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Have PRC Courts Ordered Interim Relief Measures in Support of HKIAC Arbitrations without an Express Legal Basis: What Lies Ahead?

Sun, 2018-08-26 02:45

Helen H. Shi

HK45

Under the current Chinese legal framework, while PRC Courts are granted exclusive power to grant interim relief measures in support of arbitration 1) Chinese courts are granted the exclusive power to grant interim relief measures pursuant to the following provisions under PRC law:
Article 28 of the PRC Arbitration Law (hereinafter “Arbitration Law”) provides that: “[a] party may apply for property preservation if it may become impossible or difficult for the party to implement the award due to an act of the other party or other causes.
If a party applies for property preservation, the arbitration commission shall submit the party’s application to the people’s court in accordance with the relevant provisions of the Civil Procedure Law.”
Article 272 of the PRC Civil Procedure Law (hereinafter “CPL”) provides that: “[w]here a party applies for a preservation measure, the international arbitral institution of the People’s Republic of China shall submit the party’s application to the intermediate people’s court at the place of domicile of the respondent or at the place where the respondent’s property is located.”
Article 100 of the CPL provides that: “[f]or a case where, for the conduct of a party or for other reasons, it may be difficult to execute a judgment or any other damage may be caused to a party, a people’s court may, upon application of the opposing party, issue a ruling on preservation of the party’s property, order certain conduct of the party or prohibit the party from certain conduct; and if no party applies, the people’s court may, when necessary, issue a ruling to take a preservative measure.” jQuery("#footnote_plugin_tooltip_1733_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1733_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, there is lack of an express legal basis for Courts to do so in support of “off-shore” arbitrations.

However, two recently released Chinese court cases seem to have broken the mold by ordering interim relief in support of HKIAC arbitrations:

1) Civil Ruling on the Preservation Measures in relation to Ocean Eleven Shipping Corporation v. Lao Kaiyuan Mining Sole Co., Ltd., decided by the Wuhan Maritime Court on 14 October 2016 (hereafter “Wuhan Ruling”); 3) Civil Procedure Preservation Ruling regarding Ocean Eleven Shipping Corporation v. Lao Kaiyuan Mining Sole Co., Ltd., Wuhan Maritime Court, (2016) E 72 Cai Bao No.427 (“Wuhan Ruling”). jQuery("#footnote_plugin_tooltip_1733_3").tooltip({ tip: "#footnote_plugin_tooltip_text_1733_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and

2) Civil Ruling relating to the Recognition and Enforcement of the Arbitral Award in Guangdong Yuehua International Trade Group Co., Ltd. v. Sinotide Holdings Limited & Ke Junxiang decided by the Guangzhou Intermediate People’s Court on 22 March 2016 (hereafter “Guangzhou Ruling“). 4) Civil Ruling regarding Guangdong Yuehua International Trade Group Co., Ltd. v. Sinotide Holdings Limited & Ke Junxiang, Guangzhou Intermediate People’s Court, (2014) Sui Zhong Fa Min Si Chu Zi No.42 (“Guangzhou Ruling”). jQuery("#footnote_plugin_tooltip_1733_4").tooltip({ tip: "#footnote_plugin_tooltip_text_1733_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In the first case, the court granted interim measures pre-award, during the course of the arbitral proceedings. In the second case, the court ordered injunctive relief post-award, during the recognition and enforcement stage.  While encouraging, both rulings appear to have been decided without legal basis, we shall take a quick look below.

The Wuhan Ruling

After filing its claim at the HKIAC, the Claimant preemptively applied to the Wuhan Maritime Court to either freeze the Respondent’s bank account in an amount of USD 300,000 or seal, seize or freeze Respondent’s property of up to USD 300,000 in value to ensure that sufficient assets would be preserved for which a subsequent award in its favor could be satisfied.

Given the Dongwon F&B decision rendered by the Shanghai First Intermediate People’s Court in 2014, 2) Civil Procedure Preservation Ruling regarding the Dongwon F&B Arbitral Procedure, Shanghai First Intermediate People’s Court, (2014) Hu Yi Zhong Shou Chu Zi No.2. jQuery("#footnote_plugin_tooltip_1733_2").tooltip({ tip: "#footnote_plugin_tooltip_text_1733_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); which refused an application for property preservation in support of an arbitration administered by the Korean Commercial Arbitration Board for the reason that there was no legal basis to grant the application as the arbitration was not initiated in China, one would have thought that the application in the Wuhan Ruling would be similarly dismissed.

However, the court granted the application pursuant to Article 28 of the Arbitration Law 5) See footnote 2. jQuery("#footnote_plugin_tooltip_1733_5").tooltip({ tip: "#footnote_plugin_tooltip_text_1733_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and Article 103(1) of the CPL 6) Article 103 of the CPL provides that: “[p]roperty shall be preserved by seizure, impoundment, freezing of account or any other means prescribed by law. After preserving any property, a people’s court shall immediately notify the person whose property is preserved.
Property which has already been seized or frozen shall not be repeatedly seized or frozen.”
jQuery("#footnote_plugin_tooltip_1733_6").tooltip({ tip: "#footnote_plugin_tooltip_text_1733_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });.  While at first glance one may assume that there was a legal basis for the ruling, upon closer examination, the provisions that the court cited do not expressly endorse the granting of interim relief in support of “offshore” HKIAC arbitration.

Under Article 28 of the Arbitration Law, applications for interim measures (including preservative measures and injunctive relief) in support of arbitrations must be transferred by arbitration commissions to the Courts but the term “arbitration commission” here, is limited to Chinese arbitration commissions by virtue of Article 10 of the same.

Furthermore, Article 103(1) of the CPL does not directly address the court’s authority to grant interim measures in support of arbitration, it merely addresses general procedural issues relating to property preservation measures.

As such, neither provision cited by the Court seems to expressly provide a legal basis to support its ruling.

The Guangzhou Ruling

The relevant HKIAC award in the case was issued in 2013. The successful Claimant thereafter applied to the Guangzhou Intermediate People’s Court for recognition and enforcement of the arbitral award and during the proceedings, it made a further application for preservation of the Respondent’s property.  The court granted the application in 2014, ordering that the Respondent’s accounts and shares be frozen.  The award was recognized and enforced in 2016.

The court did not identify an express legal basis for its decision. Whereas Chinese courts are given the express power to grant interim measures before or after accepting an application for the recognition and enforcement of arbitral awards rendered in Macao 7) Article 11 of the Arrangement between the Mainland and the Macau SAR on Reciprocal Recognition and Enforcement of Arbitration Awards (hereinafter “Macau Arrangement”) provides that: “[b]efore or after a court accepts the application for recognition and enforcement of an arbitration award, it may take preservation measures against the respondent’s property pursuant to the application by the party concerned and in accordance with lex fori.” jQuery("#footnote_plugin_tooltip_1733_7").tooltip({ tip: "#footnote_plugin_tooltip_text_1733_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and Taiwan 8)Article 10 of the Provisions of the Supreme People’s Court on Recognition and Enforcement of the Arbitral Awards of the Taiwan Region (hereinafter “Taiwan Provisions”) provides that: ”[b]efore or after accepting an application for the recognition of an arbitral award rendered in Taiwan region, the competent people’s court may, in accordance with the Civil Procedure Law and relevant judicial interpretations, render a ruling to take preservation measures according to the application by the applicant concerned.” jQuery("#footnote_plugin_tooltip_1733_8").tooltip({ tip: "#footnote_plugin_tooltip_text_1733_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, the same cannot be said for arbitral awards made in Hong Kong. 9) Please see the Arrangements of the Supreme People’s Court on the Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong SAR (hereinafter the “HK Arrangements”). jQuery("#footnote_plugin_tooltip_1733_9").tooltip({ tip: "#footnote_plugin_tooltip_text_1733_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The Guangzhou Ruling is an interesting development as Chinese courts do not typically grant interim measures in support of “offshore” arbitrations during the recognition and enforcement stage because there is no legal basis for them to do so.

This principle was upheld in an application for asset preservation decided by the Haikou Maritime Court involving a LMAA award – KoreaLine Corporation v. HNA Group arbitration – in 2016.10)Civil Ruling on Asset Preservation in relation to KoreaLine Corporation v. HNA Group, Haikou Maritime Court, (2016) Qiong 72 Xie Wai Ren No.1-1. jQuery("#footnote_plugin_tooltip_1733_10").tooltip({ tip: "#footnote_plugin_tooltip_text_1733_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Claimant’s application for preservation measures during the recognition and enforcement stage was refused.  The court held that granting an interim measure under the circumstances would constitute international judicial assistance, which could only be granted upon a legal basis such as a treaty or a relationship of mutual reciprocity with the jurisdiction of the administering arbitration commission.

However, the United Kingdom, where the LMAA is based, and China were not party to any relevant judicial assistance agreement and neither the New York Convention nor Chinese legislation provided any basis for the granting of the application. The application was dismissed accordingly.

Potential Developments

The fact that the Wuhan Ruling and the Guangzhou Ruling were rendered without legal basis seemingly reflects a shift in judicial practice and may be a sign that Chinese courts have moved ahead of the curve as compared to Chinese legislation.

As both rulings in support of HKIAC arbitration cases, it seems possible that PRC courts favor Hong Kong arbitrations and will provide assistance both during the arbitral proceedings and during the recognition and enforcement stage.

From the perspective of offering necessary judicial assistance to arbitration, this practice may in time be fully legitimized through:

1) appropriate amendments to the Arbitration Law and CPL defining “arbitration commission” under the Arbitration Law as including foreign arbitration institutions as well; or

2) amending the HK Arrangements to give the courts express power to order interim measures in support of Hong Kong arbitrations.

Importantly, the judicial sovereignty of PRC courts would remain intact as neither option would affect the PRC courts’ exclusive power to order interim measures.

With regards to legitimizing judicial assistance at the recognition and enforcement stage, it is very possible that the HK Arrangements will be updated and brought in line with the Macau Arrangements and Taiwan Provisions through the inclusion of provisions which grant PRC courts the power to order the interim measures after an application for recognition and enforcement of an arbitral award is accepted.

Conclusion

Regardless of whether the above changes take place, it seems like Chinese courts have already slightly opened the door to HKIAC. Hopefully with the SPC’s establishment of the China International Commercial Courts and their relevant guideline, Chinese Courts will be able to provide interim measures in support of not only Chinese arbitrations but also of international arbitrations without differential treatment.

References   [ + ]

1. ↑ Chinese courts are granted the exclusive power to grant interim relief measures pursuant to the following provisions under PRC law:
Article 28 of the PRC Arbitration Law (hereinafter “Arbitration Law”) provides that: “[a] party may apply for property preservation if it may become impossible or difficult for the party to implement the award due to an act of the other party or other causes.
If a party applies for property preservation, the arbitration commission shall submit the party’s application to the people’s court in accordance with the relevant provisions of the Civil Procedure Law.”
Article 272 of the PRC Civil Procedure Law (hereinafter “CPL”) provides that: “[w]here a party applies for a preservation measure, the international arbitral institution of the People’s Republic of China shall submit the party’s application to the intermediate people’s court at the place of domicile of the respondent or at the place where the respondent’s property is located.”
Article 100 of the CPL provides that: “[f]or a case where, for the conduct of a party or for other reasons, it may be difficult to execute a judgment or any other damage may be caused to a party, a people’s court may, upon application of the opposing party, issue a ruling on preservation of the party’s property, order certain conduct of the party or prohibit the party from certain conduct; and if no party applies, the people’s court may, when necessary, issue a ruling to take a preservative measure.” 2. ↑ Civil Procedure Preservation Ruling regarding the Dongwon F&B Arbitral Procedure, Shanghai First Intermediate People’s Court, (2014) Hu Yi Zhong Shou Chu Zi No.2. 3. ↑ Civil Procedure Preservation Ruling regarding Ocean Eleven Shipping Corporation v. Lao Kaiyuan Mining Sole Co., Ltd., Wuhan Maritime Court, (2016) E 72 Cai Bao No.427 (“Wuhan Ruling”). 4. ↑ Civil Ruling regarding Guangdong Yuehua International Trade Group Co., Ltd. v. Sinotide Holdings Limited & Ke Junxiang, Guangzhou Intermediate People’s Court, (2014) Sui Zhong Fa Min Si Chu Zi No.42 (“Guangzhou Ruling”). 5. ↑ See footnote 2. 6. ↑ Article 103 of the CPL provides that: “[p]roperty shall be preserved by seizure, impoundment, freezing of account or any other means prescribed by law. After preserving any property, a people’s court shall immediately notify the person whose property is preserved.
Property which has already been seized or frozen shall not be repeatedly seized or frozen.”
7. ↑ Article 11 of the Arrangement between the Mainland and the Macau SAR on Reciprocal Recognition and Enforcement of Arbitration Awards (hereinafter “Macau Arrangement”) provides that: “[b]efore or after a court accepts the application for recognition and enforcement of an arbitration award, it may take preservation measures against the respondent’s property pursuant to the application by the party concerned and in accordance with lex fori.” 8. ↑ Article 10 of the Provisions of the Supreme People’s Court on Recognition and Enforcement of the Arbitral Awards of the Taiwan Region (hereinafter “Taiwan Provisions”) provides that: ”[b]efore or after accepting an application for the recognition of an arbitral award rendered in Taiwan region, the competent people’s court may, in accordance with the Civil Procedure Law and relevant judicial interpretations, render a ruling to take preservation measures according to the application by the applicant concerned.” 9. ↑ Please see the Arrangements of the Supreme People’s Court on the Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong SAR (hereinafter the “HK Arrangements”). 10. ↑ Civil Ruling on Asset Preservation in relation to KoreaLine Corporation v. HNA Group, Haikou Maritime Court, (2016) Qiong 72 Xie Wai Ren No.1-1. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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Confidentiality in International Commercial Arbitration: Does Australia Meet International Expectations?

Fri, 2018-08-24 21:45

Michael Pryles and Imogen Kenny

Australia has been known for taking a somewhat controversial approach to the confidentiality of arbitral proceedings. However, the legislature, to the international arbitration community’s sigh of relief, has intervened to change the law and bring opt-out confidentiality to international commercial arbitrations seated in Australia (see Michael Pryles, ‘National Report – Australia’ in The ICCA International Handbook on Commercial Arbitration). Issues, however, remain in relation to how Australian courts will treat confidentiality of foreign international arbitral proceedings.

Judicial approach to confidentiality

Notoriously, in Esso Australia Resources v Plowman (1995) 183 CLR 10 (Esso), the High Court of Australia held that confidentiality was not “an essential attribute” of arbitration and therefore, in the absence of express party agreement, there is no right to confidentiality (see Michael Pryles, ‘Confidentiality’ in Leading Arbitrators’ Guide to International Arbitration, edited by Newman & Hill (2nd ed, Juris Publishing, 2008)). In so doing, the High Court distinguished between the two concepts of ‘privacy’ and ‘confidentiality’ (see for example, Mayank Samuel’s post on the distinction).

The High Court acknowledged that while arbitral proceedings and hearings are ‘private’ because strangers have no right to admission, it does not follow that they are ‘confidential’. Mason CJ rejected submissions that an implied obligation of confidentiality exists because the efficacy of the parties’ arbitration agreement would be damaged, even defeated, if arbitral proceedings were made public by the disclosure of documents relating to the arbitration.

Rather, the High Court held there was no obligation, in Australia, to keep confidential the arbitral proceedings or documents and information provided in and for the purposes of arbitration. However, the High Court did find one instance where confidentiality attached, namely where documents were produced compulsorily, such as, pursuant to a direction by the tribunal for disclosure.

The High Court of Australia is the highest court in the Australian judicial system, and its decision binds all lower courts. In the absence of express abrogation by the Australian legislature, this is the binding law of Australia.

Legislative intervention on confidentiality

First reform

 In 2010, the Australian legislature recognised that confidentiality was one of the significant attractions of arbitration. Citing Esso, Parliament considered that, while the Australian common law provided an appropriate level of confidentiality in most circumstances, parties to an international arbitration seated in Australia may have a legitimate interest in ensuring a greater level of confidentiality with respect to sensitive commercial information put before an arbitral tribunal (see the Revised Explanatory Memorandum to the International Arbitration Amendment Bill 2010 (2010 Bill) at [149]-[153]).

Consequently, Part III (including sects. 23C to 23G, which deal with confidentiality) was inserted into the International Arbitration Act 1974 (Cth) (IAA) to encourage international arbitration taking place in Australia (see Malcolm Holmes and Chester Brown, The International Arbitration Act 1974: A Commentary (2nd ed, Lexis Nexis, 2015) at p. 5).

Section 23C of the IAA provides that parties to arbitral proceedings commenced in reliance on an arbitration agreement must not disclose confidential information, unless:

  • the disclosure falls within one of the circumstances outlined in sect. 23D of the IAA, including that all parties to the proceedings consent to the disclosure; the disclosure is to a professional or other adviser to any of the parties; or if the disclosure is necessary for the purpose of enforcing an arbitral award, and the disclosure is no more than reasonable for that purpose (sect. 23D);
  • the arbitral tribunal makes an order allowing the disclosure in certain circumstances (sect. 23E) and no court has made an order prohibiting a party from disclosing confidential information (sect. 23F); or
  • a court makes an order allowing disclosure in certain circumstances (sect. 23G).

‘Confidential information’ is defined broadly in sect. 15(1) of the IAA and includes, inter alia, pleadings, submissions, information supplied to the tribunal by a party, documentary and other evidence, transcripts of hearings and rulings and awards of the arbitral tribunal.

These provisions applied on an ‘opt-in’ basis on or after 6 July 2010 (see sect. 2 of the International Arbitration Amendment Act 2010 (Cth)). In other words, parties had to expressly agree that the confidentiality provisions of the IAA applied to their arbitration. The legislature did not consider that confidentiality should be available as a matter of course, but rather, that it was one of the “matters to which the parties should expressly turn their minds before they apply” (see the Supplementary Explanatory Memorandum to the 2010 Bill at [20]-[25]).

Second reform

In 2015, the Australian legislature again acknowledged the need to amend the IAA to ensure that international arbitrations in Australia received confidentiality in line with community expectations and international best practice, namely that proceedings are confidential unless the parties agree to conduct their arbitration in another manner (see the Explanatory Memorandum to the Civil Law and Justice (Omnibus Amendments) Bill 2015 (2015 Bill) at [42], [213]-[214] and Luke Nottage’s post discussing the 2015 Bill).

Consequently, sect. 22 of the IAA was amended to provide that the confidentiality provisions (sections 23C to 23G) applied on an ‘opt-out’ basis, which means that they will apply unless the parties choose to exclude them. These provisions govern arbitral proceedings arising from arbitration agreements made on or after 14 October 2015 (see sect. 2(1) and Sch. 1 sect. 61 of the Civil Law and Justice (Omnibus Amendments) Act 2015 (Cth)).

This amendment provides better protection for parties, and their representatives, who might not be familiar with Australian law and who agreed to arbitrate in Australia on the presumption that the Australian approach to confidentiality would be similar to that in many other countries.

Remaining confidentiality issues

Recent judicial authority has indicated that Australian courts may decline to make orders protecting the confidentiality of foreign-seated international arbitrations on the basis that Part III, Division 3 of the IAA (which includes the confidentiality provisions) only applies to Australian-seated international arbitrations.

This concern stems from the Federal Court of Australia’s decision in Samsung C&T Corporation, in the matter of Samsung C&T Corporation [2017] FCA 1169. Gilmour J declined an application, by a party to an international arbitration seated in Singapore, to order subpoenas to third parties in Australia under Part III, Division 3 of the IAA. This decision was made on the grounds that the Court only had jurisdiction to make such orders in relation to international arbitrations seated in Australia (see the Resolution Institute’s post). Gilmour J went on to find that, after interpreting the legislation, the provisions in Part III, Division 3 of the IAA only applied to parties who have commenced their arbitral proceedings in Australia, and not foreign-seated international arbitrations. While this case only deals with orders for document production, the interpretation of the application of Part III, Division 3 of the IAA could likewise apply when seeking an order from an Australian court to restrain disclosure of confidential information.

Consequently, parties to foreign-seated international arbitrations may not be able to avail themselves of Australian court orders under sects. 23C or 23F of the IAA prohibiting the disclosure of ‘confidential information’ within the meaning of sect. 15(1). Rather, they may only receive the protection of confidentiality granted in Esso, that is, only documents produced compulsorily in the arbitration have a claim to confidentiality.

