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Jurisdiction or Admissibility? The Status of Time Bars Under Singapore Arbitration Law

Fri, 2020-08-07 03:00

In BBA and others v BAZ and another appeal [2020] SGCA 53, the Singapore Court of Appeal (“SGCA”), in refusing to set aside an arbitral award, held that issues of time bar which arise from the expiry of statutory limitation periods go towards admissibility and not jurisdiction. Such issues cannot therefore be reviewed de novo by the seat court under Singapore law. This post examines that decision from a comparative perspective and also considers how the court’s reasoning might apply to contractual time bars.

 

Background and summary of the Singapore decisions

The dispute arose out of the sale and purchase of a controlling block of shares in one of India’s largest pharmaceutical manufacturers (a company pseudonymised as “C”). The buyer was BAZ, a Japanese company. The sellers were the family members of C’s founder and companies controlled by them. A few years after the sale, BAZ commenced arbitration against twenty of the sellers, alleging concealment of an internal report detailing how C engaged in data falsification to expedite the obtaining of regulatory approval for drug products.

The arbitration was seated in Singapore and conducted under the ICC rules. The tribunal rendered its award in 2016, holding in favour of BAZ by a majority. In particular, it held that BAZ’s claim was not time barred under the Indian Limitation Act 1963 (“Indian Limitation Act”).

The respondent sellers then brought proceedings to set aside the award in Singapore. Five of the sellers, who were minors, brought separate proceedings from the rest. The Singapore High Court found that time bar was not a jurisdictional issue that could be reviewed de novo by the court, and that the tribunal did not exceed its jurisdiction.

The sellers – apart from the minors against whom the award was set aside – appealed against the refusal to set aside the award. The SGCA dismissed the appeal in its entirety (see here for a summary of the SGCA’s decision).

 

The SGCA’s decision: Statutory time bars as an admissibility issue

In holding that issues of time bar arising from statutory limitation periods go towards admissibility, the SGCA endorsed the “tribunal versus claim” test underpinned by a consent-based analysis for distinguishing between issues of jurisdiction and admissibility. (BBA v BAZ at [76]) As explained by the SGCA, the “tribunal versus claim” test asks whether the objection is targeted at the tribunal (in the sense that the claim should not be arbitrated due to a defect in or omission to consent to arbitration), or at the claim (in that the claim itself is defective and should not be raised at all). (BBA v BAZ at [77]) In the former case the objection goes towards jurisdiction, and in the latter case, towards admissibility.

Besides the “tribunal versus claim” test, at least two other tests exist in the authorities – the “presumed party intentions” test in American case law (see BG Group Plc v Republic of Argentina, discussed below), and the adoption of a draftsman-like perspective to the enquiry (which I will call the “draftsman” test) proposed by some commentators.1)Chin Leng Lim, Jean Ho & Martins Paparinskis, International Investment Law and Arbitration (CUP, 2018) at p 118. jQuery("#footnote_plugin_tooltip_1576_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1576_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Interestingly, the same outcome would likely have been reached on either of these tests in relation to statutory time bars.

First, the “presumed party intentions” test asks whether parties intended to submit that dispute or an aspect of the dispute to the arbitrators or the courts. Justice Breyer explains this idea in the majority opinion of the United States Supreme Court in BG Group Plc v Republic of Argentina:2)BG Group Plc v Argentina 134 S Ct 1198, 1206–1207. jQuery("#footnote_plugin_tooltip_1576_2").tooltip({ tip: "#footnote_plugin_tooltip_text_1576_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

On the one hand, courts presume that the parties intend courts, not arbitrators, to decide what we have called disputes about “arbitrability”. These include questions such as “whether the parties are bound by a given arbitration clause,” or “whether an arbitration clause in a concededly binding contract applies to a particular type of controversy.” …

On the other hand, courts presume that the parties intend arbitrators, not courts, to decide disputes about the meaning and application of particular procedural preconditions for the use of arbitration. … courts assume parties “normally expect a forum-based decision maker to decide forum-specific procedural gateway matters” … These procedural matters include … the satisfaction of “prerequisites such as time limits, notice, laches, estoppel, and other conditions precedent to an obligation to arbitrate.” …

While the same conclusion (that statutory limitation issues go towards admissibility) would likely have been reached under the “tribunal versus claim” and “presumed party intentions” tests, the latter has been criticised for providing insufficient guidance for distinguishing issues of jurisdiction from admissibility. The allocation of responsibility between courts and tribunals is usually not a matter that parties consider. Absent express indications of party intention, courts are left with significant leeway to decide a matter de novo, as this article argues. The “tribunal versus claim” test might therefore be the easier-to-apply option.

Second, under the “draftsman” test, objections go towards admissibility if they relate to interpretation of another rule or instrument. As succinctly explained in one treatise:3)Chin Leng Lim, Jean Ho & Martins Paparinskis, International Investment Law and Arbitration (CUP, 2018) at p 118. jQuery("#footnote_plugin_tooltip_1576_3").tooltip({ tip: "#footnote_plugin_tooltip_text_1576_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The more draftsman-like reading would focus on the place that the issue occupies in the structure of international dispute settlement: is the challenge related to the interpretation and application of the jurisdictional clause of the international tribunal (and hence jurisdictional), or is it related to the interpretation and application of another rule or instrument (and is hence one of admissibility)?

Applying that test, the limitation issue would go towards admissibility because the Indian Limitation Act is external to the jurisdiction clause. That said, the SGCA’s recognition of an exception to the general position (that issues of statutory limitation go towards admissibility) where parties expressly refer to statutory time bars in their arbitration clauses (such as by specifying that time-barred claims are outside the tribunal’s jurisdiction) parallels the straightforward application of the “draftsman” test in terms of outcome. The extent to which Singapore’s version of the “tribunal versus claim” test is broader than the “draftsman” test would then depend on the court’s receptiveness to expansionary arguments regarding implied terms to the agreement.

 

Commentary: Extending the SGCA’s reasoning to contractual time bars

A related question is whether contractual time bar provisions would go towards jurisdiction or admissibility under the “tribunal versus claim” test. The “presumed party intentions” test translates somewhat oddly in this context, since there could well be actual evidence of the parties’ intentions to contend with. The “draftsman” test, on the other hand, would invariably produce the same result by virtue of how the contractual time limit must be found in the arbitration agreement.

The Australian and English cases have interpreted contractual time bars to determine if they bar the remedy or extinguish the claim,4)Lightsource Technologies Australia Pty Ltd v Pointsec Mobile Technologies AB (2001) 250 FLR 63 at [160]–[164]; Wholecrop Marketing Ltd v Wolds Produce [2013] EWHC 2079 (Ch) at [26]. jQuery("#footnote_plugin_tooltip_1576_4").tooltip({ tip: "#footnote_plugin_tooltip_text_1576_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); though some English cases have expressed doubt whether such clauses must invariably fall into one category or the other.5)See eg, Smeaton Hanscomb & Co Ltd v Sassoon Setty Son & Co [1953] 2 All ER 1471 at 1473–1474. jQuery("#footnote_plugin_tooltip_1576_5").tooltip({ tip: "#footnote_plugin_tooltip_text_1576_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); However, in view of the SGCA’s statement in BBA v BAZ that “[i]t makes no difference whether the applicable statute of limitations is classified as substantive (extinguishing the claim) or procedural (barring the remedy) in the private international law sense”, it is questionable whether these distinctions will apply with equal force under Singapore law. As the SGCA noted, in both cases the complaint is that the claim is stale and therefore defective, and not that the bringing of time-barred claims fall outside the scope of consent to arbitration.

Contractual time bars may therefore warrant a more nuanced analysis under the “tribunal versus claim” test. The result would likely hinge on the way the arbitration agreement is worded.

It may be framed similarly to statutes of limitations, adopting wording such as “no claim shall be brought” or “all claims shall be dismissed” after a specified period. If so, there is no indication that the bringing of time-barred claims is something the parties did not consent to, and the time limit would be construed as targeting the claim and thus a matter of admissibility. Some support for this outcome is found in the Hong Kong Court of Appeal’s decision in Grandeur Electricity Co Ltd v Cheung Kee Fung Cheung Construction Co Ltd, which held that the application of a contractual time bar was for the tribunal to rule on.

The arbitration clause may also contain “eligibility requirements, prohibiting arbitrators from hearing claims more than a fixed number of years after the alleged wrong occurred”.6)William W Park, “Arbitral jurisdiction in the United States: who decides what?” (2008) 11 IALR 33 at 35. jQuery("#footnote_plugin_tooltip_1576_6").tooltip({ tip: "#footnote_plugin_tooltip_text_1576_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Such requirements might be construed as restricting the right to arbitrate by defining the scope of consent, and could conceivably be regarded as jurisdictional.

In sum, the SGCA’s decision provides a timely clarification of how issues of statutory limitation will be decided in setting aside applications. It remains to be seen how courts in Singapore and in other jurisdictions will treat issues of contractual limitation.

 

*The author reported on the Court of Appeal case above in the course of her work. This article is written in the author’s personal capacity, and the opinions expressed in the article are entirely the author’s own views.

References   [ + ]

1, 3. ↑ Chin Leng Lim, Jean Ho & Martins Paparinskis, International Investment Law and Arbitration (CUP, 2018) at p 118. 2. ↑ BG Group Plc v Argentina 134 S Ct 1198, 1206–1207. 4. ↑ Lightsource Technologies Australia Pty Ltd v Pointsec Mobile Technologies AB (2001) 250 FLR 63 at [160]–[164]; Wholecrop Marketing Ltd v Wolds Produce [2013] EWHC 2079 (Ch) at [26]. 5. ↑ See eg, Smeaton Hanscomb & Co Ltd v Sassoon Setty Son & Co [1953] 2 All ER 1471 at 1473–1474. 6. ↑ William W Park, “Arbitral jurisdiction in the United States: who decides what?” (2008) 11 IALR 33 at 35. 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Data Protection Considerations In UAE Related Arbitrations

Wed, 2020-08-05 21:00

The data protection regime in the UAE is complicated. Parties to arbitrations that have connections to the UAE, regardless of whether the arbitrations are seated here, should be aware of the data protection regime(s) that may apply to them to ensure that no unintended breaches occur and to consider whether the relevant data protection regulations offer any strategic benefits for the dispute. In particular, parties should be aware that there are four different and distinct data protection regimes within the UAE. Onshore UAE has its own data protection regime and, in addition, the Dubai International Financial Centre (DIFC), the Abu Dhabi Global Market (ADGM), and Dubai Healthcare City (DHCC) each have their own data protection regimes.

 

The Data Protection Framework In The UAE

Onshore UAE

There is no single data protection law in onshore UAE. However, there is a broad and relatively far reaching concept of privacy that is protected and this has data protection consequences. Practitioners and controllers of data need to be alert to the different sources of law when ensuring compliance with data protection issues.

In brief, federal sources of law and regulation on data protection issues include:

• the UAE Constitution which, at Article 31, includes broad protections for privacy of communications;

• the UAE Penal Code which provides, at Articles 378 and 379, for criminal liability for certain breaches of privacy;

• the UAE Central Bank’s Digital Payment Regulation (the Regulatory Framework for Stored Values and Electronic Payment Systems) which relates to digital payment service providers in the UAE;

• the Cyber Crimes Law (Federal Law No. 5 of 2012 on Combating Cyber Crimes) which (i) prohibits obtaining and dealing with certain information relating to medical data (Article 7); (ii) sets out certain prohibitions relating to financial information (Articles 12 and 13); and (iii) prohibits the use of information technology to violate the privacy of an individual or disclose certain confidential information (Articles 21 and 22); and

• the Law Regulating Telecommunications Sector (Federal Law by Decree No. 3 of 2003, as amended) which, among other things, establishes the Telecommunications Regulation Authority (the TRA) (Article 6) and provides that one of the TRA’s competencies is the issuing of regulations regarding the use of subscribers’ personal information (Article 14(3)).

In addition, Dubai has passed its own laws and regulations which may impact data protection. These include the “Dubai Data Law” (Dubai Law No. 26 of 2015 on the Regulation of Data Dissemination and Exchange in the Emirate of Dubai). Although the law is not a data protection law, it refers in general terms to data confidentiality and data protection. In addition, the Dubai Statistics Centre Law (Dubai Law No. 28 of 2015) protects personal data that has been obtained as confidential and limits how it may be disclosed or disseminated.

The net result is a patchwork of laws and regulations at the federal and emirate level that seeks to protect privacy through mandating and regulating how certain data is collected, stored, and shared. Breaches of the relevant UAE laws can lead to criminal and/or civil liabilities, imprisonment and/or fines.

For those involved in arbitrations that may involve data from or relating to this region, consider whether any data in the arbitration:

• could be considered personal data because, for example, it relates to things such as a person’s private or family life;

• relates to medical records;

• is user identification data or transaction records from digital payment service providers;

• is financial information and, if it is, whether it was properly accessed or obtained; or

• is subscriber information held by telecommunications providers.

If the data falls into any of these categories, it is worth taking advice early as it is likely there will be data protection issues to consider.

 

Offshore UAE

Three of the UAE’s free zones, the DIFC, the ADGM, and the DHCC, each have their own data protection regimes. In addition, the UAE’s criminal law uniformly applies across the country, including in the free zones. Accordingly, criminal liabilities relating to data protection (as discussed above) will be equally applicable in the free zones.

The DIFC’s introduced a new data protection, Data Protection Law No. 5 of 2020, which came into effect on 1 July 2020. It replaced the previous data protection law, DIFC Law No. 01 of 2007.

The new law provides the DIFC with the most up to date data protection law across the UAE and its free zones. Key takeaways include that personal data may only be processed lawfully and in accordance with the new law (Section 9). In order for processing to be lawful, it must either be by consent or one of the other grounds must apply (Section 10). None of these grounds make reference to judicial or arbitral proceedings but, arguably, some of the grounds could be construed as to include judicial or arbitral proceedings. In addition, some categories of personal data (Special Categories) are afforded extra protections. So, personal data that reveals or concerns “(directly or indirectly) racial or ethnic origin, communal origin, political affiliations or opinions, religious or philosophical beliefs, criminal record, trade-union membership and health or sex life and including genetic data and biometric data where it is used for the purpose of uniquely identifying a natural person” must be treated with greater care. For such personal data, unless a data subject gives explicit consent to the processing of this personal data, it may not be processed unless one of eleven other grounds apply. One of these grounds is where the processing of the personal data is necessary “for the establishment, exercise or defence of legal claims (including, without limitation, arbitration and other structured and commonly recognised alternative dispute resolution procedures, such as mediation) or is performed by the [DIFC] Court acting in its judicial capacity” (Section 11(f)). It is not clear whether the legal claim must be one to which the data subject is a party or otherwise connected. There are restrictions on where certain personal data can be stored and/or transferred.

The ADGM’s data protection law, the ADGM Data Protection Regulation 2015 (as amended), protects personal data in a similar fashion to the DIFC.

DHCC’s Data Protection Regulation No. 7 of 2013 relates to patient health information. It introduces rules on what data can be collected: it must be necessary for a lawful purpose. However, “lawful purpose” is not defined in the regulations; how it must be stored; and how, if at all, it may be transferred and to where.

Those involved in arbitrations should consider whether the personal data:

• is patient health information;

• is personal data; or

• is sensitive personal data.

If it is any of these, it is worth taking advice early as there are more than likely to be data protection issues to consider.

 

Considerations For Arbitrations

Many aspects of a “standard” arbitration require the accessing, collection, processing, storage, and dissemination of data. It is essential that all participants in an arbitration consider their own obligations in respect of data protection. Issues to consider include:

1. The subject matter of the arbitration / identify of the parties – Consider whether the subject matter of the arbitration or the identity of the parties mean that data protection issues may be more significant. For example, if a party to an arbitration is an individual this may give rise to immediate concerns in respect of the use of personal data. In addition, where the arbitration relates to health care companies, health care disputes, or health care data, there may be increased data protection obligations.

2. Evidence in the arbitration – Consider where the evidence is coming from and what it relates to as that may trigger data protection concerns. Think broadly about this. For example, if a strategy in an arbitration is to cast doubt on a witnesses’ credibility and this entails searching for evidence of poor conduct on work emails, searching for and then dealing with such data may trigger some data protection considerations.

3. Storage of and access to data – Some data, in particular sensitive personal data, may have limits on how it may be dealt with. Think about what this means in practice including where relevant servers are located, whether cloud servers are used and, if so, where the cloud is “located”, and who is accessing the relevant data and where they are based.

4. Destruction of data – What obligations (if any) arise in terms of the lawful destruction of data (e.g. data protection requirements for data minimisation) and who is responsible for ensuring compliance.

In practice, participants in arbitrations should:

• Think about data protection early and throughout.

• Identify relevant individuals with whom to liaise early.

• Establish as early as possible which data protection regimes may apply to your arbitration.

• Identify who in the arbitration may be a data controller under relevant laws and plan accordingly.

• Build data protection considerations into your arbitration.

 

Conclusion

The issues that may arise in respect of data protection are complicated and are likely to become more so. Consequences for lack of compliance can be serious. Relevant and early advice is essential. In addition, you should continually monitor data protection issues throughout the arbitration.

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The Issue of the Seat of Arbitration in ODR Arbitration

Wed, 2020-08-05 03:00

Online dispute resolution (“ODR”) in international arbitration has been made feasible by the development of technology and its use has been stimulated by the Covid-19 pandemic that gave rise to higher demand for virtual proceedings. UNCITRAL Technical Notes on Online Dispute Resolution defines ODR as “a mechanism for resolving disputes through the use of electronic communications and other information and communication technology.” Together with academic research and actual practice, many legal aspects of ODR have been brought up including the issue of determining the seat of arbitration. An earlier Blog post discussed the importance of the seat in virtual arbitrations.

 

Approaches to determine the seat

The New York Convention provides the circumstances under which an arbitral award may be refused if seat or place of arbitration is not given due consideration. In our view there are four main approaches for determining the seat of ODR arbitrations.

First, the law applicable to the ODR arbitration proceedings shall determine the seat of arbitration. This approach assumes that the seat of arbitration reflects parties’ desire to submit to arbitration under the law of the seat, thus the procedural law of the arbitration should be presumed to be the law of the seat.

The second approach is to follow the nationality that the dispute has the most substantial link to. This follows the doctrine of the most significant relationship, arguing that the arbitration should be detached from the control imposed by the law of the place of arbitration. Under this approach, determining the seat of arbitration would be highly influenced by the substantive law of the dispute.

The third is to follow the determination of the arbitral tribunal. When there is no parties’ agreement on the seat of arbitration, the arbitral tribunal shall determine the seat of arbitration with regard to the circumstances of the case, including the convenience of the parties.

The last approach – perhaps the most feasible one – is for the parties to agree on the seat of arbitration. Choosing the seat of arbitration upholds party autonomy.

 

Examples of institutional practices in determining the seat

On April 9, 2020, KCAB Next held a webinar titled ‘Testing out virtual arbitration in real life’ where some key questions regarding the seat of arbitration in virtual arbitration were received. The questions centered on the official “place of arbitration” and discussed how the place of arbitration, or the legal seat, should not be affected by using a virtual platform.

On March 18, 2020, KCAB INTERNATIONAL announced the Seoul Protocol on Video Conferencing in International Arbitration where “hearing venue” was defined as “the site of the hearing, being the site of the requesting authority, typically where the majority of the participants are located.” In this regard, the KCAB International Arbitration Rules (“KCAB Rules”) stipulates in its Article 24(1) “[t]he place of the arbitration, in the absence of an agreement by the parties, shall be Seoul, the Republic of Korea, unless the Arbitral Tribunal determines that another place is more appropriate in light of the circumstances.

Thus, if there is no agreement between the parties on the seat of arbitration, the tribunal under the KCAB Rules may consider the definition of hearing venue in order to determine the seat of arbitration.

The American Arbitration Association (“AAA”) published the Model Order and Procedures for a Virtual Hearing via Videoconference (“AAA Model”), providing a model template to refer to when opting for a virtual hearing. Article 1a of the AAA Model provides that “the parties and the panel/arbitrator agree that the hearing in this case will be conducted via [Platform Name] videoconference. This confirms that the hearing will be deemed to have taken place in [locale/place of arbitration].” In addition, Article 1b provides an example of an order by the arbitral tribunal in case of a lack of parties’ agreement. Therefore, the AAA considers party autonomy first and foremost and if the seat of arbitration is not decided by mutual agreement, the tribunal is to step in from the start to ensure certainty and to prevent potential dispute from arising in this regard.

