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Colombia’s Constitutional Court Declares That Constitutional Injunctions (Tutela) Can Be Upheld Against Awards In International Arbitration

Sun, 2019-11-03 20:00

Eduardo Zuleta and María Camila Rincón

On August 6, 2019, the Fifth Revision Chamber of Colombia’s Constitutional Court (the “Court”) issued judgment T-354/19 resolving a constitutional injunction (tutela)1)The tutela is a constitutional injunction that aims to protect fundamental constitutional rights when they are violated or threatened by the action or omission of any public authority. This mechanism is incorporated in Article 86 of the Constitution. Tutelas proceed when: (i) fundamental constitutional rights are violated or threatened; (ii) when there are no other means to protect the right; and (iii) against action or omissions of a private individual in the event that said individual provides a public service, or exercises public functions; and (iv) when the actor is in a situation of defenselessness or subordination with respect to the individual against whom the tutela is brought. jQuery("#footnote_plugin_tooltip_8282_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8282_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); submitted by a state-owned company and its subsidiary against an international arbitral award (the “Tutela”). In its decision, the Court recognized the possibility of obtaining constitutional injunctions against awards issued in international arbitrations seated in Colombia. However, it concluded that the Tutela was not admissible in the specific case because the annulment proceedings had not been exhausted.

This is a decision of one of the Chambers of the Court, not a decision of the plenary of the Court nor a decision to unify jurisprudence, and therefore it only applies to the specific case and may be revisited.



On December 22, 2010, Gecelca S.A E.S.P (“Gecelca”) and its subsidiary Gecelca 3 S.A.S E.S.P (“Gecelca 3”), and the Consortium CUC-DTC, constituted by China United Engineering Corporation and Dongfang Turbine Co. LTD. (the “Consortium”), executed an EPC contract to build a thermoelectric plant (the “Contract”).

During the development of the Contract certain disputes arose between the parties regarding, inter alia, the term for performance of the Contract, Gecelca 3’s alleged delay in the payment of invoices, and the alleged breach of the Contract by the Consortium.

On December 29, 2014, the Consortium submitted a request for arbitration under the arbitration clause of the Contract. The tribunal, seated in Bogota, was constituted on March 11, 2015 from the list of “international arbitrators” of Bogota’s Center of Arbitration (the “Tribunal”). The Parties disputed whether the arbitration was to be conducted as a national or an international arbitration.

On May 8, 2015, the Tribunal issued a partial award deciding that the arbitration was international because two of the three criteria set forth in Article 62 of Law 1563 of 2012 (Statute of National and International Arbitration) were applicable in the specific case. Namely, that the parties were domiciled in different States at the time of execution of the arbitral clause and that the dispute affected international trade interests (the “Partial Award”).

On December 4, 2017, the tribunal issued a final award (the “Final Award”) declaring, among other things, that Gecelca 3 had breached the Contract, and ordering it to pay over USD $40 million to the Consortium.

On January 11, 2018, Gecelca 3 filed an action to set aside the Final Award before the Third Section of the Council of State (the “Third Section”), because, among other reasons, it was inconsistent with Colombia’s international public order.

In parallel, on February 28, 2018, Gecelca and Gecelca 3 (the “Gecelca companies”) presented a constitutional injunction (tutela) against the Final Award alleging that the Tribunal had violated their fundamental rights to due process and access to justice. The Gecelca companies also requested interim measures to suspend the payment ordered by the Tribunal.

On July 26, 2018, the Fourth Section of the Council of State – the first level competent court –declared that the tutela was inadmissible considering that this mechanism could not be used to re-open a legal debate addressed during the arbitral proceedings. On September 12, 2018, the Fifth Section of the Council of State –the second level competent court– confirmed the first instance judgment and added that, since constitutional injunctions are subsidiary mechanisms, the tutela was not admissible because the decision to set aside the Final Award was still pending.

Following the first and second level decisions, Gecelca 3 filed a request before the Constitutional Court to revise the tutela. On October 29, 2018, the 10th Selection Chamber of the Court selected the tutela for revision and designated the Fifth Revision Chamber for this purpose.


The Constitutional Court’s decision

The Fifth Revision Chamber concluded that it is possible to obtain constitutional injunctions (tutelas) against international arbitral awards. However, it decided that, in the specific case, a constitutional injunction was not appropriate because annulment proceedings were still pending.

The court noted previous constitutional jurisprudence according to which arbitral awards issued in national arbitrations are materially equivalent to judicial decisions because arbitrators are temporarily invested with the function of administering justice according to Article 116 of the Constitution, and considering that both are issued in the exercise of jurisdictional functions and have res judicata effects. For this reason, the admissibility of constitutional injunctions against arbitral awards must be analyzed under the same requirements applicable to judicial decisions.

Nonetheless, said requisites must be more rigorously applied to arbitral awards than to judicial decisions, considering that arbitral awards derive from the express will of individuals deciding to depart from the jurisdiction of the courts.

The Court concluded that the same criteria applicable to analyze the admissibility of arbitral awards issued in national arbitrations, must be applied to awards issued in international arbitrations. Accordingly, the admissibility of constitutional injunctions against international arbitral awards must be analyzed on the basis of the following criteria: (i) the arbitral award must have violated fundamental rights directly; (ii) the applicable remedies must have been previously exhausted (according to Article 40 of Law 1563 of 2012, the only applicable remedy to arbitral awards is annulment); and (iii) compliance with “specific admissibility requirements” (as set out in Judgment T-466 of 2011), which refer to the existence of substantive, organic, procedural, or factual defects of the award or the tribunal’s constitution, also known as the doctrine of “vías de hecho”.

Additionally, the Court noted that when the substantive law applicable to the arbitration is foreign, constitutional judges shall only apply Colombia’s international public order as parameter of constitutional control. In consequence, “specific admissibility requirements” are only applicable when the award is “partially governed by Colombian law” and not when the substantive law applicable to the arbitration is foreign.

Finally, the Court noted that the possibility of obtaining constitutional injunctions against international awards is even more exceptional (“excepcionalísima”) than in the case of national awards. Yet, it is a discretional matter for the competent judge to decide.

Based on the above, the Court concluded that the Tutela filed against the Final Award was not admissible considering that the Gecelca companies had not previously exhausted the proceedings to set aside the award, which are still pending before the Third Section of the Council of State.



The Court’s decision leaves several questions unresolved.

First, despite the fact that Colombia is a contracting party to the New York Convention of 1958 (the “Convention”), the Court did not address the interplay between Colombia’s international obligations under the Convention and the domestic legal regime. According to Article V(1)(e) of the Convention, the recognition and enforcement of the award may be only refused if, inter alia, the “award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which that award was made.” In the light of this provision, one may ask how the decision of the Court that tutelas may be filed against awards issued in international arbitrations seated in Colombia interplays with an international convention to which Colombia is a signatory and which provides for the action to set aside as the sole remedy against an award. Regrettably, the Court did not address this point in its decision.

Second, the Court’s analysis regarding the relation between “the law governing the award” and the admissibility of constitutional injunctions is unclear. The Court states that when the “the law governing the award” is foreign, there is no room to analyze the admissibility of a tutela in light of criteria different than Colombia’s international public order. While it is far from clear what the Court means by with “the law governing the award”, it seems to be referring to the substantive applicable law. Accordingly, the Court seems to conclude that in those cases where “the law governing the award” is partially Colombian, the constitutional judge may apply other criteria such as the doctrine of “vías de hecho”, a catalogue of: substantive (e.g. the arbitrator interpreted or applied a rule ignoring constitutional judgments with erga omnes effects defining the scope of the rule); organic (e.g. the arbitrators have absolutely no competence to resolve the matter submitted to their consideration, either because they have manifestly acted outside the scope defined by the parties or because they have ruled on non-arbitrable matters); procedural (e.g. the arbitrators have issued the award in a manner completely contrary to the procedure established contractually or in the law); and factual defects (e.g. the arbitrators made their assessment of the evidence directly violating fundamental rights) in which the award or the tribunal may incur. If this is so, then a constitutional judge deciding a tutela against an international arbitral award, may review the merits of the case to determine if the arbitral tribunal incurred in vías de hecho.

Third, while the court states that national awards are “materially equivalent” to judicial decisions and seems to conclude that the same equivalency applies to an award issued in an international arbitration, it does not explain how it arrived to such conclusion and does not analyze the implications of such equivalency. Does it mean that the decision considers arbitrators in an international arbitration as judges?  If so, can a non-Colombian be deemed to be a judge exercising jurisdiction in Colombia, although Colombian nationality is required to be a judge in Colombia? Can arbitrators seated in an international arbitration in Colombia trigger the international responsibility of Colombia?



In its review of the case, the Court invited scholars and institutions to provide comments on several questions related to the Tutela, the key one being whether constitutional injunctions should be admitted against awards issued in international arbitrations seated in Colombia. The majority of the opinions were in the negative based on the same point of departure: arbitrators in international arbitrations seated in Colombia are not judges, public officials, or private parties exercising public functions. The Court, however, seems to have departed from this premise and based its analysis on the thesis that international arbitrators comply with public functions.

References   [ + ]

1. ↑ The tutela is a constitutional injunction that aims to protect fundamental constitutional rights when they are violated or threatened by the action or omission of any public authority. This mechanism is incorporated in Article 86 of the Constitution. Tutelas proceed when: (i) fundamental constitutional rights are violated or threatened; (ii) when there are no other means to protect the right; and (iii) against action or omissions of a private individual in the event that said individual provides a public service, or exercises public functions; and (iv) when the actor is in a situation of defenselessness or subordination with respect to the individual against whom the tutela is brought. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
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Is The Future Bright For International Energy Disputes In Asia?

Sat, 2019-11-02 22:24

Gabriella Richmond

The ITA-IEL-ICC Joint Conference on International Energy Arbitration was held in Singapore in September, examining the future of international energy disputes in the region. There was a focus on the client perspective, with insights from a variety of speakers. The range of participants and speakers was impressive, with practitioners, in-house counsel and institution representatives covering a broad spectrum of topics in the lifecycle of energy disputes.

As the inaugural holding of the conference in Singapore, Edwin Tong SC (Senior Minister of State for Law) highlighted the growing importance of Asia as an energy hub, and Singapore as a dispute resolution hub for parties worldwide. As SMS Tong noted, energy demands have grown hugely in Asia in the last 15 years, driven by Asia’s development and the infrastructure required. Singapore is Asia’s leading oil trading hub, and home to more than 300 leading energy and chemical companies. Its location and position as a neutral and stable jurisdiction make it attractive for multi-party, multi-jurisdictional, high-value disputes, particularly as the industry grows.


Lifecycles and global reach of energy disputes. The conference covered a variety of aspects to an energy dispute, from pre-dispute responsibilities of the parties involved and early case assessment, through to awards and settlement possibilities. A panel of in-house counsel and practitioners (Jennifer L. Ferratt, Chevron; Christopher Moore, Moyes & Co; Nandakumar Ponniya, Baker McKenzie; and Liz Snodgrass, Three Crowns) also discussed “Exit” disputes at the end of a project, covering the framework for such disputes, the financial and fiscal aspect, and the commercial and investment aspect of dispute resolution.

From a region-specific angle, Professor Chester Brown delivered a presentation on difficulties encountered through boundary disputes in the Asia-Pacific region, particularly significant for energy disputes. Professor Brown considered the balance of uncertainty over making investment decisions against the demand for energy, against a background of key boundary disputes in the region. In terms of comparisons drawn from energy disputes in Europe, Mark Mangan (Dechert LLP) and Joquin Terceno (Freshfields) took part in an interesting debate considering the similarities and differences between gas price reviews in Europe and Asia. This left conference members wondering if price reviews in Asia will follow the same pattern seen in Europe, despite many market differences. The diversity of topics covered, and global experience of the speakers themselves was an overriding theme throughout the two days, encapsulated by two inspiring interviews with Laura M. Robertson (ConocoPhillips) and Loretta Malintoppi (39 Essex Chambers, Singapore).


Innovation in arbitration keeping the future bright. A repeated topic throughout the conference was innovation in arbitration, with both institutions and practitioners staying attuned to what parties want and developments in the field, both generally and energy dispute-specific. Senior representatives from the ICC, ICSID, SIAC and HKIA spoke on recent innovations and perspectives from the institutions, including prevalent topics such as third party funding and transparency. Throughout the conference, the rising importance of mediation and ADR also became clear, particularly with the recent signing of the Singapore Convention on Mediation.


Practicalities from an in-house perspective. The in-house perspective added a practical note to discussions, with engaged and interested clients with a desire for time and cost efficiency in proceedings. On a general note, the management of construction disputes was summarised by experienced practitioners (Erin Miller Rankin, Freshfields, and Chen Han Toh, Pinsent Masons MPillay), and the client perspective from Mona Katigbak (GE Renewable Energy) and Catherine McNeilly (INPEX Australia). Client interest and involvement in selecting an arbitrator was evident, as well as the need for alignment between counsel and clients in the approach to the dispute.

The influence and responsibility of the parties at the pre-arbitration stage, particularly in relation to attempted settlement and dispute assessment was emphasised, with early case assessments and proactive resolution plans. Reference was also made to the updated ICC Commission Report published in February 2019, with updates on interim measures, settlement and translations being discussed in relation to energy disputes. The proactivity of institutions in responding to what users and clients want was apparent. As a fitting end to the conference, Craig Miles (King & Spalding) delivered a concise and entertaining review of the top energy dispute cases of the year, including the very recent award in ConocoPhillips v Venezuela.


Key takeaways. The recurring themes, as highlighted by the conference co-chair Nicholas Lingard (Freshfields), were those of diversity, both in terms of experience, perspectives and nationalities, and the omnipresence of geopolitics in energy disputes. The importance for clients in maintaining working relationships during a dispute, and the need for cost and time efficiency, was also evident. Institutions and seats are responding to this by increased focus on areas such as third party funding, settlement, and expedited arbitrations, amongst others. ADR is gaining greater traction and rising in importance outside of formal arbitration proceedings, particularly with the recent signing of the Singapore Mediation Convention. The future for energy arbitration in Asia does look bright, bolstered by proactive institutions and engaged clients, against a backdrop of an increasingly important Asian market.

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Does Signing an International Treaty Impliedly Waive Sovereign Immunity in the U.S. under the FSIA?

Fri, 2019-11-01 22:22

J.P. Duffy IV and Daniel Avila II

The recent decision issued by the United States Court of Appeals for the District of Columbia in Pao Tatneft v. Ukraine reopened the door to whether a country waives sovereign immunity under the Foreign Sovereign Immunities Act (the “FSIA”) by signing the New York Convention or other international treaties.

In Pao Tatneft v. Ukraine, Tatneft, a Tatarstan oil company, was a primary shareholder to a Ukrainian oil company, along with Ukraine and Tatarstan (a republic of the Russian Federation). When the Ukrainian courts invalidated Tatneft’s shares, Tatneft sought arbitration against Ukraine under the Russia-Ukraine Bilateral Investment Treaty (the “Russia-Ukraine BIT”). An UNCITRAL arbitral tribunal in Paris awarded Tatneft $112,000,000 in damages plus interest against Ukraine for violating its obligations under the Russia-Ukraine BIT by failing to provide legal protection and allowing discrimination against Tatneft, an investor from Russia.

Tatneft petitioned the U.S. District Court of the District of Columbia to confirm and enforce the award under the New York Convention. Ukraine moved to dismiss the petition on the basis of sovereign immunity and other grounds. Tatneft argued that the district court had jurisdiction pursuant to 28 U.S.C. § 1605(a)(1) because Ukraine waived its sovereign immunity under the theory of implied waiver.

The district court noted that although the FSIA does not define “implied waiver,” it applied in the following circumstances: where

“(1) a foreign state has agreed to arbitration in another country; (2) a foreign state has agreed that the law of a particular country governs a contract; or (3) a foreign state has filed a responsive pleading in an action without raising the defense of sovereign immunity.”

The court found that if a foreign state agrees to arbitrate in a country that has signed the New York Convention, it waives its sovereign immunity in all of the signatory countries by virtue of the fact that “when a country becomes a signatory to the Convention, by the very provisions of the Convention, the signatory state must have contemplated enforcement actions in other signatory states.” The court found Ukraine agreed to arbitrate in the territory of a state that has signed the New York Convention (France); and thus it should have anticipated enforcement actions in signatory states like the U.S.

The D.C. Court of Appeals agreed, finding a sovereign, by signing the New York Convention, waives its immunity from arbitration-enforcement actions in other signatory states. The Court of Appeals found that signatories of the New York Convention must have contemplated arbitration-enforcement actions in other signatory countries, including the United States. The present discussion will focus on the trend of U.S. courts finding implicit waivers of sovereign immunity if the country (1) signed the New York Convention and (2) arbitrated in the territory of a state that has signed the New York Convention.

The FSIA, under 28 U.S.C. § 1605(a)(1), provides:

(a) A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case—

(1) in which the foreign state has waived its immunity either explicitly or by implication, notwithstanding any withdrawal of the waiver which the foreign state may purport to effect except in accordance with the terms of the waiver.

A good starting point for understanding the D.C. Court of Appeals’ approach is the Second Circuit case, Transatlantic Shiffahrskontor GmbH v. Shanghai Foreign Trade Corp., 204 F.3d 384, 391 (2d Cir. 2000). Here, the plaintiff attempted to establish jurisdiction for a suit that did not concern the enforcement of an international arbitration award. The Court of Appeals for the Second Circuit held simply signing the New York Convention alone—without an arbitration award—was not sufficient to waive sovereign immunity unless the “cause of action is so closely related to the claim for enforcement of the arbitral award.” Similarly, in Creighton Ltd. v. Government of State of Qatar, the D.C. Court of Appeals refused to find Qatar had waived sovereign immunity based on arbitrating in a signatory state to the New York Convention because Qatar had not signed the Convention.

U.S. courts have also denied finding a waiver of sovereign immunity when states sign international treaties that are not for the enforcement of arbitral awards. For example, in Reers v. Deutche Bahn AG, the U.S. District Court for the Southern District of New York held that “[b]y signing the Convention Concerning International Carriage by Rail (COTIF), a treaty that regulated litigation arising from railway transportation in signatory countries Germany and its instrumentalities did not impliedly waive sovereign immunity.”