Parties will obviously be able to circumvent this unsatisfactory result by expressly providing for confidentiality in their arbitration agreement or adopting arbitration rules that deal with confidentiality. Further, the parties could potentially bypass this issue by selecting a national law that provides for confidentiality to govern their arbitral proceedings (lex arbitri) and asking an Australian court to test confidentiality in accordance with the lex arbitri. However, there is an unresolved choice of law issue governing confidentiality (see Filip De Ly, Mark Friedman, Luca Radicati Di Brozolo, ‘International Law Association: International Commercial Arbitration Committee’s Report and Recommendations on “Confidentiality in International Commercial Arbitration”’, 28(3) Arbitration International 355). The most obvious choice is between the lex arbitri and the law of the place where the issue of confidentiality arises (lex fori) (see Michael Pryles, ‘Confidentiality’ in Leading Arbitrators’ Guide to International Arbitration, edited by Newman & Hill (2nd ed, Juris Publishing, 2008) pp. 450-451). In these authors’ opinion, the lex arbitri should prevail over the lex fori, in this case Australian law, to determine confidentiality.

Concluding remarks

Australia has made most welcome reforms to bring the law regulating confidentiality of international commercial arbitrations seated domestically more closely in line with international best practice. However, further reform would be helpful to ensure that foreign-seated arbitrations will consistently receive the same protection.

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Reinforcing the Arbitration Path in Latin America: Argentina Adopted an International Commercial Arbitration Act

Thu, 2018-08-23 16:25

María Inés Corrá

In what should be deemed as an authentic legislative milestone, on July 4, 2018 the Argentine House of Representatives approved the International Commercial Arbitration bill (previously passed by the Senate in 2017). The bill became a law and entered into force as Act 27,449 after its publication in the Official Gazette on July 26, 2018.

 

The International Commercial Arbitration Law (hereinafter, “ICAL”) mostly adopts the UNCITRAL Model Law on International Commercial Arbitration (UNCITRAL Model Law), as amended in 2006, with some minor differences, most of them of non-substantial nature.

 

The bill was promoted by the Argentine Ministry of Justice and elaborated by some of the most outstanding specialists of Argentina, including high reputed professors, judges and practitioners.

 

The ICAL will regulate international commercial arbitration exclusively, without prejudice of any multilateral or bilateral treaty executed by the Argentine State (Section 1).

 

As for an arbitration to be considered “international”, the ICAL adopts the general criteria set forth in Article 1(3) of the UNCITRAL Model Law, although excluding its item (c), according to which “(c) the parties have expressly agreed that the subject matter of the arbitration agreement relates to more than one country” (Section 3).

 

On the other hand, the ICAL endorses a broad interpretation of the “commercial” nature of the arbitration. It considers “commercial” every relationship, contractual or not, completely or mostly governed by private law. It further orders that, in case of doubt, the commercial characterization of the relationship should prevail (Section 6).

 

The new law does not establish a definition for an arbitral agreement, and partially departs from Article 7(3) of the UNCITRAL Model Law, setting forth that “The arbitration agreement shall be in writing. An arbitration agreement is in writing if its content is recorded in any form”, without collecting the terms “whether or not the arbitration agreement or contract has been concluded orally, by conduct, or by other means” (Section 15).

 

Regarding the arbitrators’ appointment, the ICAL follows Article 11 of the UNCITRAL Model Law, adding, however, that the arbitral clause that provides any of the parties with a privileged position for the arbitrators’ appointment is null and void (Section 24, second paragraph).

 

According to the new law, assistance to arbitral proceedings and the decision on the annulment requests will be performed by the judges and courts of appeals in commercial matters of the arbitration seat, respectively (Section 13). Notably, this provision will serve to consolidate a more uniform case law on matters dealing with the application and interpretation of the new law. It should also prevent the potential intervention by other courts that could be not familiar enough with the relevant principles governing the matter.

 

Concerning interim measures and preliminary orders, the ICAL partially modifies Article 17.G of the UNCITRAL Model Law, establishing that the party requesting an interim measure or applying for a preliminary order shall be liable for any costs and damages caused by the measure or the order to any party if the arbitral tribunal later determines that, in said circumstances, the measure or the order should not have been requested (instead of “granted”) (Section 55).

 

As regards the arbitral award content, the ICAL partially departs from Article 31(2) of the UNCITRAL Model Law, and only allows the award not to state the reasons upon which it is based, if it is an award on agreed terms, thus excluding the possibility for the parties to agree that no reasons are to be given (Section 87).

 

In a significant change, the ICAL sets forth a 30-day term in order to file an annulment request (Section 100). In doing so, the new provision departs from Section 759 of the Argentine Civil and Commercial Procedural Code, according to which annulment application should be filed within 5 (five) days as from the arbitral award notification.

 

Section 106 of the ICLA explicitly endorses the non-exclusive interpretation of Article II (2) of the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Furthermore, the new law abrogates Section 519 bis of the Argentine Civil and Commercial Procedural Code which formerly regulated the enforcement of foreign arbitral awards (by making reference to the provisions applicable to foreign judicial courts set forth in Section 517) (Section 107).

 

The ICAL constitutes a substantive advance in favor of arbitral practice in Argentina, which certainly reinforces the arbitration path in Latin America. Through it, Argentina will finally have a separate regulation for international commercial arbitration.

 

Until today, Argentine legislation did not distinguish between domestic and international arbitration proceedings, being both subject to the provisions contained in procedural codes and, since 2015, in the Civil and Commercial Code.

 

The new law reverses the difficulties found in the past in order to adopt a modern regulation on the mater, and confirms that a more favorable environment for arbitration is prevailing in Argentina and will hopefully consolidate in the future.

 

In this path, the ICAL endorses other recent specific regulations, such as the Renewable Energy Regulation in force since 2016 -i.e. Act 26,190, as amended by Law 27,191  and Decree No. 882/2016– and the Public-Private Partnership Contracts Regulation, also enacted in 2016 -i.e. Act 27,328 and Decree No. 118/2017-, which explicitly set forth that disputes arisen from the agreements executed under them may be submitted to arbitration.

 

Furthermore, the new favorable trend for arbitration has been expressly ratified by the Argentine Ministry of Justice at his opening speech at the IBA Arbitration Day that took place in Buenos Aires in February 2018.

 

In sum, the International Commercial Arbitration Act recently approved by the Argentine Congress contributes to position Argentina as a pro-arbitration seat, with the significant advantages that this entails for the development of the arbitral practice in the country and in Latin America.

 

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Arbitration of Smart Contracts Part 1 – Introduction to Smart Contracts

Wed, 2018-08-22 21:32

Ibrahim Mohamed Nour Shehata

As described by Max I. Raskin, a blockchain is simply a decentralized ledger for recording digital data in a verified time-stamped manner without the need for a trusted third party. Blockchain technology provides, according to Joseph Bambara, et al., more “security, traceability, and transparency of records…as well as lower operational costs.” In this regard, public blockchains are protected from security threats because they maintain the information on multiple nodes where more than 51% of the nodes would have to be compromised before any security breach could occur. 

The best definition of a smart contract is: “a set of promises, specified in digital form, including protocols within which the parties perform on these promises.”1)Nick Szabo, Smart Contracts: Building Blocks for Digital Markets(1996). jQuery("#footnote_plugin_tooltip_9448_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9448_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Accordingly, a smart contract is a computerized algorithm which automatically performs the terms of the contract. As Bambara notes, smart contracts lie on a wide spectrum ranging from vending machine contracts to fully blockchain-executed smart contracts. As described here, a recent example of fully blockchain-executed smart contracts is a smart contract for a flood insurance policy, linked to the precipitation data from the Met Office. Once the data from the Met Office feeds into the blockchain, the policy is automatically triggered, and insurance claims are paid out. Our discussion in this series of articles will focus on smart contracts executed on public blockchains such as Ethereum. Please find a chart available here explaining the concept of smart contracts that are executed on blockchains.

As Raskin notes, Smart contracts typically have the following characteristics: (1) execution is automated; and (2) performance is ensured without recourse to law enforcement. In this regard, the main difference between smart contracts and traditional legal contracts is “the ability of smart contracts to enforce obligations by using autonomous code.”2)De Filippi Primavera and Aron Wright, Blockchain and the Law: The Rule of Code(2018). jQuery("#footnote_plugin_tooltip_9448_2").tooltip({ tip: "#footnote_plugin_tooltip_text_9448_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Smart contracts do that by recording performance obligations in a strict and formal programming language (like Ethereum’s Solidity).

Generally speaking, the code of the smart contract is executed without relying upon a trusted third party3)In a forthcoming post, we recommend the inclusion of oracles in smart contracts, whereby we argue that this hypothesis is overestimated when it comes to smart contracts dealing with off-the-chain events. jQuery("#footnote_plugin_tooltip_9448_3").tooltip({ tip: "#footnote_plugin_tooltip_text_9448_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });; the code is rather implemented in a distributed manner by all of the nodes supporting the underlying blockchain-based network whereby no single party controls the blockchain4)This is the case with public blockchains only. There are private blockchains which are usually administrated and controlled by a trusted third party. jQuery("#footnote_plugin_tooltip_9448_4").tooltip({ tip: "#footnote_plugin_tooltip_text_9448_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); (i.e., Ethereum). This autonomous scheme makes the promises recorded into smart contracts to be – by default – more difficult to get amended or terminated than promises in traditional legal contracts recorded in natural language (i.e., legalese). Accordingly, as Kevin Werbach and Nicholas Cornell have written, unless the parties have incorporated some logic in their smart contract to enable the amendment and the termination of such a smart contract, then there might be no way to halt the execution of a smart contract after it has been triggered by its parties.

Legal Challenges Related To Smart Contracts

Smart contracts raise numerous enthralling legal challenges. This section will try to shed light upon some of these legal challenges as follows:

(1) Legal Effects

As a starting point, are smart contracts legal binding contracts? The answer to this question depends upon three main factors: (1) the specific use case; (2) the form of smart contract being used (i.e. entirely coded in software or a hybrid smart contract with both an encrypted coded version and a text-based version); (3) the law applicable to the contract. This means that the answer might vary significantly depending on the concerned jurisdiction. As Bambara has observed, often the certainty of the content of the contractual terms and whether they are comprehensive enough is a critical factor in determining the legal effects of any contract in numerous jurisdictions. In order to eliminate such uncertainty surrounding the legal effects of smart contracts, some states like Delaware, Tennessee, and Arizona have passed legislation to recognize the legal effects of smart contracts. In 2017, Arizona has passed the amended Arizona Electronic Transactions Act (AETA), HB 2417, which defines blockchain technology as a “distributed, decentralized, shared and replicated ledger, which may be public or private, permissioned or permission less, or driven by tokenized crypto economics or token less” and indicates that the “data on the ledger is protected with cryptography, is immutable and auditable and provides an uncensored truth.” HB 2417 also defines smart contracts as an “event-driven program, with state, that runs on a distributed, decentralized, shared and replicated ledger that can take custody over and instruct transfer of assets.” Therefore, parties to a smart contract might be able to ensure that their smart contract is legally binding if they elect the law applicable to the contract to be that of Arizona, or Delaware or Tennessee or any other jurisdiction that recognizes the legal binding effects of smart contracts. Such a choice of law has to be supplemented by choice of forum that would recognize and enforce the parties’ choice of law.

(2) Amendment and Termination of Smart Contracts

The original smart contract concept has started with the invention of the vending machine. With a vending machine for soft drinks, one can insert a dollar for instance and gets back a soft drink. However, the process of a vending machine is not flawless. For instance, what if one changed his mind after inserting the dollar and wants to get chocolate instead of a soft drink; or, what if one changed his mind and did not want anything anymore. An even more intriguing question, what if the vending machine does not perform its obligation and dispenses the soft drink; I am sure many of us have faced such a situation and did not know what to do. These examples also apply in the realm of smart contracts which are entirely recorded on blockchains.

(3) Coding limitations

Whenever one mentions coding limitations in the world of the blockchain, the decentralized autonomous organization (“DAO”) incident has to be mentioned. As described by Raskin, the DAO was formed in 2016 to create an investing fund that “would not be controlled by any one individual, but by shareholders voting based on their stakes on a blockchain.” The DAO was able to pool funds worth $150 million. Soon after this money was raised, a hacker was able to divert about what is worth $40 million funds from the DAO in an unpredictable manner. The hacker did not “hack” the code in a malicious way but rather exposed a legal loophole in the smart contracts of the DAO. This incident shows how coding is limited and how bugs could be simply exploited by hackers. Thus, as David Zaslowsky noted here, it is not really surprising that a 2016 study of Ethereum smart contracts revealed that there are at least 100 errors per 1,000 lines of code. Bambara has raised the intriguing question of who should be liable for such mistakes or errors? In traditional contracts, the parties would be able to sue the drafting lawyer for malpractice, could a similar lawsuit be brought against the coders of smart contracts for coding errors. These are novel legal issues that do not exist with traditional text-based contracts; it will be interesting to see how courts and arbitral tribunals will deal with such incidents.

(4) Ability to design complex contracts

As the adoption of blockchain spreads, smart contracts will become increasingly complex and capable of handling highly sophisticated transactions. Currently, coders are already stringing together multiple transaction steps to form more complex smart contracts. Nonetheless, we are many years away from code being able to determine more subjective legal criteria. For instance, as Stuart D. Levi and Alex B. Lipton have written, there is no yet code that would be able to determine whether a party satisfied a commercially reasonable efforts standard or whether a force majeure clause should be triggered or not.

References   [ + ]

1. ↑ Nick Szabo, Smart Contracts: Building Blocks for Digital Markets(1996). 2. ↑ De Filippi Primavera and Aron Wright, Blockchain and the Law: The Rule of Code(2018). 3. ↑ In a forthcoming post, we recommend the inclusion of oracles in smart contracts, whereby we argue that this hypothesis is overestimated when it comes to smart contracts dealing with off-the-chain events. 4. ↑ This is the case with public blockchains only. There are private blockchains which are usually administrated and controlled by a trusted third party. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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Commercial Diplomacy as a Ways Forward to Resolving Disputes When They Arise in International Trade

Wed, 2018-08-22 02:59

Marike R. P. Paulsson

In the world of International Arbitration (“IA”), one distinguishes between commercial arbitration and investment arbitration, the latter widely referred to as Investor-State Dispute Settlement or ISDS, as a dispute resolution mechanism based on bilateral treaties, multilateral treaties, and free trade agreements. IA is lauded as the best method for dispute resolution in international trade. This is where we have derailed from the origins of the manner in which relations between parties in trade were handled, which is – amicably. If parties were not able to settle disputes amicably, they would resort to two possible methods. With State respondents involved, one could be confronted with what is called gunboat diplomacy, i.e. bringing in the army to put pressure on an investor. It is what should be avoided at all cost. On the other side of the spectrum, parties would resort to third-party assisted settlement. The latter includes methods such as mediation and conciliation. Another third-party assisted settlement method is commercial diplomacy.

Today, IA is still the preferred method for resolving disputes. However, it could simply be because over the last two decades ISDS cases have significantly increased and the method has very much been promoted by the IA community. Users – investors and clients – have not always been consulted as to what their overall needs are. Many organizations try to involve the investors by setting up users’ councils and task forces. From a user’s perspective, costs, the lack of efficiency, duration, post-arbitration enforcement and execution phase, corruption, dilatory tactics, and the prospects of actually collecting under the award and when are important.  Meanwhile, the IA community – under the leadership of institutions – focuses on improving ISDS with reforms focused on transparency, efficiency and matters such as arbitrator selection. Yet, sovereigns saw an opportunity to use criticism for radically doing away with it.1) Marike Paulsson, Kluwer Arbitration Blog: “Revisiting the Idea of ISDS within the EU and an arbitration court: the effect on party autonomy as the main pillar of arbitration and the enforceability of arbitral awards” May, 21st, 2018. jQuery("#footnote_plugin_tooltip_2652_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2652_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });  

Courts and tribunals ought to rethink their role and define their mandate in changing times towards a new world order, a re-shifting of powers. Actors and influencers in international law should hold sovereigns accountable and persuade them to be mindful of obligations entered into under international instruments such as bilateral and multilateral treaties.2) Marike Paulsson, Conflict Resolution in a Changing World Order, Trade, Law and Development, National Law University, Jodhpur, India. jQuery("#footnote_plugin_tooltip_2652_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2652_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Sovereignty has always been an obstacle to the flourishing of international law. Today, a discussion about a world court has taken a centre stage but the question is whether that is really a solution:

At the London Court of International Arbitration Centenary Conference in London (in 1995) some old stalwarts – Judge Howard Holtzman and Judge Stephen Schwebel (then a Sitting Judge of the ICJ) envisaged the prospect of a new international Court for resolving disputes in the 21st century. But these worthy gentlemen being experienced Arbitrators and men of the world also recognized that setting up an International Court of Arbitration would be tilting at the windmills of national sovereignty.

Judge Schwebel recalled the theme of a song of a popular film at the time “the Man of La Mancha” where the principal character Don Quixote, who is a dreamer – always dreamed, “the impossible dream”. An International Court of Arbitration, Schwebel said, was like an impossible dream. Is it still? The proposed permanent investment arbitration court in the EU-Canada Comprehensive and Economic Trade Agreement (CETA) seems to be that impossible dream of the Man of La Mancha, or even worse, a deception. Article 8.29 of the CETA provides that the Contracting States to the treaty shall establish a multilateral investment tribunal. On the basis of Article 8.27 the CETA Joint Committee shall appoint fifteen members to the tribunal.  Yet, they remain sovereign appointments.3)Marike Paulsson, Conflict Resolution in a Changing World Order, Trade, Law and Development, National Law University, Jodhpur, India. jQuery("#footnote_plugin_tooltip_2652_3").tooltip({ tip: "#footnote_plugin_tooltip_text_2652_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Resolving investment disputes with sovereigns through arbitration is now not only costly and lengthy, it comes with a collateral damage. Once the notice of arbitration is filed, let alone the award rendered, it is hard for an investor to preserve its original relationship with the State. Furthermore, IA leads mostly to monetary damages, and not so often to tailored non-monetary and creative solutions. Also, what those in IA overlook is that investors do not only look at what could be awarded in arbitration but when it could be collected and what percentage of what was awarded. Many investors look to more amicable methods of preventing or resolving disputes. Methods such as mediation and commercial diplomacy focus on negotiating with governments to seek constructive conditions that are persuasive for both investor and State. The investor can continue its business operations whereas the State preserves its reputation for being an attractive place to invest and will continue to attract FDI. For States, disputes are not merely legal: they are political and commercial and sometimes have an impact on cultural and environmental aspects as well. Sometimes, parties in international commercial arbitration agree to multi-tiered or hybrid dispute resolution clauses that provide for attempts to amicable settlement through direct negotiation first, followed by mediation and if all fails, international arbitration. It is a sequenced set up of dispute resolution methods.

One could imagine a parallel track: the so-called “carrot and stick” approach. In order to place pressure on a State, an investor could initiate the arbitration based on a BIT, for example. Not only is it a way for an investor to signal that it contends to have a merit-based claim, it also enables a government to take action. On a parallel track – and perhaps more in cloak-and-dagger style – an investor could employ a strategy of commercial diplomacy to deal with the government directly. Commercial diplomacy factors in geopolitical risk at all stages of a pending dispute. As mediation, commercial diplomacy has been around for centuries. As far back as the 1920s, the ICC in Paris promoted diplomacy to resolve investment disputes. As IA is called alternative dispute resolution (“ADR”) to courts, commercial diplomacy is perhaps a form of complementary dispute resolution (“CDR”). More amicable dispute resolution processes create a win-win that allows future growth in the host State.

Commercial diplomacy, like mediation and conciliation, consists of some core stages and competencies albeit it is not subject to mediation or conciliation rules nor does one need certified mediators or conciliators. The core stages focus not only on a legal assessment of the merits of a claim, but the focus is expanded to scoping any economic incentives and political pressure points or policy matters that weigh heavily in a State-Respondents assessment of its willingness to settle. Negotiators would scale out those pressure points to engage with stakeholders taking on the honest broker role. It is focused on an efficient execution – the so-called money in the bank strategy – without having to face lengthy and frustrating enforcement and execution hurdles under the New York Convention, the ICSID Convention and local laws on seizing and executing assets. The settlement is not only focused on financial compensation but also non-monetary ways of bringing parties together and preserving their relationship.