China International Economic and Trade Arbitration Commission (“CIETAC”) published its Online Arbitration Rules in 2009. These Rules clearly provide for the determination of the seat of arbitration in Article 8 which provides that “[w]here the parties have agreed on the [seat] of arbitration, their agreement shall prevail. In the absence of such an agreement, the [seat] of arbitration shall be the location of CIETAC [in Beijing].” In other words, if there is no agreement between the parties, precise instruction as to the place of arbitration, namely Beijing, is stipulated to prevent potential dispute and to ensure certainty.

In addition, the arbitration rules of China Guangzhou Arbitration Commission (“CGAC”) provide in Article 7 that, unless otherwise agreed by the parties, the location of GAZC shall be the seat of arbitration. The CGAC may, according to the specific circumstances of the case, designate a third place as the seat for arbitration. The arbitration award shall be deemed as made at the place of arbitration. This means in case of no agreement, CGAC may determine the seat of arbitration which gives more discretion to the institution.

The above examples are not exhaustive. Another Blog post discussed other institutional examples such as Russian Arbitration Association and Georgia Dispute Resolution Center.

 

Comments

Arbitration is a legal process that is based on the concept of party autonomy and consent. Therefore, party autonomy is of absolute priority and parties’ agreement shall be respected. The issue of the seat of arbitration in ODR can be resolved and overcome with sufficient inter-party dialogue. Institutions may assist by explaining to each party involved, the relevance of parties’ consent and try to get the parties to agree on the seat of arbitration while being mindful that the agreement is to be made at the parties’ own will.

Where parties do not reach an agreement as to the seat of arbitration, empowering the arbitral tribunal to determine the seat of arbitration is the best approach. Conferring arbitral tribunals with the power to determine the seat of arbitration does not derogate from the party autonomy principle. In the KCAB Rules, Article 24(2) provides that “[t]he Arbitral Tribunal may, after consultation with the parties, conduct hearings and meetings at any location it considers appropriate,” which does not exclude virtual locations. This is because the arbitral tribunal can make comprehensive assessment with regard to the circumstances of the case, including the convenience of the parties, the most relevant place to the dispute to make a fair and effective decision. In addition, the arbitral tribunal shall ensure that its award is enforceable. Therefore, the tribunal has an obligation to consider whether the use of ODR violates, for example, the arbitration law of the seat.

KCAB INTERNATIONAL and Seoul IDRC have conducted multiple virtual hearings. The KCAB Rules do not explicitly include ODR arbitration, so parties need to opt in to conduct virtual hearings. Parties should submit their respective proposals on ODR procedures to the institution including the choice of the seat. If parties do not come to an agreement, the tribunal may determine the seat of arbitration under the KCAB Rules and the Secretariat would liaise with the tribunal to ensure enforceability of the arbitral awards.

 

Conclusion

The use of ODR is no longer science fiction. We have already been relying on certain aspects of the ODR system by exchanging letters via e-mail and submitting electronic evidence. Arbitration is meant to be a time-efficient and cost-effective dispute resolution under parties’ agreement. Combined with ODR, arbitration will benefit from more efficiency from automation and advantages of artificial intelligence. Insofar as we do not lose sight of the essence of arbitration that is party autonomy, the determination of the seat of arbitration shall be de jure and valid.

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Arbitration Reform Efforts Continue Despite Pandemic

Wed, 2020-08-05 02:00

Just like many of us have learned to work remotely these past few months, those leading the efforts to reform international arbitration have also had to endure the constraints imposed by the pandemic.

At the first-ever virtual ITA-ASIL conference, held on 24 June 2020, Professor Chiara Giorgetti from the University of Richmond School of Law and Corinne Montineri, Senior Legal Officer at UNCITRAL’s Office of Legal Affairs and current secretary of Working Group III, provided those attending the conference via Zoom with an update of the work being performed by UNCITRAL Working Groups II and III. Although the pandemic has indeed forced certain meetings to be postponed, reform efforts continue largely unimpeded.

 

Expedited commercial arbitration  

Working Group II, with a mandate covering “Arbitration and Conciliation / Dispute Settlement,” managed to squeeze in a meeting in New York for its 71st session in February 2020. Working Group II has been active for over 20 years, tackling topics including the enforceability of interim measures, the revision of the UNCITRAL Arbitration Rules, transparency in treaty-based arbitration, and more. Yet as Ms. Montineri explained, Working Group II has now turned its attention to developing expedited commercial arbitration provisions that may eventually be presented as an appendix to the UNCITRAL Arbitration Rules, or as a stand-alone text.

The challenge for Working Group II, according to Ms. Montineri, will be to strike a balance between improving efficiency and reducing cost and duration, on the one hand, and guaranteeing due process, on the other.

The draft provisions on expedited arbitration cover procedural aspects including: (i) arbitrator appointment; (ii) the case management conference and provisional timetable; (iii) written submissions; (iv) counterclaims and additional claims; (v) the taking of evidence; (vi) hearings; and (vii) the making of the award. Participants at the 71st session—which included representatives of various State delegations, intergovernmental organizations and non-governmental organizations—had an opportunity to discuss the draft text and express their views.

Unlike the ICC’s expedited procedure which establishes financial thresholds that automatically trigger the application of the expedited rules unless the parties have expressly opted out, Ms. Montineri explained that UNCITRAL Working Group II decided to make the express agreement of the parties the sole criterion to determine when the expedited provisions apply.

The next meeting for Working Group II is tentatively scheduled for 21-25 September 2020, in Vienna.

 

ISDS reform

By contrast, Working Group III’s 39th session, originally scheduled to begin in New York on 30 March 2020, was indeed postponed due to COVID-19. Nonetheless, and until its next meeting tentatively scheduled for 5-9 October 2020 in Vienna, the Group will continue to collaborate informally, hold frequent webinars, and accept public comments to various working papers posted on its website.

Unlike Working Group II’s current narrow focus, Working Group III’s mission encompasses a broad array of initiatives under the label “Investor-State Dispute Settlement Reform.” Since it began its work in 2017, Working Group III has studied and developed ISDS reform options suggested by Member States, covering issues as varied as: (i) the possible creation of a stand-alone review or appellate mechanism for investment disputes; (ii) the possible creation of a standing first-instance and appeal investment court; (iii) arbitrator appointment methods and ethics such as the issue of “double hatting” (described below); (iv) control mechanisms on treaty interpretation; (v) dispute prevention and mitigation; (vi) cost management; and (vii) third-party funding.

Combining the various reform proposals, many of which are interrelated, is challenging. As Ms. Montineri pointed out, the goal is to achieve “consistency and flexibility,” and avoid “fragmentation”.

One noteworthy, recent development coming out of Working Group III was the publication, on 1 May 2020, of the draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement. The draft Code of Conduct was prepared jointly by the ICSID and UNCITRAL Secretariats, partly in response to concern over arbitrators’ independence and impartiality. Its text provides policymakers with a range of options on issues including disclosure obligations, repeat appointments, issue conflicts, and more. Professor Giorgetti, who worked on the Code of Conduct as a scholar in residence at ICSID, recently published an in-depth blog post on the subject.

Article 6, which deals with “double hatting”—the practice of simultaneously acting as counsel and arbitrator, among other roles—is already generating significant discussion. The article’s draft text suggests a range of options, from a ban on double hatting, to simply requiring detailed disclosure. Yet, as Vanina Sucharitkul recently argued on this very blog, a complete ban on the practice of double hatting could hinder efforts to promote gender and regional diversity in arbitrator appointments, since it would impose significant barriers to entry for younger, less established arbitrators.

 

The road ahead

These various reform efforts, particularly those being led by Working Group III, seem especially relevant today. ISDS is once again in the spotlight, with some observers fearful that State measures taken in response to the pandemic may lead to an onslaught of investment claims against States, many of which already face daunting fiscal challenges.

This push and pull between those advocating for ISDS reform, and those calling for more drastic change, recalls Tom Sikora’s opening remarks at the conference. Mr. Sikora, Senior Vice Chair of the ITA Advisory Board, noted that “the current reform debate seems to me to be between the advocates of remodeling to perfect the existing design, and those in favor of demolishing it completely to build a different edifice.” Amidst a general distrust of the system, UNCITRAL’s work to improve the efficiency and transparency of arbitration is a timely and laudable endeavor.

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Extension of Exclusive Jurisdiction of Russian State Courts over Disputes Involving Sanctioned Persons: Protection of National Interests or a Threat to Party Autonomy?

Tue, 2020-08-04 04:00

On 19 June 2020, the new sanctions-related amendments1)Federal Law No. 171-FZ dated 8 June 2020, introducing the amendments (text in Russian). jQuery("#footnote_plugin_tooltip_4763_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4763_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); to the Russian Commercial (Arbitrazh) Procedure Code entered into force. The main objective of the law is to protect the interests of Russian natural and legal persons who are unable to effectively resolve their disputes in court or arbitral proceedings outside Russia due to the imposition of foreign sanctions.

According to the amendments, Russian commercial courts have exclusive jurisdiction over cases where one of the parties (Russian individual and legal entity, or foreign legal entity) is subject to foreign sanctions or where the dispute itself arises out of foreign sanctions. The exclusive jurisdiction of Russian courts can be changed by an international treaty or a dispute resolution agreement unless the latter is held unenforceable as a result of impediments in “access to justice” as a consequence of foreign sanctions.

Amendments also stipulate that Russian commercial courts can issue anti-suit injunctions preventing a party to initiate or continue foreign arbitration proceedings or court litigation. Before the introduction of the amendments, Russian courts were reluctant to issue anti-suit or anti-arbitration injunctions, even though the Russian Commercial (Arbitrazh) Procedure Code contains a non-exhaustive list of interim measures, including those that prohibit a party from taking certain actions.2)Article 91 of the Russian Commercial (Arbitrazh) Procedure Code. jQuery("#footnote_plugin_tooltip_4763_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4763_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Courts are now expressly authorized to grant such injunctions, but only in relation to a narrow type of disputes falling within the scope of the sanctions-related amendments. To obtain an injunction, a party has to show that Russian courts have exclusive jurisdiction, the dispute resolution agreement (if any) is unenforceable, and that foreign proceedings have been commenced or are planned to be initiated. Non-compliance with the injunction may result in the decision on damages not exceeding the entire amount of the claim plus legal expenses.

The law is expected to have paramount importance for arbitration as it is formulated in a broad and ambiguous way, allowing parties to ignore valid arbitration agreements for tactical considerations and transfer disputes from the pre-agreed forum to Russian state courts.

 

Areas of Concern

At first sight it seems that the amendments indeed improve the position of sanctioned individuals and entities. However, a closer look reveals that they are vaguely formulated and leave a number of questions open.

First, the scope of the amendments is excessively broad. Strictly speaking, the amended provisions use the term “restrictive measures” rather than “sanctions”. While the primary goal of the amendments is to protect Russian business negatively impacted by foreign sanctions, especially the US and EU ones, the vague language allows to apply the relevant articles when “any restrictive measures” are imposed against Russian individuals and legal entities. The law does not differentiate between the types of measures and arguably applies to secondary sanctions, sectoral sanctions, individual lists etc. Further, the law expressly states that respective measures may be taken by any foreign states, association or union of states, governmental (intergovernmental) institution of a foreign state, association or union of states.

Consequently, it is extremely difficult, if not impossible, to predict at the time of negotiating the contract, whether the Russian counterparty may be potentially subject to such restrictive measures. Moreover, foreign parties may find themselves in a situation where they are forced to litigate disputes which have no genuine connection with Russia before Russian state courts.

Second, the amendments apply both to litigation and international arbitration outside Russia. It is evident that litigation outside Russia means litigation in a foreign court. However, it is not entirely clear what is meant by “arbitration outside Russia”. It may cover all foreign-seated arbitrations irrespective of whether the proceedings are administered by foreign or Russian arbitral institutions. Alternatively, the amendments may cover arbitrations administered by foreign arbitral institutions, including the ones with a seat in the territory of Russia. If the latter interpretation is adopted, local-seated arbitrations conducted under the auspices of HKIAC or VIAC (which have received the status of permanent arbitral institutions from Russian government to administer certain types of disputes) might still qualify as “arbitrations outside Russia” for the purpose of the amendments.

Third, there is a risk that the respective sanctions-related changes will apply retrospectively to the agreements concluded before the introduction of the amendments. This may result in a number of contracts with Russian counterparties being renegotiated or, in the worst-case scenario, terminated in the near future.

Last but not least, amendments give the sanctioned party an opportunity to circumvent the binding effect of the arbitration agreement by claiming that it is “incapable of being performed” for the reason that the application of restrictive measures creates obstacles in the access to justice for such a party. This is arguably the most controversial amendment. There is no clarification on what may constitute obstacles in the access to justice and what standard of proof should be applied by the courts when dealing with such an allegation. It is reasonable to assume that the court should require the sanctioned person to present evidence that the latter is facing objective hurdles in handling a dispute in a foreign forum, such as the impossibility to appoint an arbitrator who would agree to resolve a dispute involving sanctioned persons or refusal of the relevant forum to accept the dispute as such. The mere difficulties experienced by a sanctioned entity, including delays on the part of arbitral institution in accepting the payment of the deposit or the necessity to receive permits from relevant organs to process the payment, should not be considered sufficient to render the arbitration clause unenforceable.

However, there is a fear that Russian courts will interpret the provision in an extremely broad way. In a recent case the ICC arbitration clause was held incapable of being performed, since the imposition of US sanctions on claimant amounted to a fundamental change of circumstances, justifying the transfer of the dispute to the Russian state court.3)Judgment of the Commercial (Arbitrazh) Court of Cassation of Moscow District dated 06.07.2020 in case А40-149566/2019 (text in Russian). jQuery("#footnote_plugin_tooltip_4763_3").tooltip({ tip: "#footnote_plugin_tooltip_text_4763_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The decision was upheld in both appeal and cassation instances. Thus, there is a risk that sanctioned persons may take advantage of the sanctions-related amendments to escape agreed dispute resolution clauses.

 

Practical Considerations

While trying to protect Russian business in the first place, the amendments are likely to make Russian companies less attractive in the eyes of their foreign partners. Given the protectionist approach of lawmakers and the interventionalist attitude of Russian courts towards arbitration, the amended provisions may be used as a tool to block enforcement of foreign arbitral awards and get more favorable judgements from Russian courts.

However, the negative impact of sanctions-related changes is limited, as the law lacks extraterritorial effect. Hence, it will only significantly affect foreign companies / individuals that have assets in Russia or the ones that will need to enforce foreign arbitral awards or judgements in the territory of Russia. Consequently, this may serve as an incentive for foreign companies to pull their assets out of Russia or decrease their amount in the country.

Moreover, the amendments may trigger parallel proceedings and subsequent fragmentation of disputes with decision-makers in foreign forum going ahead with cases despite the mandatory provisions of Russian law. The amended provisions clarify that the enforcement of foreign awards and judgements rendered in violation of the rules on exclusive jurisdiction of Russian courts is still possible, but only on condition that a sanctioned person has itself initiated enforcement proceedings or has not raised objections concerning the lack of jurisdiction of a foreign court or arbitral tribunal, including the situations where a sanctioned person has not requested anti-suit injunctions from a competent commercial court in Russia.

Further, given the fact that anti-suit injunctions requests shall be considered in a court hearing with notification of all relevant parties (which might take quite a long time), the chances that the foreign award or judgement will be issued before the injunction is granted slightly increase. In this scenario, the award will be enforceable abroad, but the party might still experience difficulties with enforcing the award in Russia. The same applies to annulment proceedings: breach of the injunction or its consideration by the Russian court is more likely to impact the annulment of the award if the seat is in the territory of Russia.

Finally, the application of the sanctions-related amendments can be excluded by providing for arbitration clauses in favor of domestic arbitration, better both seated in the territory of Russia and administered by local arbitral institution. Alternatively, the risks can be partially mitigated by agreeing on applicable law, the seat of arbitration and arbitral institution in jurisdictions which have not imposed sanctions against Russia. While these measures will not block the application of the amendments, they might make it more difficult for a party to argue that access to justice is impeded due to the sanctions.

References   [ + ]

1. ↑ Federal Law No. 171-FZ dated 8 June 2020, introducing the amendments (text in Russian). 2. ↑ Article 91 of the Russian Commercial (Arbitrazh) Procedure Code. 3. ↑ Judgment of the Commercial (Arbitrazh) Court of Cassation of Moscow District dated 06.07.2020 in case А40-149566/2019 (text in Russian). 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Tonga Accedes to the New York Convention

Tue, 2020-08-04 03:02

On 12 June 2020, the Kingdom of Tonga (“Tonga“) acceded to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the “Convention“), being the 164th state party to do so. In the context of the Pacific region, Tonga is the 6th state to accede to the Convention after the Marshall Islands, the Cook Islands, Fiji, Papua New Guinea and, most recently, Palau, where the Convention entered into force on 29 June 2020.

Tonga does not currently have any legal framework for arbitration, and its accession to the Convention is a landmark development which should improve the ease of doing business in Tonga and lead to increased confidence from foreign investors.

 

Background

Tonga is a Polynesian sovereign state and archipelago consisting of 169 islands in the South Pacific Ocean and with a population of approximately 100,000 people. Tonga’s main trading partners include New Zealand, the United States, Hong Kong and Japan. Its main exports include agricultural crops and fish.

In the 2020 Doing Business report published by the World Bank, Tonga ranked 103rd of 190 countries in the ease of doing business rankings (and 98th in relation to enforcing contracts specifically), dropping twelve positions from 2019. Historically, Tonga has attracted very little Foreign Direct Investment. Factors reported to have deterred foreign investment include the state’s vulnerability to external shocks, the lack of infrastructure, unpredictable government policies and limited access to certain regions of Tonga.

Tonga is a constitutional monarchy, assisted by a Privy Council appointed by the monarch. Tonga’s court system consists of the Land Court, the Magistrates’ Court, the Supreme Court, and the Court of Appeal.1)Clause 84 of the Constitution of Tonga. jQuery("#footnote_plugin_tooltip_4510_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4510_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Court of Appeal is the highest court in Tonga except in respect of appeals from the Land Court on matters concerning hereditary estates and titles. Such appeals are heard by the Privy Council. Judges in Tonga are appointed by the monarch.

Sources of law in Tonga include acts of the Tongan Legislative Assembly, and the rules of English common law and equity. In effect, the law in Tonga incorporates the rules of English common law and equity, but English statutes do not have the effect of law in Tonga.2)ADB, “Reforming Pacific Contract Law” (August 2009) at page 7. jQuery("#footnote_plugin_tooltip_4510_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4510_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Arbitration in Tonga

Tonga does not have any legal framework for domestic or international arbitration, except for arbitration in respect of certain investment disputes.3)ADB, “Promotion of International Arbitration Reform for Better Investment Climate in the South Pacific” (November 2016) at [5]; ADB, “Transforming Tonga” (2008) at page 46; Colin Ballantine, “Opening Oceania: Reforming International Arbitration Regimes Across the Pacific Islands” at page 2. jQuery("#footnote_plugin_tooltip_4510_3").tooltip({ tip: "#footnote_plugin_tooltip_text_4510_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Section 16(1) of Tonga’s Foreign Investment Act 2002 states that “The provisions of the Arbitration Act 1996 (UK) shall apply to any arbitration under this Act.” Section 2 of the Reciprocal Enforcement of Judgments Act 1988 defines “judgment” to include an arbitral award.

The Asian Development Bank (“ADB“) previously reported that the absence of an effective arbitration regime in Tonga adds to the costs and uncertainty associated with business agreements as well as the resolution of disputes that arise over them.4)ADB, “Transforming Tonga” (2008) at page 4. jQuery("#footnote_plugin_tooltip_4510_4").tooltip({ tip: "#footnote_plugin_tooltip_text_4510_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); It also highlighted that the lack of any basis for enforcing overseas arbitration awards in Tonga increases risk for foreign investors, and recommended that Tonga establishes an effective arbitration regime and adopts an arbitration act to address these issues.5)ADB, “Transforming Tonga” (2008) at page 9. jQuery("#footnote_plugin_tooltip_4510_5").tooltip({ tip: "#footnote_plugin_tooltip_text_4510_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In 2017, in the context of a workshop co-hosted by the ADB, the Government of Tonga expressed its intention to become a signatory to the Convention, recognising that the Convention’s core objective is to “facilitate dispute resolution (…) between international companies” and that “international arbitration through the Convention has proven an attractive incentive for foreign investors worldwide.”