The New York Convention by its very title (the Convention on the Recognition and Enforcement of Foreign Arbitral Awards) was created as a mechanism to enforce arbitration awards rendered in signatory states. U.S. courts have appreciated this and denied attempts from States to avoid this international obligation by invoking domestic statutes. Under the Vienna Convention, a state may not invoke its internal laws to avoid an international obligation. Thus, if (1) a party obtains an award from a signatory state and (2) the award was rendered in the territory of a signatory state, a state may not refuse enforcement in the U.S. based on sovereign immunity. This opens the door not only to states waiving sovereign immunity by signing the New York Convention, but also other enforcement treaties including the Panama Convention and the ICSID Convention.

On September 22, 2019, Ukraine filed a motion to stay issuance of mandate pending disposition of a petition for certiorari from the Supreme Court. On October 9, 2019, the D.C. Court of Appeals granted the stay until November 8, 2019.

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Procedural Orders or Challengeable Awards? The English High Court Clarifies Its Position

Fri, 2019-11-01 00:00

Craig Tevendale and Rutger Metsch

The English High Court (the Court) has recently issued two judgments clarifying its approach to determining whether a decision by an arbitral tribunal is an award or a procedural order. A few months ago in ZCCM Investment Holdings PLC v Kansanshi Holdings PLC & Anor (ZCCM), the Court identified a list of factors that it will take into account when reaching a conclusion on this issue. The Court then applied these factors in the recent case of K v S (together with the ZCCM case, the Cases) to decide whether a ruling by the tribunal should be considered an award or not.

This distinction between orders and awards is key, given that a party can apply to set aside an award (but not a procedural order) under the English Arbitration Act (the Act) on grounds set out in s.67 (substantive jurisdiction), s.68 (serious irregularity), and s.69 (appeal on a point of law). The Court’s reasoning in the Cases will therefore be relevant to arbitrators and practitioners aiming to ensure clarity in relation to the status of any ruling issued.


Uncertainty regarding the status of arbitral decisions

A tribunal may record a decision on an issue raised in the arbitration either in the form of an ‘award’,1)Which may be further categorised in various types of award, including ‘partial awards’, ‘interim awards’, ‘final awards’, and ‘consent awards’. jQuery("#footnote_plugin_tooltip_3841_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3841_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); or as a ‘procedural order’, and the distinction is important because an award and a procedural order lead to different procedural and substantive implications. For example, procedural orders do not fall within the scope of the enforcement provisions in the New York Convention and the annulment and (non-)enforcement safeguards embedded in national arbitration laws, including the Act. The status of a particular ruling – ultimately a decision made by a domestic court in relation to an action on the decision – can therefore have significant consequences for the parties to the arbitration. Despite the importance of the question, the term ‘award’ is not defined in the Act (nor is it in other leading instruments such as the New York Convention and the UNCITRAL Model Law).

Nonetheless, it will usually be quite clear whether a decision is a procedural order or an award. For example, it is uncontroversial that a tribunal’s final decision on the substantive claims in the arbitration is usually recorded in an ‘award’ and that a decision fixing the date of the hearing is usually recorded in a ‘procedural order’. However, sometimes this determination will be less straightforward. Questions regarding the legal status of a decision may arise because of ambiguity in the terminology used by the tribunal (by referring to, for example, ‘rulings’ and ‘decisions’ rather than ‘awards’ and ‘procedural orders’). This occurred in the ZCCM case, where the tribunal issued a decision that was somewhat ambiguously described as a ‘Ruling on Claimant’s Application’ (the Ruling). The issue can also arise where the designated status of the decision is clearly stated, but a party contests that designation. This occurred in K v S, where the decision by the tribunal was recorded as Procedural Order 5 (PO5), but one of the parties submitted that the decision was in substance actually an award. In both cases, the Court had to decide the proper categorisation of the Tribunal’s decision.


The Court’s reasoning in the Cases: the ZCCM factors

The facts of the Cases are outside of the scope of this post and, for present purposes, it is sufficient to note that in both cases the applicant challenged a tribunal’s decision under s.68 of the Act. S.68(1) provides that a party may apply to the Court to challenge “an award in the proceedings on the grounds of serious irregularity affecting the tribunal, the proceedings or the award” (emphasis added). In each case, the Court was therefore required first to deal with the “threshold” issue of whether the arbitral ruling could be considered an ‘award’ (and in both cases, the Court eventually found on the facts that the relevant decisions could not).

The Court in ZCCM reviewed the applicable authorities and outlined the following factors relevant to the determination of whether a decision by a tribunal is an award:

  • real weight is given to the substance, and not merely the form, of the decision;
  • a decision is more likely to be an award if it finally disposes of the matters submitted to arbitration, rendering the tribunal functus officio either entirely, or in relation to the particular issue or claim;
  • the nature of the issues considered in the decision is significant, as substantive rights and liabilities of parties are likely to be dealt with in the form of an award. A decision dealing purely with procedural issues is less likely to be an award;
  • the tribunal’s description of the decision is relevant – but is not conclusive;
  • the perception of a reasonable recipient of the tribunal’s decision is relevant;
  • that reasonable recipient is likely to take into account the objective attributes of the decision, including the tribunal’s own description of the decision, the formality of the language and the level of detail in the reasoning and whether the decision complies with the formal requirements for an award under any applicable rules; and
  • the reasonable recipient must be considered to have all the information the parties and tribunal would have had when the decision was made, including the background and context of the proceedings. This may include whether the tribunal intended to make an award.

These factors may, however, not all bear equal weight in the Court’s determination. In the K v S case, the Court commented that the ZCCM factor that should be accorded most weight was the question of whether there was a final determination of a substantive point in the arbitration.


Awards made to order

The Cases offer a welcome clarification of the English courts’ approach to the distinction between awards and procedural orders. As noted above, the Act does not provide a definition of the term ‘award’: whilst it does address in s.52 the requirements of an award in relation to form, it is silent on any substantive requirements. The principles governing these substantive requirements have, instead, been developed through case law. The ZCCM case provides a helpful overview of the factors considered relevant by the Court and, together with the K v S case, demonstrates which factors will be accorded the most weight.

Applying these factors is, however, not an exact science. The Court recognised in ZCCM that the question arises in “a wide variety of circumstances“, and that there is no hard rule that prescribes whether a ruling is an award or a procedural order. Nonetheless, there are certain steps which arbitrators and counsel can take to reduce any uncertainty to the extent possible. The Court’s judgment indicates that the tribunal’s description of the decision, the formality of the language, the level of detail of the tribunal’s reasoning, and whether the decision complies with the formalities of an award are factors to be taken in to account. An arbitral Tribunal should therefore always consider the intended form of any decision they are producing, make that form clear on the face of the document, and avoid using any language that creates doubt as to the nature of the decision. Practitioners can limit any ‘classification risk’ by explicitly raising the issue with the tribunal at the time of the relevant application to the tribunal, and by making submissions on the nature of the decision they are seeking.

Whilst such actions by the tribunal and the parties cannot guarantee that a decision will be recognised as having the intended form by a court – because the key factor is an objective assessment as to whether a decision finally disposes of a substantive issue or claim – considering the ZCCM factors during the arbitration will minimise the chance of a surprising outcome in this regard. Given the general absence of an authoritative definition of ‘award’ in international instruments and in domestic legislation, this issue is not confined to London-seated arbitrations, and the practical approach set out above is also likely to be of interest for arbitrations seated in other jurisdictions.

References   [ + ]

1. ↑ Which may be further categorised in various types of award, including ‘partial awards’, ‘interim awards’, ‘final awards’, and ‘consent awards’. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
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India’s Affair with the ‘Group of Companies’ Doctrine Continues

Wed, 2019-10-30 20:00

Juhi Gupta


In a previous post, I had surmised whether the Indian courts’ tryst with the group of companies doctrine (“Doctrine”) in the arbitration context is a harbinger or aberration. If the Indian Supreme Court (“SC”) decisions in Reckitt Benckiser v. Reynders Label Printing, decided on 1 July 2019 (“Reynders Label), and MTNL v. Canara Bank, decided on 8 August 2019 (MTNL”) are any indication, it appears that the tryst is steadily evolving into an affair. The decisions reinforce India’s pro-arbitration outlook and at the same time clarify the parameters to employ the Doctrine to bind non-signatories to arbitration.


Non-Signatory Member of A Group of Companies Cannot be Ipso Facto Bound by Arbitration

Reynders Label involved a petition under Section 11 of the Arbitration and Conciliation Act, 1996 (“Act”) to appoint a sole arbitrator. The question was whether there was a clear mutual intention of the signatory parties to the agreement (“Agreement”) and the arbitration agreement contained therein to bind the non-signatory party. The signatory first respondent was a party to the Agreement and the non-signatory second respondent was a Belgian company. Both respondents were members of the same group of companies. Therefore, if the non-signatory was held bound by the arbitration agreement, the arbitration would become an international commercial arbitration as opposed to a domestic commercial arbitration, governed by different provisions of the Act.

In order to determine the existence of mutual intention, the SC examined whether it was manifest from the indisputable inter-parties correspondence, culminating in the Agreement, that the transactions between the petitioner and first respondent were essentially undertaken within the group of companies. Apart from alluding to the Doctrine as expounded in Chloro Controls and relied upon in Cheran Properties, the SC predominantly engaged with the Doctrine in the factual matrix. Therefore, it concerned itself with the inter-parties correspondence to analyse if the second respondent played a role in negotiating the Agreement and consequently, whether it was bound by the arbitration agreement by virtue of Section 7(4)(b) of the Act according to which an arbitration agreement can be concluded via exchange of correspondence.

The petitioner primarily relied upon correspondence from one Mr Frederik Reynders, who it claimed was the promoter of the second respondent and therefore, represented it in the negotiations. Since the second respondent was the disclosed principal of the first respondent, it was bound by the arbitration agreement, which was an integral component of the Agreement. On the other hand, the second respondent (i) submitted a counter-affidavit stating that Mr Reynders was an employee of the first respondent and could not represent or bind the second respondent to any legal obligation; (ii) argued that there was no privity of contract and that it was not involved in the negotiation, execution or enforcement of the Agreement; and (iii) argued that both respondents were merely members of the same group of companies sharing a common parent/holding company but otherwise were distinct legal entities operating independently. There was no relationship, such as that of a parent-subsidiary, between them.

The SC held that the second respondent was not a party to the Agreement and, consequently, the arbitration agreement:

“Thus, respondent No.2 was neither the signatory to the arbitration agreement nor did [it] have any causal connection with the process of negotiations preceding the agreement or the execution thereof, whatsoever. If the main plank of the applicant, that Mr. Frederik Reynders was acting for and on behalf of respondent No.2 and had the authority of respondent No.2, collapses, then it must necessarily follow that respondent No.2 was not a party to the stated agreement nor had it given assent to the arbitration agreement and, in absence thereof, even if respondent No.2 happens to be a constituent of the group of companies of which respondent No.1 is also a constituent, that will be of no avail. For, the burden is on the applicant to establish that respondent No.2 had an intention to consent to the arbitration agreement and be party thereto”. (paragraph 9, emphasis supplied)

Although this made the arbitration a domestic arbitration for which the SC did not have jurisdiction to appoint an arbitrator, the SC appointed the arbitrator since the first respondent had no objection to this. It is pertinent to note that the SC dismissed the review petition filed by the petitioner against this decision.


Parties’ Conduct and Intention to be Examined to Apply Doctrine

In MTNL, the issue was whether the non-signatory subsidiary (“CANFINA”) was bound by the arbitration agreement entered into between its parent company (“Canara Bank”) and MTNL. Interestingly, while the factual matrix was relatively straightforward to even intuitively conclude that CANFINA was bound by the arbitration agreement, the SC engaged with the Doctrine in decent depth. Briefly, the facts were that MTNL placed bonds with CANFINA under a MoU Agreement. Due to a liquidity crunch, Canara Bank purchased certain value of the bonds issued by MTNL on behalf of CANFINA. Subsequently, MTNL cancelled the bonds as a result of which disputes arose. Canara Bank objected to CANFINA being made a party to the arbitration agreement.

The SC observed that:

  • The parent or subsidiary entering into an agreement, unless acting in accord with the principles of agency or representation, will be the only entity in a group to be bound by that agreement. Similarly, an arbitration agreement is governed by the same principles.
  • However, a non-signatory can be bound by an arbitration agreement on the basis of the Doctrine, where the parties’ conduct evidences their clear mutual intention to bind the signatory and non-signatory. Such an intention can be evidenced ­via the non-signatory’s engagement in the negotiation or performance of the contract or any statements made by it indicating its intention to be bound by the agreement.
  • The SC identified three critical factors: (i) non-signatory’s direct relationship with the signatory; (ii) direct commonality of the subject matter; and (iii) composite nature of the transaction between the parties. The SC further noted that the Doctrine has also been invoked in arbitration where there is a tight group structure with strong organisational and financial links, so as to constitute a single economic unit or reality.

Applying the aforementioned principles, the SC concluded that CANFINA was bound by the arbitration agreement:

“It will be a futile effort to decide the disputes only between MTNL and Canara Bank, in the absence of CANFINA, since undisputedly, the original transaction emanated from a transaction between MTNL and CANFINA – the original purchaser of the Bonds. […] There is a clear and direct nexus between the issuance of the Bonds, its subsequent transfer by CANFINA to Canara Bank, and the cancellation by MTNL, which has led to disputes between the three parties. Therefore, CANFINA is undoubtedly a necessary and proper party to the arbitration proceedings. Given the tri-partite nature of the transaction, there can be a final resolution of the disputes, only if all three parties are joined in the arbitration proceedings […]”. (paragraph 10.9, emphasis supplied)

In addition, the SC noted that (i) a Committee of Disputes had referred all three parties to arbitration, pursuant to which a sole arbitrator was appointed; (ii) Canara Bank itself had circulated a draft arbitration agreement in which it had mentioned itself and CANFINA on one side and MTNL on the other side; and (iii) CANFINA had participated in all proceedings thus far and was represented by separate counsel. Accordingly, the SC concluded that CANFINA had given implied or tacit consent to being impleaded in the arbitral proceedings, which was evident from the parties’ conduct.


Implications of the Decisions

These decisions, in my opinion, are significant. They have generated or renewed discussion about the Doctrine, which will lead to more awareness and debate about its application to arbitrations, both in theory and practice. This in turn will persuade practitioners and parties to be careful about how they draft and interpret arbitration clauses where entities of a same group of companies are involved or could be potentially involved in the underlying transaction/contract.

MTNL in particular is significant because it engages with the Doctrine at a jurisprudential level and expressly predicates its decision on it: “We invoke the Group of Companies doctrine, to join Respondent No. 2 – CANFINA i.e. the wholly owned subsidiary of Respondent No. 1 – Canara Bank, in the arbitration proceedings pending before the Sole Arbitrator” (paragraph 11). It does not cite Cheran Properties, which is unfortunate as discussing and/or applying it would have aided the larger goal of cultivating jurisprudence on the Doctrine. This, however, does not dilute MTNL’s importance.

Both decisions reinforce fundamental factors that are to be considered in applying the Doctrine, such as mutual intention, direct commonality of subject matter and composite transaction. They also provide greater clarity about different factual scenarios in which the Doctrine could potentially be attracted and applied. This is particularly important given the Doctrine’s application is heavily predicated on the underlying facts and circumstances. Accordingly, they reinforce India’s dynamic and commercially pragmatic approach to arbitration and to binding non-signatories to arbitration. Internationally, uptake of the Doctrine to bind non-signatories is rare, with the exception of civil law courts to a certain extent, as compared to “traditional” devices such as piercing the corporate veil, agency and estoppel (see previous posts on this blog here and here). Therefore, India’s affair with the Doctrine could prove instructive for other jurisdictions.

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New Trends For Dual Nationals Claims. Is the Ballantines Award Relevant For Cases Where A Dual Nationals-Related Provision Is Not Incorporated In The Relevant Treaty?

Tue, 2019-10-29 19:00

Pablo Mori

It is said that states lose more times than investors in investment arbitration. Indeed, ICSID surveys reveal that while investors receive an award of costs in 41.4% of the cases, states receive a similar award of costs only in 23% of the cases, even when jurisdiction is fully declined. A case where a state prevails but has to bear the costs of a groundless claim is hardly a total victory. Despite that, there have recently been good news for some Latin American states. The latest is the case of the Dominican Republic, which in September prevailed in the first investment arbitration dealing with a treaty provision allowing dual nationals to sue one of their home states (Lisa Ballantine and Michael Ballantine v. The Dominican Republic), whose further implications for future disputes will be discussed below.

Before that, for the sake of fairness, it is worth mentioning that this decision follows on a series of recent positive cases for two other Latin American states. First, in May Venezuela beat Clorox Spain, when a PCA tribunal declined jurisdiction, requiring that “the owner of an asset in the territory of a Contracting Party is required to have been the active subject in the act of investing” (¶ 802). Second, in August, Colombia also beat Glencore when an ICSID tribunal awarded Glencore an actual compensation of approximately only 1.75% of the claim (considering both the restitution awarded less the legal expenses).


Understanding the Ballantines award

The dispute was decided by a PCA tribunal on a majority award declining jurisdiction dated September 3, 2019 (PCA Case No. 2016-17). The Ballantines are American citizens who accused the Dominican Republic of violating its obligations under the Dominican Republic – Central America – United States Free Trade Agreement (the “DR-CAFTA”), by rejecting in 2011 their authorization to keep expanding their luxury real estate project Jamaca de Dios, due to environmental reasons. In September 2014, the Ballantines submitted their dispute to arbitration, claiming that the Dominican Republic gave them less favorable treatment than its nationals and failed to give them fair and equitable treatment.

The Ballantines were also citizens of the Dominican Republic, i.e. dual nationals. The DR-CAFTA is one of the few treaties to allow claims by dual nationals against one of the countries of their nationality (the host country) if and only if the claimant’s “dominant and effective nationality” is that of the non-host country (article 10.28 of the DR-CAFTA).

