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The Contents of the Yearbook Commercial Arbitration, Volume XLV (2020), Upload 5

Sat, 2020-11-14 23:33

Subscribers of KluwerArbitration.com enjoy access to the ICCA Yearbook Commercial Arbitration. The most recent upload of ICCA Yearbook materials in 2020 is now available online. It features 17 court decisions applying the 1958 New York Convention from Argentina, Sweden, Switzerland, the United Kingdom, and the United States, as well as six decisions of US courts applying the 1975 Panama (Inter-American) Convention. Four decisions are particularly interesting.

The Supreme Court of Justice of Argentina, in Deutsche Rückversicherung AG, held that the appellate court was correct in modifying an award rendered in the United States against an Argentinean public entity before enforcing it, in order to bring it in line with Argentina’s public policy on debt consolidation – the system established in 1991 under which public debts under court decisions or arbitral awards could be paid in government securities instead of actual money.

The Swiss Federal Supreme Court affirmed enforcement of two awards rendered in the United States in the Abengoa case despite claims that there was appearance of bias on the part of the chairman of the arbitral tribunal, whose law firm had certain links with the group of the claimant. The Court, invoking the IBA Guidelines on Conflicts of Interest as guidance, stressed the restrictive reading to be given to the public policy exception under the New York Convention and found the links not sufficiently significant. The Brazilian Superior Court of Justice, by contrast, had reached the exact opposite result.

In Sladjana Cvoro the United States Court of Appeals for the Eleventh Circuit heard a case of first impression on whether enforcing an award that is based on a choice of law or choice of forum clause depriving a seaman of the right to pursue a Jones Act statutory claim is contrary to US public policy in the sense of Art. V(2)(b) of the New York Convention. The Court answered this question in the negative and distinguished the standard to determine compliance with public policy that applied at the stage of enforcing arbitral awards from the standard to be applied when determining whether to compel arbitration in the first place.

The Eleventh Circuit also decided a case under the Panama Convention concerning the enforcement of an award dealing with an agreement for the distribution of CBD oil, a cannabidiol product. In Earth Science Tech Inc., the Court disagreed with defendant, the producer of CBD oil, that confirmation of the award would be illegal under federal law proscribing all products containing THC. Not only had defendant advertised its products as deriving from the “federally legal industrial hemp plant”, and did not require a prescription or permit to buy; any illegality would also become moot when the 2018 Farm Bill was enacted, which removed hemp-derived CBD with low levels of THC from the group of prohibited substances.

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Six Lessons from the Sixth Sarajevo Arbitration Day

Fri, 2020-11-13 23:10

The Sixth Sarajevo Arbitration Day conference took place on 23 October 2020 and it was dedicated to the opportunities to adopt positive arbitration practices amidst the challenges created by the Covid-19 pandemic. This annual conference organized by the Association ARBITRI took place online for the first time and gathered legal practitioners from all over the world to hear from six of the leading international arbitration experts. Under the umbrella of the overarching theme of seeking opportunities for better arbitration, each speaker informed and inspired the participants with their insights and experiences in the field. The main lessons drawn from the conference are outlined below.

 

Less talk, more action – The Three E’s in International Arbitration

The keynote speaker Lucy Greenwood cautioned that international arbitration as an industry has lagged behind in three E’s: efficiency, equality and environmental care for decades. However, the recent developments caused by the Covid-19 pandemic are a good starting point in providing more attention and action to these important matters. This pandemic gave us the opportunity to pause and reflect on our wasteful ways of life and business which directly decrease the efficiency of arbitration. Efficiency could be increased, and costs reduced if we tackled the issues of other two E’s and if International arbitration would no longer waste talents and natural resources, aside from time and costs. Ms Greenwood highlighted that the increased reliance on virtual hearings and speaking engagements can enhance the equality and diversity in international arbitration, by providing exposure for junior lawyers from diverse backgrounds. Additionally, Ms. Greenwood stressed that international arbitration practitioners from ”flight pride” and that instead we should suffer from ”flight shame” because 93% of carbon emission related to international arbitration comes from air travel. We must embrace behavioural changes caused by this pandemic and embrace video conferencing, paperless arbitration and sustainability because the Environmental E is already a dangerous emergency.

 

The window of opportunity is wide open

The second speaker, Professor Mohammed Abdel Wahab, described the Covid-19 pandemic as a door of opportunity for international arbitration, which should be approached with a positive outlook and sincere optimism. Even though 2020 was the most stressful year in lives of many people, Professor Abdel Wahab holds that the silver lining of the pandemic is getting broader rather than thinner for arbitration industry. He noted three effects of the pandemic on international arbitration: the pandemic will be a catalyst for the transformation of arbitral proceedings as we know them, it will lead to the development of new digital legal support tools and services and different generations of arbitration practitioners will find a way to adapt to the new and flexible working arrangements.

Abdel Wahab also pointed out that the new approach to arbitration practice will make tech savvy arbitration practitioners indispensable, and the removal of physical barriers in the virtual setting will allow the breakthrough of persons who previously had limited visibility and mobility– a phenomenon described as the ”New blood transfusion”. Professor Abdel Wahab concluded by touching upon the likely regionalization of international arbitration where the arbitrators and counsels might be selected not because of their skills but because of their national or regional proximity which will simplify the technical organization of arbitral hearings.

 

Virtual arbitration is here to stay

The third speaker, Steven Finizio (WilmerHale London) focused on the idea of the increased efficiency of virtual hearings in international arbitration. The key idea was that international arbitration needs to be flexible and tailored for the needs of the parties in order to remain more attractive than national court litigation. To achieve this, arbitration professionals need to reconsider their habits and make sure that they abandon practices which are reflexive and not thoughtful. This pandemic has certainly forced us to revisit the use of technology and embrace it in international arbitration where cases are going forward – unlike the national courts where the backlog are only getting worse. Mr Finizio pointed out that we need to make sure that arbitration remains a better option than court litigation through technology and flexibility. Finally, Mr. Finizio addressed the criticism of virtual hearings, such as the opinion that use of technology makes arbitration less serious and emphasized that arbitral awards have been rendered in virtual arbitral proceedings and that there is no reason to believe they are any less legitimate than the awards issued under normal circumstances.

 

Hearings etiquette and technical support in virtual hearings

The fourth speaker, Florian Haugeneder (Knoetzl Vienna) shared reflected on the practice of remote hearings in international arbitration, from first-hand experience. He noted that the Covid-19 pandemic transformed the perception of remote hearings among international arbitration practitioners, which were not a common practice just one year ago. Addressing the admissibility of remote hearings, Mr. Haugeneder explained that remote hearings are a procedurally permissible modus operandi which is also used in court proceedings and cannot be seen as a violation of Article 6 of the ECHR, i.e. the right of each individual to have a fair and public hearing before a neutral tribunal established by law. Mr. Haugeneder highlighted some of the practical steps we can take to improve the quality of remote hearings by emphasizing the importance of hearing etiquette: muting the microphone while others speak, preventing audio and video interruptions and refraining from private statements in remote hearings He also suggested that capacity building and technical assistance for arbitration practitioners in remote hearings can improve the quality of the proceedings and the level of trust and reliance in the process. Finally, Mr. Haugeneder concluded that remote hearings are here to stay but that they probably will not entirely replace physical hearings because people will always prefer in-person interactions over online meetings.

 

The doors of the Vis East are open to anyone with a computer, internet and the CISG

When Coronavirus struck Hong Kong in January 2020, Louise Barrington (ArbitralWomen) knew that cancelling a Vis East competition in international arbitration scheduled for March was not an option. Months of legal analysis, drafting and teamwork could not simply be ignored. As discussed in a previous blog post, for the first time ever, the competition was held online and, as Ms Barrington notes, it was a huge success that highlighted the flexibility of international arbitration and its ability to overcome difficulties. 72 out of the original 138 signed up for the online competition and have overcame the reluctance to embrace this technological step. Ms Barrington noted that the introduction of technology in arbitration moot competitions also enabled more arbitrators to participate because they no longer had to travel from across the world. Organizers soon realized that online moot competitions actually opened the doors for more “mooties” and more diversity into the world of Vis East since financial constraints, visa requirements and geography were no longer constraints. The Vis East, as a powerful generator of future international arbitration experts and practitioners, became open to anyone who has a computer, internet and the CISG.

 

Arbitration is no longer a playground for the select few

Catherine Rogers (Arbitrator Intelligence), as the final speaker of the conference described the Covid-19-motivated, transparency-driven innovations in international arbitration as an opportunity for “The Rise of the Rest“. Smaller arbitration institutions, less known arbitrators and smaller disputes are finally getting the opportunity to „go out there“ and venture into the world of international arbitration. The old traits success in international arbitration, such as the number of flights taken to participate in proceedings or number of appointments, are no longer an eligibility factor for those seeking first appointments. Nowadays, the proficiency in technology is its own marker of success in international arbitration, for both counsel and arbitrators. Ms Rogers pointed out that we should welcome the breakdown of these stale myths and markers and accept the fact that international arbitration needs to expand to Africa, Latin America and Asia instead of sticking with North America and Europe – which are all long established arbitration hubs. Finally, Ms Rogers emphasized the importance of the availability and equal access to information about diverse arbitrators to all stakeholders. She highlighted the need for data-driven resources, such as Arbitrator Intelligence reports, which will level the playing field and provide visibility to arbitrators from diverse backgrounds, as discussed on previous blog posts.

Although all the speakers touched upon the „new-normal“ in international arbitration from different perspectives, there is a common thread of opportunity and the recognition that these uncertain and challenging times can result in sustained positive change. The Seventh Sarajevo Arbitration Days will be an opportunity to look back and see if the predictions and insights from this conference still hold true. We hope to see you there.

 

The full recording of the Sixth Sarajevo Arbitration Day conference is available on the Association ARBITRI YouTube Channel

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Does Issuing a Dissenting Opinion to an Arbitral Award Constitute a Violation of the German Ordre Public?

Fri, 2020-11-13 00:59

A one paragraph obiter dictum in an annulment decision rendered by the Frankfurt Higher Regional Court (the “Court”) on 16 January 2020 (26 Sch 14/18) reignited an old debate: are dissenting opinions in German arbitration proceedings permissible?

From an international perspective, dissenting opinions in arbitral awards are by no means unusual.  That is why it came as a surprise to many that the Court took a strong stance against written dissenting opinions in arbitral awards in German-seated arbitrations.  According to the Court, issuing a written dissenting opinion undermines the secrecy of the arbitral tribunal’s deliberations.  The principle of secrecy of deliberations is regarded as an important principle of German law because it serves the impartiality and independence of the arbitrators. Thus, the Court indicated that a dissenting opinion may violate the procedural ordre public and expose a majority arbitral award to a risk of annulment.

This obiter dictum is the first time that a German court has taken an express position on the long-debated issue of the admissibility of dissenting opinions in German arbitration proceedings.  Unfortunately, the Court was not definitive in its view and neither annulled or confirmed the award in question based on the issue of the dissenting opinion.   This decision will add to pre-existing uncertainty surrounding this issue.  Unless the Federal Court of Justice (Bundesgerichtshof) clarifies – and ideally rectifies – the position advanced by the Court, the Frankfurt decision has potential to harm Germany’s position as an internationally recognized place of arbitration.

 

The Decision and Facts of the Dispute

The Court ruled on an annulment application against an award issued by a three-member arbitral tribunal under the 1998 ICC Rules of Arbitration.  The place of arbitration was Frankfurt am Main, Germany.  In its final award, the arbitral tribunal had dismissed all claims by way of a majority decision.  The dismissal was based, in part, on the majority’s confirmation of the company’s valuation prepared by a tribunal-appointed valuation expert.  One arbitrator submitted a dissenting opinion in which he objected to the valuation expert’s opinion and to the arbitral tribunal’s evaluation of that opinion.

The Court annulled the award, finding that one party was denied the right to be heard.    Then, in a single paragraph (almost as an afterthought), the Court discussed, but ultimately left open, the question of whether the award also had to be annulled because one arbitrator filed a dissent:

However, in the court’s opinion, there is much to be said for the fact that the publication of a dissenting opinion is inadmissible in domestic arbitration proceedings, even taking into account the considerations of the legislature that has refrained from regulating this matter, and violates the secrecy of deliberation which also applies to domestic arbitral tribunals.  The particular importance of the secrecy of deliberation for the protection of the independence and impartiality of the arbitrators may also suggest that the secrecy of deliberation – even after the final deliberation and the issuing of the award – should not be put at the disposal of the parties and/or the arbitrators and should be regarded as part of the procedural ordre public.” (internal citations omitted; emphasis added)

The annulment decision is subject to an appeal before the Federal Court of Justice.

 

The German Debate

In many jurisdictions, dissenting opinions in judgments are permitted.  By contrast, in Germany, judges are prohibited from rendering dissenting opinions because they are bound to uphold the secrecy of deliberations.  There is an exception in constitutional courts at the federal and state level.

Whether arbitrators in German-seated arbitration proceedings are also prohibited from rendering dissenting opinions is subject to an ongoing controversial debate among scholars and practitioners.  While most agree that an arbitral tribunal’s deliberations are secret, (German Federal Court of Justice, 11 December 2014, I ZB 23/14; German Federal Court of Justice, 23 January 1957, V ZR 132/55, NJW 1957, 592) there are diverging views as to whether, and to what extent, this renders dissenting opinions unlawful.  Even among those who oppose dissenting opinions in arbitration proceedings, there is some disagreement as to the consequences of a member of an arbitral tribunal impermissibly filing a dissent. One school of thought is that this is a procedurally inconsequential violation of contractual duties; but another (older) is that it violates the German procedural ordre public, which may be fatal for the arbitral award as a whole. (For a discussion see, e.g.,H.P. Westermann, “Das dissenting vote im Schiedsverfahren” (2009) SchiedsVZ, 102; M. Escher, “Die Dissenting Opinion im deutschen Handelsschiedsverfahren – Fear of the unknown” (2018) SchiedsVZ, 219)

The Court seems to agree with those who believe that the existence of a dissenting opinion can violate the German ordre public.  The Court’s position thus deviates from the position of the German legislature which considered this debate settled when reforming the German arbitration law in 1997:

The (…) question whether a dissenting opinion can be rendered with the arbitral award did not require any express regulation; under the current regime this is predominantly considered permissible.” (BT-Drs. 13/5274, p. 56)

The traditional view among German scholars and practitioners – in line with the legislature’s position – has been that parties can waive the secrecy of deliberations and thereby allow dissenting opinions.  Some additionally consider the arbitrators’ consent to be necessary for such waiver to be effective. (See R. Schütze, “Das Zustandekommen des Schiedsspruchs” (2008) SchiedsVZ, 10 (14); I. Sänger, Zivilprozessordnung, 8th ed., Münster, Nomos, 2019, § 1052 para. 3; H.P. Westermann, “Das dissenting vote im Schiedsverfahren” (2009) SchiedsVZ, 102 (105)) The Federal Court of Justice, in a 1957 decision, appears to have agreed with the possibility that the parties can waive the secrecy of the deliberations with the consent of the arbitrators, but ultimately left this question open. (German Federal Court of Justice, 23 January 1957, V ZR 132/55, NJW 1957, 592)

In its recent ruling, the Court acknowledged the legislature’s view, but nonetheless disagreed and even considered a dissenting opinion a violation of the procedural ordre public, although it provided no explanation for this determination.  And it did this despite the obvious consequence that every German arbitral award with a dissenting opinion would thus be subject to annulment, irrespective of whether the dissent was relevant to the outcome of the proceeding.

The decision implies that any waiver of secrecy by the parties is insignificant.  The Court, by stating that the secrecy of deliberations is part of German procedural ordre public, deprives the parties and arbitrators of the power to waive the secrecy of deliberations and thus allow for dissenting opinions.  It is inherent in the concept of ordre public that those things which fall within it cannot be waived by the parties since they embody the core values of the rule of law which are enforced ex officio. (S. Wilske, L. Markert, Beck Online Kommentar ZPO, 36. Ed., 1.3.2020, § 1059 para. 56)

 

The practical implications of the Court’s obiter dictum

Arbitrators conducting German-seated arbitrations are now faced with the difficult question of how to navigate the uncertainties created by the Court.

Any party that is dissatisfied with the outcome of a German-seated arbitration will now seriously consider having the award annulled if a dissenting opinion exists.  To a losing party, the Court’s ruling is appealing – it considers the mere existence of the dissenting opinion a violation of the German ordre public, and this is a fact that a party can easily establish.  Whether an annulment action based on a dissenting opinion will succeed will ultimately be decided by the German Federal Court of Justice.  The Frankfurt decision is currently subject to an appeal, so the Federal Court of Justice may clarify the issue soon.

For now, and until the German Federal Court of Justice has definitively ruled on this issue, arbitrators should refrain from issuing dissenting opinions in German arbitrations.  Parties should agree at the outset that the arbitrators are not permitted to issue dissenting opinions, even if an arbitrator disagrees with a majority view.  With respect to arbitrations already in progress, the parties or the chairperson should proactively raise the issue in order to make all participants aware of this German particularity that international arbitrators may not be familiar with.

Not only the parties, but also the arbitrators, have an interest in avoiding dissenting opinions in German-seated arbitration.  Arbitrators have a fiduciary duty to render an enforceable award that withstands scrutiny in set-aside proceedings.  Issuing a dissenting opinion despite being on notice of the Frankfurt decision could subject the dissenting arbitrator to damages claims for the costs of the arbitration if the award is annulled.

Any party to a German-based arbitration must discuss the Frankfurt decision with their (prospective) arbitrator(s) in order to ensure that the eventual award will not be subject to challenge on this ground.  Having heard the presiding judge during the oral hearing leading up to the Frankfurt decision, we have little doubt that the Court will enforce its obiter dictum and annul an arbitral award accompanied by a dissenting opinion, if and when it is called upon to do so.

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The Contents of the Asian International Arbitration Journal, Volume 16, Issue 2 (November 2020)

Thu, 2020-11-12 22:09

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

 

Georgia Dawson & Kate Apostolova, Banks as Claimants in Investment Arbitration

Historically, banks have tended to prefer litigation over arbitration for their disputes. However, in recent years, banks have increasingly been using international arbitration instead, particularly when doing transactions in Asia and in emerging markets. The 2018 Queen Mary International Arbitration Survey also concluded that financial institutions, including banks, and their counsel are ‘contemplating arbitration with much greater interest than ever before’. In addition to using international commercial arbitration more often, banks have increasing sought to benefit from treaty-based international investment arbitration. The protections afforded in investment treaties mitigate some of the key risks banks face when investing abroad, such as having their investment nationalized or being subjected to unfair investigations. This article focuses on banks as claimants in treaty-based investment arbitrations, a subject not addressed in commentaries. It examines the publicly available investment arbitration awards in cases brought by banks against States and sets out to identify some key trends and themes.

 

Eunice Chua, The Singapore Convention on Mediation and the New York Convention on Arbitration: Comparing Enforcement Mechanisms and Drawing Lessons for Asia

This article considers the enforcement mechanism for international mediated settlement agreements proposed by the Singapore Convention on Mediation and critically examines this mode of enforcement as against enforcement as an arbitral award in Asia, including through a hybrid process like Arb-Med-Arb. Similarities and differences between the New York Convention and the Singapore Convention on Mediation will be discussed and used to consider how Asian jurisdictions may respond to the Singapore Convention on Mediation and what lessons may be learnt from the arbitration context.

 

Faadhil Adams, The Semi-Autonomy of the Arbitral Legal Order

The term arbitral legal order refers to the tapestry of conventions, model laws and guidelines that applies in the field of international arbitration and renders it a selfstanding community among the international legal order of States. This article discusses the allegiance owed by the arbitral community to States generally and the State in which it is seated more specifically. It takes as its point of departure that the growth in international arbitration merits a reconsideration of the international standing of the arbitral legal order. The article considers earlier viewpoints that argued for the total detachment of arbitration from State legal systems in terms of what is referred to as delocalization. It delves into the impact that such views have on the choice of law process and considers the possibility of this detachment against pluralistic and State sovereign perspectives. It comes to the conclusion that modern day arbitration is neither dependent on States nor independent from them but exists among them as a semi-autonomous community. The semi-autonomy derives from the idea that the international arbitral community is by and large afforded the freedom to regulate itself. It has the ability to create norms and to create international jurisprudence that is largely followed, regardless of the State in which the tribunal is seated. In this way the field is autonomous. This freedom is, however, restricted by the interests of States where certain countries can and sometimes do impose their will on the community in the form of legislation that restricts the freedom of the arbitral process. On the other hand the arbitral order is still in need of States, as it is only State machinery that can compel parties to comply with the arbitral process where a party chooses to attempt to escape the obligation imposed by the arbitral clause or choose to delay or subvert the arbitral process. The arbitral community is also dependent on State machinery for enforcement of its awards. In these cases, State assistance is not only welcomed but imperative. States have, however, gradually reduced impediments to arbitration through a pro-arbitral sentiment that is globally expressed. The article thus concludes that a symbiosis exists between the international arbitral community and States more generally.