 

Accession to the Convention

The Government of Tonga deposited the instrument of accession with the Secretary-General of the United Nations on 12 June 2020. The Convention will therefore enter into force for Tonga on 10 September 2020, 90 days after the instrument of accession on 12 June 2020 (pursuant to Article XII(2) of the Convention).6)Article XII(2) of the New York Convention. jQuery("#footnote_plugin_tooltip_4510_6").tooltip({ tip: "#footnote_plugin_tooltip_text_4510_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Tonga’s accession to the Convention is subject to the “commercial reservation” qualification provided for under Article I(3) of the Convention, whereby the Convention only applies to differences arising out of legal relationships, whether contractual or not, that are considered commercial under the national laws of Tonga. The “commercial reservation” has been exercised by around 30% of signatory states to the Convention.

Following its accession, Tonga will now need to enact arbitration legislation which will establish a regulatory framework for international arbitration and give effect to the Convention. As for template legislation, Tonga may look to other states in the Pacific region such as Fiji, which enacted its International Arbitration Act in 2017, and Papua New Guinea, which has recently published an Arbitration Bill. Both of these pieces of legislation are based on the UNCITRAL Model Law on International Commercial Arbitration and incorporate some developments in international arbitration best practices (such as express provisions dealing with the confidentiality of arbitration proceedings and the enforcement of emergency arbitrator awards) which even more established arbitration jurisdictions have not yet adopted. Given the international arbitration reform which is underway in the region, it is to be hoped that Tonga will be able to enact the necessary implementing legislation relatively quickly.

 

Implications for Trade and Foreign Investment

The accession to the Convention is an important step for Tonga, in line with the Government’s aims to encourage private sector development, increase trade and attract foreign investors.  Consistent with the Convention’s track record in facilitating cross-border enforcement of international arbitration awards, it is expected that the Convention will provide greater certainty for foreign investors as well as lower the costs associated with international investment and dispute resolution in Tonga.

Enactment of effective arbitration legislation in Tonga will be essential for Tonga to reap the full benefits of the Convention. Equally important will be schemes to promote awareness of international arbitration best practices amongst the local legal and business communities. It is hoped that the recent accessions of Tonga and Palau to the Convention will encourage more Pacific island states to join and participate in international arbitration reform across the region.

References   [ + ]

1. ↑ Clause 84 of the Constitution of Tonga. 2. ↑ ADB, “Reforming Pacific Contract Law” (August 2009) at page 7. 3. ↑ ADB, “Promotion of International Arbitration Reform for Better Investment Climate in the South Pacific” (November 2016) at [5]; ADB, “Transforming Tonga” (2008) at page 46; Colin Ballantine, “Opening Oceania: Reforming International Arbitration Regimes Across the Pacific Islands” at page 2. 4. ↑ ADB, “Transforming Tonga” (2008) at page 4. 5. ↑ ADB, “Transforming Tonga” (2008) at page 9. 6. ↑ Article XII(2) of the New York Convention. 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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States’ Right to Interpret a Treaty and Whether It Should Be Binding in a Pending Case

Mon, 2020-08-03 04:00

The lack of a binding effect of a State’s right to interpret treaties has been raised as one of the reasons to reform the current Investor-State Dispute Settlement (“ISDS”) regime. The movement to reform the current ISDS regime led to the UNCITRAL Working Group III discussion (“WG III discussion”), which has been addressed in this blog multiple times. The WG III discussion considers both incremental and structural ISDS reform. The incremental reform approach focusses on improving some features of the ISDS system without structurally changing the current ISDS regime. On the other hand, structural reform, which is mainly supported by the EU, suggests to introduce a new ISDS mechanism (i.e., creation of a multilateral investment court).

Among various incremental reform approaches submitted by member States, WG III has focused on discussing the creation of an advisory centre, treaty parties’ involvement and control mechanism on treaty interpretation, the creation of a dispute prevention and mitigation mechanism, and arbitrators’ appointment methods and ethics. On 4 June 2020, the WG III held a webinar to discuss treaty parties’ involvement and control mechanism on treaty interpretation. This post further examines issues discussed in the WG III webinar and focuses on the binding effect of a joint or multilateral interpretation on a tribunal in a pending case.

 

Current Framework on States’ Right to Interpret a Treaty

Article 31(3) of the Vienna Convention on the Law of Treaties (“VCLT”) provides a general rule of interpretation, which requires to consider any subsequent agreements on interpretation (joint or multilateral interpretation) between the parties. However, a joint or multilateral submission on treaty interpretation under the VCLT will not bind a tribunal. It merely asks a tribunal to consider States’ submissions on treaty interpretation.

On the other hand, the Contracting States could amend the treaty pursuant to Articles 39 and 40 of the VCLT. When the treaty is amended it will be binding on a tribunal. However, amendment of the treaty will not retroactively bind a tribunal in a pending case. The process to amend a treaty could be complicated and time consuming.

To better address States’ concern on its right to interpret a treaty, some modern Investment Agreements (“IAs”) include specific provisions on a States’ right to treaty interpretation. Contracting States can submit unilateral, joint, or multilateral submissions on treaty interpretation. These submissions can be either binding or advisory depending on the specific treaty. For example, the new United States-Mexico-Canada Agreement (“USMCA”), the Free Trade Commission could submit its interpretation on the treaty provision, which will be binding on the tribunal. Additionally, the USMCA also allows a non-disputing party to submit its interpretation on the treaty provision.

Some other modern IAs provide both options. For example, the United States – Korea Free Trade Agreement (“FTA”) provides both options. Similarly, the India Model BIT provides both options.

In general, a unilateral State interpretation would not bind the tribunal. A non-disputing State’s interpretation could be used as guidance by the tribunal. For example, in the USMCA and other modern IAs such as the Korea – Vietnam FTA, the United States – Korea FTA, and the India – Kyrgyzstan Bilateral Investment Treaties (“BIT”). However, in practice, non-disputing State submissions are not utilized often.1)See Lise Johnson, The Role of States in Treaty Interpretation (Columbia Centre for Sustainable Investment (CCSI)) on Webinar on Treaty Parties’ Involvement and Control Mechanisms in Treaty Interpretation, UNCITRAL WG III, 4 June 2020 (out of 480 concluded IIA ISDS cases, only 10 cases had non-disputing State submission on treaty interpretation). jQuery("#footnote_plugin_tooltip_7911_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7911_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); A study by the Columbia Centre for Sustainable Investment (“CCSI”) identified that the reasons for the lack of non-disputing State submission were:

(1) cost-benefit calculations;

(2) lack of knowledge of the pending cases;

(3) political considerations;

(4) the treaty does not allow non-disputing State submissions.

In other circumstances, a non-disputing State may be reluctant to issue an interpretation of the treaty when its position conflicts with the investor’s position.

A joint or multilateral interpretation could become binding on a tribunal if it is stated as such in the applicable treaty.2)It is noted that 126 out of 2,573 (4.9 percent) analyzed treaties contain provision including binding effect of the treaty interpretation by Contracting States’ or interpretative committees. See WG III working document A/CN.9/WG.III/WP.191, para 38 (referring to UNCTAD’s data). jQuery("#footnote_plugin_tooltip_7911_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7911_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); For instance, Article 11.22 (3) of the United States – Korea FTA provides:

“A decision of the Joint Committee declaring its interpretation of a provision of this Agreement under Article 22.2.3(d) (Joint Committee) shall be binding on a tribunal, and any decision or award issued by a tribunal must be consistent with that decision.”

However, when should a joint or multilateral submission on treaty interpretation become binding? Would it bind the tribunal in pending cases? Can the State submit a treaty interpretation after the dispute has arisen?

Whether a Joint or Multilateral Interpretations Bind a Tribunal in a Pending Case3)For Contracting States’ submission on treaty interpretation on various time lines such as during treaty negotiations, after treaty negotiations see Catherine Titi, The Timing of Treaty Party Interpretations A Treaty-Design Perspective on Webinar on Treaty Parties’ Involvement and Control Mechanisms in Treaty Interpretation, UNCITRAL WG III, 4 June 2020. jQuery("#footnote_plugin_tooltip_7911_3").tooltip({ tip: "#footnote_plugin_tooltip_text_7911_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Both unilateral and joint or multilateral interpretations can be released even after a dispute arises. Given that a unilateral interpretation will typically only be utilized as guidance by a tribunal, closer consideration is needed on the timing of the binding effect of a joint or multilateral interpretation on a tribunal. This could be particularly controversial if a joint or multilateral interpretation binds a tribunal in a pending case.

Whether a tribunal in a pending case will be bound by a joint or multilateral interpretation depends on the specific treaty. For instance, The Dutch Model BIT expressly prevents the binding effect on a pending case:

“A joint interpretative declaration adopted as result of consultations by the Contracting Parties shall be binding on a Tribunal established under Section 5 of this Agreement. Such joint interpretative declaration is not applicable in cases where a Tribunal was already established.” (Article 24.2)

Some IAs are silent on the binding effect on a pending case (such as the United States – Korea FTA and the India – Kyrgyzstan BIT). However, a joint interpretation mechanism under these treaties suggests that the interpretation may be binding on a tribunal in a pending case.

Regarding the EU – Canada Comprehensive Economic and Trade Agreement (“CETA”), Article 8.31 provides that the joint committee’s interpretation “shall be binding on the Tribunal established under this Section. The CETA Joint Committee may decide that an interpretation shall have binding effect from a specific date.” On 30 April 2019, the Court of Justice of the European Union (“CJEU”) held that the CETA Joint Committee’s interpretation does not retroactively bind the tribunal. The Court reasoned as follows:

It is important, moreover, in the light of the requirement of independence of the CETA Tribunal and Appellate Tribunal, that interpretations determined by the CETA Joint Committee have no effect on the handling of disputes that have been resolved or brought prior to those interpretations. If it were otherwise, the CETA Joint Committee could have an influence on the handling of specific disputes and therefore participate in the ISDS mechanism. (para 236)

[A]ccordingly, Article 8.31.3 of the CETA cannot be interpreted, having regard to Article 47, as permitting the Union to consent to decisions on interpretation of the CETA Joint Committee that would produce effects on the handling of disputes that have been dealt with or are pending. (para 237)

Even if the CETA Joint Committee’s interpretation will not be binding on a tribunal in a pending case, a tribunal can still consider the interpretation as a reference according to Article 31(3) of the VCLT.

 

Should a Joint or Multilateral Interpretations Bind a Tribunal in a Pending Case?

During the WG III discussion, States submitted to seek a binding effect of joint interpretations on a tribunal. However, whether a joint or multilateral interpretation should bind a tribunal in a pending case was not specifically addressed in the WG III working documents.4)This issue has been discussed by the panels in the WG III webinar, but working documents do not address this issue. jQuery("#footnote_plugin_tooltip_7911_4").tooltip({ tip: "#footnote_plugin_tooltip_text_7911_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Giving binding effect of joint interpretations could contribute to greater consistency and predictability in treaty interpretation. Contracting States could also clarify their intention on specific provisions.

On the other hand, it is important not to compromise investors’ rights under the treaty. The retroactive application of a joint interpretation in a pending case could compromise foreign investor’s rights. This is because the joint interpretation did not exist when an investor made its investment, nor when the dispute was filed. Thus, requiring a joint interpretation to be binding on a tribunal in a pending case could compromise substantially the investor’s reasonable anticipation of its rights under the treaty.

Moreover, as pointed out by the CJEU, the independence of a tribunal is an important factor to consider. If a joint interpretation could bind a tribunal in a pending case, this could compromise the tribunal’s ability to adjudicate a dispute between the parties. By agreeing to ISDS in IAs, Contracting States confer to a tribunal the power to resolve disputes between foreign investors and States. ISDS tribunals have a duty to determine a case, interpret a treaty and apply it. Upon making this determination, a tribunal should independently and impartially make its decision. If a joint interpretation becomes binding on a tribunal in a pending case, the tribunal arguably will not be able to independently decide on the proper interpretation of a treaty and apply it to a pending case.

Thus, the WG III in a subsequent discussion on the States’ right to interpret a treaty should consider these concerns carefully.

 

Final Remarks

The purpose of addressing the issues of a joint or multilateral interpretation mechanism during the WG III discussion is to assess whether a joint or multilateral interpretation mechanism is necessary and should be introduced into the current ISDS regime, or multilateral court system in the future.

When answering this question, the WG III discussion should carefully consider whether a joint or multilateral interpretation should be binding on a tribunal in a pending case. In doing so, the WG III should especially give a serious concern on finding the right balance between the States and foreign investors’ rights. Additionally, the concern on compromising a tribunal’s ability to independently interpret a treaty should also be addressed.

If the WG III concludes on a necessity to provide a mechanism on joint or multilateral interpretation, it should further consider an effective way to incorporate this reform to existing IAs. The Mauritius Convention on Transparency, which implemented the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitrations on existing IAs, could provide an illustrative way on how to introduce a joint or multilateral interpretation mechanism for the existing ISDS regime.

Finally, allowing Contracting States to submit treaty interpretations during ISDS proceedings adds an additional procedural step which could lead to increased costs and time. Additionally, in practice, Contracting States may not reach an agreement on treaty interpretation within a reasonable time when the dispute is pending. Thus, it is important to safeguard the procedural efficiency of the proceedings. Effective tools could include time limits. For instance, the United States – Korea FTA provides a 60 days’ limit to submit joint interpretations. This kind of time limit would minimize procedural delays caused by the treaty interpretation.

References   [ + ]

1. ↑ See Lise Johnson, The Role of States in Treaty Interpretation (Columbia Centre for Sustainable Investment (CCSI)) on Webinar on Treaty Parties’ Involvement and Control Mechanisms in Treaty Interpretation, UNCITRAL WG III, 4 June 2020 (out of 480 concluded IIA ISDS cases, only 10 cases had non-disputing State submission on treaty interpretation). 2. ↑ It is noted that 126 out of 2,573 (4.9 percent) analyzed treaties contain provision including binding effect of the treaty interpretation by Contracting States’ or interpretative committees. See WG III working document A/CN.9/WG.III/WP.191, para 38 (referring to UNCTAD’s data). 3. ↑ For Contracting States’ submission on treaty interpretation on various time lines such as during treaty negotiations, after treaty negotiations see Catherine Titi, The Timing of Treaty Party Interpretations A Treaty-Design Perspective on Webinar on Treaty Parties’ Involvement and Control Mechanisms in Treaty Interpretation, UNCITRAL WG III, 4 June 2020. 4. ↑ This issue has been discussed by the panels in the WG III webinar, but working documents do not address this issue. 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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The Contents of Journal of International Arbitration, Volume 37, Issue 4

Mon, 2020-08-03 03:00

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

Maxi SCHERER, Remote Hearings in International Arbitration: An Analytical Framework

Remote hearings are nothing new, but the Coronavirus Disease-19 (COVID-19) crisis has forced international arbitration out of its comfort zone. Parties, counsel, and arbitrators must adapt to the new reality of conducting arbitrations in the face of travel restrictions and social distancing measures. One particularly thorny question is whether and to what extent physical hearings that cannot be held due to the above-mentioned restrictions should be postponed, or be held remotely, using modern communication technologies. The present article takes a step back from the immediate crisis and proposes an analytical framework for remote hearings in international arbitration. In the context of the current pandemic and beyond, it provides parties, counsel, and arbitrators with the relevant guidance on assessing whether to hold a hearing remotely, and if so, how to best plan for and organize it. The article also tests the risk of potential challenges to awards based on remote hearings, looking in particular at alleged breaches of the parties’ right to be heard and treated equally.

Stephan MADAUS, The (Underdeveloped) Use of Arbitration in International Insolvency Proceedings

The commencement of insolvency proceedings has mostly been perceived as a form of disturbance in the arbitration world because it could provide a cause to stay pending arbitration proceedings and hinder the enforcement of arbitral clauses and arbitral awards. Most of the academic discussion has focused on these issues. This article will discuss these issues only briefly. Instead, it aims at demonstrating that disputes which arise in the context of international insolvency proceedings could benefit from a more advanced use of arbitration. The article explains the arbitrability of disputes in insolvency proceedings and the limited scope of the public policy defense with the national insolvency laws functioning as a gatekeeper to arbitration. Consistent with existing insolvency case law in many jurisdictions, an arbitration-friendly approach is formulated. Following this approach, the article outlines disputes that could be resolved efficiently when addressed in arbitration.

Gerome Goh Teng JUN, An Arbitral Tribunal’s Dilemma: The Plea of Financially Impecunious Parties

An arbitral tribunal faces a unique dilemma when a party to an arbitration agreement asserts that it is financially impecunious. While the principle of pacta sunt servanda justifies binding parties to arbitrate regardless of their financial situation, this is challenged by practical access to justice concerns resulting from impecuniosity. A party’s impecuniosity may result in serious consequences such as the inability to vindicate its rights or effectively present its defence in the arbitration. It is questionable whether an arbitration agreement can still be fairly performed in those situations. While there have been conflicting national jurisprudence regarding the impact of impecuniosity on the validity of an arbitration agreement, there is a lacuna in arbitral jurisprudence on this point. This article seeks to fill that lacuna by suggesting a principled approach that arbitral tribunals and institutions should follow in the face of such pleas. While impecuniosity should not render an arbitration agreement automatically ‘incapable of being performed’, an exception should be recognized when the impecuniosity results in a breach of the rules of natural justice. However, the party asserting impecuniosity must prove its impecuniosity on a high threshold and show that it has alternative recourse to national courts.

Beibei ZHANG, Revisiting Disqualification of Arbitrators During Arbitral Proceedings: A Critique of Toyoshima & Co., Ltd. v. Gaomi Luyuan Textile Co., Ltd.

Entering into an arbitration agreement means that the parties forfeit their right to sue before a national court if disputes that fall within the scope of the arbitration agreement arise. This nevertheless does not deprive the parties of the protections universally recognized as fundamental human rights. Therefore, a challenge to the arbitrator during the arbitral proceedings is possible when the integrity of the proceedings and that of the final award would otherwise be compromised. As a result of the influence of the pro-arbitration policy, domestic courts are usually biased towards not disqualifying arbitrators after the commencement of the procedures, especially when the enforcement of the award is governed by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. This is consistent with the Convention’s purpose to facilitate the cross-border enforcement of foreign arbitral awards, as well as global trade activities. In some cases, however, it is worth discussing whether the national courts have gone too far in this direction. Toyoshima & Co., Ltd. v. Gaomi Luyuan Textile Co., Ltd. before the Chinese courts illustrates this concern well.

Nduka IKEYI & Emmanuel ONYEABOR, Ravelli v. Digitsteel Integrated Services Ltd.: Does the Arbitration and Conciliation Act Preclude the Arbitration of Employment Disputes in Nigeria?

The long title of Nigeria’s Arbitration Act describes the Act as ‘a unified framework for the fair and efficient settlement of commercial disputes by arbitration’. Section 57(1) of the Arbitration and Conciliation Act (ACA) does not include the National Industrial Court of Nigeria (NIC or ‘the court’) in its definition of ‘court’. (The NIC is a specialized High Court with exclusive jurisdiction to hear and determine labour and employment disputes.) Relying on the provisions of section 57(1) of the ACA, the NIC in Ravelli v. Digitsteel Integrated Services Ltd. Recently held that it is not enabled to apply the ACA, and further that the ACA does not apply to employment disputes. Accordingly, the NIC refused to assist the applicant to give effect to an arbitration agreement contained in an employment contract. This case comment reviews the decision in the Ravelli case and contends that, based upon a different rationale, the NIC might have taken jurisdiction to consider, and perhaps grant, the application.

