderated by Ms Pauline Low (Associate Counsel, SIAC) and comprised Mr Lau Wai Ming (Senior Legal Counsel, Accenture), Mr Jern-Fei Ng QC (Barrister, Essex Court Chambers), Mr James Nicholson (Senior Managing Director, Head of Asia Economic & Financial Consulting, FTI Consulting), Mr Siraj Omar SC (Director, Drew & Napier LLC) and Mr Andrew Pullen (Barrister, Fountain Court Chambers).

 

Panel discussion

The panel discussion began with the quintessential question – what exactly is a “win” in arbitration? The panel was quick to disregard the traditional understanding of winning. Instead, there was immediately a consensus amongst the panellists that a “win” must necessarily be viewed from the lens of the client and is therefore an outcome which achieves a client’s objectives and is in the best interests of the client.

While there is of course no magic formula to achieve a “win” in arbitration, the panel shared many pearls of wisdom gleaned from their years of experience. Some of their tips and tricks include the following:

  • Eyes on the prize: Mr Ng QC shared that one should never lose sight of the end goal, i.e. a favourable and enforceable award. This focus therefore informs everything he does from the outset – the case theory advanced on behalf of one’s clients as well as the conduct of the arbitration process.
  • Getting a head-start from inception: Mr Omar SC highlighted that dispute resolution clauses are often overlooked during the drafting process. He emphasised that a well-framed arbitration clause is half the battle won. He noted that while clients may not be cognisant of this, it is the lawyers’ job to think about potential disputes which may arise, the potential reliefs the client may need, enforcement issues, and hence frame the dispute resolution clause accordingly.
  • Starting your case on the right foot: Mr Pullen highlighted that from the perspective of a claimant, thorough ground work should be done before the commencement of an arbitration. In particular, he said that even before filing a notice of arbitration, a party should fully consider whether its claims and causes of action will withstand scrutiny, test the veracity of the available evidence and potentially even have experts do a sense check on quantum issues. This approach was supported by Mr Nicholson, who stated that a win is getting most of the damages claim in an arbitration, if not all.
  • Appointing the right arbitrators: The constitution of the tribunal is (perhaps unsurprisingly) a critical element to ensuring ultimate victory. Mr Ng QC noted that the seat of arbitration, governing law and the nature of dispute are the typical factors which weigh on a party’s mind when nominating an arbitrator. However, a less common but equally critical consideration should be that of business practices and legal traditions involved in a particular dispute. By way of example, he added that if one’s client operates in a particular jurisdiction where business is usually conducted informally, having an arbitrator who is aware of and sensitive to such particular cultural nuances would go a long way in obtaining a favourable outcome for one’s client.
  • Selecting the right expert and utilising experts effectively: Many practitioners will be aware that the selection of expert witnesses is by no means a straightforward process. Mr Pullen highlighted that the most important considerations are usually subject area expertise and experience in acting as an expert witness in arbitrations. He mentioned that it would be ideal if a potential candidate possesses both but sometimes, especially in particularly esoteric fields, it may not be easy to identify such an individual. Mr Nicholson agreed, and noted that the most eminent expert in a particular field may not necessarily be the best expert witness. He further stated that the advantages of having a good expert witness are largely twofold: it brings the dual benefits of efficiency and credibility, especially if the expert is involved at the outset. This can assist with a coherent presentation of the case.
  • Having a clear case theory: According to Mr Ng QC, it is imperative for winning that a lawyer is able to tell the arbitrator, in one paragraph, what you want and why you should get it. Mr Omar SC concurred with this view. Besides, he emphasised the importance of having a clear case theory and a central argument, which should play right through from the pleadings and witness statements to cross-examination.
  • Using procedural tools to one’s advantage: Mr Pullen shared from his experience that applications for interim measures can be decisive in the context of an entire case. Interim measures can include interim measures ordered by a national court or tribunal, such as injunctions and document preservation orders. Mr Pullen stated that when deployed effectively, especially when the other side’s resources are under constraint, these can provide one with substantive “wins” early in the proceedings – putting the opposition on the back foot. On the flipside, Mr Lau cautioned that counsels in developing arbitration jurisdictions usually employ more “creative” guerrilla tactics, sometimes successfully, in an attempt to derail arbitrations.

 

Conclusion

Overall, the interactive session provided a unique opportunity for the delegates to tap on the vast experience of the eminent panel and to gain insight into how experienced practitioners, counsel and consultants manoeuvre their way through an arbitration to achieve the ultimate success for their clients. The war stories shared by the panel were helpful in driving home their points and putting things in perspective for the delegates. The panel’s comments were a timely reminder to junior lawyers to be cognisant of a client’s objectives at all times, and to always keep the end goal of a favourable and enforceable award in view. After all, the last thing a claimant wants is to obtain an award that is substantively in one’s favour but which turns out to be a pyrrhic victory. While there is certainly no silver bullet that would guarantee a “win” in an arbitration, the delegates definitely went away with many insights on how one can set themselves up for victory from early on in the arbitration process.

 

More coverage from YSIAC Conference is available here.

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Arbitration Tribunals’ Curtailed Jurisdiction in Armenia: Again “No” to the Contract Invalidity Issue

Tue, 2019-11-19 02:00

Mushegh Manukyan

More than four years have passed since the Armenian Cassation Court—the highest court in Armenia—held in its EKD/1910/02/13 (2014) decision (“Cassation Court Decision”) that only state courts may exercise jurisdiction over the issue of contract invalidity (see previous post). To recall, the Cassation Court reasoned that civil rights could be protected through judicial, administrative or public (arbitration) means but that “the most guaranteed option was the judicial option because in such case the protection was conducted in accordance with the judicial procedure strictly envisaged by the law…”  To that end, given the importance of civil rights concerning contract invalidity, the Cassation Court found that those rights shall be protected by state courts rather than by arbitral tribunals. The Cassation Court Decision had a limiting effect on the scope of arbitrable issues and thus paralyzed the Armenian arbitration system.

