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Interim Relief through Emergency Arbitration: An Upcoming Goal or Still an Illusion?

Thu, 2017-07-13 23:11

Alessandro Villani and Manuela Caccialanza

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So called “emergency arbitration” is raising considerable interest among international arbitration practitioners, as the importance of this tool aimed at protecting the parties’ rights either during the period between the filing of an arbitration request and the constitution of the arbitral tribunal or in the course of the proceedings, before the award is rendered, is now widely recognised.

Until recently, a party seeking relief on an emergency basis had no choice but to resort to the ordinary courts. In recent years, however, most of the major arbitral institutions have developed procedures and incorporated rules aimed at granting the parties interim protection in circumstances where the time required for rendering an award would cause irreparable harm, either providing for the appointment of emergency arbitrators or empowering already established tribunals to deal with interim measures.

In 2012 the ICC Arbitration Rules introduced the role of the emergency arbitrator, providing that “a party that needs urgent interim or conservatory measures that cannot await the constitution of an arbitral tribunal” may file an application under the Emergency Arbitration Rules set forth in Appendix V (Article 29). Furthermore, Article 28(1) of the ICC Rules provides that “unless the parties have otherwise agreed … the arbitral tribunal may, at the request of a party, order any interim or conservatory measure it deems appropriate”.

The ICSID Arbitration Rules provides that “at any time after the institution of the proceeding, a party may request that provisional measures for the preservation of its rights be recommended by the Tribunal” (Article 39). Similarly, the UNCITRAL Arbitration Rules provides that “the arbitral tribunal may, at the request of a party, grant interim measures” (Article 26).

Article 25 of the Arbitration Rules of the London Court of International Arbitration (LCIA) provides that the arbitral tribunal is empowered to order appropriate interim measures. Article 6 of the Arbitration Rules of the International Center for Dispute Resolution (ICDR) provides that a party may apply for emergency relief before the constitution of the arbitral tribunal when urgency reasons exist. Similar provisions are included in the Rules of Arbitration of other primary arbitral institutions such as the Singapore International Arbitration Centre (SIAC), the Hong Kong International Arbitration Centre (HKIAC) and the Stockholm Chamber of Commerce (SCC).

The Arbitration Rules of the Chamber of Arbitration of Milan merely state that “the Arbitral Tribunal may issue all urgent and provisional measures of protection, also of anticipatory nature, that are not barred by mandatory provisions applicable to the proceedings” (Article 22(2)); this practically results in a lack of interim relief if Italian law is applicable to the dispute, as under our domestic procedural rules arbitrators are generally barred from rendering interim and protective measures, unless expressly authorised by specific rules of law.

While only a few sets of arbitration rules (such as the ICC, the ICSID, the ICDR and the SCC Rules) deal with the parties’ need to obtain urgent protective measures before the constitution of the tribunal that will deal with the merits of the dispute, most arbitral institutions merely provide for the tribunal’s power to give interim measures in the course of proceedings, once the tribunal has been formed. This, given the length of time (sometimes months) that the constitution of a tribunal may take, results in the party seeking relief on an urgency basis being forced to seize ordinary courts, therefore frustrating the function of emergency arbitration.

Besides, despite their growing popularity, emergency arbitration provisions still raise several doubts in terms of effectiveness and efficacy of the protection they are meant to ensure, as uncertainties persist regarding the enforceability of rulings given by emergency arbitrators or by tribunals on an interim basis. The responsibility for enforcing interim measures usually lies with national courts, but this raises issues as much arbitral legislation does not address the enforcement of those measures.

The main concerns have to do with (i) the nature of decisions of emergency arbitrators (whether they are rendered in the form of an “order” or an “award”) and (ii) whether such rulings are enforceable under the New York Convention, which only applies to “arbitral awards” also in consideration of their temporary rather than final nature. Although most of the arbitral institutions which provide for emergency arbitration expressly clarify that those rulings are binding on the parties, none provide a precise route for their enforcement in the event of non-compliance.

Different designations are adopted by arbitration rules as to the nature of interim arbitral decisions: while for example the SCC and the ICDR Arbitration Rules empower emergency arbitrators to give decisions in the form of an interim award, the ICC Rules specify that “the emergency arbitrator’s decision shall take the form of an order” which shall be binding on the parties and which the parties undertake to comply with (Article 29(2)).

However, the ICC Rules remain silent on whether and how such decisions shall be enforceable, nor do they specify whether the emergency arbitrator’s order has the same effects as an interim measure rendered by a tribunal under Article 28(1). Finally, Article 29(4) of the ICC Rules allows tribunals to take into consideration (even for the allocation of costs) any non-compliance with an emergency arbitrator’s decision.

In such a context, it is still unclear whether an interim ruling made by an arbitrator would be considered enforceable in the same manner as a final award rendered by a tribunal or if the party which fails or refuses to comply with it should instead be considered in breach of contract.

In terms of enforcement, the approach varies from one jurisdiction to another. For example, interim measures (whether in the form of an order or award) are not considered enforceable before the Swedish courts; in contrast, other countries such as Hong Kong have adopted legislation that empowers their national courts to enforce interim measures issued by arbitral tribunals.

In 2003 the Paris Court of Appeal, ruling on a ICC’s Pre-Arbitral Referee procedure, reasoned that the Pre-Arbitral Referee order was binding only as a matter of contract deriving from the arbitration clause which referred requests for interim measures to the Pre-Arbitral Referee procedure (Societé Nationale del Petroles du Congo v. Total Fina Elf. Congo, 2003). Thus, it appears that in France an order of a Pre-Arbitral Referee is not enforceable as an award, but must be regarded by the court as having the same effects of a contract.

In Australia the Supreme Court of Queensland, called to examine whether an interim award was capable of recognition and enforcement under the New York Convention, came to a negative conclusion on the basis of the interlocutory, rather than final, nature of the decision (Resort Condominiums International Inc. v. Ray Bolwell and Resort Condominiums, 1995).

Only the US courts seem to have taken a less formalistic approach, finding that interim measures issued by arbitrators are sufficiently final for the purpose of their enforcement, both under the New York Convention and the Federal Arbitration Act. In Publicis Communications v. true North Communications Inc. (2000) the US Court of Appeals for the Seventh Circuit dismissed the attempts of the defendant to challenge enforceability of an interim measure and rejected the theoretical distinction between “orders” and “awards”. In Southern Seas Navigation Ltd v. Petroleos Mexicanos of Mexico City (1985) the District Court for the Southern District of New York observed that an interim award is not “interim” in the sense of being an “intermediate” step but has the purpose to clarify the parties’ rights in the “interim” period pending a final decision on the merits.

Given the lack of precedents, there is no well-established guidance as to whether an arbitral interim measure would be recognized and enforceable in Italy. Domestic arbitral legislation provides that a foreign award may be recognized and enforced upon filing an application with the Court of Appeal; then the Chairman of the Court, if the award is formally correct, declares its effectiveness in the Italian jurisdiction, unless (i) the award is deemed to violate public policy or (ii) has determined a dispute which could not be referred to arbitration under Italian law. This second condition particularly gives raise to doubts about the possible recognition and enforcement of such kind of awards in Italy, where emergency measures do fall outside the arbitrators’ powers.

A solution may be to adopt a position at an institutional level: for example, in 2012 the Singapore Parliament amended the International Arbitration Act ensuring that orders granted by emergency arbitrators are given the same legal status as regular and final awards rendered by tribunals.

However, although emergency arbitration is becoming more and more essential in the context of international arbitration, its benefits are still undermined by the persisting uncertainty over the nature and enforceability of interim measures issued by arbitrators. Although the overall scenario is quite promising, an international instrument of recognition of interim measures given by arbitrators would help to enhance the effectiveness of this tool, reducing the need of recourse to ordinary courts.

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Corruption and Investment Arbitration (Part 1): Should a Host State Bear the Consequences of Crimes Committed by its Officials?

Wed, 2017-07-12 22:50

Asaf Niemoj

The fact that allegations of economic crimes are frequently part of investment treaty arbitrations makes this topic an important one, particularly in light of the impact that these alleged crimes could potentially have on the merits of the case.

If an organ acting on behalf of the state took part in the alleged crime, then the question arises as to whether the state should also be liable for this misconduct. If so, then this could mean that the investor will not have to bear the consequences of the wrongdoing alone.

(A) State responsibility and state attribution in the context of corruption

State responsibility means that a breach of international law by a state entails its international responsibility. An internationally wrongful act committed by a state may consist of one or more actions or omissions, or a combination of both.

Attribution to a state means that the conduct of an organ of the state is attributable to the state for the purpose of state responsibility. The conduct of such an organ shall be considered as the conduct of the state under international law. It matters not whether the said organ exercises legislative, executive, judicial, or any other function, or what position it holds

In the context of corruption and investment treaty arbitration the question is, in essence, whether in light of the two principles described above, the host state should be held responsible for the criminal acts committed by its organs. In other words, should the host state bear any consequences which arise from the fact that one of its officials was bribed or otherwise involved in economic crimes?

It should be noted that the International Law Commission’s Articles on State Responsibility (ILC) provide that the two principles above-mentioned prevail even if the organ exceeded its authority or acted in contradiction to instructions. In light of this, it seems as if the answer to the question above can easily be yes. However, Llamazon (Aloysius P Llamzon, Corruption in international investment arbitration, Oxford international arbitration series, Oxford University Press, 2014) notes that international investment tribunals are surprisingly reluctant to apply these principles in scenarios where corruption was performed by state officials. He notes [Page 240, para 10.04]:

“[A]ll internationally wrongful acts committed by public officials… are attributable to the State and thus potentially its international responsibility”

However:

“[T]here has simply never been a case in international investment arbitration where public official corruption has been attributed to the host state”.

The result of the above-mentioned situation is that when economic crimes are committed by corporate officers this always generate severe consequences for the investors. However, in the case of public officials of the host state their participation in economic crimes almost never leads to similar consequences on the part of the state on whose behalf they act. Corruption allegations, when pleaded by the host state, thus now serve a complete defense by the state.

(B) Tribunals’ main approaches to state responsibility for economic crimes

The two main approaches in this area can be demonstrated by the following two cases.

In one case, EDF (Services) Limited v. Romania [ICSID case no. ARB/05/13 (EDF) Award, 8 October 2009 para. 221], the tribunal held that a state could be held responsible for solicitation of bribes by one of its organs. As the tribunal noted:

“[A] request for a bribe by a State agency is a violation of the fair and equitable treatment obligation owed to the Claimant pursuant to the BIT, as well as a violation of international public policy, and that “exercising a State’s discretion on the basis of corruption is a […] fundamental breach of transparency and legitimate expectations”.

EDF (Services) Limited v. Romania indicates that the tribunal was willing to attribute economic crimes to the host state and hold it accountable on the basis of state responsibility. However, it found that the claimant did not prove corruption and it was of the opinion that “[t]he evidence before the Tribunal in the instant case concerning the alleged solicitation of a bribe is far from being clear and convincing.” In light of this the attribution mechanism was left unused.

However, when this argument arose in the course of another case, World Duty Free v The Republic of Kenya [ICSID CASE NO. ARB/00/7, Award 4 October 2006 para 176], the tribunal refused to uphold it. It held that the law applicable to the case before it (in this case English and Kenyan Law) precludes any balancing between the claimant and the host state’s misconduct.

“The Claimant also submitted that this Tribunal has a discretion to adjust the application of English public policy, by a balancing operation reflecting the relative misconduct of the Claimant and the Kenyan President so as to relieve the Claimant from the one-sided burden of public policy in this case…”.
“…There is accordingly no legal basis at English law for the Tribunal to operate a discretionary balancing exercise, as requested by the Claimant”.

(C) Findings of corruption made by tribunals and their attribution to the host state

There are only two publicly available cases where positive findings of corruption were made. WDF is one of them; Metal Tech Ltd. V The Republic of Uzbekistan [ICSID Case No. ARB/10/3, Award 4 October 2013] is the other.

Metal-Tech has some very interesting aspects. However, in this case the fact that corruption was established resulted in the tribunal’s decision to deny jurisdiction. The tribunal stated that the wrongful acts violated Uzbek law and, therefore, the investment was not implemented in accordance with the laws and regulations of the host state as required by the relevant BIT. The tribunal thus did not touch upon questions of state responsibility (it did so implicitly only when deciding that in light of the state’s involvement it should bear its own costs).

As mentioned above, in WDF the case was different given that in this case the attribution was considered as part of a judgment dealing with the merits. Although it can be argued that the case contradicts the approach taken in EDF the following points may indicate that this is not precisely the case.

First, the tribunal’s decision not to hold Kenya accountable was grounded on its analysis of English and Kenyan law which the tribunal found contain no legal basis on which the tribunal could operate a discretionary balancing. No analysis of international law was provided.

Second, the question of attribution of the Kenyan president’s economic crimes to the state itself was discussed in the context of a waiver, namely, whether Kenya waived its right to argue corruption. Again analyzing English and Kenyan law alone, the tribunal looked at the state’s knowledge as a matter of fact, rather than as a matter of law in the sense provided for by the ILC.

Thirdly, the tribunal’s jurisdiction was based on a choice of forum made by the parties in the contract. It was not based on a BIT. If such was the case then it would be more likely that the tribunal would be required to apply elements of international law. The two systems – a dispute relying on a contract and a dispute relying on a BIT – should be distinguished.

(D) Attribution of economic crimes to states – the approach taken by commenters

Although ILC Art 7 indicates that a state may be held responsible for economic crimes of its officials, Llamzon points out that the commentaries to the ILC provide that cases where officials acted in their capacity as such albeit unlawfully or contrary to instructions, must be distinguished from cases where the conduct is so removed from the scope of their official function that it should be assimilated to that of private individual, not to the state.

Llamzon concludes his approach by stating, inter alia, that (a) if public officials of a host state solicit or extort bribes from investors, and the other party does not freely pay the bribe, the international responsibility of the host state is engaged. However, (b) if the public official accepts a bribe, the state of that corrupted official is arguably not responsible towards the party that paid the bribe. The reason is that such corruption amounted to purely private conduct, which was known to be so by the investor and thus cannot be attributed to the state. The host state may, according to Llamzon, be responsible towards a third party who neither knew about nor participated in the corruption.

A different approach is demonstrated by Spalding (Deconstructing Duty Free: Investor-State Arbitration as Private Anti-Bribery Enforcement, U.C. Davis Law Review, Vol. 49, Issue 2 (December 2015)) who suggests an alternative analysis to WDF:

”The panel also held that the state was not liable for the conduct of President Moi. This leg of the Duty Free stool proves no less faulty. The state liability rationale has three potential sources of legal justification: English and Kenyan law; the arbitral precedents; and international law. None of them can justify the panel’s holding.”

Spalding also criticizes Llamzon’s approach and holds, with regards to WDF, that international law principle document on state liability almost “certainly” recommends the opposite outcome.