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Revisiting India’s Position to Not Join the ICSID Convention

Sun, 2020-08-02 03:00

The relationship between developing countries and the International Centre for Settlement of Investment Disputes (ICSID) has not been smooth, to say the least. Several developing countries such as Bolivia, Venezuela and Ecuador have pulled out from the ICSID Convention. India is one of the prominent developing countries that has refrained from joining the ICSID Convention, since its inception. While India has not stated the specific reasons for its absence from the ICSID Convention, in 2000, the Indian Council for Arbitration recommended to the Indian Ministry of Finance that India refrain from becoming a signatory to the ICSID Convention on the following grounds: (1) the Convention’s rules for arbitration leaned towards the developed countries and (2) there is no scope for a review of the award by an Indian court even if it violates India’s public policy. Despite these criticisms, ICSID remains the foremost institution for investor-state disputes. This post revisits India’s absence from ICSID and argues that India’s reservations against membership of ICSID have been mitigated or taken care of by the restrictive India Model BIT text 2015 (Model BIT). As a result of rearranging the structure and content of its current and future investment treaties to align with the Model BIT, India should now reconsider joining the ICSID regime. The purpose being to enhance its overall reputation as an investment-friendly country.

 

Changed attitude of India

During the last decade, India has shown a general lack of trust in ISDS and has, as a result, unilaterally terminated 58 of its existing Bilateral Investment Treaties (BITs). In response, as has been discussed on this blog, India has taken a highly restrictive approach to ‘investor protection’ and ISDS in the Model BIT. At present, India has successfully negotiated 6 BITs subsequent to the adoption of its Model BIT, with an additional 13 BITs still under discussion. These BITs mirror several provisions of the Model BIT. For example, the Belarus BIT (2018) included most provisions as stipulated in the Model BIT.

These recent developments provide reasons to revisit India’s absence from the ICSID Convention. This is because negotiations on the basis of the Model BIT and subsequent incorporation of its provisions are sufficient to safeguard India’s political concerns and policy objectives with respect to investor protection and ISDS. The skepticism towards ICSID arbitration is, thus, no longer justified. Moreover, the substantial rise in outbound investments from India in the recent years, both in terms of magnitude and geographical spread, indicates there may be some advantages for India to become a party to the ICSID Convention. Foreign investments of Indian companies grew with 18 per cent in 2019. Indian investors have invested in several countries that are members to the ICSID Convention, e.g. the Netherlands, Singapore, Mauritius, USA, and the UK. The trajectory shows that Indian companies will increase making foreign investments, including in Africa and Latin America. Therefore, joining the ICSID Convention would provide enhanced rights and protection to Indian investors and their investments abroad.

 

Tackling the regulatory chill and apprehension of investor-bias

In between 2011 and 2015, India was subjected to a plethora of investment treaty claims. Most of these claims were a direct result of the regulatory changes undertaken by India in the telecom and taxation frameworks. As a result, concern relating to a risk of “regulatory chill,” that is the hesitance to regulate for public welfare due to fear of unfavourable investment awards, began to surface. In the context of becoming a member of ICSID, this concern was heightened due to India’s apprehension that the system is maligned by an investor-bias which might result in expansive interpretations of treaty provisions in favour of investors.

However, as mentioned, the Model BIT is indicative of the fact that India has mitigated these concerns/apprehensions by the introduction of several control mechanisms.

Firstly, the Model BIT readdresses the risk of “regulatory chill,” drawing a fine balance between ISDS and state regulation, by incorporating several reservations/exclusions with respect to the applicability of the treaty itself. Article 2.4 of the Model BIT explicitly provides for the exclusion of the treaty in disputes arising out of taxation related issues, measures by a local government, subsidies or grants provided by a Party, issuance of compulsory licenses, government procurements by a Party, services supplied in the exercise of governmental authority by the relevant body or authority of a Party, among others. These exclusion(s) are present in the BITs negotiated by India with Brazil (2020), Belarus (2018), Taipei (2018) and Bangladesh (2017).

Secondly, the Model BIT has taken care of the lack of investor accountability. This has been done through the incorporation of a broad ‘compliance with law’ provision. Article 11 of the Model BIT requires the investors and their investments to comply with all laws, regulations, administrative guidelines and policies of the State. Similarly, various other “investor obligations” have been included in the Model BIT to ensure investor accountability. These obligation(s) have been replicated in the BITs negotiated by India with Brazil (2020), Belarus (2018) and Taipei (2018). Such provisions are interpreted strictly by ICSID tribunals to be jurisdictional prerequisites for investors. Therefore, it will provide an additional safeguard to India in ICSID arbitrations.

Thirdly, India’s apprehension against the supposed investor-bias in ICSID is also mitigated by the Model BIT. This apprehension was strengthened post White Industries v India (2010). White Industries was the first unfavourable investment award rendered against India. As a response to this case, India has made fundamental changes to its Model BIT. In order to restrict the potential investor-bias or contradictory interpretations to creep in, the Model BIT has done away with several substantive provisions. For instance, the Model BIT does not incorporate: the MFN clause (in an attempt to avoid treaty shopping by investors); the ‘Fair and Equitable Treatment’ (FET) clause; nor the ‘Full Protection and Security’ (FPS) clause as traditionally understood, it is now limited to mere physical protection. Additionally, while Article 3 of the Model BIT provides certain substantive obligations of the host state (qualified by customary international law threshold), it evidently excludes the protection of the ‘legitimate expectations’ of the investors. Moreover, even in BITs negotiated by India where an FET clause has been included, such as the BIT with Colombia (2018), the scope of the clause has been limited to ‘minimum standards of treatment’ under customary international law.

It is likely that the narrowing of the substantive protections, in conjunction with enhanced regulatory powers for states and the imposition of investor obligations, will likely mitigate the current skepticism manifested as a regulatory-chill, lack of investor accountability, and the supposed investor-bias.

 

Predictable enforcement regime

The current enforcement regime for investment awards in India lacks certainty. Investment awards are expected to be enforced under the New York Convention. However, India has availed of the commercial reservation provided in Article 1(3) of the New York Convention, restricting its applicability to foreign awards arising out of legal relationships ‘considered as commercial under Indian law. Therefore, whether the Indian Arbitration Act 1996 (which implements the Convention) applies to ISDS is highly uncertain. Different High Courts have reached contrasting decisions, as discussed on this blog. Conclusively, the New York Convention is not a predictable regime for enforcement of investment awards in India.

The ICSID Convention provides a more predictable regime for enforcement of its awards. All ICSID awards are final, binding, and directly enforceable. The ICSID enforcement regime has been a subject of concern for India as it does not provide for a ‘public policy review’ of awards by the national courts. However, as previously discussed, with several control mechanisms (in the form of regulatory freedoms, investor obligations and narrowed substantive protections) in place, the Model BIT ensures more level regime between states and investors, and therefore, the concern regarding the lack of a ‘public policy review’ is diluted. With abundant front-end safeguards available to India, there will be less need for national courts to safeguard at the back-end of the procedure.

 

Exhaustion of local remedies: safety net prior to ICSID arbitration

One of the foremost developments in the Model BIT is the inclusion of a mandatory ‘exhaustion of local remedies’ clause. Article 15.1 of the Model BIT mandates that the investor must seek remedy for the particular dispute before the relevant domestic courts or administrative bodies of the host state as a precondition to filing a claim before the tribunal. Moreover, Article 15.2 clarifies that the investor must exhaust all judicial and administrative remedies relating to the measure underlying the claim for at least a period of five years prior to arbitration. The provision has been replicated in the Belarus BIT and Taipei BIT (2018). The incorporation of this provision is in consonance with Article 26 of ICSID Convention, which permits Contracting States to require the exhaustion of local administrative or judicial remedies as a condition of its consent to arbitration. Therefore, Article 15 of the Model BIT would act as a safety net for India as it would allow the domestic judicial bodies to resolve disputes prior to ICSID arbitration, thereby restricting ICSID arbitration to only unresolved disputes.

 

Conclusion

The Indian economy benefits significantly from incoming investments. As ICSID provides a transparent, reliable, and predictable legal framework for investor/investment protection, its membership will naturally enhance investor confidence and promote incoming investments. Therefore, the membership of ICSID will significantly add to India’s vast and emerging market and relatively cheap labour as factors attracting foreign investors to India. Incidentally, the benefits of membership of ICSID will also be reaped by Indian investors abroad as it will allow them to avail of the enhanced protection and special features of ICSID. Lastly, as India emerges as a political and economic superpower, it would be well-advised to re-consider its stance with regard to the ICSID regime. If India is able to renegotiate its investment treaties in line with the Model BIT, it will dilute the factors usually cited as reasons for India to refrain from joining ICSID Convention, thereby making its membership a viable option.

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Personal Takeaway from the Warzone: Organizing, Preparing and Attending a Two-Week Virtual Hearing

Sun, 2020-08-02 02:00

Virtual hearings are not a new idea. The arbitration community only started to seriously discuss the benefits and the logistics of having virtual hearings in lieu of physical hearings when the world was put on pause by COVID-19 in around February 2020.

It is not easy to organize a virtual hearing, let alone all the substantive issues that legal representatives have to deal with at the same time. Reflecting on my recent experience as part of the counsel team in a two-week evidentiary hearing involving 11 factual and expert witnesses across eight cities (Hong Kong, Seoul, Nanjing, Singapore, Cayman Islands, San Francisco, San Diego and Wilmington), this article can hopefully answer some of the concerns surrounding the conduct and organization of virtual hearings.

 

Three Essential Components of Virtual Hearings

  • Video Conferencing: Parties will be attending the hearing from various parts of the world by way of video conferencing (either IP-based or cloud based). An IP-based video conferencing is usually more stable and allows a smoother hearing. There are many applications designed for video conferencing and parties should be careful when deciding which one to use, given the heightened confidentiality and security concerns over the use of internet and applications these days which will be further addressed below.
  • Electronic Presentation of Evidence (“EPE”): The Tribunal will give directions at the hearing and the EPE operator will pull up the documents from the electronic bundle to display on every participant’s screen through screen-sharing. Parties may seek help from their service provider to prepare an electronic bundle to be organized under each hearing bundle index as agreed between the parties. The service provider will be able to hyperlink each document to the respective entry in the hearing bundle indexes. Parties should allow sufficient time to resolve any technical issues.
  • Real-time Transcription: A transcriber will be able to remotely provide real-time transcripts during the hearing and update both electronic bundle and hardcopy bundle at the end of the hearing every day. However, remote real-time transcription is more technically challenging and parties are recommended to conduct multiple tests prior to the hearing.

 

Suggestions on Organizing a Virtual Hearing

Once the parties know that there is a possibility of organizing a virtual hearing, the parties should come together immediately, and discuss which service provider they want to appoint as the operator of the virtual hearing. The parties should also work with the service provider to draw up a number of back up plans. On-the-ground support of a service provider is of paramount importance. Parties should check whether the service provider is able to provide technological support at each of the locations connecting to the virtual hearing.

It is important to bear in mind that the virtual hearing here contemplates a situation where the parties, due to travel restrictions, public health policy or otherwise, cannot come together and hold an in-person hearing. Some or almost all parties, advocates or witnesses will be located in different places and time zones. As such, it is important for the parties, Tribunal and service providers to come to an agreement as to appropriate sitting time.

The mode of participation of the parties should also be carefully considered. If there is differential treatment (i.e. where one party is appearing before the Tribunal in person whilst the other party is appearing virtually), that may give rise to arguments of “equal treatment of the parties” down the track. It is purely a point of fairness, and the maintenance of both the appearance and fact of fairness.

 

Virtual Hearing Protocol

In my view a Virtual Hearing Protocol is as important as the typical first procedural order because it governs the procedure and logistics during a virtual hearing. It is vital for both the Tribunal and the parties to agree on the mode and conduct of a virtual hearing upfront. This can be done by telephone or video conference and the agreed terms can then be set out in a Procedural Order as a framework for the Tribunal to operate within if and when issues arise during the virtual hearing.

Existing protocols and guidance notes addressing, inter alia, the procedure of witness examination, venue of the video conferencing, technical requirements and testing of the video conferencing, may be a good starting point of reference (see for example, discussions in previous post here, here and here).

In addition, parties may want to consider the following issues:

  • Hearing timetable: A higher degree of flexibility from the parties and legal teams are needed to accommodate any time zone differences between participants. Advance notice to call a witness is required to prevent delay during the virtual hearing. A well-designed hearing timetable should cater for this.
  • Witnesses’ location and environment: With the benefit of hindsight, parties should perhaps agree in advance in the event the witnesses cannot testify in an arbitral institution in person, a suitable location for the witnesses to attend the virtual hearing (as opposed to purely at home) and the materials allowed to be placed in front of the witnesses, taking also into account any applicable lockdown measures in place.
  • Testing of the virtual hearing: It is recommended that there should be at least 2-3 test runs – ideally, one between the parties to ensure all parties are content with the set up; another between the party and its own witnesses/experts to ensure that all are comfortable with the setting; and one between the Tribunal and parties to familiarize the Tribunal with the virtual hearing set up. If possible, a floor plan setting out the exact placing of equipment in front of each member of the Tribunal and party should also be drawn up, since the equipment has to be readjusted every day at the beginning of the hearing.
  • Pausing or terminating the virtual hearing: An instant contact method (such as a phone number from the Tribunal secretary) should be provided to the parties such that a request to pause the virtual hearing may be made to the Tribunal where needed. If possible, parties may want to agree and confer a wide discretion to the Tribunal to pause or terminate the virtual hearing, if and when the Tribunal deems necessary.
  • Security protocol: As described above, given the increasing confidentiality and security concerns over use of internet and applications these days, parties should agree and establish a security protocol under which the service provider can allow participants to join the virtual hearing room. Password protected link plus a virtual waiting room will usually be sufficient. Of course, the protocol should set out clearly the steps for the service provider to vet the participants’ identities.
  • EPE operator: Ideally, an EPE operator should be familiar with the E-bundles, and therefore will be able to pull up the documents as and when a reference is made. However, parties may consider assigning a specific person familiar with the bundle to sit next to the EPE operator during opening submissions, cross examination and expert witness conferencing to facilitate EPE presentation.
  • List of required equipment: This should be readily available from the service provider, although the recommended set up may not suit the parties’ need. 3 screens are more than enough (1 for video conferencing, 1 for EPE and 1 for real-time transcript). Anything more could be quite confusing and potentially chaotic for an intense virtual hearing.
  • Microphone and videoconferencing: Those who do not have speaking roles should turn off their microphone and video. This is particularly relevant at the time of expert witness conferencing since there can be 7 active speakers at one time (i.e. 2 experts from each party, 2 advocates from each party, and 3 Tribunal members).
  • Delivery of electronic bundle and hardcopy bundle: It is vital to have electronic bundle for a virtual hearing since that is how EPE is carried out. Hardcopy bundles may not be necessary anymore. However, parties may want to make available at least one hardcopy for witnesses and/or experts if they do not testify within the arbitral institution as a safety blanket in the event that EPE does not perform normally due to connection issues.
  • Simultaneous or consecutive interpretation: In general, I find consecutive interpretation to be more effective and smoother in the video conferencing setting due to slight delay in time of audio and visual delivery in video conferencing.
  • Protocol for finalising transcripts and standard delivery time: Unlike the usual in-person hearing, parties may not get to speak with the transcriber before or after the hearing to adjust approach. It is therefore important to agree with the service provider a protocol for finalizing transcripts and their delivery time upfront such that parties and the Tribunal can plan their work ahead.

It goes without saying that parties will need to work continuously in implementing the above agreed terms in the time leading up to the hearing.

 

Concluding Remarks

Virtual hearing is very different from an in-person hearing and for sure, organization is more difficult. While a virtual hearing overall is likely more costly than an in-person hearing, such costs would need to be balanced against the eliminated travel costs for multiple parties, advocates and witnesses. Also, legal teams may require more time and efforts to organize a virtual hearing to prepare for all eventualities arising from the uncertainties of technology.

Virtual hearings are also in some ways less user-friendly, as they require at least 2-3 onsite inspections to agree on the set up and to ensure everything runs smoothly. Issues like audio feedback, camera angle, availability of physical equipment (such as computers and screens) must be dealt with prior to the hearing. The time invested in doing so should not be underestimated.

That said, virtual hearings do have a number of advantages over in-person hearing. For example:

  • Better teamwork: Unlike in-person hearings, if there is anything that a solicitor or client wants to discuss with the advocate, they can simply mute the microphone and turn off the video such that team members can discuss amongst themselves on certain point of law or fact arising from submission or cross examination, which definitely facilitates discussion and teamwork. However, participants should be mindful of etiquette and facial expressions as camera is on most of the time and virtual hearing should be treated just as seriously as an in-person hearing.
  • No need for physical presence: This may be the greatest advantage as one does not need to travel abroad or commute to attend hearings in person. This will also suit witnesses and clients who are busy but nevertheless want to participate in part of the hearing.
  • Ability to better read the bench and witnesses: In a virtual hearing, facial expressions, emotions and body language are magnified which helps the advocate and the legal team to better assess the demeanor of the witnesses and to read the bench.
  • Usage of EPE gives a better view than a hardcopy bundle: EPE allows an advocate to focus the Tribunal and witnesses on what they exactly need to see, and to magnify or highlight exhibits, which is not viable with traditional hardcopy bundles. Original text and translated text of exhibits can be shown in split screen.
  • Expert witness conferencing is more organized: Parties would have to be more disciplined to ensure that the microphones could clearly pick up what they say, which can make the overall conduct of the hearing more orderly.
  • Unlimited number of attendees: Unlike in-person hearing where there is physical space constraint, it is possible to have as many attendees as one needs in a virtual hearing.

With further joint efforts between law firms, arbitrators, parties and service providers, virtual hearings will no doubt be more user-friendly and less costly. Once that is achieved, virtual hearings will likely become the new norm in the arbitration community.

 

The author’s views do not represent those of Kirkland & Ellis or of any organizations with which they are affiliated. Any and all errors are solely attributed to the author.

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Interviews Of Our Editors: “What Does Kluwer Arbitration Blog Mean To You?”

Sat, 2020-08-01 03:13

We continue our series with four of our fellow editors sharing their perspectives on working on the Blog and predictions concerning the future of the arbitration world: Daniela Páez (Assistant Editor for Latin America), Ashutosh Ray (Assistant Editor), Christine Sim (Assistant Editor for Southeast Asia), and Sadaff Habib (Assistant Editor for Africa).

 

Daniela Páez (Assistant Editor for Latin America):

What does Kluwer Arbitration Blog mean to you? 

I was part of the first team of Assistant Editors to join our Blog’s editorial team in January 2015. At the time, I was finishing my master’s degree in the US and was looking forward to settling in New York City for the next few years. As I transitioned into my current role, I was inspired to pursue the opportunity to work for the Blog.

To me, the Blog provides me with an opportunity to closely follow developments in Latin America – a region where international arbitration is very active and continues to gain traction – and then work with the team and authors to produce publications that highlight these trends. I am sometimes surprised with the high number of requests we receive to publish on hot topics in the Latin America. This demonstrates how valuable our Blog’s content is in addressing relevant issues for private practitioners and academics, all of whom are equally eager to share with others the evolution of international arbitration in Latin America.

Through the Blog, I have also built an incredible network of international arbitration practitioners from across the region and world. I am very grateful for the valuable professional relationships I have established with our contributors, which have often led to further collaboration outside of the Blog and serves as an added benefit in my role as a private practitioner.

 

Make a guess as to what you think international arbitration will look like in 2030.

My guess focuses on how the demand for arbitrators will change in the arbitration market. The market will demand more sophistication from and specialization of arbitrators. First, arbitrators will be expected to be aware of cybersecurity issues to ensure transparency and accountability in any data processing they handle as part of the adjudication of a case, alongside being technologically savvy. This will become a key aspect of arbitrator selection and will inevitably raise the stakes for arbitrators who will now have to develop approaches to showcase those qualifications.

Second, with respect to specialization of arbitrators, one of the subject matters that will likely continue to develop is climate change-related disputes. The Paris Agreement (which 189 states have ratified to date) requires each country to outline and communicate their post-2020 climate change action. Naturally, those long-term international commitments will continue to have an impact on national and regional policies, which in turn might affect: (1) commercial relationships between private parties who will have to adapt to states’ new policies (i.e. initiatives towards de-carbonization of the economies); and (2) foreign investors operating in traditional energy industries which might have to exit certain economies due to a sovereign state’s new policy, for example, ordering phase-outs of certain energy sources. When facing these types of controversies, parties are likely to search for an arbitrator with sufficient expertise on these subjects. Therefore, my prediction is that arbitrators will be working on developing a particular expertise on these subjects to be competitive and meet the international arbitration market’s demand.

 

Ashutosh Ray (Assistant Editor):

What does Kluwer Arbitration Blog mean to you? 