Following this decision, the Parliament amended the Civil Code in 2015 by specifically stipulating that “[t]he protection of civil rights is provided by a court or arbitral tribunal…” (the “2015 Amendment”). The policy justification that the government put forward to amend the Civil Code was by reference to the Cassation Court Decision, making clear that it limited “the possibility of resolving disputes arising from certain legal relationships through arbitration.” However, despite the 2015 Amendment, the court practice of rejecting the jurisdiction of arbitral tribunals over the contract invalidity issue appears to remain intact.

 

2019 Civil Appeals Court Decision

A recent decision of the Civil Appeals Court dated 16 April 2019 in the KD2/0548/02/18 case signalled that the Armenian courts would continue limiting the ability of arbitration tribunals to exercise jurisdiction over the contract invalidity issue. In this dispute between two major telecom companies, the claimant sought damages arising out of the invalidity of a 2009 contract in a state court despite the fact that the contract contained an arbitration clause. The court, however, agreed with the respondent that sought to stay the proceedings, relying on the arbitration clause. The claimant subsequently appealed the court decision before the Civil Appeals Court, relying, inter alia, on two main grounds:

First, it argued that the 2015 Amendment does not affect a contract concluded in 2009;

Second, the claimant also asserted that with the 2015 Amendment the legislature targeted only employment, consumer, and family disputes.

The Appeals Court held that the contract invalidity issue shall be exclusively decided by state courts. The decision was appealed to the Cassation Court, but the appeal was subsequently dropped. The Appeals Court’s decision appears to be premised on the proposition that the contract invalidity issue is so important that it cannot be entrusted to arbitral tribunals. The Appeals Court, citing the Cassation Court Decision, reiterated that the State has an obligation to create “necessary and effective mechanisms” to ensure that the right to effective means for legal protection can be fulfilled “fully and effectively.” In light of the Cassation Court’s statutory powers to ensure the interpretation and uniform application of laws, the Appeals Court deemed that the Cassation Court Decision had already specified instances of specific importance that shall be decided by state courts. To that end, the Appeals Court held that the dispute at hand “shall be subject to the first instance state courts’ jurisdiction given the importance and specificity of the requirements and legal norms underlying thereof.”

 

Comments

The Appeals Court appears to have agreed that the 2009 contract was not governed by the 2015 Amendment. This was by reference to Article 438 of the Civil Code, which stipulates:

  1. A contract must comply with rules that are mandatory for the parties by virtue of a statute or other legal acts (imperative norms) in effect at the time of its conclusion.
  2. If after the conclusion of a contract a statute is adopted establishing rules mandatory for the parties other than those that were in effect upon conclusion of the contract, the terms of the concluded contract shall remain in force except in cases when it was established in the statute that its effect extends to relations arising from previously concluded contracts.

Two observations should be made in this regard:

First, the parties’ arbitration agreement was broad and even contained the language “excluding jurisdiction of general courts,” which confirms the parties’ intention to avail the tribunal of unrestricted powers to decide all contractual disputes between the parties. This was consistent with the then-existing practice. Notably, in the period between 10 February 2007 (the effective date of the law on commercial arbitration) and 18 July 2014 (the date of the Cassation Court Decision), arbitration agreements were drafted without a single restrictive reference to the contract invalidity issue. The restrictive interpretation of the Civil Code emerged only as a result of the unusual Cassation Court Decision. The Appeals Court, however, concluded that in 2009, the Civil Code included mandatory rules limiting the power of arbitral tribunals to hear the contract invalidity issue. Thus, the Court found that the law prevails over the contract.

Second, by applying Article 438, the Court tacitly modified the arbitration agreement to exclude the contract invalidity issue from its scope but failed to determine the validity of the arbitration agreement as to other matters.

With regard to the claimant’s second point that the 2015 Amendment targeted a specific group of disputes, as someone who personally took part in the discussions of the 2015 Amendment, I should note that, although as part of the 2015 Amendment the Parliament authorized arbitration for certain types of post-dispute family, employment and consumer arbitrations, it is inaccurate to assert that the Civil Code was amended in the context of these disputes only. Rather, the government’s policy justification (as referred to above) makes clear that the reason for the 2015 Amendment was the Cassation Court Decision.

Also, it is difficult to speculate whether the Civil Appeals Court in fact gave weight to the independence issue in this case as the Cassation Court did, but the facts that raise concerns over the independence of the arbitral institution are overwhelming. Particularly, the parties’ arbitration agreement envisaged an arbitration with a panel of three arbitrators at the Arbitration Institution at the Chamber of Commerce and Industry of Armenia (“CCIA Arbitration Institution”) under its rules.

The CCIA Arbitration Institution is perhaps the most commonly used arbitration institution in Armenia. According to the CCIA Arbitration Institution rules, “[b]y agreeing to arbitration to be administered by” the CCIA Arbitration Institution, “the parties have accepted that [the arbitral tribunal] shall be formed exclusively from the list of arbitrators of the Arbitral Institution.” The lawyer for the party that sought to uphold the arbitration clause was a partner of a law firm whose managing partner is the President of CCIA Arbitration Institution, who has broad powers under the CCIA Arbitration Institution rules and its charter, ranging from arbitrator appointments to deciding on arbitrator challenges. The lawyer himself is listed as an arbitrator on the CCIA Arbitration Institution’s roster, along with five other members of the firm. The Secretary of the CCIA Arbitration Institution is also a partner of the same law firm. Further, the firm’s website makes plain that the party it represented in this case is a “major client.”