For that reason, the Dominican Republic objected to the Tribunal’s jurisdiction, contending that the Ballantines did not qualify as “claimants” under the treaty, since their dominant and effective nationality at the time when they submitted their claims to arbitration was the Dominican one. As for the Ballantines, although they acknowledged that they have to comply with the definition of “claimant” under the DR-CAFTA, they contended that the only relevant date was the time when they made their investment in the Dominican Republic and that, in any event, their dominant and effective nationality was always the one of the U.S.

Analyzing the Dominican Republic jurisdictional objection, the Ballantines tribunal first focused on when an individual should comply with the nationality requirement. The majority award concluded that according to both the terms of the specific treaty and the UNCITRAL Rules, the nationality requirement must be fulfilled, first, at the moment the notice of arbitration along with the statement of claim is received by the respondent and, second, at the date in which knowledge of the breach is or should have been acquired (¶¶ 522-523), which is when the alleged breach was committed.

Second, the Tribunal went on to analyze the legal standard under the treaty to determine the dominant and effective nationality of the claimants. Given the DR-CAFTA’s silence on the matter, the majority tribunal pointed out that it is necessary to give effect to the customary rules of international law for which “customary international law cases are instructive” (¶ 533). As such, the Tribunal took reference from the ICJ decision in the famous Nottebohm case (¶ 545).

In a nutshell, following the Ballantines award, parties dealing with similar disputes from now on should consider four elements to determine the effective and dominant nationality: (i) the state of habitual residence; (ii) the circumstances in which the second nationality was acquired; (iii) the individual’s personal attachment to a particular country; and (iv) the center of the person’s economic, social and family life (¶ 552). The importance of those elements is such there will be no investor if there is no dominant and effective foreign national (¶ 553).

After concluding that the first three elements favored the Ballantines’ Dominican Republic nationality, the Tribunal focused on the Ballantines’ center of economic, social and family life. For that, the Tribunal considered very relevant not only the Dominican naturalization voluntarily acquired by the Ballantines on December 30, 2009 (¶ 578), but also the fact that the Ballantines moved to the Dominican Republic in 2006.

The Ballantines made a significant investment creating the Jamaca de Dios project in the Dominican Republic in 2006, for which they even sold two of their homes and commercial real estate in the U.S. Although they maintained connections to the U.S., the Tribunal considered that from 2006 to the moment the claim was submitted, the Ballantines had moved or relocated their economic and family center to the Dominican Republic. That was independent of the fact that they often visited the U.S., that their children continued their education in the U.S., or that they kept social relations in the U.S. The Tribunal pointed out that the Ballantines both established their “main” business and reorganized their way of living in the Dominican Republic for several years around the investment. In consequence, the Tribunal concluded that the Dominican Republic was the center of their economic, family and social life, despite maintaining ties with the U.S. (¶ 576).

Given those findings, the Tribunal upheld the Dominican Republic objection and rejected jurisdiction dismissing the case without any further analysis of the merits.


Impact of the Ballantines award in other cases

The Ballantines case is the first publicly known investment arbitration that deals with a provision like this and will most likely be taken as a precedent for similar cases. For instance, the recent case of Alberto Carrizosa Gelzis and others v. Colombia, where the claimants just submitted their Memorial on Jurisdiction in May this year, deals with a claim presented by dual nationals under the BIT between the U.S. and Colombia, which contains a similar DR-CAFTA provision. The U.S.-Colombia BIT states that “a natural person who is a dual citizen shall be deemed to be exclusively a citizen of the State of his or her dominant and effective nationality” (article 12.20). Most likely, both parties in the latter case will consider the findings on Ballantines in order to convince their tribunal whether the U.S. nationality is or not the claimants’ dominant and effective nationality.

The question remains whether the Ballantines findings will also be relevant for cases brought by dual nationals whose relevant treaties do not have a similar provision. To the author’s understanding, the answer is affirmative. This is not only because the Ballantines award has reinforced the concept that in absence of a provision in a treaty, “customary international law cases are instructive” (¶ 533), but also because, in at least one ongoing case without a similar provision (Serafin García Armas v. Venezuela), the French courts recently upheld the need to determine the effective nationality.

Although in 2014 the Serafin García Armas v. Venezuela Tribunal (PCA Case No. 2013-3) allowed claims brought by dual Spanish-Venezuelan nationals against Venezuela due to a lack of an express prohibition for such claims in the Spain-Venezuela BIT (previously discussed in Kluwer Arbitration Blog), recently in February 2019, the French Court of Cassation determined that the Court of Appeals had previously violated the Spain-Venezuela BIT when it set aside the arbitral tribunal’s jurisdictional decision only partially. As a consequence, the Court of Cassation annulled and remanded the lower court decision so that a different Court of Appeals could proceed according to the law (p.3), which can be understood as an order to fully set aside the jurisdictional tribunal decision.

Further, the Court of Cassation stated that “[even though the corresponding treaty does not have a provision like the DR-CAFTA], it was indeed necessary to decide whether the Spanish nationality of the claimants was their effective nationality” (p. 17). Thus, the concept of effective nationality developed in the Ballantines award will likely be considered if and when the arbitral jurisdictional decision is partially or fully set aside.

The importance of the Ballantines decision is therefore bigger than previously imagined. There are other pending cases with or without a provision allowing dual nationals to bring claims against one of their national states. The trends are yet to come and both investors and states have to remain aware of the new developments as they will either close or open the doors for new arbitration proceedings. For ICSID cases, the rule is simple, the doors are completely closed (ICSID Convention, Article 25(2)(a)). For non-ICSID cases, if tribunals follow the Ballantines reasoning, doors will most likely get closed too. It will not be enough for prospective claimants to have multiple passports to bring a claim against one of their home states, but rather they will also have to demonstrate that their effective and dominant nationality is that of the non-host country.


Did the Dominican Republic really win?

On a final note, although the Dominican Republic totally prevailed in this case, the award reveals that the state spent approximately US$3.23 million in legal/expert fees and additional expenses (¶ 613), plus US$450,000 in arbitration costs (¶ 609). Each party was ordered to bear its own costs, with the common costs of arbitration split between them (¶ 637). This amounts to a loss for the Dominican Republic of approximately US$3.7 million, confirming the belief that even when states prevail they also lose. To be clear, this is not to say that such outcome is right or wrong, but rather a statement of fact to be considered when initiating or contesting an investment arbitration proceeding.

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Does Investment Arbitration Threaten the Effectiveness and Integrity of EU Bank Resolution?

Tue, 2019-10-29 01:00

Dimitrios Andriopoulos and Ioannis G. Asimakopoulos


In early June 2017, Banco Popular Español S.A. (‘Popular’) was placed into resolution under the European Union’s (‘EU’) Bank Recovery and Resolution Directive (‘BRRD’) and the Single Resolution Mechanism Regulation (‘SRMR’). It was the first – and only, to this day –case where the Single Resolution Board (‘SRB’), as the European resolution authority, intervened on public interest grounds to prevent another bailout. Popular was sold to Santander for one euro, whilst losses were covered through the use of the bail-in tool on shareholders and junior subordinated debtholders.

On 23 August 2018, a group of Mexican investors affected by the June 2017 resolution initiated two parallel arbitrations against Spain under the Mexico-Spain Bilateral Investment Treaty (‘BIT’). The two arbitrations were later consolidated and are now being heard by a single arbitral tribunal operating under the UNCITRAL Arbitration Rules 2013. The case, Antonio del Valle Ruiz et al. v. Kingdom of Spain (PCA Case No. 2019-17) (hereinafter ‘Antonio del Valle Ruiz v. Spain’), is being administered by the Permanent Court of Arbitration (‘PCA’). In their Notice of Arbitration, the claimants allege that they lost “their entire original investment, which […] was of more than € 470 million”,1)Antonio del Valle Ruiz v. Spain, Notice of Arbitration, 23 August 2018, para. 10. jQuery("#footnote_plugin_tooltip_3932_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3932_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); as a result of the resolution. The claimants argue that this was the result of Spain’s “acts and ommissions” in precipitating Popular’s “liquidity crisis and the using it to justify the bank’s resolution and ‘sale’ to Santander”.2)Id. at 11. jQuery("#footnote_plugin_tooltip_3932_2").tooltip({ tip: "#footnote_plugin_tooltip_text_3932_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The claimants consider these actions violated several of Spain’s obligations under the BIT, including the obligation to provide fair and equitable treatment and not to engage in an unlawful expropriation of the claimants’ investment.3)Id. at 12. jQuery("#footnote_plugin_tooltip_3932_3").tooltip({ tip: "#footnote_plugin_tooltip_text_3932_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

This is a case of first impression in two ways: (i) it concerns the first EU sanctioned resolution of a failing or likely to fail financial institution under the BRRD and the SRMR; and (ii) it constitutes the first ever investment treaty arbitration directly arising out of the application of the EU’s new regulatory resolution framework for systemic banks that was promulgated in response to the 2008 financial crisis.

Scholarly discussions on investment claims as a corollary to bank resolution have so far focused on the purported conformity of the resolution process to investment protection standards of treatment, the availability of state defenses against such claims and on whether liabilities subject to bail-in could fall under the definition of investment under the relevant investment treaty and the ICSID Convention.4)See, e.g., Michael Wolfgang Müller, “Creditor protection in bank resolution: a case for international investment arbitration?” (2015) 10(3) Capital Markets Law Journal 276; Maurice Mendelson QC and Martins Paparinskis, “Bail-ins and international investment law: In and beyond Cyprus”, in Christian J. Tams, Stephan W. Schill and Rainer Hofmann (eds.), International Investment Law and the Global Financial Architecture 193 (Edgar Elgar, 2017); Phoebus Athanassiou, “BITs and pieces: Reflections on the relevance of BITs in resolution-related litigation”, in Christian J. Tams, Stephan W. Schill and Rainer Hofmann (eds.), International Investment Law and the Global Financial Architecture 240 (Edgar Elgar, 2017). jQuery("#footnote_plugin_tooltip_3932_4").tooltip({ tip: "#footnote_plugin_tooltip_text_3932_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Evidently, as discussed in a previous Kluwer Arbitration Blog post, Antonio del Valle Ruiz v. Spain has also touched on salient transnational litigation issues, such as the availability and extraterritorial reach of discovery applications under Section 1782 of the United States Code.


Opposing Dynamics in EU Integration

Other than reaffirming the notion that investment treaty claims can indeed arise out of a BRRD/SRMR bank resolution, the case’s nascent stage does not allow us to draw any conclusions on how such claims would play out in practice. Instead, we would argue that this case could highlight the lingering tension between two of the EU’s most ambitious integration efforts in the post-Lisbon era: (i) shaping an EU international investment policy (Article 207(1) of the Treaty on the Functioning of the European Union (‘TFEU’)) and (ii) establishing a single resolution mechanism as a fundamental pillar of the Banking Union (Article 114 TFEU).

The EU’s international investment policy relates to the EU and its Member States’ shared competence to conclude Investment Protection Agreements (‘IPAs’) with non-EU states pursuant to Article 4 TFEU. Recent examples of such treaties include the EU-Singapore IPA and the EU-Vietnam IPA. Following the Court of Justice of the European Union’s judgment in Achmea on 6 March 2018 which found the international dispute settlement provisions in the Netherlands-Slovakia BIT to be incompatible with EU law, intra-EU investor-state arbitration is now precluded under EU law. This was reaffirmed in the CJEU’s Opinion 1/17 of 30 April 2019 concerning the EU-Canada Comprehensive Economic and Trade Agreement (‘CETA’). In the field of investor-state dispute settlement, the EU is pushing for the ultimate replacement of the current regime by a Multilateral Investment Court system with an Appellate Mechanism.

In the context of the BRRD/SRMR, investors affected by the resolution tools can seek limited recourse to domestic courts (cf. Articles 85 and 86 BRRD) and can instead only challenge the resolution decision taken by the SRB before the CJEU (Article 86 SRMR) – as is the case with Popular. This is in line with the EU policies behind the BRRD/SRMR and the EU Banking Union more generally. But again, all such claims need to be justified on the basis of the no creditor worse off principle (‘NCWO’), meaning that investors should not be treated in resolution worse than they would have in national insolvency as the default alternative option to resolution. Proving damages on the basis of the NCWO is challenging given the technical and complex nature of the underlying valuations as well as the assumptions built into the assessment of the counterfactual, namely of liquidation. Therefore, investment arbitration could well have a role to play in allowing individuals affected by resolution to bring forward claims that would be inadmissible before the CJEU or national courts.


The Significance of Antonio del Valle Ruiz v. Spain

In our view, Antonio del Valle Ruiz v. Spain raises a normative conflict between two aspects of EU integration. Investors from non-EU states affected by the Popular resolution can – and for the first time, have – avail(ed) themselves of the investment treaty protection regime, alleging that Spain violated its international law obligations, initially by contributing to the bank runs experienced by Popular and later on by raising its liquidity provision requirements to unprecedented levels and using the mandatory EU law framework of the BRRD to engineer the sale of Popular to Santander or another large bank. Essentially, given the difficulties attached to a direct challenge of the resolution actions, Antonio del Valle Ruiz v. Spain illustrates the case that challenging the resolution of a bank in arbitration can occur indirectly by challenging the circumstances that led to the resolution and not the mechanics of the resolution per se. A successful outcome for the claimants could significantly affect the integrity of the resolution process by legitimizing damages beyond those provided on the basis of the NCWO standard described above.

Meanwhile, it is now trite EU law that this avenue would not be available to EU investors. We consider this result to be the victim of an unforeseen externality of the Achmea judgment with severe effects for both EU investors and the EU as a whole. Not only are EU investors placed in a less favorable position than their non-EU peers – which can hardly be seen as a welcome outcome from an EU investment policy perspective – but the EU’s policy under the BRRD/SRMR is also in danger of being displaced since Spain could plausibly be held accountable for complying with a mandatory EU law obligation instead of opting for a bailout.

Ironically, while not a classic intra-EU case, Antonio del Valle Ruiz v. Spain could have major consequences for EU law and policy by placing a higher standard of accountability for Member States hosting banks undergoing resolution, while creating more legal uncertainty as to the finality of resolution actions. Indeed, we would not be surprised if the EU Commission – or even the SRB for that matter – attempted to participate in the arbitral proceedings as an amicus curiae, bringing this matter to the Tribunal’s attention. Regardless, it will be interesting to see how this case unfolds.


Any views expressed are solely those of the authors and do not represent the views of Shearman & Sterling LLP.

References   [ + ]

1. ↑ Antonio del Valle Ruiz v. Spain, Notice of Arbitration, 23 August 2018, para. 10. 2. ↑ Id. at 11. 3. ↑ Id. at 12. 4. ↑ See, e.g., Michael Wolfgang Müller, “Creditor protection in bank resolution: a case for international investment arbitration?” (2015) 10(3) Capital Markets Law Journal 276; Maurice Mendelson QC and Martins Paparinskis, “Bail-ins and international investment law: In and beyond Cyprus”, in Christian J. Tams, Stephan W. Schill and Rainer Hofmann (eds.), International Investment Law and the Global Financial Architecture 193 (Edgar Elgar, 2017); Phoebus Athanassiou, “BITs and pieces: Reflections on the relevance of BITs in resolution-related litigation”, in Christian J. Tams, Stephan W. Schill and Rainer Hofmann (eds.), International Investment Law and the Global Financial Architecture 240 (Edgar Elgar, 2017). function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
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Watch Out, Africa is Here! – The East African International Arbitration Conference 2019

Tue, 2019-10-29 00:01

Sadaff Habib (Assistant Editor for Africa)

This August, Kenya hosted the 7th annual East African International Arbitration (EAIAC) conference. This year’s theme was Government Contracting and Investment Disputes: Lessons for States and Investors. The conference explored the full spectrum of government contracting from procurement and PPPs (public-private partnerships), tender disputes, dispute mitigation in government contracts, investment arbitration and arbitrating with governments in African centres. It was a delight to be involved in an interesting flurry of debate and discussion on arbitration in Africa and to meet so many reputable African practitioners.

The main takeaway from the conference is that East Africa has come far in the past 15 years in international arbitration. However, there still remains a lot to be done for African countries to establish themselves as favourable seats of arbitration and for local arbitration centres to be included in contracts. Gauging the progress and enthusiasm the future does look optimistic. Below is a snapshot of key themes and topics that were discussed.


What is Being Done to Bring Confidence in Arbitration in East Africa?

Mr Allen Gichuhi, the President of the Law Society of Kenya (LSK), remarked that it is key to make arbitration a cost-effective mechanism that will appeal to users. Also, strength in numbers is beneficial to push Kenya and East Africa as an arbitration hub. This is being done through the LSK partnering with organizations such as the Chartered Institute of Arbitrators to jointly promote and advance alternative dispute resolution. There are currently 600 advocates who are registered as arbitrators with the CIArb.

Training is an essential component and the LSK aims to provide cost effect ADR training by partnering with associations such as the Nairobi International Arbitration Centre. On becoming a better arbitrator, Mr Gichuhi commented you do this by networking and advancing ideas.


The Kenyan Arbitration Story

The Chief Justice of Kenya and keynote speaker, the Honourable David Maraga, highlighted that arbitration in Africa has benefited from the adoption of the UNCITRAL Model Arbitration Law by African countries. Arbitration has become a preferred mechanism for settling disputes in the region and has gained popularity especially as most judicial disputes are open to public scrutiny whereas arbitration provides settlement of disputes without such disclosure.

Kenya’s Arbitration Act of 1968 initially did not apply to international trade. This changed with the enactment of the Arbitration Act of 1995 which adopted the UNCITRAL Model Law. Arbitration also found a foothold in the Kenyan Constitution when it was revised in 2010. Article 159 (2) of the Kenyan Constitution 2010 states:

“In exercising judicial authority, the courts and tribunals shall be guided by the following principles” and includes at (c) alternative forms of dispute resolution including reconciliation, mediation, arbitration and traditional dispute resolution mechanism shall be promoted, subject to clause (3)”.

The Kenyan Courts are promulgated as supportive of arbitration. Section 35 of the Kenyan Arbitration Act 1995 provides that a party seeking to challenge the award can do so through the High Court within 3 months of the date of receipt of the award. Section 35 provides limited grounds to challenge the award, similar in many respects to the New York Convention to which Kenya became a signatory in 1989. The Section 35 grounds include: the subject matter of the dispute not being arbitrable under the laws of Kenya, the award which goes against public policy, and evidence that the award is tainted with corruption, bribery, undue influence or fraud.