It is a privilege and honor to be part of the editorial board of the Blog – the eponymous household name for anyone acculturated to the international arbitration ecosystem. The jurisprudence in international arbitration continues to evolve at a fast pace and the Blog has become a catalyst for facilitating high-quality engagement from across jurisdictions. As an editorial board member, it is intellectually stimulating to be in the midst of such discussions with the contributors and fellow editors. I have come to appreciate a myriad of viewpoints on any given issue through the several submissions that I have an opportunity to review and study. One of the most satisfying bits, perhaps, is when the contributors return to share how their posts have benefited their careers.

It is fascinating that at the Blog I am part of an apparatus that is helping standardization of ever-evolving concepts in the field on one hand and celebrating the diversity of opinion on the other. I have always found myself exceedingly supported by my fellow editors in times of need and their availability alone has been extraordinarily reassuring. The indomitable spirit within our team underpins its success and keeps me on my toes.

 

Make a guess as to what you think international arbitration will look like in 2030.

It won’t take rocket science to guess that international arbitration will be more widely used in 2030. That is likely the natural progression for international arbitration. However, international arbitration may certainly look very different in 2030. Following are my musings:

  • Full-fledged video hearings will mostly become common by 2030 (imagine VR glasses for a near-life experience!). This would likely receive the spotlight for tackling climate change and reducing the environmental impact while promoting optimum use of time, resources, and energy in international arbitrations. The Green Pledge is a step in the right direction to achieve carbon-neutrality in conduct of international arbitration.
  • As for diversity, while gender diversity would hopefully claim its rightful place by 2030, works on ethnic and geographical diversity would be underway.
  • It may not be surprising for parties to employ artificial intelligence (“AI”) to evaluate the probabilities of the success of their matters. Thus, even though AI may not replace arbitrators, it might become an important tool for the parties to make a more scientific decision between arbitrating their disputes and settling them. This exercise may lead to a new breed of service providers providing such AI-based services (let’s call them the AI Assessors) in the arbitration ecosystem.
  • The evolution of industries especially that of renewable energy, technology, and pharmacy might give rise to a new genre of disputes requiring further expertise in these areas.
  • As discussed here, the Singapore Mediation Convention might have a gestation period owing to the New York Convention, before it kicks off. A decade might be an apposite time to revisit its interplay with the New York Convention.

 

Christine Sim (Assistant Editor for Southeast Asia):

What does Kluwer Arbitration Blog mean to you? 

To me, the Blog is a great tapestry where the arbitration community’s collective passion for the subject is woven together. It is an incredibly special ground-up initiative, which constantly inspires me in practice, in academic research, as well as in life.

First, the writers who are eager to bring new and regional developments to the attention of the readers and who enjoy thinking deeply about issues in arbitration are like the spinners of threads and yarn. Without the writers contributing their ideas, arguments and analysis, the community would not have such a dynamic space to read and debate the latest issues in arbitration together. I was motivated to start working for the Blog because I wanted to increase the number of posts of talented writers from Southeast Asia and to cover the exciting arbitration developments in this emerging region.

Second, the editors are like the busy weavers. We hold these threads together, try to ensure that the right colors go in the right places, and weave them piece by piece, into a greater piece of art. Without the cooperation, good humor, and passion of each of my fellow editors, I believe our Blog would not have the readership and engagement that it has today.

Third, the readers are like the buyers of the tapestry. They bring pieces of it back with them to their research, their law firms and their homes. They use them in other magnificent pieces of work – as inspiration for longer academic journals, as quick learning opportunities amidst hectic billable hours, and even as bedtime stories to wind down from the day. Perhaps without these buyers, some might speculate that fewer people would be inspired to spin yarn or to keep weaving at all. Yet, the passion of the writers and the editors often sustains itself – through their pride in collectively creating a larger work of art.

 

Make a guess as to what you think international arbitration will look like in 2030.

First, international arbitration will certainly rely on technology far more than it does now. We would find consensus in better and more efficient ways to deal with document production; we would use technology to conduct better hearings and conferences; and we could also use technology to monitor ethical compliance.

Second, arbitration could look very different. Investment arbitration could be vastly different from what it is today. We may have a multilateral court up and running, where a few levels of appeals may be the norm for any case. The citation of precedents would weigh more heavily. Commercial arbitrations could see greater restrictions from legislative changes or the intervention of state courts. If governments grow impatient with private forms of dispute resolution, the scope of arbitrability could shrink and the scope of public policy may correspondingly grow larger.

Third, arbitration will be everywhere. It will grow more and more regionally diverse, as its geographical expansion is an unstoppable tide that has already accumulated great kinetic energy today.

 

Sadaff Habib (Assistant Editor for Africa):

What does Kluwer Arbitration Blog mean to you?

I have been practicing in international arbitration for over 10 years now. I am qualified in New York. I practice in the Middle East as counsel and an arbitrator. Throughout my arbitration career the Blog has been my first port of call for any recent development in international arbitration. It offers a wealth of information on latest developments in international arbitration in a clear and concise manner. The level of detail is just right to understand key issues. The Blog also provides a platform for young practitioners who are keen to publish their articles and establish their reputations but sometimes find it difficult to do so.

I joined the Blog as an editor for the Africa region two and a half years ago. It was one of the most exciting news I received because it was an opportunity for me to promote the growth of arbitration in my home continent, to work with practitioners from different parts of the world and to actively participate in the editorial process. The Blog has helped me channel my passion and interest in international arbitration by providing an opportunity to write for the Blog and to work with brilliant minds in the arbitral world – both with the editorial team and with different authors to refine their works.

I am delighted to contribute to and to be part of such a diverse and unique legal platform and look forward to its growing heights.

 

Make a guess as to what you think international arbitration will look like in 2030.

I expect we will see video conferencing and virtual hearings becoming the norm. These might also pave the way for 3D tele-presence. One of the reasons why video conferencing hasn’t gained momentum in international arbitration is because it is difficult to read the body language of witnesses which in itself is an important means of gauging their honesty and credibility. Therefore, I will be little surprised if we have 3D figures being projected across the wires creating a “real virtual arbitration.”

As the world evolves, users of arbitration will expect fast and efficient results. It doesn’t seem unfathomable for an online arbitration system to be created for dispute resolution, having its own procedural rules and virtual pool of arbitrators. The extent to which such a system will be suitable to different kinds of disputes remains to be seen.

With these developments in technology, procedural law, as applied to arbitration as we know it, will need to be reconsidered. I suspect that the traditional ‘seat’ of arbitration may be done away with. It does not seem too farfetched to think that the New York Convention may be replaced with a revamped New York Convention on International Procedural Law which would apply and regulate all online and virtual arbitrations. I discussed this further in my chapter in the CIArb book A Brand New World: The Evolution and Future of Arbitration.

 

Further interviews in this series of interviews with our editors are published here.

 

More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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How the Arbitration Law of the People’s Republic of China Should Be Modernised

Fri, 2020-07-31 03:00

It is undisputed that the Arbitration Law of the People’s Republic of China (“the Arbitration Law”) has greatly contributed to the establishment, development and improvement of China’s current arbitration system.

However, due to the fast-moving socio-economic realities and the ever-developing legal system of China, the provisions of the Arbitration Law have gradually begun to lag behind international arbitration practice. For example, the law’s requirements for arbitration procedure lack flexibility and are excessively modelled on litigation. Article 45 of the Arbitration Law stipulates that evidence should be presented at the hearing and that the parties can examine the evidence, which suggests that documents-only arbitration is excluded.

To date, the Supreme People’s Court of China has promulgated over 30 judicial interpretations and opinions relating to arbitration. All of these documents only serve gap-filling purposes, without providing a cure to the fundamental problems of the Arbitration Law.

In the 13th National People’s Congress Standing Committee legislative plan, the Arbitration Law was identified as legislation for which amendment work should be rushed and as legislation that will be submitted for deliberation when the conditions are ripe. In recent years, the government’s legislative department, arbitration practitioners, and academics have had extensive discussions on the amendment and improvement of the Arbitration Law. So far, the proposals for amending the Arbitration Law mainly focus on the following aspects: 1) enhancing the non-governmental nature of arbitration commissions; 2) ascertaining the legal status of ad hoc arbitration; 3) loosening the requirements for a valid arbitration agreement; and 4) strengthening judicial supervision and support of arbitration.

 

Enhancing the non-governmental nature of arbitration commissions

The Arbitration Law does not expressly define the legal nature of arbitration commissions. Academics’ views are split on this issue. One group maintains that arbitration commissions are special public legal persons. The other holds that arbitration commissions are charitable not-for-profit legal persons. Although differences exist, it is common ground that arbitration institutions should be non-governmental and should not have bureaucratic and official characteristics. This should be clarified in the Arbitration Law.

 

Ascertaining the legal status of ad hoc arbitration

The Arbitration Law only provides for institutional arbitration. However, ad-hoc arbitral awards have equal status as institutional arbitral awards under the New York Convention, to which China has acceded, and thus the legal effect of ad hoc arbitration conducted in other jurisdictions should rightly be recognized in China.

There are debates among academics over whether the Arbitration Law should be amended to expressly include ad hoc arbitration. Proponents argue that arbitration users in China are mature enough to conduct effective ad hoc arbitration proceedings. Most countries have recognized the legality of ad hoc arbitration. Ad hoc arbitration has strong vitality and a positive impact on economic globalization. On the other hand opponents argue that the timing for China to adopt ad hoc arbitration is not ripe. They say that crucial conditions for establishing ad hoc arbitration have not been met. These conditions include a “social credit system,” effective civil enforcement mechanisms, credibility and the overall quality of the arbitration system in China.

I think China should legitimize ad hoc arbitration. The benefits for doing so are threefold: first, Chinese courts and many major Chinese arbitration institutions in China are overloaded with cases. Introduction of ad hoc arbitration can help alleviate the burden on those institutions and thus improve the overall efficiency of dispute resolution in China; second, compared with institutional arbitration, ad hoc arbitration is more flexible and less costly. Introduction of ad hoc arbitration could not only help reduce the cost for the parties but also motivate the arbitration institutions to improve their services in order to compete with ad hoc arbitration; third, by participating in ad hoc arbitration, parties and arbitrators can develop their capabilities of managing arbitration proceedings.

 

Loosening the requirements for a valid arbitration agreement

According to Article 16.2 and Article 18 of the Arbitration Law, there are three indispensable components for a valid arbitration agreement: express intention to arbitrate, subject matters to be referred to arbitration, and reference to a selected arbitration commission.

These requirements have been heavily criticized as being against the principle of party autonomy – the cornerstone of arbitration. Under most national arbitration laws, an arbitration agreement is valid as long as it indicates the parties’ intention to submit their dispute to arbitration.1)See e.g. Article 2A of International Arbitration Act of Singapore, Article 2(1) of Japanese Arbitration Act, and Article 6 of English Arbitration Act 1996. jQuery("#footnote_plugin_tooltip_4112_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4112_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); China’s requirements regarding “subject matter of arbitration” and “selected arbitration commission” are unduly strict and are a stumbling block to the development of arbitration.

China’s judiciary has also realized the excessive strictness of the requirements of the Arbitration Law and efforts have been made to mitigate them. For example, in the Judicial Interpretation on the Arbitration Law by the Supreme People’s Court, Article 2 stipulates: “If the parties agree on the subject matter for arbitration in general terms as contract disputes, then disputes arising from the establishment, validity, change, transfer, performance, liability for breach, interpretation, and cancellation of the contract can be deemed as subject matters to be arbitrated.”

Further Article 3 stipulates: “If the name of the arbitration institution agreed in the arbitration agreement is inaccurate but a specific arbitration institution can be identified, it shall be deemed that the arbitration institution has been selected.”

Article 4 also stipulates: “If the arbitration agreement only specifies the arbitration rules, it shall not be deemed as a selection of that arbitration institution, unless parties reach a supplementary agreement or an arbitration institution can be identified from the reference to the specified arbitration rules.”

These provisions substantially relax the requirements for a valid arbitration agreement under the Arbitration Law. Many arbitration practitioners believe that in amending the Arbitration Law, the requirements should be further loosened to prevent the negation of arbitration agreements. I personally agree with this view. The Arbitration Law should take a more pro-arbitration stance by simplifying the requirements for a valid arbitration agreement.

 

Strengthening judicial supervision and support of arbitration

Under the Arbitration Law, judicial supervision of arbitration only takes place after the award is rendered. Many arbitration practitioners suggest that in amending the Arbitration Law, the legislature should consider adding relevant provisions to achieve effective supervision of the arbitration proceedings.

I have also observed that due to the lack of judicial supervision during the arbitration proceedings, irregularities in the conduct of the proceedings cannot be immediately corrected. This can often occur when an arbitration commission refuses to transfer the property preservation documents or the arbitration tribunal severely delays the arbitration proceedings and keeps putting off the rendering of an award, or the arbitrators act with an obvious lack of due diligence. In this regard, reference can be made to Article 24, Paragraph 1 of the English Arbitration Act 1996, which provides for four scenarios where the court can remove an arbitrator.

The power of national courts to exercise judicial review over arbitral awards is recognized by most national arbitration laws.2)See, e.g., Part 3 of the International Arbitration Act of Singapore, Chapters 7 and 8 of Japanese Arbitration Act, and Chapter 7 of Indonesian Arbitration Law No. 30 of 1999. jQuery("#footnote_plugin_tooltip_4112_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4112_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); China is no exception. Judicial supervision relating to arbitral awards in the Arbitration Law includes setting aside and refusal of enforcement of arbitral awards.

In China, the relevant procedures for judicial supervision of arbitration are different for domestic arbitration and foreign-related arbitration under a “twofold dual-track system.” Under the Arbitration Law, courts will only review procedural issues for the supervision of foreign-related arbitration, while they would review both procedural issues and certain substantive issues for domestic arbitrations.

Many arbitration practitioners consider that substantive issues in domestic arbitral awards should not be subject to judicial review, based on two major arguments. First, the consensual nature of arbitration requires that the scope of judicial review should fully reflect the principle of party autonomy and the finality of arbitration. Arbitrarily expanding the scope of judicial review to include substantive issues will not only severely undermine the practicality and efficiency of arbitration but also will encroach upon the powers of the arbitral tribunal. Second, statistics show that in recent years the average percentage of awards that have been set aside or refused enforcement by courts is less than 1%. This figure demonstrates that tribunals’ competency and the case management competency of domestic arbitration institutions stands up to scrutiny at the enforcement stage. Therefore, it is unnecessary to treat domestic and foreign-related arbitration differently.

I agree with the above arguments. Also, judicial review of substantive issues in an arbitral award is not in line with international practice. In my view, another problem with the twofold dual-track system is that sometimes the decision on setting aside and the decision on enforcement of an arbitral award by the courts may contradict each other. At present, after the application of setting-aside is rejected by the competent court, which is the court at the place of the arbitration institution, the enforcement court may still refuse to enforce the award. The amendment of the Arbitration Law should address this issue.

 

Concluding remarks

The amendment of the Arbitration Law is a huge and systematic project. China should accelerate its efforts to adopt best practices in international arbitration and modernize the Arbitration Law, in order to better serve the needs of arbitration users and to enhance its competitiveness in international dispute resolution.

References   [ + ]

1. ↑ See e.g. Article 2A of International Arbitration Act of Singapore, Article 2(1) of Japanese Arbitration Act, and Article 6 of English Arbitration Act 1996. 2. ↑ See, e.g., Part 3 of the International Arbitration Act of Singapore, Chapters 7 and 8 of Japanese Arbitration Act, and Chapter 7 of Indonesian Arbitration Law No. 30 of 1999. 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Paris Arbitration Week Recap: Arbitrating Allegations of Corruption in International Business Transactions – Problems and Solutions

Fri, 2020-07-31 02:00

On Monday 6 July 2020, during the first day of the Paris Arbitration Week, Reed Smith held a webinar on ‘Arbitrating allegations of corruption in international business transactions – problems and solutions‘, a highly controversial topic which has gained much attention in the arbitration community in the last decade. The event focused on a series of discussions and Oxford Union-style debates between distinguished professionals comprised of: Alexis Mourre (President, ICC International Court of Arbitration), Christina Täuber (In-house legal counsel, CML International), Karl Hennessee (SVP Litigation, Investigations & Regulatory Affairs, Airbus), Mark Pieth (Professor, University of Basel, President, Basel Institute on Governance), Sophie Nappert (Independent arbitrator, 3 Verulam Buildings, Co-chair, ICC Task Force Addressing Issues of Corruption in International Arbitration) and Yves Derains (Founding partner, Derains & Gharavi, Chairman of the ICC Institute of World Business Law). The panel also included the following Reed Smith lawyers: José Astigarraga (Global Head of International Arbitration, Miami), Peter Rosher (Partner, Paris), Ana Atallah (Partner, Paris), Andrew Tetley (Partner, Paris), Clément Fouchard (Partner, Paris) and Ben Love (Counsel, New York).

Alexis Mourre, President of the ICC International Court of Arbitration, acknowledged in his keynote speech that there is consensus in the arbitration community that corruption “is a scourge upon international business transactions, and needs eradicating”.1)By referring to Emmanuel Gaillard’s note in “La corruption saisie par les arbitres du commerce international”, French Rev. Arb, 2017, No. 3, page 805. jQuery("#footnote_plugin_tooltip_5582_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5582_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); He further acknowledged that the International Chamber of Commerce (ICC) has taken the lead in this fight, and has poised itself at the very forefront of this battle against corruption.2)For example, by adopting in 1977 (as updated in 2011) the ICC Rules on Combating Corruption as a method of self-regulation and encouraging businesses to respect high standards of integrity in business transactions. jQuery("#footnote_plugin_tooltip_5582_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5582_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); While the welcoming note was loaded with legal and policy issues, he concluded with a note of caution: honest arbitrators dealing bona fide with corruption matters should be protected.

The webinar was further divided into three parts: (i) a conversation on dealing with corruption-tainted transactions; (ii) two Oxford Union-style debates; and (iii) a discussion on the Toolkit for Arbitrators.

The following highlights from the discussion include a range of views expressed by members of the panel and guests. No comments should be attributed to any particular individual.

 

A conversation on dealing with corruption-tainted transactions

The first session involved a discussion around the main problems encountered by arbitration practitioners when facing corruption allegations. The panel considered five key issues.

Firstly, the panelists agreed that current arbitral practice is mainly focused on corruption on the part of foreign investors (i.e. ‘supply side’ corruption). However, ‘demand side’ corruption (such as the bribery of public officials as a condition of investment) is often overlooked. The panel reflected on practical tools (“minimal standards”) that foreign investors could utilise to address ‘demand side’ corruption, such as: implementing high level third party vetting (to ensure third parties in vulnerable regions are subject to enhanced due diligence), operating under clear compliance rules and business guidelines, offering internal/external training, and outlining steps taken to avoid corruption.

Secondly, although States have seen many changes in their policy and legislation over the last 10 years, the panel could not pinpoint an overarching discernible culture change, noting that corruption and bribery are concepts that evolve easily over time: “it is not yet clear whether the change in the behavior of public officials is better or worse”. The panel expressed how repeat behaviors and circumstances are being uncovered, particularly in the construction industry, a sector that is exposed to bribery through public tendering procedures.

Thirdly, although there are diverging attitudes towards different modes of doing business or exercising political influence in different countries, the panel agreed that a ‘one size fits all’ approach based on “minimal standards” is appropriate (the practical tools described above to combat corruption). Where such “minimal standards” cannot be met, business should be avoided.

Fourthly, the panelists agreed that when selecting an arbitrator, they look for a strong personality, high level of competence, a good track record, as well as a degree of ‘arbitral courage’ (i.e. willingness to take a specific action if required, by not relying on procedural grounds to avoid taking unusual decisions).

Fifthly, having noted that there are often significant differences in approaches adopted by arbitral tribunals, the panel discussed whether a “standardised approach” towards corruption would be desirable. It was agreed that, although the Toolkit for Arbitrators has done a great job to address these issues in a systematic and comprehensive manner, corruption and fraud are constantly evolving, and a “standardised approach” may never be able to keep up with criminality.