Settlements take place more and more as one saw in the Chevron v Ecuador case.4)Laura Roddy, Conoco and Ecuador settle ICSID Feud, Global Arbitration Review (December 4, 2017). jQuery("#footnote_plugin_tooltip_2652_4").tooltip({ tip: "#footnote_plugin_tooltip_text_2652_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Argentina has settled a string of cases in order to attract more FDI.5) See, for instance, Douglas Thomson, Argentina and Total settle, Global Arbitration Review (July 19, 2017). jQuery("#footnote_plugin_tooltip_2652_5").tooltip({ tip: "#footnote_plugin_tooltip_text_2652_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Therefore, there is momentum as States are willing to look into other processes to handle conflicts with investors. At the same time, one must remember that States only enter into BITs for their own interest, so that investors will invest at a lower cost because there is a dispute resolution protection in place. However, many States are not sophisticated enough to understand the intricacies and impact of treaties. Diplomatic efforts though are less foreign to them.

So when is a case most likely to settle? What is important in these settlement efforts, is, among others, whether the timing is good. If it is early in the case, a claimant would not have much ammunition on the merits. In that case, it could consider the idea of an authoritative opinion.  Thus a settlement could be negotiated early in the case, or at certain points during the procedural timeline. Even after the award is rendered, settlement through diplomatic channels is most effective when one wants to collect under the award.

Important factors to consider are who are the counsels for both the investor and the State, and their willingness to look for holistic and alternative approaches that complement a strategy. The timing and geopolitical factors such as upcoming elections and the pro-investor attitude of a new government are crucial.  One would also do research in order to determine how important the presence is of a particular investor in a market such as the energy market. Key stakeholders at the government level need to be able to trust negotiators when engaging in commercial diplomacy. The position those negotiators hold vis-à-vis the investor and the government is important. They need to be able to operate at arm’s length so that they are in fact, what one would call, an honest broker. In a climate where IA is being subject to reforms and even radical replacement, one ought to go back to the origins of dispute settlement: a more amicable way of resolutions which is a step forward towards the flourishing of international trade that complements, and not replaces the traditional idea of IA.

References   [ + ]

1. ↑ Marike Paulsson, Kluwer Arbitration Blog: “Revisiting the Idea of ISDS within the EU and an arbitration court: the effect on party autonomy as the main pillar of arbitration and the enforceability of arbitral awards” May, 21st, 2018. 2. ↑ Marike Paulsson, Conflict Resolution in a Changing World Order, Trade, Law and Development, National Law University, Jodhpur, India. 3. ↑ Marike Paulsson, Conflict Resolution in a Changing World Order, Trade, Law and Development, National Law University, Jodhpur, India. 4. ↑ Laura Roddy, Conoco and Ecuador settle ICSID Feud, Global Arbitration Review (December 4, 2017). 5. ↑ See, for instance, Douglas Thomson, Argentina and Total settle, Global Arbitration Review (July 19, 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: International Arbitration and the Rule of Law
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Lack of Arbitrators’ Power to Decide on the Validity of an Arbitral Submission – The Case of Ethiopia

Tue, 2018-08-21 03:00

Gelila Haile

Arbitration is one of the preferred modes of private dispute settlement. Off its several traits, the cornerstone is the fact that it is based primarily on party autonomy and enables the parties to control almost all aspect of it. On the other hand, States put in place a different review and/or control mechanism on the conduct and process of arbitration for different policy considerations. Within the realm of commercial arbitration, States incorporate into their laws several regulatory limitations that empower their judiciary or other organs to regulate certain aspects of arbitration. Needless to say, no State would want to completely forego its regulatory power in commercial dispute settlements. This is appropriate, necessary even, since it is the State’s obligation to ensure that justice is being served, even where parties have agreed to privately settle their dispute. This goes hand in hand with the practical consideration that arbitration cannot stand on its own without the support and backing of the State’s law and its institutions, especially the judiciary. As the result, the State inevitably interferes in arbitration, be it in the form of deferring matters to tribunals where a valid arbitration agreement exists or enforcing arbitral awards.

Another form of interference occurs when the principle of competence-competence is not recognized in national laws or is applied with restrictions. The laws of most developed nations explicitly recognizes this principle. For instance, the UK Arbitration Act 1996 under Article 30 recognizes an arbitral tribunal’s power to rule on its substantive jurisdiction, including the power to rule on the validity of an arbitration agreement. The 2010 Model Law similarly, under Article 23(1), recognizes the power of an arbitral tribunal to rule on its jurisdiction including on objections raised regarding the validity of an arbitration agreement. Since an arbitral agreement serves as the basis on which arbitral tribunals base their jurisdiction, its validity is paramount. In this post, the term arbitral submission is used to refer to arbitration clauses.

Coming to Ethiopia, an attempt was made in the 1960’s to introduce modern arbitration and other forms of dispute resolutions mechanisms such as conciliation and mediation. The Ethiopian Civil Code (‘Civil Code’) promulgated in 1960 enumerates substantive provisions governing arbitration while the Ethiopian Civil Procedure Code, put in place five years after, governs the procedural aspects. According to these Codes, Ethiopian Courts are involved in different parts of arbitration proceeding, beginning from the appointment of an arbitrator to entertaining enforcement, challenge and appeals. The Civil Code provides arbitrators several powers including the power to decide on their own jurisdiction. However, Article 3330(3) of the Civil Code severely limits this power by stating that arbitrators cannot be allowed to determine the validity of an arbitral submission. Ethiopian law, being the focus of this post, defines an arbitral submission as a contract where disputing parties appoint an arbitrator to settle their dispute in accordance with the principles of law.

Due to this prohibition, any jurisdictional objection raised on the validity of an arbitral submission will need to be decided not by the arbitral tribunal but by a court of law. The policy reason behind this restriction might be based on the fear that an arbitrator(s) would assume jurisdiction, even based on an invalid arbitral submission, with the objective of seeking arbitrator’s fees.1)Bezawork Shimelash, The formation, Content, and Effect of an Arbitral Submission under Ethiopian Law, Journal of Ethiopian Law, Vol XVII (1994) jQuery("#footnote_plugin_tooltip_4089_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4089_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); One of the components of a tribunal’s jurisdictional power is being empowered to decide on the validity of an arbitral submission, since validity confers jurisdiction. Article 3330(3) of the Civil Code, which is in clear contrast to Section 30(1)(a) of the UK Arbitration Act 1996 and Article 23(1) of the 2010 Model Law, forces parties to seek early court intervention, if/when validity is disputed.

Ethiopia is not a signatory to the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards. Arbitration in Ethiopia is still at a grass root level and the two Codes, that predate the Model Law, have not yet been revised. Courts in Ethiopia have a high tendency of assuming jurisdiction even where there is a valid arbitration agreement, and the policy reason behind the restriction may not be to ensure that arbitrators do not assume jurisdiction on the basis of an invalid arbitral submission. Setting aside ethical considerations, an award passed on such basis would definitely be up for setting aside. This is recognized under Article V 1(a) of the New York Convention as one of the grounds for refusing enforcement of arbitral awards.

Now more than ever, as Ethiopia is opening its doors to investment and businesses, its laws on arbitration are in need of review and should be made arbitration-friendly. One consideration that should be made, when/if the long overdue review of Ethiopian arbitration laws takes place, is lifting the limitation on arbitrator’s power on deciding the validity of an arbitral submission. The courts, on the other hand, should adopt a restrictive approach and give way for arbitral tribunals. As such, Ethiopian courts’ should assume a supporting and not a leading role.

References   [ + ]

1. ↑ Bezawork Shimelash, The formation, Content, and Effect of an Arbitral Submission under Ethiopian Law, Journal of Ethiopian Law, Vol XVII (1994) function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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On Arbitrating Antitrust/Competition Disputes (I)

Mon, 2018-08-20 02:30

Richard Levin

This note will first reflect back thirty three years on the genesis of arbitration and competition matters and the Mitsubishi case, and then, in Part 2 below, I will touch on some practical issues that frequently will arise in a competition case today and how Mitsubishi is still influencing with vigor. As the reader will see, that organic decision continues to be of great significance in the handling of complex arbitrations, especially those dealing with antitrust or competition issues.

 

In Mitsubishi Motors v Soler, 473 US 614 (1985), the US led the worldwide migration to the arbitrability of competition disputes. Up till that time, most, in not all, jurisdictions around the globe considered these matters strictly for the courts. The Supreme Court in Mitsubishi began by noting the “healthy regard for the federal policy favoring arbitration” as well as, in respect to international matters, the growth of American business and trade will not be encouraged if “we insist on a parochial concept that all disputes must be resolved under our laws and in our courts.”  473 US at 629. In holding antitrust claims arbitrable (claims “encompassed within a valid arbitration clause in an agreement embodying an international commercial transaction”), the Court (per Justice Blackmun) observed with remarkable prescience in 1985 “[t]he controversies that international arbitral institutions are called upon to resolve have increased in diversity as well as in complexity. Yet the potential of these tribunals for efficient disposition of legal disagreements arising from commercial relations has not yet been tested.” 473 US at 638. Thus, the Supreme Court was willing to embrace this “experiment” and courts will have to “shake off” any hostilities to arbitration and essentially get with international notions of progress in trade and commerce.

 

In the commercial area, although there is always room to improve, we have certainly seen since 1985 a robust development for increased efficient disposition of these claims in arbitration, including antitrust/competition claims as will be discussed. Also, at the time of Mitsubishi, antitrust/competition advocates were concerned about ceding private enforcement authority to .arbitrators, while the arbitration bar, by virtue of language in the opinion allowing courts to have a “second look,” was unsure just what the case would mean to the very cornerstone of arbitration, party autonomy in deciding how they want their disputes resolved. More on that below as well.

 

Since that seminal case, cases around the world have followed suit if not extended Mitsubishi, most notably Eco Swiss China Time v Benetton Int’l1) Case No C-126/97, [1999] E.C.R. I-3055 (E.C.J.) jQuery("#footnote_plugin_tooltip_1723_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1723_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); in the EU. Furthermore, Mitsubishi has been unremarkably construed to cover US domestic as well as international disputes.2) ABA Antitrust Law Developments (8th ed. 2017), p. 813 jQuery("#footnote_plugin_tooltip_1723_2").tooltip({ tip: "#footnote_plugin_tooltip_text_1723_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Now, in looking back more than thirty years later, Mitsubishi, in addition to its landmark ruling on arbitrability, strikes me on fresh reread as making certain corollary points which are of significant importance to the arbitration and competition law practitioner today.

 

The first observation on reflection is the discussion regarding the concern that antitrust cases are too complex to be left in the hands of arbitrators. The cases “require sophisticated legal and economic analysis, and thus are alleged to be ‘ill-adapted to strengths of the arbitral process, i.e., expedition, minimal requirements of written rationale, simplicity, resort to basic concepts of common sense and simple equity.’” 473 US at 632. The Court’s dismissal of this concern was powerful. Precisely because these cases can be so complex is reason to favor arbitrability as “it is often a judgment that streamlined proceedings and expeditious results will best serve their needs that causes parties to agree to arbitrate their disputes; it is typically a desire to keep the effort and expense required to resolve a dispute within manageable bounds that prompts them mutually to forgo access to judicial remedies.” 473 US at 633. Thus, we see today many arbitral institutions have adapted to complex cases in their rules and the push for expedition in spite of complexity, as well as arbitrator selection of individuals who are comfortable if not expert in the competition arena for example. Antitrust cases many times are economic theory driven and most institutional rules as well as soft law rules such as the IBA Rules on Taking of Evidence in International Arbitration (“IBA Rules”) allow for creative and liberal use of expert testimony in the proceeding. This was recognized by the Court as well as the reference to a kind of “anyway” the cases in arbitration will most likely be vertical issues (subject to an arbitration agreement) and not horizontal price fixing cartel cases, the ”monstrous proceedings that have given antitrust litigation an image of intractability.” 473 US at 633.3) Horizontal price fixing cases have since been held to be arbitrable disputes. See, e.g. JLM v Stolt-Nielsen, 387 F. 3d 163 (2d Cir 2004). jQuery("#footnote_plugin_tooltip_1723_3").tooltip({ tip: "#footnote_plugin_tooltip_text_1723_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); It was arbitration’s “adaptability” and “access to expertise” that swayed the Court on the over-complexity argument.

 

The second point that strikes me on a Mitsubishi reread are the concerns raised by the Soler party against arbitration that the private treble damage procedure is too important to the business fabric to be thus relegated and, furthermore, the arbitration process cannot be counted on enforce competition policy with arbitrators, many times foreign and many times chosen from the business community.” Just as just as ‘issues of war and peace are too important to be vested in the generals, . . . decisions as to antitrust regulation of business are too important to be lodged in arbitrators chosen from the business community – particularly those from a foreign community that has had no experience with or exposure to our law and values.’” 473 US at 632. The Court had no problem dismissing these concerns, noting what has been true today, through the party and institutional appointment process, the tribunals have for the most part remained impartial and competent, and have had no special obstacles interpreting foreign law if needed, just as a judicial body would do under Fed R Civ P 44.1.

 

As to the importance of the private treble damage remedy,4) Of course government enforcement (eg criminal enforcement and merger enforcement) would not be arbitrable. On the European front, there has been discussion of arbitration of behavioral remedies in merger cases, but this has not really taken hold. See L.G. Radicati, Arbitration in E.C. Merger Control: Old Wine in a New Bottle, European Journal of Business Law 2007. We have seen recently in the US the use of arbitration proposed by parties seeking government approval in a merger case (ATT and Time Warner). US v ATT et al. (at pages 41, 149 fn. 51). jQuery("#footnote_plugin_tooltip_1723_4").tooltip({ tip: "#footnote_plugin_tooltip_text_1723_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); the Court as well found no impediment in allowing a litigant to vindicate its full competition grievance through the arbitration process. The private right of action statute.”5) Section 4 of the Clayton Act, 15 USC sec 15. jQuery("#footnote_plugin_tooltip_1723_5").tooltip({ tip: "#footnote_plugin_tooltip_text_1723_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); will remain just as viable in arbitration as in judicial litigation and thus as “the prospective litigant may provide in advance for a mutually agreeable procedure whereby he would seek his antitrust recovery as well as settle other controversies,” 473 US at 636. “The importance of the private damages remedy, however, does not compel the conclusion that it may not be sought outside an American court.” 473 US at 635.

 

Likely the part of Mitsubishi that has engendered the most discussion from scholars and counsel has been the important reference in that opinion to the role of the national courts. The Court stated: [h]aving permitted the arbitration to go forward, the national courts of the United States will have the opportunity at the award-enforcement stage to ensure that the legitimate interest in the enforcement of the antitrust laws has been addressed. The [New York] Convention reserves to each signatory country the right to refuse enforcement of an award where the “recognition or enforcement of the award would be contrary to the public policy of that country.” 473 US at 638. This is the language that spawned the so-called “second look” doctrine although the Supreme Court does not use that phrase. As well, the ECJ affirmed in Eco Swiss that the national courts in the EU should grant annulment of any award where “its domestic rules of procedure require it … for failure to observe national rules of public policy.

 

Having the benefit of thirty three years of hindsight, if the look means a stare vs a glance, we should probably quietly turn the lights out on the “second look” doctrine as there really is no proper “second look,” the Supreme Court did not mean for there to be a proper ”second look,” and we do nothing to further the laudable goals of competition policy or arbitration policy to keep that doctrine breathing. The doctrine could have very well originated at a time in the 80’s when there was perhaps less confidence in the process of international and even domestic arbitration (recall it had not been “tested”), and you can see this in the strong Mitsubishi dissent of Justice Stevens, an eminent jurist to be sure, joined by Justices Brennan and Marshall. 473 US at 665. But I do not think the majority was reticent to the “experiment” when stating that “national courts will need to “shake off the old judicial hostility to arbitration.” 473 US at 638.

 

There is no issue that in most countries competition law forms an integral part of a state’s public policy, its ordre publique that defines its core values to the rule of law. As adherence to a state’s public policy is at the heart of the New York Convention dealing with enforcement of arbitral awards, the national court at the award-enforcement stage has the opportunity to “look” at the award and determine if it comports with the state’s public policy. NY Convention V (2) (b). Furthermore, in meeting the expectations of the parties, the Tribunal should do its best to issue an enforceable award, which goal is embodied in some institutional rules, such as Article 41 of the ICC Rules. Thus, the Tribunal must consider the different competition regimes which touch the controversy; ie in jurisdictions where the award will be enforced and its public policy.6) Professor Radicati has written well on “which competition law.” Arbitration and Competition Law: The Position of the Courts and Arbitrators, 27 LCIA Arbitration International 1 at page 19 (2011); Professor Mayer stated in 1986 that even though arbitrators “are neither guardians of the public order nor invested by the State with the mission of applying its mandatory rules,” they should “pay heed” to the “future” of the award and thus apply all mandatory rules of law to develop an award that can be enforced. Pierre Mayer, Mandatory Rules of Law in International Arbitration, 2 J. Int. Arb. 274, 284-86 (Kluwer 1986). jQuery("#footnote_plugin_tooltip_1723_6").tooltip({ tip: "#footnote_plugin_tooltip_text_1723_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

It comes down to what kind of “look” does the enforcement court engage? I don’t have the space allotment to discuss this in detail, only to say Professor Radicati has well laid out the “maximalist” and “minimalist” approaches of scholars and the national courts in the article cited in footnote 7.7) The reader is also referred to the thorough compendium on this general subject put together by G Blanke and P Landolt (eds), EU and US Antitrust Arbitration: A Handbook for Practitioners, Kluwer, 2010. The chapters by A Mourre, L Radicati, as well as this writer, all very much state the law has adopted and should adopt the minimalist standard of review of awards. See Chapters 1, 22, and 39. jQuery("#footnote_plugin_tooltip_1723_7").tooltip({ tip: "#footnote_plugin_tooltip_text_1723_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Moreover, Justice Blackmun for the Court was quite clear in stating that this “look” is “minimal”: “[w]hile the efficacy of the arbitral process requires that substantive review at the award-enforcement stage remain minimal, it would not require intrusive inquiry to ascertain that the tribunal took cognizance of the antitrust claims and actually decided them.” 473 US at 638.

 

Following that, one of the most respected appellate judges Frank Easterbrook on the US Court of Appeals for the 7th Circuit noted in Baxter Int’l v Abbott Laboratories, 315 F 3d 829 (7th Cir.2003), the very minimal review of the national courts if the arbitration process is going to work or be given a chance to work, as implied strongly by Mitsubishi. “Legal errors are not among the grounds that the Convention gives for refusing to enforce international awards” Judge Easterbrook noted and “Mitsubishi did not contemplate that, once arbitration was over, the federal courts would throw the result in the waste basket and litigate the antitrust issues anew.   That would just be another way of saying that antitrust matters are not arbitrable.”  315 F 3d at 832. And to the same effect are cases across the Atlantic, perhaps the most notable being Thales v Euromissile8) Cour d’appel de Paris, 1re Chambre, section C, 18 Novembre 2004 (n° 2002/19606, SA Thalès Air Défense c/ GIE Euromissile et EADS jQuery("#footnote_plugin_tooltip_1723_8").tooltip({ tip: "#footnote_plugin_tooltip_text_1723_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); in the Paris Court of Appeal in 2004, where the court refused to consider a competition law infringement allegedly that “creve les yeux,” but was not even examined for better or for worse by the “yeux” of the arbitrators. The court followed Eco Swiss and French procedural rules and refused to set aside the award.9) See also Gary Born, International Commercial Arbitration (2d ed.2014, Kluwer) at p.3322 where he notes that “[p]ublic policy has generally been invoked only in cases of clear violations of fundamental, mandatory legal rules, not in cases of judicial disagreement with a tribunal’s substantive decisions or procedural rulings.” jQuery("#footnote_plugin_tooltip_1723_9").tooltip({ tip: "#footnote_plugin_tooltip_text_1723_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

References   [ + ]

1. ↑ Case No C-126/97, [1999] E.C.R. I-3055 (E.C.J.) 2. ↑ ABA Antitrust Law Developments (8th ed. 2017), p. 813 3. ↑ Horizontal price fixing cases have since been held to be arbitrable disputes. See, e.g. JLM v Stolt-Nielsen, 387 F. 3d 163 (2d Cir 2004). 4. ↑ Of course government enforcement (eg criminal enforcement and merger enforcement) would not be arbitrable. On the European front, there has been discussion of arbitration of behavioral remedies in merger cases, but this has not really taken hold. See L.G. Radicati, Arbitration in E.C. Merger Control: Old Wine in a New Bottle, European Journal of Business Law 2007. We have seen recently in the US the use of arbitration proposed by parties seeking government approval in a merger case (ATT and Time Warner). US v ATT et al. (at pages 41, 149 fn. 51). 5. ↑ Section 4 of the Clayton Act, 15 USC sec 15. 6. ↑ Professor Radicati has written well on “which competition law.” Arbitration and Competition Law: The Position of the Courts and Arbitrators, 27 LCIA Arbitration International 1 at page 19 (2011); Professor Mayer stated in 1986 that even though arbitrators “are neither guardians of the public order nor invested by the State with the mission of applying its mandatory rules,” they should “pay heed” to the “future” of the award and thus apply all mandatory rules of law to develop an award that can be enforced. Pierre Mayer, Mandatory Rules of Law in International Arbitration, 2 J. Int. Arb. 274, 284-86 (Kluwer 1986). 7. ↑ The reader is also referred to the thorough compendium on this general subject put together by G Blanke and P Landolt (eds), EU and US Antitrust Arbitration: A Handbook for Practitioners, Kluwer, 2010. The chapters by A Mourre, L Radicati, as well as this writer, all very much state the law has adopted and should adopt the minimalist standard of review of awards. See Chapters 1, 22, and 39. 8. ↑ Cour d’appel de Paris, 1re Chambre, section C, 18 Novembre 2004 (n° 2002/19606, SA Thalès Air Défense c/ GIE Euromissile et EADS 9. ↑ See also Gary Born, International Commercial Arbitration (2d ed.2014, Kluwer) at p.3322 where he notes that “[p]ublic policy has generally been invoked only in cases of clear violations of fundamental, mandatory legal rules, not in cases of judicial disagreement with a tribunal’s substantive decisions or procedural rulings.” function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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On Arbitrating Antitrust/Competition Disputes (II)

Mon, 2018-08-20 01:43

Richard Levin

Now that we know the “second look” is not so much a look but a glance, what does this mean for arbitrators in these cases, frequently highly complex disputes infused with economics? In brief, it places a very heavy burden to get it right. The mandatory public policy of competition law which would by contract be delegated to an arbitration tribunal involves the very fabric of “democratic capitalism” and is of “national interest” to at least the US economy, as Mitsubishi notes, 473 US at 635-36 and there is no reason to think the disputes are less important in most other countries. The importance is heavy, the policy is real, even such that arbitrators, in the view of some scholars, have the duty to raise and apply the relevant competition regimes on their own motion.1) See Radicati, op. cit.fn.7, at p.21 jQuery("#footnote_plugin_tooltip_6137_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6137_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Thus, I will touch on a few issues I have experienced, noting that Mitsubishi has had a long and wide effect, and its fundamental policy of the nature of arbitration may help practitioners evolve the issues the cases present to lead to “efficient disposition” as predicted by Mitsubishi; the focus will only be on discovery, experts, and summary disposition in complex competition disputes, but you could obviously expand this list.