Arbitration as the Solution for Judicial Backlog

A way that ADR forms, such as arbitration, have assisted Kenya is by helping the judicial case load. In April 2016, more than Ksh 6.5 million worth of assets were released on successful conclusion of the mediation of a case which had been in court for 15 years. It took 30 days to resolve the case by mediation.

One of the speaker commented that there are currently Ksh 32 billion worth of disputes in Kenya going through mediation. Efforts are also being made to fast track the arbitration process. It is also promising to know that the latest World Bank report ranked Kenya as 61 amongst 190 economies where the preferred mode of dispute resolution is arbitration. There has been a stark improvement in the past 15 years. Kenya aspires to be in the top 50 countries by 2020.

Nairobi is the center for international arbitration in the region. Kenyan courts are doing their best to liaise with the LSK to single out arbitration disputes going to court to conclude them in the shortest possible time. It is therefore not surprising that investors not only prefer Kenya for investment but also as a seat of arbitration.


Is the East Africa’s Investment Outlook Optimistic?

The key drivers for growth in the region are continued investment infrastructure and growing consumption. Unfortunately, not all regions are doing well. For example, Burundi and Somalia are lagging behind because of the lack of peace and general instability in these nations.

Speakers considered that the focus in the region should be on financing trade to public and private sectors and to support trade you need infrastructure. Key barriers to investment include:

  • Intra Africa trade is minimal as there is more trading outside the continent than inside. Most African countries have uncontrollable public spending and often consider tax money as an indefinite source of income.
  • Another barrier is corruption. It is almost like a second tax. African economies have not been as successful in prosecuting and convicting corrupt practices.
  • Africa economies are heavily dependent on agriculture and agriculture is weather dependent. Efforts need to continue towards diversifying to manufacturing industries.

The enactment of the African Continental Free Trade Agreement last year is one of the most positive things to have happened to the region and speakers are optimistic that the agreement will have a positive impact on trade.


Foreign Direct Investment and State sovereignty

In 2018, East Africa was the biggest regional attractor of FDI especially Kenya and Tanzania. The immediate outlook although positive raises concerns. African States are concerned about enacting new legislation because it may cause them to be in breach of BITs. There is a concern regarding exercising their State sovereignty. Most BITs protect rights of investors without imposing obligations creating a serious imbalance in power. Such provisions also preclude States from initiating investment treaty arbitration against investors. This has caused some countries such as Tanzania to denounce investment arbitration.

The key aspects of BITs that States should consider include the non-discrimination of foreigners and their preferential treatment, national treatment, most favoured nation treatment, fair and equitable treatment, umbrella clauses, expropriation and compensation clauses, investor obligations and dispute resolution mechanisms.


Room for Improvement

Investors are keen to know that disputes if arising can be resolved quickly. Having said that confidence needs to increase in the use of African country governing laws and seats. For example, the East and South Africa Development Bank in its contracts, as a matter of policy, refers to the English Law as the governing law with the LCIA and ICC as arbitration centres. The Bank was set up in 1985 and these policies still stand. The African arbitration ecosystem, unfortunately, has not ignited enough confidence to scrap the use of ICC and LCIA as arbitration centres and replace them with local centres. Africans wait for the day when the Bank’s contracts refer to local institutions and local governing laws.


Africans in African Arbitrations?

Interestingly, 15% of the cases in ICSID are from sub-Saharan Africa; out of these only 2% of the cases had African arbitrators. In 2019 only 2 arbitrators from Africa were appointed in ICSID cases compare to 18 from France alone.

Whilst there has been an improvement in African local counsel appointment, and Kenya took the lead in appointing local counsel in ICSID cases, a lot still needs to be done to involve local expertise. To resolve this gap in African appointments various bodies such as the East African Law Society, the LSF Academy, the International Lawyers for Africa (ILFA) are actively engaged in training young practitioners. Arbitration conferences such as EAIAC are also great platforms for African practitioners to network and assess the needs and requirements of the market.

The EAIAC Committee remarked:

“Organizing EAIAC continues to be a very demanding yet extremely rewarding experience for us. Each year we see the platform growing and becoming a discussion and networking place for arbitration practitioners in East Africa and beyond. At its 7th year, EAIAC 2019 has been our best yet with a diverse representation of stakeholders from private sector, arbitration practitioners and government entities, thereby realizing our aim to bring all concerned stakeholders in one room to discuss current and future developments in arbitration in the region”. 

The conference concluded with an awards ceremony, the first of its kind for the conference, which recognized leading African practitioners in the region. It is hoped that creating a platform to showcase in-house African talent will make a change in the above statistics. The future remains optimistic!

More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
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From Trinh Vinh Binh to EUVIPA: Vietnam’s Meritorious Step towards Transparency in ISDS

Sun, 2019-10-27 18:00

Ba Duong (Donny) Trinh


The topic of Investor-State Dispute Settlement (“ISDS”) has never been more trending in Vietnam than now. The year 2019 witnessed two of the most noticeable events pertaining to ISDS that involved Vietnam: the end of over-twenty-year Trinh Vinh Binh v Vietnam saga 1)Global Arbitration Review, ‘Dutch national wins moral damages against Vietnam’. jQuery("#footnote_plugin_tooltip_8511_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8511_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and the final conclusion of the EU-Vietnam Free Trade Agreement (“EUVFTA”) and EU-Vietnam Investment Protection Agreement (“EUVIPA”).2)EU-Viet Nam free trade agreement – Joint press statement by Commissioner Malmström and Minister Tran Tuan Anh. jQuery("#footnote_plugin_tooltip_8511_2").tooltip({ tip: "#footnote_plugin_tooltip_text_8511_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Although the Trinh Vinh Binh v Vietnam saga is considered to have come to an end after an arbitral award was issued in favour of the investor, its resonance is likely to keep on echoing in the future. It is the resonance of doubt not merely about whether Vietnam is still a promising and healthy investment environment for foreign investors but also about the transparency in ISDS proceedings, which has been put under critical spotlight for a long while now. However, the conclusion of EUVIPA shortly after the Trinh Vinh Binh award is a light at the end of the tunnel which hopefully resurrects the faith in the ISDS mechanisms for foreign investors in Vietnam, particularly with respect to the issue of transparency of proceedings. This blog post focuses on examining Vietnam’s meritoriously bold step to expose itself to a more transparent ISDS regime under the EUVIPA and how Vietnam will possibly benefit from it.


From Trinh Vinh Binh…

On 10 April 2019, an UNCITRAL arbitral tribunal established under the Vietnam-Netherlands BIT 1994 rendered an award ordering Vietnam to pay Mr. Trinh Vinh Binh – a Dutch national of Vietnamese descent – and his company Binh Chau JSC a total amount of approximately US$45 million, including damages for expropriation of property, moral damages, costs of arbitration and related legal fees. The claim was brought by Mr. Trinh against the Vietnamese Government for the breach of a settlement of a previous claim under the same BIT. The arbitration proceedings were seated in London and administered by the Permanent Court of Arbitration, with hearings organized at the ICC headquarters in Paris in August 2017.

This piece of news was initially published by an US government-funded news agency VOA before rapidly spreading out. Notably, the first article by VOA regarding this information contained a picture of the last page of the award in which the final decision of the tribunal was clearly revealed, though the authenticity of that picture is still unknown.

Immediately, the Vietnamese Government dismissed the accuracy of this news. In a statement, the Ministry of Justice confirmed that the arbitral tribunal had issued the final award between Trinh Vinh Binh and Vietnam. However, the content of this award along with other dispute-relevant information was supposed to be kept confidential by all parties. The Ministry of Justice further alleged that news agencies and social networks had failed to provide accurate information about the award’s outcome with subjective interpretation and speculation that caused serious misunderstanding by the public. Nevertheless, Vietnam or the Ministry of Justice has neither expressly confirmed nor denied the award’s outcome provided by the news sources. Hence, a wave of doubts by the public pertaining to the actual result of this case has been raised.

This action from the Vietnamese Government is a perfect demonstration why investor-state arbitration should not be as confidential as private commercial arbitration since the former often involves various issues of public interest that requires to be transparently known. In this particular case, it was the Vietnamese taxpayers who desired to know whether their own money ended up going to a foreign investor as a consequence of the Government’s wrongful acts.

On the other hand, investors may take advantage of the fact that there is no presumption of confidentiality in investment arbitration and play the media strategy in order to put pressure on the host state’s government. For example, in Amco v. Indonesia, the respondent accused the claimants of publishing an article that was allegedly detrimental to Indonesia and requested provisional measures on confidentiality of the dispute. However, the tribunal rejected this request as the ICSID Convention and ICSID Arbitration Rules do not prevent the parties from revealing the case.3)Amco Asia Corporation and others v. Republic of Indonesia (ICSID Case No. ARB/81/1), Decision on Request for Provisional Measures of 9 December 1983, 1 ICSID Rep. 410 (1993). jQuery("#footnote_plugin_tooltip_8511_3").tooltip({ tip: "#footnote_plugin_tooltip_text_8511_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The tribunal in Loewen v. United States even further acknowledged the value of making information about investment arbitrations public as failure to do so would “preclude the Government (or the other party) from discussing the case in public, thereby depriving the public of knowledge and information concerning government and public affairs”.4)The Loewen Group, Inc. and Raymond L. Loewen v. United States (ICSID Case No. ARB/(AF)/98/3), Decision on Hearing of Respondent’s Objection to Competence and Jurisdiction of 5 January 2001, para. 26. jQuery("#footnote_plugin_tooltip_8511_4").tooltip({ tip: "#footnote_plugin_tooltip_text_8511_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In the case at hand, VOA revealed that they had an opportunity to read the whole 200-page award before publishing the news. Regardless of who the person who disclosed the award to VOA was or the rightfulness of such an action, other foreign investors in Vietnam are possibly concerned about the possibility of enforcing an award in case they have disputes with the Vietnamese Government, not to mention that the reason why this case was initiated was because the Vietnamese Government had failed to enforce the settlement agreement with Mr. Trinh in the previous dispute.



In the midst of doubt from the public and foreign investors, the signing of the EUVIPA came on 30 June 2019 as a savior to help Vietnam somewhat win their trust back. Not only did it draw more attention to Vietnam as a promising land for future foreign investors, the inclusion of the new Investment Court System (“ICS”) in the EUVIPA is an assurance that serious concerns about ‘lack of transparency’ in the current ISDS mechanism are being addressed.

The ICS under the EUVIPA will be fully transparent and allow a third party to make submission to intervene in the proceedings. Article 3.46(1) EUVIPA provides for the application of the UNCITRAL Transparency Rules to ISDS proceedings and adapts them to the context of the EUVIPA without much alteration. This incorporation-by-reference methodology contrasts with Annex 8 (‘Rules on Public Access to Documents, Hearings and the Possibility of Third Persons to Make Submissions’) of the EU – Singapore Investment Protection Agreement (“EUSIPA ”) which adopts the UNCITRAL Transparency Rules only to match the terms of the EUSIPA ISDS procedure.

Greater transparency in the proceedings is also reflected in the EUVIPA’s treatment of third-party funders. While the EUSIPA requires foreign investors to disclose merely the identities of the third-party funder, the EUVIPA goes a step further by mandating disclosure of the “nature of the funding arrangement”.

Information about all investment arbitration disputes involving Vietnam so far has always been confidential. However, with the birth of the UNCITRAL Transparency Rules in 2014, the situation will be likely to change. Although Vietnam is yet a member of the 2014 United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (the “Mauritius Convention”) and thus not expressly bound by UNCITRAL Transparency Rules, such Rules nonetheless have been incorporated in the new 2013 UNCITRAL Arbitration Rules. The Rules will automatically apply to disputes arising out of treaties concluded as of 1 April 2014, not to mention that the EUVIPA adopts many key provisions of the UNCITRAL Transparency Rules.



As noted in a previous post, both UNCITRAL Transparency Rules and Convention were born as a response to the criticism against the secrecy of investment arbitration: “investment tribunals frequently decide matters of public importance behind closed doors”. Since the inception of investment arbitration, a multitude of commentators did not approve of the idea of letting a small group of unknown arbitrators handle investment disputes with enormous awards of damages in secrecy, especially when these disputes may lead to national law being revoked, justice systems questioned, environmental regulations challenged and public policy threatened. Therefore the public nature of investment arbitration should never be underestimated. Furthermore, stepping towards transparency will express the fairness that host states are willing to guarantee to their own local citizens, who are members of the society that could be affected by the outcome of investment arbitration. Hence, giving non-parties, including groups of local people, the right to make amici curiae submission is a vital aspect of transparency in ISDS.

Nevertheless, from host state’s perspective, transparency in ISDS can be a double-edged sword which may take a toll on its reputation if it is known to lose in a dispute for wrongly treating foreign investors. Given the current state Vietnam has no other option but to play with the sword to regain the trust from foreign investors and its locals, especially when the trust has been significantly tainted after the Trinh Vinh Binh saga. Exposing itself to a more transparent dispute settlement mechanism like the EUVIPA’s ISDS is a brave move from the Vietnamese Government. What matters now is how Vietnam is going to get prepared to adapt to the new wave of transparency policies under the EUVIPA as well as the new generation of international investment treaties. Only time will tell.

References   [ + ]

1. ↑ Global Arbitration Review, ‘Dutch national wins moral damages against Vietnam’. 2. ↑ EU-Viet Nam free trade agreement – Joint press statement by Commissioner Malmström and Minister Tran Tuan Anh. 3. ↑ Amco Asia Corporation and others v. Republic of Indonesia (ICSID Case No. ARB/81/1), Decision on Request for Provisional Measures of 9 December 1983, 1 ICSID Rep. 410 (1993). 4. ↑ The Loewen Group, Inc. and Raymond L. Loewen v. United States (ICSID Case No. ARB/(AF)/98/3), Decision on Hearing of Respondent’s Objection to Competence and Jurisdiction of 5 January 2001, para. 26. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
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Same Concept, Different Interpretation: The Full Protection and Security Standard in Practice

Sat, 2019-10-26 23:42

Omar Moussly

The numerous interpretations of the Full Protection and Security Standard (“FPSS”) have complicated the findings of tribunals for many years. A number of tribunals have found that this standard applies only to physical protection. Meanwhile, other tribunals have extended this standard to cover all types of protection from physical to legal and commercial. Also, more recently tribunals have considered the stability of the host state when construing the FPSS.

There is a growing body of arbitral case law on the FPS standard since the first investment treaty award on the full protection and security in Asian Agricultural Products Ltd (AAPL) v. Republic of Sri Lanka, as discussed here.

The FPSS can be found under various formulations in the promotion and protection of investment section in BITs. However, different BITs use different wording to express the same concept. For example, Article 4.1 of the Argentine Republic – Japan BIT expresses the concept as “full protection and security”. Another example, Article 1 of the European BIT template, the Abs-Shawcross Draft Convention (1960) states the notion as “the most constant protection and security”. Similar wording is included in Article 10 of the Energy Charter Treaty (“ECT”). Another example can be found in Article 1. 2 of the Arab Republic of Egypt and the Belgium-Luxembourg Economic Union BIT (1977) which expresses the concept as “continuous protection and security”.

Accordingly, the FPSS may be referred to as “constant protection and security”, “continuous protection and security”, or “full protection and security” standard. However, the meaning of these clauses suggests that the host State is under obligation to take active measures to protect the investment from harmful effects. The harmful effects may stem from non-government actors such as demonstrators, employees or business partners or even from actions of the host State and its organs.

Investment tribunals are generally consistent in their findings that the obligation to accord FPSS can impose an onerous level of liability on states with scarce resources.1)Mahnaz Malik “The Full Protection and Security Standard Comes of Age: Yet another challenge for states in investment treaty arbitration?iisd.org, November 2011. jQuery("#footnote_plugin_tooltip_6531_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6531_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });


Does FPSS apply only in the case of physical security?

The question of whether the FPSS is only applicable to physical security has divided arbitral tribunals for years.

Some tribunals held that the State’s duty was only to protect the investor from violence caused by State or non-government (i.e. private) actors. These tribunals decided that the FPSS applied only to physical security.

For example, in Saluka v. Czech Republic (2006), the tribunal observed that FPSS applies only to physical protection and stated that:

“The full protection and security standard applies essentially when the foreign investment has been affected by civil strife and physical violence […] the full security and protection’ clause is not meant to cover just any kind of impairment of an investor’s investment, but to protect more specifically the physical integrity of an investment against interference by use of force”.

Further, the tribunal in Wena Hotels v. Egypt (2002) held Egypt liable for violating the FPS standard for its failure to prevent the seizures and subsequent failure to protect Wena’s investment which gave rise to the liability of the State.

Also, in BG Group v. Argentine (2007), the tribunal found that protection and security was restricted to physical violence and damage. The tribunal relied on Wena Hotels v. Egypt tribunal interpretation of the FPSS and held it was: “inappropriate to depart from the originally understood standard of protection and constant security”.

It is notable that the tribunals in subsequent arbitral awards have extended this standard to cover all types of protection, including legal and physical security. For example, the tribunal in Biwater v. Tanzania (2008) stated that the FPPS “implies a State’s guarantee of stability in a secure environment, both physical, commercial and legal”. The tribunal in Siemens v. Argentina (2007) found that the FPSS goes beyond physical security from the fact that the applicable BIT’s definition of investment also applied to intangible assets:

“The tribunal concluded that the initiation of renegotiations for the sole purpose of reducing costs for the host State, unsupported by any declaration of public interest, affected the legal security of Siemens’ investment”.


Should arbitral tribunals take into considerations the stability of the host State?

FPSS creates a special regime of liability for the acts of the host State and for third parties that compromise the physical security of the assets of the investors, as discussed here. However, it remains subject to debate whether the FPSS imposes an obligation of due diligence which must be tailored to the resources available to the host State.