 

Oxford Union-style3)Discussion was led in the “Oxford Union-style”, which means that debaters argue in favour of, or against, a motion. jQuery("#footnote_plugin_tooltip_5582_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5582_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); debates

In the second part of the webinar, debaters argued for, or against, a motion, and then a “tribunal” voiced their opinions on the subject. The “tribunal”, composed of members of the panel, had to decide on two legal issues: (i) in the first debate, the tribunal had to assess whether the standard of proof for corruption allegations should be higher than the balance of probabilities, and (ii) in the second debate, the tribunal questioned whether a party who obtained a contract through corruption is entitled to recover damages. Each debate involved two debaters.4)For the purposes of these two debates, the ‘tribunal’ and all of the debaters were role playing, and thus none of the views expressed during the debates should be attributed to any of the individuals participating in the debates, their respective firms or institutions, or any of their clients. jQuery("#footnote_plugin_tooltip_5582_4").tooltip({ tip: "#footnote_plugin_tooltip_text_5582_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Motion 1: “This house believes that the standard of proof for corruption allegations should be higher than the balance of probabilities”

The debater in favour of the motion considered several reasons why a higher standard of proof should be required: (i) the gravity of the consequences of a finding of corruption (either the contractual amount is due or it is not, either the arbitral award will remain valid or it will be annulled – i.e. there is no middle ground), (ii) the ability to disseminate evidence (regardless of who is alleging corruption); (iii) the variety of types of corruption and definitions, which require an intentional element (the appropriate standard of proof should be tailored to the most demanding definition of corruption); and (iv) there may be a large margin of error among the members of the arbitral tribunal (composed traditionally of three members).

The debater against the motion advocated that the balance of probabilities is the highest standard available, which properly balances the respective interests of those in dispute. It was further argued that some proponents even advocate for a lower standard of proof, on the grounds that corruption is particularly difficult to prove. Moreover, the balance of probabilities is sufficiently flexible to properly respond to allegations of corruption. Ultimately, to retain any higher standard would be to introduce the criminal “beyond all reasonable doubt” standard, which would be inappropriate in a civil dispute resolution process.

 

Motion 2: “This house believes that a party who procured a contract by corrupt means should be entitled to recover damages to the extent of the benefit conferred on the State”

The debater in favour of the motion advocated that a party to a contract that was procured by corruption should be entitled to restitution for the following reasons: (i) for fairness because no party should benefit from its participation in a corrupt transaction (i.e. damages in the form of restitution should still be available to prevent unjust enrichment of the respondent invoking a defense of illegality, in particular if it were a participant in the illegal conduct); (ii) precluding restitution would put the tribunal in the improper position of imposing disproportionate penal measures on the claimant, which is likely already subject to fines or other penalties in the domestic legal system (i.e., proportionality in the administration of civil justice); and (iii) as a matter of policy, it better achieves the central goal of fighting corruption (e.g., for States, a ‘zero-tolerance’ approach to corruption creates the perverse incentive to engage in bribery (or at least to overlook such acts) when concluding investment contracts, in order to shield the State from eventual liability; and for investors, a ‘zero-tolerance’ approach incentivises them to focus fewer resources on self-policing and reporting, because such self-investigation would be punished rather than rewarded).

The debater against the motion rebutted these arguments for the following reasons: (i) entitling a party who has procured a contract by corruption to recover damages is unfair and has no basis in law; (ii) it would not serve to deter corruption but risks in fact encouraging it; (iii) it would threaten international arbitration’s legitimacy and reputation; (iv) it is rarely both parties to the arbitration who have participated in the bribe in the same way; (v) a “zero tolerance” approach deters corruption and can change the corporate culture towards corruption; and (vi) international arbitration cannot be seen as encouraging acts of corruption.

 

Corruption and money laundering in international arbitration – a Toolkit for Arbitrators

The third and final part of the session concluded with some final remarks on the Toolkit for Arbitrators, and some of the reasoning behind it: one key motivation was that the practice has been incredibly uneven, with every tribunal having a tendency to “reinvent the wheel” when confronted with such corruption issues, which may pose problems at the enforcement stage. This Toolkit aims to help arbitrators who suspect, or are confronted with, alleged corruption or money laundering in relation to the underlying dispute, to find a practical solution in accordance with the applicable laws. Although the Toolkit is a comprehensive and useful tool in practice, it remains however a non-binding instrument.

 

Conclusion

Arbitrating corruption allegations presents complex and weighty issues. The allegations can be made both by States and investors. The adequacy of the evidence that should be required to prove such allegations, such as the so-called “red flags,” as well as the standard of proof, are key issues in such cases. Even if corruption is proven, tribunals must resolve other issues such as the legal consequences of such corruption, which can depend on at what point in the process the corruption takes place, the causal connection between the corruption and the transaction, and the parties’ conduct after the corruption occurred. To add to the challenge, disputes involving corruption can be high-profile and highly controversial, further complicating the work of tribunals. The law and practice surrounding these disputes is likely to continue to evolve as more debate and thought is focused on the subject.

 

More coverage from Paris Arbitration Week is available here.

References   [ + ]

1. ↑ By referring to Emmanuel Gaillard’s note in “La corruption saisie par les arbitres du commerce international”, French Rev. Arb, 2017, No. 3, page 805. 2. ↑ For example, by adopting in 1977 (as updated in 2011) the ICC Rules on Combating Corruption as a method of self-regulation and encouraging businesses to respect high standards of integrity in business transactions. 3. ↑ Discussion was led in the “Oxford Union-style”, which means that debaters argue in favour of, or against, a motion. 4. ↑ For the purposes of these two debates, the ‘tribunal’ and all of the debaters were role playing, and thus none of the views expressed during the debates should be attributed to any of the individuals participating in the debates, their respective firms or institutions, or any of their clients. 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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SAS Institute Inc v World Programming Limited: Anti-enforcement Injunctions and Competing Judgments on Liability and Enforcement

Thu, 2020-07-30 03:00

In the recent decision in SAS Institute Inc v World Programming Limited [2020] EWCA Civ 599 (“SAS”), the English Court of Appeal addressed issues including the situs of a debt, the proper approach to anti-enforcement injunctions, and how considerations of comity arise in the enforcement of foreign decisions.

 

Facts

In 2009, SAS, a North Carolina (“NC”) corporation, sued WPL, a UK software-developer, in England for copyright infringement and breach of contract. The English High Court rejected both claims in 2013 (“the English liability judgment”). The English liability judgment turned on, inter alia, the application of the EU Software Directive, which rendered the contract terms relied on by SAS null and void. SAS’ appeal failed.

In 2010, while the English liability proceedings remained pending, SAS commenced proceedings against WPL in NC on materially similar bases. SAS succeeded in its claims in 2015 (the “US liability judgment”), and compensatory damages were set at US$26M. Under NC legislation, the damages were trebled to US$79M. WPL’s appeal was unsuccessful.

In 2017, SAS sought to enforce the US liability judgment in England. This was refused on grounds of issue estoppel, Henderson v Henderson abuse of process, and because enforcement would be contrary to the public policy protected by the Software Directive. The Court of Appeal refused SAS permission to appeal.

Apart from seeking to enforce the US liability judgment in England, SAS also applied to the California District Court for extraterritorial enforcement orders (the “Orders”). Specifically, assignment orders (ordering WPL to assign to SAS its right to payment from its customers until the US liability judgment was satisfied) and turnover orders (ordering WPL to transfer to a US Marshal monies arising from business conducted between WPL and its customers) were sought. The Orders would have affected customers from the US and other countries, but did not affect UK-based customers. SAS expressly reserved the right to seek orders which did extend to WPL’s UK customers.

WPL sought and obtained, ex parte, an interim anti-suit injunction prohibiting SAS from taking further steps before US courts to procure the Orders or any similar relief. This interim injunction was granted pending an inter partes hearing before Mrs Justice Cockerill.

 

The High Court’s Decision

Cockerill J held that anti-enforcement injunctions would only be granted in exceptional cases, typically requiring conduct akin to fraud. The Orders sought were exorbitant in that they went beyond any relief which an English court would grant, but were not “markedly exorbitant” because they did not require anything to be done by WPL in England. Further, while the Orders would have the effect of enforcing a US judgment which had been held to be contrary to English public policy, that did not interfere with the English enforcement judgment, which had decided only that the English court would not lend its enforcement processes to SAS. WPL appealed.

 

The Court of Appeal’s Decision

The Court of Appeal’s decision may be understood in three main segments.

The Situs of a Debt

First, Males LJ outlined the general rule that a debt is situated in the place of the debtor’s domicile. However, this general rule is displaced if the debt is owed pursuant to an agreement providing for arbitration in England or the exclusive jurisdiction of the English courts. Applying these principles, debts due from US customers of WPL which were not subject to any contractual term providing for arbitration in England, or the exclusive jurisdiction of English courts, were situated in the US. Conversely, debts due from customers in the UK and, critically, subject to the jurisdiction of English courts, were situated in the UK. As for debts from WPL’s customers in third countries, most of those debts were found to be situated in the UK because of a clause in the majority of WPL’s contracts which provided for arbitration in England.

Cockerill J’s decision had turned on her finding that the Orders were not “markedly exorbitant” because they did not require anything to be done by WPL in England. Males LJ disagreed, and eschewed the language of “marked” exorbitance. Specifically, Males LJ observed that the assignment order would effectively have required WPL to assign debts situated in England to SAS. Similarly, the turnover order would require WPL to give instructions to its banks in England to discharge debts situated in England which were owed by the banks to WPL. The Orders were therefore said to be exorbitant in that they affected property situated in England and over which the American courts did not have subject matter jurisdiction.

Anti-enforcement Injunctions

The second segment of SAS concerned the availability of anti-enforcement injunctions given that the Orders were found to be exorbitant. Males LJ held that while anti-enforcement injunctions would only rarely be granted, there was no distinct jurisdictional requirement that such injunctions be granted only in exceptional cases. In any event, this case was exceptional given its complex procedural history.

Comity

The third segment of the judgment outlined how comity shaped the anti-enforcement injunction eventually ordered. Of particular note is the Court’s observation that comity requires the English court to have “sufficient interest” in the matter for an anti-suit injunction to be granted. Further, the Court described comity as a two-way street, such that it would be inconsistent with comity for another court to interfere with assets situated in the UK and subject to the jurisdiction of the English court.

These considerations led Males LJ to the following conclusions:

  1. An anti-enforcement injunction against the debts due from WPL’s customers in the US would be inappropriate because those debts were situated in the US. If anything, an anti-enforcement injunction against those debts would itself be an exorbitant exercise of jurisdiction by the English Court.
  2. As for the debts due from WPL’s customers in the UK, the Orders would be an exorbitant interference with the jurisdiction of the English court as i) the debts were situated in the UK, and ii) enforcement of the US liability judgment had explicitly been rejected in the UK. An injunction was therefore necessary to protect the territorial enforcement jurisdiction of the English court. However, as the Orders sought did not extend to the UK, the Court accepted an undertaking from SAS to give 14 days’ notice if it intended to seek such extension. This undertaking protected WPL’s position and rendered an injunction unnecessary.
  3. In relation to the debts due from customers in other countries, the majority of such debts were deemed to be situated in the UK by virtue of the contracts between WPL and those customers providing for arbitration in England. The analysis at (b) above therefore applied. There being no undertaking provided, an anti-enforcement injunction was ordered.
  4. The turnover order was exorbitant as it required WPL to turn over to a US Marshal funds held in its bank accounts in England, which comprised debts situated in England. Accordingly, an anti-enforcement injunction was ordered.

Customers in third countries whose contracts with WPL did not provide for arbitration in England fell outside category (c) above. Their debts were situated in the country of their residence. Accordingly, an order requiring WPL to assign such debts to SAS might be regarded as exorbitant, but the English courts did not have a “sufficient interest” to intervene.

 

Comment

Only two English cases where anti-enforcement injunctions were granted were cited to the Court. In Ellerman Lines Ltd v Read, the foreign judgment had been procured by fraud, and in Bank of St Petersburg OJSC v Archangelsky, enforcement of the judgment was contrary to the applicable jurisdiction agreement. SAS is novel in that the injunction sought would only restrain certain kinds of enforcement, leaving SAS free to enforce its judgment in other ways. This nuance underpins three further observations:

First, SAS underscores how arbitration clauses or exclusive jurisdiction clauses (“EJCs”) may serve as a shield against claims for extraterritorial enforcement. This is most apparent in how WPL’s customers domiciled in third countries and whose contracts did not contain arbitration agreements seated in England were excluded from the scope of the injunctions ordered. This is a potentially under-recognised practical consideration in approaching arbitration agreements and EJCs.

Second, SAS sought to rely on the fact that the Orders it had sought in the US enforcement proceedings operated in personam against WPL, as opposed to in rem against the debts owed to WPL, to circumvent potential difficulties in extraterritorial enforcement. The Court gave short shrift to this argument, observing that such a distinction would have prized form over substance. This approach by the Court in scrutinising the substance rather than form of enforcement underscores the Court’s vigilance against infringements of its jurisdiction.

Third, while SAS outlines a useful analytical framework for dealing with competing decisions on liability and enforcement, there remain concerns of potential forum shopping. This concern is most clearly shown by SAS commencing proceedings in North Carolina while the English liability proceedings were still underway. While such proceedings were challenged on forum non conveniens grounds, the American courts were not minded to give preclusive effect to the English judgments. The reasons given were, inter alia, that England was not the appropriate forum (notwithstanding that SAS itself commenced proceedings in England), and that different considerations of public policy operated in NC as the Software Directive did not apply there. Questions of potential issue estoppels and/or abuse of process did not sway the American courts. This raises interesting questions of whether questions of comity can be circumvented by pointing to differing grounds of public policy. Further, the effect of a breach of comity by the other jurisdiction was left open by this judgment.

 

Conclusion

SAS provides a structured and robustly-reasoned approach to the complex issue of competing judgments and anti-enforcement injunctions. This approach first considers the situs of the assets being enforced against and whether the enforcement sought is against UK-situated assets. If it is, questions of whether the enforcement is sufficiently exorbitant to warrant an anti-enforcement injunction arise. That analysis is in turn contoured by questions of comity, and the requirement that the English Court has “sufficient interest” in the matter. This approach strikes an appropriate balance between protecting the territorial enforcement jurisdiction of the English courts, and giving due respect to the boundaries of other jurisdictions.

 

The author wishes to thank Mr Harry Francis Millerchip and Ms Jenna Hare for their insightful comments on this article. This case note is written in the author’s personal capacity, and the opinions expressed in the case note are entirely the author’s own views. All errors herein are my own.

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The Impact of the COVID-19 Pandemic on Third Party Funding and Security for Costs in International Commercial Arbitration

Thu, 2020-07-30 02:00

The COVID-19 pandemic has already created market volatility and adversely affected the financial position of companies and individuals around the world. This post explores two main ideas: (1) whether the pandemic is likely to result in an upturn in recourse to third party funding arrangements; and (2) whether arbitrating parties should anticipate increased exposure to applications for security for costs in international commercial arbitrations.

 

Will Interest in Third Party Funding Increase Following the Impact of COVID-19?

According to the Report of the ICCA-Queen Mary Task Force on Third Party Funding in International Arbitration, a growing number of parties to arbitrations are seeking third party funding, either due to lack of funds to commence or continue arbitral proceedings or a desire to maintain cash flow and balance the risk of an unfavourable or uncertain outcome in the proceedings.

Today, many companies around the world face serious revenue reduction and liquidity risk because of the pandemic and state measures taken to mitigate the transmission of COVID-19. The impact of COVID-19 thus may lead to a rise in interest and potential usage of third party funding.

First, parties to commercial arbitrations are likely to face difficulties in meeting the costs of commencing arbitration proceedings or continuing existing proceedings, and therefore to seek to enter into third party funding arrangements.

Second, a number of disputes necessitating arbitration are likely to be created from the pandemic itself.

Third, delays in arbitral proceedings prolong the parties’ uncertainty over their outcome and require cash flow to be directed towards funding the proceedings for a longer period of time. From the outset of the pandemic, arbitrations have been severely disrupted and delayed. These delays are due in large part to extensions of deadlines for written submissions, postponements of in-person hearings and the difficulties for counsel and clients to meet, discuss matters and arrange for documents. As more arbitrations dispense with in-person hearings and proceed with virtual hearings, even against the objection of (one of) the parties, there is also a potential that an award rendered through a virtual hearing may be challenged on this basis. The above issues will in turn cause corresponding delays to the issue of a final award and/or its enforcement. Parties are therefore likely to seek to enter into third party funding arrangements in order to mitigate the risks associated with delays in arbitral proceedings.

Fourth, third party funders often follow a relatively long period of due diligence prior to committing to a funding arrangement, which may affect a party’s ability to commence proceedings on an urgent basis. Whilst more parties are likely to wish to have recourse to third party funding, it remains to be seen whether the likely delay of recovery associated with the impact of the pandemic in new or ongoing arbitral proceedings will influence a funder’s decision to provide the funding sought.

Lastly, as parties may wish to avoid the lengthy process of obtaining third party funding which is urgently needed, they may turn to arrangements to make funding available more swiftly. In particular, parties who wish to bring or continue arbitration claims are more likely to enter into ad hoc and non-formalised arrangements, such as through another company within the corporate group undertaking to cover the costs of the arbitration. These arrangements can be entered into with relatively more ease and provide more flexible terms, as they will likely be internal within the corporate group. As discussed below however, ad hoc arrangements may expose parties to a security for costs order, as far as they do not render the third party liable to meet an adverse costs order or award.

 

A Potentially Greater Role for Security for Costs Following the Impact of COVID-19

Data published in the LCIA Annual Casework Reports between 2017 and 2019 suggest that whilst applications for security for costs are rare, once made, they are more likely to succeed than any other application for interim measures. The likelihood of success of such an application has steadily risen through the years – the LCIA’s data indicate that the majority of applications were granted in 2019, whereas around less than a third of applications were granted in 2018 and 2017. However, the data from the LCIA may reflect that arbitrators with a common law background or arbitrating in common law jurisdictions, where the relief is well-known, might be more prepared to grant it.

Notwithstanding the above, security for costs is still viewed as an exceptional measure.  Commentators and tribunals generally agree that an order should be issued where there is at least prima facie evidence that a party will not be able to meet an adverse costs order or award.1)See Report of the ICCA-Queen Mary Task Force On Third Party Funding in International Arbitration, April 2018, page 168. jQuery("#footnote_plugin_tooltip_2136_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2136_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In addition, some tribunals may also consider whether there has been a material and unforeseeable change in financial circumstances since the conclusion of the arbitration agreement, which justifies the issue of an order. This latter approach considers that parties are ordinarily aware of the financial position of their counterparty at the time of entering into the arbitration agreement, and have agreed to resolve disputes against this party through arbitration. It is therefore inappropriate for a party to rely simply on the fact that, for instance, the counterparty is a special purpose vehicle with no assets in order to support an application for security for costs, where this was known and understood at the time the contract was concluded.

Institutional rules and national arbitration laws do not (yet) address the impact of a third party funding arrangement in determining whether security for costs should be granted against the funded party. The key question in assessing an application for security for costs is the party’s ability to meet an adverse costs order or award. Although the existence of a funding arrangement should not in and of itself justify the granting of security for costs, it may indicate that the party is itself impecunious and may also constitute a fundamental change in circumstances. It should remain open for the parties against which security is sought to establish that they are not impecunious and have sought funding for other purposes.

In addition, the funder’s liability to meet an adverse costs order or award and the circumstances under which it may terminate the arrangement will ordinarily be relevant when considering an application for security for costs. If the funder is not liable to meet an adverse costs order, this may be a key argument in favour of ordering security, particularly if there is also evidence that the party against which security is sought is impecunious. The same may apply to ad hoc funding arrangements within the corporate group. Parties seeking to enter into arrangements with external third party funders or within their corporate group should be mindful that, unless such arrangements create a legally enforceable obligation on the party providing the funding to satisfy a costs order or award, tribunals may not be satisfied that security for costs ought not to be ordered.

In this regard, earlier court and tribunal decisions provide guidance as to the importance of the terms of the funding arrangement when considering an application for security for costs and may indicate the approach tribunals will follow in the COVID-19 era.

In Progas Energy Limited v Islamic Republic of Pakistan [2018] EWHC 209 (Comm) the English High Court concluded that two letters from a third party funder, confirming that it would ensure the payment of an adverse costs award if the claimants failed to pay, did not constitute a legally enforceable commitment on the part of the funder or the claimants. Consequently, the arrangement failed to make assets available to the respondent through which it could recover the costs. The claimants were therefore ordered to provide security for costs in the proceedings, which related to a challenge to an investment arbitration award.