 

The Supreme Court noted in Mitsubishi, as referenced above, that “vertical restraints which most frequently give birth to antitrust claims covered by an arbitration agreement will not often occasion the monstrous proceedings that have given antitrust litigation an image of intractability. In any event, adaptability and access to expertise are hallmarks of arbitration.” 473 US at 633. And of course, we have seen horizontal restraint allegations in arbitration2) E.g., Stolt-Nielsen, op cit. fn.3. jQuery("#footnote_plugin_tooltip_6137_2").tooltip({ tip: "#footnote_plugin_tooltip_text_6137_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and many IP cases will involve licenses on a horizontal level and contain arbitration clauses, such as Abbott Laboratories, discussed above. In any case, these are not disputes like nationwide grand jury price fixing or market allocation investigations or dawn raids seen in the EU that involve truckloads of hard drives, paper, etc. Nor are they merger investigations, involving Second Requests. These “monstrous proceedings” are not seen in arbitration. Thus in my experience in arbitrations, in both vertical and horizontal issues, I have latched on the “adaptability” point of Justice Blackmun and have so far been able to successfully conclude disputes with tailored discovery; my guidepost has been the IBA Rules referenced in Part 1. For the sake of expedition and to keep the expense reasonable, depositions are not generally allowed, unless that witness is critical to the case and/or cannot appear live. And while tailored document exchange is the preferred method of information exchange, I would very much agree with two leading practitioners “because arbitral procedures are flexible, it is always possible for a tribunal, if persuaded that it is necessary, to make searching orders for the production of documentary evidence, short of “fishing” exercises.”3) Veeder and Stanley, in EU and US Antitrust Arbitration: A handbook for Practitioners, op cit. fn. 8, ch. 3 at p.105. jQuery("#footnote_plugin_tooltip_6137_3").tooltip({ tip: "#footnote_plugin_tooltip_text_6137_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); All this said, this is arbitration, not court litigation, and broad discovery is not necessarily a given.4) Judge Easterbrook noted in a recent domestic US case on the Seventh Circuit “nothing in the Federal Arbitration Act requires an arbitrator to allow any discovery. Avoiding the expense of discovery under the Federal Rules of Civil Procedure and their state-law equivalents is among the principal reasons why people agree to arbitrate. That Hyatt’s attorneys’ fees in the arbitration exceeded $1 million shows that plenty of discovery occurred; an argument that the arbitrator had to allow more rings hollow.” Hyatt Franchising v Shen Zhen jQuery("#footnote_plugin_tooltip_6137_4").tooltip({ tip: "#footnote_plugin_tooltip_text_6137_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

In any case, discovery of some dimension is usual, especially in a complex arbitration, like a competition based arbitration. Many institutions have adopted rules to deal with the complexities of competition cases, an example being the AAA’s Procedures for Large, Complex Commercial Disputes as well as the soft law guidance of the IBA Rules. Furthermore, the privilege issues that can come up in international disputes can be daunting and I have previously written on my position and the importance of keeping a level playing field between the different parties who may face different privilege national laws and protocols.

 

Justice Blackmun also notes the importance of “access to expertise” as being a “hallmark” of arbitration; the Court refers both to arbitrator expertise as well as expert opinion testimony, “arbitral rules typically provide for the participation of experts either employed by the parties or appointed by the tribunal.” 473 US at 633. Antitrust and competition disputes are expert driven as the jurisprudence in major antitrust regimes throughout the world has trended to be grounded in solid economics.5) In the United States, see US v ATT, et al, op cit. fn. 4; Ohio v American Express, 585 US ____; 138 S. Ct. 2274 (2018). jQuery("#footnote_plugin_tooltip_6137_5").tooltip({ tip: "#footnote_plugin_tooltip_text_6137_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The IBA Rules again have detailed and well thought out procedures in Articles 5 and 6 of the Rules.

 

I have found after years of dealing with competition/economic experts in court, in the agencies in the US and the EC, and in arbitration, that the very “adaptability” which the Supreme Court considers also to be the “hallmark” of arbitration, allows for a better avenue to truth than the courts provide and, therefore, we hope, justice. Messrs. Veeder and Stanley refer to this as “procedural and evidential flexibility.”6) See Veeder and Stanley, op cit. fn. 8, ch.3 at p. 106. jQuery("#footnote_plugin_tooltip_6137_6").tooltip({ tip: "#footnote_plugin_tooltip_text_6137_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The time honored method in many juridical systems of cross examination alone by advocates just may not be the best way of testing economic opinions regarding a definition of a relevant market, has there been more competition over time, has new entry occurred or can it occur in spite of not having occurred, and has there been a prices increase and why not, the list goes on. As noted by the above esteemed barristers, “[i]t is certainly not self-evident that anything resembling full-scale ‘cross-examination’ of the experts by counsel is likely to be productive.”7) Id. jQuery("#footnote_plugin_tooltip_6137_7").tooltip({ tip: "#footnote_plugin_tooltip_text_6137_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

While I am not certain of the benefits of tribunal-appointed experts, as contemplated by Article 6 of the IBA Rules, I completely agree that simple or rigorous cross examination of party appointed economic experts alone is wasting the very tools of flexibility that arbitration offers. Therefore I have used and have found very beneficial to the tribunals of which I have been a part, a form of witness conferencing with experts as the most robust method to arrive a comfortable resolution, and with any luck, wisdom and truth. I have used this with experts after their testimony and cross examination to pin point them down on point A, then asking the opposing expert her views on that point, then moving to Point B. I have also had simultaneous back and forths as well, just that the tribunal needs tightly to control this process, some with counsel participating, some after the witness’ testimony, with the tribunal only questioning. I have used this most recently with opposing experts on foreign competition legal regimes. Of course, “hot tubbing,” an in vogue procedure, also puts to use the flexibility of arbitration and this is contemplated by the IBA Rules as well in Article 5.4. These procedures and other creative ways at approaching economic expert testimony, of course, should be established in advance at an appropriate case management conference.

 

In the US, dispositive motions (summary judgment motion practice) play a critical part in the development of the antitrust law, mainly as a result of several Supreme Court antitrust decisions, including one a year after Mitsubishi, Matsushita Elec v Zenith Radio, 475 US 574. (1986) (a plaintiff at the dispositive motion stage “must show that the inference of illegal conspiracy is plausible if there is a competing explanation) and, more recently, Bell v Twombley, 550 US 544 (2007), (a plaintiff at the pleading stage must allege facts showing allegations of illegal conspiracy are plausible not merely conceivable). And today in arbitration practice, dispositive motion practice has become an important topic in light of the concern for expedition and expense and many institutional rules have begun to adopt these procedures.8) See, e.g., Article 39 of the Rules of the Arbitration Institute of the Stockholm Chamber of Commerce; Rule 29 of the SIAC (Singapore) Rules; Rule 33 of the AAA Commercial Rules. jQuery("#footnote_plugin_tooltip_6137_8").tooltip({ tip: "#footnote_plugin_tooltip_text_6137_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

In Mitsubishi, Justice Blackmun noted that “[b]y agreeing to arbitrate a statutory claim, a party … trades the procedures and opportunity for review of the courtroom for the simplicity, informality, and expedition of arbitration.” 473 US at 628. There is no sound reason why the new interest in this summary process in arbitration and the judicial trend in the Supreme Court in competition cases cannot meld together such that more institutions can come on board, especially in these complex disputes. For one, Justice Souter noted in Twombley, that a policy behind the decision is to avoid the potentially enormous discovery expense absent a solid plausible claim for violation. 550 US at 558-60. Moreover, dispositive motion practice plays a much more benign or intrusive role in arbitration as the same fact finder, the tribunal, will resolve the case—with or without a plenary evidentiary hearing; in the US at least, a summary judgment takes the decision process away from the jury.

 

We see a convergence of policies when considering dispositive motions in complex arbitrations, such as competition cases. At one time arbitration, antitrust, dispositive motions, needed discovery, complex disputes were words not used in the same paragraph. These cases have traditionally been heavy document oriented and involved massive discovery, and for many years dispositive motions were discouraged because “the proof is largely in the hands of the alleged conspirators, and hostile witnesses thicken the plot.” Poller v CBS, 368 US 464, 473 (1962). Then in 80s, the courts became chary of simply green lighting expensive antitrust claims with no plausible basis and at the same time, with the groundswell of arbitration, Mitsubishi asked “why not” bring simplicity, informality, and expedition to these same disputes? As the penumbra of Mitsubishi has developed, scholars and institutions have advanced the idea of achieving the policy of Mitsubishi through devices as dispositive motions. To be sure, the case must be a correct one for a dispositive motion, and the tribunal must keep in mind Article V (I) (B) of the New York Convention ensuring procedural fairness (a right to be heard) in the arbitration.9) Gary Born’s treatise is particularly helpful on this score. Op cit. fn. 10 at pp. 3492-541. jQuery("#footnote_plugin_tooltip_6137_9").tooltip({ tip: "#footnote_plugin_tooltip_text_6137_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); A dispositive motion, when used properly, can potentially reduce the time and expense in a case, which is consistent with the goals of arbitration.10) This writer first wrote an article on dispositive motion in competition arbitrations about a decade ago (pre-Twombley), 24 J. Int. Arb. 2 (Kluwer 2007), Certain Procedural Issues in Arbitrating Competition Cases, (dispositive motion discussion at pp. 201-209), (with Kurkela, Liebscher, and Sommer). jQuery("#footnote_plugin_tooltip_6137_10").tooltip({ tip: "#footnote_plugin_tooltip_text_6137_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Mitsubishi was a landmark decision in the area of arbitration, and especially complex arbitration. One can hope that our judges, arbitral institutions, scholars, and policy makers continue to push the envelope and walk through the door that it has opened.

References   [ + ]

1. ↑ See Radicati, op. cit.fn.7, at p.21 2. ↑ E.g., Stolt-Nielsen, op cit. fn.3. 3. ↑ Veeder and Stanley, in EU and US Antitrust Arbitration: A handbook for Practitioners, op cit. fn. 8, ch. 3 at p.105. 4. ↑ Judge Easterbrook noted in a recent domestic US case on the Seventh Circuit “nothing in the Federal Arbitration Act requires an arbitrator to allow any discovery. Avoiding the expense of discovery under the Federal Rules of Civil Procedure and their state-law equivalents is among the principal reasons why people agree to arbitrate. That Hyatt’s attorneys’ fees in the arbitration exceeded $1 million shows that plenty of discovery occurred; an argument that the arbitrator had to allow more rings hollow.” Hyatt Franchising v Shen Zhen 5. ↑ In the United States, see US v ATT, et al, op cit. fn. 4; Ohio v American Express, 585 US ____; 138 S. Ct. 2274 (2018). 6. ↑ See Veeder and Stanley, op cit. fn. 8, ch.3 at p. 106. 7. ↑ Id. 8. ↑ See, e.g., Article 39 of the Rules of the Arbitration Institute of the Stockholm Chamber of Commerce; Rule 29 of the SIAC (Singapore) Rules; Rule 33 of the AAA Commercial Rules. 9. ↑ Gary Born’s treatise is particularly helpful on this score. Op cit. fn. 10 at pp. 3492-541. 10. ↑ This writer first wrote an article on dispositive motion in competition arbitrations about a decade ago (pre-Twombley), 24 J. Int. Arb. 2 (Kluwer 2007), Certain Procedural Issues in Arbitrating Competition Cases, (dispositive motion discussion at pp. 201-209), (with Kurkela, Liebscher, and Sommer). function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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Why Lawyers from Civil Law Jurisdictions Do Not Need the Prague Rules

Sun, 2018-08-19 03:00

Michal Kocur

This season the draft Rules on Conduct of the Taking of Evidence in International Arbitration (the Prague Rules) are a regularly occurring topic at European arbitration events. In a nutshell, the Prague Rules are a set of rules close to civil law systems, intended to replace the IBA Rules on the Taking of Evidence in International Arbitration (the IBA Rules). The final text of the Prague Rules is to be released in December 2018 (see also the recent two-part blog post on the Prague Rules by Paula Costa e Silva published on 30 July 2018 and 1 August 2018).

The aim of the Prague Rules is to increase efficiency in international arbitration, i.e. to reduce the time and cost implications of arbitration. The main obstacles to attaining this goal, as identified by the drafters of the Rules, are, on the one hand, the features taken from common law such as document production, the cross-examination of witnesses and the opinions of party-appointed experts, and, on the other hand, the reluctance of arbitrators to actively manage the arbitration proceedings. The proposed means to achieve the goal of increased efficiency is a limitation of the common law features and the introduction of an inquisitorial model of procedure.

Wrong Premises, Wrong Conclusions

There are a number of issues with this reasoning. When properly used, document production, the cross-examination of witnesses and evidence in the form of opinions by party-appointed experts, as well as other common law features, are not the causes of inefficiency in international arbitration. It is the lack of robust case management that is the main culprit behind delayed proceedings and inflated costs. If the tribunal, for example, mismanages document production or cross-examination, this may certainly increase the cost and time of arbitration, but this is not reason enough to abolish these mechanisms, or to significantly limit them. The drafters of the Prague Rules overlook the fact that the common law features that they hold in low esteem, generally lead to the tribunals making better decisions. The solution proposed in the Prague Rules to empower the tribunals to take an active role in establishing facts is a highly controversial one. Such an active role played by tribunals is not even a common feature of civil law procedures. It is unlikely to increase the speed or decrease the cost of arbitration, and will, most likely, merely result in lower quality of arbitral awards.

Document Production, Witnesses and Party-Appointed Experts

Extensive document production may delay arbitral proceedings for months, and may significantly increase the cost of arbitration. The IBA Rules address this problem by stipulating, inter alia, that parties may request the production of only “narrow and specific” categories of documents, as well as providing other safeguards against full-blown American- or English-style discovery.

The Prague Rules throw out the baby with the bathwater. In Article 4 they seem to abolish document production with the exception of requests for the production of specific documents. The problem is that the party requesting documents that it does not possess will rarely be able to identify them beyond indicating the category to which the documents belong.

There are good reasons why the IBA Rules allow the request to produce documents. A party requesting the production of documents may need them to discharge its burden of proof, or to counter any false allegations from the other party. Document production, therefore, does not need to bring a smoking gun to light in order to be beneficial. The drafters of the Prague Rules appear to see only a possible dark side of document production, while overlooking the fact that it may lead to better decisions on the merits, which is the ultimate goal of any arbitration proceeding.

Despite the dismissive remark in the “Note of the Working Group” that, under the IBA Rules “the party’s entitlement to cross-examine witnesses is almost being taken for granted,” the Prague Rules do not abolish the cross-examination of witnesses. Generally, with respect to cross-examination, the Prague Rules give the tribunals similar powers to those they have under the IBA Rules. Also, with respect to experts, it is unclear how the Prague Rules improve upon the language of the IBA Rules.

 Case Management and the Proactive Role of the Tribunals in Fact-Gathering

The Prague Rules set out that the arbitral tribunal will hold a case management conference without any unjustified delay after receiving the case file (Article 2.1 of the Prague Rules). They go on to describe what issues are to be discussed at this management conference, including the relief sought by the parties, the facts that are not in dispute between the parties and the facts that are disputed, as well as the legal grounds on which the parties base their position. They also oblige the tribunal to fix a procedural timetable (Article 2.2 of the Prague Rules). These norms are uncontroversial and do not warrant any new set of rules. There is nothing in this respect that would contradict the IBA Rules. In fact, the Prague Rules have little to say on the issue of case management and anyone looking for guidance in this regard would do better to consult the ICC Arbitration Commission Report on Techniques for Controlling Time and Costs in Arbitration, rather than the Prague Rules.

 The Prague Rules contain some controversial provisions with regard to the role of the tribunal in finding facts. Article 2.3 of the Prague Rules reads:

“The Arbitral Tribunal may at the case management conference or at the later stage, if it deems appropriate, indicate to the Parties:

  1. with regard to the disputed facts – the evidence the Arbitral Tribunal would consider to be appropriate to prove the Parties’ positions;
  2. the actions which could be taken by the Parties and the Arbitral Tribunal to ascertain the factual and legal basis of the claim and the defense; and
  3. its preliminary view on allocation of the burden of proof between the Parties.”

Article 3.1 of the Prague Rules reads:

“The Arbitral Tribunal is entitled and encouraged to take an active role in establishing the facts of the case which it finds relevant for resolution of the dispute. This Arbitral Tribunal’s role, however, shall not release the Parties from their burden of proof.”

These provisions are based on the premise that the tribunals taking an active role in fact-gathering will increase efficiency in arbitration. This is a false premise. One has to distinguish between the active role of arbitrators in case management, and their active role in establishing the facts of the case. The former is desirable, while the latter is not. Disputes resolved in international arbitration are usually complex. The parties themselves know the facts much better than tribunals. However, the Prague Rules are based on a paternalistic assumption that it is the other way around, or that at least the tribunals know better how to establish facts.

Having the tribunal actively looking for evidence is likely to distort the outcome of the case. The tribunal’s active role in fact-gathering may result in helping one party and hurting the other’s case. In terms of the time and cost of arbitrations, such an active role is not helpful. For the timely running of proceedings, it is enough that the tribunals identify contentious issues, set out cut-off dates for providing evidence regarding these issues, and then to enforce them. If a party that bears the burden of proof does not provide evidence, it will be unsuccessful on that point.

The drafters of the Prague Rules argue that civil law lawyers need rules that are closer to their system than the IBA Rules. However, even in civil law jurisdictions, such an active role of the judges in civil cases is not standard practice. Take the example of my jurisdiction – Poland: it is the parties that are responsible for providing the evidence to the court, and the court will only very rarely admit evidence on its own initiative. During Communist times, judges were obliged to gather evidence, though this system was finally abolished in 1996.  There are probably very few Polish lawyers who would like to travel back in time and use the socialist principles of civil procedure in international arbitration.