Other commenters take a position which seems to justify the zero tolerance approach taken by the tribunal in WDF. There are even suggestions to uphold this approach by inserting appropriate clauses into BITs.

(E) Conclusions

The question of state responsibility and attribution to the state of economic crimes performed by its organs is yet to be settled. In light of recent cases which indicate that tribunals are more willing to make findings of economic crimes, it is also likely that this issue will arise again soon, and so further developments are expected. It will be interesting to see what approach is chosen (for example in cases such as Vladislav Kim and others v. Republic of Uzbekistan [ICSID Case No. ARB/13/6]).

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Caribbean Islands in the Mood for Arbitration

Tue, 2017-07-11 17:01

Anne-Sophie Gidoin and Antoine Cottin

In an interview given to the Paris Review in 1981, Colombian writer Gabriel Garcia Marquez observed that “Caribbean reality resembles the wildest imagination.” This myth (or reality) of the Caribbean as a wild region declines into various aspects such as its unsettled climate, ruthless history, or multicultural society.

This might explain, on top of their location at the heart of America, the key role of the Caribbean islands as an international political and economic playground since the Conquista. In view of the many disputes generated in this context, this article wishes to emphasize the recent trend in these islands in favor of one means of international dispute settlement: arbitration.

This article focuses on the sovereign Caribbean islands i.e. Antigua & Barbuda, the Bahamas, Barbados, Cuba, Dominica, the Dominican Republic, Grenada, Haiti, Jamaica, St Kitts & Nevis, St Lucia, St Vincent & Grenadines, and Trinidad & Tobago.

At first sight, the Caribbean islands characterize by their great diversity, having followed different social and economic models. David Berry notably explains this diversity as follows: “[b]oth the peoples and islands of the Caribbean were shaped by territorial and commercial ambitions of a number of European powers […] The colonial empires of Europe both unified and divided Caribbean islands” (Caribbean Integration Law (Oxford University Press, 2014), 17). Most of these islands yet play a key role into international transactions and foreign investment. FDI has exponentially increased over the past 40 years in all of these islands. Whereas these economies are traditionally driven by agriculture (mostly exporting hard liquor, tobacco, sugar), and oil and gas/mining, they also offer industrial goods, and have developed their tertiary sector through tourism and financial services. Most commercial partners are located outside of the Caribbean. The US is the biggest export destination and China appears the most for import. 

Along with this position at the heart of international transactions and foreign investment, and, resultantly, at the heart of the related disputes, these islands have set a solid basis for arbitration. The New York Convention is in force in all islands, to the exception of Grenada, St Kitts & Nevis and St Lucia, and the ICSID Convention is in force in all islands to the exception of Antigua & Barbuda, Cuba, Dominica and the Dominican Republic. Since 1973, the sovereign Caribbean islands have concluded over 140 IIAs.

The unfolding of arbitration-friendly initiatives in the Caribbean islands has marked the last decade.

To start with, arbitration benefits from great promotion in the region. Lately, new arbitration institutions have been created in the BVI (the BVI International Arbitration Centre, “BVIIAC”) and Jamaica (the Mona International Centre for Arbitration and Mediation, “MICAM”). Antigua & Barbuda, the Bahamas, and Barbados announced imminent creation of similar institutions. In addition, many conferences are routinely held in the region. The ICC has been particularly active co-organizing with the Cuban Court of Arbitration a conference to celebrate the 50th anniversary of the latter in Havana in August 2016 and holding its 3rd International Forum on ICC Arbitration in Santo Domingo in May 2017. The ICC YAF further created its “Caribbean series,” a special set of events in the region to contribute to growing regional dialogue on the usefulness of international commercial arbitration. Other significant initiatives, such as the Fifth Annual Arbitration and Investment Summit in Nassau in January 2017, or the Cuban International Arbitration Moot taking place annually in Havana since 2013, are also worth noting.

Further, the modernization of the relevant legislations and practice of arbitration confirm the same trend. New commercial arbitration laws have been adopted in Barbados and Cuba in 2007, the Dominican Republic in 2008, the Bahamas in 2009, the BVI in 2013, and Jamaica is currently debating an arbitration act. Furthermore, the adoption of Law No. 118, Cuba’s Foreign Investment Act, in 2014, represents a milestone for foreign investors in the region. Several Caribbean islands have been involved in ICSID arbitrations, either as the country of nationality of the Claimant (the Bahamas, Barbados, Grenada, St Kitts & Nevis) or as the Respondent State (the Dominican Republic, Grenada, St Kitts & Nevis, St Lucia, Trinidad & Tobago). The Dominican Republic and Barbados have also recently appeared as Respondents in investment disputes registered with the PCA. Finally, arbitration has been relied on in interstate disputes such as Barbados v Trinidad and Tobago and Italian Republic v Republic of Cuba, respectively settled in 2006 and 2008.

This trend in favor of arbitration raises the issue of regional integration.
Despite the existence of some regional organizations in the region, those are not “all-inclusive” and the islands have different interests in integration.

This incomplete integration first results in a disparity of legal regimes related to arbitration. As far as commercial arbitration is concerned, this may be less true since the latest laws on commercial arbitration mentioned above are all aligned on the UNCITRAL Model Law. In addition, the OHADAC, a regional organization inspired from African OHADA which started acting in 2007 and includes all islands listed above, also drafted Model Rules of Arbitration and Conciliation. As far as investment law is concerned, the divergence in protection standards constitutes another challenge, not only between islands, but also in the same island when derogatory regimes are implemented (i.e. ZED Mariel in Cuba). The two main regional organizations contribute to this multiplicity. Both the revised Treaty of Chaguaramas, establishing the Caribbean Community (“CARICOM”), and the revised Treaty of Basseterre, establishing the Organization of Caribbean States Economic Union (“OECS”), include arbitration among the modes for the settlement of disputes concerning the interpretation or application of the relevant Treaty. Nonetheless, both treaties leave open the choice of the arbitral institution to administer such disputes.

Luckily, the development of arbitration in the Caribbean islands is also full of opportunities.

First, it illustrates the significant role to be played by the “big islands.” The Dominican Republic established itself as a leading forum for commercial arbitration in the region, thanks to the dynamism of its Centro de Resolución Alternativa de Controversias (“CRC”) and the hosting of multiple arbitration events. The participation of the State to proceedings initiated against it by foreign investors, including under the ICSID Additional Facility Rules since the ICSID Convention is not in force in this island, shows its reliance on this method of alternative dispute settlement. As far as Cuba is concerned, its dynamism in terms of commercial arbitration and its recent moves to attract foreign investors offers this island a unique opportunity to play a leading role in the region in favor of arbitration.

Second, the development of arbitration in the Caribbean islands could benefit from experiences coming from other regions. Inspiration could be found, in particular as to the balance between investment protection and sustainability, in the Pan-African Investment Code, or the new Protocol for the Cooperation and the Facilitation of Investment within the Mercosur.

Overall, this recent trend in favor of arbitration in the Caribbean islands places arbitration as a reality, which resembles, what still was, some years ago, the wildest imagination. At a time when arbitration is often criticized, this trend in this particular region raises the interesting issue of whether its development responds to national, regional or international dynamics. The development of arbitration might simply show that this region, although not integrated as such, obeys to its own rules, and is able to set them.

The views set forth in this post are the personal views of the authors and are not intended to reflect those of their employers or clients.

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What is Brazil Bringing to the Table? Dispute Prevention and Resolution under the Brazilian Agreements on Cooperation and Facilitation of Investments (ACFI)

Mon, 2017-07-10 17:03

Rabih A. Nasser, Nathalie S. Tiba Sato and Marina Y. Takitani

For a long time, Brazil remained one of the few main economies without foreign investment agreements – in the 1990s, 14 Bilateral Investment Treaties (“BITs”) were signed, but never ratified.

This landscape began to change in 2015, with the emergence of the model Agreement on Cooperation and Facilitation of Investments (“ACFI”), promoted by the Brazilian government as an alternative to the “traditional” BITs.

Up to now, Brazil has signed ACFIs with seven countries (Mozambique, Angola, Malawi, Mexico, Colombia, Chile and Peru) and entered into a Protocol on Cooperation and Facilitation of Investments (“PCFI”) with its Mercosur partners.

One of the main features that sets the ACFIs apart from the traditional BITs model is the absence of an Investor-State dispute resolution mechanism. With a view to promote foreign investment without sacrificing regulatory autonomy, the ACFI model focuses on dispute prevention and bilateral governance, limiting arbitration to the State-to-State level. But with investors not having what is allegedly their most effective guarantee, this question resounds: what is Brazil bringing to the table?

Foreign investment-related claims under the ACFIs are addressed in two different manners: (i) a dispute prevention mechanism, that can be accessed by both investors and States, and (ii) a dispute settlement phase, comprising a State-to-State arbitration.

In terms of the procedural aspects, the ACFIs already signed vary slightly from each other. Although the dispute prevention provisions remained practically the same, the dispute settlement mechanisms became increasingly complex and detailed.

The ACFIs provide for the creation of two institutional arrangements in order to maximize the chances of dispute prevention being successful: (i) the Focal Point or ombudsman, within each government, which addresses concerns of investors; and (ii) the Joint Committee, with representatives of the governments, responsible for the administration of the agreement.

The Focal Point was established in Brazil by Decree n. 8.863/2016 and is named Ombudsman for Direct Investments (“OID”). It was included in the structure of the Foreign Commerce Chamber (“CAMEX”), an inter-ministerial body in charge of the trade and investment policy in Brazil.

Its main functions are addressing foreign investors’ concerns (orientation and problem-solving) and engaging in a permanent discussion with the other Focal Points and with the Joint Committee. The Ombudsman procedure, that can only be accessed by ACFI-covered investors, has been further detailed by CAMEX Regulation n. 12/2017, as summarized in the Flowchart 1 below.

In brief, whenever a foreign investor is concerned with a measure that affects its investment in the host-State, it may submit a request for consultation to the Ombudsman Secretariat. The Advisory Group and the Network of Focal Points will aid the CAMEX Secretary in assisting, providing information and guiding the investors. The CAMEX Secretary may establish an Issue Resolution Group to analyze the issue presented by the investor. In a final report, the OID will provide a summary of the issue and possible proposals and recommendations formulated by the Issue Resolution Group.

The second institution for dispute prevention is the Joint Committee. In general terms, parties request a meeting to the Joint Committee in which their concerns will be presented and they may engage in negotiation procedures. After 60 days of the request to establish the meeting, the Joint Committee will issue a report with its recommendation concerning the dispute.

If the parties are not satisfied with the Joint Committee report, they can move on to the dispute settlement phase, in which the parties can resort to State-to-State arbitration – or to the Mercosur dispute settlement mechanisms in the PCFI.

However, while the first ACFIs limit themselves to providing for the option to arbitrate, the complexity of the arbitration procedure increased incrementally in the subsequent ACFIs. The most recent ones foresee the possibility of ad hoc and institutional arbitrations, prescribing deadlines, form of nomination of the arbitrators, requests for clarifications and enforcement.

Three of the ACFIs have already been ratified by the Brazilian Parliament, but are not yet in force because the promulgation decrees by the Brazilian President and ratification by the other State-Parties are still pending. Since December 2016, Brazil and India have been negotiating an investment agreement.

The exclusion of investor-State arbitration may seem disappointing to those who feel uncomfortable with the States having the power to decide which disputes are worth taking to arbitration and interfering in the conduct of the case. However, the ACFIs have the advantage of bringing a new and potentially useful tool for both Brazilian companies investing abroad and foreign investors in Brazil. These agreements also have the benefit of re-introducing Brazil – after a long absence – in the discussion of the international legal framework for foreign investments.

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What You Should Know About Nevada’s Specific Authorization Rule for Arbitration Agreements

Sun, 2017-07-09 23:18

Charles Harris, Sarah Reynolds and Louis Balocca

Businesses that are party to an arbitration agreement governed by Nevada law should understand that a little-known Nevada statute renders these agreements unenforceable if a contract lacks so-called “specific authorization” indicating that a person affirmatively assented to the arbitration provision itself. While the Nevada Supreme Court has applied this rule to invalidate arbitration agreements, a recent United States Supreme Court opinion reiterated that the Federal Arbitration Act (the “FAA” or “Act”) preempts state rules that treat arbitration agreements differently than other contracts. While a court has yet to consider whether the FAA preempts the Nevada statute, it is unlikely to survive a preemption analysis.

Nevada’s Specific Authorization Rule

Nevada’s general arbitration statute, like the FAA, contains a savings clause that allows arbitration agreements to be invalidated “upon a ground that exists at law or in equity for the revocation of a contract.” NRS 38.219(1). The key difference is that the Nevada statute also includes a specific authorization rule, Nevada Revised Statute 597.995, which provides an additional ground to void an arbitration agreement. This rule renders only the arbitration provision “void and unenforceable” if an underlying contract is devoid of “specific authorization” indicating that the person has affirmatively agreed to that provision. NRS 597.995(1). The rule does not define “specific authorization,” but, as shown below, the standard is exacting.

Fat Hat, LLC v. DiTerlizzi (“Fat Hat”)

The Nevada Supreme Court’s unpublished opinion in Fat Hat “does not establish mandatory precedent” for Nevada appellate courts (see NRAP 36), but it’s notable in that the court addressed Nevada’s specific authorization rule for the first time. In particular, the court considered whether arbitration clauses in several contracts between a Las Vegas nightclub and its employees were valid under the rule. It held that some of the contracts did not contain the required “specific authorization” because the employees signed a “general signature line indicating consent to all the terms of the contract,” but gave no indication of specific assent to the arbitration provision itself. The court was not persuaded by the fact that this signature line immediately preceded the arbitration provision. Similarly, the court was not convinced that an employee affirmatively agreed to the arbitration provision even where she “initialed at the bottom of every page,” including the page with the arbitration provision. Fat Hat, LLC v. DiTerlizzi, 385 P.3d 580 (Nev. 2016).

The Fat Hat court held that other contracts did pass muster under the rule. “In addition to a signature line at the end of the contracts,” the employees filled “in their names and addresses in the blank spaces of the [arbitration] provision, explicitly stating that the agreement to arbitrate was effective.” Id. Likewise, in Larson v. D. Westwood, Inc., a Nevada federal court held that a three-page arbitration provision forming part of an eight-page contract satisfied the Nevada’s specific authorization rule because “[t]he arbitration provision is set apart from the other provisions by boldface capital letters,” “required a separate initialing,” and the contract’s signature page contained a boldface heading stating that “Employment Shall be Deemed to Be Acceptance of the Arbitration Policy.” Larson v. D. Westwood, Inc., 2016 WL 5508825, at *2 (Sept. 27, 2016). The federal court rejected the plaintiff’s argument that an arbitration provision must be a standalone agreement to comply with Nevada’s specific authorization rule.

Still, neither Fat Hat nor Larson considered whether Nevada’s specific authorization rule is preempted by the Act. In fact, the Fat Hat court confirmed that the parties made “no argument that the [Act] applies” and “[w]e therefore do not address NRS 597.995’s validity of application under the FAA.” Fat Hat, LLC, 385 P.3d at 580 n.1.