Similarly, in a recent non-public private commercial arbitration,2)The authors were part of the team representing the respondent in this case. jQuery("#footnote_plugin_tooltip_2136_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2136_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); a tribunal held that an undated letter by a company – within the claimant’s corporate group – promising to cover the costs of the proceedings did not constitute a legally enforceable obligation. It followed that it could not assist the claimant, who had no available assets, in resisting an application for security for costs.

Lastly, as analysed above, when considering the basis for ordering security for costs, arbitral tribunals often assess whether there has been a material and unforeseeable change in the financial circumstances of the party against which security for costs is sought. In theory at least, it could be argued that the adverse financial impact of the pandemic, and related state measures, has changed a party’s financial position to an unforeseen extent that justifies an order for security for costs. While it remains to be seen how tribunals will look into such arguments, a mere deterioration in a party’s financial position, without rendering it impecunious, should not ordinarily result in the grant of an order for security for costs. Inversely, a threatened or actual insolvency of a party as a result of the pandemic may tip the scales in the applicant’s favour.

 

Conclusion

The financial impact of the COVID-19 pandemic on arbitrating parties is likely to increase recourse to third party funding arrangements and, consequently, exposure to security for costs applications. The deterioration of a party’s financial position due to the pandemic is also likely to provide grounds for a security for costs application. This is a further example of how the pandemic may have a long-lasting impact on international disputes, and should remind parties and counsel to keep the potential consequences of third party funding in mind when negotiating such arrangements.

References   [ + ]

1. ↑ See Report of the ICCA-Queen Mary Task Force On Third Party Funding in International Arbitration, April 2018, page 168. 2. ↑ The authors were part of the team representing the respondent in this case. 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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New Exclusive Competence of Russian Courts in International Sanctions-Related Disputes: Is It as Bad as It Sounds?

Wed, 2020-07-29 03:00

As a result of coronavirus, sanctions, for once, have not been grabbing the headlines. Unlike the media, the Russian legislative bodies have recently shown keen interest in the topic of sanctions as they have adopted a draft law from last year granting persons and companies affected by the sanctions against Russia with a right to transfer all international disputes to Russia. The law also penalizes counterparties if they seek to oppose to such a transfer. For the international arbitration community, the adoption of this law could be a cause for concern because, despite a valid arbitration agreement, individuals and companies affected by the sanctions against Russia may bring their disputes to Russian state courts, obstruct the already existing proceedings and resist the enforcement of foreign awards on the basis of the new law.

 

What is the New Law All About?

The new law grants Russian state courts with exclusive competence regarding all disputes involving Russian persons or companies, as well as foreign companies affected by sanctions against Russia, unless otherwise agreed in the arbitration agreement or international treaty. The same goes for disputes which emerged due to such sanctions: Russian courts will have exclusive competence regardless of the nationality of the individual or the company.

One might breathe a sigh of relief after spotting the words “unless otherwise agreed…”, but the law continues that it is also applicable if a dispute resolution agreement in favor of international commercial arbitration (or a foreign court) has become incapable of being performed due to sanctions. It follows from the law, however, that it does not affect jurisdiction established by foreign treaties.

Thus, the law grants two mechanisms to the sanctioned parties.

First, if the sanctioned party is a claimant and no foreign proceedings are pending, it may submit its claim with a Russian state court.

Second, if there are some foreign proceedings pending or if it is evident that they will be initiated (e.g. a foreign claimant has sent a pre-trial demand), the sanctioned party may apply to a Russian court for an anti-suit injunction. The court considers whether to grant such injunction in a court hearing.

Additionally, the Russian court may order the disobeying party to pay to the sanctioned entity a sum of money up to the total amount in dispute as well as the legal costs, if the granted injunction is ignored.

Needless to mention, a foreign award (or court decision) ignoring the sanctioned party plea to terminate the proceedings and “transfer” them to Russia will be unenforceable in Russia.

The new law does not have any specific rules regarding its application in time, which means that, being of procedural nature, new rules may be applied immediately after the entry into force (i.e. including to the arbitrations which are currently pending).

 

Is It Really That Scary?

In general, the new law will mostly affect only those adversaries of the sanctioned entities which have assets in Russia and/or which plan to enforce their awards there.

Firstly, the rules contained in the new law are of procedural nature and do not have extraterritorial effect. This means that they are not mandatory in foreign jurisdictions and will not necessarily prevent the enforcement of awards (and foreign court decisions) in countries other than Russia.

Secondly, pecuniary “fine” in favour of a sanctioned entity for failure to terminate foreign proceedings in accordance with the injunction is unlikely to be enforceable anywhere except Russia. This is at least because the nature of such judicial acts is unlikely to be treated as a final court decision (let alone the probability that a foreign court would anyway consider such injunction contravening its public policy and undermining the access to justice of the sanctioned party’s adversary).

If the adversary of the Russian entity does not plan to enforce an award there and does not have any assets in Russia which may be recovered for his disobedience, the new law does not pose significant risks.

The suggested anti-suit injunction mechanism itself will also be quite burdensome to materialise. The reason for this is that Russian courts take conservative approach to the service of process. Despite being signatory to the Hague Convention and having dozens of bilateral treaties, service of process on foreign parties in Russia still takes not less than 6-9 months. This is partly because the service of process on foreigners itself is unfamiliar to some Russian courts and takes them significant time to properly accomplish. Partly this is a result of general refusal of courts to apply methods of service which are fast enough (e.g. courier post, rather than regular mail). All in all, a period of 6-9 months gives a chance for some arbitrations to be completed.

Furthermore, a Russian court decision rendered in relation to  the claim of a sanctioned entity in disregard of an arbitration agreement (on the basis that it became incapable of being performed due to sanctions) might also be hard to enforce abroad. The reason for this lies in the fact that Russia does not have many bilateral agreements to this end and is not a party to any global convention (such as Convention of 2 July 2019 on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters, which has not yet entered into force in any case). Additionally, a decision of the Russian court is likely not to be heeded in foreign jurisdictions on the ground that a Russian court should not have considered a dispute in disregard of the parties’ arbitration agreement.

 

The New Law – A True Novelty or Not?

It has to be noted, however, that even before the adoption of this new law the Russian courts already allowed sanctioned entities to overcome arbitration agreements and bring disputes to Russia.

For instance, in case А40-149566/2019, the appellate court upheld the decision of the Commercial Court of Moscow to grant the claim and to amend the ICC arbitration clause in the contract to state that all disputes shall instead be referred to the Russian courts. The courts found that, since the claimant was included by the Office of Foreign Assets Control (OFAC) to the SDN list,1)Specially Designated Nationals and Blocked Persons List is a list of persons whose assets are blocked and with whom U.S. persons are generally prohibited from dealing with. jQuery("#footnote_plugin_tooltip_3453_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3453_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); the enforcement of an ICC award anywhere in the world except Russia would be impossible. Due to this, the courts held that the dispute has to be resolved in the Russian court. This logic seems to be flawed because the courts confused the enforceability of the arbitration clause with the enforceability of the arbitration award. An ICC award, corresponding to the parties’ agreement, could also be potentially enforced in Russia. Moreover, a Russian court judgement is likely to encounter the same difficulties as an ICC award with enforcement abroad.

The case is currently before the Commercial Court of Moscow Circuit. However, the new law is expected to significantly favor the position of the Russian claimant.

 

Concluding Remarks

While sanctions are known to cause major difficulties for the parties, arbitration institutions hold the view that they are able to overcome them (e.g. by opening special accounts in order to facilitate the payment of the arbitration fees). If sanctions frustrate the access of the sanctioned entity to justice to such an extent that the agreed arbitration is no longer available (incapable of being performed), proceedings at the competent state court shall still be in available. However, the new law allows to disregard the usual rules and to transfer any dispute to a Russian court. As a result, foreign investors have to always consider a risk of being compelled to adjudicate disputes in Russian state courts if the Russian counterparty is under the sanctions. This, of course, may negatively affect the investment climate.

References   [ + ]

1. ↑ Specially Designated Nationals and Blocked Persons List is a list of persons whose assets are blocked and with whom U.S. persons are generally prohibited from dealing with. 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Competence-Corrections: Fifth Circuit in the US Says Arbitrators Decide What “Correction” Means

Wed, 2020-07-29 02:00

Awards are final—mostly. Many institutional rules allow arbitrators to correct clerical errors in their awards, but prohibit revisions to the merits of their decisions. The U.S. Court of Appeals for the Fifth Circuit signaled in a recent case that it will defer to arbitrators in interpreting institutional rules regarding the scope of their correction authority, even if their interpretation appears to be wrong.

 

The Arbitrator’s “Correction”

Communications Workers of America., AFL-CIO v. Southwestern Bell Telephone Company, 953 F.3d 822 (5th Cir. 2020) involved a dispute between the Communications Workers of America (“CWA”) union and Southwestern Bell, the employer of the union’s members. CWA alleged that Southwestern Bell had violated a collective bargaining agreement by assigning certain activities to one group of employees.

The sole arbitrator, acting under the AAA Labor Rules, issued a final award determining that Southwestern Bell had violated the collective bargaining agreement. Id. at 825. He noted that two settlement agreements gave the company the right to assign “all work” to the employees in question. Id. Despite this, he relied in large part on a factual exhibit that he said established a “clear practice” requiring the union and the employer to agree in writing on changes to the employees’ job duties, which they had not done for that reassignment. Id. That exhibit was a key part of the sole arbitrator’s decision: he stated explicitly that he “would be inclined to find that no violation of the Agreement occurred” if not for that exhibit. Id.

Southwestern Bell moved for “reconsideration” by the arbitrator under AAA Labor Rule 40, explaining that the exhibit the arbitrator relied on was a summary prepared by a different union and related to a different collective bargaining agreement. Id.

The arbitrator, persuaded he had made an error, determined that he could revise his final award under AAA Labor Rule 40, which states:

“Within 20 days after the transmittal of an award, any party, upon notice to the other parties, may request the arbitrator, through the AAA, to correct any clerical, typographic, technical, or computational errors in the award. The arbitrator is not empowered to redetermine the merits of any claim already decided.”

The arbitrator issued a new award classifying his reliance on the exhibit as a “technical error” and holding that Southwestern Bell had not violated the collective bargaining agreement. Id.

 

The Fifth Circuit’s Decision

CWA and Southwestern Bell filed cross-motions to vacate and confirm, respectively, the revised final award. The district court granted confirmation, and CWA appealed. Commc’ns Workers of Am., AFL-CIO v. Sw. Bell Tel. Co., No. 1:18-CV-271-LY, 2019 WL 6037274 (W.D. Tex. July 9, 2019).

The Fifth Circuit upheld the confirmation, deferring to the arbitrator’s interpretation that he acted within the scope of Rule 40 in revising his original award. The court commented that this interpretation was “debatable,” in light of Rule 40’s instruction that an arbitrator should not “redetermine the merits of any claim.” Id. at 830. However, it noted that Rule 47 of the AAA Labor Rules authorized the arbitrator to “interpret and apply these rules insofar as they relate to the arbitrator’s powers and duties.” Id. at 827. Summarizing its precedent for deferential review of awards, the Fifth Circuit stated that U.S. Federal Arbitration Act, which governs confirmation and enforcement of awards by U.S. courts, requires confirmation of the award “as long as the arbitrator is even arguably construing or applying the contract and acting within the scope of his authority, … [e]ven if an arbitrator committed serious error.” Id. at 826. Although the Fifth Circuit acknowledged that the arbitrator’s revision here went “a step beyond” the typical correction of clerical errors, it held that “[w]e have never measured an arbitrator’s powers by the magnitude of the change created by the arbitrator’s corrections.” Id. at 830.

The court distinguished other cases in which it vacated awards because arbitrators exceeded their authority. In those cases, the arbitrators had ignored contractual terms altogether rather than addressing them and potentially misapplying them. See, e.g., Hous. Lighting & Power Co. v. Int’l Bhd. of Elec. Workers, Local Union No. 66, 71 F.3d 179, 184 (5th Cir. 1995).

 

Implications

While many other jurisdictions enshrine competence-competence in their national arbitration laws, in the U.S., the scope of the tribunal’s power to determine its own jurisdiction still depends on the language of the parties’ arbitration agreement, including any institutional rules incorporated into that agreement. Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010); First Options Inc. v. Kaplan, 514 U.S. 938 (1995).

When parties adopt institutional rules permitting the tribunal to determine the scope of its own jurisdiction as well as to decide on the interpretation of those rules, U.S. courts have repeatedly confirmed arbitrators’ power to clarify or correct their awards pursuant to those rules. See, e.g., Barranco v. 3D Sys. Corp., 734 F. App’x 885, 889 (4th Cir. 2018); United Bhd. of Carpenters & Joiners of Am. v. Tappan Zee Constructors, LLC, 804 F.3d 270, 276 (2d Cir. 2015); T.Co Metals, LLC v. Dempsey Pipe & Supply, Inc., 592 F.3d 329, 347 (2d Cir. 2010). Although this case presented an extreme — and arguably impermissible — correction, the Fifth Circuit was persuaded that the arbitrator had at least attempted to apply the institutional rules. In its decision, the Fifth Circuit repeatedly emphasized that its broad deference to arbitral awards must leave room for the arbitrator to commit legal and factual errors, as well as to misapply the parties’ agreement.

However, even where agreements permit arbitrators to correct their awards and interpret the scope of their own authority, they are only entitled to deference if they are indeed interpreting the rules and agreement at issue. The Eleventh Circuit notably reached an opposite conclusion in the very similar case of International Brotherhood of Electrical Workers, Local Union 824 v. Verizon Fla., LLC, 803 F.3d 1241 (11th Cir. 2015), rejecting an arbitrator’s attempt to revise his award. In contrast to the Fifth Circuit’s decision in Communications Workers, the Eleventh Circuit noted that the arbitrator had not even stated that he believed he was acting within the scope of his correction authority. In other words, the arbitrator had made no decision on the scope of his correction authority to which the Eleventh Circuit could defer.

If parties have not explicitly delegated authority to the arbitrator to decide the scope of her power under the applicable rules, courts will scrutinize the arbitrator’s reasoning more closely. In Smith v. Transport Workers Union of America, AFL-CIO Air Transport Local 556, the Fifth Circuit held that the tribunal’s modification of its award was impermissible. 374 F.3d 372 (2004). While the tribunal stated that its modification was “consistent with the arbitration agreement of the parties and the intention of the drafter of the award,” the Fifth Circuit analyzed the arbitration agreement de novo and found that the tribunal had exceeded its power. Id. at 374. The court refused to defer to the tribunal’s interpretation of the arbitration agreement, stating that “we view the real question as a matter of contract interpretation and one for the courts, since it involves the question of the arbitrators’ authority.” Id.

In summary, parties arbitrating in the U.S. can decide whether courts or arbitrators should be primarily responsible for determining the scope of arbitrators’ powers under applicable institutional rules. Delegating this power to arbitrators has the advantage of limiting post-hoc review of the arbitral award by an enforcing court. However, as Communications Workers shows, it also requires the parties to accept the risk that the arbitrator errs in determining her powers, as it limits courts’ ability to correct such mistakes.

If parties want to delegate this question to arbitrators, they should do so clearly in their arbitration agreements. In a related context, the Supreme Court has held that parties seeking to delegate the question of arbitrability to arbitrators must do so through “clear and unmistakable” evidence. Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 531 (2019). The Supreme Court has so far declined to say whether the mere incorporation of institutional rules meets this test. Until that debate is resolved, parties should make any delegations of authority explicitly in their arbitration agreements to avoid any unintended results regarding the scope of the arbitrator’s powers.

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The Ambiguous Time-Bar for Enforcement of Foreign Awards in India

Tue, 2020-07-28 03:00

Indian courts have pronounced inconsistent decisions regarding the limitation period on applications for enforcement of foreign arbitral awards. This blog post discusses the conflicting jurisprudence and advocates adoption of purposive interpretation for its redressal. Sections 47 to 49 of the Indian Arbitration and Conciliation Act 1996 (“the Act”), which forms part of the chapter on New York Convention awards are relevant in this regard. Section 47 states the evidence which the party applying for enforcement is required to produce before court. Section 48 lays down the grounds for refusal of enforcement on the request of the award debtor. Section 49 provides that ‘where the Court is satisfied that the foreign award is enforceable under this Chapter, the award shall be deemed to be a decree of that Court’. Since neither the Act nor the Limitation Act 1963 specifically prescribes a limitation period for an enforcement application, recourse has been made to Articles 136 and 137 of the Limitation Act. Article 136 prescribes a limitation period of 12 years for execution of a decree and Article 137 prescribes a limitation period of 3 years for any application for which no limitation is provided. The issue of whether a time bar of 3 years applies to an enforcement application or that of 12 years hinges on the question whether a foreign award should straight off be treated as a decree.

 

The Rocky Landscape of Indian Jurisprudence

In 2006, the Bombay High Court in Noy Vallesina Engineering Spa v Jindal Drugs viewed the enforcement of a foreign award in two stages: 1) inquiry into the enforceability of the award and 2) commencement in case the award is found enforceable. It held that, in the first instance, the application which is filed is not for the execution of a decree but for the execution of an “award which is capable of being converted into a decree”. Therefore, it held that an award’s enforcement period is governed by the residuary Article 137 (3 years). It determined that, only after a court finds the award enforceable, in terms of Section 49, the award is deemed to be a decree and Article 136 (12 years) becomes applicable. Thus, an award creditor has 3 years from the date of the award to apply for recognition and after the award becomes a decree, i.e., when a court records satisfaction under Section 49, the award creditor receives a further period of 12 years to apply for execution.

In 2019, the same Bombay High Court in Imax Corporation v E-City Entertainment (I) took a contrary view after considering Thyssen Stahlunion GMBH v Steel Authority of India and Fuerst Day Lawson v Jindal Exports and held that Article 136 (12 years) applied to an enforcement petition. In Thyssen, the Indian Supreme Court (“Supreme Court”) compared the enforcement provisions of the repealed Foreign Awards Act, 1961 with those of its replacement, the Act, and observed that while under the Foreign Awards Act a decree follows the award, under the new Act a foreign award is already stamped as a decree. In Fuerst, the issue was whether two separate applications are required for enforcement and execution and the Supreme Court held that awards are already stamped as decrees and can be enforced and executed in one and the same proceeding. The Bombay High Court in Imax, therefore, concluded that to advance the object of the Act the word “stamped” should be understood as “regarded” and a foreign award should be regarded as a decree.

Interestingly, the Bombay High Court considered the Supreme Court decisions of Thyssen and Fuerst in both Noy and Imax but arrived at contrary views. In Imax, it took the Supreme Court observation as indicative of the nature of foreign awards; however, in Noy it observed that the Supreme Court had in neither case considered this decree question by referring to the Limitation Act or dealt with the issue in consideration. The Supreme Court had only stated that a separate application for recognition of the award is not necessary because, under the new Act, the court is not required to pronounce judgment in terms of the award for the award to operate as a decree.

The most recent development came from the Delhi High Court in February 2020, Cairn India v Government of India. In this case, the Court ruled that to effectuate the Act’s object, which is speedy disposal of disputes, Article 136 of the Limitation Act should apply to enforcement petitions. The Limitation Act should be read “pragmatically” rather than in a “pedantic manner“. The Court stated that the Act “presupposes that a foreign award is a decree” whose execution can only be impeded under Section 48 of the Act. Section 48, similar to Article V of the New York Convention, provides grounds for refusal of enforcement of a foreign award. The Court further held that pragmatically, ‘enforcement’ in Section 48 should be treated as execution. It also observed “[t]hat a foreign award is enforceable on its own strength and not necessarily dependent on whether or not it goes through the process of Section 48 proceedings emerges from the principle enunciated in international arbitration conventions that there are no limits on the forums in which recognition and/or enforcement of such awards can be sought” (Para 22).

Unlike Imax, Cairn disputed the legal outcome of Noy. Cairn, on the basis of Section 48, questioned Noy’s reasoning that an award becomes a decree under Section 49 only after the court’s satisfaction of its enforceability. Cairn stated that, according to Noy for a court’s satisfaction of enforceability, the award requires examination under Section 48, but an anomaly will occur if no objection under Section 48 is filed as then the court can never arrive at the satisfaction under Section 49 and the award can never become a decree.