Let’s Stick to the IBA Rules

The Prague Rules will not increase efficiency in international arbitration. The solutions proposed by the drafters are misguided. The active role of the tribunals in establishing the facts has obvious drawbacks and is no substitute for active case management. The IBA Rules codify the procedures developed in international arbitration over the years. They provide clear standards for arbitration proceedings and unify diverging practices. The Prague Rules are intended to undermine the uniform character of arbitration practices by setting out different standards for “intra-civil law” disputes. This is unfortunate because the convergence of arbitration practices leads to the increased predictability of the tribunals’ behaviour, and ultimately to the success of international arbitration. This is deplorable also because the common law features of international arbitration, if used properly, help to make the arbitral process fairer and assist the arbitrators in reaching better decisions.

 

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The Contents of the ASA Bulletin, Volume 36, Issue 2, 2018

Sat, 2018-08-18 01:31

Matthias Scherer

We are happy to inform you that the latest issue of the ASA Bulletin is now available and includes the following articles and cases:

 

ARTICLES

Felix DASSER, Piotr WÓJTOWICZ, Challenges of Swiss Arbitral Awards. Updated Statistical Data as of 2017

Felix DASSER and Piotr WÓJTOWICZ update previously published statistical data on challenges of international arbitral awards under article 190(2) PILA and requests for revisions. The Swiss Federal Supreme Court has exclusive jurisdiction over challenges and requests for revisions. The percentage of successful challenges remains very low at around 7%. The median duration of such proceedings before the Supreme Court is roughly six months. As to requests for revisions of international awards, only three requests have been successful to date. The duration of these proceedings is even shorter than for challenge proceedings.

 

Clàudia BARÓ HUELMO, Is Kazakhstan a State Successor to the USSR? A Perspective from Investment Treaty Arbitration

In its decision on jurisdiction, the arbitral tribunal in World Wide Minerals v. Republic of Kazakhstan held that Kazakhstan succeeded to the obligations of the Soviet Union with regards to its 1989 Agreement with Canada on the Promotion and Reciprocal Protection of Investments. As a result of this decision, the door could be opened for investors wishing to benefit from the protections included in bilateral investment treaties from the USSR-era. Clàudia BARÓ HUELMO examines the potential legal reasoning by which the arbitral tribunal reached this conclusion and explores the question of which (if any) obligations may have fallen upon Kazakhstan as a former Soviet Republic.

 

Patrick SCHMID, Tax Arbitration under the BEPS Convention. An Overview and Potential Pitfalls from a Swiss Perspective

In 2017, Switzerland signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“BEPS Convention”). Once in force, the BEPS Convention will amend 14 of Switzerland’s double taxation agreements and implement, among other measures, an arbitration dispute resolution procedure. Where two contracting states are unable to reach an agreement within a certain timeframe, the affected taxpayer can initiate an arbitration procedure regarding any unresolved issues. Patrick SCHMID provides background information and gives an overview of the arbitration procedure available under the BEPS Convention while highlighting potential pitfalls from a Swiss perspective.

 

Fleur MALET-DERAEDT, The New French Legislation on State Immunities from Enforcement

The French legislative changes on state immunities from enforcement brought by the Loi Sapin II (France’s new anti-corruption legislation) are a compromise between the protection of state property against illegal enforcement measures and the creditors’ right to the enforcement of their claims: drafting of appropriate waiver clauses remains crucial. Fleur MALET-DERAEDT submits that section L.111-1-2 marks the end of the flexible approach allowed under the Cour de cassation’s ruling in Creighton, whereby waivers of immunity from enforcement could be tacitly inferred from the mere consent of the state to submit to arbitration.

 

Duarte G. HENRIQUES, The Prague Rules: Competitor, Alternative or Addition to the IBA Rules on the Taking of Evidence in International Arbitration?

Duarte G. HENRIQUES presents the Prague Rules, a new set of guidelines for the use of counsel and arbitrators in the conduct of arbitration proceedings.

 

Dimitra A. TSAKIRI, Application of the New York Convention to the Enforcement of Arbitration Agreements

The 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards contemplates not only the enforcement of foreign arbitral awards, but also the enforcement of arbitration agreements under article II (3). One of the perceived shortcomings of the Convention is the fact that it does not define which types of arbitration agreements may be enforced under it. Dimitra A. TSAKIRI reviews how certain national laws and judicial decisions grapple with this gap.

 

Angela CASEY, Fehlende Schiedsfähigkeit zwingender arbeitsrechtlicher Ansprüche im Binnenverhältnis. Anmerkungen zu BGE 4A_7/2018 vom 18. April 2018

Angela CASEY analyses a new landmark decision (4A_7/2018 of 18 April 2018) in which the Swiss Federal Supreme Court revisited its earlier decisions regarding the subject-matter arbitrability of domestic employment law disputes. In line with an earlier decision, the Court held that a domestic employment law dispute cannot be brought before an arbitral tribunal if it concerns mandatory claims according to articles 361 and 362 of the Swiss Code of Obligations.

 

Caroline DOS SANTOS, Swiss Federal Supreme Court Confirms Independence of CAS. Note on Decision 4A_260/2017 of 20 February 2018

Caroline DOS SANTOS analyses decision 4A_260/2017 of 20 February 2018 in which the Swiss Federal Supreme Court tackled two important issues in the field of sport disputes. First, the decision confirms the Supreme Court’s previous finding in the 2003 Lazutina decision regarding the independence of the Court of Arbitration for Sport. Second, the decision concerns the recently adopted – and controversial – FIFA regulations banning Third Party Ownership agreements.

 

DECISIONS OF THE SWISS FEDERAL SUPREME COURT

  • 4A_7/2018 of 18 April 2018: Disputes involving domestic employment law claims are not arbitrable.
  • 4A_260/2017 of 20 February 2018: Sport dispute / Third Party Ownership Agreements sanctioned by FIFA / CAS is an independent arbitral tribunal (confirmation of its ruling in the Lazutina decision) / No public policy violation.
  • 4A_236/2017 of 24 November 2017: Arbitrators’ procedural conduct not indicative of bias / No right to a reasoned decision from the ICC regarding the challenge of an arbitrator / No violation of equal treatment by arbitrators’ rejection of late evidence.
  • 4A_318/2017 of 28 August 2017: Legal arguments allegedly raised at the hearing and disregarded in the award / No proof of existence of argument (absence of hearing transcript) / No violation of right to be heard.
  • 4A_507/2017 of 15 February 2018: Duty to pay Supreme Court’s administrative fees despite withdrawal of annulment request.
  • 4A_396/2017 of 23 November 2017: No security for costs required from a State that is party to the Hague Convention.
  • 4A_344/2017 of 21 December 2017: Interpretation of arbitration clause in company bylaws / Clause not applicable to dispute among members under a separate agreement containing a forum selection clause.
  • 4A_407/2017 of 20 November 2017: Pathological arbitration agreement (impossibility to nominate an arbitrator meeting the qualification criteria) / Gap filling by juge d’appui / Pre-arbitral mediation requirement not enforced since defendant refused claimant’s proposal to appoint a mediator.
  • 4A_466/2017 of 8 November 2017: Termination order / Ruling on defendant’s legal fees.
  • 4A_510/2017 of 9 November 2017: Annulment request abusively filed in English to obtain an extension of time (article 42 of the Law on the Federal Supreme Court).
  • 4A_444/2016 of 17 February 2017: 30-day time limit to file for annulment triggered by receipt of reasons, not by the earlier notification of the award’s operative part.
  • 4A_716/2016 of 26 January 2017: Prohibition on the taking of parties by surprise by entirely unsuspected legal reasoning.
  • 4A_53/2016 of 13 July 2016: Request to set aside a decision labelled an award issued by a public arbitral tribunal established by statute rather than by the parties / Not an arbitral award.
  • 4A_475/2016 of 28 March 2017: Waiver of right to challenge award in domestic arbitration is admissible, if made after the award is rendered.
  • 4A_206/2016 of 20 May 2016: Supreme Court establishes the plaintif’s domicile on its own motion / Plaintiff’s residence when signing the arbitration agreement outside Switzerland / Not a domestic arbitration / No challenge for alleged arbitrariness of the arbitral award.
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The Africanisation of Rule-Making in International Investment Arbitration

Fri, 2018-08-17 01:00

Athina Fouchard Papaefstratiou, Capucine du Pac de Marsoulies, Clément Fouchard and Martin Tavaut

ArbitralWomen

The evolution of foreign direct investment in the African continent

The African continent has been an important recipient of foreign investment for many decades, with a significant rise in such investment being witnessed in the last 15 years. The economic growth, the limitation of regulatory barriers and importantly the high rates of return have rendered many African countries very attractive investment destinations, including from new economic powers such as China, whereas intra-African foreign investment is also on the rise.

These developments are reflected in the legal framework for the protection of foreign investment in the African continent. African States have always played a key role in the development of the investment protection and investor-State dispute resolution system. In recent years, however, and in parallel with the development of intra-African foreign direct investment, African countries have taken a more active role in the rule-making process of international investment law, notably at the regional and at the continental levels, searching to strike a new balance between promotion and protection of international investments on the one hand, and safeguarding public policy objectives on the other. African States adapt international investment rules to their context, needs and realities and at the same time are pioneers in standard-setting activity in international investment protection.

The AfricArb Launching Conference in Paris

The development of new investment protection standards in the African continent was discussed at the inaugural conference of AfricArb, a non-profit organisation of young practitioners sharing a common interest in arbitration in Africa 1) The group’s founding members are Guillaume Areou of Reed Smith; Sylvie Bebohi of APAA; Diamana Diawara of the ICC International Court of Arbitration; Capucine du Pac de Marsoulies and Martin Tavaut of Jeantet; Clément Fouchard of Linklaters; Thomas Kendra of Hogan Lovells; Tsegaye Laurendeau of Shearman & Sterling; Athina Papaefstratiou Fouchard and Wesley Pydiamah of Eversheds Sutherland; Andrea Lapunzina Veronelli of DLA Piper; Paul-Jean Le Cannu of ICSID; John Picarel Pechdimaldjian of CMS Francis Lefebvre Avocats; Julie Spinelli of Derains & Gharavi and Gregory Travaini of Herbert Smith Freehills. Coming from different backgrounds (private practice, arbitral institutions, academics) they are based in several jurisdictions jQuery("#footnote_plugin_tooltip_9992_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9992_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });.

The conference, “Arbitration in Africa: Quo Vadis?”, was held in Paris on 14 June 2018. Professor Makane Mbengue from the University of Geneva raised the question of the “Africanisation” of investment arbitration, through the development of a new generation of investment protection instruments. Other speakers also discussed points relating to the development of new norms of investment protection. Professor Emilia Onyema focused on the need to respect local legal traditions when promulgating relevant rules as well as when selecting arbitrators in investment disputes, Dr. Mohamed Abdel Wahab referred to South Africa’s 2015 Protection of Investment Act and to the recent Morocco-Nigeria BIT, which contain a series of novel provisions, aiming at combining investment protection and safeguarding public policy goals. Finally, Dr. Marie-Andrée Ngwe discussed recent reforms to the OHADA arbitration system, which now provides an additional platform for the resolution of investment disputes.

A live video-recording of the AfricArb conference can be found at AfricArb’s Facebook page.

The MultiLayered Regulation of Investment Protection in Africa

The new norms of foreign investment protection are developed within a multi-layered system of protection:

– at the national level, investment codes adopted by African countries;

– at the bilateral level, BITs concluded between African countries and other countries, whether African or not;

– at the regional level, investment rules and model investment treaties enacted by the different regional economic communities in Africa; and

– at the continental level, the Pan-African Investment Code, adopted as a model instrument.

National and Bilateral Level: Recent Steps Towards a Paradigm Shift

Until recently, there has been no substantial effort towards modernization or innovation at the national level, where almost all of the current investment codes of African countries follow the classic model of protection of international investments. The 2015 South African Protection of Investment Act is an exception, as it provides for a significantly limited protection of foreign investment and puts emphasis on policy objectives of the State. For example, the investors are awarded “fair administrative treatment” (rather than fair and equitable treatment (FET)), physical protection and security and national treatment, for the assessment of which environmental considerations and rights of local communities are also to be taken into account. Disputes are to be resolved by national courts or by mediation, whereas the State may enter into arbitration agreements subject to the exhaustion of local remedies.

Similarly, the majority of BITs concluded by African countries contain no specificity and afford the classic standards of protection contained in BITs signed in the last 40 years. The notable exception is the BIT signed in 2016 between Nigeria and Morocco (the BIT has been ratified by Morocco and awaits ratification by Nigeria). It focuses not only on the protection but also on the facilitation of foreign investment. It establishes a Joint Committee which monitors the application of the treaty and facilitates prevention and settlement of disputes. Finally, the BIT imposes a wide range of obligations to investors, relating for example to the protection of human rights and the environment, and the respect of corporate social responsibility standards.

An effervescent regulation at the regional level

At the regional level, an intense activity in the elaboration of new rules can be observed. In the words of Professor Mbengue: “Now we can talk about the “African exception” in investment law and the ‘Africanisation’ of the international investment law”.

Notable regional initiatives are the following:

– the member States of the Common Market for Eastern and Southern Africa (COMESA) adopted the COMESA Common Investment Area in 2007 (CCIA), which was the first investment agreement in Africa that attempted to limit the scope of protected investments (for example by protecting only substantial economic activity in the host country), to “rationalize” the standard State obligations towards foreign investors, and at the same time that aimed at preserving the interests of local communities;

– the Economic Community of the Western African States (ECOWAS) adopted the Supplementary Act on Common Investment Rules for the Community in 2008, which imposed a series of obligations on investors while limiting the “standard” investment protections (for instance no direct access to international arbitration);

– the Southern Africa Development Community (SADC) adopted in 2012 a Model Bilateral Investment Treaty, which is meant to contribute to the harmonisation of the investment regimes in the region and to the harmonisation with the Pan-African Investment Code (see below). The Model BIT goes beyond the protection of foreign investment and stresses that investment must contribute to the sustainable development of the host country, recommends avoiding the inclusion of the FET standard (even if reduced to the customary minimum standard of treatment of aliens) and suggests an alternative “fair administrative treatment”;

– the East African Community (EAC), COMESA and SADC launched in 2015 the Tripartite Free Trade Area (TFTA). The parties are preparing the negotiation of Phase II, which includes the adoption of rules on cross-border investment.

Continental Level: Where the Future Lies

It is obvious that the foreign investment promotion and protection in Africa, even though fostering ground-breaking initiatives, is also a complex system, marked by fragmented and often overlapping regulations, that may be contradictory, and constitute a challenge for investors.
In this context, the African Union, which aims at enhancing the political and socio-economic development of its member States, launched in 2008 the elaboration of the Pan-African Investment Code (PAIC).

Adopted in 2015, it reflects the trend of “Africanisation” of international investment law. It forms part of the new generation of investment promotion and protection instruments calling for a balance between the rights and obligations of investors and States. Notable features of the PAIC are the following:

– providing for the possibility for African States to replace intra-African BITs or regional investment instruments with the PAIC;

– focusing on facilitation of foreign investment, and not only its protection. Importantly, investments which are granted protection are those which will foster long-term sustainable development and will meet the needs of African societies;

– providing new obligations for investors (due diligence, human rights protection, corporate social responsibility and sustainable use of natural resources);

– limiting investment protection standard (notably omitting the classic FET standard of investment protection); and

– providing for the States’ possibility to submit counterclaims in arbitration proceedings.

No consensus has been reached for the adoption of the PAIC, which instead of a binding document applies as a source of inspiration and a model that the African States may turn to when updating their national legislations or concluding international investment treaties. However, the PAIC presents the major advantage of being addressed to all African States, and thus promoting the harmonisation of investment protection in the African continent.

A future – and most welcome – step in the direction of the modernisation of investment protection and at the same time its harmonisation is the negotiation of an investment protection chapter in the recently concluded Continental Free Trade Area. Hopefully, major developments lie ahead!

References   [ + ]

1. ↑ The group’s founding members are Guillaume Areou of Reed Smith; Sylvie Bebohi of APAA; Diamana Diawara of the ICC International Court of Arbitration; Capucine du Pac de Marsoulies and Martin Tavaut of Jeantet; Clément Fouchard of Linklaters; Thomas Kendra of Hogan Lovells; Tsegaye Laurendeau of Shearman & Sterling; Athina Papaefstratiou Fouchard and Wesley Pydiamah of Eversheds Sutherland; Andrea Lapunzina Veronelli of DLA Piper; Paul-Jean Le Cannu of ICSID; John Picarel Pechdimaldjian of CMS Francis Lefebvre Avocats; Julie Spinelli of Derains & Gharavi and Gregory Travaini of Herbert Smith Freehills. Coming from different backgrounds (private practice, arbitral institutions, academics) they are based in several jurisdictions function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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Does the (Recast) Brussels Regulation Allow for Court-Ordered Anti-Suit Injunctions within the EU?

Thu, 2018-08-16 01:57

Julio-César Betancourt

The short answer, I submit, is that it does.

Nonetheless, there is no shortage of articles and commentaries purporting to explain some of the reasons why court-ordered anti-suit injunctions continue to be prohibited under Regulation (EU) 1215/2012 of the European Parliament and of the Council of 12 December 2012 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters (Recast) (“the recast Regulation”). In West Tankers, the Court of Justice of the European Union (“the CJEU”) decided that these types of injunctions were incompatible with Council Regulation (EC) 44/2001 of 22 December 2000 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters (“the Brussels I Regulation”). In the recent case of Nori Holdings Ltd & Ors v Public Joint-Stock Company ‘Bank Otkritie Financial Corporation’ [2018], the English Commercial Court was asked to consider, among other things, whether the CJEU’s judgment in West Tankers remained good law.

The Commercial Court held that it did, and in doing so, dismissed Nori Holdings’ application for a court-ordered anti-suit injunction to restrain the Bank’s court proceedings in Cyprus. Although the West Tankers case was decided under the Brussels I Regulation, Males J opined that the effect of the Recital 12 of the recast Regulation was clear, thereby concluding that the position was no different under it. He also expounded that ‘Neither the [recast] Regulation itself nor its recitals say expressly that [the principles set out in the West Tankers case] no longer apply or that an anti-suit injunction in support of arbitration issued by a court in a member state takes precedence over [such principles]’.

It is true that the recast Regulation does not make explicit reference to the question of whether it has reinstated the power of the courts of the Member States to grant anti-suit injunctions with the intention of restraining a person from commencing or continuing proceedings before the courts of another Member State. That is not to say, however, that the language of the recast Regulation ‘clearly’ suggests that this sort of relief continues to be unavailable in the EU. Quite the contrary, it does appear to suggest that West Tankers may no longer be good law, as I shall explicate below.

Curiously, Males J’s decision seems to have placed emphasis on Recital 12 rather than on Article 73.2 of the recast Regulation (the operative provision), which, to be sure, leaves no room for doubt as to the superiority of the New York Convention (“the NYC”), hierarchically speaking, over such a Regulation. Article 73.2 unambiguously stipulates that the recast Regulation shall not affect the application of the NYC. One of the primary objectives of the NYC is to facilitate the recognition and enforcement of international arbitration agreements. Hence, international arbitration agreements, or rather, ‘the rights arising therefrom’ — and this is the key — enjoy a special protection.

International arbitration agreements yield a positive and a negative effect, i.e., an ‘obligation to engage in arbitration’ and an ‘obligation not to take legal action’ in any forum other than arbitration. Each party to the agreement has correlative rights, i.e., the ‘right to arbitrate’ and the ‘right not to be sued’. When the parties to an international arbitration agreement select the arbitration rules, the seat of the arbitration, and the law applicable to such an agreement, the list of rights and obligations that arise under the respective agreement is greatly expanded. These types of agreements, therefore, can be genuinely regarded as one of the most abundant sources of rights and obligations.1)See, in general, Julio-César Betancourt, El Contrato de Arbitraje Internacional (Tirant lo Blanch 2018) 506 forthcoming. jQuery("#footnote_plugin_tooltip_4032_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4032_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The duty to recognize and enforce these kinds of agreements resides in the national courts of Contracting States (Article II.1 of the NYC). Their role is to safeguard the parties’ rights or, as the case might be, to enforce their obligations in exercise of their jurisdictional function. Consequently, the national courts’ duty to protect the parties’ rights is to be understood lato sensu. In other words, the rule is that every time that a person appears in a court of law with the aim of seeking to assert a legitimate right arising out of an international arbitration agreement, the court seized is expected to protect the right in question. The right to obtain an anti-suit injunction is no exception to such rule.