For example, the claimant in Pantechniki v. Albania (30/Jul/2009) argued that the Albanian authorities did not protect the claimant’s construction project and failed to provide full protection and security. The tribunal held that the Albanian authorities were powerless and the police “were simply unable to prevent the losses under the circumstances of the case”. Furthermore, the tribunal held that the arbitrators must consider the circumstances and resources at the disposal of the relevant State, and thereby consider the State’s level of development and stability.

In a more recent case, Ampal v. Egypt (21/Feb/2017), and after an ICC tribunal rejected Egypt’s force majeure defence in arbitration case and held it liable for the contractual breach arising of attacks on the pipeline, Ampal shareholders filed an ICSID case against Egypt claiming, inter alia, the violation of the FPSS obligations under the US-Egypt BIT.

Irrespective of the unstable and exceptional situation Egypt was facing and the nation’s limited resources, the tribunal found Egypt liable for its failure to protect the pipeline of the investor against the attacks and, as discussed here, “the tribunal only considered the security of the investor’s pipeline, neglecting the overall state of the country. The tribunal unconsciously transformed the due diligence standard from a duty of care to a duty to achieve”.

The tribunal in Cengiz v. Libya (07/Nov/2018) reached a similar decision to that of Ampal v. Egypt. The tribunal in Cengiz v. Libya acknowledged the border challenges Libya was facing at that time and the country’s lack of sufficient resources to offer “dynamic protection” to protect the investors. However, the tribunal held Libya responsible for its total failure to provide the necessary security measures to protect the investor’s project and equipment. Although the tribunal acknowledged that the evidence was scarce, it was nevertheless confident that the Libyan armed forces and/or militia controlled by the government had pillaged the investor’s camps and did not prevent any attack from third parties during the civil war.

In doing so, the tribunal departed from the narrow reading taken by WAY2B v. Libya tribunal that held that “an FPSS provision demanded due diligence on the part of a state to ensure adequate protection and security risks of physical damage caused by third parties”, and that the burden of proof lies with a claimant so that a tribunal can determine if the host State has acted with “due diligence in light of its development/situational capabilities”. Furthermore, the tribunal noted that the claimant had failed to assert even a prima facie case that the State had not met its protective duties.



It is clear that there is a considerable divergence in the interpretation of the FPSS. Some tribunals have only applied this standard to physical protection, whereas subsequently the majority of the tribunals have disagreed with this interpretation and have gone further to apply this standard to legal and commercial protection.

More recently, some tribunals have decided to take into consideration the stability of the host State, whereas others did not give sufficient consideration for the limited resources, the exceptional circumstances and the stability of the host State.

Arbitral tribunals should apply greater weight to the circumstances being faced by the host State before interpreting the FPSS and deciding whether it should apply to physical protection only or whether its coverage should be extended further. It is not easy for arbitral tribunals to reach a satisfactory decision in an unstable political area because of the lack of evidence in many cases, which the investor needs to proof. Ultimately – and as commented upon by the Pantechniki v. Albania tribunal – an investor investing in an area with endemic civil strife and poor governance “cannot have the same expectation of physical security as one investing in London, New York or Tokyo”.

References   [ + ]

1. ↑ Mahnaz Malik “The Full Protection and Security Standard Comes of Age: Yet another challenge for states in investment treaty arbitration?iisd.org, November 2011. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
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Mainland China–Hong Kong Interim Measures Arrangement Swiftly Put into Use

Fri, 2019-10-25 18:00

Peter Yuen, Matthew Townsend and John Zhou

On 1 October 2019, Mainland Chinese and Hong Kong bodies brought into force a reciprocal arrangement with significant implications for Hong Kong as a seat of arbitration. The arrangement allows the courts of each jurisdiction to award interim measures in support of arbitrations seated in the other territory.

Parties to Hong Kong-seated arbitrations have been quick to adopt the new tools available. Reports suggest they have already made a number of applications to the PRC courts, with at least one having been granted.


The Arrangement and Announcements

On 2 April 2019, as reported in this blog, the Chinese Supreme People’s Court (‘SPC’) and Hong Kong’s Department of Justice (‘DOJ’) entered into the Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong Special Administrative Region (‘Arrangement’).

The Arrangement changes the position under PRC law. Previously, there existed no formal mechanism by which Chinese courts would grant interim measures in support of arbitrations seated outside of Mainland China. Now they are empowered to issue interim measures in aid of institutional arbitrations seated in Hong Kong.

On 26 September 2019, the SPC and DOJ issued further instruments including: an SPC Judicial Interpretation and accompanying article; as well as a DOJ announcement and list of relevant institutions (together referred to as the ‘Announcements’).

As stated in the accompanying article to the SPC Judicial Interpretation, the Arrangement sets out “comprehensive provisions on the scope of preservation, the definition of arbitration procedures in Hong Kong, the procedures for applying for preservation, and the handling of preservation applications”. However, as the Announcements themselves clarify, a number of points had been left open when the Arrangement was entered into.


Effective date and qualifying institutions

The Announcements bring the Arrangement into force on 1 October 2019, which applies to both new and ongoing arbitration proceedings as of that date.1)See Article 3 of the Arrangement and Section 8 of the Accompanying Article. jQuery("#footnote_plugin_tooltip_5711_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5711_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Specifically, the Arrangement applies only to Hong Kong-seated arbitrations administered by certain “institutions or permanent offices”.2)See Article 2 of the Arrangement. jQuery("#footnote_plugin_tooltip_5711_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5711_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Announcements now list these bodies as:

  • the Hong Kong International Arbitration Centre (‘HKIAC’);
  • China International Economic and Trade Arbitration Commission (‘CIETAC’) Hong Kong Arbitration Center (‘HKAC’);
  • International Court of Arbitration of the International Chamber of Commerce – Asia Office;
  • The Hong Kong Maritime Arbitration Group;
  • South China International Arbitration Center (Hong Kong); and
  • eBRAM International Online Dispute Resolution Centre.

The list may be updated from time to time in the future.


First cases following the Announcements

Parties to Hong Kong-seated arbitrations have been quick to make use of the mechanism under the Arrangement. Indeed, in an 11 October 2019 announcement (‘HKIAC update’), the HKIAC noted that it had already received five applications for interim measures to be ordered by the PRC courts. The HKIAC, which had received these applications pursuant to its role under Article 3 of the Arrangement to accept such applications and transfer them to the PRC courts, stated that each of the five cases concerned applications to preserve assets in the PRC.

It has also been reported in the HKIAC Update that on 8 October 2019, the Shanghai Maritime Court granted one of these applications, thereby rendering the first of such orders under the Arrangement.



The Arrangement stands to bolster Hong Kong’s attractiveness as a seat for China-related disputes. As noted in our previous post, it offers parties to China-related transactions a new arbitration option, allowing them on the one hand to enjoy the benefits of ‘offshore’ arbitration (in this case in Hong Kong), while on the other hand enabling them to apply for interim measures in Mainland China.

Parties, who wish to benefit from the Arrangement, need to clearly and unambiguously identify Hong Kong as the seat of arbitration, and specify that such proceedings are to be administered by one of the recognised institutions as listed in the DOJ Announcement.

Given that this list might later be expanded in due course, it remains to be seen whether well-known institutions which presently have no qualifying operations in Hong Kong pursuant to the Arrangement (Arrangement, Article 2), will seek to establish eligible dispute resolution institutions or permanent offices in Hong Kong so as to benefit from this mechanism.

Of course, parties should note that the scope of interim relief available from PRC and Hong Kong courts differs considerably, as do the applicable standards and procedures. In this regard, Hong Kong courts are accustomed to ordering a diverse range of relief, including injunctive relief, in support of arbitration. By contrast, Mainland Chinese courts have in most circumstances been reluctant to order relief extending beyond preservation measures against assets or property. Further, parties seeking interim measures in Hong Kong may apply directly to the court while applications made to Mainland Chinese courts are commonly made in the first instance through an arbitration institution itself.

The Announcements confirm that each side to the Arrangement will apply their own current standards when reviewing applications made in support of arbitrations seated in the other jurisdiction. That said, in practice both sides have embarked on a considerable programme of cross-border judicial training following the Announcements.



It is unsurprising that arbitration users are swiftly adopting the tools available in the Arrangement in the same month the Arrangement came into force. The mechanism offers significant benefits to parties to transactions and disputes involving Chinese assets, operations or counterparties. This trend can be expected to continue given the hybrid jurisdictional nature of many transactions across the regions, for example investments into China involving offshore structures backed by guarantees from onshore assets.

References   [ + ]

1. ↑ See Article 3 of the Arrangement and Section 8 of the Accompanying Article. 2. ↑ See Article 2 of the Arrangement. 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: Arbitration in Belgium: A Practitioner’s Guide
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Interviews with Our Editors: Thoughts and Perspectives from Winnie Tam SC

Thu, 2019-10-24 22:01

Theresa Tseung (Assistant Editor for East and Central Asia)


Ms Winnie Tam SC is a leading intellectual property specialist in Hong Kong, and was the first female specialist of the field to be appointed Senior Counsel by the Chief Justice of Hong Kong in 2006.

After her elected term as Chairman of the Hong Kong Bar Association (“HKBA”) between January 2015 and January 2017, Ms Tam SC continued to engage in leadership role in the HKBA and currently sit as Chairman of its Committee on Intellectual Property.

As the last post on our Blog’s live coverage of Hong Kong Arbitration Week this year, we have invited Ms Tam SC to share with us her insights on various topics ranging from gender diversity and arbitrators’ expertise, to use of AI in arbitrations and the future of arbitration in Hong Kong.


  1. Has arbitration always been your interest from the start of your career?

My interest for the early years of my career has been in intellectual property and general corporate commercial work. I also have a deep interest in civil procedural law and private international law, not least due to the nature of intellectual property litigation. I began to be involved in arbitration when I was introduced to it and thrown in at the deep end, learning, researching, teaching, speaking on and practising it almost at the same time, and helping with the formulation of the new legislation in Hong Kong on arbitrability of IP. It has been a great journey and I am loving it.


  1. There have been a number of initiatives aimed at improving gender diversity in international arbitration. However, we are still faced with an under-representation of women at senior levels in the legal profession and on arbitral tribunals. What do you think are the greatest hurdles to achieving gender diversity in international arbitration? How may we overcome them?

There are several aspects to achieving greater equality in gender in the international arbitration, but I am hopeful that it can be done given time and a gradual change in mindset. We need capacity building amongst women. In terms of counsel teams, I do not see any real hurdle in women being engaged as part of the counsel team in international arbitration. As more female counsel enter the sector, more of them will reach the higher rungs of the ladder in due course.

Female lead counsel are fewer in number compared to their male counterparts, but that is true too in the litigation world and in the appointment of silks at the Bar. From my observation, there are several hurdles to overcome:

  • Stamina. While some young (age 40-45) arbitrators enjoy early success due to special factors, parties do mostly prefer to appoint more experienced arbitrators or lawyers. On the other hand, many women burn out or fade out of the scene around the age of 50 unless they are determined and confident to continue to push their own career to new heights. It could be because of their family, e.g. trying to synergise with the husband retirement plans, or it could be a lack of opportunity to demonstrate their stamina to take on greater challenges with all the years of experience under their belt. It is very much determined by self-perception.
  • Perception. The notorious glass ceiling, as I see it, is formed by perception. Well-heeled senior female lawyers are often presumed to wish to slow down after they reach middle or late-middle age. That perception will need to be removed by some positive indication by word or conduct on the part of the woman practitioner herself. Declaring a keen interest in a new practice area, taking silk, taking up rigorous teaching work alongside practice, and active networking in conferences all have the effect of negating any undesired perception or presumption of “slowing down”.
  • Fighting gender-consciousness. It is natural that arbitrators would choose those they enjoy working with to share a panel, particularly where they may have to arbitrate away from home. Where the designation is the decision of two males, do women stand a chance? To be good around people regardless of their gender is a great asset in arbitration. On the other hand, the more you think you are suffering a disadvantage because you are a woman, the more likely you are going to suffer that disadvantage. It is important that women who aspire to be arbitrators are able to feel at ease, quietly confident and able to engage both professionally and socially when they are appointed to work whether with male counsel or arbitrators. Furthermore, it is important that successful women practitioners who are fortunate to rise through the glass ceiling do not only enjoy the kudos of being the rarer species, but would also empower other women to join them.


  1. Online dispute resolution platforms have been created to improve procedural efficiency and cost-effectiveness in international dispute resolution. In your view, is online dispute resolution, assisted by emerging technologies such as blockchain and artificial intelligence, the answer to such concerns?

There is no doubt that technology will increasingly be deployed widely to achieve lower cost and higher efficiency in international arbitration. I do believe that there are major contributions to be made by technology in the near future by the use of artificial intelligence and block chain in document management, in deal making and administration of the execution of certain types of contracts through to dispute resolution, and in the administration of proceedings such as filing of documents and procedural compliance, in breaking language barriers and more. In terms of the cost of arbitration, there will be a day when virtual hearings will be as common as video-conferencing. Further down the line, holograms of individuals attending an arbitration in various capacities may well make physical congregation in a hearing room look archaic and an absurd waste of time. We all need to be prepared to embrace the changes ahead.


  1. What in your view is the greatest pitfall of an increasing use of artificial intelligence in arbitral proceedings? Could it be avoided?

It is hard to predict all the forms of disaster an over-reliance on technology would bring. More immediately, where certain types of disputes are reserved to be resolved by a robot, such as smaller and fixed form disputes suitable for a formalistic mode of resolution, e.g. parking ticket disputes, e-Bay type disputes, injustice is sized by the monetary value at stake. However, where the dispensing of justice depends on judgment calls to be made on the credibility of witnesses, or appropriateness of non-monetary relief, which is often the case, the value of traditional human effort cannot be marginalised. I believe maintaining a firm belief in the value of human judgment, and treating dispute resolution as a humanistic, not mechanical, undertaking will help guard against over-enthusiasm in the use of technology leading to apparent efficiency at the expense of justice.


  1. What are the skills you would consider critical to an arbitration practitioner for him or her to be practising as a counsel above his or her peers?

There are three skills that are critical:

  • Management skills. These skills relate to accessing, organising and managing information, managing co-workers, clients’ and the tribunal.
  • Skills in expression and presentation. I cannot over-emphasise how the format of presentation of information and materials can make or break a case, especially where the case is complex. The skill to be able to master simplicity and lucidity in organizing information for presenting a forceful case is at least as valuable, if not more valuable, than good legal research.
  • Outgoing personality. As a person relatively new to the practice, the mindset of a senior barrister, who is accustomed to being reserved and almost withdrawn in a professional circle, must change.


  1. What do you think are the biggest challenges to the growth of arbitration in Hong Kong and Mainland China in the next decade?

With the development of the Greater Bay Area (“GBA”), I can see a lot of potential in Hong Kong’s continued growth as an arbitration hub for the fast-growing foreign investment in the GBA. The challenge is how to synergise the unique features of Hong Kong’s relevant experience and attributes to maximise a win-win scenario for both China and Hong Kong. As for the fear of competition from places like Singapore, I believe we should instead be focusing on our unique position as an independent but integral part of China with a fiercely protected spirit of independence under One Country, Two Systems.


  1. Any words of wisdom for budding arbitration practitioners?

Work hard, play hard and rest well. Above all, learn for life and serve non-stop. Your high aspirations will be better achieved with a healthy body and high spirit. When you feel that you have been working too hard in your practice, take a little time off and work for public causes. Find a sense of purpose in making contributions. You will find that it enriches you well beyond the time cost you “lose”.


More coverage from Hong Kong Arbitration Week is available here.

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

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Hong Kong Arbitration Week Recap: Is Arbitration Sustainable?

Wed, 2019-10-23 18:01

Felicia Cheng and Dominique Yong


The fourth annual Harbour Lecture took place on 21 October 2019, with hundreds of attendees packed into the Eaton Club, Hong Kong to hear a thought-provoking lecture delivered by Sophie Lamb QC, global co-chair of the international arbitration practice at Latham & Watkins.

The theme of this year’s lecture was whether arbitration is sustainable. The premise was the necessary and unavoidable disruption (a ‘great transition’ of sorts) that will affect not only the arbitration industry, but life and business more broadly. Ms Lamb used the UN’s Sustainable Development Goals (“SDGs”) as a loose framework to take the audience through a wide array of topics and ideas, from crowd-funded robot arbitrators to climate change, rapid urbanisation, and a growing ‘silver economy’.

Each audience member will have been informed and inspired by the lecture in their own way. This recap sets out some of the key issues discussed by Ms Lamb, as well as the authors’ impressions and concluding thoughts.


Climate change and business

It is no surprise that environmental, social and governmental (“ESG”) issues have made it to the top of the corporate agenda. The World Economic Forum has identified extreme weather and climate change policy failures as among the gravest threats to the global economy.

Undoubtedly, the effects of the climate crisis and strain on resources, including loss of biodiversity, will impact business and relationships. Examples given in the lecture include shifts in the ‘users’ of international arbitration such as energy companies; necessary updates in the law to deal with arguably increasing foreseeability of ‘extreme’ events; and the need for financing from private sources, noting already the innovation of ‘green bonds’ as a collective response.

Moving on to the role of company directors, Ms Lamb shared that there have been calls (including from Lord Sales, Justice of the UK Supreme Court) for company law to require directors to have regard to climate change effects and adopt climate risk management as part of their fiduciary duties. This may involve greater reliance on soft laws and best practice, the importance of which has become generally-accepted over recent decades. On the latter, a balance must be struck between letting companies pursue commercial objectives and also allocating responsibility for the consequences if companies fail to account for ESG factors in their decision making.

On investment law, changes to the ESG context may necessitate shifts in the concepts of ‘investors’ and ‘investments’. The investment arbitration sector faces numerous challenges including the need to counter the public perceptions that ‘justice is being privatised’, that investment arbitration is to blame for regulatory chill, and a general sentiment of anti-globalisation as well as opposition to trade deals. In addition, the status of intra-EU investment law remains in a state of flux with the consequences of the Achmea decision still transpiring.


Diversity and equality

Diversity and equality are specifically identified as SDGs, and have been in the spotlight in the arbitration sector for some time, especially given the historical lack of both in the industry demographics. Ms Lamb considered it undeniable that gender equality and diversity are vital for the health, sustainability and legitimacy of arbitration, particularly in light of the increasing diversity in users of arbitration.