The FAA’s Equal Treatment Principle

It is well established that the FAA is broad in its scope: it preempts state law and governs the enforceability of all arbitration agreements in contracts involving interstate commerce. See 9 U. S. C. § 2. In Kindred Nursing Centers L.P. v. Clark, a nearly unanimous decision issued just last month, the United States Supreme Court reaffirmed the Act’s “equal treatment principle” in striking down Kentucky’s “clear-statement rule,” which, as discussed below, is similar to Nevada’s specific authorization rule. The Court explained that, while courts “may invalidate an arbitration agreement based on ‘generally applicable contract defenses,’” they may not do so based on “legal rules that ‘apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.’” 581 U. S. __ (2017) (slip op. at 4). Indeed, the Act preempts “any state rule discriminating on its face against arbitration” or disfavors contracts that “have the defining features of arbitration agreements.”

In Clark, the petitioner nursing home (represented by Mayer Brown LLP) sought to enforce two arbitration agreements executed by the relatives of its now-deceased residents; each relative had a power of attorney. But the Kentucky Supreme Court invalidated the agreements based on its court-created clear-statement rule—i.e., “a power of attorney could not entitle a representative to enter into an arbitration agreement with specifically saying so.” Id. (slip op. at 3). The court said that, because the right to trial by jury is a constitutional right, “an agent could deprive her principal an ‘adjudication by judge or jury’ only if the power of attorney ‘expressly so provide[d].’” Id. The Court held that the clear statement rule “fails to put arbitration agreements on an equal plane with other contracts” and its required “specific authorization” to waive a jury trial couldn’t “survive the FAA’s edict against singling out” arbitration agreements “for disfavored treatment.” Id. (slip op. at 4).

Likewise, in Doctor’s Associates, Inc. v. Casarotto, the Court held that a Montana law declaring an arbitration agreement unenforceable unless notice of it is “typed in underlined capital letters on the first page of [a] contract” was incompatible with the Act. 517 U.S. 681, 683 (1996). Moreover, state and federal courts, following the Supreme Court’s direction, have regularly struck down laws requiring special notice for arbitration agreements, (see, e.g., Erickson v. Aetna Health Plans of California, Inc., 71 Cal. App. 4th 646 (Cal. Ct. App. 1999)), that arbitration agreements be in writing, (Brown v KFC Nat’l Mgmt. Co., 921 P.2d 146 (Haw. 1996)), or prohibiting mandatory arbitration clauses for certain types of disputes (In re Managed Care Litig., 132 F. Supp. 2d 989 (S.D. Fla. 2000)).

Conclusion

Where a plaintiff challenges the enforceability of an arbitration agreement that is governed by Nevada law based on a lack of specific authorization, defendants should look to FAA preemption arguments in response. To avoid the expense and delay involved in litigating preemption, parties entering into arbitration provisions incorporated into broader contracts should require explicit assent to those provisions, separate and distinct from the contract as a whole.

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Wolters Kluwer Partners with Arbitrator Intelligence – A Personal Story

Sun, 2017-07-09 00:38

Gwen de Vries

In June 2014, at the ITA Workshop in Dallas, I heard a passionate woman presenting her mission of increasing fairness, transparency, accountability, and diversity in the arbitrator selection process, and how she intended to do this. “I want to support this” is what I thought. Roger Alford was so kind to introduce me to this energetic woman, Catherine Rogers. That meeting was the beginning of what I hoped then, and still believe, will be a long and productive relationship between Arbitrator Intelligence (AI) and Wolters Kluwer – our formal cooperation was announced last week.

This is an intensely personal story. For those of you who don’t know me, I’ve been with Wolters Kluwer for almost thirty years, either leading or being involved in our arbitration portfolio, first as publisher and since 2004 as publishing director. This portfolio has always been special to me. One reason for my enthusiasm is that it’s a portfolio for which we tried out new things, and often succeeded. For example, it was the first portfolio to move online, the first for which we started a blog, and the first for which we created successful tools such as the IAI Arbitrator Tool and Smart Charts. But also because I care about the arbitration process and its community. I believe with many of you that a good international dispute settlement system is crucial for global trade and investment. In return, its community has always welcomed me, and I have seen it grown fast. (In 1996, I attended my first ICCA conference in Seoul, together with just 200 participants; last year in Mauritius there were 1,000 of us.)

I wholeheartedly agree with Catherine that, in order for arbitration to stay the most preferred international dispute resolution system, it has to continue to develop. The appointment of arbitrators is a crucial decision in the process of arbitration. Parties to arbitration now rely on informal and anecdotal information, which in this age of open access to information is quite unheard of in other industries. There is a need in international arbitration for a more reliable, neutral, data-driven resource for sharing information about arbitrators and their decision-making history.

As Catherine has explained before in various posts on this blog (see here for her last post), AI intends to gather this data through the AI Questionnaire that parties and counsel can fill in after an arbitration. The AI Reports will analyze and summarize the information gathered through the questionnaires. As a non-profit academic-based enterprise, AI is uniquely positioned to ensure independent and high quality reports. However, none of this will happen if you do not fill in the questionnaire. I realize that it’s an effort, and perhaps an effort that does not directly benefit you. On the other hand, I hope that Catherine, in the many articles she has written and speeches she has given, has been able to convince you that this is important. I also hope that the place you work will allow you to contribute to something that may not directly benefit you or your firm in the short term, but that is important in the long run for the arbitration process you work for and the arbitration community to which you belong.

I realize more and more that I am very fortunate to work for a company that has given me the freedom to develop products that don’t always directly have the highest margin, but that are important for other reasons. A perfect example is this arbitration blog. Roger and I started this because we wanted to connect people in the arbitration world. With 26,000 unique visitors each month we certainly seem to have succeeded.

Just like Catherine, I am passionate about arbitration, believe that it has to become more transparent and diverse and that AI will make this happen. But only if you help! So, join the growing community of arbitration specialists that believe the same and help improve the process: fill out the AI Questionnaire after your next arbitration and convince others to do the same. You are all important for this enterprise and can make this happen!

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Kluwer Mediation Blog: June digest

Sat, 2017-07-08 03:35

Anna Howard

From the mediation of sports disputes to a recent mediation law in Brazil and onto lessons learnt from teaching mediation and negotiation courses in universities in Germany and New Zealand, the past month on the Kluwer Mediation Blog has provided a rich assortment of posts. A short summary of each post follows.

In Investing In Your Future, John Sturrock raises the important and challenging following questions: What are we doing to improve ourselves? To understand better who we are, what we want to achieve and what is important? What about our clients and our understanding of them? John notes that reflecting on these questions really gets us thinking about what our clients may need, rather than what we might offer.

In Win-Win In Practice: Mediation Helping With Sports Disputes And Sports Disputes Helping Mediation, Martin Svatos explores the use of mediation in sports disputes, in particular, in football and ice-hockey disputes. Martin considers how mediation may not only help athletes and sports association with the resolution of sports disputes but also how sports disputes might help mediation.

In The Collaborative Imperative – Or The Existential Imperative For Modern Mediators, Ian Macduff draws on his recent negotiation and mediation classes to identify the three uppermost concerns of his students’ generation. Ian notes that his students’ blog conversations “suggest that negotiation and mediation are an existential necessity; collaboration is not a fringe activity or policy tool but a moral imperative.

In The Things You Can Achieve In Mediation: A Day In The Life Of A University Lecturer, Greg Bond draws on a recent experience in teaching negotiation and mediation to highlight the unexpected outcomes that can sometimes occur.

In How Long Is Your Average Mediation, Constantin-Adi Gavrila considers how long an average mediation might take and identifies some factors which affect the duration of a mediation.

In Lawyers As Mediators in Brazil: To Be Or Not To Be?, Andrea Maia provides a brief history of Brazil’s journey to its first mediation law. Andrea then considers a particular issue raised by the New Civil Procedure Code (Law 3105/2015) which states that mediators registered to work in a court annexed mediation program, if also lawyers, can no longer act in their capacity as lawyers in that particular jurisdiction.

In Letter From America: What We Can All Learn From U.S. Research Into Court ADR Schemes, Charlie Irvine draws on recent research on court-annexed ADR programmes in Utah, California and Oregon which explored whether people who used those courts were aware of the ADR schemes. Charlie considers the relevance of this research to Scotland and explores how court ADR schemes might be brought to people’s attention.

In Book Review – Mediation Ethics by Ellen Waldman, Sabine Walsh provides a detailed and enthusiastic review of this book noting that “whether you are new to mediation, or a season peacemaker who recognises that the more you know, the less you know, this is a great read.

In the wonderfully creative Sergeant Pepper, Nostalgia and Missing Socks, John Sturrock applies the concept of nostalgia and the letting go of single socks to the puzzle that we are still thinking about how we can promote mediation on a wide-scale, twenty to thirty years after it began to show itself, world-wide, to be a really useful process.

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The Case for Public Regulation of Professional Ethics for Counsel in International Arbitration

Thu, 2017-07-06 23:17

Stephan Schill

ITA

Who Should Regulate the International Bar?

The regulation of professional ethics of the international bar is among the most hotly debated issues in international arbitration (inter-state, investor-state, and commercial). It reflects the regulatory gap that has developed as proceedings before international courts and tribunals have proliferated and counsel diversified. Addressing this issue is crucial, as diverging national regulation as well as a lack of clarity about acceptable standards of conduct may jeopardize the integrity and effectiveness of proceedings and cast the legitimacy of the administration of international justice into doubt.

So far, the debate on professional ethics in international arbitration has focused on both developing the basic conceptual and normative framework and producing codes of conduct that are workable and acceptable in practice. It has brought about thorough academic studies, such as those of Catherine Rogers and Arman Sarvarian, and detailed codes of conduct, including the 2010 Hague Principles, the 2013 IBA Guidelines, and the Guidelines for Party Representatives annexed to the 2014 LCIA Arbitration Rules.

Less addressed are questions of who should regulate professional ethics in international proceedings and who has the legitimacy to do so. Much of the present debate is based on the widespread assumption, if not agreement, that private bodies and professional self-regulation are the institutions and instruments best suited to address the regulatory gap. Public actors—international courts and tribunals, as well as international organizations such as the Permanent Court of Arbitration (PCA) or the International Centre for Settlement of Investment Disputes (ICSID)—are rarely considered as potential regulators of counsel conduct and enforcers of sanctions for misconduct. This is all the more surprising as these actors are uniquely positioned to play a key role in the regulation of the international bar.

Public Regulation versus Self-Regulation or National Approaches

Ensuring the integrity and efficiency of international proceedings by upholding basic procedural principles is an objective that seems best pursued by regulation through international courts, tribunals, or administering institutions, as opposed to private (professional) organizations or national bar associations. The particular advantage of international courts, tribunals, and administering institutions, especially those that have broad membership, such as the PCA or ICSID, is that they are public actors serving a public purpose in the peaceful settlement of international disputes,.

Public institutions are particularly well placed to address those aspects of professional ethics that concern the relationship between counsel and court (or tribunal) and therefore form part of the law of procedure. Examples of this category include the nature and scope of counsel duties with respect to the presentation of truthful evidence, questions concerning the preparation of witnesses, and the permissibility of ex parte communications between counsel and court or tribunal. International courts, tribunals, and administering institutions are less suited to regulate other aspects of professional ethics, such as the regulation of the legal services market to ensure equal and fair competition among counsel and to protect clients’ interests against professional malpractice.

In contrast, arbitral tribunals face limitations in developing rules on professional ethics, due to their one-off nature and the resulting risk of fragmentation. Likewise, administering institutions that are in essence organs of the international business community face limitations in terms of the legitimacy they can confer on the regulation of the international bar. Regulation by such bodies may be seen in the eyes of the general public as self-serving instruments that have the ‘private’ interest of international lawyers in mind, rather than the ‘public’ interest of the international community in the administration of justice. Public regulation of counsel conduct in international proceedings would alleviate that concern. Furthermore, in the absence of some other international body in charge, only an international court, tribunal, or administering institution would be able to ensure that all actors appearing in international proceedings are subject to the same rules of professional conduct.

While largely public, national regulation of professional ethics also has important limitations. Allocating responsibility to regulate counsel conduct and sanction breaches to national bar associations or state courts cannot provide a level playing field in international proceedings. National institutions may establish different rules, administer identical rules differently, and differ in their enforcement and sanctioning practices. Additionally, such regulation would not reach non-lawyers appearing as counsel before an international court or tribunal. At least in theory, giving national institutions power to regulate counsel conduct and sanction breaches could also undermine the integrity of international proceedings. Conceivably, national institutions could be captured by one of the (state) parties to an international proceeding and used to sabotage the proceeding by taking action against the opposing party’s counsel. Such a result would be avoided if international courts, tribunals, or administering institutions were in charge of developing and administering rules for counsel conduct in international proceedings.

Regulatory Power of International Courts and Tribunals

International courts and tribunals are not only well placed to ensure uniform and legitimate regulation of counsel conduct in international proceedings, they also possess the legal authority and competence to develop and enforce such rules. Rules governing counsel conduct in relation to an impending or ongoing international proceeding can be enacted as part of the competence to ‘lay down rules of procedure’ that many international courts and tribunals are expressly given. Examples include Article 30(1) of the Statute of the International Court of Justice (ICJ) or Article 16 of the Statute of the International Tribunal for the Law of the Sea.

Such competence encompasses not only questions concerning the organization of hearings, the presentation of evidence, and the decision-making process of the court or tribunal, but also the procedural rights and obligations of the parties and the standards of conduct for their counsel in relation to the proceedings. Thus, on the basis of Article 30(1) of its Statute, the ICJ has laid down in its Practice Directions some, albeit limited, standards of conduct for counsel. Similarly, under the competence conferred to ICSID’s Administrative Council under Article 6(1)(c) of the ICSID Convention to ‘adopt the rules of procedure for … arbitration proceedings,’ rules on counsel conduct could be adopted.

International courts and tribunals lacking such express authorization to develop rules of procedure can rely on their inherent powers to take all necessary measures for the preservation of the integrity of the proceedings before them and to ensure the effectiveness of their judicial function. In fact, the HEP v. Slovenia tribunal, an arbitral tribunal established under the ICSID Convention, and the International Criminal Tribunal for the Former Yugoslavia have successfully done so.

These inherent powers could also serve as a basis for international courts and tribunals to develop rules on how counsel should conduct themselves in international proceedings and to implement sanctions in case they are breached. For example, the International Criminal Court and the International Residual Mechanism for Criminal Tribunals have adopted codes of conduct that include wide-ranging sanctions, including admonition, public reprimands, the imposition of fines, and even suspension or permanent ban on practicing before the respective court or tribunal. Likewise, courts and tribunals in interstate or hybrid proceedings have used various means to sanction counsel misconduct, including reprimanding counsel in the award or judgment, imposing costs on the party whose counsel engaged in professional misconduct, taking into account misconduct in weighing evidence, and even excluding counsel from further proceedings (for a survey I co-authored with Charles Brower, see here). These sanctions, if properly employed, are likely no less effective in ensuring compliance of counsel with standards of conduct than the sanctions that can be imposed by state courts or national bar associations.