As far as English international arbitration law is concerned, an anti-suit injunction is nothing more than a remedy for breach of an international arbitration agreement. The English court’s power to grant such a remedy lies in Section 37 of the Senior Courts Act 1981. This remedy is generally granted with the sole purpose of upholding the parties’ commitment to arbitrate. In Donohue v Armco, the House of Lords made clear, inter alia, that ‘Where the court decides to grant an injunction restraining proceedings in a foreign court, its order is directed not against the foreign court but against the parties so proceeding or threatening to proceed’. Thus, anti-suit injunctions are not intended to prevent the court in which proceedings have been instituted from the power to rule on its own jurisdiction. Rather, their purpose is to prevent the contract-breaker from obtaining a ruling of this nature.

The ‘right to obtain an anti-suit injunction’ is inextricably linked with the ‘right not to be sued’, both stemming from the contract to arbitrate. As legitimate rights, they can be perfectly invoked before any of the national courts of Contracting States, which, under Article II.1 of the NYC, are under an obligation to recognize and enforce such rights. If there were any doubts as to the soundness of this proposition within the context of EU law, they were certainly dispelled by the very text of the recast Regulation, which seems to suggest that it cannot be lawfully relied upon so as to impede, whether directly or indirectly, the application of the NYC.

Males J’s decision did not go on to examine the relationship between the recast Regulation and the NYC, and this is the crux of the issue. The recast Regulation is an unwavering legislative commitment to protect the NYC. Instead, Males J focused on the relationship between the recast Regulation and West Tankers, concluding that there was nothing in the former to cast doubt on the continuing validity of the latter. Prior to the Nori Holdings case, a learned commentator also wrote that West Tankers remained applicable under the recast Regulation and that the CJEU ‘in the Gazprom case … did not endorse Advocate General Wathelet’s Opinion that West Tankers [had] been impliedly reversed by Recital 12 of the [recast Regulation]’.2)Neil Andrews, Arbitration and Contract Law: Common Law Perspectives (Springer 2016) 78. jQuery("#footnote_plugin_tooltip_4032_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4032_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In Gazprom the CJEU decided that the Brussels I Regulation ‘must be interpreted as not precluding a court of a Member State from recognizing and enforcing, or from refusing to recognize and enforce, an arbitral award prohibiting a party from bringing certain claims before a court of that Member State’.  Nevertheless, it is respectfully submitted that both arguments are defeated by the fact that both West Tankers and Gazprom concerned the application of the ‘Brussels I Regulation’ and not the application of the ‘recast Regulation.

One can make an argument that if the EU legislator had wished to maintain the restriction that the CJEU’s judgment in West Tankers imposed, it would have said so. The intention of the EU legislator was unequivocally clear: the recast ‘Regulation shall not affect the application of the 1958 New York Convention’.3)Article 73.2 of the recast Regulation. jQuery("#footnote_plugin_tooltip_4032_3").tooltip({ tip: "#footnote_plugin_tooltip_text_4032_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Consequently, one can further argue that the recast Regulation itself has impliedly abrogated the principles alluded to in West Tankers. This had a deleterious effect on the courts of the EU Member States’ obligation to recognize and enforce the parties’ right to obtain an anti-suit injunction from any of the EU national courts.

I submit that when it comes to determining whether it is permissible to grant court-ordered anti-suit injunctions (or any other remedy) within the EU, neither West Tankers nor Gazprom should be interpreted in isolation from Article 73.2 of the recast Regulation. Unlike the Brussels I Regulation, the recast Regulation is subordinate to the NYC. I further submit that the better interpretation of the recast Regulation is, or ought to be, that it is not intended to derogate from any of the rights that emanate from a given international arbitration agreement. These include the right to obtain an anti-suit injunction, which, like any other right exercisable under an international contract to arbitrate, is protected by the NYC.

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References   [ + ]

1. ↑ See, in general, Julio-César Betancourt, El Contrato de Arbitraje Internacional (Tirant lo Blanch 2018) 506 forthcoming. 2. ↑ Neil Andrews, Arbitration and Contract Law: Common Law Perspectives (Springer 2016) 78. 3. ↑ Article 73.2 of the recast Regulation. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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The Future of the New York Convention in Its Most Extreme Sense: A Dual Convention that Disposes of National Setting Aside Regimes

Wed, 2018-08-15 02:20

Marike R. P. Paulsson

The New York Convention’s 60th Anniversary renewed the debate about its future.

One must recognize that a treaty that is sixty years old and has been ratified in almost 160 countries can no longer be replaced. Even with compatibility clauses, provisions that would provide for retroactive application and the other tools that the Vienna Convention on the Law of Treaties gives to States to become a party to a new treaty, one cannot assume that yet again 160 States would sign on to the New York Convention’s replacement. Even if the text of the New York Convention is pathological at times, it is so not because the expert drafters made substantial errors, but because the drafters were not experts in international arbitration and enforcement of awards. They were delegates representing the sovereign interests of their countries. Often provisions of the treaty were a mere agreement to disagree. One must remember: the treaty is ultimately built on the idea of sovereignty. A new treaty will be the same.

Yet, it is time to reflect on what a replacement could look like because that would enable judges to understand the original idea and purpose of the treaty and strive toward a uniform application.

The decision that has sparked a debate about the New York Convention and how far courts can go when deciding to declare awards enforceable even when another court had set aside the award, was the Pemex decision 1)Marike Paulsson, Comissa v. PEMEX the Sequel: Are the Floodgates opened? The Russian Doll Effect further defined, Kluwer Arbitration Blog (August 11, 2016) jQuery("#footnote_plugin_tooltip_1365_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1365_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });. With that, questions of international comity, the role of the courts and public policy under Article V(1) of the New York Convention become relevant again after sixty years after its inception. National setting aside regimes must be addressed: Should they be abolished?

Setting aside and enforcement are based on similar grounds. The setting aside grounds are often recycled in the enforcement procedure. The difference is that, with the annulment, the court that will assess the grounds is versed in lex arbitri, whereas the court enforcement court is not versed in lex arbitri. The time it would take to get from the filing of the request for arbitration to the ultimate decision by the highest enforcement court could counter the supposed advantage of arbitration – speed. The layers and the Russian Doll effect have put to question Article V(1)(e) and also Article V(1) in general: Would it be for courts of enforcement to assess the enforceability of an award when most of the refusal grounds are engrained in lex arbitri not lex fori? 2) Marike Paulsson, Comissa v. PEMEX the Sequel: Are the Floodgates opened? The Russian Doll Effect further defined, Kluwer Arbitration Blog (August 11, 2016); See also Albert Jan van den Berg, Should the setting aside of the Arbitral Award be Abolished?, 29(2) ICSID Rev. 1, 1-26 (2014) jQuery("#footnote_plugin_tooltip_1365_2").tooltip({ tip: "#footnote_plugin_tooltip_text_1365_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });.

I will not be addressing the practical steps and hurdles to replacement of a treaty in this post, let alone the (im)practicalities of amending national setting aside legislation 3) Marike Paulsson, The Indian Journal of Arbitration Law, National Law University, Jodhpur, India: “The 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards from an unusual perspective: moving forward by parting with it.” jQuery("#footnote_plugin_tooltip_1365_3").tooltip({ tip: "#footnote_plugin_tooltip_text_1365_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });. I will simply think of an ideal structure that sets out the journey of an arbitral award once it has been rendered. As a theatre play, Act II after the intermission, an award once rendered perhaps means that a dispute has been adjudicated by a competent tribunal. Yet, lex arbitri equally gives the courts of the country where the award was rendered competence to dispose of that award. It is part of Act II. What is also part of Act II is the subsequent enforcement. Often, a setting aside procedure and enforcement procedure happen simultaneously. Where the enforcement is a natural consequence of rendering an award, a setting aside procedure is as well – parties to the arbitration had agreed to it. Perhaps, that safety net was deemed necessary, given that arbitration is entirely contract based and in a sense unregulated. But does it make sense?

The new structure would be a Dual Convention that would do away with national setting aside regimes and leave the assessment under lex arbitri to courts of the seat only: the courts versed in lex arbitri. The new Convention would consist of the Primary and Secondary Convention. The Primary Convention grants the successful party the right to seek a recognition title in the country where the award was rendered. That court will not have to decide on any setting aside request. The court will assess whether there had been a violation of due process under the laws of the seat (lex arbitri), whether there was a valid arbitration agreement, whether the mandate was complied with, whether the procedure was in accordance with the arbitration agreement or lex arbitri, and whether the award is binding on the basis of the lex arbitri. Thus, multiple courts of other countries are not asked to assess these factors under lex arbitri, a law that they are not familiar with. The courts of the seat can no longer invoke local public policy to set aside the award. Stopping of the enforcement is based on lex arbitri, a law chosen by the parties based on party autonomy. The latter is a pillar of international arbitration and of the New York Convention. The multiple layers are removed as there is no setting aside to stop enforcement.

The Secondary Convention would be applied in all the countries where enforcement is sought. Those courts would no longer make use of Article V(1). They can only apply Article V(2), i.e. the public policy of the country where enforcement is sought. The successful party can request the enforcement title in the country where the award was rendered with the respondent only being able to resist on the basis of Article V(1) and the successful party can then take that enforcement title to 159 Contracting States where the only hurdle to face would be public policy under Article V(2). Article V(2) cannot be eliminated altogether as it encompasses another important pillar of the current New York Convention, one that States would never surrender, and that is sovereignty.

The advantage of this structure is that the layer of setting aside is removed from the contestation phase and only the court of the seat will address the questions under Article V(1), which are predominantly based on lex arbitri. This one-stop process then leads to an approval or rejection of the award by one court of one jurisdiction which must be respected by other States. The successful party has more hopes for a proper assessment under Article V(1) by the courts of origin. It is thus a treaty that respects the idea of international arbitration, party autonomy, and lex arbitri, with a sovereign public policy boundary at the forum only.

Why should we think about a new Convention if it is never going to happen? Because it raises awareness with respect to the fact that although the New York Convention operates in 159 States, its outcome is not uniform, it is rather very fragmented – with judges having vast powers to interpret its text in various ways, and this leads to legal uncertainty.

This dialogue might lead to UNCITRAL creating a working group to craft further recommendations for the enforcement of awards worldwide. It might lead to the ICC establishing a Special Task Force with the users of international arbitration to confront the outcomes under Pemex.

Complacency does not lead to progress. The exercise of contemplating a new convention to replace a treaty that is over sixty years old enables the actors in international law to think of improving the procedures for enforcement of awards worldwide. One hopes that exercises such as these and the idea of what a better treaty could have looked like will lead to a different judicial lens globally.

References   [ + ]

1. ↑ Marike Paulsson, Comissa v. PEMEX the Sequel: Are the Floodgates opened? The Russian Doll Effect further defined, Kluwer Arbitration Blog (August 11, 2016) 2. ↑ Marike Paulsson, Comissa v. PEMEX the Sequel: Are the Floodgates opened? The Russian Doll Effect further defined, Kluwer Arbitration Blog (August 11, 2016); See also Albert Jan van den Berg, Should the setting aside of the Arbitral Award be Abolished?, 29(2) ICSID Rev. 1, 1-26 (2014) 3. ↑ Marike Paulsson, The Indian Journal of Arbitration Law, National Law University, Jodhpur, India: “The 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards from an unusual perspective: moving forward by parting with it.” function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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Spotlight on Ethiopia as it Annuls a Euro 20 million Arbitral Award

Tue, 2018-08-14 03:53

Sadaff Habib (Assistant Editor for Africa)

Five years after filing the Permanent Court of Arbitration (PCA) Case No. 2013-32 under the European Development Fund Arbitration Rules (EDF Rules), the claimant, Consta JV (an Italian contractor), would have hoped for a successful award against the CDE (a joint enterprise between the Ethiopian and Djibouti government) that would be upheld by the local court.

All such hopes were crushed when, on 24 May 2018, the Supreme Court of the Federal Democratic Republic of Ethiopia (Court) (i) ruled that it has jurisdiction to review an arbitral award issued under the EDF Rules, (ii) found fundamental errors in law in the arbitral award and (iii) set aside the arbitral award.

The dispute involved a breach of contract claim arising out of a repair works contract financed by the EDF relating to rehabilitation works being performed on the Ethiopia-Djibouti Railway. The dispute was brought before a tripartite tribunal and the award issued by the majority. Co-arbitrator, Professor James Thup Gathii dissented.

Several issues arise from the Court’s decision:

  1. Did the Court have jurisdiction and authority to decide on the nullification of an arbitral award issued under the EDF Rules?
  1. Did the Tribunal err on a point of law?
  1. What is the impact of the Court’s decision on arbitration in Ethiopia and on EDF cases?

 Did the Court have jurisdiction and authority to decide on the nullification of an arbitral award issued under the EDF Rules?

The EDF is an intergovernmental fund outside the EU budget with most of its resources being managed by the European Commission. Countries that receive EDF funding include parts of Africa, the Caribbean etc., and are signatories to the Cotonou Agreement. In 1990, the Council of Ministers of the African, Carribean and Pacific Group of States (ACP States) and the European Economic Community approved a new set of rules for the settlement of disputes arising out of construction, supply and service contracts funded by the EDF. The EDF covers disputes between the private sector executing the contract and authorities of the ACP States.

The EDF Rules

The EDF Rules provide that the law applicable to the substance of the dispute and the lex arbitriare those of the State unless otherwise agreed by the Parties. Furthermore, an award rendered under the EDF Rules is final and binding and parties are required to carry out the award without delay. There is a requirement for an award to be recognised and enforced under the EDF Rules and enforcement of the award is regulated by the law relating to the enforcement of judgments which is in force in the State in whose territory the enforcement is to be carried out.

The seat of the PCA arbitration was Addis Ababa and the governing law of the arbitration was Ethiopian law. The Court had jurisdiction to enforce and recognise the award.

The Court’s rationale

The Court determined that the EDF Rules give arbitral awards rendered under such rules the status of a final court judgment of the ACP States. This is not incorrect. The Court appears to have taken into cognisance Article 33.3 of the EDF Rules which require each ACP State to recognise an award under the EDF Rules as binding and ensure it is enforced in its territory as if it were a final judgment of one of its own courts or tribunals. The Court goes further to reason thatbecause the Ethiopian Constitution grants the Court of Cassation the jurisdiction to review final court judgments of all Ethiopian courts for fundamental errors of Ethiopian law, the Court has jurisdiction to review this EDF award as it is analogous to an Ethiopian court judgment under the EDF Rules.

Notably, Ethiopia developed most of its current codes on private law in the last century. Its arbitration law can be found in its Civil Code and Civil Procedure Code. It is generally perceived that Ethiopia’s arbitration law applies to domestic arbitration as opposed to international arbitration.

It is unsurprising that the Court adopted the above approach in finding jurisdiction for itself to decide on whether the law had been applied correctly to the EDF award which in the Court’s eyes under the EDF Rules is akin to an Ethiopian court judgment.

Did the Tribunal err on a point of law?

The CDE challenged the award on the basis that the majority of the Tribunal had seriously erred in deciding on a point of law in their decision.

The Court annulled the award on a number of substantive grounds. Most importantly, it stated that the Tribunal disregarded evidence of fraudulent bidding by the claimant. Interestingly, it is on this point that Professor James Thup Gathi issued his dissenting award.

The Ethiopian Civil Code provides that a contract may be invalidated based on fraud if the other party would not have entered into the contract had it known of the deception.  Without going into detail of the dissenting award and the arbitration case, Professor Gathi relies on this provision and dissents in that he views that CDE would not have entered into the contract if it had known that the joint venture partner in Consta JV, GCF who was to provide technical expertise on railway projects, reduced its share in the JV and its responsibility as a JV partner was significantly and considerably reduced such that it disavowed the responsibility for design. Objectively, this would understandably be an issue for any client in CDE’s position particularly where it is relying on the JV partner’s skills in a project.

The Court reasoned that under the Ethiopian Civil Code, a contract entered based on fraud is invalidated and as such Consta JV’s breach of contract claim cannot be sustained. The Court found that the majority of the Tribunal omitted to address this. The Court went on to say that the only remedy to the parties in such a situation is that they are restored to the position they were in before the contract and they may seek such recourse through a subsequent arbitration. Interestingly, the Court appears to uphold the principle of separability of the arbitration agreement and does not invalidate it.

On the face of it, the Court’s reasoning appears legally sound. However, there is concern that the Court opening up the award could potentially attract more challenges counterintuitive to the arbitration process. Would a better approach have been for the Court to revert the award back to the Tribunal for the Tribunal to re-determine on the issue?

What is the impact of the Court’s decision on arbitration in Ethiopia and EDF cases?

Undoubtedly, the Court’s decision is seen as one of the first of such decisions issued by the highest court of the ACP countries. It is anticipated this will be a ground-breaking precedent that may well affect future EDF cases particularly in Ethiopia.

As of date, Ethiopia is not a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958.  This, together with the Court’s decision, may cause private sector companies to reconsider and proceed cautiously in choosing arbitration as a mode of dispute resolution where Ethiopia is the seat of arbitration.

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SOAS Arbitration in Africa Survey Report 2018

Mon, 2018-08-13 02:24

Emilia Onyema

Diversity in arbitration is currently topical, and this drove our engagement with it in relation to race (particularly African) in this survey. Related to this, is the entrenched perceptions against African arbitration practitioners which has negatively impacted on their participation in international arbitration (including Africa-connected disputes). The primary perception is that African arbitration practitioners are not skilled enough to be appointed as arbitrators in international arbitration references. This negative perception has never been supported with hard facts or scientific analysis but relied on “anecdotal evidence”. Our survey aims to fill this gap and provide empirical data to support or disprove this perception.

The survey which was distributed in the Arabic, English and French languages, attracted 191 respondents from 19 African and 12 non-African countries. Not surprisingly, 90.6% of the respondents are lawyers and have acted in various capacities in arbitration: as arbitrator, counsel, tribunal secretary, academic, consultant and legal adviser. The reporting period for the survey was from 2012-2017.

Over this period, 82.2% of the respondents did not sit as arbitrator in any international arbitration reference in contrast to 58% who did not sit as arbitrator in domestic arbitration. As it relates to acting as counsel (or co-counsel) in international references, only 40.8% of the respondents acted in this capacity; while only 2% acted as tribunal secretary in international arbitration. This data supports the claim that African practitioners are under-represented in international arbitration. The top three reasons the respondents gave for their under-representation are: (1) poor perception of African arbitration practitioners (by their foreign colleagues) as lacking in expertise and experience; (2) bias by appointors in favour of foreign counsel and arbitrator; and (3) Africans not appointing fellow Africans as arbitrators. I will examine each of these reasons:

  1. Lack of expertise and experience in arbitration:

This perception is partially disproved because the finding from the survey is that experience is not uniform across the continent. 81.7% of respondents have acquired specialist training in arbitration and the vast majority (72%) were trained by the Chartered Institute of Arbitrators (CIArb). And more importantly, over the reporting period, 41.1% of the respondents sat as arbitrator in at least one domestic arbitration case (this is against 17.8% of respondents who sat as arbitrator in at least one international case).

The acquisition of experience by African arbitration practitioners will increase with the growth of domestic arbitration. 85.3% of the respondents believe domestic arbitration will grow in their jurisdiction. This is important as it assures an increasing pool of arbitration practitioners on the continent of good workflow in which they can participate. However, a surprising finding from the survey is the limited pool of arbitrators sitting in the domestic space in African countries. 10% of the respondents had acted in 11 or more cases over the reporting period against the majority of 58% who did not sit as arbitrator in any dispute. This also raises concerns of diversity of the local pool from which arbitrators are selected or appointed.

  1. Bias by appointors in favour of foreign counsel and arbitrator:

From the findings of the survey, this bias remains a perception although 40.2% of the respondents had acted as counsel or co-counsel in international arbitration over the reporting period. This view is because we do not know the exact number of arbitration references that were Africa-connected during the reporting period. However, we believe this finding is useful for international firms instructed in Africa-connected disputes. Further, this finding may also explain the strong opposition to the opening up of the legal services market in some African countries (notably, Nigeria).

  1. Africans appointing fellow Africans:

This reason for the under representation of Africans in international arbitration references is one the respondents felt was within the control of Africans themselves (either as advisor, in-house counsel, arbitration centre, appointing authority, or government official). We also note the fact that ‘Africans appointing Africans’ has almost become a mantra but there is a caveat. The appointment must be of qualified and skilled practitioners, with an eye on diversity in appointment. It is massively important that African parties (and their advisors) appreciate their role in this rebalancing exercise and seriously consider skilled African arbitration practitioners in their appointment process. The other agencies that can make an impact on this issue of diversity are appointing authorities and arbitration centres and institutions. In informal discussions with heads of arbitration centres and lawyers, they generally accept the need for diversity and confirm they make an effort to include qualified and skilled Africans in their nomination lists but the parties choose not to appoint them. It will therefore, be useful if such appointing agencies include such data in their published statistics. The data should state the number of people falling within the under-represented groups (gender, race, age, etc) they nominated and how many were actually appointed. This data will provide the evidence we need to help us understand where the gap lies with diversity in appointment.