 

Anirudh Hariani, Indian Arbitration and the Shifting Sands of Public Policy

The ‘public policy’ test is a statutory exception to the enforcement of arbitration awards. The doctrine has its roots in common law. At times, the test has been construed narrowly, and at other times, expansively. What actually constitutes and what is contrary to public policy, however, is never clear. This article seeks to trace the tumultuous development of the public policy doctrine in India, from its beginnings as a common law concept, to arrive at the current understanding of the doctrine and its parameters, in the context of Indian arbitration law. In the process, this article discusses the approach of Indian courts in limiting interference with foreign arbitration awards on the public policy ground. The author argues that it is necessary to further check the public policy exception in India, particularly in the context of enforcement of foreign awards and awards from international commercial arbitration, in view of the Indian government’s aim of making India a ‘hub of arbitration’.

 

Ritunjay Gupta, Res Judicata in International Arbitration: Choice of Law, Competence & Jurisdictional Court Decisions

Given the twin goals of finality and efficiency, the doctrine of res judicata has come to be applied, although less frequently, in the international arbitration context as well. However, being largely perceived as a proverbial ‘twilight issue’ in international arbitration, its application is fraught with uncertainties and inconsistencies. Amongst the more compelling concerns regarding the subject matter, this Article tackles the ambiguities around the choice of law analysis for preclusion standards; the doubts regarding the arbitral tribunal’s kompetenz-kompetenz to address the issue; and the peculiar nature of jurisdictional court decisions and its res judicata effect in subsequent arbitral proceedings.

Rarely, if ever, does the lex arbitri shed light on the precise standards of preclusion to be applied in a particular case. Instead, the choice of law analysis by arbitral tribunals are guided by a fluid balancing act between varying degrees of private rights and public interests. While the The International Law Association (ILA) Recommendations (Resolution No. 1/2006) do come close to a purported international standard, its limited acceptability within the community and lean adoptability across jurisdictions, brings to the fore the uncertainties attached to the doctrine itself.

Confusion further ensues when the authority of the tribunal to decide on its own jurisdiction is brought into question on confronting the defense of res judicata. While the New York Convention’s mandate of recognition of awards empowers the Courts to afford res judicata effect to a prior adjudication, the same conflicts with the arbitral tribunal’s own competence to address arguably procedural arbitrability issues such as this. These concerns amplify manifold when an arbitral tribunal encounters a prior Court’s decision regarding the tribunal’s jurisdiction, including the question of non-arbitrability of the disputed claim.

In the absence of exacting standards and principles to deal with any of these issues, different tribunals have been discharging their own brand of the doctrine’s broad interpretation. This Article expounds the existing literature on the subject, and thereafter, attempts to analyse each of these complex and controversial issues to better equip practitioners and arbitrators when faced with such concerns; at least until universal conformity is achieved through promulgations bordering a truly international standard.

 

Book Review: Edward Poulton (ed), Arbitration of M&A Transactions: A Practical Global Guide (Second Edition) (Globe Law and Business, 2020) by Angela Yap

Ashwin Shanbhag & Amoga Krishnan, NAFED v. Alimenta: Has India Missed the Wood for the Trees?

Crests and troughs mark the development of the jurisprudence of Indian arbitration law. The enforcement of arbitral awards has regularly been hobbled by an anachronistic judicial approach that allowed for the merits to be examined despite it not being within the court’s remit – the proverbial Achilles heel to an otherwise robust legal framework that mirrors the UNCITRAL Model Law, 1985. Judgments that applied the brakes on the advancement of India as an arbitral hub took shelter behind the esoteric ‘public policy’ principle. A recent decision by the Supreme Court of India in National Agricultural Cooperative Marketing Federation of India (NAFED) v. Alimenta serves as a worthy example. This case note considers the implications of the Court’s approach in setting aside an arbitral award that was held to violate the public policy of India. It argues that though the Court may have erred in examining the terms of the parties’ contract, its ultimate decision to set the award aside is capable of justification.

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Arbitration of Consumer Disputes in France: Get Thee Behind Me Competence-Competence?

Wed, 2020-11-11 23:50

On 30 September 2020, the French Supreme Court rendered a decision, that, on its face, appears to overturn its fabled 1997 Jaguar (95-11.427, 95-11.428 and 95-11.429) and 2004 Rado (02-12.259) decisions, which held that the principle of competence-competence applied even in the case of consumer disputes.  In PwC, to the contrary, the Supreme Court refuses to refer the parties to arbitration, and holds that the arbitration agreement is not binding on the consumer.  While this constitutes a major shift in the reasoning of the court, the court is not replacing one bright-line rule with another.  Rather, it makes room for early-on case-by-case analysis of the arbitrability of consumer disputes by domestic courts.

 

A Little Bit of Context

The principle of competence-competence is enshrined in Article 1448 of the French Civil Procedure Code, which provides that “[w]hen a dispute subject to an arbitration agreement is brought before a court, such court shall decline jurisdiction, except if an arbitral tribunal has not yet been seized of the dispute and if the arbitration agreement is manifestly void or manifestly not applicable.”

Over time, this arbitration-friendly principle has been tested in many contexts, but it is safe to say that no debate has been more heated than that surrounding the arbitrability of consumer disputes in light of Article 6(1) of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts, which provides that “Member States shall lay down that unfair terms used in a contract concluded with a consumer by a seller or supplier shall, as provided for under their national law, not be binding on the consumer and that the contract shall continue to bind the parties upon those terms if it is capable of continuing in existence without the unfair terms.”

In two instances, Jaguar and Rado, the principle of competence-competence and the imperative of consumer protection butted heads, and in both instances, priority was given to arbitration – much to the satisfaction of arbitration practitioners and chagrin of others.

 

Jaguar

In Jaguar, three individuals had separately ordered limited-edition Jaguars from the British automaker, through a French subsidiary.  The contracts provided that any dispute would be arbitrated in London.  Each buyer then attempted to rescind the separate sales, and initiated proceedings in French courts.  The individuals argued that the purchases were made in their individual capacities, and that international trade interests were not at stake as all payments were made to the French subsidiary.  The Paris Court of Appeal declined jurisdiction, noting that the contracts “which contained a clear and legible arbitration agreement” covered an international transaction, and that it was irrelevant in this light that each individual had made the purchase “for his individual use.”  The Supreme Court endorsed this approach, noting that “the arbitration agreement should be enforced, by virtue of the independence of such agreement under international law, under the control of the set-aside judge as to his own jurisdiction, and notably as to the arbitrability of the dispute.”

 

Rado

In Rado, a French individual had opened an account with a New York entity offering brokering services through a doorstep sale.  Pursuant to that contract, the individual wired a substantial sum of money to an account in the United States.  The contract provided for arbitration in the United States through the National Futures Association.  Four months later, the balance of the account became negative, and the individual initiated proceedings in front of the French courts.  This time, the individual did not contest the international nature of the transaction, but argued that because of the nature of the contract (entered into in her individual capacity and through a doorstep sale the legality of which was questioned), the court could hold that the arbitration agreement was manifestly void.  The court refused to entertain this argument, and held that an examination of the arbitration clause showed no inequality of arms, such that it was not manifestly void, and the dispute should therefore be remanded to arbitration subject to review at the enforcement stage.

 

New Beginnings?

PwC

Following the passing of her father in Spain, a French woman retained the services of the Spanish arm of an international consultancy and legal services provider in the context of a dispute with her brother and the executor of the estate.  The contract, in French, included an arbitration agreement which consisted in the translation of the consultancy’s boiler-plate Spanish-language arbitration clause, and provided for CIMA arbitration, presumably in Madrid.

Evidently dissatisfied with the services provided, the consumer initiated proceedings against the consultancy in French courts.  The consultancy objected to the jurisdiction of the court, pointing to the arbitration agreement contained in the contract, and arguing in the alternative that Spanish courts should hear the dispute.

Following the conventional Jaguar/Rado approach, the Versailles Court of Appeal should have remanded the case directly to arbitration.  It did not.  Rather, without regard to the principle of competence-competence, the court directly launched into its own analysis of the arbitration agreement, and held that it was unfair because it had not been negotiated and reflected the standardized language used by the consultancy.

It was the perfect opportunity for the Supreme Court to revisit its prior rulings.

The Supreme Court first engaged in a lengthy recitation of the principles of European and domestic consumer laws to reach the conclusion that the procedural rule contained in Article 1448 (the principle of competence-competence) cannot result in a party being effectively deprived of the consumer-protection provisions of European law.  Consequently, the court upheld the decision of the Court of Appeal, holding that “the court of appeal which, after having examined the applicability of the arbitration agreement by looking at all appropriate factual and legal elements at its disposal, declined to apply the arbitration agreement, performed its obligation as a domestic judge to ensure the full effectiveness of European consumer protection laws without disregard to the provisions of Article 1448” (emphasis added).  The court then briefly endorsed the finding of the lower court that the arbitration agreement was an unfair term, reiterating that that finding was in the full discretion of the lower court “taking into account the nature of the services described in the contract, as well as all circumstances surrounding the conclusion of the contract.”

 

Potential impact of the decision

Much could be said about a potential spill-over effect of the decision and corresponding weakening of the negative effect of the principle of competence-competence even beyond the scope of consumer disputes, or on the desirability of further alignment between labor and consumer cases in domestic and international settings.

Likewise, the actual foundation for the result reached by the Supreme Court in PwC remains open to interpretation: Is the court holding that the arbitration agreement was manifestly void because the dispute involved a consumer, or is the court completely side-stepping competence-competence?  The wording of the decision strongly suggests the latter.  If that is indeed the case, on what ground?  Some sort of public policy exception?  If so, why only hint at it and not say so explicitly?

Focusing on the practical impact of the decision and how courts are likely to apply it going forward actually provides a good approximation of the court’s thinking.  It also puts to rest any temptation to read PwC as a pure reversal of Jaguar and Rado.

First, in Jaguar and Rado, affluent individuals entered into international transactions for highly specific goods and services, eliciting little of the sympathy usually directed at individuals in need of the shield of consumer laws.  They were sent directly to arbitration.  In PwC, a consumer sought the services of a consultancy to address an intricate and delicate family matter.  She was spared having to go to arbitration as a prerequisite to the adjudication of her dispute.  Overall, an equitable – if not intellectually satisfactory – result seems to have been reached in all three cases.

Second, the 1997 Jaguar court limited itself to noting the international nature of the arbitration, and giving full effect to the principle of competence-competence, while refusing to engage into any discussion as to the nature of the underlying dispute.  For its part, the 2004 Rado court already moved away from that bright-line rule to usher in a more factual analysis, noting that the court of appeal “having analyzed the arbitration agreement […] held that [it] presented all the necessary guarantees as to equality of arms in the appointment of the arbitrators and the independence of the arbitrators” (emphasis added).

The fact that the same result was reached in Jaguar and Rado should therefore not obfuscate the fact that Rado already endorsed a factual analysis going well beyond a prima facie review of the arbitration agreement and blind application of the negative effect of competence-competence.

With PwC, the court goes one step further: in consumer disputes, a full analysis of the applicability of the arbitration agreement by looking at all appropriate factual and legal elements at the disposal of the court becomes possible, without recourse to Article 1448, and without having to wait for a hypothetical set aside or enforcement action.

In other words, the same practical result reached in PwC could also have been reached by applying a Rado-like Article 1448 enquiry to the PwC set of facts.  Conversely, auto-enthusiasts and aspiring financiers might not fare much better in 2020 than they did in 1997 or 2004.  In this light, the evolution in reasoning presented by PwC comes across more as a recasting than a repudiation of the Rado test.

Finally, if anything, this evolution is oddly reminiscent of the French courts’ willingness in recent years to apply a more stringent level of scrutiny to awards where issues of jurisdiction and public policy are concerned (even if, to be fair, issues of public policy usually arise in the more familiar settings of fraud or corruption).  In other words, by side-stepping Article 1448 in consumer cases, where the issues of jurisdiction and public policy are ultimately one and the same, PwC makes it possible for any domestic court to seize the opportunity to opine on the jurisdiction of an arbitral tribunal straight away, rather than having to wait for hypothetical set aside proceedings to do so.

PwC therefore constitutes more of an evolution than a revolution.  The trade-off, of course, is that domestic courts now have the option to side-step Article 1448 in consumer disputes.  Whether this is the right price to pay for consumer protection is a question for another day.  At the very least, this new rule of thumb approach tackles the issue with nuance Jaguar did not provide.

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The Contents of Arbitration: The International Journal of Arbitration, Mediation and Dispute Management, Volume 86, Issue 4 (November 2020)

Wed, 2020-11-11 21:22

The selected submissions for the current issue deal with a range of diverse dispute resolution topics. Specifically, the issue includes articles on international commercial arbitration, investment treaty arbitration, construction arbitration, and articles on conflicts of laws.

Further, the issue includes not only topics of practical importance, for example the proposal on the appropriate remedies against abuse of document production, but also analytical articles dealing with complex concepts such as issues of procedural arbitrability, non-disclosure and allegations of bias.

It has been a key editorial goal for this Journal to expand its scope and publish articles of international interest that address both theoretical and practical issues from a wide range of dispute resolution sub-fields. While the Journal is also keen to include submissions from other fields of dispute resolution, chiefly on mediation, this issue brings us closer to achieving our goal.

 

ARTICLES

Hamish Lal, Brendan Casey, Josephine Kaiding & Léa Defranchi, Abuse of Document Production in International Arbitration: Remedies When the Adverse Inference Falls Short

This article focuses on the Document Production process. The orthodox arbitral rules and soft law are open to abuse such that a party can participate in the Document Production process but then elect to ignore the Tribunal’s Order on Production; make only selective disclosure; and/or fail to provide documents that patently exist and correspond with other factual exhibits. The Tribunal’s power to make an adverse inference in respect of such behaviours lacks ‘teeth’ and thus raises concerns amongst lay users of international arbitration. This Article advocates a robust strategic re-think of the Tribunal’s powers when its Document Production Orders are blithely ignored. The authors suggest that institutional rules ought to be amended such that ignorance is visited by costs orders and strike out of claims and defences. Further, the 2010 IBA Rules on the Taking of Evidence in International Arbitration ought to be now revised to supplement the adverse inference proposition in Article 9(5) with discretion to strike out relevant claims and defences.

 

Felisa Baena, Valuation of ‘Non-operational Projects’ in Investment Arbitration: Criteria from the Tethyan Copper Award and from Recent ICSID Case Law

The quantification of future losses in cases of unlawful expropriations of non-operational projects has always been problematic. Several recent ICSID tribunals have had to deal with this complex issue. When analysing this line of cases, two crucial questions emerge: what is the applicable standard of certainty regarding the quantification of future lost profits of projects with no record of production? Is a forward-looking valuation method sufficiently certain for these situations? This article will address those questions and will identify the main relevant criteria, developed in recent ICSID awards, regarding the applicability of ‘forward-looking’ methodologies, and particularly, of the DCF method, for the valuation non-operational projects.

 

Peter Ashford, The Power (Or Otherwise) to Disqualify Counsel and Experts: A Review

The controversial power to disqualify counsel is often deployed but rarely analysed from first principles: if such a power exists, it must derive from somewhere or something. The competing arguments are contractual and status. Although in many cases it will not make any difference, the basis for any such power ought to be known. Furthermore, is the power to disqualify restricted to counsel or can it extend to others involved in the arbitration process, such as an expert? If so, does the analysis of the source of such a power apply equally to participants other than counsel? If not, on what basis can the power to prevent an expert from appearing be exercised? Can connections involve more than one degree of connection or must there be a closer degree of proximity? If the power to remove or disqualify an expert does not apply on the facts, what is the result?

 

Bwalya Lumbwe, FIDIC 2017 Edition of Contracts-The Repercussions of Defining the Words Claim & Dispute on the Claims and Dispute Referral Procedures

The International Federation of Consulting Engineers introduced the second edition of their Rainbow Suite of Contracts in December 2017 with the aim of achieving clarity, certainty and reducing disputes. The conditions of Contract defined for the first time the words ‘Claim’ and ‘Dispute’ with the same aim in mind. However, did Federation Internationale des Ingenieurs- Conseils (FIDIC) think through the process carefully enough and mitigate any possible repercussions arising out of defining the words ‘Claim’ and ‘Dispute’ and in the light of the introduction of a new claims’ procedure? How does this affect the termination of the contract? Are there any serious repercussions resulting from these definitions and the claims process and if so, what are they? This article looks at all these issues by examining the definitions in detail using legally applicable interpretation principles. The paper then postulates a conclusion as to whether FIDIC’s professed aim of achieving clarity, certainty and reducing disputes is an achievable goal given the changes.

 

Srishti Kumar & Raghvendra Pratap Singh, Transparency and Confidentiality in International Commercial Arbitration

The debate between confidentiality and transparency in international commercial arbitration is not recent. While confidentiality had been considered one of the critical features of international commercial arbitration, lately, it has been argued that transparency is required for arbitration to succeed as an efficient and reliable method of dispute resolution. This article seeks to address if confidentiality forms the cornerstone of all commercial arbitration or the higher calls for transparency are justified and possible without adversely affecting the popularity of arbitration as the most preferred mode of alternative dispute resolution.

 

Michael Kern, Why the Rome I Regulation Has No Mandatory Application When Determining the Substantive Law in International Commercial Arbitration

Since the entry into force of the Rome I Regulation, there is controversy as to whether it must be applied mandatorily in arbitral proceedings to the effect that it overrides specific conflict of laws rules in national arbitration laws. This article re-examines this issue and argues that Rome I is not mandatory in international arbitral proceedings. This proposition is based on a textual, historical and teleological interpretation of the Regulation as well as on a systematic analysis of EU law within the field of private international law. Against this background, it is reasonable to not apply Rome I mandatorily when determining the lex causae.

 

CASE NOTES

Janet Walker, Heller v. Uber and Procedural Arbitrability

In Heller v. Uber, the Supreme Court of Canada marked another milestone in its jurisprudence on competence-competence. By deciding that the inclusion of an arbitration clause in the Uber drivers’ agreement did not oblige a court to refer to an arbitral tribunal the jurisdictional question of whether the driver was an employee for purposes of the Employment Standards Act, the Court demonstrated a mature arbitration-friendly approach that will support the legitimacy of international commercial arbitration even as the Court marked the limits of competence-competence. Although the reasoning may have benefited from the application of the principle of arbitrability, and may have developed this principle by describing the question as one of ‘procedural arbitrability’, but the decision stands as a strong precedent for judicial reasoning on the relationship between the courts and arbitral tribunals.

 

Bankole Sodipo, Dealing with Arbitrator Challenge, Nondisclosure and Allegations of Bias: A Review of the Lagos Court Ruling Setting Aside the ICC Global Gas v. Shell Award

This case review debunks the view that Nigeria is not arbitrator friendly. It outlines party autonomy and the independence and impartiality of arbitrators. It analyses the court’s decision that an arbitrator whose appointment is challenged must recuse himself. It discusses misconduct in other areas of law in contrast with misconduct in arbitration. It considers whether non-disclosure of prior engagement as expert witness for or against one party, or the non-disclosure of member- ship of a professional/trade association constitute a misconduct. It considers whether the court took the proper approach in determining if the president of the arbitral panel acted for Shell, or against Shell. It examines whether a court can amend an arbitration contract and empower parties to seek court trial. It discusses the extent to which a court can set aside an award on the grounds of error of law.