Conclusion

One concern regarding public regulation relates to the multitude of existing international courts, tribunals, and administering institutions for arbitral proceedings. If all of such institutions developed rules on professional ethics in isolation, little would be gained in ensuring clarity and uniformity in regulating the international bar. Mechanisms are needed for international courts and tribunals to coordinate their work so as not to impose starkly diverging obligations concerning counsel conduct. Inter-court and tribunal working groups and consultation with administering institutions is one option. Addressing questions of professional ethics in existing inter-governmental platforms and organizations, such as UNCITRAL or the PCA, is another.

At the same time, pushing for more public regulation of the international bar does not mean that the development of rules on professional ethics by private, professional organizations or arbitration institutions has been in vain. On the contrary, such initiatives are highly useful in laying the ground for public regulation of professional ethics in international proceedings. In developing such regulation, public actors can build on, or even endorse, the rules developed by private professional organizations. Such endorsement would not only validate the efforts made by such organizations in the development of rules of professional ethics. It would also give those rules the public imprimatur that is needed to enhance the legitimacy of international arbitration in the eyes of the general public. This would ensure that international dispute settlement is practiced in the interest of the entire international community and in the name of international law, rather than only in the interest and name of international lawyers.

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Can Foreign Investors Sue the UK for Brexit?

Wed, 2017-07-05 22:00

Roger Alford (Editor)

On May 30, 2017, Volterra Fietta and the University of Notre Dame hosted a debate of whether foreign investors can sue the United Kingdom for a hard Brexit. The recorded video is now available for viewing.

Markus Burgstaller and I presented the case that foreign investors may have viable claims against the UK, while Jeremy Sharpe and Luis González García presented a respondent state perspective. Suzanne Sharpe and Martins Paparinskis provided additional commentary.

The British government was invited to attend and present its views, but respectfully declined. Afterwards, a spokesman for the Department of International Trade stated that “The government does not believe that the UK’s decision to leave the EU will provide grounds for valid legal claims under our bilateral investment treaties.”

Following a lively debate, the audience was surveyed and 58 percent voted that foreign investors would not have viable claims against the British government for a hard Brexit, while 42 percent responded that they would.

The event was reported in various news outlets, including the Times, the Daily Mail, and Global Arbitration Review, among others.

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The Global Pound Conference Reaches Its Conclusion: User Focus Is Now Mainstream

Wed, 2017-07-05 00:46

Michael McIlwrath and Phil Ray

Mark Twain once wrote that a person with a new idea “is a crank until the idea succeeds.”1)Pudd’nhead Wilson’s New Calendar, in Following the Equator (1897). The Merriam Webster dictionary defines “crank” as “an annoyingly eccentric person.” jQuery("#footnote_plugin_tooltip_7251_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7251_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Innovations and new ideas on the verge of implementation seem to arrive almost weekly in international arbitration. They range from institutional rule changes, services that provide information about arbitrators, and various proposals from academics and arbitrators themselves. Much of this appears to be driven by a genuine attempt to listen to the voices of in-house counsel like us who have called for greater emphasis on case management, efficiency, and generally helping parties reach an early resolution of their disputes, thereby saving time and costs.2)We are two long-time corporate in-house counsel (one active and one retired). One of us, Michael McIlwrath, is a current General Electric corporate counsel (and the chair of the Global Pound Conference); the other, Philip Ray, is a retired Siemens AG corporate counsel (and co-editor of JURIS Journal of Technology in International Arbitration). jQuery("#footnote_plugin_tooltip_7251_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7251_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

While this service model may seem common sense today, it represents a shift from the environment in-house counsel faced a decade ago. Those of us paying the bills were once largely ignored. At most we were given lip service with the occasional “users panel” at conferences, which one of us ungenerously compared with the children’s tables set up at weddings. Although we continue to face the occasional reminder that not everyone agrees that arbitration should serve primarily the interests of parties,3)In a notorious “open letter to the international arbitration community,“ three international arbitrators upset about the fees assessed by the institution, wrote “[t]he role of an international arbitration institution is to protect the arbitrators that work under its aegis[.]” Catherine A. Rogers, When Arbitrators and Institutions Clash: The Strange Case of Getma vs. Guinea, Kluwer Arbitration Blog, 12 May 2016. jQuery("#footnote_plugin_tooltip_7251_3").tooltip({ tip: "#footnote_plugin_tooltip_text_7251_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); it is undeniable that we now occupy a seat at the main table.

The momentum reaches a new high this week when the Global Pound Conference (GPC) concludes on July 6. A major international initiative to shape the future of commercial dispute resolution, the GPC reaches its final destination in London’s Guild Hall, the 29th GPC event since it debuted in Singapore in April 2016.

At these events, over 2,000 stakeholders in commercial dispute resolution around the world – “Adjudicative Providers” (judges, arbitrators, mediators, arbitral institutions), “Advisors” (external lawyers, consultants) “Users” (corporate counsel) “Influencers”(academics), and ministries of justice, among others – have provided their views on the same 20 “core questions” about current and future dispute resolution practices.

The core questions ask these stakeholders to provide their input on the same topics: what do disputants desire most from the dispute resolution process; what should be changed to meet their expectations; and who should drive these changes?

The answers to these questions arrive at a time in which civil justice around the world is facing a moment of transformation. And international arbitration is now experiencing changes that, in our view, would have been considered heretical or at least highly unorthodox just a decade ago.

ICC Fee Reduction for Delay in Submitting Awards

Ten years ago, an in-house counsel would have been pilloried for suggesting that arbitrators should have their fees docked for delay in delivering the award. Yet in a 2016 Rules update, the ICC did just that.

While not exactly a “money-back” guarantee, the ICC fee reduction is a vivid example of an institution treating arbitration as a service that should meet the parties’ reasonable expectations.

Arbitrator Performance Data: Arbitrator Intelligence

Even before the advent of the Internet, consumers could find information about virtually any products or services before purchasing them. Despite the multiplication of such information via on-line databases and reviews, reliable information about arbitrators remains elusive. Parties must usually infer case management and soft skills through limited information generally transmitted via word of mouth.

In 2014, Professor Catherine Rogers founded a service to make appointing arbitrators a user-friendly process: Arbitrator Intelligence (AI). Notwithstanding resistance from arbitrators, the service has been well received. In fact, Wolters Kluwer, the publisher of this blog, will now include AI reports in its on-line arbitration database.

If AI is a success, it will permit parties to better select the arbitrator whose skills fit the profile they desire, and encourage arbitrators to be mindful of how their performance will appear to the parties (not just to their co-arbitrators and the institution).

Arbitrator-proposed innovations

It was commonplace a decade ago for conference panels to explain why arbitrators should not attempt to facilitate settlements. Although parties generally desire an early resolution, the thinking went, tribunals should be mindful of the due process implications of expressing early positions or appearing to encourage or meddle in settlement discussions.

Both of us found this reasoning troubling, and contradicted by our own experiences. At both Siemens and GE we had encountered cases where, at the parties’ request, one of the co-arbitrators (who possessed mediation expertise) agreed to act as a mediator to facilitate settlement. Not only did the cases survive the predicted due process apocalypse, parties on both sides of the dispute expressed deep satisfaction with the performance of the tribunal (including in the case that did not settle).

Last month, Professors Klaus Peter Berger and J. Ole Jensen published an article that tackled the issue of settlement facilitation not from the perspective of preserving the judicial function of arbitration, but in how to provide a mechanism that parties desire.

InThe Arbitrator’s Mandate To Facilitate Settlement, the co-authors suggest methods by which proactive tribunals can easily facilitate settlement during an arbitration. These range from simply mentioning settlement to the parties, providing an early neutral evaluation, conducting a settlement conference, or even using mediation techniques, in particular caucusing.

The ICC fee reduction for delay, Arbitrator Intelligence, and the Berger/Jensen proposal for settlement facilitation all share a common feature with many other recent innovations or proposals: they seek to make arbitration a more attractive service to the parties, rather than enhancing its purely adjudicative function. This is no small thing.

Not gaining ground: ignoring the service side of the arbitration business

By contrast, consider one proposed innovation that could have generated improvement in the judicial function of arbitration, yet has not gained currency in the seven years since it was first suggested. This is Professor Jan Paulsson’s proposal to eliminate the role of party-appointed arbitrators.

Both of us agree with Paulsson that permitting parties to unilaterally choose an arbitrator does indeed give rise to the risk of moral hazard and inject other dynamics that may compromise the quality of the arbitration award.

The reason that no major institution has adopted this proposal, however, is unrelated to quality of arbitral awards. It is simply deference to the fact that parties want to be able to appoint an arbitrator. If institutions are to treat arbitration as a service, then they cannot prioritize the judicial function if it is not positively received by the parties.

The GPC data: the user-focus trend will continue

The respective founders of our current and former employers – Thomas Edison (GE) and Werner von Siemens (Siemens) – knew that if they did not lead the transformation of the electrification era, someone else would do it. The great challenge facing companies like GE and Siemens today is adapting to the demands of the global and local economies in which we compete for business. Our companies are changing in this marketplace, and dispute resolution institutions will need to continue to innovate to keep pace.

Fortunately, while the final report of the GPC data will be published in the coming months, the data that has been emerging from the events so far suggests that in-house counsel like the trends that they are seeing, and they want more: they want their external lawyers to be more proactive, and emphasize collaboration; they expect institutions to provide a greater range of procedural options, and to explain the choices that are available; they want paths to reaching an early settlement.

As current and former in-house counsel, we are excited and optimistic about the changes that have already occurred and those that are bound to come.

* Philip Ray is the principal of PhilRay-IDR. In 2012, he retired after 23 years as senior in-house counsel for Siemens AG Legal in Germany, counseling the business on international transactions and disputes.

References   [ + ]

1. ↑ Pudd’nhead Wilson’s New Calendar, in Following the Equator (1897). The Merriam Webster dictionary defines “crank” as “an annoyingly eccentric person.” 2. ↑ We are two long-time corporate in-house counsel (one active and one retired). One of us, Michael McIlwrath, is a current General Electric corporate counsel (and the chair of the Global Pound Conference); the other, Philip Ray, is a retired Siemens AG corporate counsel (and co-editor of JURIS Journal of Technology in International Arbitration). 3. ↑ In a notorious “open letter to the international arbitration community,“ three international arbitrators upset about the fees assessed by the institution, wrote “[t]he role of an international arbitration institution is to protect the arbitrators that work under its aegis[.]” Catherine A. Rogers, When Arbitrators and Institutions Clash: The Strange Case of Getma vs. Guinea, Kluwer Arbitration Blog, 12 May 2016. 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: Arbitrators as Lawmakers
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The International Public Policy of the Portuguese State: A Matter of Value?

Mon, 2017-07-03 22:52

Duarte Gorjão Henriques

1. I have written elsewhere about the uncertainty that the Portuguese courts have experienced in defining the “international public policy” of the Portuguese State and, more specifically, in finding in some particular cases that there was a situation amounting to a violation of that standard for the purposes of annulment of (or refusal to recognise) international arbitral awards. (See Duarte G. Henriques, ‘I Will Not Go That Way: What The International Public Policy Of The Portuguese State Is Not’, in MEALEY’S International Arbitration Report Vol. 30, 2 February 2015)

Although the Portuguese courts have been consistent in setting up the theoretical foundations of the “international public policy” (i.e. as the fundamental principles underpinning the national legal order and, therefore, the conception of justice of the Portuguese State regarding the substantive law), the outcome when applying those standards to each case has not always been the same.

2. For example, on 9 October 2003, the Portuguese Supreme Court of Justice decided that the right to a fair and adversarial process, the right of access to justice and the ‘‘pact sunt servanda’’ amount to such fundamental values encapsulated by the notion of international public policy of the Portuguese State. (See decision of the Portuguese Supreme Court of Justice of 09 October 2003, decisions of the “Supremo Tribunal de Justiça”, Ref. 03B1604)

Conversely, in a decision of 21 February 2006, the same Supreme Court considered that a case where the final decision had not been notified ‘‘in persona’’ to the party, but rather to its attorney, did not violate its “international public policy”. (See decision of the Portuguese Supreme Court of Justice of 21 February 2006, decisions of the “Supremo Tribunal de Justiça”, Ref. 05B4168)

3. In a similar vein, the Portuguese courts have already decided that an arbitral award with a short or defective motivation (but not a total lack of reasoning) is not in violation of the public policy of Portugal. (See decision of the Portuguese Supreme Court of Justice of 10 July 2008, decisions of the “Supremo Tribunal de Justiça”, Ref. 08A1698, and decision of the Lisbon Court of Appeal of 29 November 2007, decisions of the “Tribunal da Relação de Lisboa”, Ref. 5159/2007-2)

Significantly, in this case both the Lisbon Court of Appeal and the Portuguese Supreme Court of Justice addressed an issue arising from a penalty that the respondent had been ordered to pay to the claimants by an arbitral tribunal seated in Lisbon. In this case, the claimants and the respondent had entered into a shareholders’ agreement that, among other things, set forth a supplementary capital payment to be made by each shareholder, coupled with a penalty due from any defaulting shareholder. This penalty was to be twice the amount of the supplementary capital payment due. The respondent failed to timely make the additional payment of around € 2,340,000, which was eventually made 15 days after the expiry of the deadline. The claimants initiated arbitration seeking, inter alia and as an alternative to other remedies, the payment of twice such supplementary capital payment (i.e. € 4,680,000). The arbitral tribunal considered the amount resulting from the penalty clause excessive and thus reduced the amount due to the claimants to half that amount (i.e. the original € 2,340,000). The respondent subsequently initiated proceedings aimed at annulling the arbitral award and contended, inter alia, that the “penalty clause” at hand was in violation of the public policy of the Portuguese State. Both the Lisbon Court of Appeal and the Supreme Court of Justice decided that such a stance did not imply a violation. The courts were also asked to consider whether such a clause was a true “penalty clause” or rather a “liquidated damages” clause, and refused to do so because such analysis would force them to look at the merits of the case, which was prevented by law. By the same token, the courts refused to consider whether an “excessive” penalty clause would be in violation of the public policy.

4. This background would seem to show that a penalty clause does not violate the public policy of the Portuguese State, let alone its “international public policy”, which is narrower than the mere “domestic public policy”. However, a recent decision of the Supreme Court of Justice indicates otherwise.