On gender equality, statistics show that there is still some way to go to achieve equality. Whilst LCIA figures show that women represented 43% of all arbitrators selected by the LCIA Court in 2018, this can be compared with a figure of 23% of appointments overall, suggesting that parties and counsel may lag behind the LCIA in pursuing equality. ICC figures in 2018 are lower, with 27.6% of appointments made by the ICC Court and 18.4% overall being of women.

Ms Lamb identified that another challenge to diversity and equality lies in the difficulty of procuring one’s first appointment as arbitrator. In particular, the market tendency to carry out extensive due diligence on prospective arbitrators and the emphasis on past experience means that the pool of candidates will be limited instead of expanded. This is exacerbated by the IBA Guidelines on Conflicts of Interest in International Arbitration, which Ms Lamb considered do not reflect the realities of modern law firms and require urgent attention to address, for example, ways that firms can manage potential conflicts by implementing information barriers and protocols.

Ms Lamb suggested that these structural barriers could be ameliorated by, for example, allowing junior arbitrators to shadow experienced arbitrators on a disclosed basis in order to gain practical experience and increase prospects of future appointments; a concept that was enthusiastically received by the audience.


Technology and data protection

Technology in the arbitration sector has had a slow start, with most arbitration hearings still relying on voluminous hard copy bundles. Although technology has been used to assist with research, document review, discovery, bundles and translation, it is typically limited to fairly pedestrian tasks.

Ms Lamb pointed out that there is a clear opportunity to adopt much more sophisticated uses of technology, and this has already been done in certain sub-sectors. Businesses such as eBay already use artificial intelligence for dispute resolution, which involves using an algorithm to generate a suggested settlement figure and allows the business to process an extremely high volume of disputes. This type of technology use is particularly suitable for low value and/or routine disputes. Various US government entities also have online dispute resolution platforms for tax and traffic matters.

Ms Lamb gave illustrations of other potential uses of technology such as using Blockchain to authenticate evidence, algorithms to process high volumes of data, and to calculate pricing or quantum in gas and construction disputes. Technology may also assist in mitigating the environmental impacts of modern international arbitration, which involves copious amounts of travel, for example by opting for virtual hearing rooms.


Concluding thoughts

In addition to the broad categories of disruption and progress mentioned above, Ms Lamb commented that there exist other challenges to the future of arbitration such as the emergence of regional international commercial courts (particularly in financial centres), as well as the rise of mediation including the Singapore Convention on Mediation and increasing tendency of parties to opt for a commercially pragmatic rather than legal solution.

As climate change related disputes increase, particularly energy, construction and land use disputes, this will affect various aspects of the arbitration industry. Arbitration is uniquely placed to adapt to these effects, including allowing the choice and application of specified governing laws including climate change instruments, and the choice and appointment of arbitrators and experts with climate change and scientific expertise.

The arbitration industry must persist and do more to achieve gender equality and diversity. This should be viewed as vital to the health and sustainability of the industry. Practical measures such as allowing juniors to shadow arbitrators and updating the IBA Guidelines on Conflicts of Interest in International Arbitration would be moves in the right direction.

Use of technology must be embraced and not feared. That said, opportunities to embrace technological advancement must be accompanied by measures to manage associated and new risks. Data protection and cybersecurity risk management programmes should be implemented such as contractual protection, staff training, and policies for detection and analysis, breach management and containment, and PR and dispute resolution strategy.


More coverage from Hong Kong Arbitration Week is available here.

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Hong Kong Arbitration Week Recap: The Future of Arbitration in Hong Kong

Tue, 2019-10-22 18:00

Joyce Leung, Joanne Lau and Nicole Tsui

As Hong Kong Arbitration Week 2019 hits the midway point, we asked three next-generation arbitration practitioners: how do you see the future of arbitration in Hong Kong?

These are their answers:

Joyce Leung:
As a construction lawyer, I am seeing an increase in arbitrations arising from the construction sector in light of the completion of a number of major infrastructure projects in Hong Kong. Apart from local projects, disputes have also arisen on projects under the Belt and Road initiative. Coupled with the developments in the Greater Bay Area, there are significant opportunities for Hong Kong as an arbitration forum going forward.

There are speculations that the proposed security of payment legislation, which introduces statutory adjudication as a dispute resolution mechanism to increase cash flow in the construction industry, would significantly reduce the amount of arbitrations in Hong Kong as overseas experience suggests that parties tend to accept the adjudicator’s decision as final.  My view is that whilst this may be true for smaller disputes, parties would probably still refer disputes which are more complex or of higher value to arbitration.

There have been a number of welcoming developments this year which will help boost Hong Kong’s attractiveness and competitiveness as a seat for arbitration. The third party funding provisions of the Arbitration Ordinance (Cap. 609) came into full operation on 1 February 2019, giving parties comfort that third party funding of arbitration in Hong Kong is not prohibited by the common law doctrines of maintenance and champerty. Further, by virtue of a unique arrangement between the Mainland and Hong Kong which came into effect on 1 October 2019, the Mainland courts may order interim measures in support of institutional arbitrations seated in Hong Kong. There is currently no such arrangement for arbitrations seated in other foreign jurisdictions, giving Hong Kong a further competitive edge.

Despite the dark times that Hong Kong has been experiencing in the past months, I think the future of arbitration in Hong Kong remains bright.


Joanne Lau: I have every confidence in the future of arbitration in Hong Kong even though it is not without its challenges.

The biggest challenge that Hong Kong faces is perhaps one of perception. Given the complicated socio-political environment, it is important that Hong Kong is able to defend itself against any perception that it is no longer a safe and reputable jurisdiction for conducting arbitration.

Taking a fact-based approach, I do not consider the future of arbitration in Hong Kong to have been undermined. The HKIAC remains very well-regarded with increasing caseload and constant self-improvements, such as the 2018 revision to the HKIAC Rules. Arbitration-related judgments have shown that the Hong Kong courts remain neutral and pro-arbitration. The legal infrastructure is sound. Changes have been introduced to the Model Law-based Arbitration Ordinance over the years in response to evolving demands, including with respect to emergency arbitration and third party funding. There is also a vibrant community of arbitration practitioners, with a number of high profile events being held in Hong Kong, including the Hong Kong Arbitration Week now in its eighth year, the ISDS Reform Conference earlier this year and the ICCA Congress coming up in 2022. A significant recent development is the Mutual Arrangement on Interim Measures which Joyce mentioned.

Hong Kong’s unique position lies in the fact that it is part of China but that it nevertheless differs from China in various ways, most significantly by its separate legal and judicial system. The future of arbitration in Hong Kong will depend on how well Hong Kong is able to capitalise on its special relationship with Mainland China whilst ensuring that the distinctiveness of Hong Kong as a leading international arbitration venue in its own right is also maintained and conveyed.


Nicole Tsui: I see a bright future for Hong Kong as a seat of arbitration. The arbitration market is busy and the number of disputes arbitrated in Hong Kong has remained at a consistently high level for the last five years. Due to foreign exchange and other regulatory restrictions in Mainland China, Hong Kong remains China’s bridge to the world and has always been the go-to seat for PRC-related disputes that are eligible for arbitration offshore. Hong Kong is seeing an increasing number of disputes involving Mainland Chinese entities being referred to arbitration. I believe that this upward trend will continue as Chinese outbound investment activity increases.

In addition, I expect that we will see an increase in the number of PRC-related disputes arbitrated in Hong Kong for two further reasons:

  • First, the PRC Supreme People’s Court has incrementally liberalized the types of disputes that are eligible for arbitration outside Mainland China, including some between wholly foreign-owned enterprises registered in Chinese FTZs. Hong Kong is a natural offshore seat for these disputes.
  • Second, there is the arrangement between Hong Kong and Mainland China on interim measures referred to by my co-contributors.

For these reasons, and because of the unique benefits that Hong Kong offers (including our multi-lingual legal profession, highly independent judiciary, and geographical proximity to Mainland China), I expect that Hong Kong will maintain and consolidate its position as one of the world’s leading arbitral seats in the future.


More coverage from Hong Kong Arbitration Week is available here.

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Hong Kong Arbitration Week Recap: Has the Proliferation of Institutional Rules Caused International Arbitration to Lose Its Way?

Mon, 2019-10-21 18:01

Sian Knight and Ben Bury


Even a cursory analysis of the history of the procedural rules of leading arbitral institutions demonstrates that procedural rules are increasing in number and becoming ever more comprehensive in their scope. Institutional rules now cover, largely without exception, joinder, consolidation, emergency arbitrator provisions, and expedited procedures. And adding to this, as institutions seeking to adapt to global developments, such as the growth of Belt and Road Initiative (BRI) disputes, the pressure for more rules seems inescapable.

Has this increasing breadth of rules created a bewildering morass? Or is it the reality that arbitration institutions are required to expand their procedural tools in order to effectively manage increasingly complex disputes, including those involving multiple parties and arbitration agreements.

On Monday, October 21, Holman Fenwick Willan LLP hosted a panel event on the topic of proliferation of institutional rules as an affiliated event of Hong Kong Arbitration Week 2019 (Chatham House Rules invoked).

This blog post provides an overview of the main themes addressed in the wide-ranging discussion.


The interplay and choice between institutional rules in contrast to ad hoc rules

The panel discussion raised the point that institutional rules exist to provide structure and form to arbitrations, and can be thought of as readily understandable means of setting out the rules of the ‘arbitration’ game.

In practical terms, arbitral rules provide institutions with the means to offer a raft of valuable services, ranging from appointment of arbitrators to consolidation of arbitrations. In that sense, choosing administered arbitration subject to institutional rules can operate as a comprehensive and structured alternative to the skeletal procedural provisions generally found in local arbitration laws.

It was discussed that having said that, where appropriate, parties may prefer “ad hoc” arbitrations subject to local legislation over administered arbitrations. However, Ad hoc arbitration is not devoid of structure. It instead takes its form according to the law of the seat, and it is certainly open to parties to agree to a set of rules to supplement underlying legislation, such as the use of LMAA rules in such context. With an experienced arbitral tribunal, ad hoc arbitration can be a genuine and viable alternative to institutional arbitration.


The role of institutional rules in the parties’ choice of institution

Further in the discussion, the point was made that regardless of preferences, the decision between ad hoc or administered arbitration should be carefully considered. In the same vein, parties opting for administered arbitration should spend time selecting the right rules, i.e., ones that are fit for purpose in the context of a specific reference, since the rules provide essential procedural framework for an arbitration and will have a significant impact on the conduct of proceedings.

That said, there is not always the luxury of time or influence of a party over which rules to choose in the arbitration agreement when a commercial deal is cut. Arbitration agreements are often “11th hour” clauses in contracts, meaning that they are drafted at the last minute without sufficient regard to their wording.

On this point, the panel explained that, in practical terms and to the extent parties consider the drafting of their arbitration clauses, that parties are more likely to pay attention to the seat of the arbitration rather than which institutional rules to apply. Further, if an institution is deliberately chosen, it is often on the basis of its experience with institutions in terms of their administration of comparable disputes. This is reflected in the results of the Queen Mary University of London 2018 International Arbitration Survey, which confirms that the HKIAC, SIAC, ICC, LCIA and SCC are still the most preferred institutions based on ‘general reputation and recognition‘.


The process and development of current institutional rules

Against this background, one may wonder why arbitral institutions seek to create new rules to adapt to change.

The panel discussed that there is no doubt that they do. By way of example, the HKIAC 2018 Administered Arbitration Rules undoubtedly put in comprehensive work in revising its Rules. New provisions have been introduced to recognise the pressure points in existing rules, and to seek input and consensus from the breadth of the interested arbitration community before embarking on change, which is a process not undertaken lightly.

There is nonetheless a point to make on whether institutions are creating new rules to cater for the changing needs of the parties.

Looking ahead to the future development of arbitration practice, we may reasonably expect more attention to be paid to environmental concerns. Many have taken the decision now to commit to the Green Pledge on arbitration. And looking even further ahead, we wonder how long it would take before the traditional physical hearing is defunct and be replaced with a virtual environment. This poses the question – should rules cater for this?

Leaving to one side was an academic discussion of the respective role of arbitration soft law, and the mandatory application of national law, as well as current concerns over the scope of institutional rules which go to the core of the arbitral process. For example, multi-party provisions may have to address concerns over fair treatment of all parties to an arbitration in terms of appointment of arbitrators.

The panel also discussed how the proliferation of rules may impact enforcement as a favourable award is only a good result when it translates into an enforceable award.


The role of an arbitrator and the strengths of the arbitral process

The panel concluded the session by discussing the role of an arbitrator. No consideration of institutional rules would be complete without doing so.

The panel expressed the view that although institutional rules may well facilitate the arbitration procedure, they are not the only factor at play. It was noted that the strength of an arbitral process is also heavily influenced by the caliber of the arbitrator pool in the respective seat.

An example would be, where parties have expressly committed to the use of expedited procedures or emergency arbitrator provisions, arbitrators are expected to be able to utilise the applicable provisions fully in order to drive the proceedings forward without delay.


More coverage from Hong Kong Arbitration Week is available here.

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Hong Kong Arbitration Week Recap: Private Equity, Financial Services and Insurance Disputes – Don’t Hesitate to Arbitrate!

Mon, 2019-10-21 01:30

Jake Lowther


Kicking off Hong Kong Arbitration Week (“HKAW”) 2019 on Sunday was a joint seminar hosted by KCAB INTERNATIONAL and Freshfields Bruckhaus Deringer (“Freshfields”) titled: “Private Equity, Financial Services and Insurance Disputes: Don’t hesitate to arbitrate!” The seminar was an Oxford-style debate of the motion: “this house believes that private equity, financial services and insurance disputes are uniquely unsuited for arbitration.”

The speakers were divided by sector, with Sue Hyun Lim (KCAB INTERNATIONAL), Nick Lingard (Freshfields) and SeungMin Lee (Shin & Kim) in support of the motion and Dana MacGrath (Bentham IMF), Simon Powell (Powell Arbitration) and Yong Wei Chan (Freshfields) opposed. John Choong (Freshfields) acted as moderator.

Before beginning the debate, a poll of the audience revealed only 22% were in favour of the motion that arbitration is unsuitable for private equity, financial services and insurance disputes.


Financial services

With a “heavy heart”, Ms Lim began the debate with four key arguments for why financial services disputes are not suited to arbitration.

First, “if it ain’t broke, don’t fix it.” Financial services litigation has a long history that yielded a wealth of expertise and binding precedents. This provided stability and consistency for the parties which are essential conditions for investment. Court litigation minimizes the real risk of anarchic, conflicting decisions.

Second, “why settle for second-best?” Ms Lim wondered why parties would choose arbitration when the courts provide more comprehensive interim relief and comparative ease to join parties and consolidate claims.

Third, “what are you getting yourself into?” Ms Lim pointed to the lack of accountability when it comes to arbitrators. Judgments are publicly available, providing insight into judges’ reasoning. Arbitrators lack the same level of transparency and accountability. It can lead to counsel running “everything but the kitchen sink” arguments at the expense of efficiency of time and cost.

Fourth, “show me the money!” Ms Lim reminded the audience that arbitration is often neither faster nor cheaper than litigation. Financial services stand to lose due to the lack of early dismissal procedures in arbitration. Despite their “broad discretion” arbitrators typically suffer from “due process paranoia” that leads to lengthier proceedings in arbitration, adding to the expense.

In response, an “at ease” Ms MacGrath begged to differ. She conceded that the courts are good, but pointed to the fact that the parties’ choice to arbitrate is not about courts not working, but the parties making a specific choice to arbitrate due to its advantages. In the US, the courts can be much slower and more expensive than arbitration. The lack of finality in court litigation is a distinct disadvantage.

Ms MacGrath stated that the lack of precedents is an unlikely risk and may even be healthy. A better result may be derived from arbitrators deciding on each case according to its merits. Further, confidentiality remains a hallmark of arbitration. In today’s world of “trial by Twitter”, the ability for financial services providers to keep their disputes private is invaluable.

Ms MacGrath pointed to the various institutional rule changes to facilitate joinder and consolidation as evidence of arbitration doing the “best it can”. She stated it is a rare case where there are non-parties that cannot be joined to an arbitration. She also pointed to the increasing accountability of arbitrators amidst the increasing publication of awards. As for delay, Ms MacGrath made the point that all arbitration participants share responsibility, but institutions are increasingly vigilant in enforcing efficiency.


Private Equity

Mr Lingard began by sharing insights into the private equity mindset. It is a fast moving business with fundraising, deployment and realization typically taking place in short time frames. Clients expect a high degree of responsiveness and Mr Lingard suggested that an arbitral tribunal is never sufficiently responsive. He referred to an arbitration in which the proceedings closed in June 2018, but the award is still pending.

Mr Lingard acknowledged the expedited procedures offered by many arbitral institutions, but made the point that the relevant monetary thresholds are too low to be of much use in private equity transactions. While arbitration may be all about obtaining monetary relief, the possibility of court-ordered freezing or relief injunctions with teeth is arguably more useful to private equity clients. The stylistic aspects of arbitration and its effect on enforceability will typically generate a “you’re kidding me” from clients.

Mr Lingard also referred to private equity claimants preferring an advantageous exit from investment terms in disputes, such as the ability to force an IPO as opposed to damages. Finally, Mr Lingard questioned the appropriateness of arbitration particularly for non-arbitrable claims in relation to minority shareholder oppression or insolvency.

In response, Mr Powell promised to be the audience’s “guardian angel” following the previous “hogwash”. Private equity moves fast, but arbitration is speedy, efficient and institutional rules provide adequate interim measures to the parties. It is responsive to the needs of the parties. As a result, it is continually improving. While a delay of over a year is unacceptable, he pointed to various rule revisions enshrining tight time frames for awards. Mr Powell also referred to the support from commercial courts for arbitration, excepting the limited non-arbitrable matters. He stated that judges can lack the expertise to decide matters in private equity, especially when compared to party-appointed arbitrators with private equity backgrounds.