 

CONFERENCE PAPER

James Clanchy, Ad hoc Arbitration and Its Enemies – International Congress of Maritime Arbitrators (ICMA XXI), Rio de Janeiro, 9 March 2020

This is an edited version of a paper delivered at the twenty-first International Congress of Maritime Arbitrators (ICMA XXI), held in Rio de Janeiro from 8 to 13 March 2020. ICMA was established in Moscow in 1972 by a group of maritime arbitrators from various jurisdictions, including the legendary Cedric Barclay, a former CIArb president. It brings together arbitral institutions, arbitrators’ associations, lawyers, and shipping professionals from around the world. This paper draws attention to ad hoc arbitration, still the most popular form of international commercial arbitration for the resolution of shipping disputes.

 

BOOK REVIEWS

Gordon Blanke, Book Review: John W. Hinchey & Troy L. Harris, International Construction Arbitration Handbook – 2020 Edition (Thomson Reuters, 2020)

The book under review is one of the very few titles that is dedicated to the subject of construction arbitration. For that reason alone, it deserves special mention and should not go unnoticed by the community of arbitration specialists that constitute the readership of this Journal.

 

Giuditta Cordero-Moss, Book Review: Gustav Flecke-Giammarco, Christopher Boog, Siegfried H. Elsing, Peter Heckel & Anke Meier (eds), The DIS Arbitration Rules: An Article-by-Article Commentary (Kluwer Law International, 2020)

A new version of the DIS Arbitration Rules was released in 2018, after an extensive process involving numerous experts and practitioners. DIS is the acronym of the German Arbitration Institute, based on the German name Deutsche Institution für Schiedsgerichtsbarkeit. The new DIS Rules are meant, among other things, to cater for an increased international profile of the DIS, which administers not only the resolution of domestic disputes, but also more and more international disputes.

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COVID-19 and Force Majeure: Dealing with the Ongoing Waves of COVID-19

Tue, 2020-11-10 23:46

As countries continue to grapple with the ongoing effects of COVID-19, the effects of the ongoing waves on parties vary widely. There have been recent discussions on force majeure and international arbitration on the Blog: see here, here, and here. This article will address the following points in relation to four key jurisdictions, being the UAE, Korea, Australia and the UK:

  • the current COVID-19 situation;
  • a recap of the law of force majeure; and
  • force majeure issues associated with a second wave of COVID-19.

 

The Current Situation

The COVID-19 situation has changed repeatedly throughout 2020, with some having passed the first wave but not yet experienced a second wave, and some entering their second (or further) wave(s). Generally, the following is occurring in each jurisdiction:

  • Australia: Parts of Australia experienced a second wave of COVID-19, largely linked to issues with the return traveller quarantine system. The “second wave delivered harsh lessons about the role of borders and importance of isolating international arrivals”. Hundreds of new cases were being reported every day after 12 weeks of a flattening curve but have been subsiding following lockdown measures set by each state (degrees of lockdown differ by state).
  • UK: The UK is experiencing a second wave of COVID-19, and the government introduced a new, three-tiered set of restrictions (first tier: social distancing, second tier: curfews on hospitality venues and a ban on meetings between households, third tier: stricter lockdown measures) as the alert level has been raised to four out of the government’s five-tier alert system. The government is also actively reviewing shielding policy to protect the vulnerable.
  • Korea: South Korea was widely praised for its crisis response to COVID-19 earlier in 2020. In August, the country experienced a second wave of COVID-19 but the government immediately imposed tighter restrictions that have brought down case numbers to two-digit numbers.
  • UAE: Certain parts of the UAE have been experiencing a second wave of COVID-19 as they see resurges in cases since September. In response, they have increased testing and introduced a new set of safety guidelines to curb the recent spread. From 1 August 2020, a COVID-19 test became mandatory for everyone arriving through the country’s airports, including citizens, residents, tourists and transit passengers, regardless of the country they are flying in from.

 

The Law

  • UK and Australia: In the case of common law jurisdictions such as the UK and Australia, force majeure is a solely contractual concept where the scope and application depends on how the particular force majeure clause is drafted. In broad terms, force majeure provisions will typically excuse a party from performing their obligations under a contract if the party’s ability to perform the contract is affected by circumstances outside their control. Force majeure provisions will also typically include the requirement that the party could not have avoided the impact of the event itself or its consequences by taking reasonable steps, and that the party claiming relief has satisfied any notification requirements in the contract. These provisions often impose express, ongoing obligations on parties to take reasonable steps (sometimes called “best endeavours” or “reasonable endeavours”) to mitigate the impact of the force majeure event.
  • Korea: Korean law does not provide a statutory definition for force majeure. However, the Supreme Court 2008 Da 15940, 15957 Decision has said in order to gain force majeure relief, the events must be outside of the party’s control, and the party, despite having made reasonable efforts, was not able to foresee or prevent the event. The effect of force majeure under Korean law is to limit or exempt a party from liability for contractual breach. However, it is difficult to claim force majeure in the Korean courts as the Korean courts apply a very strict standard to events which constitute force majeure. For example, a drop in the number of tourists due to the MERS outbreak in 2015 was not accepted as a force majeure event (see Jeju District Court Decision 2016 GaHap 192 dated 21 July 2016). Unlike the common law jurisdictions discussed above, a party is not under any ongoing obligation to take reasonable steps to mitigate the impact of the force majeure event.
  • UAE: UAE law does not provide a statutory definition for force majeure. However, Article 472 of the UAE Civil Code (Federal Law No. 5 of 1985, as amended by Federal Law No. 1 of 1987) states that an obligation is extinguished if the debtor establishes that its performance has become impossible by reason of causes beyond their control. Further, the Dubai Court of Cassation (see Dubai Court of Cassation Case No. 188 of 2009, dated 18 October 2009) has stated that in order for a party to rely on force majeure, the event “should be a result of an unforeseen event … that could not have been guarded against or prevented”. The effect of a force majeure event under UAE law is to generally exempt a party from liability for contractual breach. Article 287 of the Civil Code states that if a party can show that it has suffered loss arising out of a “… force majeure, act of a third party, or act of the person suffering loss, he shall not be bound to make it good in the absence of a legal provision or agreement to the contrary”. Article 386 also states that an obligor is not liable to pay compensation where it can prove that it was impossible to perform the contract because of the external unrelated event. Furthermore, “if the contract is binding on both parties, the corresponding obligation of the other party (which may not be impossible to perform) will likewise come to an end, and the contract will be automatically rescinded … by operation of law” (see Union Supreme Court, 827/Judicial Year 24 dated 21 February 2006). Much like Korean law, UAE law does not impose any obligations on a party to take reasonable steps to mitigate the impact of the force majeure event. Moreover, there is no reference to any standard of “reasonability”, but only that the event in question could not have been guarded against or prevented.

In broad terms, the following are required to gain force majeure relief from performance:

  • an event occurs which fits the “force majeure” definition in the contract (which often includes a list of examples);
  • the event is beyond a party’s reasonable control;
  • the event affects the ability of the party to perform the contract;
  • the party has taken reasonable steps to avoid or overcome the event (unless negated by the contract’s wording, case law suggests that proof that non-performance was due to circumstances beyond the party’s control is required); and
  • in the two common law jurisdictions, there will also usually be a provision stipulating that the party must have taken reasonable steps to mitigate the impact of the event.

 

The Issues

There are therefore two main points of consideration:

  1. Whether the event was outside the party’s reasonable control, and whether the party took reasonable steps to avoid or overcome it

It is clear that a party cannot control the response of governments to COVID-19. As the failure to perform must be caused by the force majeure event in order to give rise to relief, in order to benefit from force majeure relief, the affected party must show that it took reasonable steps but could not reasonably have protected against the impact of a second or further wave and associated government restrictions. Given that a second or further wave is a current or anticipated risk, to what extent will a party be expected to have taken reasonable steps to avoid any second or further wave from impacting its contractual performance? This will be considered against what is reasonable in the circumstances. For example:

  • the extent of current restrictions, how the restrictions are eased, whether further restrictions are imposed for a subsequent wave, and the amount of time between the restrictions (i.e. what could be achieved in the intervening period);
  • the availability of resources and materials required to fulfil the contract, and whether it is possible to find alternate supplies; and
  • whether re-scheduling maintenance, hiring or training more staff, putting different work arrangements into practice, or other activities required to fulfil the contract are possible prior to subsequent waves.

A relevant example regarding the issue of foreseeability is the case of 2 Entertain Video Ltd v Sony DADC Europe Ltd [2020] EWHC 972 (TCC). In this case, CDs and DVDs owned by the claimant were being stored in a warehouse in London owned and run by the defendant. During a period of rioting in London in August 2011, a group gained access to the warehouse and lit a fire that destroyed the building. While the riots were unforeseen, the judge found that the defendant had not taken reasonable precaution against break-in and fire damage, and it was therefore unable to rely on the force majeure clause.

 

  1. Whether reasonable efforts were made to mitigate the effects of the event

While Korean and UAE law may not strictly require this, unlike the common law of the UK and Australia, it may nevertheless be sound business practice to seek to mitigate the effects of a force majeure event.

While individual circumstances must always be borne in mind, when considering a second or further wave of COVID-19, the same response as to the first outbreak of COVID-19 may not be sufficient, and it may be harder to meet the force majeure requirements because:

  • the party may be expected to respond more quickly given previous experience of the first wave and an opportunity to implement changes based on that experience;
  • the appropriate response to the second or further wave may actually be different, even when compared to an ideal response to the first wave; and
  • the contract may contain the right for one or both parties to terminate for prolonged force majeure. A question may arise as to whether a further wave is considered a part of the same force majeure event for purposes of termination.

 

The Kluwer Arbitration Blog is closely following the impact of COVID-19 on the international arbitration community, both practically and substantively. We wish our global readers continued health and success during this difficult time. All relevant coverage can be found here.  

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In Memoriam: How U.S. Supreme Court Justice Ruth Bader Ginsburg Influenced U.S. Perspectives on Arbitration and International Dispute Resolution

Tue, 2020-11-10 01:00

U.S. Supreme Court Justice Ruth Bader Ginsburg (1933-2020), known only as “RBG” in many circles, was a native of Brooklyn, New York and only the second woman appointed to the U.S. Supreme Court bench. Her passing in September 2020, at the age of 87, left a gaping hole in the international community. She was widely renowned for her intellect and leadership as an attorney, advocate, and judge. As a legal trailblazer and cultural icon, she embodied and advanced ideals of gender equality. Perhaps most inspirationally, she worked tirelessly to ensure equality and justice under the law, including individual rights. In memory of her ideals and legacy, this post revisits a few of her lasting contributions to U.S. law and international dispute resolution.

 

Framing the Right to Due Process in the Face of an Application to Compel Arbitration

Early in her career with the Supreme Court, Justice Ginsburg wrote the decision in Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574 (1999). In this case, when a dispute arose concerning a gas production licensing agreement, plaintiffs sued in Texas state court alleging a variety of Texas law-based claims, including negligence and fraud. Defendant removed the case to federal district court on three bases: (1) diversity of citizenship between the parties, (2) presence of a federal question because of the alleged involvement of a foreign sovereign, and (3) involvement of an international arbitration agreement (one that compelled arbitration in Sweden) on the basis of 9 USC § 205.

Ruhrgas is well-known for addressing important concerns of due process, federalism, and “jurisdictional sequencing.” The U.S. Constitution’s Article III requires that federal courts have subject-matter jurisdiction over a dispute. This requirement runs parallel to the requirement that a court must also have personal jurisdiction over the parties. So which of the two requirements is to be considered and resolved first? The federal district court, determining that it did not have personal jurisdiction over the defendant, remanded the case to Texas state court. On appeal, the Fifth Circuit determined that the district court had erred by not considering first whether it had subject-matter jurisdiction.

Writing for a unanimous Supreme Court, Justice Ginsburg acknowledged the importance of non-waivable private rights, including the right to due process. She disagreed with the Fifth Circuit’s approach and determined that subject-matter jurisdiction is not “more fundamental” than personal jurisdiction. Federal courts therefore maintain the discretion to sequence their consideration of subject-matter jurisdiction and personal jurisdiction in the manner they deem appropriate, and their decisions may be driven by which of these questions is more easily decided. She wrote: “federal and state courts are complementary systems for administering justice in our Nation: Cooperation and comity, not competition and conflict are essential to the federal design.” The same can likely be said about the complementary systems presented by arbitration and litigation.

 

Prioritizing Individual Rights in Consumer and Employee Arbitration Cases

During her tenure with the Supreme Court, Justice Ginsburg issued several important dissenting opinions that evidenced her interest in championing individual rights vis-à-vis employee-employer and customer-business arbitration agreements. Reviewed together, these dissents demonstrate Justice Ginsburg’s interest in protecting individuals in David v. Goliath circumstances – an ideal that we should seek to emulate in our professional practice.

DIRECTV, Inc. v. Imburgia, 136 S.Ct. 463 (2015) involved a binding arbitration provision with a class-arbitration waiver. The arbitration provision specified that the entire arbitration agreement was unenforceable if the “law of your state” made class-arbitration waivers unenforceable. The arbitration provision was also governed by the Federal Arbitration Act (“FAA”). California law (the law of the consumer’s state) rendered class-arbitration waivers unenforceable. However, the Supreme Court held the California Court of Appeal’s interpretation of the arbitration provision was pre-empted by the FAA, which the Court further found enforces the arbitration agreement.

Justice Ginsburg disagreed with the Court’s decision, opining that the California Court of Appeal’s interpretation of the term “law of your state” was “not only reasonable, [but] entirely right.” Justice Ginsburg opined that “[i]t has become routine, in a large part due to this Court’s decisions, for powerful economic enterprises to write into their form contracts with consumers and employees no-class-arbitration clauses.” Moreover, she opined that “[t]oday, the Court holds that consumers lack not only protection against unambiguous class-arbitration bans in adhesion contracts. They lack even the benefit of the doubt when anomalous terms in such contracts could be construed to protect their rights.” And, warned: “[t]hese decisions have predictably resulted in the deprivation of consumers’ rights to seek redress for losses, and, turning the coin, they have insulated powerful interests from liability for violations of consumer-protection laws.”

In Epic Systems Corp. v. Lewis, 138 S.Ct. 1633 (2018), employers and employees entered contracts providing for individualized arbitration proceedings to resolve employment disputes. However, when disputes arose, the employees instead sought litigation through class action in federal court. They argued that the arbitration agreements’ requirement for individualized arbitrations violated the National Labor Relations Act (“NLRA”) and therefore was void. The Court disagreed with the employees’ position and held that “Congress has instructed in the [FAA] that arbitration agreements providing for individualized proceedings must be enforced, and neither the [FAA]’s saving clause nor the NLRA suggests otherwise.”

Again, siding with individuals’ rights, Justice Ginsburg disagreed. Her dissent traced the history of the U.S.’ protection of employees’ rights stemming from the early 1900s. She opined: “The Court today subordinates employee-protective labor legislation to the [FAA]. In so doing, the Court forgets the labor market imbalance that gave rise to … the NLRA, and ignores the destructive consequences of diminishing the right of employees ‘to band together in confronting an employer.” In Justice Ginsburg’s eyes, diminishing the rights of individual employees to band together was striking: “Forced to face their employers without company, employees ordinarily are no match for the enterprise that hires them. Employees gain strength, however, if they can deal with their employers in numbers. That is the very reason why the NLRA secures against employer interference employees’ right to act in concert for their ‘mutual aid or protection.’” The result of not protecting employees’ rights, Justice Ginsburg warned, was evident: “Employers, aware that employees will be disinclined to pursue small-value claims [such as wage and hour claims] when confined to proceeding one-by-one, will no doubt perceive that the cost-benefit balance of underpaying workers tips heavily in favor of skirting legal obligations.”

Similarly, in Lamps Plus, Inc. v. VarelaI, 139 S.Ct. 1407 (2019), an employee brought a class action against its employer after a hacker obtained around 1,300 employees’ tax information. Relying upon precedent in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010), and reasoning that arbitration agreements must be enforced according to their terms, the Court explained “that a court may not compel classwide arbitration when an agreement is silent on the availability of such arbitration.” In this case, the employee argued that the arbitration agreement was “ambiguous” about the availability of class arbitration. The Court did not find a difference between whether an arbitration agreement was ambiguous or silent, holding that “an ambiguous agreement cannot provide the necessary contractual basis for concluding that the parties agreed to submit to class arbitration.”

Championing individual rights, Justice Ginsburg dissented “to emphasize once again how treacherously the Court has strayed from the principle that ‘arbitration is a matter of consent, not coercion.” Justice Ginsburg explained that the FAA was enacted “to enable merchants of roughly equal bargaining power to enter into binding agreements to arbitrate commercial disputes. The Act was not designed to govern contracts ‘in which one of the parties characteristically has little bargaining power.’” She warned again that the Court’s decisions have “[p]ropelled” employers to provide mandatory arbitration clauses in employment and consumer contracts. As such, she reasoned that “[e]mployees and consumers forced to arbitrate solo face severe impediments to the ‘vindication of their rights’” and “[e]xpenses entailed in mounting individual claims will often outweigh potential recoveries.”

 

The Availability of US-style Discovery in Private International Commercial Arbitration

In 2004, the U.S. Supreme Court, in Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004), decided that Section 1782 of the U.S. Code (28 USC § 1782) gave U.S. District Court judges broad discretion to permit foreign litigants to obtain discovery in the U.S., subject to certain guidelines. However, the decision, like the statute itself, leaves ambiguous whether § 1782’s reference to aiding “foreign or international tribunal” includes private international commercial arbitrations.

In authoring the Intel decision, Justice Ginsburg opened the door to private commercial arbitration discovery applications. In particular, the decision quotes an article written by the late Professor Hans Smit in 1965, which said that “tribunal” in § 1782 included “investigating magistrates, administrative and arbitral tribunals, and quasi-judicial agencies, as well as conventional civil, commercial, criminal, and administrative courts.” (H. Smit, International Litigation Under the United States Code, 65 Colum. L. Rev. 1015, 1026, n. 71 (1965).) Interestingly, Justice Ginsburg was said to have been working with Professor Smit at the time he wrote the article. (See G. Sassine, There Should be an Answer to § 1782(a) – as to whether its scope includes private arbitral tribunals, McGill J. Disp. Res., Vol. III, 1, p. 9, n. 61.) Professor Smit’s later scholarship, in 2003, also took the position that § 1782 should be read to include private as well as public tribunals, such as investment arbitrations and foreign and international judicial tribunals.

Our readers will be well-familiar with Intel’s legacy, which spurred a dramatic Circuit split on this issue, which endures today. The Fourth and Sixth Circuits have ruled that parties to private, international commercial arbitration had access to US-style discovery under § 1782 (see Abdul Latif Jameel Transportation Company v. FedEx Corporation, 939 F.3d 710 (6th Cir. 2019)); diverging from the Second, Fifth, Seventh, and Eleventh Circuits (see Consorcio Ecuatoriano de Telecomunicaciones S.A. v. JAS Forwarding (USA), Inc., 2014 WL 104132 (11th Cir. Jan. 10, 2014).)

This year alone, three U.S. Circuit Courts affirmed their diverging positions on this question:

  • On 30 March 2020, in the context of a UK-seated tribunal operating under the CIArb rules regarding an aircraft fire, the Fourth Circuit decided that § 1782 discovery applied to private international commercial arbitration (Servotronics, Inc. v. Boeing Co., No. 18-2454 (4th Cir. March 30, 2020)).
  • On 9 July 2020, the Second Circuit once again affirmed its position that such discovery was not available to private international commercial arbitration (In Re Application of Hanwei Guo, No. 19-781 (2d Cir. July 8, 2020)).
  • On 22 September 2020, the Seventh Circuit decided along similar lines as the Second and Fifth, that § 1782 was not available in to parties seeking discovery in aid of private commercial arbitration on the basis that the legislature could not have intended to provide foreign litigants with more expansive discovery than available to domestic arbitrations (Servotronics Inc. v. Rolls-Royce PLC, No. 19-1847 (7th Cir. Sept. 22, 2020)). Interestingly, Judge Amy Cohen Barrett, currently proposed to fill Justice Ginsburg’s seat on the Supreme Court, is a judge on the Seventh Circuit, although she was not involved in this particular decision.
  • On 14 September 2020, the Ninth Circuit heard oral arguments on the same issue and a decision will be issued in due course (HRC-Hainan Holding Co., LLC v. Yihan Hu, No. 20-15371).