In such circumstances, it is unsurprising that the claimant chose to avoid the CCIA Arbitration Institution. Similarly, it is also apparent why in such cases Armenian courts have sought to ensure the integrity of the protection of civil rights through Armenia’s court system.

It is hoped that Armenian litigants will genuinely realize the independent and impartial nature of arbitration. That would likely lead to a relaxation of the courts’ protectionist approach and over-reaction toward arbitration, which, as evidenced in the above two cases, may often be justified. Ultimately, the largest burden to make arbitration more acceptable to the Armenian business community lies with the arbitration institutions, which should develop their rules and arbitration panels in accordance with the highest standards of independence and impartiality.

Finally, it is difficult to predict how the Armenian courts will apply the jurisprudence concerning contract invalidity to arbitrations between foreign parties and Armenian counterparts with a seat in Armenia. However, with regard to the enforcement of foreign arbitral awards that touch upon the contract invalidity issue, it should be noted that the Armenian Constitution stipulates that “[i]n case there is a contradiction between the norms of international treaties ratified by the Republic of Armenia and the norms of laws, the norms of the international treaties shall be applied.” To that end, it is hoped that the pro-enforcement bias of the New York Convention, which Armenia ratified in 1997, will prevail, and that the Armenian courts will honour foreign arbitral tribunals’ decisions concerning contract invalidity.

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CEPANI Celebrates Golden Anniversary with Three Days of Events and a New Set of Arbitration Rules

Tue, 2019-11-19 01:00

Maarten Draye and Emma Van Campenhoudt

Located in the heart of Brussels, Europe’s capital and home to international organisations such as NATO, CEPANI, the Belgian Centre for Arbitration and Mediation, was founded on 25 September 1969. At that time, Belgium had just acceded to the Geneva Convention and was exploring ways to update its obsolete legal arbitration framework.

Much has changed in these five decades. Not only has CEPANI developed into the largest arbitration institute in Belgium. Nowadays, it boasts a full range of dispute resolution services, offering rules on arbitration, mediation, mini-trials, expert appraisals, contract adaptations and domain name disputes.

Through its President, Secretariat and various Committees (e.g. on the appointment and challenges of arbitrators), CEPANI administers on average 80 cases each year in English, French and Dutch. While the majority of cases involves at least one Belgian party and is seated in Belgium, an increasing number of cases involves foreign parties and arbitral seats. CEPANI arbitration proceedings last on average 15 months from introduction, and 13 months from the appointment of the arbitral tribunal until the award. Disputes submitted to CEPANI arbitration relate to different fields, including in particular civil and commercial contracts, inter-company disputes, services agreements, and share purchase agreements.

In addition to its role as an institution, CEPANI actively promotes the knowledge and use of arbitration through study and research. To this end, CEPANI regularly organizes conferences and lunch meetings, publishes books on dedicated topics and casebooks in its scientific collection, and edits b-Arbitra, a bi-annual arbitration review (also available online through KluwerArbitration). Every three years, it organizes an academic prize to reward an outstanding paper in national or international arbitration.

CEPANI has further become one of the major players in Belgium in the development of dispute resolution. A CEPANI working group was instrumental in the adoption by the Belgian legislator of the UNCITRAL Model Law on Arbitration as Part VI of the Belgian Judiciary Code in 2013. Since a number of years, CEPANI further actively participates as an observer in UNCITRAL’s Working Group II on Arbitration and Dispute Settlement at its sessions in Vienna and New York. Together with ICC Belgium, CEPANI recently set up Brussels Arbitration Hub, a website aimed at assisting parties who have chosen Brussels as place of arbitration in finding accomodation, interpreters, court reporters and other service providers. CEPANI40 offers a platform for below 40 practitioners with an interest in arbitration, giving the next generation a chance to meet and exchange views.

The Centre’s golden milestone did not go by unnoticed. On 13, 14 and 15 November 2019, CEPANI hosted three days of celebrations in Brussels that brought together arbitration practitioners from Belgium and abroad for a gala dinner and various academic sessions. The Centre has further issued a special edition of b-Arbitra. Dedicated to supreme court decisions, this collector’s item contains contributions discussing arbitration-related case law of the highest courts in the world’s most prominent arbitration jurisdictions. Finally, CEPANI will release a Liber Arbitrandum in its scientific collection, a liber amicorum containing contributions from national and international experts on a variety of arbitration topics.

To keep its rules up to date with the most modern trends, CEPANI also launches a new set of arbitration rules. The new rules will enter into force on 1 January 2020 and modernize the current 2013 arbitration rules. The 2020 Rules will maintain a number of the current features, including the setting up of terms of reference at the outset of the arbitration proceedings and the possibility of parties to resort to an emergency arbitrator pending the constitution of the arbitral tribunal.

With the new rules, the Centre aims to make the use of CEPANI arbitration even more secure, while maintaining an approach driven by an efficient, rapid and legally sound solution to disputes governed by its rules.

Most of the changes to the 2020 rules aim at clarifying and completing a number of existing provisions. These changes either seek to address practical issues that have arisen in practice, or are innovations inspired by the most recent arbitration practice.