Ms Lee began by discussing the origins of insurance as a means of spreading risk from the individual to the wider community, ensuring a speedier recovery after an unpredictable event. This is a relationship that should be treated different from other contractual relationships. She stated that arbitrators in insurance disputes may have a predisposition towards insurers, who will be more likely to appoint arbitrators in the future. Arbitration’s flexibility has a downside in insurance disputes, where the insurers tend to be able to manipulate the arbitration agreement in their favour, causing delays and limits to remedies.

Ms Lee pointed out that through arbitration, insurers can avoid class actions. Given the multitude of policy holders with similar contracts, the lack of judicial interpretation is a disadvantage to expediency and consistency in decision making and avoids public scrutiny. Ms Lee concluded by stating that arbitration risks the foundations of insurance, where fairness, mutual trust and the promise of compensation after an insurable event should be preserved.

In response, Mr Chan defended the suitability of arbitration by pointing out that partisan arbitrators who favour insurers risk their reputations and future appointments, particularly in the face of increasingly tight institutional rules. By contrast, the tenure of judges limits accountability, because judges generally have their positions till retirement. Further, the resources of an insurer can have a similar impact in litigation, where delay and other strategies can limit a policyholder’s relief. But unsatisfied customers can always switch insurers.

As for limited legal development, this is not a problem for liability insurance, where bypassing the courts has little negative effect on the public interest. Mr Chan referred to the use of the “Bermuda Form” in response to asbestos litigation, applying New York law to the contract and English law to the arbitration agreement. This avoided the problem of jury-awarded damages that was pricing insurers out of the market, leading to under-insurance. Here, arbitration came to the rescue. However an audience member made the point that a lot of Bermuda Form arbitration is spent on contractual interpretation, all of which remains confidential and cannot assist future parties. This led to a wider audience-led discussion on the importance of increasing the anonymizing and publication of arbitral awards where possible.



After an entertaining and engaging debate, the audience had the opportunity to vote once more. It is perhaps unsurprising that the results of the second vote revealed that the number of audience members who agreed with the motion nearly doubled to 42%.

Those who spoke in support of the motion made frequent reference to broader public policy questions, the lack of precedent, biased arbitrators, Warren Buffet and even the protection of the rule of law. Such arguments can easily tug at the heartstrings and their broad, nebulous nature makes them harder to rebut.

Yet the result arguably suggests that arbitration is no less suited to such financial services, private equity or insurance disputes than other mechanisms of dispute resolution, but there are expectations that arbitration must continue to take advantage of opportunities to improve, particularly in respect to efficiency, cost and transparency. As is so often the case, it is not so much whether arbitration is or is not suited to such disputes, but rather “it depends” and should be assessed on a case by case basis.


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UNCITRAL and Investment Arbitration Reform: A Little More Action

Mon, 2019-10-21 01:00

Malcolm Langford

UNCITRAL’s Working Group III on investor-state dispute settlement (ISDS) assembled in Vienna last week to consider a raft of reforms concerning investment arbitration. The fifth session in this process, governments surprised many by finalising quickly a medium-term work plan and commencing deliberations with a pragmatism that has proved often elusive. To be sure, not all states are enamoured with the agenda. Some prefer the current system, others wish its abandonment. However, the working group can boast now that it is able to advance sensitive negotiations with a certain degree of concreteness and consensus. This blog post sums up the legal and policy developments of the week and ends with a reflection on the politics.


1. A medium-term plan

The session kicked off on Monday with a discussion of how to sequence the consideration of the five initial reform topics identified in the New York session in April 2019. These themes ranged from a code of conduct and third-party funding to adjudicator appointment, shareholder claims and an advisory centre. By early Tuesday morning, the Chair had secured consensus on a medium-term work plan. Although, it was achieved despite creative attempts to slow the process down, including a proposal for a verbatim reading of all 23 written state submissions.

The medium-term plan foresaw a staggered discussion. Firstly, three topics were slated for immediate discussion: the establishment of an Advisory Centre on International Investment Law; a code of conduct for arbitrators and judges, and third-party funding. The choice of the advisory centre appeared unusual given its late entry into the reform agenda. Nonetheless, it proved a suitable curtain opener given the support for the proposal in the room. Secondly, a set of mostly structural topics were scheduled for the January 2020 session in Vienna. These are the appellate mechanism, a standing multilateral investment court, and the selection and appointment of arbitrators and judges. Thirdly, a grab bag of other issues was pencilled in for the New York session (30 March to 3 April 2020). This includes reflective loss for shareholder claims but also counter-claims, dispute prevention and the overall reform instrument/s.


2. Advisory Centre on International Law

After achieving consensus on the work plan, discussion on an advisory centre commenced immediately. State after state took to the floor to announce support, highlighting the paradox that ISDS cases are often more factually complex and lengthier than WTO cases, but only the latter has an advisory centre. Moreover, developing countries consistently lose ISDS cases more often than developed countries and empirical research suggests that one cause is the lack of quality legal assistance.

However, states were divided on the design of a new centre, especially questions such as: Who would benefit? What services would be provided? And how would it be set up? There was a clear consensus that the prime beneficiaries should be low-income countries. However, some states and observers proposed that the centre help also small and medium enterprises (SMEs) and middle income states under certain conditions (e.g., through limited or partly remunerated support). The likely extent of resources for the centre hung heavily over the discussion of what services would be provided. States agreed on the importance of pre-dispute technical assistance and capacity building, while some were adamant that the centre should also provide representation. The advisory centre was envisaged as an intergovernmental body but with sufficient independence to ensure legitimacy, and  could be funded through contributions by members states and user fees where appropriate. The UNCITRAL Secretariat was asked to begin preparatory work on a full proposal.


3. Code of Conduct

The discussions on the code of conduct attracted an equally strong degree of consensus with an emphasis on establishing a ‘binding code’. This implied a focus on developing rules rather than guidelines, and precipitated a certain degree of concreteness in some proposals. However, states were partly divided in how they envisaged the code’s architecture. Some championed a single rulebook for all arbitrators and eventual judges in ISDS. Others contended that structural reforms such as a court or appellate review would solve some or many of the current problems with arbitrator conduct, necessitating a less demanding or different code. For example, a standing judiciary and rigorous pre-appointment procedures could solve independence-based concerns with double hatting and impartiality concerns with issue conflicts. States were also unclear on who would be covered, with proposals for a separate code of conduct for counsel. To complicate matters further, ICSID is further ahead in developing a declaration of ethics, and the eventual product is likely to be influenced significantly by their deliberations and vice-versa.

States were largely in agreement on what themes should appear in a code of conduct. This included a relatively high degree on consensus on the need for detailed disclosure requirements by arbitrators as well as concrete rules to ensure efficiency. Some states mooted a limitation on the number of cases. However, there was a clear divide on other aspects. The most notable concerned ‘double hatting’, whereby arbitrators act as counsel in other ISDS cases. Some delegates expressed support for a complete ban on arbitrators acting as counsel, such as can be found in the code for the Court of Arbitration for Sport (S19). Others thought it should extend to all other ISDS roles, such as expert witness and advisors (with Chile pointing to its 2017 FTA with Argentina). Yet, others called for transitional rules such as a transition period or a ceiling on the number of cases. This could allow more young, female and non-Western nationals to transition more easily from counsel work into arbitral work.

Significant time was also devoted to enforcement mechanisms. Some states emphasised the importance of reputational sanctions, such as transparent and public listings of non-compliance. Others pointed to the need for material incentives, such as loss of fees. The UNCITRAL Secretariat will now proceed to develop a proposal in collaboration with ICSID.


4. Third-party funding

 The final topic for reform was third-party funding. The mere definition of the phenomenon bedevilled the earlier discussion in New York, and this partly continued in Vienna. Did third-party funding include contingency fee arrangements for law firms? Did it cover non-profit forms of support, including to states? There were three camps. Firstly, states concerned mostly with the potential for conflict of interest with arbitrators defined third-party funding narrowly and advocated light-touch regulation. Secondly, states worried about perverse incentives – such as unwillingness to settle – defined it more broadly and advocated stronger regulation. Finally, those that viewed third-party funding as a generator of frivolous claims and inconsistent with the raison d’etre of investment treaties (promotion of investment) were more inclined to adopt a wide definition and call for prohibition.

The result was a series of reform proposals scattered along a spectrum. Some called for ‘prohibition’ with exceptions for impecunious claimants that lacked access to justice. Access to third-party funding would be conditional though on claims not being frivolous and speculative and funders not possessing a portfolio targeted at particular states. The majority of states favoured ‘regulation’, citing contractual liberty and access to justice, especially for SMEs. The key for these states was disclosure. However, there was disagreement over the necessary breadth of disclosure, especially the terms of the funding agreement.

Appropriate and proportionate sanctions were advocated. Some states pushed for strong material penalties such as payment of legal costs and annulment of cases, while some observers and states noted the unintended consequences of draconian rules, such as pushing the practice further underground. Indeed, the lack of transparency around contemporary third-party funding also led the Chair to call for all actors to share more data with the Secretariat or the ISDS Academic Forum on the frequency of use, the amount of funding, the reasons for funding, and how often it benefits SMEs. The Secretariat was asked to work with a broad and flexible definition of third-funding funding, develop a suite of options for regulation and control, and consider a separate code of conduct for funders.


5. Damages and Multilateral Convention Procedural Reform

 The substantive discussions closed on Thursday with a brief consideration of two additional issues. The first was damages. States such as Nigeria and Pakistan noted their experience in facing multi-billion dollar ISDS awards and questioned the consistency and justification for different valuations methods. The issue will be returned to in April 2020 and there is high likelihood that the working group consider procedural reforms to ensure, at least, greater consistency in damages calculation. Likewise, there was a brief discussion of an eventual single instrument, a so-called Multilateral Convention on Procedural Reform, which will be discussed in forthcoming EJIL:Talk! blogs by Anthea Roberts and Taylor St. John. The idea is that states could opt into certain reforms but not be required to swallow the whole package. Significant time will be devoted to this eventual reform structure in April 2020.


6. Plenary politics

Turning to the politics, previous WGIII sessions have been dominated by a mix of confrontation with cooperation. Last week proved more conciliatory. Only a handful of states sought to put spokes in the wheels of progress and the discourse of both states and observers was more moderate, with fewer charged, direct and open attacks. The reason is most likely the focus on concrete topics, as dissent was channelled into substance rather than form. It may have also been the assemblage of personalities that were present this time. Yet, whether this bonhomie survives the more contentious topic of a multilateral investment court in January remains to be seen. Moreover, some of the nit-picking on the adoption of the medium-term plan and sessional report spells some danger for a speedy review of draft treaty text.

There were two other political developments of note. First, continuing a trend, states from the Global South became significantly more active. They made longer and considered interventions on virtually every topic under consideration. Sometimes they mobilised in coalitions – e.g. when eight African states joined a common procedural statement with the European Union – but mostly articulated their own independent positions on a range of topics. The result is the emergence of subtle majority coalitions on distinct issues that partly complicates attempts at broad categorisations. Moreover, states such as Brazil and South Africa, which seek a more paradigmatic move away from ISDS, engaged more fully in various incrementalist and systemic reform discussions this session as they bide their time to speak to their own proposals such as dispute prevention in April 2020.

Second, the voice of investors and practitioners was more strongly heard in the room compared to the last few sessions. A range of associations representing companies and counsel made submissions. Although these groups varied considerably in their emphasis. The Practitioner’s Forum and ITA offered support to the advisory centre; others offered rigorous defences of third-party funding on the basis it provided access to justice; and others cautioned on moving too quickly to ban double hatting given the potential side effects on diversity. One group EFILA organised a side event primarily devoted to highlighting the dangers of a multilateral investment court and the virtues of the current system.

However, other long-standing observers moved to place more focus on provision of research and written submissions. The ISDS Academic Forum launched seven papers on the WGIII topics, the university centre CCSI and civil society organisations IIED and IISD made four joint written submissions, and the Permanent Court of Arbitration secretariat sought to provide statistics on the murky topic of third-party financing. Pluricourts provided statistics on the topics at hand and was asked to follow up with statistical analysis on new topics.


7. Conclusion

Channelling Elvis Presley, the UNCITRAL WGIII rapporteur at the close of the previous New York session noted the importance of ‘a little less conversation, a little more action’. The WGIII session last week represented a clear maturing of the ISDS reform process. States were able to identify both areas of agreement and disagreement such that the Secretariat could begin to draft reform options and even treaty text. While states have only been hastening slowly until now, they displayed for a few days at least a potential to engage in a little more action.


Malcolm Langford, Professor of Law, Unviersity of Oslo. He attends UNCITRAL Working Group III as Chair of the ISDS Academic Forum and a representative of Pluricourts, University of Oslo. He writes here in his independent academic capacity.

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Interviews with Our Editors: In Conversation with Joe Liu of Hong Kong International Arbitration Centre

Sat, 2019-10-19 17:00

Benson Lim (Associate Editor) and Kiran Nasir Gore (Associate Editor)

Joe is the longest-serving counsel in HKIAC, having been at HKIAC since January 2014. He holds LLMs from New York University and London School of Economics and Political Science. His previous stints included private practice as well as that in SIAC. In January 2019, he was appointed as the Deputy Secretary-General of HKIAC.

Our Blog is providing live coverage of HK Arbitration Week for the second year running. It is therefore apt that we kick off our coverage with our interview with Joe on the same day that HK Arbitration Week 2019 kicks off for its 8th edition.


  1. Tell us about how you started in arbitration. What advice do you have for young practitioners seeking to chart a path in arbitration?

I started my career at the Singapore International Arbitration Centre (“SIAC”) where I administered cases under the SIAC Rules or UNCITRAL Rules. I then did a legal internship at the Permanent Court of Arbitration and later worked as part of the Global Arbitration Group at Allen & Overy in Hong Kong. I joined HKIAC in January 2014.

There are many ways of planning a career in arbitration. Interning or working in a junior role at an international arbitral institution or within the arbitration group of a reputable law firm, or working as tribunal secretary to an experienced arbitrator, are all good ways to get into the arbitration circle. I would encourage young practitioners to gain experience in arbitral institutions, private practice and as tribunal secretary if possible, as they all offer different and valuable perspectives and help young practitioners better understand the practice of arbitration. Making yourself known and recognised in the market is also critical. To achieve that, young practitioners should actively participate in networking events, publish articles and prepare themselves well for every public speaking opportunity.


  1. In 2018, HKIAC handled 265 new arbitrations where more than 70% of the cases had at least one party not from Hong Kong. The total amount in dispute was USD6.7 billion. In your view, how would you describe HKIAC’s global standing amongst other arbitration institutions?

HKIAC is a leading arbitral institution with its unique strength and focus. Based on the Queen Mary and White & Case survey, HKIAC has been voted among the top four arbitral institutions in the world since 2015. I think there is no question about HKIAC’s global reputation and its experience in dealing with international commercial disputes. HKIAC has a multi-national and multi-lingual secretariat, guided by strong governing bodies, to handle a large amount of international arbitrations with a proven record of enforcement.

Compared with other international arbitral institutions, HKIAC has unrivalled experience in disputes involving mainland Chinese parties. It is the institution of choice where a mainland Chinese party and a non-mainland Chinese party are looking for alternatives to their home turfs. The Hong Kong-Mainland China arrangement on court-ordered interim measures in aid of arbitral proceedings (the “Arrangement”) further strengthens HKIAC (and Hong Kong)’s position to handle arbitrations between these parties.

HKIAC is also rapidly gaining traction in Russia due to its recent status as a permanent arbitral institution in Russia. HKIAC is the first non-Russian arbitral institution to acquire such a status and is now able to administer a range of Russian-related disputes under Russian law which cannot be submitted to institutions without the status.


  1. What do you think will be the key challenges to HKIAC in the next 5 years? What is HKIAC doing to be future-proof?

Each institution has its own challenges. I think one challenge for HKIAC is to address untrue perceptions. One of them concerns the neutrality of HKIAC in disputes between Chinese and non-Chinese parties. Having worked at HKIAC for over five years, I can confirm that HKIAC has acted impartially and independently in all cases and there have been no instances in which HKIAC’s operations are subject to external interferences. I think another challenge is the perception of HKIAC being merely a Hong Kong arbitral institution. In my view, HKIAC is more than a Hong Kong institution. It is well-placed to handle disputes anywhere in the world with or without connections with Hong Kong or China.

HKIAC has an extensive outreach programme to raise awareness of, among other things, who we are and what we do. I believe dialogue and information are effective means to tackle untrue perceptions. For those who continue to hold these perceptions, I hope they are willing to have a direct dialogue with us or try to use HKIAC’s services and let the experience speak for itself.


  1. This year, Hong Kong has seen protests which were initially against the extradition bill evolve quickly into protests arising out of broader political sentiments from its people. A newspaper editorial described Hong Kong’s current situation as Hong Kong being once “again at a crossroads”. With that backdrop, do you see arbitration in HK at the crossroads? Do you think there are broader challenges to the future of arbitration in HK?

Hong Kong has faced other challenges in the past. However, the city showed extraordinary resilience to overcome those challenges and remains as a global financial centre and a regional legal hub. Hong Kong has recently climbed into the top three in World Economic Forum’s competitiveness rankings and its judicial independence continues to be ranked among top ten in the world.

Hong Kong has a strong legal system and it remains so despite political developments. This is also true in respect of arbitration in Hong Kong. Protests do not affect Hong Kong’s arbitration framework or judicial support for arbitration, or the way how arbitral proceedings are conducted in Hong Kong. I believe every challenge is an opportunity for Hong Kong to demonstrate itself as a tried and tested venue for resolving disputes.

Looking ahead, I think there are more opportunities than challenges for Hong Kong arbitration. For example, the Arrangement provides a strong incentive for businesses to choose Hong Kong as the seat of arbitration for disputes involving mainland Chinese parties. I anticipate more initiatives to be introduced to make Hong Kong a more attractive place to arbitrate in the coming years.


  1. ICC’s Alexis Mourre suggested an international accreditation procedure for arbitral institutions at the Atlanta International Arbitration Society’s Hendrix Lecture. In his view “flawed institutions” will taint the legitimacy of the arbitration institution system as a whole. What do you personally think of his suggestion?

If “an international accreditation procedure for arbitral institutions” refers to “institutional self-regulation through a common framework such as IFCAI” mentioned in Mr. Mourre’s speech, I think it is a well-intended suggestion but may face several issues of implementation like those associated with other proposals of creating a global standard by a soft law making body.