Echoing sentiments expressed on the Blog in recent posts, it is increasingly important for the Supreme Court to resolve the Circuit split over whether parties involved in international arbitrations outside of the U.S. can rely on § 1782 to seek discovery from entities in the U.S.

The earliest opportunity for the Supreme Court to consider this question will likely be during its upcoming term. Unfortunately, the Supreme Court would now have to resolve this split without Justice Ginsburg. The Court’s decision in this respect would have undoubtedly been richer if Justice Ginsburg remained with us.

***

Although Justice Ginsburg is no longer with us, we draw strength and inspiration from the imprint she has left on the American and international legal landscapes.

 

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The Biden Administration Approach to Investment Arbitration? Retail Multilateralism

Mon, 2020-11-09 00:48

With the results of the U.S. presidential election announced last week, international lawyers are now looking closely at how the incoming Biden Administration will handle the many challenges facing the global legal order.  President-elect Biden has promised to turn away from the unilateralism that marked the Trump presidency and instead focus on multilateral reengagement.1)See, e.g., Council on Foreign Relations, President-Elect Biden on Foreign Policy (Nov. 7, 2020); Joe Biden, Responses to Council on Foreign Relations Candidate Questionnaire (Aug. 1, 2019). jQuery("#footnote_plugin_tooltip_4655_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4655_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); But what kind of multilateralism can we expect from the Biden Administration, and what does it mean for the United States and its future participation in the reform of investment arbitration?

I do not think we can assume a pre-2017 multilateral approach.  On some issues, including the COVID-19 pandemic (WHO), the climate crisis (Paris Climate Agreement), and global security (NATO), we can expect what I would call “wholesale multilateralism”—that is, an approach that is focused on robust institutions designed to confront shared global challenges within a dialogue between state actors.  But on trade and investment matters, including on the reform of investment arbitration, the Biden Administration is likely to adopt what I will call a “retail multilateralism” approach, which instead focuses more on the equities of the individual and how a multilateral approach can make individual lives better.  Obviously, progress on the climate crisis will affect individuals too, but a wholesale multilateralism approach is focused primarily on building and nourishing a global framework as such.  This blog post explains the difference between the two approaches, which are not mutually exclusive, and where we can expect the Biden Administration to land when it comes to investment arbitration.

The investment arbitration system stands on a strong multilateral foundation.  Protection of foreign direct investment is necessary, and states understand its importance.  One can easily situate investment arbitration within a traditional wholesale multilateral framework.  Overlapping obligations and investment agreements have created a complex global web of protection for investment.2)See, e.g., Chester Brown & Kate Miles, Evolution in Investment Treaty Law & Arbitration, in  Evolution in Investment Treaty Law & Arbitration 3, 3 (Chester Brown & Kate Miles eds., 2011). jQuery("#footnote_plugin_tooltip_4655_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4655_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The ICSID Convention is among a handful of international agreements that have almost universal force and acceptance.3)Stephan W. Schill, The Multilateralization of International Investment Law 47 (2009). jQuery("#footnote_plugin_tooltip_4655_3").tooltip({ tip: "#footnote_plugin_tooltip_text_4655_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });  The investment arbitration system itself is defined in part by the common enforcement of valid arbitral awards.

By design, the protection of international investment reinforces adjacent wholesale multilateral principles.  Geopolitically, states that trade with one another and states that share investment are less likely to engage in armed conflict.  Peace and security still depend in large part on trade and investment flows.  That understanding is why I chose to serve in the U.S. State Department, and it is why many states still seat their investment lawyers and trade negotiators within their foreign ministries.  While many investment treaties are bilateral, many of the obligations are common across bilateral treaties, more investment agreements are now contained within multilateral instruments, and the entirety of the system rests on shared multilateral obligations of enforcement.4)Id. at 1-18. jQuery("#footnote_plugin_tooltip_4655_4").tooltip({ tip: "#footnote_plugin_tooltip_text_4655_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });  States themselves have multiple roles within this framework (often privileging competing interests as treaty drafters, respondents, and protectors of investment).5)See Patrick W. Pearsall, The Role of the State & the ISDS Trinity, 112 Am. J. Int’l L. 249, 249-53 (2018). jQuery("#footnote_plugin_tooltip_4655_5").tooltip({ tip: "#footnote_plugin_tooltip_text_4655_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });  Investment arbitration as understood within the United States, pre-2017, was a wholesale multilateral concept – the creation of a system for the protection of international investment consistent with the rule of law.6)See generally Kenneth J. Vandevelde, Bilateral Investment Treaties: History, Policy & Interpretation (2010). jQuery("#footnote_plugin_tooltip_4655_6").tooltip({ tip: "#footnote_plugin_tooltip_text_4655_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

With the election of Donald Trump, America retreated into its most isolationist period since the pre-1940s, as evidenced by the reemergence of slogans like “America First.”  For the past four years, the United States has not had a clear position on investment arbitration.  President Trump’s so-called “America First” bilateral agenda did not fit nicely with a rule of law-based system of peaceful international dispute resolution.  Similarly, the Trump Administration withdrew the United States from multilateral institutions – favoring hard American power to the exclusion of traditional alliances.

From January 2021 onward, we will witness a major shift toward multilateral reengagement.

Joe Biden devoted much of his career to building and strengthening diplomatic alliances and understands America’s place in the world through a multilateral lens.  He has promised to bring America back into dialogue with multilateral institutions like the United Nations, the WHO, the Paris Climate Framework, and perhaps even the WTO.  But he will not simply return to multilateralism as understood in pre-2017 notions of cosmopolitism – before President Trump enacted the nationalist America First agenda.  Rather, with trade and investment matters, a President Biden is likely to shift back toward multilateral engagement with a clear-eyed understanding about how multilateral globalism must be sensitive to the needs of individuals.

I call this new approach on trade and investment: “Retail Multilateralism.”  It is an approach to multilateral reengagement that is grounded in how individuals will benefit (or not) from multilateral frameworks.  One can contrast this concept with “Wholesale Multilateralism,” which characterizes the pre-2017 multilateral approach and was meant principally to strengthen the global world order and that speaks to shared challenges of all humanity.  As noted, these concepts are not completely distinct, but they do mark two poles on a spectrum.  Whether an approach sounds more in the “wholesale” or “retail” framing will depend on the challenge and the context.

Thus far, President-elect Biden has signaled a “retail” approach to multilateral trade and investment agreements.  In other words, we can expect multilateral trade and investment negotiations in key regions where American influence has waned, but front and center in the mandate will be the direct impacts on individual people (e.g. labor, environment, skills).  It’s the macro and micro all at once – retail as opposed to wholesale multilateralism.

What will this mean for investment arbitration?  At its core, the investment arbitration system finds a more comfortable home within precepts of wholesale multilateralism within which it was designed.  It is system of law-based dispute resolution that is meant to protect us from the pressures of destructive unilateral nationalism.  It has a “wholesale” global world order spirit: no gunboats steaming into the harbor; no diplomatic retribution on behalf of national champions; no calls from angry leaders screaming into the phones of counterparts; no egregious violations of rights in service of fraudulent and corrupt motives that starve populations of much-needed investment and wealth transfers.  Investment arbitration is a system that has deeply progressive and free-market roots – similar to President-elect Biden.

Nevertheless, President-elect Biden has not embraced investment arbitration within a “wholesale multilateralism” framework.  While he was in favor of many parts of the TPP,7)See, e.g., Mike Lillis, Biden Coaxes Dems on Obama Trade Deal, The Hill, Jan. 28, 2016. jQuery("#footnote_plugin_tooltip_4655_7").tooltip({ tip: "#footnote_plugin_tooltip_text_4655_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); the NAFTA and its successor the USMCA,8)Tyler Pager, Biden Says He Supports USMCA, Citing Provisions for Labor, Bloomberg, Dec. 20, 2019; Joshua Green, Biden’s NAFTA Vote Is a Liability in the Rust Belt, Bloomberg, May 14, 2019. jQuery("#footnote_plugin_tooltip_4655_8").tooltip({ tip: "#footnote_plugin_tooltip_text_4655_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and the cause of normalizing trade with China,9)See, e.g., Joe Biden, Remarks with Vice President Xi Before U.S. and Chinese Chief Executive officers, Feb. 14, 2012. jQuery("#footnote_plugin_tooltip_4655_9").tooltip({ tip: "#footnote_plugin_tooltip_text_4655_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); he approached the agreements and negotiations with a “retail multilateralism” focus.  He was concerned about how these multilateral relationships would advance progressive ideals that impact the individual, through provisions on labor, the environment, and skills training.10)See, e.g., Pager, supra. jQuery("#footnote_plugin_tooltip_4655_10").tooltip({ tip: "#footnote_plugin_tooltip_text_4655_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });  He is likely to approach the major investment arbitration questions of the coming years – whether the United States will rejoin the CPTPP, how we approach trade and investment policy in North America or with China –through the same lens, by considering first how participation will impact real people on a local level.  Perhaps this is in keeping with how CPTPP Parties see the relationship too.  “Comprehensive and Progressive,” the two words added to the title of the Trans Pacific Partnership when the United States withdrew, themselves signal a kind of macro / micro retail multilateralism – both comprehensive and progressive – positive impacts on the individual through a multilateral approach.

It is not yet clear what a “retail multilateralism” would mean for investment arbitration.  On one hand, we can expect the Biden Administration to have a genuine desire to be part of multilateral frameworks–and the investment protection system itself, as well large regional trade agreements and even the proposed “investment court,” are all strong multilateral institutions.  At the same time, we should not expect pre-2017 conceptions of cosmopolitan wholesale multilateralism on trade and investment matters.  The question that will need to be answered with satisfaction for Biden Administration policymakers will be: “how does investment arbitration help individual people?” Thus far, President-elect Biden has not been persuaded there is a satisfactory answer to this question, noting:

“I oppose the ability of private corporations to attack labor, health, and environmental policies through the Investor-State Dispute Settlement (ISDS) process and I oppose the inclusion of such provisions in future trade agreements.”11)Joe Biden, Responses to United Steel Workers Candidate Questionnaire (May 17, 2020), https://www.uswvoices.org/endorsed-candidates/biden/BidenUSWQuestionnaire.pdf. jQuery("#footnote_plugin_tooltip_4655_11").tooltip({ tip: "#footnote_plugin_tooltip_text_4655_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

We will learn soon how (or whether) this idea of “retail multilateralism” will take shape and whether it will provide comfort to the Biden Administration that investment arbitration is worth keeping.  Until we have greater clarity on key positions at the USTR, the State Department, and in the National Economic Council, we just won’t know what kind of reengagement we will see and how that will impact a different investment arbitration system.

It’s been a long, isolating four years for the United States.  2021 will be different.  I am reminded of the great Korean poet’s Midang’s famous line from Beside a Chrysanthemum:

last night’s frost came down

to bid your yellow petals bloom, perhaps,

 

The “perhaps” is so devastating, and yet, so hopeful.

 

 

Patrick W. Pearsall is a Washington-based partner of Allen & Overy LLP.  Previously, Mr. Pearsall served under Presidents Obama and Trump as the Chief of Investment Arbitration for the United States in the Department of State.  He helped negotiate the Trans-Pacific Partnership’s investment chapter.  [email protected] & Twitter @pwpearsall

References   [ + ]

1. ↑ See, e.g., Council on Foreign Relations, President-Elect Biden on Foreign Policy (Nov. 7, 2020); Joe Biden, Responses to Council on Foreign Relations Candidate Questionnaire (Aug. 1, 2019). 2. ↑ See, e.g., Chester Brown & Kate Miles, Evolution in Investment Treaty Law & Arbitration, in  Evolution in Investment Treaty Law & Arbitration 3, 3 (Chester Brown & Kate Miles eds., 2011). 3. ↑ Stephan W. Schill, The Multilateralization of International Investment Law 47 (2009). 4. ↑ Id. at 1-18. 5. ↑ See Patrick W. Pearsall, The Role of the State & the ISDS Trinity, 112 Am. J. Int’l L. 249, 249-53 (2018). 6. ↑ See generally Kenneth J. Vandevelde, Bilateral Investment Treaties: History, Policy & Interpretation (2010). 7. ↑ See, e.g., Mike Lillis, Biden Coaxes Dems on Obama Trade Deal, The Hill, Jan. 28, 2016. 8. ↑ Tyler Pager, Biden Says He Supports USMCA, Citing Provisions for Labor, Bloomberg, Dec. 20, 2019; Joshua Green, Biden’s NAFTA Vote Is a Liability in the Rust Belt, Bloomberg, May 14, 2019. 9. ↑ See, e.g., Joe Biden, Remarks with Vice President Xi Before U.S. and Chinese Chief Executive officers, Feb. 14, 2012. 10. ↑ See, e.g., Pager, supra. 11. ↑ Joe Biden, Responses to United Steel Workers Candidate Questionnaire (May 17, 2020), https://www.uswvoices.org/endorsed-candidates/biden/BidenUSWQuestionnaire.pdf. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Adjournment of Enforcement Proceedings in the Netherlands Based on the New York Convention

Sun, 2020-11-08 23:21

The issue of adjournment of enforcement proceedings relating to foreign arbitral awards that are subject to setting aside proceedings has featured prominently before national courts in recent years and has been the subject of other contributions on this blog (see here and here). This topic is especially significant in the Netherlands, an important jurisdiction for enforcement purposes due to its liberal attachment regime and the high number of companies having assets located in the country. A particularly pressing question regarding the enforcement of foreign awards is what standard Dutch courts should employ when reviewing a request based on Article VI of the New York Convention for adjournment of the enforcement proceedings pending a setting aside application at a court of the seat of the arbitration. No clear standard can currently be identified in the case law and this has led to undesirable legal uncertainty. As I argue in this post, a potential solution is the adoption of the test currently used for similar requests concerning the enforcement of domestic awards under Dutch law. This solution would ensure a measure of guidance regarding the application of Article VI by Dutch courts and thus enhance the arbitration-friendliness of the Netherlands.

 

Lack of clarity in the Dutch case law

In the Netherlands, a foreign award to which enforcement treaties such as the New York Convention are applicable can be recognised and enforced based on Article 1075 of the Dutch Code of Civil Procedure (“DCCP“). Pursuant to Article 1075 DCCP, adjournment of such recognition and enforcement proceedings can be requested based on the New York Convention itself.

Under the New York Convention, a foreign award is in principle subject to recognition and enforcement, even if subject to an application for setting aside or suspension at the seat of the arbitration. By way of exception, Article VI provides national courts in enforcement proceedings the discretionary power to adjourn the proceedings and order the award-debtor to provide security if an application for setting aside or suspension of that award is pending at the seat of the arbitration. Article VI does not contain guidance on when courts should adjourn. Although national courts have chosen a variety of approaches when deciding this issue, a common trend is for courts to develop a standard for the application of Article VI, rather than leaving matters entirely to the court’s discretion (see here).

For many years, the Netherlands was an exception to this trend. Rather than using a single standard, Dutch courts confronted with requests for adjournment based on Article VI exercised their power in different ways. For instance, one court refused adjournment based on the prospects of success of the setting aside proceedings (here); another court refused adjournment by referring to the New York Convention’s purpose of facilitating and expediting the enforcement of foreign awards (here); and yet another court adjourned the proceedings based on a balancing of the parties’ interests (here).

This inconsistent application of Article VI came to an end in 2011. Between 2011 and 2015, a line of Dutch district court case law emerged where courts consistently applied the same standard (see inter alia here and here). However, in these cases, the courts set the bar for adjournment particularly low. Adjournment was granted until the setting aside proceedings were concluded, unless the enforcing party could prove that the setting aside proceedings had no chance of success. In practice, this low threshold meant that proceedings were consistently adjourned. This standard created a heavy burden for the enforcing party and has been rightly criticised in the literature (here and here) for being incompatible with the pro-enforcement principle of the New York Convention.

Since 2015, Dutch courts have departed from this approach in two judgments. In one judgment, the court adjourned based on a joint request from the parties. In another judgment, the court refused to adjourn stating that the mere fact that setting aside proceedings were pending was not sufficient for adjournment. The pro-enforcement approach adopted in this judgment is an improvement on the previous line of case law in terms of conformity with the New York Convention. However, this judgment reverts back to the earlier ambiguity concerning the applicable standard, leaving open the question what does constitute sufficient ground for adjournment.

This uncertainty makes it difficult for litigants to formulate requests based on Article VI, or defences against such requests, and it is aggravated by the fact that a court’s decision to adjourn generally cannot be appealed. Since Dutch courts are already familiar with a standard for temporarily halting the enforcement of awards subject to set aside proceedings – albeit with regard to domestic awards –, the preferable approach would be to also employ this test with regard to New York Convention awards.

 

The test for the suspension of enforcement of domestic awards

Suspension of the enforcement of domestic awards for which setting aside proceedings are pending before Dutch courts is regulated by Article 1066(2) DCCP. For a request under Article 1066(2) DCCP to succeed, two requirements have to be met (see also here). First, it must be probable that the award will be set aside. When making this assessment, the court should exercise restraint, because suspension proceedings are not concerned with the merits of the setting aside claims. Second, the interest of the award-debtor to delay enforcement must outweigh the interests of the enforcing party. When weighing these interests, the duration of the setting aside proceedings, the irreversible consequences of enforcement and the risk of restitution can inter alia play a role.

The ‘suspension’ of the enforcement of a domestic award is formally different from the ‘adjournment’ of the enforcement proceedings relating to a New York Convention award, because the proceedings to enforce the two types of awards are different under Dutch law. Leave to enforce a domestic award is granted ex parte in the Netherlands. Therefore, the award-debtor can only request the enforcement of the award to be temporarily halted in separate suspension proceedings after the enforcement proceedings have already been concluded. In contrast, both parties are present during the recognition and enforcement proceedings in relation to a New York Convention award. The award-debtor thus can request the court to adjourn (or, postpone) its decision on enforcement during these proceedings.

However, aside from this difference, the two concepts are equivalent in nature and serve the same goal: a stay of enforcement of an award whilst setting aside proceedings are still pending. Support for this analogy can also be found in the literature. Consequently, there is a compelling case for a uniform approach based on the “domestic award test” outlined in the previous paragraph.

 

Suitability of the domestic award test for New York Convention awards

A potential objection to the adoption of the domestic award test to requests based on Article VI could be that a test adopted in relation to domestic awards cannot automatically be considered appropriate for foreign awards. Indeed, Dutch courts may find it more difficult to assess the prospects of success of setting aside proceedings in foreign jurisdictions. However, this concern seems overblown. The domestic award test only requires courts to make provisional assessments of the likelihood of success of such proceedings. If courts are in doubt as to the expected outcome of these proceedings, courts will refuse adjournment, unless there is a compelling interest in favour of adjournment. This is in line with the purpose of Article VI and of the New York Convention as a whole.

The travaux préparatoires of the New York Convention reveal that Article VI is meant to prevent the use of setting aside proceedings as a delaying tactic, whilst allowing enforcement courts to adjourn the proceedings if there are good grounds to do so. The first requirement of the domestic award test – that it must be probable that the award will be set aside – puts a halt to such dilatory tactics, because it ensures that enforcement proceedings cannot be delayed by the commencement of meritless setting aside proceedings. The second requirement – that the award-debtor’s interests must outweigh the award-creditor’s interests – ensures that enforcement courts still have the opportunity to take other circumstances into account. By making sure that adjournment only occurs in exceptional circumstances, this test is in keeping with the New York Convention’s goal to promote the swift and effective enforcement of awards.

Finally, adopting the domestic award test would provide additional coherence to the system of Dutch arbitration law. This test already applies mutatis mutandis to requests for the stay of enforcement proceedings of foreign awards to which enforcement treaties such as the New York Convention are not applicable (Article 1076(8) DCCP in conjunction with Article 1066(2) DCCP). Declaring this test applicable to requests based on Article VI would thus contribute to a uniform and consistent legal system.

 

Conclusion

Dutch courts confronted with requests for adjournment of enforcement proceedings based on Article VI of the New York Convention should use the test that they currently already apply to requests for the suspension of enforcement of domestic awards and the stay of enforcement proceedings of foreign awards to which no enforcement treaties are applicable. This would resolve the uncertainty surrounding the applicable standard and thus make the Netherlands a more arbitration-friendly jurisdiction.