For the African arbitration practitioners, the top three changes they need to make to ensure their fair participation in international arbitration (particularly in Africa-connected disputes) are: continuing professional development, increase in visibility in arbitration circles, and appointing fellow skilled Africans as arbitrator, counsel and tribunal secretary.

Our survey report therefore confirms that, there are skilled African arbitration practitioners who sit as arbitrators and act as counsel and tribunal secretary in not only domestic but also international disputes. Obviously fewer Africans participate in the international arena than in the domestic arena. Our survey did not capture the percentage that act in these capacities in intra-Africa disputes. However, with the growth of intra-Africa trade, increase in the number of African companies that transact business across African borders, the growth in the number of African transnational corporations or investment companies, and the increase in intra-Africa trade and services envisaged with the signing of the African Continental Free Trade Agreement (and further negotiations), it can only be envisaged that intra-African disputes will also increase. Such disputes will need skilled African arbitration practitioners to service them as arbitrators, tribunal secretary, counsel, and arbitration centres or institutions.

As already mentioned, 81.7% of the respondents are trained in the law and practice of arbitration with 72% of these trained by CIArb. The next phase of development, particularly in domestic arbitration, is the diversity in appointments as arbitrator to include women and young practitioners. Inclusion cannot be over emphasised and must be actively pursued by all African arbitration practitioners. This in particular can be driven by arbitration centres and institutions in Africa.

The SOAS Arbitration in Africa survey is an important addition to the growing body of surveys in arbitration led by the Queen Mary International Arbitration surveys. Our survey which shall be conducted biennially shall continue to focus primarily on arbitration practitioners with interest in Africa. Our vision is to provide original data on arbitration in Africa to enrich the global arbitration discourse.

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Controlling Chaos in Parallel Proceedings: A Report from the 30th Annual ITA Workshop

Sun, 2018-08-12 01:59

David Attanasio

ITA

The 30th Annual ITA Workshop on Multiple Proceedings, Multiple Parties, and International Arbitration: What a Tangled Web We Weave, took place in Dallas, Texas on 20-22 June 2018.  Co-chairing were Erica Stein (Dechert), Jean-Christophe Honlet (Dentons), and Frédéric G. Sourgens (Washburn University).  The workshop, a lead event of the ITA, was dedicated to an in-depth exploration of the increasing procedural complexity in contemporary international dispute resolution.

The keynote speech from Prof. Emmanuel Gaillard (Shearman & Sterling, Institut d’études politiques de Paris) identified the major problem for the workshop: how to control the potential chaos resulting from a system where multiple proceedings regularly arise from the same matter.  This blog post will describe several (of many) important contributions from the ITA Workshop, focusing on two principal threads: how arbitrators may coordinate multiple proceedings arising from the same facts and how domestic courts may coordinate multiple set aside and enforcement proceedings arising from the same award.

  1. How to Coordinate Multiple Arbitral Proceedings

One of, if not the, preeminent issues of the workshop was how to coordinate multiple proceedings brought by related entities concerning the same basic facts.   This issue frequently arises in commercial and investment arbitration, when disputes arising from the same or related facts are submitted to multiple fora.

Prof. Hanno Wehland (Lenz & Staehelin) captured the basic problem of multiple proceedings as it pertains to investment arbitration: international investment agreements often extend protection to both direct and indirect investors, so multiple entities in a single corporate structure are often protected investors (and potential claimants) for the same investment.  Such circumstances arose in, among others, the well-known Lauder v. Czech Republic and CME v. Czech Republic cases and the recent Orascom TMT v. Algeria and Orascom Telecom v. Algeria cases.  And, in addition to multiple entities qualifying as investors, one or more may also be parties to contracts concerning the investment, and eligible to bring arbitration on that basis as well.

This potential for multiple claims by related companies concerning the same facts creates serious risks of double recovery and of repeat litigation.  The workshop focused extensively on whether and how arbitral tribunals can coordinate or manage these risks.

The Traditional Doctrine of Res Judicata

Perhaps the most traditional response to the problem is to analyze it through the lens of res judicata (or related doctrines).  Prof. Chiara Giorgetti (University of Richmond) observed that the application of res judicata has the potential to avoid repetition and strengthen the rule of law in the face of repeat proceedings.

However, against the background of multiple arbitrations under different instruments, a tribunal may have to answer a number of difficult questions when invoking the doctrine of res judicata.

What is the governing law for res judicata?  It could be the law of the first arbitration’s seat, that of the second, the national law of one or the other of the parties, or transnational principles.  Prof. Gaillard proposed that transnational principles are most appropriately applied, even if they are not fully developed.  However, Prof. Pierre Mayer emphasized the lack of any transnational consensus on res judicata, as common law and civil law have divergent principles.

What is the scope of res judicata?  The workshop participants evinced agreement that res judicata indeed applies among strictly identical claims (per the traditional triple identity test).  However, beyond that, there were divergent views on the appropriate scope for res judicata.

Prof. Gaillard noted, without endorsement, that the Apotex Holding v. USA tribunal considered that issue estoppel had sufficient recognition to be a genuinely transnational principle.  This would give binding effect not only to an award’s dispositive but also to the legal and factual reasoning supporting that dispositive.  Prof. Giorgetti went a step further and endorsed the broad Apotex approach as better calibrated to the objectives of avoiding repetition and coordinating multiple arbitral proceedings.

By contrast, Prof. Mayer took a more skeptical view.  While he accepted that the dispositive part of an award is binding on subsequent tribunals, he proposed that the nature of arbitration warrants against granting any binding effect to an award’s reasoning in a subsequent arbitration.  The cornerstone of arbitration, in his view, is the parties’ ability to appoint at least one member of the arbitral tribunal, so those tribunals should not abdicate their power of judgment on the dispute entrusted to them.

A Turn toward Abuse of Process?

A more recent response to repeat proceedings is to analyze them for abuse of process, following the model of Orascom TMTProf. Gaillard, who acted as respondent’s counsel in that arbitration, recommended this approach in his keynote speech.  He emphasized that the Orascom TMT decision shows that tribunals can look at the effects on the arbitral system as a whole and not solely on their particular dispute in isolation.

The Orascom TMT tribunal (Gabrielle Kaufmann-Kohler presiding) found the submitted claims inadmissible on the grounds of an abuse of process.  Three similarly-framed disputes, all concerning the same state actions, had been brought at multiple levels of a single corporate chain.  Under the facts of the dispute, the tribunal reasoned that the claimant could not claim for the same harm as in the other arbitrations and, indeed, committed an abuse of right because it sought “to impugn the same host state measures and claims for the same harm at various levels of the chain in reliance on several investment treaties concluded by the host state.”

Ricky Diwan QC (Essex Court Chambers) predicted that the Orascom TMT award will increase future scrutiny of the Lauder and CME approach to the issue of multiple proceedings.   The well-known Lauder and CME disputes concerned the same underlying factual allegations but were brought by different entities in the same corporate chain under distinct investment treaties.  Both the Lauder and the CME tribunals rejected the relevance of the parallel arbitration on the grounds that they concerned formally different parties bringing different causes of action (i.e., under different investment treaties).  In doing so, both tribunals specifically rejected any relevance of the fact that the two claims were for the same injury and both concluded that there was no abuse of process.

Although Orascom TMT identifies a new solution to the problem of multiple proceedings, Mr. Diwan identified multiple open questions that tribunals will have to resolve when following that example.

  • First, at what moment does it become abusive to bring parallel disputes? Is it at the time when both claims are initiated or when both tribunals find that they have jurisdiction?  If, possibly only one tribunal has jurisdiction, then the parallel proceedings might seek to ensure nothing more than that the dispute may find a competent forum.
  • Second, to what degree must two entities be related for parallel disputes to become abusive? Diwan observed that, in Eskosol v. Italy, both an 80% shareholder and the subsidiary company commenced proceedings against Italy.  The Eskosol tribunal concluded that the interests of the shareholder and the company were not fully aligned, so the parallel proceedings were not abusive.

Identifying the Investor through its Active Investment

Instead of coordinating multiple potential proceedings by related entities through procedural approaches like res judicata or abuse of process, it may be possible to select the proper claimant on substantive grounds.  One approach sometimes adopted in investment arbitration is to identify the proper claimant as the legal entity in a corporate structure with an active investment role.

As Prof. Ursula Kriebaum (University of Vienna) observed, several tribunals have picked out the proper claimant in a multilevel company structure on such grounds.  She noted that, among others, Standard Chartered Bank v. Tanzania, Caratube v. Kazakhstan, and KT Asia v. Kazakhstan had followed such an approach.   Standard Chartered Bank, for example, stated that, to benefit from the investment treaty’s arbitration provision, “a claimant must demonstrate that the investment was made at the claimant’s direction, that the claimant funded the investment or that the claimant controlled the investment in an active and direct manner.”

Prof. Kriebaum critiqued this approach to the problem of multiple investors.  She observed that an active investment requirement would deny protection to an investment if it is ever transferred, as the recipient company would not have made an active investment in the host state.

However, it is unclear whether Prof. Kriebaum intended to apply this critique to all the elements of an active investment requirement.   Standard Chartered Bank proposed several alternative ways to have an active investment.  If active investment requires making the investment at the claimant’s direction, then perhaps the purchase of an investment would not suffice.  But, if active investment requires only that the relevant entity actively and directly control the investment, it is less obvious that the failure to make the initial investment would be disqualifying.

Assisting Arbitrators with Treaty Provisions

Treaty provisions, both present and future, may also assist arbitrators in coordinating repeat proceedings by precluding such proceedings.  Jean Kalicki proposed that a new generation of treaties would be advisable to provide further assistance with the problem of consolidating proceedings.

However, as Prof. Gaillard noted, we have already seen four generations of treaty provisions designed to address the problem. The first generation established a fork in the road clause, where the choice of one forum precludes the submission of the same dispute to any other forum.  The second generation, exemplified by NAFTA, required both the foreign investor and any local operating company to waive the right to submit the same dispute elsewhere.  The third generation added a prohibition on parallel claims by the local operating company as well as by both direct and indirect shareholders.

The fourth, current, generation has sought to require waiver from entities both below and above the level of the investor in the corporate chain.  The objective is to preclude comprehensively parallel claims.  However, in Prof. Gaillard’s view, it is unclear how an investor could force its shareholders to waive potential claims, given that the investor does not have control over its shareholders.  He did not address whether the decision to waive could be left to shareholder discretion discretion (as opposed to being placed under investor control); the shareholders could, potentially, voluntarily elect to waive if they wish the arbitration to proceed.

  1. How to Coordinate Multiple Centers of Control

After an award is rendered, the struggle to enforce that award is often fought across multiple court proceedings in multiple jurisdictions.  These courts can potentially arrive at inconsistent results, or at least results that are in tension with one another.  Thus, a number of participants focused on whether and when a court should defer to a prior court judgment on an award from a different jurisdiction.  The central issue is which courts should exercise control over arbitral awards.  As Mr. Diwan observed, courts could opt for sole control in the place of enforcement, shared control between the place of enforcement and the place of the seat, or sole control in the place of the seat.

Deference to Enforcement Judgments

Prof. Gaillard described a new trend of courts deferring to prior enforcement judgments, rather than making an independent evaluation of the award.  He drew attention to examples from the U.S. and the U.K. where courts considering set aside or enforcement suits have deferred to foreign enforcement judgments.  (Yasmine Lahlou (Chaffetz Lindsey) later suggested that these cases are not representative in the U.S.)

It was Prof. Gaillard’s view that this trend of deference to enforcement judgments is a recipe for chaos.  He considers that it is contrary to the fundamental assumptions of the New York Convention.  This treaty contemplated that each court would independently consider the award and reach its decision, regardless of the views of neighboring courts.

Mr. Diwan agreed that it is a mistake for courts to defer to foreign enforcement judgments.  He asked why, for example, an English court should defer to an Austrian court judgment that applies an incorrect analysis under the New York Convention?  He suggested that this is to apply English private law principles concerning foreign judgments to a subject for which they are not suited.  Ms. Lahlou echoed this sentiment that there is no good reason to apply general legal principles concerning foreign judgments to ancillary enforcement judgments.

Deference to Set Aside Judgments

Mr. Diwan raised the further question of whether enforcing courts should defer to judgments from the courts of the seat on set aside actions.  He observed that the English courts have adopted a policy of deference on the basis of private law principles, where that judgment is given effect unless it violates principles of honesty, natural justice, or public policy.  This approach, in Mr. Diwan’s view, is contrary to the New York Convention’s basic policy that sole control of the award rests at the place of enforcement.

As Ms. Lahlou noted, U.S. courts similarly will not enforce awards set aside at the seat except in extraordinary circumstances.

This attempt to create a new system of coordination, as Mr. Diwan argued, could lead to chaos.  The courts of a single state cannot sensibly attempt to create a system of coordination on a unilateral basis and it is problematic to seek a new consensus among the many member states of the New York Convention.  The legal principles underlying the English approach, most notably that of issue estoppel are not accepted in civil law countries; so the French courts, for example, will not follow the same approach as the English courts.

Prof. Gaillard added that the English approach recreates the very requirement of double exequatur for award enforcement that the New York Convention was designed to eliminate.  He considered that control over the award has to remain with the enforcement courts.  Thus, he believes that the exercise of control over the award elsewhere should be suppressed for the sake of order.

In response, Prof. Mayer took the view that the judgment of the set aside court should indeed have effect.  If the award is set aside, then a second arbitration proceeding will often produce a second award.  By failing to give effect to the judgment setting aside the first award, a court may well recognize that award and refuse to recognize the second award.  But the state of the seat and practically all other states would consider the second award to be the only valid award.

  1. Conclusion

The ITA Workshop did not provide definitive answers to the questions of how to coordinate the complex proceedings that emerge in modern arbitral practice.  But it identified out the chief issues that confront arbitrators and practitioners and provided key direction for the further evolution of the system.

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Another One BIT the Dust: Is the Netherlands’ Termination of Intra-EU Treaties the Latest Symptom of a Backlash Against Investor-State Arbitration?

Sat, 2018-08-11 02:29

Marie Davoise and Markus Burgstaller

On 6 March 2018, the Court of Justice of the European Union (“CJEU“) issued its long-awaited decision in the Achmea case (C-284/16) between the Slovak Republic and Dutch insurer Achmea BV.

In Achmea, the CJEU found investor-state dispute settlement provisions in investment treaties concluded between EU Member States (“intra-EU BITs“) to be incompatible with EU law.

The judgment will fundamentally change the landscape for arbitration in Europe, and it has been argued that as a logical consequence, EU Member States now have an obligation to amend or terminate their BITs under EU law.

The Netherlands: We Will Terminate Intra-EU BITs Through a New Multilateral Treaty

Indeed, it did not take long for the Dutch government to announce its intention to terminate all intra-EU BITs to which the Netherlands is a party. On 26 April 2018, the Dutch Minister for Foreign Trade and Development Cooperation stated that, following the Achmea judgment, the Netherlands saw “no other option” than to terminate its bilateral investment treaty with the Slovak Republic.

Minister Sigrid Kaag set out the government’s view in a letter addressed to the Chairperson of the Dutch House of Representatives. Acknowledging the impact of the Achmea judgment, the letter confirms the Dutch government’s intention to terminate its investment agreement with the Slovak Republic.

Besides the Netherlands-Slovak Republic BIT, the government will also seek to terminate the other 11 investment agreements concluded between the Netherlands and other EU Member States (Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Romania and Slovenia). This, the letter explains, will be done by negotiating a single multilateral treaty for reasons of “clarity, speed and efficiency”.

Interestingly, the Dutch government’s decision to terminate intra-EU BITs does not apply to the Caribbean Netherlands (i.e. the islands of Bonaire, St Eustatius and Saba). Although they are “special municipalities” and considered to be “public bodies” under Dutch law, they are overseas territories of the European Union, a special status under which EU law does not automatically apply. As a result, according to the government, it is up to these municipalities to decide whether or not they want to terminate intra-EU BITs.

The letter addresses another hot topic: the application of Achmea to the Energy Charter Treaty (“ECT“). Signed in 1994, the ECT has generated more investor-state claims between the EU Member States than any other treaty. The Achmea judgment generated a lot of discussion on whether or not a similar argument could be made to render intra-EU claims brought under the ECT illegal under EU law.

On this, the European Commission has made it very clear where it stands: in its view, the ECT does not apply to investors from other Member States initiating disputes against another Member State (see, for example, paragraph 163 of decision SA.4038 in November 2017). Without going that far, the Dutch government nevertheless acknowledges that Achmea “is also relevant” to the dispute settlement mechanism contained in the ECT.

The Writing Is on the Wall for Remaining Intra-EU BITs

There are over 190 intra-EU BITs. Many of these were agreed in the 1990s, before the EU enlargements of 2004, 2007 and 2013. They were mainly struck between existing members of the EU and those who would become the “EU 13”.

According to the European Commission, those agreements’ raison d’être was to provide reassurance to investors who wanted to invest in the future “EU 13”, by strengthening investment protection (e.g., through compensation for expropriation and arbitration procedures for the settlement of investment disputes).

Situated mostly in Central and Eastern Europe, those countries later joined the EU. This opened up a debate on the validity of intra-EU investment treaties. The European Commission took an increasingly active role in challenging intra-EU investment agreements, through amicus curiae interventions, suspension injunctions and initiation of infringement proceedings.

In 2012, Ireland ended all its intra-EU BITs, followed by Italy in 2013.

In 2015, the European Commission formally requested Austria, the Netherlands, Romania, the Slovak Republic and Sweden to end the intra-EU BITs between them, by sending letters of formal notice, i.e. the first stage of the general EU infringement procedure in article 258 of the TFEU.

In 2016, Denmark reportedly reached out to its EU counterparts to suggest mutual termination of intra-EU BITs. The same year, Austria, Finland, France, Germany and the Netherlands also proposed an EU-wide agreement to replace existing intra-EU BITs.

In 2017, Romania formally terminated all of its intra-EU BITs. The same year, Poland initiated the termination of its BIT with Portugal, the first of 23 similar agreements which Poland said it would terminate.

BIT by BIT, EU Member States are inexorably moving towards the termination of all intra-EU investment treaties. The European Commission’s determination to challenge those agreements, and its strong push towards a Multilateral Investment Court, were but one nail in the coffin of intra-EU BITs. In the wake of Achmea, it could be that the Member States consider that they have “no other option” but to end all intra-EU BITs.

The ‘Big Crunch’ of Investor-State Arbitration?

Taking a step back, we see that the Achmea judgment, and the Netherlands’ decision to terminate intra-EU treaties, should have been unsurprising to arbitration practitioners.

Over the last twenty years, investment treaty-based arbitration has grown exponentially (see Figure 1 below).


FIGURE 1 – International investment arbitration cases registered by year (1987–2016). PITAD, PluriCourts Investment Treaty Arbitration Database (PITAD) as of 1 January 2017; 831 cases in total through 1 January 2017. Source

But after investment treaty-based arbitration’s ‘big bang’ is there a ‘big crunch’ to come? It is now commonplace for commentators to note that investment treaty arbitration has suffered an accelerating backlash in the last few years.  In that sense, Achmea is only the latest manifestation of that phenomenon, and the Netherlands’ decision a natural consequence of this evolution.

What are the causes of this backlash against investment arbitration? Although many explanations have been offered (from the panels’ rigid views of contracts to the growing number of cases brought –and won- by investors against sovereign states), two in particular merit singling out. They not only reflect past sentiment about investment arbitration, but also offer a glimpse into the future of investment arbitration as a whole. These two reasons are the pushback against globalisation and the increasing importance of regionalism.

Backlash Against Globalisation and Corresponding Rise in Nationalism

Commentators have frequently mentioned that the US 2016 presidential elections and the Brexit vote were both built on the rejection of globalisation and expressed a wish, on the part of the American and British people, to re-centre policies around nationalism and domestic sovereignty.

President Trump’s proposal to renegotiate NAFTA has led to speculation as to what (if any) investor-state dispute settlement mechanism will be included in the renegotiated treaty.