The first difficulty is how to define the “common framework”. Every jurisdiction has its own framework on the establishment and functions of an arbitral institution. Such a framework may differ significantly from one jurisdiction to another and the differences may be well justified given the legal and cultural environment of each jurisdiction. Therefore, defining a common framework that is acceptable to most, if not all, jurisdictions may be a challenge.

The second difficulty is what happens if the common framework is not complied with. If there is no meaningful means to enforce a common standard at international and national levels, it would have limited effect on the issue of “flawed” institutions.


  1. Do you think HKIAC’s Panel of Arbitrators will one day include an AI arbitrator?

I am open to consider all possible means to enhance efficiency and cost-effectiveness of international arbitration including the use of technology.

With respect to the use of artificial intelligence (“AI”), I have some scepticism towards the idea of replacing human arbitrators with AI but I find it easier to accept that it may be useful for AI to undertake certain work on behalf of an arbitral tribunal, acting effectively as tribunal secretary.

If one day AI proves to be a feasible and reliable tool to facilitate the conduct of an arbitration, I do not think it would be a bad idea to allow AI to be made available on a panel or otherwise as an option for parties to agree upon to undertake appropriate tasks as tribunal secretary or even arbitrator.


  1. Finally, it feels from our introduction like you have been with HKIAC for a lifetime! Tell us your most surreal experience ever at HKIAC or describe the most intriguing person you met whilst at HKIAC.

My most surreal experience at HKIAC is to see people using the rules and services I helped develop.

More coverage from Hong Kong Arbitration Week is available here.

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

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The Consequences of the Non-Disclosure of Conflict of Interest on the Enforceability of Awards: The German Stance

Sat, 2019-10-19 00:00

Viktoria Schneider and Nils Schmidt-Ahrendts

Arbitrators and tribunal-appointed experts are at all times obliged to disclose any and all circumstances that might give rise to doubts as to their impartiality and independence. This is one of the most fundamental duties to safeguard the legitimacy of arbitration. Yet, what are the consequences if they fail to do so?

This question has kept two German courts, the Higher Regional Court Karlsruhe (‘OLG Karlsruhe’) and the German Federal Court of Justice (‘BGH’), busy for six years, but now the question appears to be appropriately solved – better late than never!



The DIS arbitration, which triggered the above-mentioned court proceedings, started as early as 2010 and it involved two parties that were in dispute as to the root cause of the defects of their jointly manufactured products.

In 2011, the DIS tribunal, with the consent of the parties, appointed a publicly certified expert to examine this issue. In 2013, based on the expert’s report, the DIS tribunal issued its award in which it held that the defects were 100% caused by one of the parties.

Still, in 2013, the defeated party requested the annulment of the award before the OLG Karlsruhe. Among others, it argued that the expert on whose report the arbitral tribunal had based its decision had failed to disclose that his direct superior at the expert company had previously been working for more than 20 years for the other party and only recently started to work for the expert company. Moreover, it claimed that it had discovered this former working relationship only after the award had been rendered. The winning party, in turn, opposed the request for annulment by applying for a declaration of enforceability instead.

What followed were joint annulment/enforcement proceedings that ultimately produced not one, but four German court decisions, two by the OLG Karlsruhe and two by the BGH, on the key legal question: What are the consequences for the enforceability of the award if an arbitrator or tribunal-appointed expert fails to disclose circumstances which may call into question their independence or impartiality?


OLG Karlsruhe: Annulment Only in Exceptional Circumstances1)OLG Karlsruhe, Decision of 18 December 2015, 10 Sch 12/13. jQuery("#footnote_plugin_tooltip_3631_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3631_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In December 2015, after two years of proceedings, the OLG Karlsruhe decided the issue for the first time – it declared the award enforceable and rejected the request for annulment.

In line with a judgement of the BGH from 19992)Bundesgerichtshof, Judgement of 04 March 1999, III ZR 72/98. jQuery("#footnote_plugin_tooltip_3631_2").tooltip({ tip: "#footnote_plugin_tooltip_text_3631_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, the OLG Karlsruhe argued that, in light of the res judicata nature of an award, any failure to disclose that becomes known only after the award is issued, warrants its annulment only in very exceptional circumstances, i.e. in a case of obvious and severe bias. The OLG Karlsruhe held that this was not the case here, as only the superior and not the expert himself had worked for a party and the superior’s involvement in the expert report was unclear.


BGH: Overturning Former Jurisprudence3)Bundesgerichtshof, Decision of 02 May 2017, I ZB 1/16. jQuery("#footnote_plugin_tooltip_3631_3").tooltip({ tip: "#footnote_plugin_tooltip_text_3631_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In May 2017, after reviewing the OLG Karlruhe’s decision, the BGH set it aside and remitted the case to the OLG Karlsruhe.

The BGH expressly relinquished its case law from 1999 on which the OLG Karlsruhe had relied. It held that any failure to disclose, regardless when it becomes known, means that the arbitration has not been conducted in accordance with the German lex arbitri and, thus, warrants annulment if it affected the award. According to the BGH, such effect is deemed to exist if the non-disclosed circumstances would have been sufficient to successfully challenge the arbitrator or expert during the arbitration, which is the case if those circumstances give rise to justifiable doubts as to their impartiality and independence. The res judicata principle does not justify retaining the previous threshold of ‘obvious and severe’ bias because an award will only become res judicata once declared enforceable.

However, based on the (undisputed) facts available to the BGH, it could not decide whether there had even been a failure to disclose, let alone one with the required effect on the award. Thus, it remitted the case to the OLG Karlsruhe requesting it to reopen the case in order to establish these, in the BGH’s view, material facts and render a new decision.


OLG Karlsruhe: Annulment Only in Case of Justifiable Doubts4)OLG Karlsruhe, Decision of 01 June 2018, 10 Sch 12/13. jQuery("#footnote_plugin_tooltip_3631_4").tooltip({ tip: "#footnote_plugin_tooltip_text_3631_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

As requested by the BGH, the OLG Karlsruhe reopened the case. By examining the expert and his superior as witnesses, it established that there actually had been a failure to disclose. When rendering his report, the expert had been aware of his supervisor’s previous work position. However, during the 20 years in which the superior had worked for one of the parties, he had not been involved with the product in dispute. Further, in line with the expert company’s internal rules, the superior had not influenced the expert’s substantive findings in any way, but had for organizational reasons merely signed the letter by which the report was transmitted to the arbitral tribunal and the parties. On this basis, the OLG Karlsruhe held that neither the mere failure to disclose nor the non-disclosed facts give rise to justifiable doubts as to the expert’s impartiality and independence or otherwise justify annulment. Thus, it again declared the award enforceable.


BGH: A Differentiated Approach5)Bundesgerichtshof, Decision of 31 January 2019, I ZB 46/18. jQuery("#footnote_plugin_tooltip_3631_5").tooltip({ tip: "#footnote_plugin_tooltip_text_3631_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

After yet another legal review, the BGH upheld the OLG Karlsruhe’s decision and, thus, declared the award enforceable for good.

In its decision, the BGH clarified under which circumstances the failure to disclose warrants the annulment of an award.

First, a mere failure to disclose, i.e. irrespective of the non-disclosed facts, only justifies an annulment if already such failure in itself shows the arbitrator’s or tribunal-appointed expert’s bias. In the BGH’s view, this is only conceivable in case of intentional concealment.

Second, in the absence of such intention, enforceability or annulment depends on an ex post analysis by the competent state court as to whether the arbitral tribunal would have decided that the non-disclosed facts give rise to justifiable doubts, if they had been duly disclosed already during the arbitration proceedings. In other words, in the BGH’s view, the standard to assess the enforceability or annulment of an award is, when dealing with a failure of disclosure, the same as the standard to challenge an arbitrator or expert during the arbitral proceedings.

This assessment is to be conducted from a ‘subjective-objective perspective’. Though the court must adopt the subjective perspective of the challenging party, it must thereby assume that, when confronted with the non-disclosed fact, this party would objectively appreciate all relevant facts in order to decide whether justifiable doubts exist. All relevant facts are not only the unduly concealed facts, i.e. the facts which the arbitrator or expert should, but did not disclose. Rather due regard has to be paid to all connected circumstances, i.e., circumstances that the parties and/or the challenged arbitrator/expert would have reasonably disclosed during the ‘challenge procedure’.

Thus, the BGH approved that the OLG Karlsruhe had examined the expert and his superior as witnesses.


Concluding Remarks

The fact that it took the claimant six years to enforce an award that had been issued after three years of arbitration, shows that the German ‘two-instance’ enforceability/annulment regime is not ideal and potentially in need for reform (although the present case is certainly an extreme scenario). Yet, more importantly, the two BGH decisions provide important guidance on the handling of non-disclosure cases.

On the one hand, annulment may well be a consequence of a failure of disclosure. Hence, any arbitrator and expert are well-advised to disclose rather too much than too little.

On the other hand, annulment is not an inevitability. Only in the extreme case of intentional non-disclosure, the non-disclosure in itself warrants annulment. In all other cases, the competent state courts are requested to do precisely what, in the BGH’s view, any arbitral tribunal or arbitral institution is required to do when deciding on challenges. Faced with the disclosure of a fact potentially impairing an arbitrator’s/experts’ independence and impartiality, they must establish, if required by taking evidence, all circumstances connected to the non-disclosed fact and submit them to careful appreciation from the perspective of a reasonably thinking challenging party.

Both BGH decisions are well in line with the IBA Guidelines on Conflict of Interest (2014), which also require a reasonable balance between the parties’ right to comprehensive disclosure and the defence of formalistic challenges. Hence, any party choosing Germany as the place of arbitration can be assured that – although it sometimes may take a while – it is still in the BGH’s truly ‘safe hands’.

References   [ + ]

1. ↑ OLG Karlsruhe, Decision of 18 December 2015, 10 Sch 12/13. 2. ↑ Bundesgerichtshof, Judgement of 04 March 1999, III ZR 72/98. 3. ↑ Bundesgerichtshof, Decision of 02 May 2017, I ZB 1/16. 4. ↑ OLG Karlsruhe, Decision of 01 June 2018, 10 Sch 12/13. 5. ↑ Bundesgerichtshof, Decision of 31 January 2019, I ZB 46/18. 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: Arbitration in Belgium: A Practitioner’s Guide
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Navigating Through Stormy Seas: The UK Supreme Court Hears the Micula Case

Fri, 2019-10-18 00:01

Ivaylo Dimitrov


With less than a month to go before the latest EU-UK divorce date, the UK Supreme Court resumed its hearing in Micula et al. v Romania 2018/0177, relating to the enforcement of the widely discussed ICSID award against Romania. With the UK grappling with its future relationship with the EU, it is interesting timing for the UK’s highest court to consider the legal and policy intricacies arising from the intersection between the country’s domestic legal order and its EU and other treaty obligations. While separated by arguments and perspectives, the Micula brothers, Romania, and the EU have combined to serve up a host of delicate questions for the court to navigate.


The Micula Saga

Much has been written on the Micula saga, on this Blog particularly (see here). In a nutshell, after 8 years of ICSID arbitration proceedings in case ARB/05/20, brothers Viorel and Ioan Micula (the “Miculas”) obtained a EUR 330 million (post-interest) award against Romania, which they have been trying to enforce ever since. The enforcement entered into a new stage when, in 2015, the European Commission (“Commission”) determined that by paying the award Romania would breach EU rules on State aid (“Commission Decision”), effectively barring the State from honouring its obligations under the award. The Commission Decision also required Romania to recover any amounts already paid under the award, with interest, and found Miculas – together with the other claimant companies – jointly liable to repay the State aid any of them had received. Notwithstanding that decision, the Swedish investors continued to seek enforcement of the award in a number of jurisdictions, including the United States, Sweden, and the UK.


Recent Background Developments

The enforcement saga has been particularly active recently, with key events occurring in 2019. An outline of these developments helps to put the UK proceedings in context.

Firstly, in January 2019, the investors’ homeland court in Sweden – the Nacka District Court – declined to enforce the award. The Swedish court decided against allowing enforcement against Romania, ruling that this would sidestep the Commission Decision and so violate the principle of sincere cooperation. The Commission filed a brief urging the court to refuse enforcement.

Secondly, in June 2019, the EU General Court quashed the Commission Decision. The EU General Court found that the relevant facts predate Romania’s accession to the EU and that the Commission lacked competence to apply its Article 108 TFEU powers retroactively in this way. Further, the EU General Court found that the Commission‘s decision to classify the award of compensation as an advantage and aid within the meaning of Article 107 TFEU was unlawful as the facts underlying the award had occurred prior to EU law‘s entry into force in Romania.

Finally, in September 2019, the US District Court for the District of Columbia granted a petition to confirm the award in the US. Despite the Commission’s amicus curiae brief relying inter alia on the Achmea judgment to argue that the Miculas’ petition should be denied, the DC court declined to refuse confirmation. Romania instantly appealed the District Court’s decision before the US Court of Appeals for the DC Circuit.


Overview of the UK Proceedings

The UK enforcement proceedings started in the autumn of 2014 when the investors obtained a Registration Order. Under Section 2 of the UK Arbitration (International Investment Disputes) Act 1966, for the purposes of execution, a registered ICSID award has the same force and effect as a judgment of the High Court of England and Wales.

Following the Commission Decision, Romania filed a set aside application with the Commercial Court (a sub-division of the High Court). As an alternative to the set aside request, the State also asked the court to vary or stay the registration. In September 2016, the Miculas cross-applied for security. On 20 January 2017, the Commercial Court dismissed the set aside application but granted a stay of enforcement pending the outcome of the EU General Court proceedings for the annulment of the Commission Decision. The investors’ cross-application for security was dismissed.

On 27 July 2018, the UK Court of Appeal dismissed the Miculas’ appeal against the Commercial Court judgment in relation to the stay. However, the court granted the requested security and ordered Romania to provide GBP 150 million as a condition of the stay. The three Court of Appeal justices had different views on the interplay of: the enforcement regime under the ICSID Convention; the UK’s obligations under EU law; and the UK courts’ powers under the 1966 Act. However, while their reasoning differed slightly, the justices formed a 2 on 1 majority on the ruling that it is within the powers of the domestic court to temporarily stay the execution of the award pending the outcome of the proceedings in the EU General Court and that this is consistent with the ICSID Convention’s object and purpose.

Following the decision of the EU General Court in June 2019, Phillips J of the High Court issued a further order extending the stay pending the CJEU determination and ordering Romania to provide GBP 150 million security by 17 October 2019.

The UK Supreme Court hearing started on 18 June 2019 and continued for three days on 7-9 October 2019.


Issues Before the Supreme Court

There are two main issues before the UK Supreme Court: first, whether the High Court has the power to stay the enforcement of an ICSID award; and, second, where an ICSID award against an EU Member State has been stayed pending proceedings before the EU courts, whether the duty of sincere cooperation precludes an English court from ordering the State to provide security.


Parties’ Submissions

The Miculas

Counsel for the Miculas built their case on the fact that the ICSID Convention allegedly offers a self-contained system of review to the exclusion of any other remedies, and that the Micula award has already survived ICSID annulment proceedings.

Consequently, according to the Miculas, the ordered stay is against the object and purpose of the ICSID Convention as the Convention precludes further challenges and stays of enforcement.

The Miculas further argued that:

  1. The stay granted by the Court of Appeal is not a temporary stay of execution, as argued by Romania, but a stay of enforcement, which the court did not have the right to make under domestic law.
  2. There is no conflict between the UK’s duties under EU law and the enforcement of the award. Whether or not the ICSID Convention imposes obligations toward third countries is not a question of EU law. Even if there is a conflict, this is a matter of domestic law – it cannot be implied that the duty of sincere cooperation requires the English courts to wait for the CJEU’s ruling, especially since the obligations under the ICSID Convention are owed not only to Sweden as the investors’ host State, but towards all Contracting Parties.
  3. The Commission Decision has been annulled and the Commission has not sought interim measures staying the decision of the EU General Court. Therefore, there is no EU law duty that should be taken into account by the English court.


Romania, on the other hand, argued that the stay is essentially a temporary case management measure pending the final determination of the EU proceedings by the CJEU. Romania’s intention is to deal carefully and reasonably with that temporary measure.

Furthermore, Romania submitted that many other EU Member States have halted the enforcement of the award, including, of course, Sweden, which is the investors’ home country. If the UK court now decides otherwise, this would deprive the decisions of the other Member States courts of practical value. This, according to Romania, would not be sincere cooperation, but quite the opposite.

Regarding the annulment of the Commission Decision by the EU General Court, Romania’s case is that nothing has changed materially. The EU General Court’s conclusion that EU law does not apply has an interim character and there is a realistic possibility of its reversal in the second instance proceedings. Therefore, the risk of conflict between the UK’s obligations under EU law and the ICSID Convention still remains and requires the continuation of the stay until a final determination by the CJEU.

The Commission

The Commission’s intervention supported Romania’s case and concentrated mainly on the EU General Court judgment. The Commission argued that, regardless of the annulment of the Commission Decision, the UK’s obligations under EU law, and the duty of sincere cooperation specifically, are ongoing.

Counsel for the Commission also argued that, according to the EU General Court’s judgment and contrary to the Miculas’ submissions, the Commission has competence over Romania’s post-accession conduct. The judgment could even be considered an invitation to for the Commission to reassess the matter. Further, the Commission has good prospects to win the appeal reaffirming the legal force of its Decision.


Concluding Remarks

While acknowledging that its ruling is long-anticipated, the Supreme Court noted it could not guarantee a judgment before 31 October 2019. This raises the intriguing prospect of a Supreme Court ruling on the scope and substance of the UK’s EU law obligations at a point in time where such obligations have been ended as a result of a “no deal” Brexit.

Nevertheless, as well as this interesting timing, the legal and political ramifications of the Supreme Court’s decision are significant beyond even the wide margins of the Miculas’ dispute with Romania. The Court will have to carefully weigh a number of variables and possible consequences. It remains to be seen whether the UK Supreme Court’s decision in the Micula case would be a harbinger of how the post-Brexit dialogue between UK and EU courts will shape.

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