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Arbitration And Insolvency: An Overview From Latin America

Sat, 2020-11-07 23:10

One of the many consequences of the Covid-19 pandemic and the world-wide economic crisis has been the sharp increase of insolvency filings before national courts. Latin America is no stranger to this situation, having been part of the surge in business insolvencies. Brazil, in particular, has been a recent insolvency hotspot within Latin America.

This rise in insolvency proceedings certainly poses a challenge for those parties facing an arbitration against a company undergoing insolvency and those parties contemplating commencing an arbitration against such an insolvent entity. Not only do a number of tensions exist between insolvency proceedings and arbitration – arbitrations are often conducted behind closed doors (the private process being a product of the underlying principle of party autonomy), whilst insolvency proceedings are public with the disposal of a debtors assets being centralised in national courts (a product of the underlying principle of the equality of creditors) – but also the effects of insolvency on existing (“pending”) or potential arbitration proceedings pose a number of further practical issues that parties and arbitrators will need to grapple with.

This blog post offers an overview of the interplay between arbitration and insolvency from a Latin American perspective, describing the approach that a number Latin American jurisdictions have taken – including, in particular, the effects of insolvency on commencing and continuing pending proceedings, as well as the effect on the last stage of the process, i.e. enforcement.

 

When Harry Met Sally… or when arbitration meets insolvency

Whenever arbitration meets insolvency, the parties as well as the arbitrators will likely have a long list of practical concerns about the effects of the insolvency on the arbitral proceedings. Some of these concerns have been discussed in a very recent post, including: the effect of insolvency on the validity of the arbitration agreement, the nature of the claims which can still be heard in arbitration, the continuation and conduct of the arbitration proceedings, and the effect on the enforcement of the award. The answers to these key concerns are to be found in the law applicable to each of these particular issues. This applicable law might happen to be from a Latin American jurisdiction, because a Latin American jurisdiction is either the seat of arbitration, the place where the insolvent debtor is located, where the insolvency proceedings are taking place, the location of the assets, or as the result of some other relevant connection.

As it will become clear, the approach of various Latin American jurisdictions as to the effects of insolvency on arbitral proceedings is generally quite consistent: the insolvency proceedings of one of the parties do not always prevent the continuation of an existing arbitration. This being said, a number of important nuances should, however, be appreciated.

 

Latin America at a glance

A number of Latin American jurisdictions regulate the effect of insolvency proceedings on arbitration expressly in their insolvency laws. Argentina (Law 24,522 of 1995), Uruguay (Law 18,387 of 2008), and Chile (Law 20,720 of 2014) adopt this approach. Other jurisdictions – notably Brazil and Columbia – do not expressly lay out this impact. In this scenario, other insolvency provisions and the interpretation of the law by the courts on a case by case by case basis can assist in determining the effects of insolvency on arbitration.

When analysing the applicable provisions in these jurisdictions, it is important to consider that some of them carefully distinguish the impact that insolvency may have on arbitration in two scenarios: bankruptcy or liquidation (seeking to liquidate the debtor’s assets) and restructuring or reorganization (seeking the rehabilitation of the debtor). At the same time, the insolvency laws also make a temporal distinction – the effects of the insolvency on the arbitration can depend on whether insolvency pre-dates arbitration or vice-versa.

 

The fine print of the insolvency laws

Argentina, Chile and Uruguay 

Turning to the first of the jurisdictions analyzed, Article 134 of the Argentinean insolvency law establishes that the declaration of bankruptcy has the effect of turning the arbitration clauses “inapplicable”, unless the arbitral tribunal has been already appointed before such declaration. In other words, arbitration is not permitted in a bankruptcy scenario, unless the arbitrators were appointed before the bankruptcy declaration was issued. The provision in Article 134 of the Argentinean insolvency law is not replicated in the case of reorganization proceedings. In this context, arbitration clauses are enforceable.

Chilean insolvency law contains a similar solution in Article in 143, stating that the centralization of claims against the debtor before the insolvency courts does not apply in pending arbitrations (“lawsuits…that to date are being heard by arbitrators”), or matters that are subject to mandatory arbitration by law. The rule only applies to bankruptcy proceedings – reorganization proceedings do not prevent the commencement or continuation of arbitration.

Insolvency law in Uruguay clearly distinguishes “new lawsuits” from “pending proceedings” against the debtor in two different provisions. Article 56 provides that once reorganization has been declared, “the creditors holding a credit dated prior to such declaration” shall not bring an arbitral claim against the debtor; otherwise the proceedings will be considered void. The situation is different for arbitrations commenced before the reorganization declaration. Article 57 establishes that ongoing arbitration proceedings pending at the time of the reorganization declaration will continue.

 

Brazil and Colombia

As already mentioned, Brazil does not have an express provision dealing with insolvency vis-à-vis arbitration. However, other provisions of Brazilian insolvency law (Law 11,101 of 2005) could be resorted to in order to determine such effect. Article 6(1) of the Brazilian insolvency law establishes that lawsuits against debtor seeking an illiquid amount will continue before its original forum. Given that in most of arbitration proceedings the amount claimed will be “illiquid” until there is an award, they may continue or be initiated after the insolvency declaration. Indeed, the courts have recognized the validity of arbitration agreements notwithstanding the insolvency declaration (for instance, see Interclínicas Planos de Saúde S.A. v. Saúde ABC Serviços Médicos Hospitalares Ltda, Superior Tribunal de Justiça, Medida Cautelar n. 14.295. J. 09.06.2008).

Like Brazil, Colombia also does not have express provisions governing the impact of insolvency on arbitrations. By considering other provisions of Colombian insolvency law (Law 1,116 of 2006), it appears that insolvency proceedings do not prevent arbitrations commencing or continuing. In effect, Articles 20 and 50.2 provide that the insolvency court has the exclusive jurisdiction to hear all lawsuits involving enforcement or other similar process against the debtor. Thus, given that arbitration proceedings seek the declaration of rights in an award rather than enforcement of such rights, arbitration may remain intact.

 

Award-holders will ultimately surrender to the insolvency  

A comparative analysis of the above jurisdictions reveals that attempts to execute the award against the debtor outside of the insolvency proceedings are not permitted. Instead, award-holders are required to submit the award (along with prior recognition under the New York Convention where the award is issued outside the relevant jurisdiction) as proof of their credit before the insolvency court in order to be paid from the debtor’s assets and according to the relevant insolvency laws. This is the case, for instance, in the insolvency laws of Argentina (Article 56), Uruguay (Article 59), Chile (Article 135), Colombia (Article 20), and Brazil (Article 6). This certainly accords with the par condition creditorum principle (equal treatment of creditors), an underlying principle of all the insolvency regimes analyzed.

 

Conclusion

Whilst the sample of jurisdictions considered in this article should not be taken as an exhaustive analysis of the approach of Latin American jurisdictions to the interplay between arbitration and insolvency, it is nonetheless useful in helping us to reach some preliminary conclusions on the tension between these two regimes in the region.

Broadly speaking, arbitration seems to prevail over insolvency when arbitral proceedings are commenced before the declaration of insolvency. This is more evident when the debtor only faces reorganization or restructuring proceedings rather than bankruptcy given that, among other differences, the debtor still retains the administration of its assets. Despite this “permissive” regime, however, award creditors will still have to appear before an insolvency court in order to enforce the award, and wait to be paid along with other creditors, who may have priority under the relevant insolvency laws.

In any event, it is clear that it is preferable for there to be express legislative provisions in place which deal with the interplay between the arbitration and insolvency regimes. Legislation of this kind is the best way to provide predictability to the parties (and also to arbitrators) involved in arbitral proceedings where one party is insolvent.

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The Future of Intra-EU Investment Protection: An Urgent Call for a New Roof and a Level Playing Field

Fri, 2020-11-06 23:07

Much has been written – on this page and elsewhere – about the future viability of investor-state arbitration based on intra-EU BITs in the aftermath of the CJEU’s Achmea decision. In the authors’ view, the May 2020 Termination Agreement concluded between 23 of the 27 EU Member States with the intention to terminate existing intra-EU BITs has rendered further discussion on this topic largely academic – with the exception of the impact on ongoing intra-EU arbitrations and the separate fate of the Energy Charter Treaty. This has become all the more true with the Agreement’s recent entry into force between Denmark and Hungary, heralding the gradual phase-out of intra-EU BITs, along with their sunset clauses, that takes effect within one month after ratification by the relevant EU Member State(s). However, the pressing question remains: what is to be done?

The approach taken by the European Commission (EC) and majority of Member States has created the very gap in protection of cross-border investment within the internal market that many, including a number of prominent Member States, long insisted on preventing. Already in their non-paper issued in April 2016, Austria, Finland, France, Germany and the Netherlands acknowledged that, in parallel to terminating intra-EU BITs, it was necessary to afford European investors with modern guarantees on substantive and procedural investment protection so as to maintain a level playing field vis-à-vis their foreign competitors. The Termination Agreement has done the former, but not the latter. It has created a vacuum in investment protection for intra-EU investors and done nothing to fill that vacuum. Moreover, it is plainly insufficient to merely ‘provide guidance on existing EU rules for the treatment of cross-border EU investments’, as the European Commission suggested with its 2018 Communication. This is why Luxembourg and Portugal, in their recent declarations to the Agreement, called upon the EC and Member States ‘to start a process with the aim to ensure complete, strong and effective protection of investments within the EU and adequate instruments in this regard’ in line with the Declarations of Member States of 15 and 16 January 2019 and recital XVI of the Agreement. To this end, and as part of its initiative to strengthen intra-EU investment protection, the EC has been soliciting views of the European public on strengths or weaknesses of the intra-EU investment protection system.

Surely, many different solutions have been, and will be, offered by various stakeholders with various perspectives. We do not believe there is one sole, perfect approach. However, the goal is clear, and is shared by (nearly) all stakeholders: at the very least, EU Investors must receive as much protection – in practice and not just on paper – as investors from non-Member States. The big question is how to realistically achieve this goal in a manner that is consistent with EU law and acceptable to the EC, Member States and investors. In our view, a European answer needs to include innovations in both substance and procedure that build on the EU’s efforts to reform investor-state arbitration in the international arena.

As a matter of substance, the modern protection standards developed by the EU in their new-generation FTAs should be incorporated into EU law. Procedurally, intra-EU investors should be able to avail themselves of these rights either (i) in a hybrid system combining elements of arbitration with a permanent appellate body; or (ii) before new specialised courts within the judiciary of Member States.

 

Substantive Protection Standards

The new-generation FTAs negotiated by the EU provide clearer and more reliable substantive protection standards than does the current EU legal framework. First, substantive investment protection granted under EU law is scattered, i.e. there is no clear body of norms protecting cross-border investments. Second, the scope of protection standards is unduly narrow, since they do not cover the entire life of the investment and provide less protection as compared to international investment law. For example, as both tribunals and academics have acknowledged, EU law does not entirely encompass the Fair and Equitable Treatment (FET) standard. Yet, the EU has entered into investment protection agreements with third states (e.g. CETA, EU-Singapore Investment Protection Agreement, EU-Vietnam Investment Protection Agreement) that contain the FET standard and provide for an exhaustive list of elements specifying its scope of protection. If such protection is warranted for these extra-EU investors, surely it is warranted for intra-EU investors as well. An EU regulation incorporating such standards would thus add greatly to legal clarity and create a level playing field, not just between investors from different Member States, but also vis-à-vis foreign investors. Moreover, as Nikos Lavranos has pointed out, their adoption through EU secondary law would have the advantage of immediately creating a harmonized system of investment protection within the EU without requiring any implementing acts.

 

Procedural Mechanism

Substantive standards alone, however, cannot guarantee effective redress when judicial recourse is limited to existing domestic courts. As even the EC itself recognises, the existing courts of at least certain Member States have shown themselves unwilling or unable to hold national governments to account and apply the law in a truly neutral and impartial manner. Moreover, investment disputes usually require specific sector skills and have significant interests at stake. Yet, the judicial systems of EU Member States often lack the efficiency and effectiveness required to render a timely and well-reasoned decision by competent adjudicators. Finally, foreign investors often face a language barrier when litigating disputes before domestic courts in the host State’s language.

Therefore, an effective procedural mechanism must provide for certain critical elements, including: expert and experienced adjudicators; a reliable and impartial forum; a neutral procedural language; the support of domestic courts in enforcing preliminary measures and taking evidence; and the straight-forward enforcement of decisions. Proposals that have been made in this regard range from a safety net, in the form of a ‘Unified Investment Court’ in case domestic courts fail to dispense justice, to the creation of a separate adjudicatory body similar to the Iran US claims Tribunals or in the form of the (EU) ‘Multilateral Investment Court’. Yet, the creation of a new international court with jurisdiction on intra-EU investment disputes would seem difficult to reconcile with the EU’s constitutional order, most notably the conditions set by the CJEU’s in its CETA opinion. Under the present circumstances, the authors see two potential options for “threading the needle” and creating a mechanism which would bring about real protection for intra-EU investors, while respecting the lines already drawn by the CJEU.

One way to strike this compromise would be a hybrid system comprised of ad hoc adjudicatory bodies (allowing for the delivery of timely decisions and the appointment of adjudicators with specific sector skills) while providing for an appeal mechanism for manifest errors of law to a permanent body embedded within the EU judicial system. Such ‘European investment court’ could be conceived, as proposed  by Paschalis Paschalidis, either as a specialised chamber of the EU’s General Court in Luxembourg or as a common court to all Member States. Envisaged as part of a hybrid mechanism, the court would maintain a preselected roster of arbitrators authorised to hear the investment dispute and, at the same time, operate as an appellate court for setting-aside decision. This could establish the necessary link to the judicial system of the Member States and the EU – a link which the CJEU held was crucially missing for current arbitral tribunals.

A second, alternative approach could be the creation of new specialised courts within the judiciary of the Member States along the lines of the Singapore International Commercial Court (SICC), the Astana International Financial Centre (AIFC) Court or the Dubai International Financial Centre (DIFC) Courts. To be clear, the SICC, AIFC and DIFC were designed to handle commercial disputes rather than as a forum for investor-state arbitration. Yet, they offer well-designed court-based mechanisms with competent, internationally experienced judges (in the case of DIFC even drawn from various jurisdictions), time efficient case management, flexible procedural rules and English-language proceedings. In this regard, they may serve as a model for the creation of domestic courts specialised on intra-EU investment disputes. Ideally, this process would be spearheaded and coordinated by the EC, in order to ensure a coordinated and consistent approach across the Member States.

 

Outlook

Before tearing down one’s old house, it is a good idea to build a new house first. While the EC and EU Member States have unfortunately not followed this common-sense approach to intra-EU investment protection, it is not too late to start building. The EC should, therefore, take to heart the concerns expressed by investors and stakeholders in the recent survey and drive the initiative toward a tangible proposal for the future of intra-EU investment protection: A regulation incorporating the substantive guarantees of the EU’s new-generation FTAs and the creation of an apt procedural mechanisms for intra-EU investors. It is our hope, that with these goals in mind, European investors will not be left out in the rain long, but soon have a new roof over their heads and a level playing field under their feet.

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Signing the Arbitral Award in Wet Ink: Resistance to Technological Change or A Reasonable Precaution?

Thu, 2020-11-05 23:12

Electronic signatures (e-signatures) may affect in some cases arbitration’s most valuable characteristic: the enforceability of the arbitral award.

In most jurisdictions, and in particular pursuant to Article 31(1) of the UNCITRAL Model Law on International Commercial Arbitration, arbitral awards must be rendered in writing and contain the arbitrators’ signatures. The enforceability risks of authenticating an arbitral award with an electronic signature will vary according to the applicable law at the place of enforcement (i.e. the lex fori) or by the laws of the arbitral seat. Such analysis also includes a judicial review of the national and international laws that regulate e-signatures. In some jurisdictions, arbitral awards may need to be signed in handwriting (wet ink) to be considered as valid. Therefore, despite the current need of moving towards remote process, the traditional practice of signing awards in wet ink may still be, in some cases, a reasonable precaution to reduce non-enforceability concerns in cross-border disputes.

 

Required formalities of the award under the New York Convention

Article IV(1)(a) of the New York Convention (NYC) requires the party applying for recognition and enforcement of an arbitral award to supply to the court, at the time of the application, the “duly authenticated original award or a duly certified copy thereof”. The NYC is silent on the requirements for an authentication or certification to be valid, and the applicable law under which such questions shall be determined.

Authentication refers to the formality by which the signature in the original is attested to be genuine whereas certification is the formality by which the copy is attested to be a true copy of the original (see here and here). Such formalities differ from State to State. The requirements of who may legalize the attestation of the award will also vary under different jurisdictions.

The NYC is also silent on the issue of e-signatures in arbitral awards. This silence should be interpreted in favor of technology when considering the pro-enforcement bias of the NYC. Courts also seem to be liberal in accepting the authentication and certification of an arbitral award when they are satisfied that the award was rendered just as it was supplied (see here, here, and here). Nevertheless, in the case of e-signatures, some jurisdictions may take a different approach according to the applicable law to the authentication and certification of the award. Thus, the local applicable formal requirements that an award may be subjected to will depend on a case-by-case analysis.

 

Applicable law to the authentication and certification of the award

The task of determining which law shall govern the authentication and certification of the award is uncertain. It is disputed whether the authentication and certification of the award mentioned in Article IV(1)(a) NYC shall be governed by the regulations set out in the lex fori or by the lex arbitri.

Under Article 4 of the 1927 Geneva Convention, authentication or certification of an award had to be done according to the law of the country in which the award was made. The drafters of the NYC opted for a different approach and deliberately omitted to indicate the law that governs authentication or certification “to allow a greater latitude with regard to this question to the tribunal of the country in which the recognition or enforcement was being requested”.

The prevailing, but not uniform, view is that, for matters of efficiency, authentication and certification shall be governed by the applicable lex fori in which recognition and enforcement are sought.

 

Does the applicable law recognize e-signed foreign arbitral awards?

An electronically signed arbitral award may provide the same level of credibility as an award signed in wet ink in terms of its authenticity and integrity under most jurisdictions.

An e-signature is data in an electronic form, logically associated with a data message, which is used “to identify the signatory in relation to the data message and to indicate the signatory’s approval of the information contained in the data message” (see Article 2(a) of the UNCITRAL Model Law on Electronic Signatures with Guide to Enactment).

In principle, most jurisdictions should permit the arbitral award to be signed with an e-signature. Authorities have held in this regard that “the advanced electronic signature of any arbitrator on an electronic award will be treated as being equivalent to a handwritten signature in Germany” (see here) – as long as it complies with the requirements set out in the EU Regulation No. 910/2014. This example should be valid mutatis mutandis to other EU countries.

Nevertheless, in an international context, further factors need to be carefully assessed concerning e-signature(s) such as, for example: the specific type of electronic signature used, the process by which the signature is generated, and the applicable domestic and international e-signature regulations.

Some Latin American countries may require in some cases the existence of a reciprocity treaty in order to recognize the certification of a foreign document with an e-signature (see Argentina – Article 16 of Law 25.506, Costa Rica – Article 13 of Law 8454). In Dubai, formalities for foreign electronic signatures may also be applicable for arbitral awards (see here).

Considering the above, it is essential that the applicable law that regulates the formal requirements of an arbitral award recognizes electronic signatures and that the e-signature in question meets such legal requirements. In case a local court refuses to recognize and enforce an award because of its signature, the award creditor could still resubmit an enforcement application with improved documentation (see here), but such procedure will delay the enforcement of the arbitral award.

 

International arbitration practice

Most institutional arbitration rules do not explicitly recommend the practice of signing arbitral awards with an e-signature, but state the award shall be in writing and/or signed by the arbitrators (see Article 35 of the 2018 HKIAC Rules, Article 42 of the 2017 SCC Rules, Article 32.4 of the 2016 SIAC Rules , Article 30 of the 2014 ICDR Rules).

Article 32.6 of the 2012 Swiss Rules specifies that “originals” of the award shall be signed by the arbitrators (see also ICC’s Guidance Note on Possible Measures Aimed at Mitigating the Effects of the COVID-19 Pandemic).