Though the Supreme Court has not dealt specifically with the question, it recently, in Bank of Baroda v Kotak Mahindra Bank held that the limitation period for execution of a foreign decree under Section 44A of the Civil Procedure Code 1908 (“CPC”) is governed by the limitation law of the reciprocating country where the decree was issued. It observed that Article 136 of the Limitation Act, being restricted to decrees of Indian courts, is not applicable. This judgement, however, does not apply to foreign arbitral awards for three reasons. Firstly, the CPC, conscious of the different legal domains in which arbitration functions, explains that a foreign decree does not include an arbitration award, even if such an award is enforceable as a decree. Secondly, the Supreme Court applied the reciprocity principle which is unavailable for application in case of arbitral awards. Finally, a foreign award is regarded as already stamped as a decree but not a ‘foreign’ decree.

 

Conclusion

Indian courts continue to grapple with clearly determining the limitation period applicable to petitions for enforcement of foreign awards. Yet, the statutes themselves (whether focused on arbitration or limitation periods) of leading international arbitration hubs, like the U.S.A., U.K., and Singapore, that prescribe clear time bars to such applications. India lacks such legislative certainty and the question of what time limitation applies to enforcement petitions in India pivots on the question whether a foreign arbitral award is to be treated straight off as a decree.

The point of conflict is Section 49 of the Act which states that the award can become a decree only if the court is satisfied that it is enforceable. It is accepted that one enforcement proceeding may consist of stages; 1) deciding the enforceability of the foreign award and 2) taking steps for execution, if the award is found enforceable. The satisfaction under Section 49 is arrived at after clearing the first stage, an application for which may be subjected to 3 years limitation. It is only after the passing of the first stage that 12 years limitation may be applied. Noy has based its reasoning on this premise and admittedly, has provided a sound literal interpretation of the legal matrix involved.

However, given the pro-enforcement policy of Article III of the New York Convention and the objective of the Act, i.e., speedy disposal of disputes, reduced supervisory jurisdiction of courts, and prompt enforcement of awards including foreign awards, smooth enforcement should be enabled by the adoption of a purposive approach. The purposive interpretation of Sections 47 to 49 of the Act implies the application of Article 136 (12 years) of the Limitation Act to enforcement applications. Contrarily, allowing only 3 years’ limitation to the first stage of enforcement applications, by applying Article 137, is damaging to the decretal interest of award creditors. The interpretation of the Act should not defeat substantive and concluded arbitral proceedings between parties. The bifurcation of enforcement proceedings into stages and consequent application of different limitation periods, though literally sound, would be against the purpose of the Act. Therefore, until the Supreme Court clarifies the situation in unequivocal terms or the legislature prescribes a certain answer to the conundrum, one can best wish that High Courts adopt the purposive approach.

 

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The London Chamber of Arbitration and Mediation

Tue, 2020-07-28 02:00

On 26 May 2020, the London Chamber of Commerce and Industry (LCCI), a networking and business support organisation that caters to the London business community, launched the London Chamber of Arbitration and Mediation (LCAM). The LCAM is a new organisation offering arbitration, expedited arbitration and mediation services.

This post will explore selected features of the LCAM’s Arbitration Rules and Expedited Arbitration Rules. It will also examine the LCAM as an arbitral institution, in particular its internal decision-making procedure and its use of blockchain as a case management tool.

 

The LCAM Arbitration Rules: Focus on Expedience and Institutional Case Management

The LCAM Arbitration Rules follow several established trends in institutional arbitration, such as the consolidation of multiple proceedings (Article 11) and the early dismissal of unmeritorious claims and defences (Article 23A). In light of the intense focus on virtual hearings arising out of the COVID-19 pandemic, the explicit reference to the availability of virtual hearings in Article 27(2) is a topical addition. Article 37 directs the arbitral tribunal to issue the final award no later than six weeks from the date upon which the arbitration proceedings are closed.

In terms of cost, the Arbitration Rules provide for administrative fees that vary within bands according to the amount in dispute, from £1,000 for an amount in dispute under £25,000 to £10,000 for an amount in dispute over £10,000,000. Arbitrators are paid a set hourly rate determined according to the amount in dispute, ranging from £200 for an amount in dispute below £50,000 to a maximum of £400 for an amount in dispute over £1,000,000. This contrasts with the LCIA, for example, whose Secretariat charges by the hour for any administrative activities and whose fees for arbitrators are not as rigidly fixed. Article 44 of the Arbitration Rules follows the established trend in arbitration in that the arbitral tribunal may award costs to the parties at its discretion.

 

The LCAM Expedited Arbitration Rules: Package Arbitration

LCAM’s Expedited Arbitration Rules are a distinct set of arbitration rules which require parties to explicitly agree to their application. The Expedited Arbitration Rules do not, however, specify an upper limit for the amount in dispute in the same way as the ICC Rules, rather stating that the parties may determine their own monetary limit for expedited claims. Claims and counterclaims above that threshold may then be referred to the ordinary Arbitration Rules.

A particularly novel feature of the Expedited Arbitration Rules is that they provide for a documents-only procedure (Article 8) for a fixed fee (Schedule of Costs) and a final award within six months of the commencement of the arbitration (Article 12). Article 9 of the Expedited Arbitration Rules goes so far as to impose word limits on the written submissions, supporting documents, witness statements and expert reports.

The administrative and arbitrator fees are all-inclusive: the precise cost of the proceedings depends on whether the claim or counterclaim falls below or above £100,000. The Expedited Rules even set an upper limit on the total legal costs that each party may recover. This is currently £4,000 if the claim and counterclaim are under £100,000 and £6,000 if the claim or counterclaim is above £100,000.

This all-inclusive arbitration package as well as the upper limit on a party’s costs recovery may make the Expedited Arbitration Rules particularly appealing for contractual relationships in which any claims are likely to be smaller in value.

 

The LCAM Board

Arbitration institutions that take a more hands-on approach to case management are generally popular with users of arbitration (see the latest Queen Mary International Arbitration Survey for statistics). The LCAM’s Board, the institution’s internal decision-making body, has the power under the Arbitration Rules to decide on various procedural issues in a manner similar to that of, for example, the ICC Court and the LCIA Court. This includes decisions on whether to dismiss a case, due to lack of jurisdiction on the part of the LCAM, or otherwise (Article 10), whether to consolidate multiple proceedings (Article 11), and challenges to arbitrators (Article 15(4)). The Board does not have to give reasons for any decisions other than decisions on whether the LCAM lacks jurisdiction (Article 9).

Under Article 6, the Board may request further details from either party regarding any of their written submissions to the LCAM. This is reminiscent of an English court’s power under Part 18 of the Civil Procedure Rules to order a party to clarify any matter which is in dispute in the proceedings or give additional information in relation to any such matter. If a party does not provide these details, the Board may dismiss the case. This is a strong power for an arbitration institution that does not exist, at least explicitly, in other arbitration rules: fact finding is an activity ordinarily left to the arbitral tribunal. It will be interesting to see how widely the Board will interpret this provision and how readily it will exercise this power.

A track record of strong institutional governance is arguably one of the most important aspects in effectively marketing any arbitration institution to users of arbitration. It is an important aspect for the LCAM in light of the sweeping case management powers granted to the Board. As procedural challenges to institutional decisions are not unheard of the LCAM should focus on upholding robust internal governance procedures, including the appointment and decision-making processes of the Board, in order to maintain its transparency and accountability, and thereby mitigating the risk of any possible challenges.

 

Blockchain and Cybersecurity

Cybersecurity is an issue of increasing importance in international arbitration, in light of the frequently high stakes as well as the sensitivity and commercial value of the documents involved. Arbitration institutions, just like any organisation, are vulnerable to cybersecurity breaches. In July 2015, hackers targeted the Permanent Court of Arbitration. Law firms also regularly fall victim to cyber-attacks, with several highly-publicised examples in recent memory.

The LCAM advertises the use of a blockchain application called MARCO as a case management platform. Blockchain has long been touted as a robust cybersecurity solution, although its application outside the realm of cryptocurrency has so far been limited. LCAM is the first example of an arbitral institution to advertise the use of blockchain technology as a case management tool. Other arbitral institutions, such as the SCC and JAMS, have introduced electronic case management platforms that are not based on blockchain technology.

According to the developer Finboot’s website, MARCO uses blockchain technology to “optimise case management, ensuring documents are uploaded and stored securely, accurately timestamped and made immutable”. Digitally-signed and timestamped documents make it more difficult for hackers to access and tamper with them. Encrypting documents in this way does not necessarily require a blockchain, but the use of blockchain to ensure immutability and detect attempts to tamper with the data could potentially make the platform more secure than a traditional electronic case management tool.

The lack of publicly available information on the exact function of MARCO makes a deeper analysis unfortunately impossible. It will nevertheless be interesting to see whether the MARCO blockchain platform will serve as a significant selling point for LCAM arbitration proceedings.

 

Conclusion

Both the LCAM Arbitration Rules and Expedited Arbitration Rules place emphasis on strong institutional case management powers and procedural expedience. They may therefore be of interest to smaller businesses that are convinced of the benefits of arbitration but seek strong institutional support alongside transparent and predictable costs. The fees make the LCAM a further attractive option for contracts that are likely to involve smaller claims, especially in light of the flat costs package that the LCAM offers for its expedited procedure.

The merits of the LCAM’s blockchain case management system remain to be seen. More publicly available information on its features may turn it into more of a selling point for businesses interested in how the technology might help them with their disputes.

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Colombia’s Council of State Defines the Contours of Arbitral Tribunals’ Procedural Discretion in a Recent Annulment Decision

Mon, 2020-07-27 03:00

On February 27, 2020, the Third Division of the Colombian Council of State (“Court”) issued a judgment resolving an annulment petition submitted by a state-owned company’s subsidiary against an international arbitral award. In its judgment, the Court decided to annul the award due to the Tribunal’s failure to comply with the agreed arbitral procedure. In its reasoning, the Court departed from standards set forth by Colombia’s Supreme Court of Justice (“SCJ”) and adopted a more expansive criterion to annul international awards based on procedural defects.1)The Court’s decision comes after the Fifth Revision Chamber of the Council of State, in an August 2018 judgment, decided to dismiss a constitutional injunction against the same award, given the existence of a pending annulment proceeding against the award. jQuery("#footnote_plugin_tooltip_3678_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3678_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The Court’s decision raises a series of questions on its interplay with Article V(1)(d) of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“NYC”) and the restrictions it imposes on arbitral tribunals’ procedural discretion.

 

Background

On December 22, 2010, GECELCA S.A. E.S.P., acting on behalf of GECELCA 3 S.A.S. E.S.P., (indistinctively, “GECELCA”) and the Consortium CUC-DTC, integrated by China United Engineering Corporation and Dongan Turbine Co. Ltda. (“Contractor”), executed an EPC Agreement for the construction of a power plant in Colombia.

During the development of the project, a series of disputes arose between the parties related to, among others, GECELCA’s imposition of over US$ 10 million in penalties; delayed payments of Contractor’s invoices; and Contractor’s failure to tender the plant pursuant to the agreed terms.

On December 29, 2019, the Contractor initiated an international arbitration against GECELCA before the Chamber of Commerce of Bogotá for breach of the EPC Agreement. The arbitral tribunal was constituted on March 11, 2015 and its seat was Bogotá, Colombia (“Tribunal”).

In the course of the arbitration, GECELCA requested the Tribunal’s authorization to file a rebuttal expert opinion in response to an expert opinion submitted by the Contractor with its Rejoinder submission. In November 2019, the Tribunal denied GECELCA’s petition on the basis that paragraph 62 of Procedural Order No. 1 (“PO1”) only allowed a party to submit an expert report to reply to new arguments submitted in the opposing party’s expert opinion, and this condition was not met.

On December 4, 2017, the Tribunal issued its award ruling, inter alia, that GECELCA breached the EPC Agreement and ordered it to pay over US$ 20 million in damages to the Contractor (“Award”).

On January 11, 2018, GECELCA sought the annulment of the Award before the Court based, among other grounds, on the fact that it had been prevented from presenting its case and that the arbitral procedure did not follow the agreement of the parties.

 

The Court’s Judgment

The Court decided to annul the Award based on the Tribunal’s failure to comply with the agreed procedure, by denying GECELCA the right to present an expert opinion, while allowing the Contractor to present one after the conclusion of the written submissions stage. The Court held that, a showing that the Tribunal contravened or deviated from the agreed procedure is the only requirement to annul an international award based on Article 108(1)(d) of Law 1563 of 2013 (“Arbitration Act”), and that the reviewing court may not inquire into the materiality or consequences of the procedural irregularity.

At the outset of its analysis, the Court acknowledged that the SCJ has established a more stringent standard to annul an award pursuant to Article 108(1)(d) of the Arbitration Act.2)Pursuant to the Colombian Arbitration Act, the Council of State has jurisdiction over annulment petitions against international awards issued in arbitral proceedings where a party is a Colombian public entity, whereas the SCJ has competence over all other awards rendered in arbitral proceedings seated in Colombia. jQuery("#footnote_plugin_tooltip_3678_2").tooltip({ tip: "#footnote_plugin_tooltip_text_3678_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In a 2018 judgment, the SCJ determined that annulling an award on this ground requires demonstration that the tribunal’s deviation from the agreed procedure has either an impact over the entire proceeding or undermines the parties’ rights to present their case and defense.3)Supreme Court of Justice, Civil Cassation Division, Judgement of July 11, 2018, File No. 2017-0348, Issuing Justice: Margarita Cabello Blanco. jQuery("#footnote_plugin_tooltip_3678_3").tooltip({ tip: "#footnote_plugin_tooltip_text_3678_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Court explained that the SCJ’s standard was inconsistent with the Arbitration Act for, among others, the following reasons.

First, the language of Article 108(1)(d) of the Arbitration Act does not require the reviewing court to inquire into the materiality and effects of a procedural violation. However, the SCJ’s legal standard requires such review, and thus illegitimately constrains the right of the party that seeks annulment under this ground.

Second, a clear and considerable difference exists between the grounds for annulling a domestic award and an international award based on procedural deficiencies. While the Arbitration Act sets forth specific procedural defects that must be proved to annul a domestic award, it does not limit the annulment of an international award in the same way.

Third, Article 107 of the Arbitration Act precludes the Court from reviewing the legal and factual basis of the Award as well as the evidentiary assessment of the Tribunal, to determine the effects of the procedural irregularities on the Award.

Fourth, the Court stressed that international scholars and case law have not set an unequivocal criterion to interpret that this annulment ground requires inquiring into the materiality or effects of the procedural defect. In fact, the unqualified language used in Articles V(1)(d) of NYC and 34(2)(iv) of the UNCITRAL Model Law further demonstrates that no consensus exists on this matter.

Against this backdrop, the Court determined that the Tribunal erred in its interpretation of PO1, by ruling that paragraph 62 of the PO1 conditioned GECELCA’s right to submit an expert opinion in the presence of new technical arguments or facts in the Contractor’s expert opinion. The Court concluded that GECELCA’s right to submit an expert opinion was not exceptional or conditioned in any way, and thus GECELCA should have been allowed to present its expert opinion. Moreover, the Court found that the Tribunal disregarded paragraph 45 of PO1, by admitting an expert opinion of the Contractor after the expiration of the preclusive term set therein. In its assessment, the Court reasoned that the procedural rules that were infringed guaranteed GECELCA’s rights to due process and right to defend – despite concluding that it was not necessary to evaluate the materiality and effects of the procedural defects.

For these reasons, the Court decided to annul the Award. The judgment was accompanied by one concurring and one dissenting opinion. The latter upheld the view that Article 108(1)(v) of the Arbitration Act requires an inquiry into the materiality and effects of the procedural violations on the Award.

 

Is the Court’s judgment a more expansive view of Article V(1)(d) of the NYC?

In its judgment, the Court acknowledged that the annulment ground in Article 108(1)(d) of the Arbitration Act was inspired in Articles V(1)(d) of the NYC and 34(2)(iv) of UNCITRAL Model Law. However, the Court’s analysis on the standard required under the NYC and the UNCITRAL Model Law is unclear. The Court cited many examples of national arbitration legislations that require reviewing courts to assess the materiality, effects and seriousness of the procedural defect. Likewise, it identified decisions of foreign courts and international arbitration scholars that endorsed this view. Nonetheless, it failed to rely on a single foreign arbitration act or jurisprudence that supported the Court’s approach.

The Court also failed to assess the interplay between the Arbitration Act and the NYC. In fact, Article 62 of the Arbitration Act establishes that its international arbitration rules will apply subject to international multilateral conventions ratified by Colombia. Therefore, the Court should have assessed more carefully if its legal standard resulted in an expansive or contradictory interpretation of Article V(1)(d) of the NYC.

An analysis of case-law, national arbitration legislations and scholarly opinions, including those cited by the Court, suggest that annulment on this ground is “ordinarily permitted (and not required) only in cases involving serious breaches of significant elements of the parties’ procedural agreement, which cause material prejudice to the debtor.”4)Gary B. Born, International Commercial Arbitration (Second Edition), Kluwer Law International, 2014, pp.3561-3565. See also Marike R. P. Paulsson, The 1958 New York Convention in Action, Kluwer Law International, 2016, pp. 191-195. jQuery("#footnote_plugin_tooltip_3678_4").tooltip({ tip: "#footnote_plugin_tooltip_text_3678_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In turn, minor or incidental violations of the parties’ agreement have not been considered a basis for denying the annulment of the award. One may ask if this position is more in line with the pro-enforcement rationale that inspired the NYC, than the Court’s objective approach to annulling international awards for procedural omissions.

 

Does the Court’s judgment impose a procedural straitjacket on arbitral tribunals?

The Court’s legal standard rests on the assumption that deviation from the agreed procedure is the only condition required to annul an international award, regardless of the materiality of the procedural defect. This standard imposes a procedural straitjacket on arbitral tribunals. Indeed, it would allow reviewing courts to police and second-guess all procedural rulings made by tribunals, and to set aside an award for any violation of the agreed rules of procedure.

Domestic courts’ judicial review of compliance with the parties’ agreed procedure should not be conducted in a vacuum, but must be assessed in the context of the tribunal’s procedural authority to conduct the arbitration. The Court did not address how its ruling reconciles with arbitral tribunals’ discretion to fill in the gaps and interpret the framework provided by the parties’ agreement. In fact, in the case at hand, the Court recognized that the International Arbitration Rules of Bogota’s Chamber of Commerce (“CBB Rules of Arbitration”) were an integral part of the parties’ procedural agreement. Article 31.21 of the CCB Rules of Arbitration confirms the arbitrators’ discretion to conduct the proceeding as it deems appropriate, including the Tribunal’s authority to admit, reject and weight the probative value of all evidence submitted.

Nonetheless, the Court did not analyze if the Tribunal’s interpretation of paragraph 62 of the PO1, for better or for worse, was within the contours of said discretion. Instead, the Court re-opened the debate and reinterpreted the parties’ agreement. In this case, deferring to the Tribunal’s interpretation of the procedural agreement would have been more consistent with the parties’ agreed procedure.

 

Conclusion

At these times of unrest, many measures adopted by arbitral tribunals to mitigate the adverse effects of the COVID-19 pandemic, including measures recommended by international arbitral institutions, are underpinned on the tribunals’ procedural discretion. The current times make it more critical than ever for tribunals to have the authority to interpret the parties’ agreement and expeditiously adopt procedural measures to mitigate delays and by-pass other constraints. However, the Court’s judgment may lead to a due process paranoia that discourages arbitrators from adopting the armory of remedies needed to mitigate the adverse effects of the pandemic, such as delays and the impossibility to hold in-person hearings.

References   [ + ]

1. ↑ The Court’s decision comes after the Fifth Revision Chamber of the Council of State, in an August 2018 judgment, decided to dismiss a constitutional injunction against the same award, given the existence of a pending annulment proceeding against the award. 2. ↑ Pursuant to the Colombian Arbitration Act, the Council of State has jurisdiction over annulment petitions against international awards issued in arbitral proceedings where a party is a Colombian public entity, whereas the SCJ has competence over all other awards rendered in arbitral proceedings seated in Colombia. 3. ↑ Supreme Court of Justice, Civil Cassation Division, Judgement of July 11, 2018, File No. 2017-0348, Issuing Justice: Margarita Cabello Blanco. 4. ↑ Gary B. Born, International Commercial Arbitration (Second Edition), Kluwer Law International, 2014, pp.3561-3565. See also Marike R. P. Paulsson, The 1958 New York Convention in Action, Kluwer Law International, 2016, pp. 191-195. 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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