One of the most eye-catching novelties is that the CEPANI Arbitration Rules will no longer be divided in two separate sections. Where the 2013 rules contained a separate set of expedited rules for claims of limited value in Section II, such expedited rules will be integrated in the main rules. Under the 2020 rules, expedited rules shall apply if the amount of the dispute does not exceed a total of EUR 100,000, unless the parties opt out.

Furthermore, the 2020 Rules will introduce a mandatory formal review of all draft arbitral awards by the CEPANI Secretariat. This will ensure that every arbitral award issued by an arbitral tribunal under CEPANI Rules will meet all formal requirements, making such awards more robust against possible challenges.

Finally, to enhance efficiency and reduce costs, electronic communication will become the default rule under the 2020 rules for communications between the CEPANI Secretariat, the arbitral tribunal and the parties. In addition, CEPANI will continue to use BOX, a secure online platform where the entire file is accessible for the parties and the arbitral tribunal.

To guide users through the new rules and the Centre’s practice, the CEPANI Secretariat will issue the first edition of its Guide to CEPANI Arbitration. Being written in English, this will become an indispensable tool for users of CEPANI arbitration, including the growing number of international parties, counsel and arbitrators.

At 50 years, CEPANI thus underscores its leading role as a regional arbitration centre in the heart of Europe. With a set of cutting-edge rules and the support of a thriving multilingual arbitration community, the Centre’s future looks bright.

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Pakistan’s Woes with Foreign Investors – Ways to Prevent the Tethyan Saga

Mon, 2019-11-18 00:00

Ahmad Ghouri

Introduction

In July this year, an International Centre for Settlement of Investment Disputes (ICSID) based arbitration tribunal ordered the Government of Pakistan (GOP) to pay a massive $5.8 billion to Tethyan in compensation. The legal battle between Tethyan and GOP started in 2011 when GOP refused to grant a mining lease to Tethyan after it had allegedly invested more than $220 million to discover copper and gold reserves in Reko Diq town in Baluchistan, Pakistan. After the ICSID tribunal’s decision, the GOP first announced that it will try to settle with Tethyan. However, the GOP is now reportedly seeking to review the tribunal’s decision in accordance with ICSID’s investment arbitration procedures after Tethyan moved a US court for enforcement of the award. The legal battle for Pakistan continues although millions have already been spent on legal costs from the public purse.

In the past, the GOP has been involved in at least 13 other high-stake disputes with foreign investors, including recently with Agility and Progas, where many more millions must have been spent in legal costs or compensation. These costs are of course in addition to losing these existing investments by entering into disputes with investors, and the loss of country’s repute as an investor-friendly destination. Additionally, disputes taken by foreign investors to ICSID arbitration are difficult to manage by governments where tribunals, in accordance with their perceived mandate, are focused on resolution of the existing dispute, and payment of compensation should it be necessary, and not on maintaining working relationships between the disputing parties.

 

Preventing investment disputes

As the GOP wants to promote foreign direct investment (FDI) to boost the country’s economic development, it must devise a clear policy to avoid disputes with foreign investors. A radical option to stop foreign investors from taking their disputes to international arbitration is to terminate the existing (around) 50 bilateral investment treaties (BITs) that provide legal bases for international arbitration to foreign investors. However, such a radical measure without strengthening the domestic regime for protecting FDI can be counter-productive. Pakistani courts have in the past, without commenting on or disputing the merits of those cases, repeatedly interfered in the GOP’s dealings with foreign investors. Although in most of those cases Pakistani courts interfered due to allegations of wrong doing on part of government officials, foreign investors and their investments have been put at risk. In such circumstances, investment arbitration under the existing BITs is the only neutral and effective remedy left for foreign investors.

Instead of terminating the existing BITs, the GOP needs to make a clear and comprehensive policy to prevent disputes with foreign investors from arising at the first place, rather than trying to resolve them at a later stage through ICSID or other international arbitration. The GOP also needs to build capacities to resolve such disputes locally.

 

Ways forward

The following sections of this post present three recommendations for the development of a comprehensive investment dispute prevention policy. These recommendations are specifically aimed at the GOP. However, they are equally useful for other developing countries that are seeking to reform their domestic policies to attract, facilitate and retain sustainable FDI that contributes to local economic and non-economic development.

 

  1. Identify irritants from the start

First, the GOP should make transparent procedures for pre-entry vetting of foreign investors and investments to identify possible irritants for both the government and foreign investors that may cause future disputes. For GOP, such irritants include any possible security and public order apprehensions. Pakistan currently has an open-admission system that does not require pre-screening and approval for incoming foreign investors. This open-admission policy requires careful reconsideration. Before foreign investors and investments are allowed into Pakistan, the GOP must consider their possible effects on public interest, public policy and public institutions; fundamental rights of citizens; the environment; critical infrastructure, technology and security of critical data; and the freedom and plurality of media and political activities. Foreign investors must also be required to submit information on, for example, their ownership structures, origin of funding for investments, and existing and planned operations in other countries.

For foreign investors, such irritants include, for example, a lack of quality and transparency in governance and management of foreign investments, and unaccountability of public officials. Foreign investments in the government infrastructure sector are considered ‘public procurements’ and are governed by the public procurement regulatory authorities set up by the federal and provincial governments. These authorities have been created for improving the governance, management, transparency, accountability and quality of public procurements. However, no such public authorities exist to achieve these objectives in other areas such as investments made to exploit natural resources and the private sector investments made either solely by a foreign investor or as a joint venture with a government or a private entity. Instead, such investments are negotiated, authorised, managed or governed by the relevant government Ministries, Divisions or Departments. In line with the public procurement regulatory authorities, the GOP should consider setting up a regulatory body to scrutinise foreign investments in these areas to ensure transparency, accountability and quality before formal agreements are signed or legally binding commitments are made.