The common practice in some institutions is for the arbitral tribunal to sign the award in wet ink, scan it as a PDF attachment, upload it to the virtual platform (if any) or send it electronically, and send a signed hard-copy original of the award to the parties and/or the institution by courier or registered mail (see, for example, SCC’s Platform Guidelines).

According to CIArb’s Guidance Note on Remote Dispute Resolution Proceedings, “[e]ven though digital technology is rapidly becoming a widely accepted business and legal tool, it is advisable to keep key procedural documents in both soft and hard copies, containing signatures of participants where necessary. The same applies to arbitral award […] as some national courts may reject enforcement if such documents were produced solely via digital means.” (emphasis added) Thus, in an age of digital technology, it seems that there remains a preference for signing arbitral awards in wet ink.

Nevertheless, the recently revised LCIA Rules take a different stance. Article 26.2 of the 2020 LCIA Rules (effective 01 October 2020) sets as the default rule that, unless otherwise agreed by the parties, or if the arbitral tribunal or LCIA Court directs otherwise, “any award may be signed electronically”. The author is not aware of other international arbitration rules with a similar provision on e-signatures in arbitral awards. The draft of the 2021 ICC Rules is silent on e-signatures, but evidences a general shift away from paper filings (see here).

 

Conclusions

The e-signature of arbitral awards was not contemplated in the drafting of the NYC and under some jurisdictions arbitral awards may still need to be signed in wet ink. Arbitrators should therefore carefully assess the formal legal requirements in any potential enforcement forum before e-signing an arbitral award electronically. Such practice may be welcomed in some cases, depending on the jurisdictions involved.

There are no known cases to date in which the recognition or enforcement of an award has been refused because of the lack of compatibility of an electronic signature in an arbitral award. This issue, however, is likely to arise soon. In case it does, the award creditor may seek to resubmit the award with improved documentation. If the NYC were to be reformed to adapt it with technological change, Article 9 of the United Nations Convention on the Use of Electronic Communications in International Contracts could be seen as a starting drafting point concerning the form requirements of an arbitral award and arbitration agreement (for more on this topic, see here). It is yet to be seen if the LCIA Court or the parties will direct the tribunal to sign the award in wet ink or if the arbitrators will opt out themselves from the default option listed in Article 26.2 of the 2020 LCIA Rules.

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Conferencing Economic Experts: Streamlining the Process in Arbitration of Competition Disputes

Wed, 2020-11-04 23:37

The intersection of competition law and arbitration has been around for thirty-five (35) years. Competition disputes are likely to be seen more frequently in arbitration today, given its flexibility, speed and cost savings potential. Notably, the recent and extraordinary US government antitrust suit in the Novelis merger highlighted just that point, as the parties agreed to arbitrate a central issue in the case—the relevant market in which the merger will be judged to be anticompetitive or not. After prevailing on the issue, Assistant Attorney General Delrahim noted: “This first-of-its-kind arbitration has allowed us to resolve the dispositive issue in this case efficiently, saving taxpayer and private resources, while providing critical time-certainty”.

Still, up to now, most competition arbitrations are private disputes, obviously with an arbitration agreement such as a license or joint venture agreement. These disputes, like antitrust cases in the national courts, many times hinge on economic testimony of expert witnesses. I consider that these disputes can actually be more efficiently resolved in arbitration, where the tribunal has flexible devices at its disposal such as witness conferencing of competing expert economists. I focus in this post on expert witness conferencing and explain that complex competition case can many times be simplified, decided quicker and with less expense in arbitration because of that device.

 

Witness conferencing: background and policy developments 

Witness conferencing is a process for taking evidence where two or more witnesses give evidence concurrently, essentially together at the same time. The procedure is especially useful in the taking of expert testimony, which many times is basic and critical in antitrust/competition or IP related cases as those matters frequently will be grounded in economics (or engineering).

In its landmark case on arbitration, Mitsubishi v Soler, the US Supreme Court stated that “access to expertise are hallmarks of arbitration,” and “it is often a judgment that streamlined proceedings and expeditious results will best serve [the parties’] needs…; it is typically a desire to keep the effort and expense required to resolve a dispute within manageable bounds that prompts [the parties] mutually to forgo access to judicial remedies.” 473 US 614, 634 (1985). The policy of Mitsubishi is to encourage creativity and flexibility to resolve (“streamline”) complex disputes by arbitration and this would include the area of expert testimony. Expert witness conferencing carries out this policy cleverly and effectively allows the arbitrator and parties to create a bespoke process to test competing expert theories, the essence in many complex arbitrations, such as competition related disputes.

Witness conferencing, of course, departs from the traditional sequential pattern of testimony, usually the party with the burden of proof going first, with direct testimony, then the witness is cross examined, and then the opposing party answering with direct and then cross examination. Expert economic testimony in complex arbitrations, such as seen in many competition/antitrust disputes, is simply fundamental and critical to shed light on and prove or disprove the difficult issues such as those relating to relevant market, the nature of entry barriers, competitive pricing, two sided markets, efficiencies, true integrations, fair licensing practices etc. What Mitsubishi teaches is that the arbitrator and parties’ tool kit to best offer, take and understand this difficult evidence has no tight perimeter; the arbitrator and parties can be creative to devise efficient procedures and methods to streamline and simplify this testimony, unlike the counterpart procedure in the national judiciaries which are normally bound by strict rule of procedure.

Witness conferencing might just be a most handy instrument for the parties and arbitrator to get to the “truth” faster and cheaper when it comes to complex expert economic testimony. Other procedures, such as hot tubbing of experts, or “teaching sessions” by experts are also in their tool kit and are worthy to consider at the right time for the right case, and indeed the two procedures just mentioned in some respects overlap with witness conferencing. All the procedures of course must be with everyone’s agreement and are best developed at the time of an appropriate case management conference and embodied in a procedural order.

The Chartered Institute of Arbitrators (“CIArb”) has, in fact, developed its own Guidelines for Witness Conferencing in International Arbitration. While the Guidelines have been discussed in detail in a previous blog post, it is worth pointing out certain aspects that bear on their use in competition disputes involving economists.

In the Preamble, the Guidelines have succinctly stated the advantages to this method of taking evidence:

“First, a conference can be a more effective means of receiving evidence than consecutive examination of witnesses by parties’ counsel. The side-by-side presentation of evidence can make it easier to compare witnesses’ different views on an issue, and for the witnesses to challenge each other’s views with direct responses or rebuttals. Second, the quality of evidence may be improved. For example, expert witnesses may be less willing to make technically incorrect assertions in front of a peer who can supply an immediate rebuttal. Third, the process can promote efficiency at an evidentiary hearing, as the tribunal can hear evidence from all the witnesses on the issues at once, rather than at different stages of a hearing as the parties present their cases.”

The Guidelines, in fact, note that the national courts in the UK, Australia, and Singapore have used witness conferencing in some form, so it is not purely seen in arbitration alone, although that seems to be where it is a more robust tool, given arbitration’s informality and flexibility. And in keeping with that flexibility of arbitration, the Guidelines’ express objective is to take advantage of the “diversity of approaches that can be adopted without seeking to restrict the ability and imagination of tribunals and parties to shape a conference most suited to any given dispute.” They, in fact, comprise a practical “Checklist” of points to consider if a witness conference is the best procedure to use, “Standard Directions” of matters for consideration in a procedural order for a witness conference, and “Specific Directions” which are procedural frameworks for witness conferences led by either (a) the tribunal; (b) the witnesses; or (c) counsel.

 

Witness conferencing: the practical perspective

In practice, as arbitrator in competition related arbitrations, I have used witness conferencing in connection with the provision of expert economic testimony. Expert testimony is perhaps, as the CIArb Guidelines refer, the most paradigmatic use of the witness conference procedure to test that opinion testimony, e.g. Guidelines, p. 26. This is so for many reasons, including that witnesses providing expert opinions may or should be more objective and have less of a hostile bias to the counterpart on the other side; thus, the procedure (via shoulder to shoulder comparison) is more likely to develop smoothly with fewer histrionics. Indeed, in some instances the opposing expert witnesses come together on certain points when giving testimony concurrently (“yes, I happen to agree”) and most of the times, their differences will be pronounced and not obfuscated by the close in time “side by side” comparison. To my mind, the more complex the issue to be resolved, the greater the benefit from the witness conference and the contemporaneous comparison of testimony.1)A somewhat similar analogue is used on occasion by the US antitrust agencies (and in the EU and perhaps elsewhere) in an investigated transaction or merger when the enforcement agencies and the parties agree to discuss the matter; many times this meeting leads to the competing economists talking through their positions and can be a successful process to avoid a contested matter or at least identify the precise issues in dispute. jQuery("#footnote_plugin_tooltip_6840_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6840_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

And, in fact, there is no reason why the party appointed experts might not in advance of the witness conference hold a “meet and confer” between themselves and attempt on their own to reach agreement on certain issues in their expert reports and then subsequently record the areas of disagreement. This form of “hot tubbing” with a written joint report is recognized by the IBA Rules on Taking Evidence in International Arbitration and would work nicely in conjunction with a follow-on witness conference. (See the “Schedule” contemplated by Guidelines to serve as an agenda for the witness conference, pp. 46-7).

The format I have followed has always involved a mixture of counsel examination as well as tribunal questioning, usually counsel’s examination first and then the arbitrator’s, and to be worked out if counsel can then pose further questions after. Also, I found the process works easier, indeed simpler, to take up each economic issue seriatim. Given the complexity of the economic issues, one seeks the easiest process to clarify and simplify the resolution of the disputed testimony.

Taking only one example in the vast area of competition law, in many competition disputes in arbitration in the major legal regimes, including the US and EU, a central issue can be whether the challenged agreement in question likely harms competition by increasing the ability or incentive of one party to that agreement to profitably raise price for a significant period of time above or reduce output, quality, service, or innovation below what likely would prevail in the absence of that agreement. That is, whether the conduct in question would confer market or monopoly power on that one party in a relevant market (in both product and geography). Thus, the definition of a relevant market becomes a focal issue in the arbitration, which is an issue likely best spoken by an economic expert. Once you have that definition, then you can compute the challenged party’s share of that market to test whether there is market or monopoly power.

The proof of a relevant product market in a competition dispute can involve several key and complex touchstones: including defining the outer perimeter of the product market through (a) analysis of whether customers will switch in response to a small but significant and nontransitory increase in price [“SSNIP”] by a hypothetical monopolist, or (b) a related “critical loss analysis,” or (c) cross elasticities of supply (or demand), or (d) reasonable interchangeability of use, or (e) such practical indicia such as unique production facilities and distinct customers. Many other economic issues can bear on the issue such as supply side substitution and whether there are barriers to entry, where if low or insignificant, entry of a new firm into that product market could defeat or make unprofitable a hypothetical increase in price.

These difficult issues, as well as market share calculations through such methods as the Herfindahl-Hirschman Index (HHI) are most frequently provided by economists in competition disputes. A good method of testing the competing and complex economic testimony is to have the experts meet and indicate the areas of agreement and then for the points of disagreement, set the matter down for witness conferencing taking each point of disagreement one at a time with each expert, using the Guidelines’ “Standard Directions” as a starting point for the procedural order governing the conference.

 

Final remarks

What is most remarkable is that this innovative process of simplifying one of the more complex areas of litigation is not seen, or even allowed in most national courts, other than those mentioned above. It is not a stretch to say arbitration may be a more robust forum to decide private (non-governmental) competition matters, especially those with some complexity.2)R Levin, On Arbitration of Competition/Antitrust Disputes, 73 Dispute Resolution Journal 39, 56 (2018). As noted above, recently, the US Department of Justice and a party, in a remarkable development, agreed to submit a single issue to arbitration (the definition of the relevant product market) to resolve an alleged anticompetitive merger dispute. jQuery("#footnote_plugin_tooltip_6840_2").tooltip({ tip: "#footnote_plugin_tooltip_text_6840_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Arbitration has employed the innovation and flexibility encouraged by cases like Mitsubishi with such procedures like witness conferencing which enable the parties to find a resolution faster, easier, and with less expense than the national courts. Our late colleague Johnny Veeder called this “procedural and evidential flexibility” and stated in 2010 “[T]he way in which expert evidence is presented and tested [in competition disputes] may very well need to be modified; it is certainly not self-evident that anything resembling full-scale ‘cross-examination’ of the experts by counsel is likely to be productive.”3)VV Veeder and P Stanley, in G Blanke and P Landolt (eds), EU and US Antitrust Arbitration, A Handbook for Practitioners, Kluwer, 2010, p. 106. jQuery("#footnote_plugin_tooltip_6840_3").tooltip({ tip: "#footnote_plugin_tooltip_text_6840_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

References   [ + ]

1. ↑ A somewhat similar analogue is used on occasion by the US antitrust agencies (and in the EU and perhaps elsewhere) in an investigated transaction or merger when the enforcement agencies and the parties agree to discuss the matter; many times this meeting leads to the competing economists talking through their positions and can be a successful process to avoid a contested matter or at least identify the precise issues in dispute. 2. ↑ R Levin, On Arbitration of Competition/Antitrust Disputes, 73 Dispute Resolution Journal 39, 56 (2018). As noted above, recently, the US Department of Justice and a party, in a remarkable development, agreed to submit a single issue to arbitration (the definition of the relevant product market) to resolve an alleged anticompetitive merger dispute. 3. ↑ VV Veeder and P Stanley, in G Blanke and P Landolt (eds), EU and US Antitrust Arbitration, A Handbook for Practitioners, Kluwer, 2010, p. 106. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Agreement on the Termination of Intra-EU BITs: Sunset in Stone?

Tue, 2020-11-03 23:17

On 5 May 2020, 23 Member States of the European Union (“EU”) signed an Agreement for the Termination of all Intra-EU Bilateral Investment Treaties (“Agreement”). Following ratification by the Kingdom of Denmark (6 May 2020) and Hungary (30 July 2020), the Agreement entered into force on 29 August 2020 (Article 16).

The Agreement comes in response to two developments. First, the contentious Achmea v Slovak Republic (C-284/16) ruling (“Achmea ruling”), where the European Court of Justice determined that investor-State arbitration clauses in intra-EU BITs violate fundamental principles of autonomy and are incompatible with EU law (specifically Articles 267 and 344 of the Treaty on the Functioning of the European Union) (see prior blog coverage here). Second, the Declarations of 15 and 16 January 2019, where several Member Sates committed to terminate their intra-EU BITs as a consequence of that judgment. To that end, the Agreement has the effect of terminating intra-EU BITs upon its entry into force through ratification or provisional acceptance (Article 17) by signatories also extinguishing the BITs’ sunset clauses.

Right or wrong, just or unjust, it remains to be seen, but the Agreement, in its current form, appears to be an affront to the rule of law, which may undermine its intended purpose.

 

The Agreement, its Object and its Purpose

The Agreement aims to terminate some 130 intra-EU BITs (Annex A) along with their sunset clauses and declares that they cannot serve as legal bases for arbitral proceedings (Article 2). It further terminates the sunset clauses of already terminated BITs (Annex B) and deprives them of legal effect (Article 3). Following Denmark and Hungary’s ratification and provisional application by the Slovak Republic (8 June 2020) and Spain (11 August 2020), only five intra-EU BITs have been terminated as of 10 September 2020.

The Agreement targets three categories of proceedings (concluded, pending and new), pivoting on the key date of 6 March 2018 (the date of the Achmea ruling). The Agreement has the following effects on these three categories of proceedings:

  • Concluded proceedings are proceedings concluded before 6 March 2018 (and not subject to further review proceedings). These proceedings are deemed closed and unaffected by the Agreement (Article 6).
  • Pending proceedings are proceedings active as of 6 March 2018. These are subject to transitional measures, which envisage a structured dialogue regime focused on dispute settlement (Article 9) or access to national courts even if the limitation periods under the applicable domestic laws have expired (Article 10).
  • New proceedings are those raised after 6 March 2018. These proceedings are regarded as defective as the arbitration clauses contained in the intra-EU BITs “cannot serve as a legal basis” for arbitration proceedings (Article 4).

Accordingly, the goal of the Agreement is clear: investor-State dispute settlement (“ISDS”) for intra-EU BITs in the relevant EU Member States as we know it, will cease to exist, full stop. Or, at least that is the intention…

 

The Agreement: A Discordant Aim

Although the Agreement purports to give teeth to the Achmea ruling, it has been unable to fulfil that aim in its entirety. The lack of uniformity weakens its undergirding rationale to align EU BIT practice with the Achmea ruling. The Agreement does not apply to the Energy Charter Treaty (“ECT”) (the most relied on treaty to raise an investor-State investment dispute), despite EU Members claiming that the Achmea ruling renders the ECT inoperable (see e.g., jurisdictional objections by Germany in the Vattenfall case and by Spain in the Novenergia II case where the EU filed amicus briefs supporting the Member States). Four EU Member States – Austria, Finland, Ireland and Sweden – have not signed the Agreement. There are 32 intra-EU BITs between them that will remain in force. And despite Brexit formalising on 31 January 2020, the United Kingdom (“UK”), which was a Member of the EU at the time of the Achmea ruling, is also excluded from the Agreement, precluding the Agreement from applying to an additional nine BITs.

Moreover, the Agreement coming into force does not immediately signal an end for all pending and new arbitrations. For pending arbitrations, where consent is already established, it seems untenable that one party (i.e., a Member State) can withdraw, cancelling the arbitration and triggering the transitory measures. Typically, even when a Respondent host State does not participate, the tribunal, if satisfied it has jurisdiction, will continue ex parte (e.g., Russia’s non-participation in the Crimean-related disputes).

If it is an arbitration before the International Centre for the Settlement of Investment Disputes (“ICSID”), ICSID Convention Article 25 provides enhanced protection by expressly preventing a party from unilaterally withdrawing from that arbitration. Instead, parallel proceedings may begin to trend following Lithuania’s example, which has recently cited the Agreement as its rationale for raising its counterclaim in an ongoing 2016 ICSID arbitration, Veolia et al v Lithuania, before its local courts.

For new arbitrations, it remains with tribunals to determine their own jurisdiction (vis-à-vis kompetenz-kompetenz). The trend among ISDS tribunals has been to reject jurisdictional objections by Respondent Member States in the aftermath of the Achmea decision, such as in UP and C.D Holding Internationale v Hungary, Griffin v Poland, Addiko Bank v Croatia, AMF v Czech Republic and Hydro Energy 1 v Spain, and by local courts in related enforcement proceedings, as happened in Micula v Romania. It remains to be seen whether the Agreement, effectively seeking to nullify Party consent to disputes initiated after 6 March 2018, would impact this trend.

 

The Way Forward

As a starting point, State sovereignty is absolute and States are masters of their own treaties. Undoubtedly, the Agreement’s Member States have contemplated potential resistance from intra-EU investors. Their primary defence is that concerted termination of a treaty is permissible under Article 54 of the Vienna Convention on the Law of Treaties (“VCLT”).

Moreover, the mass culling of the intra-EU BITs, along with their sunset clauses, cleans the slate and aligns intra-EU BIT practice for the majority of EU Members with the Achmea ruling. It also paves the way to modernise the investment law regime across the EU, which may include advancement of a multilateral institution for international investment arbitration, a well-known goal for many European countries.

With the ECT also undergoing modernisation negotiations, the EU could, in nearly one fell swoop, redefine investor-State dispute settlement within the European region. Also, since the COVID-19 pandemic is forecast to generate an unknown increase in investment treaty disputes (as discussed in this Blog’s archive on COVID-19), the termination of intra-EU BITs has the added benefit of avoiding potential liability through the traditional intra-EU ISDS avenues.

The proof, however, will be in the pudding. As mentioned, the Agreement terminates intra-EU BITs including their sunset clauses. A sunset clause extends the life of a treaty beyond its date of termination. For example, Article 13(3) of the Netherlands-Poland BIT provides:

“In respect of investments made before the date of the termination of this Agreement the foregoing Articles thereof shall continue to be effective for a further period of 15 years from that date.”