5. Indeed, in its decision made on 14 March 2017, the Portuguese Supreme Court of Justice addressed the question whether a “penalty clause” inserted in the articles of association of an Iberian law firm would entail a violation of the “international public policy” of the Portuguese State. (See decision of the Portuguese Supreme Court of Justice of 14 March 2017, decisions of the “Supremo Tribunal de Justiça”, Ref. 103/13.1YRLSB.S1)

The Iberian law firm in question was subject to a set of contractual regulations, namely an “Agreement for the Professional Integration and Regulation of the Corporate Relationships of the Law Firm C” and its “Articles of Association”, both containing a penalty clause set forth for, inter alia, the breach of “non-competition” and “non-solicitation” obligations, binding its associated and partner lawyers, along with a clause providing for arbitration in Barcelona. The penalty clause provided that a partner in violation of these obligations would be bound to pay compensation of three times the value of the amounts paid in the last three years to the lawyers implicated and an additional compensation of three times the value of the amounts invoiced to the clients involved in the solicitation in the previous three years. In the case at stake, the outcome of applying the penalty clause was a total amount of over € 4,900,000, which was equivalent to more than 25 years of that partner’s income. This penalty clause was upheld by a sole-arbitrator, who decided the case in absentia of the former lawyer-partner in question. This Portuguese partner then resisted the recognition in Portugal of the arbitral award at stake, claiming that such recognition would be in violation of the international public policy of Portugal. The case eventually reached the Supreme Court.

6. Laying down the foundations of the standards applicable to the “international public policy”, the Supreme Court started by noting that the said public policy is formed by principles underpinning the legal order, and that are part of the Constitution itself and of the Acquis Communautaire, especially those protecting fundamental rights such as good faith, “bonos mores”, prohibition of abuse of rights, proportionality, prohibition of expropriation and discriminatory measures, prohibition of penalties in civil matters, and basic principles and rules of competition, both of domestic and European source.

The Supreme Court went on to consider that while those principles are subject to stricter constraints (that is, to a narrower understanding) when applied to the recognition of foreign arbitral awards, this recognition may never result in a manifest disregard of the international public policy. According to the Supreme Court, such disregard occurs when the indemnity awarded comes to a disproportionate amount that blatantly clashes with the Portuguese “bonos mores”, with the principle of good faith, and with the principle of proportionality (or prohibition of excess). Further, such recognition may never result in a restriction of fundamental constitutional rights such as the right of freedom of professional choice, and the freedom of economic initiative.

The Portuguese Supreme Court of Justice thus refused to grant recognition of the foreign arbitral award at hand.

7. There remain no doubts that regarding the potential barring of recognition of a foreign arbitral award, the “international public policy” (of the Portuguese State) must be assessed considering the outcome of that recognition. It is nevertheless disturbing to learn that, in the first case (annulment of an arbitral award), the Supreme Court was very scrupulous regarding looking at the contents of the award that ordered the respondent to pay a penalty, even though there was no evidence that the creditors of such clause (the claimants) had been harmed by a 15-day delay in making a supplementary capital payment, while, in a similar situation, the Supreme Court showed no reluctance in going into the merits of the case only to find the outcome of the foreign arbitral award in manifest contradiction with the “international public policy” of the Portuguese State.

At the same time, the outcome of these two cases is a paradox. In fact, the “international public policy” standards are much narrower when it comes to denying the recognition of foreign arbitral awards—and therefore this bar applies to a substantially lower number of cases—when compared to the standards applicable to the annulment of awards that might contradict the (merely domestic) public policy. Yet, in a case concerned with the recognition of a foreign arbitral award, the Supreme Court used a broader understanding of what amounts to a violation of the “international public policy”.

The least we could posit is that it ought to be the other way around.

Or was it just a matter of value—and if so, what value is it then acceptable to find as not being in violation of the “public policy”? The answer seems hard to find.

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The Call to Remove Unilateral Appointments: Seven Years On

Sun, 2017-07-02 20:50

Andrew Battisson and Cheryl Teo

YSIAC

In April 2010, Professor Jan Paulsson delivered his inaugural lecture as holder of the Michael R. Klein Distinguished Scholar Chair at the University of Miami School of Law where he expressed the view that the practice of unilateral appointments (or nominations) of arbitrators is a moral hazard which should be removed. This lecture sparked debate amongst commentators as to whether the practice of unilateral appointments of arbitrators should be abolished.

Seven years on, arbitration users have responded to Professor Paulsson’s call for the practice of unilateral appointments to be removed with a resounding no: far from being removed, the practice of unilateral appointments remains standard practice in international arbitrations.

Whether the practice of unilateral appointments should be allowed to remain in international arbitrations turns on two key questions:

• Whether unilateral appointments undermine the legitimacy of the arbitral process and its outcome in the eyes of the parties; and
• Whether there are sufficient safeguards to protect against the risk of partiality and bias by unilaterally-appointed arbitrators.

Unilateral appointments enhance, not undermine, the legitimacy of the arbitral process and its outcome

Professor Paulsson argued that “unilateral appointments are inconsistent with the fundamental premise of arbitration: mutual confidence in arbitrators”. According to Professor Paulsson, unilateral appointments result in the appointment of arbitrators who are not trusted by both sides. On the other hand, where each arbitrator is chosen jointly by the parties or appointed by a neutral institution, each arbitrator “is invested with an equal measure of confidence and an equal claim to moral authority”.

But it seems doubtful that “an equal measure of confidence and an equal claim to moral authority” (even if that could be achieved by joint appointment or appointment by a neutral institution, which is itself doubtful) necessarily translates to greater confidence in the tribunal or in the arbitral process as a whole.

As a number of commentators have observed, party involvement in the appointment of arbitrators ensures that the parties are invested in the creation of the tribunal, which legitimises the decision-making process in the eyes of the parties (see, for example, Charles N. Brower & Charles B. Rosenberg, The Death of the Two-Headed Nightingale: Why the Paulsson-van den Berg Presumption that Party-Appointed Arbitrators are Untrustworthy is Wrongheaded, Arbitration International, 2012, Vol. 29, No.1, pp 7-44).

The following are just some of the examples which indicate a clear preference for unilateral appointments by arbitration users.

• According to the 2012 International Arbitration Survey by Queen Mary University of London, 76% of the respondents (comprising private practitioners, in-house counsel and arbitrators) said that for three-member tribunals, they prefer for the two co-arbitrators to be selected by each party unilaterally. This method of selection was favoured by all three categories of respondents, but notably more by private practitioners (83%) than by in-house counsel (71%) and arbitrators (66%).

• According to the 2015 International Arbitration Survey by Queen Mary University of London, respondents ranked “selection of arbitrators” as the fourth most valuable aspect of arbitration (with the three most valuable aspects of arbitration being “enforceability of awards”, “avoiding specific legal systems/national courts” and “flexibility” (in decreasing order)).
• Under the LCIA Rules, the default rule is that all arbitrators are selected and appointed by the LCIA Court, unless the parties agree otherwise. The LCIA statistics show that parties agreed to depart from the default rule in the majority of cases: of the 469 appointments made by the LCIA in 2016, only 197 (or 39% of the total appointments) were selected by the LCIA Court (with the other appointments selected by the parties or co-arbitrators) (see the LCIA Facts and Figures 2016).

Professor Paulsson himself recognised that the practice of unilateral appointments is “popular, in the sense of being perceived as a valuable opportunity on which many parties insist” (see Jan Paulsson, Are Unilateral Appointments Defensible?, Kluwer Arbitration Blog, 2 April 2009).

If arbitration users consider the practice of unilateral appointments to be a valuable aspect of arbitration and insist on it, how then can it be said that this practice undermines the legitimacy of the arbitral process or its outcome?

Further, in a later article published in 2013, Professor Paulsson appeared to have no objection to unilateral appointments where parties have expressly stipulated that there should be unilateral appointments. Professor Paulsson clarified that his proposal was merely that the “default rule (to be applied whenever the parties have neither jointly nominated the entire tribunal nor expressly stipulated that there are to be unilateral appointments) should be that all arbitrators are appointed by the neutral appointing authority” (see Jan Paulsson, Must we Live with Unilaterals?, ABA Section of International Law, 2013, Vol. 1, Issue 1, pp 5-9).

This appears to be a shift from Professor Paulsson’s original position. Consider the following situations where three arbitrators are to be appointed (and the parties are properly advised):

• There is an express agreement to arbitrate under rules which default procedure is that each party is entitled to nominate an arbitrator (for example, the ICC Rules or the SIAC Rules) and no express agreement by the parties to the contrary.
• There is an express agreement to arbitrate under rules which default procedure is that all three arbitrators are to be appointed by the institution (for example, the LCIA Rules) and an express agreement, contrary to the default procedure, that each party is entitled to nominate an arbitrator.

Is there really a material difference between these two situations, such that unilateral nominations in the former situation should not be allowed whilst unilateral nominations in the latter situation should be allowed? I think not: an agreement to arbitrate under particular rules is an agreement on the default procedure of appointment under those rules. In both cases, the parties, with the benefit of legal advice, agreed that each party shall be entitled to nominate a co-arbitrator. Indeed, in both cases the principle of party autonomy dictates that the parties’ agreement that the co-arbitrators are to be selected by unilateral nominations must be upheld.

Safeguards against bias and partiality

Professor Paulsson argued that parties exercise their right of unilateral appointment with the overriding objective of winning in view, which results in “speculation about ways and means to shape a favourable tribunal, or at least to avoid a tribunal favourable to the other side”.

In a similar vein, Professor Martin Hunter wrote: “when I am representing a client in an arbitration, what I am really looking for in a party-nominated arbitrator is someone with the maximum predisposition towards my client, but with the minimum appearance of bias” (Martin Hunter, Ethics of the International Arbitrator, 53 Arbitration 219, 1987, pp 222-223). This is admittedly an honest and largely accurate description of the approach which many take when looking for a party-appointed arbitrator.

But there is little (beyond anecdotal) evidence of a material risk of bias and/or partiality by party-appointed arbitrators. In any event, contrary to Professor Paulsson’s view that existing checks and balances are inadequate to guard against the “menace” of unilateral appointments, I believe that there are sufficient safeguards (both formal and informal) to protect against the risk of bias and partiality by party-appointed arbitrators.

• First, most institutional rules require arbitrators to disclose any circumstances that may give rise to doubts as to the arbitrator’s impartiality and/or independence.
• Second, most institutional rules allow parties to challenge and remove an arbitrator if circumstances exist that give rise to doubts as to the arbitrator’s impartiality and/or independence.
• Third, an award may be challenged if the tribunal has failed to act fairly and impartially (under the English Arbitration Act) or if a party has been denied its right to be heard (under the UNCITRAL Model Law and most national arbitration laws).
• Lastly and importantly, the other members of the tribunal are helpful and effective checks against any improper behaviour by a party-appointed arbitrator which may not be apparent to the parties (for example, attempts by a party-appointed arbitrator to improperly influence the decision of the tribunal during the tribunal’s deliberations). It is unlikely that such behaviour would go unnoticed by the other members of the tribunal (unless such behaviour is so subtle as to go unnoticed, in which case its effect on the decision of the tribunal would be highly questionable). It is not simply that the other members of the tribunal may exclude a biased and partial arbitrator from its deliberations. Indeed, such exclusion would itself be improper. Rather, arbitral rules could provide for a procedure by which members of the tribunal may bring to the attention of the parties and/or the institution any improper behaviour which constitutes impermissible bias or partiality by any member of the tribunal. The parties and/or the institution may then take the appropriate steps to remedy the situation.

Conclusion

There is admittedly some truth to the criticisms which have been levelled against the practice of unilateral appointments. However, I believe that abolishing the practice of unilateral appointments would be an overreaction to these criticisms. It would also undermine the principle of party autonomy, which is undeniably the cornerstone of international arbitration. We should have a little more faith in the decision of parties on their preferred method of constituting a tribunal, the ability of arbitrators to abide by their duties, and the safeguards which protect the arbitral process from impermissible bias and partiality.

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Enforcement of Mediated Settlement Agreements in Vietnam: A Step Forward the International Trend?

Sat, 2017-07-01 23:06

Nguyen Manh Dzung and Dang Vu Minh Ha

Young ICCA

On 24 February 2017, the Government of Vietnam promulgated Decree No.22/2017/ND-CP on Commercial Mediation (the “Decree”). It is the first legislation specifically governing commercial mediation in Vietnam. The Decree is inspired by the UNCITRAL Model Law on International Commercial Conciliation (the “UNCITRAL Model Law”), but includes several local modifications. From the drafting process, the Decree has attracted the attention and comments of experts and practitioners not only from Vietnam but also from the international community.

Furthermore, Vietnam also recently introduced an effective regime for the enforcement of mediated settlement agreements, one of the most critical issues of mediation. It is secured by the regulations on recognition of results of out-of-court mediation (mediated settlement agreements) in Chapter 33 of the 2015 Vietnamese Civil Procedure Code (the “CPC”).

Beyond the national level, the EU-Vietnam Free Trade Agreement (the “EVFTA”), which is regarded as the most comprehensive and ambitious FTA that the EU has ever concluded with a developing country, also dedicates a considerable role to the mediation of both state-state and investor-state disputes.

Considered altogether, will these legal frameworks create firm ground for the rise of mediation in Vietnam?

Disputes allowed to be settled by commercial mediation

Mediation is a brand-new issue for the legislators in Vietnam. In lack of a pre-existing mediation law, the Decree is therefore instead significantly influenced by the 2010 Vietnamese Law on Commercial Arbitration (the “LCA”). In particular, similar to the scope of application of the LCA, the Decree stipulates that mediation shall only be applicable for disputes of a commercial nature, disputes in which at least one party is engaged in commercial activity or disputes specifically designated by other laws to be settled by commercial mediation. Under Vietnamese law, “commercial activities” means activities for the purpose of generating profits, including the sale and purchase of goods, provision of services, investment, and commercial promotion. Presently, only disputes falling within this scope can be settled by commercial mediation. Though the scope of application of the Decree is narrower than foreseen in the UNCITRAL Model Law, it can cover almost all current common commercial disputes. Additionally, it is expected that the sphere of application will be expanded in the near future with the amendment of the Vietnamese Law on Commerce as well as other substantive laws. These will most likely specifically designate further kinds of disputes for resolution through mediation.

Qualifications of mediators, practice of foreign mediators and presence of foreign mediation institutions in Vietnam

The Decree set out quite strict qualifications for mediators. Specifically, apart from general moral standards, mediators must have a university or higher qualification and at least two years of working experience in their educated discipline. Furthermore, mediators are required to have mediation skills as well as legal understanding, knowledge of business and commercial practice. These requirements are similar to those applicable to arbitrators under the LCA. Despite these strict requirements, the Decree lacks an accreditation system for meditators.

The Decree on Commercial Mediation promotes both institutional and ad-hoc mediation. Accordingly, mediators can choose to be listed on the panel of a mediation centre or practise independently as ad-hoc mediator or both.