 

  1. Ensure facilitation throughout the life cycle of investments

Second, the GOP should ensure facilitation throughout the life cycle of FDI. This life cycle begins with the first key stage of strategy for attraction by invitation to invest in priority sectors and fostering linkages between foreign and domestic firms. However, effective governance of the stages subsequent to attraction is also equally important to appease foreign investors. These lifecycle stages include ease of entry, establishment and retention; during and post-completion repatriation of earnings; and, most importantly, active assistance to support positive impacts on local population and contributions to local development.

The GOP’s existing policies primarily focus on the attraction of FDI and no significant attention is being paid to the post-establishment care. For effective attraction of FDI, the government has created a central coordination mechanism at the Board of Investment (BOI) to ensure liaison among various federal and provincial public authorities that deal with foreign investors. This mechanism is intended to take up the issues relating to investment proposals with the concerned government departments for timely materialization of investment projects and to resolve any obstacles posed to the establishment of investments.

However, the government needs to create a more comprehensive investment facilitation policy that includes post-establishment care. Such policy should include mechanisms for observing the progress of FDI projects during their entire life-cycle. This could be achieved by further targeted support to ensure timely action by relevant government authorities to address any post-establishment problems faced by investors. This observation and targeted support will prevent issues from arising in the first place. It will also help identify actual issues faced by foreign investors and provide the possibility of their amicable resolution locally through negotiations before they escalate to international arbitration.

Additionally, it is important that such aftercare policy is not merely an emergency service delivered in sporadic ad hoc manner aimed at providing passive information or resolving instantaneous issues. Instead, it must be a strategically informed policy to promote longer term gains from FDI targeted at the development needs of Pakistan. A strategically informed aftercare policy can include, for example, training the local workers, helping with export promotion, obtaining larger premises for expansions, identifying local suppliers, helping in building a business case for new investments, and developing networks to improve productivity and competitiveness. In addition to preventing and early identification of disputes, these initiatives will help to attract new investments by boosting investor confidence and ease of doing business rating.

 

  1. Create neutral and effective investor complaints and dispute resolution mechanisms

Third, the GOP should create an effective and neutral investor complaints and dispute resolution mechanism. The BOI has announced the establishment of a dedicated cell to address grievances of investors and taking-up their issues with relevant government departments. The BOI is also considering the possibility of establishing an Alternate Dispute Resolution (ADR) Centre to provide a forum to settle investment related disputes domestically before approaching international dispute resolution agencies. As the policy with regards to these initiatives is not fully set out as yet, it is unclear how the BOI would ensure that foreign investors actively avail the services of BOI’s grievances cell and ADR Centre prior to taking their disputes to international arbitration. The BOI needs to carefully weigh its options before such mechanisms are created. For example, the BOI needs to be clear as to whether it wants to create an investor complaints cell and play a supervisory or commanding role to address complaints against government departments in an effective manner, or whether it wants to play the role of a mediator for the resolution of disputes between foreign investors and government departments.

This question ultimately goes back to the BOI’s mandate under the law, however, it will be more appealing to foreign investors if the BOI takes a commanding role in addressing investor complaints rather than becoming a mediator. A mediator is supposed to be a neutral intermediary having no vested interest in the dispute, and foreign investors are likely to be apprehensive of BOI’s neutrality since it is primarily a mainstream government institution. A complaints cell at the BOI, on the other hand, appears to be a more convincing option instead of a mediation centre. The BOI can take notice of the complaints made by foreign investors against government authorities and intervene in a timely and effective manner to address those complaints in the spirit of cooperation and compromise.

Instead of an ADR Centre at the BOI, the GOP should consider the creation of a government backed, but fully autonomous, investment and commercial arbitration institution having a panel of independent local and foreign arbitrators. Such arbitration institution will be more attractive to foreign investors as compared to an ADR Centre because it will be both neutral and autonomous. Resolving disputes at a local arbitration forum by a mix of foreign and local experts having an in-depth knowledge of local realities, procedures and laws will be both time and cost effective. This will also boost investor confidence and attract more FDI. Private arbitration centres, such as the Centre for International Investment and Commercial Arbitration, have evolved but such centres cannot flourish unless they are backed by the government and are included in private-public contracts as an arbitration forum. Otherwise, the best way forward is that the government creates an autonomous arbitration institution that is fully backed by the government but operates independently and in accordance with international best practices. These developments will, of course, need to come hand in hand with the modernisation of Pakistani arbitration law that is based on the colonial era Arbitration Act 1940. Useful inferences can be drawn in this regard from the recent legislative developments in India, which has – following the footsteps of arbitration institutions created by Singapore and Hong Kong – set up a high level Arbitration Council to institutionalise and supervise arbitration proceedings in India.

 

Conclusion

As any other developing country, Pakistan needs more FDI that contributes to its sustainable development objectives. Disputes with foreign investors incur both reputational and financial costs. The GOP needs to make a clear and comprehensive policy to prevent disputes with foreign investors from arising in the first place rather than trying to resolve them at a later stage through international arbitration. A comprehensive dispute prevention policy would ensure that possible irritants for both investors and the host government are identified from the start so that both parties make informed and measured choices. Such policy would also ensure facilitation and care throughout the life cycle of FDI and not just at the time of its admission and entry. A life cycle-oriented aftercare policy would be based on continuous observation and targeted support to deal with issues that can lead to disputes. The host government can also strategically embed the aftercare policies into its long-term sustainable development objectives. Additionally, the GOP should also create a neutral and effective complaints mechanism to provide investors an opportunity to resolve their issues with public authorities amicably. In this regard, it is also imperative to develop domestic arbitration regime and institutions having the capacity and expertise to resolve disputes with foreign investors. These policies and initiatives will prevent disputes from arising in the first place and also provide an opportunity to resolve them amicably and locally, thus avoiding enormous legal costs. They will also improve the overall business environment and Pakistan’s outlook as a desirable FDI destination.