A sunset clause operates similar to that of a stabilisation clause, by offering a limited and finite degree of protection to an exacting and specific class of investors. Reneging on that promised representation, to the detriment of those in reliance, frustrates the expectations derived therefrom. The expectations defaced include both the effect of that promised sunset clause (e.g., fifteen year post-termination BIT protection) as well as the embedded procedural right of access to that terminated treaty’s extended coverage (e.g., vis-à-vis the dispute resolution clause). Viewed in this light, the Agreement is akin to a State measure of retroactive application that destroys investment-backed expectations of current Claimant foreign investors who have protection under the sunset clauses of the intra-EU BITs.

Accordingly, Claimant investors may test the Agreement’s import. Pursuant to VCLT, Article 70(1)(b), the termination of a treaty ordinarily “does not affect any right, obligation or legal situation of the parties created through the execution of the treaty prior to its termination.” Further, States are obliged to live up to their promises and adhere to basic notions of good faith (e.g., VCLT, Article 26 or pacta sunt servanda), particularly when those representations are codified, concretised over time and relied on by others. The retrospective withdrawal of consent to arbitrate investment disputes vis-à-vis the premature termination of a sunset clause challenges the good faith obligations of the Agreement’s Members (see another Kluwer blog post) by taking away any accrued rights held by investors (should these rights exist for the non-party beneficiaries of BITs).

Claimant investors may also turn to international law (e.g., estoppel) and supranational law (e.g., legitimate expectations) to raise further objections against the Agreement.

 

Conclusion

At present, the way forward appears to be business as usual. On the front end, corporate restructuring to ensure investment treaty protection is a safe option for investors willing to avoid the uncertainty of challenging the Agreement (e.g., through Canada to obtain protection under the Comprehensive and Economic Trade Agreement between Canada and the EU).

On the back end, enforcement of an intra-EU BIT award in jurisdictions where EU law does not apply can circumvent the Agreement altogether (e.g., the United States, Switzerland and after 31 December 2020, the United Kingdom). While it is prudent to consider the Agreement’s transitory measures on a case-by-case basis, it remains open for new and pending intra-EU BIT arbitrations to simply stay the course.

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New York Convention Article II(3) – ‘Refer the Parties to Arbitration’ – Shield or a Compelling Measure?

Tue, 2020-11-03 00:35

The obligation of contracting states to recognize arbitration agreements and refer the parties to arbitration is provided in Article II of the New York Convention 1958 (the ‘Convention’). This post will endeavor to evaluate the meaning of the phrase ‘refer the parties to arbitration’ used in Article II(3) of the Convention and whether this phrase can be read to mean ‘refer the disputes to arbitration’. This analysis draws on a recent trend in Pakistan as domestic litigants seek compelling directions from national courts to initiate, and participate in, foreign arbitrations against counter parties. Such requests rely upon Article II(3) of the Convention read with Section 3 of Pakistan’s Recognition & Enforcement (Foreign Agreements and Arbitral Awards) Act, 2011 (“2011 Act”). As per Section 3(1) of the 2011 Act (read with its preamble), a High Court in Pakistan has the ‘exclusive jurisdiction’ to ‘adjudicate and settle matters relating to and arising out of’ the recognition and enforcement of arbitration agreement under the Convention. These phrases, on first glance, appear to offer a wide scope and a reason to believe that a court in Pakistan is empowered to compel parties to arbitrate even though, traditionally, under the Convention, courts of contracting states have not resorted to such measures.

 

Legislative History

Article II was introduced and incorporated less than three (3) weeks before the Convention was adopted. As per the travaux préparatoires available on the Convention’s website, on 6 March 1958, the UN Secretary General highlighted the issue of recognition of the arbitration agreements and the need for a provision which would prevent a party to an arbitration agreement from ‘sabotaging’ that agreement by bringing the dispute before a regular court in the contracting state (See paragraph 25). Thereafter, Article II was proposed and refined by the contracting states several times (as an additional protocol and, later, as a new article in the Convention) before being finalized as Article II of the Convention.

Article II(3) is a refined version of Article 4 of the Geneva Protocol, 1923 (‘Protocol’). A textual comparison of Article 4 of the Protocol with Article II(3) of the Convention will highlight some key points:

  • First, the use of the word ‘seized’ (in past-tense) in both articles presupposes the fact that a tribunal, or a court, must be adjudicating an issue between the parties to the arbitration agreement.
  • Second, the word ‘dispute’ has been substituted with ‘action’ in Article II(3), which widens the type of legal proceedings that may be brought by a party to the arbitration agreement before the court of the contracting state.1)‘Action’ is defined in Black’s Law Dictionary, 9th Edition at definition No.4 as ‘a civil or criminal judicial proceeding – Also termed action at law’. jQuery("#footnote_plugin_tooltip_1843_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1843_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });
  • Third, the phrase ‘regarding a contract’ was changed to ‘in a matter’, which also broadens the scope of issues that may be brought in an action before the court of a contracting state.2)Envisaged in Article II(1) of the Convention to include all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration’. jQuery("#footnote_plugin_tooltip_1843_2").tooltip({ tip: "#footnote_plugin_tooltip_text_1843_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });
  • Fourth, the phrase ‘on the application of either of them’ was changed to ‘at the request of one of the parties’, but this change appears to be inconsequential given that any party to the arbitration agreement may apply to the court, seized of an action, for reference to arbitration.
  • Finally, both Articles are consistent in using the phrase ‘refer the parties’.

This textual comparison shows that the scope of Article 4 of the Protocol was expanded in Article II(3) of the Convention. It includes more classes of legal proceedings (not just disputes) that may be brought by a party to the arbitration agreement in respect of any differences arising from a broadly defined legal relationship (contractual or not). It is equally important to re-emphasize that Article II(3) of the Convention does not offer any other, or additional, meaning except that it is intended to place an effective mechanism against a party seeking to sabotage the arbitration agreement by bringing the dispute before a national court.

The UNCITRAL Guide to the Convention has also deliberated on this issue in its chapter on Article II3)See paragraphs 59 to 64 in the chapter on Article II. jQuery("#footnote_plugin_tooltip_1843_3").tooltip({ tip: "#footnote_plugin_tooltip_text_1843_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and concluded that even though the travaux préparatoires are silent on the scope of the obligation of courts to refer parties to arbitration but courts of the contracting states fulfill their obligation to refer the parties to arbitration in two ways namely, either by declining jurisdiction, or by staying judicial proceedings, in the presence of an arbitration agreement. As per the UNCITRAL Guide, these approaches are consistent with the obligation of the courts of contracting states to refer the parties to arbitration. A similar view is set out in the Handbook of Judge – Guide to the Interpretation of the 1958 New York Convention issued by the International Council for Commercial Arbitration.4)See Chapter II at Part II.3 titled ‘How To Refer Parties To Arbitration’ – ‘The “referral to arbitration” is to be understood as meaning either a stay of the court proceedings pending arbitration or the dismissal of the claim for lack of jurisdiction, in accordance with national arbitration or procedural law.’ jQuery("#footnote_plugin_tooltip_1843_4").tooltip({ tip: "#footnote_plugin_tooltip_text_1843_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

International Precedents

As a review of Pakistani law alone leaves the analysis ambiguous, international precedents are instructive. The English judgment rendered by Lord Mustill in Channel Group v. Balfour Beatty Ltd5)[1993] 1 All ER 664 at paras 54 to 60. jQuery("#footnote_plugin_tooltip_1843_5").tooltip({ tip: "#footnote_plugin_tooltip_text_1843_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); offered a compelling interpretation to Article II(3) of the Convention. Lord Mustill held that Article 1(1) of the English Arbitration Act, 1975 is not para-materia to Article II(3) of the Convention and that the Convention envisages a procedure similar to the former English practice where the order of the court when called into being a reference to arbitration meant that both parties were at once compulsorily remitted. Lord Mustill also held that the 1975 Act requires and empowers the court to only stay the action, thereby cutting off the claimant’s agreed method of enforcing his claim and that it was up to the claimant to initiate arbitration or not. Lord Mustill concluded this issue by holding that since the legislature had ‘deliberately’ opted for a defensive mechanism in the English law rather than a compelling measure therefore, the court would restrict to staying legal proceedings without referring the matter to arbitration.

In Westco Airconditioning Ltd. versus Sui Chong Construction and Engineering Ltd [1998] 1 HKC 254, the Hong Kong High Court disagreed with Lord Mustill’s interpretation of Article II(3) in Channel Group’s case. According to the judgment, ‘what the statute means when it says “refer the parties to arbitration” is not “refer the dispute to the arbitrators”, as Lord Mustill suggests in relation to the Convention, but refer the parties to the process of arbitration that the parties have agreed to undertake, and, if this involves a preliminary step that the parties have agreed, to complete that step.’ This interpretation reinforces the position that the phrase ‘refer the parties to arbitration’ is not a compelling measure but, instead, it is a shield to protect against a party to the arbitration agreement that intends to breach it by bringing an action before the court of a contracting state.

Likewise, Emmett J of the Australian Federal Court in Hi-Fert Pty Ltd. versus Kuikiang Maritime Carriers Inc [1998] FCA 558,6)See page 7 of Emmett J’s reasoning. jQuery("#footnote_plugin_tooltip_1843_6").tooltip({ tip: "#footnote_plugin_tooltip_text_1843_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); while interpreting Section 7(2) of the International Arbitration Act, 1974 which incorporated Article II(3) of the New York Convention, held that the expression ‘refer the parties to arbitration’ can have two technical procedural meanings, namely, a court directive staying the Court proceedings or a court directive imposing arbitration on the parties. According to Emmett J, the first directive is logical as the expression ‘refer the parties to arbitration’ should not be taken as having the meaning of obliging the parties to arbitrate (i.e. the compulsive effect) since the Convention does not require a Court directive to go to arbitration if a party refuses to participate and that it is up to the parties, or at least one of them, to decide whether an arbitration should take place or proceed. An award can indeed be issued in the absence of the other party.

 

Conclusion

Thus, to conclude, the logical interpretation that must follow from the travaux préparatoires, UNCITRAL Guide and the above case precedents is that the phrase ‘refer the parties to arbitration’ in Article II(3) of the Convention means declining jurisdiction or staying of legal proceedings (as applicable in a contracting state) because Article II(3) of the Convention provides a defensive mechanism against a party which attempts to sabotage its contractual commitments in an arbitration agreement. It is triggered, and should only be relied upon, when one party to the arbitration agreement commences legal proceedings before a national court, which court is then seized of that action and the other party may request the national court to refer the parties to arbitration. The national courts do not appear to be empowered to go beyond declining jurisdiction, or staying of legal proceedings, and compelling the parties to arbitrate in an action pending before it because Article II(3) of the Convention does not envisage the compelling directive of reference of disputes to arbitration. Thus, although the author is unaware of any Pakistani case law directly addressing this question, Section 3(1) of the 2011 Act is unlikely to empower Pakistani courts to compel parties to arbitrate. This is also supported by the fact that Section 3(2) of the 2011 Act envisages filing of an application for ‘stay of legal proceedings’ pursuant to Article II of the Convention in a High Court where proceedings are pending. Similarly, Section 4(1) of the 2011 Act requires filing of an application for stay of proceedings before any other forum where a party initiates legal proceedings in violation of the arbitration agreement.

References   [ + ]

1. ↑ ‘Action’ is defined in Black’s Law Dictionary, 9th Edition at definition No.4 as ‘a civil or criminal judicial proceeding – Also termed action at law’. 2. ↑ Envisaged in Article II(1) of the Convention to include all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration’. 3. ↑ See paragraphs 59 to 64 in the chapter on Article II. 4. ↑ See Chapter II at Part II.3 titled ‘How To Refer Parties To Arbitration’ – ‘The “referral to arbitration” is to be understood as meaning either a stay of the court proceedings pending arbitration or the dismissal of the claim for lack of jurisdiction, in accordance with national arbitration or procedural law.’ 5. ↑ [1993] 1 All ER 664 at paras 54 to 60. 6. ↑ See page 7 of Emmett J’s reasoning. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Why Bother Going Back to the Errant Tribunal When You Can Turn to the Court Instead? Or Should You?

Mon, 2020-11-02 00:33

Readers of this blog are well familiar with the sharp criticism international arbitration faces on account of the quality of legal reasoning in arbitral awards. Traditionally, much of the prolific debate has revolved around the arbitrators’ duty to give reasons. Recent cases (here and here), however, have sparked a discussion on the arbitrators’ failure to address claims submitted by the parties; claims that although presented during the proceedings, are omitted from the award.

This blog post casts light on the remedies parties should (not) make use of when being handed an infra petita award (i.e. an award which fails to address the parties’ case in its entirety).

Infra Petita Awards: The Fuss, the Law, the Practice

The scenario of an arbitral tribunal issuing an infra petita award is by far an undesirable one. Awards of such nature leave issues unresolved between the parties and frustrate their legitimate expectations towards the tribunal’s adjudicative function. Unsurprisingly, therefore, it seems natural for the aggrieved party to lose confidence in the tribunal and accordingly attempt to challenge the award in front of a court.

Although it may sound paradoxical to some that parties would want to set aside the whole award merely because certain claims have been left out of it, practice shows that challenges on infra petita grounds are far from moderate. A purview of case law in Model Law jurisdictions suggests that parties are more prone to turn to courts with a setting aside application, than go back to the errant tribunal for an additional award. This is despite the ambiguous procedure for setting aside infra petita awards under the Model Law, compared to the rather straightforward application for an additional award.

Art. 34 of the Model Law, which holds the exhaustive list of grounds for setting aside, makes no explicit reference to infra petita awards. The only time the Model Law deals with awards of such nature is through Art. 33(3) which allows parties to request an additional award for claims presented during the proceedings, but omitted from the award. It appears, therefore, that this deliberate omission by the draftsmen is strongly suggestive that infra petita awards were never meant to be set aside. Rather, it was intended they be rectified by means of an additional award only. Indeed, this position gains further support when accounting for the fact that the Model Law was intended to mirror the New York Convention, and the Convention does not preclude enforcement on infra petita grounds. However, a closer reading of Art. 33(3) would negate this conclusion. Seeing how the provision is not one of mandatory nature, to say that it is the sole remedy, would be rather implausible. By the same token, any argument claiming that a request for an additional award is a prerequisite to a setting aside application, would likely fall short.

Building on this idea, parties have challenged infra petita awards and, in some cases, been successful in invoking Art. 34(2)(a)(iii) and Art. 34(2)(b)(ii) of the Model Law as a first resort. Granted, there is a tempting attraction to the idea of challenging an unfavourable award, for this gives the aggrieved party a chance at a second bite of the cherry. However, if the parties’ true quarrel is, indeed, with claims being omitted from the award, then it is humbly submitted here that rushing to the court might do more wrong than it does right.

Minimal Curial Intervention

CEB v CEC and another matter is a recent case which demonstrates this with stark clarity. Here, the award was challenged on account of a relatively small claim being left out. No prior request for an additional award was submitted to the tribunal. In refusing the party’s application for setting aside, the court noted that although the failure to request an additional award was not fatal to the party’s case, it was, nonetheless, a contributing factor. Seeing how Art. 33(3) was designed precisely to remedy omissions, to allow a setting aside application notwithstanding the absence of a request for an additional award, would be neither appropriate nor efficient. Any other scenario would counteract the principle of minimal curial intervention.

The decision is a robust affirmation of the primacy of the arbitral process. The key takeaway here is, thus, clear: while parties are certainly free to turn to courts without asking the tribunal for an additional award, they run the risk of having their application denied precisely on account of their failure to do so.

(Ab)use of the Setting-Aside Process

In a similar vein, in BLC and others v BLB and another reference was made to the possibility of penalizing a party for invoking Art. 34 before relying on Art. 33(3) of the Model Law. Allowing parties to set aside the award before first attempting to eliminate the ground the justifies the setting aside, can, according to the court, amount to an abuse of the setting aside process. Accordingly, as a penalty for failing to utilize available arbitral mechanisms, the court may refuse to set aside the award.

There is certainly merit in the argument that parties ought to be penalized for turning to the court before giving the tribunal the chance to rectify the award. Any other conclusion would stand at odds with the pro-arbitration ethos embedded in the Model Law and leave parties disincentivized of using Art. 33(3). What is more, the idea of penalizing parties for abusing the setting aside process is not entirely unheard of in Model Law jurisdictions. Courts in Hong Kong have long used indemnity costs orders against parties who trouble the court with unmeritorious challenges (here, here, and here). Admittedly, these orders were not given in the context established in this blog. Nevertheless, there is nothing to suggest that the same principle would not apply in such cases as well.

Waiver of the Right to Request the Setting Aside

In addition, there are commentators1) Robert Merkin and Johanna Hjalmarsson, Singapore Arbitration Legislation Annotated (Informa, 2009), page 105. jQuery("#footnote_plugin_tooltip_8115_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8115_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); who posit that parties might be deemed to have waived their right to challenge the award on infra petita grounds, if they did not try to rectify it with the arbitral tribunal first. This, in fact, is the logic we find behind s70(2) of the UK Act and Art. 1065(6) of the Dutch Code of Civil Procedure. In both countries, it is explicitly stipulated that parties will lose their right to challenge the award, if they do not exhaust available remedies in the arbitral proceedings first.

Although such provision is not present in the Model Law, it should, nonetheless, be noted that the English position appears to have been influential on the analysis of courts operating in Model Law jurisdictions. Todd Petroleum Mining Company Limited v Shell (Petroleum Mining) Company Limited illustrates that. Therein, the New Zealand’s Court of Appeal, alluding to the principle of minimal curial intervention embedded in the Model Law, emphasized that s70(2) of the UK Act ‘merely makes express in the UK what is implicit in New Zealand’. Thus, when challenging infra petita awards, parties should be mindful that in addition to explicit provisions, implicit ones may also apply.

Veiled Attempt to Review the Award on its Merits

Finally, what we see way too often is parties disappointed with the outcome of the award throwing everything but the proverbial kitchen sink in their setting aside application, in hopes of prevailing at the one shot they have in arbitration. When this seems to be the case, courts tend to be particularly careful, for ‘sieving out the genuine challenges from those which are effectively appeals on the merits is no easy task.

This is perhaps most clearly seen in Huawei Technologies (Malaysia) Sdn Bhd v Maxbury Communications Sdn Bhd where the award was challenged, among others, on infra petita grounds, despite the tribunal having had considered all issues raised by the parties. In refusing to set aside the award, the court was swayed by the fact that the application was nothing more than a thinly-disguised attack on the merits of the award.

Thus, when thinking of pulling such “trick”, parties should be cognizant that courts will be highly vigilant in separating genuine setting aside applications from what appear to be de facto appeals on the merits. The absence of a request for an additional award, therefore, might just hint that the party’s problem is, in fact, with the merits of the award rather than with the omitted claims.

Conclusion

A tribunal’s failure to address the entirety of the parties’ case is certainly not desirable. If the attractiveness of arbitration as a credible alternative to court proceedings is to be maintained, then arbitrators are expected to issue well-reasoned awards that address the parties’ case entirely. In the event of omissions, parties, as a rule of thumb, are advised to first attempt to rectify the situation with the tribunal. If dissatisfactions still remain, then setting aside proceedings can be pursued.  In doing so, parties uphold the primacy of the arbitral process and avoid the risk of having their setting aside application denied on account of their failure to do so.

 

References   [ + ]

1. ↑ Robert Merkin and Johanna Hjalmarsson, Singapore Arbitration Legislation Annotated (Informa, 2009), page 105. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Draft Code of Conduct for Adjudicators in ISDS Proceedings: Further Practical Considerations

Sat, 2020-10-31 23:46

The Institute for Transnational Arbitration (“ITA”) hosted a four-part webinar discussing the Draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement, between 21-25 September 2020. Each part addressed specific practical considerations raised by the matters addressed in the Draft Code of Conduct: issue conflict, double hatting, repeat appointments, and implementation and enforcement of the Draft Code of Conduct.

 

The first session, “Is there an Issue with Issue Conflict?”, was opened by Joseph E. Neuhaus (Chair – ITA) and the discussion was moderated by Chiara Giorgetti (Chair – Academic Council ITA) and Tom Sikora (Senior Vice Chair – ITA) with expert panelists Anna Joubin-Bret (Secretary – UNCITRAL), Martina Polasek (Deputy Secretary-General – ICSID), Dominique Brown-Berset (Brown&Page), Lucy Reed (Independent Arbitrator, Arbitration Chambers), and Catharine Titi (CNRS-CERSA, University Paris II Panthéon-Assas).