Though there is no explicit restriction on the nationality of mediators, the Decree imposes a technical barrier requiring ad-hoc mediators to register with the Department of Justice where they reside. As a result, the opportunity for foreign mediators to personally practise in Vietnam may be restricted. Presently, it therefore appears that the selection of an adequate mediator may be a hard task for disputing parties as well as their counsel since the persons meeting the requirements of the law may not be as skilful and experienced as internationally accredited mediators. However, influenced by the LCA and in compliance with the commitment of Vietnam in accession to the WTO, the Decree also encourages foreign mediation institutions to open branch or representative offices in Vietnam. Furthermore, the branch offices of international mediation centres can establish their own panels of mediators provided that the mediators meet the general qualifications specified by the Decree. We expect that these regulations will facilitate international mediation centres to explore the Vietnamese mediation market.

Recognition of mediated settlement agreements

The enforceability of mediated settlement agreements is maybe the most important factor contributing to the success of mediation. Accordingly, in order to safeguard the enforceability of mediated settlements, Vietnamese law provides a mechanism for the recognition of mediated settlement agreements, which converts the agreements into court judgments.

The written mediated settlement agreement, on the one hand, will be valid and have binding effect on the disputing parties in accordance with the provisions of civil law. On the other hand, pursuant to the Decree and Chapter 33 of the CPC one or both parties to the mediated settlement agreement can apply to the courts for the recognition of their agreement. After being recognized, the mediated settlement agreement is enforceable as a full and final court judgment in compliance with the Vietnamese Law on the Enforcement of Civil Judgments. However, this recognition mechanism only applies for settlement agreements resulting from mediations conducted under the provisions of the Decree. Hence, the results of mediations conducted by foreign mediation centres such as the Singapore International Mediation Center (SIMC), the Center for Effective Dispute Resolution (CEDR), etc. are presently not be covered by these regulations.

The Vietnamese regulations mirror Directive 2008/52/EC of the European Parliament and Council of 21 May 2008 on Certain Aspects of Mediation in Civil and Commercial Matters, especially its Article 6 on the enforceability of agreements resulting from mediation.

With these regulations, Vietnam is at the forefront of a new international trend on the enforcement of mediated settlement agreements. In future, this trend may well lead to an instrument, most favourably in form of an international convention, on the enforcement of international commercial settlement agreements resulting from mediation, which could have a similar effect as the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The draft of such a Convention is currently the main topic of discussion in Working Group II of the UNCITRAL (Agenda of Working Group II of the UNCITRAL http://www.uncitral.org/uncitral/en/commission/working_groups/2Arbitration.html accessed on 15 May 2017).

Investment Mediation

Apart from building the framework for commercial mediation, with the EVFTA Vietnam also entered into one of the very first new generation free trade agreements promoting and detailing the settlement of investment dispute through mediation. Under the EVFTA, at any time during the settlement of an investor-state dispute, any disputing party can invite the other party to conduct mediation in accordance with the procedure stipulated therein.

The specific regulations on mediation included in the EVFTA demonstrate the special attention given by the legislators in Europe and Vietnam to dispute resolution through mediation, which is apparently gradually becoming a favourable new trend in the world. Consequently, we believe that this trend will also positively affect and further help the development of commercial mediation in Vietnam.

Conclusion

It is apparent from the above that both commercial mediation and investment mediation in Vietnam have received due attention from legislators and are now provided with a sound legal framework, which will be the cornerstone for its future development. Despite certain drawbacks, it can be expected that the new legislation will bring mediation in Vietnam closer to the standards of international practice and will help it to become an effective method of dispute resolution for the business community. In addition, we expect that the new legislation on mediation will actually support rather than pose competition to arbitration, as it will enhance the usage of multi-tiered dispute resolution and strengthen the pro-ADR policy of the Vietnamese government. Accordingly, we have the strong belief that mediation will flourish in Vietnam in the near future due to its facilitation by the new legal framework as well as the support from the Vietnamese courts and government.

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The Annulment of Interstate Arbitral Awards

Sat, 2017-07-01 05:30

Peter Tzeng

On Thursday, the arbitral tribunal in Croatia/Slovenia rendered a final award on the merits of the dispute despite what a previous post on this blog called “severe breaches of duty of confidentiality and impartiality” during the arbitral proceedings. In commercial and investment arbitration, where procedural irregularities arise, either party can seek annulment of the award before an annulment body, such as a national court or an ICSID ad hoc committee. In other words, commercial and investment arbitral awards are subject to a compulsory control mechanism. The case of Croatia/Slovenia, however, is an interstate arbitration. Two questions thus arise. First, as a matter of lex lata, are interstate arbitral awards subject to a compulsory control mechanism? Second, as a matter of lex ferenda, should interstate arbitral awards be subject to such a mechanism? This post addresses these two questions in turn.

Lex Lata

As a matter of lex lata, interstate arbitral awards are not subject to a compulsory control mechanism. This might seem obvious to many readers. After all, as a matter of practice, States very rarely seek the annulment of interstate awards. The only two modern cases where States have done so, Arbitral Award Made by the King of Spain (Honduras v. Nicaragua) and Arbitral Award of 31 July 1989 (Guinea-Bissau v. Senegal), are both cases where the parties consented to the jurisdiction of the International Court of Justice (ICJ) to settle the dispute. Absent such consent, States simply do not seek the annulment of interstate arbitral awards.

This practice is in line with the legal framework governing interstate arbitration. One might wonder why there is no compulsory control mechanism for interstate awards, but there is for commercial and non-ICSID investment awards (i.e., annulment at the national courts of the seat of arbitration). After all, commercial, non-ICSID investment, and interstate arbitration all have quite similar legal frameworks. In all three, the arbitral award is “final and binding”. In all three, State entities can be parties to the arbitrations. And in all three, the arbitral tribunal is often seated in a national jurisdiction where the national law expressly grants national courts the power to annul international arbitral awards. So why are national courts able to annul commercial and non-ICSID awards, but not interstate awards? To be more concrete, as Croatia/Slovenia is seated in Belgium, why can’t Croatia go to Belgian courts to annul the award rendered on Thursday?

One commonly cited reason is that interstate arbitral awards are completely “delocalized”: they are subject only to public international law, not to any national law, so it would be absurd for national courts to have the power to annul them. Nevertheless, there are two important counterarguments to consider. First, many scholars argue that commercial and non-ICSID arbitral awards are similarly “delocalized”, but they are undoubtedly subject to annulment (the effect of the annulment on enforcement is another question). And second, interstate arbitrations today, like commercial and non-ICSID arbitrations, generally have a seat of arbitration, so it would be inaccurate to argue that they are completely detached from national jurisdictions.

A more practical reason why national courts cannot annul interstate arbitral awards is State immunity. Indeed, in Chagos Marine Protected Area (Mauritius v. United Kingdom), the United Kingdom invoked State immunity to counter Mauritius’s claim that the award could be annulled by Dutch courts (Reasoned Decision on Challenge, para. 117). Article 5 of the United Nations Convention on Jurisdictional Immunities of States and Their Property (which has not yet entered into force, but largely reflects customary international law) provides that “a State enjoys immunity … from the jurisdiction of the courts of another State subject to the provisions of the present Convention”. The provision concerning arbitration, Article 17, provides that “a State cannot invoke immunity … in a proceeding which relates to … the setting aside of the award”, but the provision applies only to arbitrations where (1) the arbitration agreement is between the State and “a foreign natural or juridical person”; and (2) the dispute is one “relating to a commercial transaction”. As a result, Article 17 applies to commercial and investment arbitrations. Nevertheless, as the ILC Commentary makes clear (p. 55), Article 17 does not apply to interstate arbitrations because (1) the arbitration agreement is formed between States; and (2) interstate disputes often (though not always) concern sovereign rights rather than commercial transactions. Article 12 of the European Convention on State Immunity (which has entered into force, but is not widely ratified or acceded to) contains the same two requirements.

Whether one agrees more with the first reason, the second reason, or perhaps another reason not mentioned above, the conclusion is the same: as a matter of lex lata, interstate arbitral awards are not subject to a compulsory control mechanism.

Lex Ferenda

As a matter of lex ferenda, in the opinion of the present author, interstate arbitral awards should be subject to a compulsory control mechanism. The policy debate concerning the propriety of annulment centers around the reconciliation of two principles: finality and fairness. On the one hand, arbitral awards should be final, such that a dissatisfied party cannot relitigate the dispute simply because it disagrees with the outcome. On the other hand, arbitral awards should be fair, such that a dissatisfied party can relitigate the dispute if there are legitimate reasons for doing so.

In commercial and investment arbitration, this balance between finality and fairness has been struck in the mandates of annulment bodies. In order to promote fairness, the rules governing commercial and investment arbitration (e.g., the ICSID Convention, the UNCITRAL Model Law, and national laws) provide for annulment as a compulsory control mechanism. In order to promote finality, these rules set forth very limited grounds for annulling arbitral awards, which are generally procedural rather than substantive. Although one cannot conclude that this balance is perfect, it is widely accepted.

In interstate arbitration, the balance has been struck with greater emphasis on finality. This is because, although the annulment of interstate awards remains a possibility, there is no compulsory control mechanism. One can argue that finality is more important in interstate arbitration because the continued existence of interstate disputes can lead to serious consequences like the loss of life (e.g., in territorial boundary disputes featuring armed conflict). Nevertheless, Croatia/Slovenia and South China Sea (Philippines v. China) both show that concerns over fairness can also arise, and where these concerns are not addressed, even a “final” award will not be treated as final by all the parties, such that the aforementioned serious consequences can still arise.

Indeed, there are at least two reasons why a compulsory control mechanism for interstate awards would be desirable. First, there needs to be an impartial forum to determine whether procedural irregularities have occurred. In South China Sea, China expressed serious concerns not only over the jurisdiction of the tribunal, but also over its composition and constitution, yet no impartial forum could hear this claim on a compulsory basis. In the two most recently filed UNCLOS arbitrations Enrica Lexie (Italy v. India) and Ukraine v. Russia, similar concerns could arise regarding the propriety of the appointing authority’s self-appointment, yet again no compulsory impartial forum can hear the claim. Second, there needs to be an impartial forum to determine the consequences of procedural irregularities. In Croatia/Slovenia, there is no question that procedural irregularities occurred, but there is no compulsory impartial forum to determine their consequences.

Although the arbitral tribunal itself could be the one to decide on these matters (as the Croatia/Slovenia tribunal did in its Partial Award of 30 June 2016), under the principle of nemo judex in causa sua, the tribunal should not be the one, or at least not the only one, deciding on the consequences of its own procedural irregularities. Doing so not only undermines the legitimacy of the arbitral award, but also may lead the dissatisfied State to unilaterally declare that the award is “null and void”, as China did in South China Sea, or that the arbitration simply “does not exist”, as Croatia did in Croatia/Slovenia.

Conclusion

In conclusion, interstate arbitral awards are not subject to a compulsory control mechanism, but, in the opinion of the present author, they should be. On a practical level, how could this compulsory control mechanism be established? First, as a matter of customary law, one could envisage an evolution of the law of jurisdictional immunity so as to extend the exception contained in Article 17 of the United Nations Convention on Jurisdictional Immunities of States and Their Property to interstate arbitrations, such that at the very least State immunity could not be invoked in interstate annulment proceedings. Second, as a matter of conventional law, States could come together to conclude a multilateral convention that provides for a compulsory control mechanism for interstate arbitrations between State parties, as has been proposed at least once in the past. Third, as a matter of State practice, States could simply begin to offer to accept the jurisdiction of the ICJ on the basis of forum prorogatum for disputes over the validity of interstate arbitral awards.

The views expressed in this post are solely those of the author, and do not necessarily reflect the views of any institution with which the author is affiliated. The author (LinkedIn, SSRN) may be contacted at [email protected]

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Seven Trends and Seven Tips for Enforcing GAFTA and FOSFA Awards in Ukraine

Fri, 2017-06-30 03:14

Ivan Kasynyuk and Olga Kuchmiienko

The analysis of Ukrainian court practice enables us to share our thoughts on trends regarding the recognition and enforcement of GAFTA/FOSFA awards in Ukraine, and to provide tips that may help to enforce this type of awards in the future.

Seven Trends on the Recognition and Enforcement of GAFTA/FOSFA Awards in Ukraine

1. Ukrainian courts adhere to the New York Convention.

But it takes time…

Statistically, an award is passed through seven court hearings at different instances before being recognized in Ukraine, despite Ukrainian legislation, which allows to recognize an award at the first instance hearing.

E-mail communication is acceptable.

Courts recognized and enforced an arbitral award even when an arbitral agreement as well as a main contract were concluded via e-mail, or when an arbitration notice was sent by e-mail.

2. Ukrainian courts tend not to interfere in the merits of awards.

Our research showed that only once a lower court’s decision analyzed the merits in an award. The decision was subsequently cancelled by a higher court, finding it to be in contradiction to the New York Convention and Ukrainian legislation.

3. The cases on recognition and enforcement of GAFTA/FOSFA awards are frequently revised by higher courts.

Out of about 80 court decisions in 11 cases on the recognition and enforcement analyzed in the research, 63% of them were revised by higher courts. In most cases, a decision was changed or the case was remitted to the first instance for revision.

4. The standing of a party claiming enforcement is regularly assessed by courts.

Almost 20% of the claims for the recognition and enforcement of arbitral awards were rejected because they were filed by a claimant who did not have standing before an arbitral tribunal. For instance, recognition and enforcement was sought by a person that is not a party to an arbitration agreement (Budtechimport LLC vs Prodexim LLC) or to an assignment agreement (Euler Hermes Services Schweiz AG filed a claim against Odessa oil-fat combine PJSC).

5. The court enforces an award if the debtor is registered or has a property within the territory of Ukraine.

In the case Nibulon S.A. vs BSC CmbH, the defendant was not a registered entity in Ukraine, but an Austrian company. It did not have any property in Ukraine, and hence the Ukrainian court refused to decide the case. Interestingly, Nibulon S.A. provided the court with an alleged address of the debtor that appeared to be the office of Nova Capital LLC, registered in Ukraine. It arose that debtor had never been registered there (and in Ukraine as well) and did not have any connections with Nova Capital LLC. Therefore, since the claimant did not prove that the property belongs to the debtor, awards were not recognized.

6. The claimant may seek an interim relief in the proceedings for recognition and enforcement of an arbitral award.

Securing a claim is allowed at any stage of proceedings (even before filing a claim), if the failure to secure such a claim may complicate or prevent the enforcement of the award. As mentioned above, the creditor may seek enforcement in Ukraine provided that the debtor is registered, has assets, or cargo in Ukraine. However, it should be noted that when a claim is considered by the third instance court, i.e. Higher Court/Supreme Court, the court is not empowered to grant an interim relief.

7. The practice on compound interest enforcement is not uniform.

There is no uniform practice on whether a compound interest prescribed by an award must be compensated, although for already some time, Ukrainian courts have been enforcing arbitral decisions awarding compound interest.