The precise suggestions made to implement these dispute prevention policy proposals in Pakistan are based on the current Pakistani normative and regulatory environment. However, these proposals are equally useful for other developing countries that can benefit from them in the specific ways they are implementable in their own normative and regulatory space.

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The U.S. Law of Arbitration: From 1925 to 2019

Sun, 2019-11-17 01:16

Thomas E. Carbonneau

The progression of arbitration law in the American legal system has been steadfast. Despite a few uneasy rulings, the U.S. Supreme Court (“SCOTUS” or “the Court”) has provided resolute support for arbitration and proclaimed the legitimacy of its enhanced adjudicatory role. The few rulings that strayed from the contemporary judicial evaluation of arbitration1)Wilko v. Swan, 346 U.S. 427 (1953); Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145 (1968); Bernhardt v. Polygraphic Co. of Am., 350 U.S. 198 (1956); Alexander v. Gardner-Denver Co., 415 U.S. 36 (1974); Volt Info. Scis., Inc. v. Bd. of Trustees of Leland Stanford Jr. Univ., 489 U.S. 468 (1989); Stolt-Nielsen S.A. v. Animal Feeds, Int’l, 559 U.S. 662 (2010) jQuery("#footnote_plugin_tooltip_1391_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1391_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); eventually were reconsidered and their impact on the law significantly lessened or entirely redefined. For example, the Rodriguez Court reversed Wilko v. Swan; Bernhardt Polygraphic was replaced with the Federalism Trilogy; Volt Information Sciences was recast as a contract freedom case; and Sutter virtually reversed Stolt-Nielsen.3)Rodriguez de Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477 (1989) and Oxford Health Plan, LLC v. Sutter, 133 S. Ct. 2064 (2013) jQuery("#footnote_plugin_tooltip_1391_3").tooltip({ tip: "#footnote_plugin_tooltip_text_1391_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); U.S. law provides that arbitral adjudication can apply to all civil disputes and, once chosen by the contracting parties, will yield binding determinations at a lower cost and more quickly than its judicial counterpart.

The Steelworkers Trilogy2)United Steelworkers of Am. v. Am. Mfg. Co., 363 U.S. 564 (1960); United Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574 (1960); United Steelworkers of Am. v. Enter. Wheel & Car, 363 U.S. 593 (1960) Corp) jQuery("#footnote_plugin_tooltip_1391_2").tooltip({ tip: "#footnote_plugin_tooltip_text_1391_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); in 1960, along with the cases on international litigation and arbitration4)Scherk v. Alberto-Culver Co., 417 U.S. 506, reh’g denied, 419 U.S. 885 (1974); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985); The Bremen v. Zapata Offshore Co., 407 U.S. 1 (1972) jQuery("#footnote_plugin_tooltip_1391_4").tooltip({ tip: "#footnote_plugin_tooltip_text_1391_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); foreshadowed the Federalism Trilogy5)Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983); Southland Corp. v. Keating, 465 U.S. 1 (1984); Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (1985) jQuery("#footnote_plugin_tooltip_1391_5").tooltip({ tip: "#footnote_plugin_tooltip_text_1391_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });.

The federalism cases spread the Court’s new assessment of arbitration to all levels of the American legal system. A contractual reference to arbitration could achieve what had eluded the American dispute resolution system throughout its history: efficient and effective adjudication. The law, in effect, had failed society by demanding that the legal system provide absolute procedural rectitude in the trial, extensive adversarial discovery in building the record, and appeal on the merits. By contrast, the characteristics of arbitral adjudication constituted, in and of themselves, a functional form of due process. Domestic civil justice and functional global commerce could best be realized through the submission of disputes to arbitration.

The revamped arbitration doctrine survived the periodic changes in the Court’s composition. A majority of the justices consistently agreed that arbitration was an effective solution to the problem of the inaccessibility of civil justice. As in other Western democracies, American society had evolved and changed significantly in terms of population, structural character, and its need for resources. The entanglements and leaden pace of the legal methodology was having a ruinous impact upon the social order. Adjudication, therefore, needed to be altered and made more accommodative of societal needs. The demanding burdens of civil litigation were neither tolerable nor workable. American society could not constitutionally abandon its obligation to provide fair and impartial civil justice by accepting or acquiescing to the operational dysfunctionality of the civil adjudicatory process. For the Court, arbitration could remedy the problems of civil litigation. The judicial commitment to arbitration would, over time, bring about a systemic revolution in American law.

SCOTUS’ faith in arbitral adjudication evidently influenced the substance of its rulings on arbitration. Prior to their ascension, no member of the Court ever professed an in-depth knowledge of or a strong interest in arbitration.  In fact, the opinion in some cases, e.g., First Options of Chicago v. Kaplan, 514 U.S. 938 (1995), demonstrated a spotty knowledge of arbitration. Justices were on the Court because of their legal skills, their familiarity with judicial litigation, and their political involvements. Prior to their period of service, few, if any, members of the Court ever touted non-judicial adjudication. The leadership of the Court, in particular Chief Justice Warren Burger, wanted all its members to become aware of the grave failings of the legal process and to join the effort to eradicate them. During their tenure, a number of justices bettered their understanding of arbitration and developed a much deeper appreciation of the remedy and its beneficial impact upon the legal process.