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The starting point was Article 5.2.(d) of the Draft Code of Conduct, which currently addresses issue conflicts by requiring arbitrators to disclose “a list of all publications by the adjudicator or candidate [and their relevant public speeches]”.

The panelists discussed the definition of “issue conflict” considering the fact that there is no consensus on what factual scenarios create issue conflicts nor whether it is a standalone category or a matter of independence, impartiality or both. The suggestion was to include guidelines to this effect built on concrete examples for clarity. The panel identified five scenarios that have been argued to present potential issue conflicts: (i) the arbitrator’s prior publications; (ii) the arbitrator’s prior statements about the parties or the case; (iii) previous or concurrent appointments where the arbitrator addressed a similar legal issue (particularly if there is a close connection between the facts and the parties in the previous cases) or multiple appointments by the same party or counsel; (iv) double hatting; and (v) prejudgment by the arbitrator based on a previous relationship with the parties, parties’ affiliates, counsel or experts. In addition to this, the panel also discussed various aspects of a three-factor test that has been suggested for analyzing whether an expression of views on an issue was problematic, focusing on (a) the degree of the author’s commitment to the view expressed; (b) the timing and propinquity of the expression; and (c) the specificity or proximity of the view to the issue in the arbitration.

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A further note was made on the fact that the current commentary to the Draft Code of Conduct only associates issue conflict with the disclosure obligation under Article 5.2(d), although issue conflicts relates to other provisions of the Draft Code, such as Article 4 “Independence and Impartiality”, Article 5 “Conflicts of Interest: Disclosure Obligations” and Article 6 “Limit on Multiple Roles”. Among the recommendations made by the panelists, it was put forward that a proper balance must be struck to prevent a potential chilling effect on scholars and practitioners.

 

The second session of the four-part webinar, “Is there a Problem with Wearing Multiple Hats?”, was opened by Joseph E. Neuhaus (Chair – ITA) and was moderated by Chiara Giorgetti (Chair – Academic Council ITA) and Tom Sikora (Senior Vice Chair – ITA) with expert panelists Andrea K. Bjorklund (Associate Dean and Professor at McGill University Faculty of Law), Anna Joubin Bret (Director – UNCITRAL), Meg Kinnear (Secretary General – ICSID), Lucinda Low (Steptoe & Johnson LLP), Bart Legum (Dentons), and Sylvie Tabet (General Counsel – Government of Canada).

The starting point was Article 6 of the Draft Code of Conduct, which sets out a menu of options for addressing the issue of multiple roles of arbitrations in ISDS proceedings. The panelists considered the nature of the issue(s) which arise from multiple roles, including: (i) possible issue conflicts (for example, for arbitrators who are also instructed as counsel in disputes with overlapping issues; and for experts who have previously expressed a view on a certain point which a tribunal to which they are subsequently appointed is tasked with considering); (ii) lack of impartiality; and (iii) lack of independence (the latter two potentially arising out of a system of reciprocity and “clubbyness”).

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It was noted that commentators are split on whether these issues are real or perceived. In relation to the latter, the panel commented that, for many stakeholders, perception equates to reality: whether real or perceived, the concerns arising from multiple roles risk undermining the ISDS system. This is a serious issue for a system predicated on consent.

Having identified the nature of the problem, the panel considered possible solutions and expressed a broad range of views. For some, disclosure was deemed sufficient to combat the problem as it permits the parties to make an informed choice on whether an arbitrator may have a conflict and then to deal with that accordingly through the established challenge procedures.

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Others favouring a total prohibition noted that disclosure failed to solve the underlying issues, and therefore would not improve public perception. Nevertheless, the panel acknowledged the practical difficulties in deciding on the scope of any prohibition, as well as the possible adverse effects on diversity of the arbitrator pool and encouraging new talent. Possible suggestions to combat this included a transitional period whereby newer arbitrators could continue to act as counsel until the number of their appointments passed a certain threshold (e.g. five appointments).

 

The third session of the webinar series debated the question: “Should There Be Limits to Repeat Appointments?”. Joseph E. Neuhaus (Chair – ITA) opened the session, which was moderated by Chiara Giorgetti (Chair – Academic Council ITA) and Tom Sikora (Senior Vice Chair – ITA) with expert panelists: Meg Kinnear (ICSID), David Probst (UNCITRAL), John Crook (NATO Administrative Tribunal), Mark Feldman (Peking University), and Victoria Shannon Sahani (Arizona State University).

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The panel observed that the Draft Code of Conduct does not directly discuss repeat appointments. Several panelists agreed that repeat appointments implicate an arbitrator’s independence and impartiality, and more broadly, may undermine perceptions of the integrity of investor-state dispute settlement. The Draft Code of Conduct’s response is to focus on fulsome disclosure rather than, for example, designating a cap on repeat appointments akin to that in Article 3.1.3 of the IBA Guidelines on Conflicts of Interest—or what the panel described as the “x appointments” approach. One panelist also noted that any cap may have a disparate impact on claimants and respondents, citing ICSID data indicating that states are more likely than investors to repeatedly appoint certain arbitrators.

Further, the panel noted that the answer to the question posed by the webinar’s title may turn on context. Repeat appointments by a single party, by claimants or respondents, or in disputes addressing common issues raise distinct ethical, policy, and practical considerations. These issues should be addressed with reference to other concerns, such as diversity among arbitrators, party autonomy etc.

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The last session of the four-part webinar addressed “The Questions of Implementation and Enforcement of the Draft Code,” Joseph E. Neuhaus (Chair – ITA) opened the session moderated by Chiara Giorgetti (Chair – Academic Council ITA) and Tom Sikora (Senior Vice Chair – ITA) with expert panelists Meg Kinnear (ICSID), James Castello (King & Spalding), Mairée Uran Bidegain (Ministry of Foreign Affairs, Chile), David Probst (UNCITRAL) and Catherine Rogers (Queen Mary, University of London and Penn State Law). The discussion focused on the implementation and enforcement of the Draft Code and particularly Article 12 of the Draft Code of Conduct, which currently provides that “[e]very adjudicator and candidate has an obligation to comply with the applicable provisions of this code” and “[t]he disqualification and removal procedures in the applicable rules shall continue to apply.”

The panelists first considered how to implement the Draft Code, with possibilities including a Multilateral Treaty on ISDS Reform to incorporate the Code in existing and future investment treaties, incorporation into bilateral treaties, adoption by specific institutions, and ad hoc application by parties to specific disputes. While each of these options has its benefits and challenges, with one of the more straightforward being the possibility of ICSID attaching the Draft Code (once finalized) to the declaration signed by individual arbitrators.

The discussion then turned to enforcement. Like many similar instruments, the Draft Code currently relies on voluntary compliance subject only to the disqualification and removal procedures in the rules applicable to a particular dispute. While voluntary compliance tends to work in the vast majority of cases, there is an understandable desire to include an enforcement mechanism within the Draft Code.

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For those who may view challenge and removal of arbitrators who violate the Draft Code as insufficient, other possibilities include monetary fines, reputational consequences or referral to professional disciplinary bodies. While stakeholders are additionally considering other enforcement mechanisms, panelists also mentioned the need to think about mechanisms to incentivize compliance throughout the proceeding in lieu of sanctioning non-compliance.

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Full recordings of the four-part webinar on Draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement are available on ITA’s YouTube channel.

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Incentivising Commercial Space Activities through International Investment Arbitration

Sat, 2020-10-31 00:00

Ever looked up at the night sky and wondered…what is the regulatory and dispute settlement regime that governs commercial activities out there? Well, it might be about time you did. This post celebrates October’s World Space Week by looking at the developments in the legal framework regulating commercial space activities and how the investor-state dispute resolution (ISDS) regime can incentivise investment in this growing field.

 

World Space Week 2020: ‘Satellites Improve Life’

In 1999, the United Nations General Assembly declared 4-10 October as the World Space Week, celebrating: the launch of the first human-made Earth satellite (1957); the signing of the Outer Space Treaty (1967); and the contributions of space science and technology to the ‘betterment of the human condition.’ Some twenty years later, World Space Week 2020 celebrates satellites – a timely theme given our increasing dependence on virtual technology.

Despite technological advances, however, launching objects into space remains a costly investment. As promising space start-ups continue to be bought out, Amazon CEO Jeff Bezos has identified the exploitation of lucrative resources in space as an imperative step in developing the “infrastructure” necessary to turn space exploration into a commercially viable industry for investors. Yet, much like the regulation of deep-sea mining, the regulation of space mining remains an extremely young – and therefore risky – field of international law.

 

International Space Law

The keystone of the international legal framework governing space is the ‘Outer Space Treaty’. The Treaty has been ratified by 110 countries and notably designates space as ‘the province of all mankind’ and prohibits claims of sovereignty. Yet, despite being groundbreaking for its time, the Treaty’s provisions are inadequate to regulate modern commercial space activities. Namely, the treaty is silent on the recognition of property rights over space resources. Without a guarantee that States will recognise their property rights, what incentive is there for private companies to invest in space exploration? While the subsequent Moon Agreement attempted to clarify this silence by proposing a regime for regulating (and restricting) space mining activities, it has not succeeded in gaining widespread international support.

In response to this lacuna in the law, States have begun to assert their own interpretations of the Outer Space Treaty in an effort to attract investment in the space mining industry. In April, the United States rejected the idea of outer space being a ‘global commons’ in a contentious executive order which declared it the ‘policy of the United States to encourage international support for the public and private recovery and use of resources in outer space.’ The U.S. argues this interpretation only recognises private property rights without asserting sovereignty, and is therefore consistent with the Outer Space Treaty. Despite criticism, this interpretation has been followed by Luxembourg and the United Arab Emirates which, alongside the U.S., have enacted domestic legislation recognising property rights in space resources. Such legislation has resonated with industry. To date, the Luxembourg Government has signed agreements to develop space mining technology with the Japanese space robotics company iSpace, The United Arab Emirates, and New South Wales, Australia.

However, this year, an International Open Letter on Space Mining was penned to the United Nations criticising such unilateral approaches. Instead, the letter advocates for a multilateral process for governing space resource exploration similar to that of the deep seabed. The aim, the letter states, is to avoid ‘separate, possibly inconsistent, governance frameworks’ and ‘marginalizing input from developing and non-spacefaring States’.

Clearly, the space law field remains torn between domestic ‘Wild West’ legislative developments and gradual advances towards a comprehensive multilateral alternative. Assessing the likelihood of these alternatives, investors are left trying to predict their capacity to exploit natural resources in space as the regulatory regime shifts below them.

 

Testing the Boundaries of Investment Arbitration

This year’s World Space Week theme – ‘Satellites Improve Life’ ­­– hints at a potential solution to the ambiguities involved in space mining and commercial space activities more broadly. Investment arbitration cases concerning satellites have begun to enter the ISDS sphere and illuminate the capacity for investment arbitration to supply applicable guiding principles for commercial space activities, as well as significant substantive protections to investors.

The application of investor protections to investments in space was successfully applied in CC/Devas v India. The contract between Mauritius–based Devas and Antrix (the commercial arm of India’s space agency) provided for the licensing of a frequency of satellite spectrum (S-band) for the provision of high-speed Internet services. These S-band frequencies facilitate weather radars, surface ship radars, and some communications satellites, and are, therefore, highly prized. In 2011, Antrix terminated the contract, citing ‘essential security interests’ identified by India’s Cabinet Committee on Security. The tribunal was faced with a difficult question: did India’s military have a genuine need to exclusively reserve the satellite’s S-band capacity or was it a ‘pretext to concoct a force majeure event that would enable Antrix to terminate the contract on advantageous terms.’ The Tribunal found that by terminating its contract with the investor, India had unlawfully expropriated the investor’s investment and breached the obligation to provide fair and equitable treatment under the BIT. However, the Tribunal accepted that India’s legitimate national security interests did partially motivate its decision to terminate the contract, thus finding that India expropriated Devas’ investment only insofar as it was not motivated by essential security interests (40 per cent).

Despite the unconventional investment – a satellite orbiting Earth – the tribunal’s reasoning towards the application of the ISDS regime appears relatively routine.

First, you might well wonder why unique territoriality issues would not arise for satellites. After all, most BITs require an ‘investment’ in the ‘territory’ of the host state. Moreover, Article II of the Outer Space Treaty prohibits a state from claiming sovereignty in space. Article III of the Treaty nonetheless provides that any object launched into outer space by a State shall be within the ‘jurisdiction’ and ‘control’ of that State. Yet, this may not overcome extraterritoriality issues. Instead, it might be argued that any commercial space activities would be operating outside of the ‘territory’ (even if within the ‘jurisdiction’ or ‘control’) of any state. The Outer Space Treaty provisions on ‘control’ over space-based activities nonetheless encourage States to develop licensing regimes to authorise and supervise the launching of objects into space. It is these provisions that assist to resolve the territoriality conundrum when such investments are linked to claims under investment treaties.

In fact, in CC/Devas v India, this question of extraterritoriality was not even raised, which suggests that the relevant question is whether the foreign space company or the geographical basis of the investment is within the territory of the host State. As stated in SGS v Philippines, even those activities that are primarily carried out abroad may satisfy a BIT’s territorial requirements provided the investment’s territorial nexus is the Host State. Accordingly, extraterritorially issues are unlikely to arise where the owner of a satellite is operating out of the host State.

Secondly, the CC/Devas v India Tribunal was analysing very conventional property rights; namely, licences. Whenever respondent States take steps to regulate the activities of licensees vis-à-vis their space operations, questions of treaty breach are particularly likely to arise. Domestic instruments regulating commercial space activity almost universally specify licensing requirements. These licenses are intended to vet proposed orbits and ensure satellites are retired safely, thereby reducing the amount of space junk orbiting Earth. However, licensing requirements also mean that States are potentially regulating foreign investments, which would allow investors to invoke substantive protections to constrain how their host states engage with them and their investments. For instance, in the pending ICSID case Eutelsat v Mexico, the French telecommunication company Eutelsat brought a claim against Mexico in 2017 for requiring Eutelsat to reserve a greater amount of their satellites’ megahertz capacity than Eutelsat’s competitors. This, Eutelsat claims, is a breach of the requirement to accord fair and equitable treatment under the Mexico-France BIT.

Given the significant protections afforded by BITs, these cases may begin to lay down the principles for ISDS’ default application to commercial space activities beyond licensing disputes. Indeed, as more host States create and recognise property rights in space resources under domestic legislation, such rights (with their basis in domestic law) could one day be the subject of investment treaty claims.

 

A Developing Field

To the main theme of this article: can the ISDS regime incentivise and regulate investment in commercial space activities? The cases discussed indicate that despite the seemingly quixotic nature of commercial space mining and exploration, the issues faced by investors in these activities are quite familiar; that is, jurisdictional issues, questions of expropriation, and FET requirements are all issues the ISDS regime is well-adapted to solve. Thus, as ISDS is well equipped to further the global rule of law even beyond the globe, the regime may prove to be the natural default mechanism for solving commercial space activities between investors and States. So, although it may seem a while off, when it does come time to add ‘space arbitrator’ to your CV, investment arbitrators are sure to feel right at home.

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Australian Arbitration Week Recap: Gender Diversity in Arbitral Proceedings Amidst a Global Pandemic

Thu, 2020-10-29 21:49

On 15 October 2020, Corrs Chambers Westgarth hosted a panel on ‘Diversity in Arbitral Proceedings – Opportunities and Challenges in the Wake of Remote Work and Virtual Hearings’ as part of Australian Arbitration Week. The panel was moderated by Rachael King and Nastasja Suhadolnik of Corrs Chambers Westgarth, with Kate Hay (Corrs Chambers Westgarth), Lucy Martinez (Independent Arbitrator), Deborah Tomkinson (ACICA), Nicola Peart (Three Crowns), Hilary Heilbron QC (Brick Court), and Wendy Miles QC (Twenty Essex) forming the panel.

The panel considered the Report of the Cross-Institutional Task Force on Gender Diversity in Arbitral Appointments and Proceedings (which the blog recently reported on) from the perspective of various participant groups in arbitration. As well as considering the Australian experience, the panellists were asked whether the move to remote working and virtual hearings on account of Covid-19 presented an opportunity or challenge to improved diversity in international arbitration. Four key themes can be taken away from the panel discussion.

 

Key themes

First, whilst the Task Force Report revealed the proportion of female arbitrators has almost doubled in the past four years, the panel agreed that there remains room for improvement. This holds true in Australia which, as Deborah Tomkinson reported, is also moving towards the ‘clear and stable’ increase reported by the Task Force. ACICA’s statistics on diversity in arbitral appointments were not reflected in the Task Force’s Report, so its Secretary General’s observations provided a valuable comparator of the Australian experience against the global trends. Similarly, whilst the extensive data in the Task Force Report paints a positive international trend in female arbitral appointments, the panel agreed that there remains significant work to be done globally to ensure the inclusion of women in international arbitration is are carried through, more generally, into hearing rooms on a daily basis. For example, to what extent are women being placed on arbitral lists for consideration and, once placed on those lists, how can we ensure more women are actually selected from those lists for appointment? Similarly, as we see more women appearing as counsel in international arbitrations, how can we ensure women are given speaking or client facing roles? It was also agreed that no discussion on diversity, whether local or global, is complete without a consideration of diversity in all its varied forms – not just gender.

Second, the panel considered the fundamental considerations of equity which mandate that female participation at the highest levels of international arbitration reflects the participation of women in the legal profession and the arbitration community more generally, as well as the many benefits of increasing diversity including the Report’s findings that ‘the best talent may be female’ and that diversity can improve both arbitral process and outcomes. The panel’s personal experiences and anecdotes were an important reminder that a lack of diversity not only limits opportunities in the arbitration field, but risks an arbitral process and record which reflects only part of a population’s evidence or experiences. The importance of diversity for long term change in the field was patent in anecdotal reports that it appeared more likely for a junior female counsel to be given time on her feet to address a tribunal where the panel included a female arbitrator. The panel agreed that in addition to the many benefits of improved diversity which the Task Force Report outlined in detail, it was important to recognise there was also simply a moral imperative to do better.

Third, there was recognition that pressure to improve can and should emanate from a number of directions including, importantly, from clients. The panel was unanimous in its observations that as clients, particularly in the technology sector, continue to demand more diverse representation and decision making, the statistics will continue to improve. Relatedly, it was emphasised that third party funders are also increasingly placing pressure on parties, making diversity a condition of their funding arrangements.

Finally, the panel turned to consider whether Covid-19’s impact on remote working and virtual hearings was harming or helping the push for greater diversity. The move online represented a double-edged sword for females in the field. From an Australian perspective, it removed the isolation of being ‘down under’ and therefore presented greater opportunities. It has also led to an increase in access to high quality and low cost training and professional development. As the panel itself evidenced, Covid-19 is providing opportunities for Australian women in the field to collaborate with their international colleagues absent the cost of an airfare (constrained only by a 12 plus hour time difference). However, the impact of working from home – particularly under some of the world’s strictest lockdown rules in Melbourne, could not be overlooked, with women having to juggle their arbitral commitments with the lion’s share of childcare and home-schooling.

The panel’s review of the Task Force Report’s statistics and findings, coupled with their personal perspectives, revealed that whilst there is much to celebrate, there also remains work to be done. The panel hoped that in addition to a continued and sustained surge in positive statistics, women working in international arbitration would no longer be seen as simply “dabbling” in arbitration. Ultimately, the panel tackled both big ticket diversity questions, such as how we can tackle unconscious bias, whilst at the same time providing some sage advice for a younger and more diverse field of arbitrators and practitioners, including a simple but effective comeback when met with any push-back from colleagues of ‘that’s not cool’.

 

Brief comments

The topic of increased diversity, in all its forms, is a prominent feature of a growing number of articles on the blog. This panel event, and Australian Arbitration Week more broadly, cemented the fact that the Australia arbitration community is, alongside its international colleagues, considering how to ensure we continue seeing a steady increase in positive indicators of diversity – with the statistics in the Task Force Report’s being one key example. It will be interesting to see whether, by the time of 2021’s Australian Arbitration Week, the opportunities presented by Covid-19 result in any marked change in these numbers or the experiences of Australian women in international arbitration.

 

More coverage of Australian Arbitration Week is available here.

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