Examples of decisions enforcing such awards are as follows:

a) a court decision in the case № 4с-410/2563/12 stated that it “[a]llow[s] to enforce the arbitration award of GAFTA dated July 21, 2011 №14-329”, without any details provided as to a particular sum of interest;

b) a court decision in the case № 127/4348/13-ц enforcing the original award, followed by the claimant asking the court to define a particular amount of interest. The court defined the amount then in an additional decision, rendered as an integral part of the recognition and enforcement decision;

c) a court decision in the case № 2521/930/2012 citing the resolution of an award with the following words added: “that constitutes [money equivalent of the compound interest at the date of the decision]”. In particular, the court inserted into its decision the precise sum of compound interest, calculated on the date of making the decision by applying the formula of compensation prescribed by the award.

However, the approach may be changed.

Notably, the Kyiv Court of Appeal held in the Order dated 23.02.2017., based on the recent decision of the Supreme Court dated 26 October 2016, stated that:

“[…] when a foreign arbitral award containing an obligation of the debtor to compensate compound interest, the precise amount of which is not defined, then there are no legal grounds to enforce the decision. Given that claimant requests such interest and in the absence of the court`s or other authority’s power to change the claimant`s request, there is no possibility for a partial enforcement of a decision. Otherwise, it would contradict subpara. b of para 2, Art. V of the New York Convention and paragraph. 6 of Article 396 of Civil Procedure Code of Ukraine.”

At this point of time, the decision is waiting for another revision of the higher court. Therefore, the issue of enforcement of GAFTA/FOSFA awards containing compound interest is currently left open.

Seven Tips: In What Way May Claimants Enhance Their Chances of Enforcement of GAFTA/FOSFA Awards?

The above outlined trends underline seven tips regarding how to avoid obstacles and successfully enforce arbitral decisions:

  1. A claim must be filed by a company mentioned in the recital of an award, or a company that obtained this right under an assignment agreement. Preferably, an assignment agreement would be concluded after the date of the arbitral award. Otherwise, the court may refuse the claimant in recognition since “the assignment agreement precedes the award”.
  2. Special attention should be paid to the evidence that the arbitral award came into force, i.e. that it is valid and final. In terms of such evidence, the extract from GAFTA/FOSFA arbitration rules or a letter from an arbitration institution that this particular award came into force would assist.
  3. The debtor must be registered or have property within the jurisdiction of the court before which the enforcement claim is brought.
  4. If there is a strong indication that the claim will be successful and there is a risk of dissipating the assets on the debtor’s side, it makes sense to ask the court for interim measures. Ukrainian courts are not reluctant to grant such measures. However, it should be noted that shall the interim measure be found as exercised without sufficient legal grounds, the claimant must afterwards compensate for all damages to the other party caused by a granted measure. In such a case, the court decision on interim measures is to be cancelled by the higher court.
  5. A claimant should be prepared for long-lasting procedures since there is a risk that the case will pass through all instances. The whole process may last from one and a half up to two years depending on the number of hearings, appeals, and new trials.
  6. It is advisable to send an arbitral agreement and notices via the same e-mail.
  7. A claim for enforcement and an arbitral award are to be in compliance with the New York Convention.

Conclusion

Overall, the approach of Ukrainian courts may be characterized to be pro-arbitration and in accordance with the international practice.

At the same time, there are not so many cases for the recognition and enforcement of GAFTA/FOSFA awards in Ukrainian courts. The reasons for noted results may be different: GAFTA/FOSFA awards against Ukrainian companies are enforced voluntarily; debtors that have Ukrainian beneficiaries and staff are incorporated in other jurisdictions; creditors do not start the proceedings because they do not believe that they will be successful due to the dissipation of debtor`s assets, or corruption in Ukrainian courts.

Then again, statistics are speaking for themselves: 50% of arbitral awards were enforced by means of court procedures during the last seven years. One more case is still in progress (Nibulon vs Rise), which concerns the obligation to pay compound interest. At this point in time, it is hard to predict the outcome of the proceedings.

***

To sum up, if the trends in Ukrainian justice on recognition and enforcement were synonymous to the fashion ones, we would recommend claimants to: choose the classic style, but keep an eye on the new winds of changes.

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Urgency, Irreparable Harm and Proportionality: Seven Years of SCC Emergency Proceedings

Thu, 2017-06-29 03:29

Anja Havedal Ipp

SCC was one of the first institutions to provide for emergency arbitrator proceedings in its rules. In 2010, the new Appendix II was added to the SCC Arbitration Rules and the Rules for Expedited Arbitrations (“SCC Rules”), allowing a party in need of prompt interim relief to receive a decision from an emergency arbitrator where no tribunal had yet been constituted. In the seven years that have passed since the introduction of Appendix II, the SCC has seen almost 30 applications for the appointment of an emergency arbitrator, with 13 of those received in 2016 alone. A recently published SCC Practice Note summarizes the 2015-2016 emergency arbitrator proceedings, and draws some conclusions based on all decisions rendered to date.

In all emergency proceedings that took place in 2015 and 2016, the SCC appointed and referred the dispute to an emergency arbitrator within 24 hours of the claimant submitting its application. Under the SCC Rules, the emergency arbitrator should render a decision on interim measures within five days from the date when the application was referred to him or her. A brief extension may be necessary for both parties to have an opportunity to be heard. In 2015 and 2016, half of the emergency arbitrator decisions were rendered within the five-day deadline, and the remaining half were rendered within seven days.

The SCC Rules do not specify the grounds or conditions for interim relief, but rather give the emergency arbitrator broad discretion to “grant any interim measures it deems appropriate”. The decisions rendered in SCC emergency arbitrations now make up a significant body of jurisprudence with regard to that discretion. Most, but not all, emergency arbitrators refer to Article 17 of the UNCITRAL Model Law, as well as the lex arbitri and previously published decisions on interim relief. A set of factors have crystalized and are now commonly accepted as prerequisites for granting interim relief. These factors are: (1) jurisdiction, (2) chance of success on the merits, (3) urgency, (4) irreparable harm, and (5) proportionality.

  • The first factor, prima facie jurisdiction, has rarely been a contested issue in SCC emergency proceedings. That said, some respondents have argued that because the emergency arbitrator provisions were not part of the SCC Rules when the arbitration agreement was signed, they had not consented to submit to emergency proceedings. This argument does not succeed, however, as it is generally accepted that an arbitration clause is deemed to reference the version of the rules in force when the arbitration is initiated. Other respondents have argued that they are not bound by the arbitration agreement. In such cases, the arbitrator makes a preliminary jurisdictional finding based on the limited submissions available within the scope of the emergency proceedings; the definitive jurisdictional determination becomes an issue for the tribunal.
  • The second factor, chance of success on the merits, has been framed in different ways by emergency arbitrators. Some are satisfied if a claimant presents a prima facie case on the merits – a mere showing that the elements of a claim are present. Most arbitrators, however, set a somewhat higher threshold; they require claimant to demonstrate a reasonable possibility of success on the merits. This means that, based on the limited submissions before the emergency arbitrator, the claimant must appear more likely than respondent to succeed on the merits of the claim. For example, if the decision turns on an issue of contract interpretation, the claimant must show that its interpretation is somehow more plausible or more likely to prevail than the interpretation proposed by the respondent.
  • The urgency and irreparable harm requirements are frequently discussed together. Some arbitrators do not consider urgency to be a separate factor, but rather that it is inherent in the requirement that the interim measures are necessary to avoid irreparable harm. Another way of framing this is that irreparable harm is a measure of urgency; if the claimant is likely to suffer irreparable harm before a final award is issued, the request for interim measures is necessarily urgent. Most emergency arbitrators, in measuring urgency or risk of irreparable harm, analyze whether the harm may be compensable by way of damages. If the harm that claimant seeks to avoid can be adequately compensated by an award of damages, most arbitrators find that interim relief is not warranted.
  • Lastly, proportionality. Where all other factors are met, emergency arbitrators consider the proportionality of the interim relief by weighing the harm avoided against the potential harm inflicted upon the respondent. If granting the interim measure would cause significant harm to the respondent, the emergency arbitrator is unlikely to grant the applicant’s request.

All emergency arbitrators appointed in 2015-2016 applied some or all of these factors in their analysis of the claimant’s request. This resulted in four requests being granted in full, six being dismissed, and three granted in part.

Not all emergency proceedings lead to regular arbitral proceedings. In some cases, the parties appear to settle the dispute after the emergency decision is rendered; or perhaps the claimant chooses not to pursue the claims in light of the emergency arbitrator’s findings. Without speculating as to the intentions of the claimants that apply for emergency measures, it appears that the emergency arbitrator proceeding provides a procedural tool that can be used for a variety of purposes.

Finally, a few words about enforcement. The SCC occasionally receives information about the compliance with and enforcement of SCC emergency decisions. Based on this anecdotal evidence, it appears that the degree of voluntary compliance with emergency decisions is relatively high. This hypothesis is also supported by the fact that the number of applications for emergency relief has steadily increased in recent years, even though decisions on interim measures remain unenforceable in many jurisdictions.

More information about SCC emergency arbitrator proceedings, and summaries of 14 recent emergency decisions, is available in the recently published SCC Practice Note: Emergency Arbitrator Decisions Rendered 2015-2016.

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Wolters Kluwer Announces Collaboration with Arbitrator Intelligence

Tue, 2017-06-27 23:58

Crina Baltag (Associate Editor)

Wolters Kluwer Legal & Regulatory U.S. today announced its collaboration with Arbitrator Intelligence (AI) to improve resources available to the arbitration community and bring more transparency to the arbitration process.

Through this collaboration, Wolters Kluwer will provide AI’s Arbitrator Intelligence reports on Kluwer Arbitration, making highly valuable data widely available and providing users with important insights throughout arbitrator selection process.

“Wolters Kluwer is delighted to support this important initiative by AI,” said Gwen de Vries, Director of Publishing of the International Group at Wolters Kluwer Legal & Regulatory U.S. “The organization’s mission to make the arbitrator selection process more transparent will benefit the arbitration process, which will ultimately benefit the arbitration community.”

AI is a non-profit, university-affiliated entity that aims to promote fairness, transparency, accountability and diversity in arbitrator selection and appointments. Through its anonymous questionnaire (called the “Arbitrator Intelligence Questionnaire” or “AIQ”), AI collects objective information and professional assessments of arbitrators’ case management skills and decision making. When sufficient feedback is received, AI compiles the anonymized data into individual “Arbitrator Intelligence Reports.”

“As a non-profit start up, we are delighted to work with Wolters Kluwer to improve the arbitrator selection process,” said Catherine Rogers, Founder of Arbitrator Intelligence. “Through this collaboration we hope to make valuable information more accessible to legal professionals in arbitration.”

The Wolters Kluwer International unit recently launched the next generation of Kluwer Arbitration, the world’ leading research solution for international arbitration. With more than 500 arbitration laws, 10,000 court decisions with full analysis, and commentary from more than 300 authors, the site provides legal professionals with market-leading content and fast, accurate research functionality.

To learn more about Kluwer Arbitration, click here.

To learn more about Arbitrator Intelligence, click here.

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Hong Kong Court of First Instance Rejects Crown Immunity Claim by PRC State-Owned Enterprise

Mon, 2017-06-26 20:17

Damien McDonald and Matthew Townsend

HK45

In a judgment dated 8 June 2017, the Hong Kong Court of First Instance (the “Court”) rejected an assertion of Crown immunity by China National Coal Group Corporation (“China Coal”) (a PRC state-owned enterprise (“SOE”)) and granted a charging order against the shares it held in a Hong Kong company, China Coal Hong Kong Limited (TNB Fuel Services SDN BHD v. China National Coal Group Corporation [2017] HKCFI 1016).

The decision provides guidance on the approach by the Hong Kong courts to claims of Crown immunity in Hong Kong by Chinese SOEs.

Crown immunity in Hong Kong

The common law doctrine of Crown immunity arises from the principle that “the sovereign can do no wrong” and provides that a sovereign cannot be sued in the courts of his own country.

In the 2010 case of Hua Tian Long (No. 2) [2010] HKLRD 611 (the “HTL Case”) the Hong Kong Court of First Instance found that the common law doctrine of Crown immunity subsisted in Hong Kong, notwithstanding the handover of Hong Kong to China in 1997. The immunity of the British Crown in the Hong Kong courts was transferred to the PRC State.

Accordingly, the PRC Central People’s Government (“CPG”), the domestic sovereign government of the Hong Kong Special Administrative Region, is entitled to claim immunity from suit and execution in the courts of Hong Kong.

Importantly, Crown immunity does not apply to Hong Kong arbitration (as opposed to litigation). Under Hong Kong law, it is generally accepted to be the position that a State party is bound by its agreement to arbitrate before a Hong Kong arbitral tribunal. However, Crown immunity will still be relevant to Hong Kong-seated arbitrations involving State parties, as it may be necessary to apply to the local courts for interim relief, and/or enforcement of any award.

In the HTL Case, which concerned a claim to Crown immunity by the Guangzhou Salvage Bureau (“GSB”), the court found that the material consideration to determine whether a corporation should be treated as part of the Crown, was the control which the CPG exercised over that corporation. In particular, the key test was “whether the corporation in question was able to exercise independent powers of its own”.

Whilst the “control test” applied in the HTL Case arises from the application of Hong Kong common law, the question of whether the entity in question meets the test will principally be a question of the lex incorporationis, namely PRC law. In the HTL Case, the court found that under PRC law, the GSB was part of the PRC State. However, the court in that case also accepted the submission by counsel for the GSB that the GSB was different from Chinese SOEs which “enjoy powers of independent management and freedom from interference, with ownership of its assets and the capacity independently to assume civil liabilities”.

Factual Background

On 17 December 2014, the Applicant, a Malaysian private company (“TNB”), obtained an arbitral award for approximately US$5.3 million against the Respondent, China Coal (“Award”). The details of the arbitration, including its seat, institution, and rules were not disclosed.

On 10 June 2015, the Court granted TNB leave to enforce the Award. Subsequently, in August 2015, TNB applied for a charging order over shares held by China Coal in China Coal Hong Kong Limited (the “Shares”). In April 2016, TNB successfully obtained an order nisi with respect to the Shares.

China Coal, which is wholly owned by the Chinese government’s State Asset Supervision and Administration Commission (“SASAC”), asserted that, as an entity of the CPG, it was entitled to Crown immunity in Hong Kong.

China Coal invited the Hong Kong Secretary for Justice (“SJ”) to intervene in the proceedings, on the basis that the case raised issues of constitutional importance and public interest.

Judgment

There were two issues to be determined by the Court. The first was whether there had been a valid assertion of Crown immunity by the CPG. The second was, given that an assertion of Crown immunity does not conclusively bind the court, whether the assertion was otherwise valid by reference to the lex incorporationis and the application of the “control test”.

With respect to the first issue, Justice Mimmie Chan decided that China Coal’s assertion of Crown immunity had not been validly made. Specifically, Justice Chan found that China Coal had “failed to show authority to assert Crown immunity on behalf of the CPG, and that no such claim has been validly made on behalf of the CPG”. The only evidential support for this claim came from the affirmation of China Coal’s general legal counsel. However, and significantly, pursuant to the SJ’s intervention, a letter had been obtained from the Hong Kong and Macao Affairs Office of the State Council of the CPG (“the Letter”), the contents of which “signally [defeats China Coal’s] assertion of Crown immunity”.