Political convictions, however, generated consternation about arbitration. The unilateralism of adhesion reduced the majority in favor of arbitration. The long-standing social justice contention between the ‘haves’ and ‘have-nots’ cooled the attention given to judicial reform through private contract. While a majority could still be constituted in favor of arbitration, opposing political persuasions created a sense of disunity among the justices. Despite the political differences, the Court continued to sustain party recourse to arbitration. Law and policy would need to be reconciled to maintain a majoritarian position on arbitration. Subsequent rulings established a more measured balance between law and arbitration, but also intensified the critique of law and the support for litigation through arbitration. Rulings depended upon the current and evolving needs of the legal system and society. Legal positions often varied by circumstance and group dynamics within the Court. Be that as it may, a majority of justices continued to favor arbitration strongly because it harbored a ‘real’ solution to the need for effective civil litigation.

Throughout his tenure on the Court, Justice Thomas objected to arbitration and the application of the FAA on a states’ rights basis. Like Justice Scalia and O’Connor, Justice Thomas believed that the federal statute was never intended to apply in state courts. In his view, state courts were free to apply state law in arbitration cases and reach results different from those likely in federal courts. Nevertheless, Justice Thomas voted with the majority in the class waiver cases. Since Justice Scalia’s death, Justice Thomas has resumed emphasizing that the FAA is federal law that is not binding on state courts. For the sake of accuracy, any assessment of Justice Thomas’ position on arbitration should take into account his dissent in Mastrobuono because it is a powerful statement of the standing of the prior decision in Keating. Justice Thomas convincingly argues that the two opinions cannot be reconciled.

Justice Alito is as reluctant as Justice Thomas on the topic of arbitration, if not more so. He appears to be the most likely justice to oppose the “emphatic [strong, liberal] policy favoring arbitration.” He came to the Court from the Third Circuit, a federal appellate court that frequently advocates for restrictions on arbitration and arbitrability—a position also espoused by the Ninth Circuit. Justice Alito’s opinion in Stolt-Nielsen v. AnimalFeeds was an unequivocal criticism of arbitration’s trespass on the legal system’s jurisdiction, mission, and authority. In Stolt-Nielsen, the Court held that a special jurisdictional award rendered by an AAA Panel was null and void because the arbitrators failed to provide a legal basis for their ruling—in effect, amounting to a form of merits review of the award prohibited by current law and strongly disfavored by judicial policy. In effect, the Court deemed that the arbitrators should rule as judges would have ruled. By disappointing that expectation, the arbitrators’ conclusions were deemed unenforceable. This view of arbitration is antiquated and should no longer be possible in the contemporary legal regulation of arbitration.

Nonetheless, the future of arbitration in the U.S. and like-minded legal systems seems to be strong. Judicial hostility is seen as an outdated and arthritic position. International commercial arbitration is more developed and well-established than its domestic counterpart. There is long-standing and significant legal and political support for arbitration in Western European democracies (e.g., France, England, Switzerland, The Netherlands, and Belgium). Court acceptance of and support for arbitration is critical. The courts enforce both arbitral agreements and awards. Law firms have developed departments in arbitration. International commercial litigation is basically conducted through arbitration. States even use arbitration to resolve foreign investment and related problems; it has proven successful, but sovereignty nonetheless remains an obdurate obstacle to adjudicatory civilization. Arbitration is the most energetic development in law in a very long time.

Arbitration is an area of legal practice that promises great professional opportunities. The allure of arbitration has become virtually impossible to resist. For these reasons, this author decided to write his Seventh Edition of the “Law and Practice of United States Arbitration”.

 

References   [ + ]

1. ↑ Wilko v. Swan, 346 U.S. 427 (1953); Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145 (1968); Bernhardt v. Polygraphic Co. of Am., 350 U.S. 198 (1956); Alexander v. Gardner-Denver Co., 415 U.S. 36 (1974); Volt Info. Scis., Inc. v. Bd. of Trustees of Leland Stanford Jr. Univ., 489 U.S. 468 (1989); Stolt-Nielsen S.A. v. Animal Feeds, Int’l, 559 U.S. 662 (2010) 2. ↑ United Steelworkers of Am. v. Am. Mfg. Co., 363 U.S. 564 (1960); United Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574 (1960); United Steelworkers of Am. v. Enter. Wheel & Car, 363 U.S. 593 (1960) Corp) 3. ↑ Rodriguez de Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477 (1989) and Oxford Health Plan, LLC v. Sutter, 133 S. Ct. 2064 (2013) 4. ↑ Scherk v. Alberto-Culver Co., 417 U.S. 506, reh’g denied, 419 U.S. 885 (1974); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985); The Bremen v. Zapata Offshore Co., 407 U.S. 1 (1972) 5. ↑ Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983); Southland Corp. v. Keating, 465 U.S. 1 (1984); Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (1985) 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 Contents of the Asian International Arbitration Journal, Volume 14, Issue 2

Sun, 2019-11-17 00:00

Lawrence Boo and Gary Born

The contents of this issue of the journal is now available and includes the following contributions:

 

Rachel Chiu Li Hsien, ‘A World Without Borders; A New World Order: Navigating Cross-Border Insolvencies Through Arbitration’

To date, multi-jurisdictional efforts aimed at managing cross-border insolvencies are largely limited to broad speaks of cooperation between national Courts. Absent is pointed attention to the incongruence in national insolvency laws at play. Without a single cross-jurisdictional forum with policing-like powers to navigate these differences, detours from the certainty, speed, and predictability that insolvency law serves have become a recurrence. This article posits realigning the goals of insolvency law in the context of cross-border insolvencies, by employing arbitration and mediation as lubricants to the difficult ‘choice of law’ and ‘choice of forum’ issues that present. The author proposes the construct of a specialized interstate dispute resolution centre that runs on a quasi-arbitration-mediation model and a set of ‘choice of law’ principles. This framework offers a path to resolve certain cross-border insolvency related disputes that carry a substantial transnational element. Most critically, the author advocates the value of a transnational integrated framework aimed at building consensus around ‘choice of law’ and ‘choice of forum’ issues. She believes this is key to realizing the goals of certainty and expeditious management of multinational commercial enterprises in financial distress.