The Letter, confirmed in general terms that China Coal, as an SOE, is “an independent legal entity, which carries out activities of production and operation on its own, independently assumes legal liabilities and there is no special legal person status or legal interests superior to other enterprises”. The Letter further asserted that, save in certain “extremely extraordinary circumstances where the conduct was performed [by the SOE] on behalf of the state via appropriate authorisation, etc.”, the SOE would not be deemed as a body performing functions on behalf of the CPG.

The Court approached the second issue through addressing two related questions. The first was whether China Coal was part of the CPG and the second whether it was otherwise controlled by the CPG. With respect to the first question, Justice Chan found that “as a matter of fact under PRC law, the Respondent is not part of the CPG, nor SASAC” and was a distinct and independent corporate entity from the CPG.

This finding was made in light of an examination of the material provisions of the PRC Company Law, the PRC Constitution and Assets Law, among other legislation, insofar as they related to SOEs and extensive expert evidence on their meaning and application to China Coal under PRC law.

The Court also observed that the status of China Coal was readily distinguishable from that of the GSB in the HTL Case. In that instance the entity in question was a public institution, not, like China Coal, a separate legal entity. Furthermore, the GSB, unlike China Coal, had no shareholders, no paid-up capital, no right to independently acquire or dispose of assets, and no ability to assume independent civil liabilities.

With respect to the second question and the application of the common law “control test” by reference to the PRC law, Justice Chan determined that “[i]n all, bearing in mind the nature and degree of the control which can be exercised by SASAC on behalf of CPG over [China Coal], [China Coal’s] ability to exercise independent powers of its own, and that its business and operational autonomy are in fact enshrined in and guaranteed under the applicable PRC law, I consider that the Respondent is not entitled to invoke Crown immunity”.

In terms of both questions, the Court held as a matter of PRC law, China Coal “is entitled to independent autonomy in its business operations, and it has not been established that [China Coal] is part of or controlled by the CPG to be entitled to Crown immunity against execution of its assets”.

The Court dismissed China Coal’s assertion of Crown immunity and granted the charging order absolute against the Shares. China Coal was ordered to pay TNB’s and SJ’s costs of the application.

Takeaways

It has been seven years since the handing down of the HTL Case, and the application of the “control test” to determine the existence of Crown immunity under Hong Kong law. The TNB Fuel Services judgment now provides further guidance on the application of that test in Hong Kong, in particular when it comes to SOEs under PRC law. The rationale for the decision, including the detailed analysis of the nature and effect of the PRC statutory provisions governing Chinese SOEs, strongly suggests that such SOEs engaging in commercial activities will face a high bar in claiming Crown immunity in Hong Kong.

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Changes in the Arbitration Law: Greater Certainty for Consumers Comes with Greater Control over Arbitration in Bulgaria

Mon, 2017-06-26 02:20

Velislava Hristova

ArbitralWomen

Since the end of January 2017, a new law amending and supplementing the Code of Civil Procedure became effective (the “Law”). It also provides for amendments to the International Commercial Arbitration Act (“ICAA”) and to the Consumers Protection Act (“CPA”). Below is a summary of some of the key changes introduced by the Law.

Consumer disputes out of the jurisdiction of the arbitral tribunals

The Law proposes that a dispute in which one of the parties is a consumer is non-arbitrable. The arbitration clause in a consumer contract is void, except for cases where such clause provides for settlement of dispute in accordance with the procedure for alternative dispute resolution under the CPA. If an arbitral tribunal renders an award in a non-arbitrable dispute, the award is ex lege deemed void and the arbitrators are sanctioned with a fine.

The changes aim to introduce guarantees for protection of consumers. They respond to frequent abuse by debt collection corporations, monopolistic companies, public service providers that, among others, take advantage of arbitration proceedings by including arbitration clauses not subject to negotiation in their standard contracts and general terms. For their part, consumers have no choice but to sign them. Thus, the dispute is usually resolved by an arbitral tribunal chosen by the company. Some companies even create their own arbitral institutions (so-called “pocket arbitrations”) which render awards predominantly in their favor. Often consumers are communicated arbitral awards against them without even having been informed in advance about the existence of the proceedings, without having concluded a valid arbitration clause, or for non-existing debts. Since the award is not subject to appeal, the last chance for consumers to protect themselves is to seek annulment of the award on limited grounds.

The amendments have ex nunc effect and apply to future disputes arising after the Law’s entry into force (and not to pending proceedings). Proceedings in relation to consumer disputes are to be terminated ex lege.

Control over the writ of execution based on arbitral award

Pursuant to the Law, the district court where the domicile or seat of the debtor is located has jurisdiction to issue writs of execution for enforcement of arbitral awards. Such competent district courts is entitled to examine whether the underlying dispute is arbitrable. If the court finds that the arbitral award is issued in a non-arbitrable dispute and thus it is void, it will refuse to issue a writ of execution. Until such finding is made, this additional form of control by state courts may nonetheless arguable leave the parties uncertain whether the award will be enforced or not.

Public order is no longer a ground for setting aside arbitral awards

The Law proposes a repeal of one of the most common grounds for setting aside of arbitral awards – infringement of public order of the Republic of Bulgaria. It is not clear what the aim of this change is, especially given the fact that arbitral awards are not subject to appeal and can only be annulled on grounds explicitly and exhaustively listed in the ICAA.

Considering that Bulgaria is a party to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, enforcement of a foreign arbitral award may be refused if it is contrary to international public order.

Control by the Ministry of Justice

The Law also provides for control over the arbitrators and the arbitral institutions by the Ministry of Justice through a special Inspectorate. The Inspectorate examines the compliance with the ICAA by arbitrators and arbitral institutions ex officio or upon complaints. In case of established non-compliance, the Minister of Justice gives mandatory instructions. The arbitrators and the institutions that do not comply with such instructions are subject to monetary sanctions. It is still questionable to what extent the Inspectorate will exercise this form of control and whether it has the capacity to do so effectively.

Minimum requirements for the arbitrators – for the first time in Bulgarian law

Not everybody can be an arbitrator under the Law. In order to be an arbitrator, a person should (i) be a legally capable citizen, who has not been sentenced for a premeditated publicly indictable offence, (ii) have higher education, (iii) have at least eight years of professional experience, and (iv) possess high moral qualities. There conditions are exhaustive.

These amendments are driven by the fact that in some cases the persons who serve as arbitrators have questionable qualifications and reputation. However, the requirements for arbitrators’ qualifications to some extent limit and complicate the parties’ choice in appointing an appropriate arbitrator.

More transparency for the parties to arbitration proceedings

As provided for in the Law, in order for the parties to be aware of the development of the arbitration proceedings at any time, each party will have remote access to the case files and be able to check all the necessary information on the website of the arbitral institution.

Furthermore, each arbitral tribunal should keep all the documentation for completed cases for a period of ten years in its archives. After this period, only the awards and the settlements should be kept.

Concluding remarks

The amendments are designed to better protect the consumers and any intention in this direction is welcomed. Consumers are traditionally the weaker party in disputes and the introduced changes are without a doubt a positive legislative step. However, the amendments that provide for more control over the arbitration proceedings go beyond the intention to protect consumers. Only time will show whether such approach is beneficial or if the new provisions create more obstacles than solve any problems.

The views expressed in this article are those of the author alone and should not be regarded as representative of, or binding upon ArbitralWomen and/or of Dinova Rusev & Partners Law Office or its employees.

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Qatari Court of Cassation Thickens the Fog on the Heels of the New Qatari Arbitration Law

Thu, 2017-06-22 17:01

Thomas R. Snider, Roy Georgiades & Reem Khader

In a recent judgment, the Qatari Court of Cassation ruled that an arbitral tribunal may only hear a dispute arising from a contract that is valid and that the validity of a contract is to be determined solely and exclusively by the courts (Civil Appeal No. 65-2017). Notably, the judgment was issued on 18 April 2017 just days after Qatar’s new Arbitration Law, Law No. 2 of 2017 (“Qatari Arbitration Law”) came into effect on 12 April 2017, yet the judgment appears to stand in stark contrast with two internationally accepted principles enshrined in the Qatari Arbitration Law: competence-competence and separability of the arbitration clause.

Case Facts

The claimant, a contractor, had entered into four agreements with the defendant consultant, appointing the latter to represent and provide services on behalf of the claimant in relation to a large project for the execution of numerous works for which the defendant received approximately 111.5 million Qatari Riyals (approximately USD 30.6 million). The claimant filed a case before the Qatari Court of First Instance against the defendant for the invalidation of the four agreements on the basis that the defendant did not possess the required license for performing the contractual works, which constitutes a breach of mandatory provisions under Qatari law.

Court of First Instance

The defendant argued that the case should be dismissed by virtue of an arbitration clause contained in the signed agreements. The Court of First Instance accepted the defendant’s argument and dismissed the case on the basis of the existing arbitration clause.
Court of Appeal
The claimant appealed the judgment of the Court of First Instance to the Court of Appeal, which upheld the judgment.

Court of Cassation

The claimant appealed to the Court of Cassation. The appeal was based on the claimant’s submission that the action was wrongly dismissed by the Court of First Instance and the Court of Appeal since the relief sought was the invalidation of the four agreements for being contrary to public policy. In particular, the claimant argued that the agreements were entered into and performed by the defendant unlawfully in violation of public policy by virtue of the defendant not having the requisite license and that matters of public policy were for the courts, and not arbitral tribunals, to determine.

The Court of Cassation granted the appeal. According to the Court of Cassation, any claim involving the invalidity of a contract (and restoration of the parties to the position they were in prior to the contract) implicates a matter of public policy. In reaching this sweeping conclusion, the Court of Cassation stated (as translated) that:

“[i]t is unimaginable that the arbitral panel may consider the dispute arising from the agreement without there being certainty that the agreement itself is valid, and such determination on the validity of the agreement is solely and exclusively for the judicial courts to consider and rule upon. If the appeal judgment contains a decision that is contradictory to such, then such judgment is subject to appeal by Cassation.”
It thus appears that the Court of Cassation is of the view that the Qatari courts have exclusive jurisdiction over questions of contract validity and that such jurisdiction is exercisable in advance of an arbitral tribunal’s determination on (1) its own jurisdiction and (2) a contract’s substantive validity.

The Effect of the Judgment – A Striking Contradiction to the Qatari Arbitration Law?

The Court of Cassation’s judgment, which was unexpected in light of the recent introduction of the Qatari Arbitration Law, appears to be inconsistent with the familiar notions of competence-competence and separability of the arbitration clause, which are contained in the new law and well established internationally.

These principles are enshrined in Article 16 of the Qatari Arbitration Law, which is almost identical to its counterpart in Article 16 of the UNCITRAL Model Law on International Commercial Arbitration (“UNCITRAL Model Law”). Article 16 of the Qatari Arbitration Law provides that
“[t]he Arbitral Tribunal shall decide in respect of the plea raised questioning its jurisdiction to entertain the dispute, including those grounded on absence, invalidity, nullity, revocation or irrelevancy of the Arbitration Agreement to the subject matter of the dispute. The Arbitration clause shall be treated as an agreement independent from the other conditions provided for in the contract. The nullity, rescission or termination of the contract shall not affect the arbitration clause, provided that such clause is valid per se.”

Thus, Article 16 incorporates the doctrine of competence-competence by providing that an arbitral tribunal may rule on its own jurisdiction in the first instance. Indeed, this provision in the Qatari Arbitration Law, which provides that a tribunal “shall” determine its own jurisdiction, goes even farther than Article 16 of the UNCITRAL Model Law, which provides that a tribunal “may” make this determination.

Article 16 of the Qatari Arbitration Law likewise incorporates the doctrine of separability by making it clear that, even though an arbitration clause may be contained within a broader substantive contract between parties, it is nevertheless considered a separate agreement. As such, the arbitration clause may (and, most of the time, will) continue to be valid even though the substantive contract within which the arbitration clause is contained is found to be invalid. This enables an arbitral tribunal to decide a dispute even if the substantive contract is invalid (or terminated or non-existent).

These provisions in Article 16 are complemented by Article 8 of the Qatari Arbitration Law, which mirrors Article 8 of the UNCITRAL Model Law. Article 8 of the Qatari Arbitration Law requires a Qatari court that is seized of an action subject to an arbitration agreement to refrain from proceeding in the action unless the court concludes that the arbitration agreement is invalid.

When the doctrines of competence-competence and separability are read together, one would expect that an arbitral tribunal would properly determine whether it has jurisdiction over a dispute in the first instance even if the underlying substantive contract is invalid. For example, in the English case of Fiona Trust & Holding Corporation & Others v. Privalov & Others, [2007] EWCA Civ. 20, the court held that where the underlying substantive contract was obtained through bribery, the arbitration clause in that contract remained valid and the arbitral tribunal thus maintained jurisdiction to determine its own jurisdiction.

In light of the incorporation of these principles in the Qatari Arbitration Law, one would have expected the Court of Cassation to have upheld the judgments of the Court of First Instance and Court of Appeal. Pursuant to Articles 8 and 16 of the Qatari Arbitration Law, the expected course of action would have been for the Court of Cassation to have referred the parties to arbitration and left it to the arbitral tribunal to determine first whether it had jurisdiction to hear the case and second whether the underlying agreement was valid or void. Pursuant to Article 16(3) of the Qatari Arbitration Law, either party could then have requested the Qatari courts to review the jurisdictional determination by the tribunal, and the determination of the underlying agreement’s validity is subject to annulment by the courts pursuant to Article 33(3) of the Qatari Arbitration Law.

Instead, by not giving due regard to the principles of competence-competence and separability, the Court of Cassation gave itself jurisdiction to consider the validity of the underlying substantive contract in the first instance. In doing so, the Court of Cassation took an intrusive approach that is inconsistent with these two fundamental principles set forth in the new Qatari Arbitration Law.

One particular concern that this approach raises is that parties who wish to avoid arbitration in Qatar will seek to put forth arguments based on public policy (which would apparently include any case in which it is alleged that a contract is invalid based on the Court of Cassation’s extraordinarily broad interpretation of public policy) in order to go directly to the courts to have them rule on the substantive merits of a claim. Accordingly, the Court of Cassation’s linkage of the substantive validity of the contract to the validity of the arbitration clause (and thus the jurisdiction of the arbitral tribunal) is cause for concern.

It is still too soon to tell whether such an approach will be followed and maintained by the Court of Cassation and other Qatari courts. Since Qatar does not recognize the doctrine of binding precedent, this judgment may prove to be an outlier and future court cases may be more in tune with the principles of competence-competence and separability as set forth in the new Qatari Arbitration Law. What the judgment does tell us, however, is that the new Qatari Arbitration Law has not cleared up the fog blurring the balance between the powers of the arbitral tribunal and the courts in Qatar.

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