 

Michael Neumeier, ‘Class Arbitration in Australia: A Bright Future or a Pipe Dream?’

Class arbitration has been a hotly debated issue in academic circles since the turn of the century throughout the world. Much literature has recognized that class arbitration could be an effective means of resolving the ever-increasing number of mass claims with cross-border implication. However, the cross-border advantage of class arbitration is dependent on the legal community’s ability to craft a procedure that is acceptable across a diverse tapestry of legal systems around the world. In continental European legal systems there appears to be a jurisprudential battle underway with some supporting class arbitration, and many fundamentally objecting to it (some authors have even argued that class arbitration would be unconstitutional). These objections have not halted the development of alternative collective redress regimes in EU Member States, (albeit they are disparate and often incomplete) demonstrating an underlying appetite for collective redress. Australia has had a wealth of experience with judicial class actions, whilst there is little literature considering the possibility of class arbitration. This paper: (1) considers whether class arbitration would even be possible under Australian law, and (2) proposes a ‘less is more’ class arbitration regime that would be harmonious on an international level.

 

Sharad Bansal, ‘The Dampening Effect of ‘Foreign’ Mandatory Laws’

Party autonomy – a foundational facet of international arbitration – is often at loggerheads with public policy elements. A recurrent debate in international arbitration has been the extent of limits imposed by public policy on party autonomy. One aspect of this debate is when parties expressly opt for a law governing the merits of the dispute, can an arbitral tribunal derogate from such law and apply a mandatory rule which it finds to be relevant to the dispute? This issue has repercussions on the enforceability of arbitration agreements as well as arbitral awards where mandatory rules are involved. In this article, the author argues that arbitrators are bound to apply mandatory laws notwithstanding the fact that such a measure constitutes a departure from the lex contractus, since parties inherently lack the capacity to contract out of mandatory rules. To the extent that mandatory rules reflect public policy they now cast a limit to parties’ lex contractus.

 

Binsy Susan & Adarsh Ramakrishnan, ‘How to Trump a “No Claims Certificate” in Arbitration’

In construction contracts, employers generally insist on submission of ‘no due/certificate’ claims signed by the contractors, as pre-condition to release payments due under the final bill. To secure the full amount, contractors generally send an arbitration invocation notice setting out their claims (or in cases where there is no arbitration clause, a legal notice) to the employers, in defiance of any such settlement certificate/voucher. When the employers contend that the dispute is not ‘arbitrable’ on account of discharge of the contract in terms of the No Dues/Claims Certificate, the contractors refute it by stating that any such settlement certificate/voucher was obtained by fraud, coercion or undue influence and that there was absence of free consent. The article will analyse the Indian law on validity of such no dues certificates/settlement certificates/discharge vouchers in construction contracts and the possible course of action that contractors may adopt to contest claims, despite such certificates.

 

Saad Aljadean Badah, ‘Capacity of Parties and Arbitration Agreement, Part I’

The Gulf Cooperation Council (‘GCC’) is a political and economic alliance of six states namely Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain and Oman. They share similar political and cultural identities rooted in the creed of Islam (See: http://www.gcc-sg.org/en-us/AboutGCC/Pages/StartingPointsAndGoals.aspx). They are all parties to the New York Convention 1958. This article seeks to examine the concept of capacity under the laws of the GCC states and how it impacts the enforcement of the agreement to arbitrate under the New York Convention when interposed with the Civil Codes of the GCC states.

 

Chahat Chawla, ‘Legislation Update: India’

On 10 August 2018, the Lok Sabha (Lower House of the India’s bicameral Parliament) passed the Arbitration and Conciliation (Amendment Bill), 2018 (‘2018 Amendment Bill’), to further amend the Arbitration and Conciliation Act, 1996 (‘1996 Act’). In a short span of three years, the Indian Parliament has sought to overhaul India’s principal arbitration legislation for the second time, after the initial reforms introduced by the Arbitration and Conciliation (Amendment) Act, 2015 (‘2015 Amendment Act’). The 2018 Amendment Bill has been described as ‘a momentous and important legislation’ by the Indian Minister of Law and Justice, which is aimed at making India a ‘hub of domestic and international arbitration’. Other than the introduction of the 2018 Amendment Bill, the Indian Government, this year, also introduced the New Delhi International Arbitration Center Bill, 2018 (‘NDIAC Bill 2018’) in the Lok Sabha. The primary objective of the NDIAC Bill is to establish a ‘flagship arbitral institution’ to enable the growth of institutional arbitration in India. This Note undertakes a review of the key features of the 2018 Amendment Bill and the NDIAC Bill 2018 and how the proposed legislative measures impact the existing arbitral regime in India.

 

The issue also includes a book review by Qian Wu of ‘Arbitration in the Digital Age: The Brave New World of Arbitration’, edited by Maud Piers and Christian Aschauer (Cambridge University Press, 2018).

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