In Europe, the Comprehensive Economic and Trade Agreement (CETA) and Transatlantic Trade and Investment Partnership (TTIP) were perceived by the general public as imposing North American rule(s). This translated into a rejection of investor-state dispute mechanisms as ‘secret courts’. The Brexit vote was another symptom of this desire to ‘take back control’.

Another sign of the nationalist wave sweeping the globe is the resurgence of resource nationalism – in the Americas, in Africa, in Asia. Will Europe be the next continent to experience increased nationalism in investment protection?

Focus on Regional Mechanisms, Including in Europe

Over the last decade, many states around the world overhauled their investment protection system and terminated some, and sometimes all, of the BITs they were party to.

In 2012, South Africa terminated its BIT with Belgium-Luxembourg and issued cancellation notices for its BITs with Germany and Switzerland.

In 2014, the Indonesian Government indicated that it would terminate all of its 67 bilateral investment treaties.

In 2016, India served notices to 57 countries including the UK, Germany, France and Sweden seeking termination of BITs whose initial duration has either expired or will expire soon.

In 2017, Ecuador terminated all 16 of its remaining BITs, having previously ended treaties in 2008 and 2010.

A global pattern starts to emerge, with various states terminating BITs and relying on regional multilateral frameworks instead.

For example, Indonesia explicitly embraced regionalism in its approach to foreign investment, relying on the ASEAN Comprehensive Investment Agreement (which provides BIT protections, including investor-state dispute settlement provisions).

Similarly, in 2017 MERCOSUR signed a Protocol on Investment Cooperation and Facilitation, which coordinated the regional bloc’s approach to investment disputes and most notably excluded investor-state arbitration.

Regional instruments are being increasingly used to grant investment protection, and regional organisations are a force to be reckoned with on the international investment legal scene.

This is, of course, particularly poignant in Europe. As noted above, the European Commission has been a vocal opponent of intra-EU treaties. It recently received the green light to negotiate, on behalf of the European Union, a convention establishing a multilateral court for the settlement of investment disputes (the “MIC”). The MIC would be Europe’s permanent body to settle investment disputes, eventually replacing the bilateral investment court systems included in EU trade and investment agreements.

Much has been written about Achmea and its consequences. However, it is crucial for practitioners and academics to also look at the judgment through a global and cross-disciplinary lens.

In particular, the investment arbitration community would be well-advised to actively engage with regional organisations and to take heed of the growing discontent against investor-state dispute mechanisms.

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Bribery, Corruption, and Fraud in Investor-State Disputes: How Should Tribunals Approach Economic Crimes?

Fri, 2018-08-10 02:00

Yarik Kryvoi

Investor-state tribunals frequently face allegations of economic crimes, especially in jurisdictions with a weak rule of law.

For instance, the largest ever investor–State award of $50 billion in Yukos v Russian Federation, primarily concerned a criminal investigation of alleged tax evasion, fraud and embezzlement by what was then the largest Russian oil company. The tribunal ruled that instead of collecting taxes, Russia’s main objective was to bankrupt the investor and expropriate its assets.

Economic crimes which arise in investor-State disputes include bribery, tax evasion, bank, accounting and securities fraud, and other forms of malpractice. Allegations of money laundering may arise in the context of claims related to fake asset sales, intentional selling of overpriced goods, and in reimbursement scams.

Investor-State tribunals are not normally expected to deal with criminal liability because they normally do not have the necessary expertise, powers and resources to conduct independent criminal investigations. The ICSID Convention and investment treaties also do not regulate these matters. Nonetheless, allegations of economic crime may have a profound impact on the disputes before them.

Jurisdiction or Admissibility?

At the very beginning, tribunals may decide to decline jurisdiction over claims tainted by economic crimes or rule that such claims are inadmissible.

The practice of tribunals remains largely inconsistent, as it ranges from exonerating the State from its responsibility for involvement in an economic crime (e.g., World Duty Free v Kenya) to awarding investors significant amounts of compensation (e.g. Yukos v Russian Federation). In this context, the language of the treaty, or other instrument, in which the parties consent to arbitration, helps to distinguish jurisdiction from admissibility.

In case the treaty or the arbitration agreement requires the investment to be made in accordance with law, tribunals usually consider economic crimes at the jurisdictional stage of arbitration (See, e.g. Methanex v United States of America, Inceysa v El Salvador). Otherwise, committing an economic crime when acquiring an investment may result in the claim being ruled inadmissible at the merits phase (See, e.g. Churchill Mining v Indonesia).

At the same time, it appears that the autonomous nature of the arbitration agreement presumes that tribunals should assert their jurisdiction, even if the investor breached its obligations when securing the investment. With occasional exceptions, such as that of Plama v Bulgaria, which relied on the separability concept to explain the nonapplication of most-favoured-nation clauses to dispute settlement provisions of a treaty, it is difficult to find cases when tribunals rely on this essential principle of arbitration law.

It Takes Two to Bribe?

In cases where economic crimes have allegedly occurred in an investor–State dispute, the State is more than just a party to the arbitration. The State also remains the entity which regulates, investigates, adjudicates and enforces in relation to such crimes within its territory. Prosecuting economic crimes might itself breach a State’s international obligations, leading to an investor-State claim against it. On the other hand, the State can assert a counterclaim for the investor’s misconduct.

When State representatives commit economic crimes themselves, investment tribunals should pay more attention to the principle of contributory fault. For instance, bribery typically presumes misconduct of two parties — the one making an illicit payment and the other accepting it. Penalizing only the investor by rejecting its claims or only the State would seem unfair and contradict generally accepted principles of international law, such as those reflected in the ILC Articles on State Responsibility.

Tribunals should also take into account the failure of a State to comply with its international obligations, including the obligation to effectively combat bribery and corruption. Furthermore, the commission of an economic crime by an investor should be reflected in damages awards, as the Yukos tribunal did by reducing the amount due to be paid to the investor.

Towards Greater Certainty on the Effect of Economic Crimes

The system of investor-State dispute settlement has been recently criticized for a lack of predictability, legitimacy and for excessive intervention with the exercise of the sovereign powers of States.

As States rely on criminal law to deal with economic crimes, they expect predictability from international tribunals reviewing their conduct. Investors too would benefit from greater consistency exercised by tribunals on issues related to economic crimes.

The silence of investment treaties on the consequences of economic crimes combined with the inconsistent application of internal law results in increased uncertainty, expensive proceedings and controversial decisions. In deciding on the admissibility of claims related to economic crimes, tribunals could draw inspiration from national best practices, such as the UK Bribery Act.

Instead of introducing strict liability on businesses for bribery, this Act reverses the burden of proof and introduces an offence of failing to prevent bribery for all companies, including parent companies. The Bribery Act also establishes an ‘adequate procedures’ defence to avoid liability for bribery.

The Act’s official guidance on the defence of adequate procedures lists risk assessment procedures, due diligence, engagement by senior management, communication and training, as well as monitoring and review of existing procedures. Hence, organizations would not be liable for bribes paid on their behalf under the Act if they could prove, on the balance of probabilities, that they had ‘adequate procedures’ in place to prevent them.

The Act’s logic could help tribunals in approaching issues not properly regulated in other domestic legal systems and help to build consensus on the ‘adequate procedures’ expected of States and investors when it comes to bribery, corruption and other economic crimes.

To ensure legal certainty concerning the effect of bribery, money laundering and other economic crimes in international investment law, treaties must include provisions on the effect of economic crimes. States should facilitate the consolidation of international investment agreements by adopting joint interpretative statements on previously concluded treaties, or by replacing old treaties with modern bilateral treaties, either one at a time or through regional agreements.

A new generation of investment treaties should take into account both applicable domestic law and the existing sources of international law concerning economic crimes together with national best practice. The same holds true for the practice of investment tribunals.

More legal certainty within the investor-State dispute resolution system will facilitate international efforts to reform investment agreements. It would also improve the legitimacy and predictability of the system of investor-State disputes and reconcile the combating of economic crime with the protection of foreign investors.

 

A longer article on this topic appeared in the International and Comparative Law Quarterly in July 2018.  It is available here.

 

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India’s Treatment of Interconnected Agreements to Arbitrate

Thu, 2018-08-09 06:00

Ritvik Kulkarni

A plethora of business transactions today have evolved into complex structures of multi-faceted sub-transactions. Multiple parties enter into several distinct, yet interconnected and interdependent agreements towards achieving a common commercial goal.

Every so often, however, one or more of these interconnected agreements will lack an arbitration agreement; whereas the others will contain similar/related arbitration clauses. Disputing parties may then initiate parallel litigation and arbitration proceedings against each other.

One disputing faction would most likely request the relevant State Court to refer all the parties to one tribunal. Conversely, the other faction would resist any request for arbitral reference on grounds that it is a non-party to the arbitration agreement; and/or oppose a composite reference on grounds that the parties have clearly entered into several separate agreements.

I argue here that in such disputes, the Indian Supreme Court (SC) has realigned its focus on determining the commonality and end goal of composite transactions, instead of merely dissecting them into separate agreements based on a strict interpretation.

One Agreement, One Tribunal

India’s treatment of these issues has been previously analysed here on this blog. The most recent judgment discussed in the aforesaid post is the SC’s decision in Duro Felguera v. Gangavaram Port  (2017 SCC OnLine SC 1233) [Duro].

In Duro, the SC was faced with a request for a composite arbitral reference in relation to disputes arising out of six agreements. An original tri-partite agreement between all parties was subsequently restructured into five new agreements. The sixth agreement was a related bank guarantee. All six agreements were entered into in respect of one main project and had identical arbitration clauses.

In Chloro Controls v. Severn Trent (2013) 1 SCC 641 (Chloro Controls), the SC had referred even non-signatories to a single international arbitration since the ‘mother agreement’ among the agreements in question, contained an arbitration clause. However, the SC distinguished Chloro Controls because the arbitration clauses in Duro lacked the wide terms: [disputes arising] ‘under and in connection with’ [this agreement].

Even though it was observed in Duro that there had been “no novation by substitution of all five agreements”, the SC declined a composite reference mainly on grounds that Section 11(6A) of the Arbitration Act, 1996 (the Act) restricts the scope of judicial inquiry merely to determining the existence of an arbitration agreement. Having found six separate arbitration agreements, the parties were referred to four domestic and two international arbitrations, albeit presided over by the same set of arbitrators.

Paradigm Shift?

In this backdrop, the SC was yet again required to adjudicate a similar dispute in Ameet Lalchand Shah & Ors. v. Rishabh Enterprises and Another (Ameet Shah) [Civil Appeal No. 4690 of 2018].

Briefly put, four parties executed a total of four contemporaneous agreements for the purpose of commissioning a photovoltaic solar plant in Uttar Pradesh, India (the Solar Plant). Three of these four interconnected agreements contained an arbitration clause. When disputes arose, one of the parties issued a notice of arbitration, whereas the opposing party filed a suit before a Single Judge of the Delhi High Court (HC). In the suit, the plaintiff levelled serious allegations of misrepresentation and fraud in respect of the subject matter covering all four agreements. In Ameet Shah, the SC has also discussed a few contours of arbitrability of fraud. However, I have not delved into this aspect of the judgment in this post.

The defendant in the suit then filed an application under Section 8 of the Act and sought the dispute to be referred to arbitration. This request was rejected by the Single Judge, as also by the Division Bench (DB) on appeal.

While deciding the request for a single reference, the SC first revisited its ratio in Chloro Controls. Here, it will be recalled, the SC had given a purposive construction not only to the arbitration clause in the mother agreement, but also to the transaction as a whole. Importing its formative analysis from Chloro Controls, the SC in Ameet Shah observed that all parties could be covered by the arbitration clause in the main agreement as all four agreements were clearly interconnected and meant for achieving the single commercial goal of setting up the Solar Plant at Uttar Pradesh, India. Unlike in Duro, the Apex Court did not mandate the presence of a particular widely worded arbitration clause, as the one in Chloro Controls, to enable a single arbitral reference.

Further, the SC in Ameet Shah steered clear of its earlier decision in Sukanya Holdings v. Jayesh H. Pandya (2003) 5 SCC 531 (Sukanya). In Sukanya, it was held that a matter cannot be referred to arbitration if all parties to a civil suit are not privy to the arbitration agreement; as there is no provision in the Act for a partial reference to arbitration. The SC in Ameet Shah rightly adverted to the 2015 Amendments to the Act, and noted that the amended in the amended Section 8(1) clearly entitles even persons claiming through or under a party to the arbitration agreement to seek an arbitral reference, notwithstanding any judicial precedent. The SC then went on to refer all disputing parties to arbitration. Notably, while the SC has not returned a concrete finding to this effect, Sukanya should effectively stand overruled in light of the amended Section 8 and the SC’s decision in Ameet Shah.

Missed Chances

Interestingly though, Duro does not feature at all in the Ameet Shah analysis; and as such it has not been expressly overruled. Parties in future disputes may still seek to rely upon Duro to resist a composite reference if governed by both domestic as well as international agreements.

The SC has rightly applied Chloro Controls in Ameet Shah. However, it has done so only after having identified a principal/mother agreement among the four agreements. Therefore, Ameet Shah may impede the application of Chloro Controls in a similar multi-contract dispute which lacks the centrifugal force of a mother agreement. Hopefully, Indian Courts will nevertheless discard a Shylockian interpretation of contract and apply the Chloro Controls ratio in all multi-contract disputes where the overall transaction is common and comprises inextricably linked components.

Concluding Remarks

As Lord Hoffman has remarked in Fiona Trusts v. Primalov [2007] UKHL 40, the construction of an arbitration clause should start with the assumption that parties, as rational businessmen, are likely to have intended that any dispute arising out of their commercial relationship should be decided by the same tribunal. Perhaps India had a good opportunity to have formally adopted this presumption in Ameet Shah. Nonetheless, the SC’s purposive approach towards commercial transactions is a refreshing development in India’s arbitration landscape.

That said, would a party be permitted to reintroduce its grievance to consolidation as a ground for challenging the arbitral award? Most leading arbitral institutions now provide for consolidation (Article 28 of the 2013 HKIAC Rules, Article 8 of the 2016 SIAC Rules, Article 10 of the 2017 ICC Rules, Article 15 of the 2017 SCC Rules, and Article 22(ix) and (x) of the 2014 LCIA Rules). It has been previously argued on this blog that an institution’s decision on consolidation is administrative in nature and cannot by itself be challenged. However, the tribunal of the consolidated proceedings can determine the validity of the consolidation order since it retains kompetenz-kompetenz to decide its own jurisdiction, including a challenge based on the institution’s decision to consolidate.

Insofar as a tribunal’s decision on consolidation is jurisdictional, parties in an Indian arbitration may raise it as a ground for setting aside an award before the relevant Court (Sections 16(6) and 34(2)(a)(v) of the Act). In PR Shah v. BHH Securities (Civil Appeal No. 9238/2003), an award was challenged because the tribunal had permitted a common arbitration when a party raised related claims against two parties under separate arbitration agreements. The SC dismissed the objections against consolidation and observed that denying the benefit of a single arbitration against the two parties would lead to multiplicity of proceedings, conflicting decisions and cause injustice.

Where the decision of consolidation is made by a court of the arbitral seat in accordance with its laws, as argued in the above post, it would be difficult to sustain a challenge to the award on the ground that the arbitral procedure and/or constitution of the tribunal was not in accordance the parties’ agreement(s) or with the law of the seat of arbitration.

Of course, this is not to suggest that every dispute with multiple contracts must automatically be referred to a single arbitral tribunal. Even in multi-party transactions involving several related contracts, parties may consciously structure the agreements to create distinct obligations on each set of contracting parties.

In Trust Risk Group v. AmTrust Europe [2015] EWCA Civ 437, the parties’ contractual arrangements comprised (i) a standard London-form agreement with  dispute resolution under English law and jurisdiction and (ii) a subsequent framework agreement structured closer to the Italian market, which provided for arbitration in Milan under Italian law. It was observed that both agreements dealt with different parts of the parties’ commercial relationship, and the parties’ decision to have different dispute resolution was founded on a rational basis. The Court dismissed the argument that all disputes between the parties must be referred to arbitration under the latter agreement. Accordingly, such disputes could indeed be referred to separate tribunals even though they arise out of related transactions.

 

Views expressed in the post are the personal opinion of the author and do not necessarily reflect those of his law firm.

 

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Can the Application of Blockchain Technology Broaden the Horizons for Arbitration?

Wed, 2018-08-08 01:45

Dena Givari

In recent years, consumers, governments, and public interest groups have increasingly raised concerns over human rights abuses in the mining sector. Businesses are facing growing pressure from the public in this regard and various countries have as a result adopted legislation imposing a variety of due diligence and reporting obligations on corporations sourcing and using in their supply chains and products, minerals extracted from known conflict areas.1)UK Modern Slavery Act, French Due Diligence Law, USA Section 1502 of the Dodd-Frank Act (although this is currently under threat from the Financial Choice Act which seeks to undo the regulations imposed on financial institutions post 2008 economic crash) and in 2021 the EU’s Regulation 2017/821 of the European Parliament and of the Council will come into force across the EU. jQuery("#footnote_plugin_tooltip_5001_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5001_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The possibility of being tainted by human right violations can harm the reputation of businesses as well as that of the host countries and weaken a corporation’s social license to operate in those jurisdictions.

While public scrutiny and the adoption of such legislation constitute commendable efforts to protect human rights globally, these measures can impose a significant burden on businesses that are part of the supply chain. Blockchain technology can reduce this burden by facilitating transparency in the supply chain. The application of this technology in the mining sector has the potential to have a significant effect on the arbitration of mining-related disputes.

CSR legislation and the role of Blockchain

On August 22, 2012, the United States implemented a law which impacts thousands of companies globally: section 1502 of the U.S. Dodd-Frank Wall Street Reform Act (“DF 1502”).  The statute for the first time required all companies listed on the U.S. Stock Exchange to declare the use of minerals determined by the Secretary of State to be financing conflict in the Democratic Republic of the Congo (DRC) or in adjoining countries.

This imposes a significant due diligence burden on industries which use such minerals when producing goods such as those in the electronics and automotive industries. The burden is exacerbated by the fact that mining supply chains consist of complex multi-tiers with multiple actors, all of which militates against a transparent and traceable record.

On January 1, 2021 the European Union’s Regulation (EU) 2017/821 (the “EU Regulation”) is set to come into effect. This legislation was motivated by the concept of “responsible sourcing” touted by the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights as the principle of encouraging businesses to verify, via due diligence procedures, that they are not purchasing minerals from sources which fund armed group activities in designated conflict areas.

The EU regulation is anticipated to directly affect between 600 and 1000 EU importers and indirectly affect about 500 smelters and refiners. It requires importers to identify smelters and refiners in their supply chains and to check whether they have the correct due diligence practices in place. Specifically, the regulation requires importers to follow a five-step framework set out by the OECD:

  1. Establish strong company management systems;
  2. Identify and assess risks in the supply chain;
  3. Design and implement a strategy to respond to identified risks;
  4. Carry out an independent third-party audit of supply chain due diligence at identified points of the supply chain; and,
  5. Report on supply chain due diligence.

In the European Commission’s Executive Summary of the Impact Assessment for this legislation, an “opaque supply chain” is cited as one of the main obstacles to European Union companies complying with these requirements.

Organizations such as the ITRI Tin Supply Chain Initiative (iTSCi) are attempting to address this issue. iTSCi is a joint initiative of governmental authorities, companies and civil society organizations working with mineral supply chains in Burundi, the DRC, Rwanda, and Uganda to carry out due diligence on mineral supplies in accordance with the OECD due diligence framework. The process used is to audit mines for human rights violations and then apply a bag and tag system whereby each sack of minerals is given a barcode that identifies details such as the miner’s name and weight of the sack. This information is then recorded in a paper logbook. The logbooks are stored in boxes secured by three padlocks which are controlled by each of the Service for Assistance and Supervision of Artisanal and Small-Scale Mining (SAEMAPE), mining cooperatives and the concession owner. The problem is that this process is not very efficient and is vulnerable to corruption.

Blockchain technology can help address this very issue of supply chain transparency and efficiency by providing a platform on which ownership information of tagged minerals is recorded on a digital ledger that can only be updated or modified upon pre-determined conditions such as when all members of the blockchain network agree to the modification.

This is exactly the kind of initiative that Cobalt Blockchain, a mineral resource company, is launching. As reported in the article, “Cobalt Blockchain tries new model in DRC”2)R. Quarisa, “Cobalt BlockChain tries new model in DRC”, The Northern Miner, April 16-29, 2018, VOL. 104 Issue 8. jQuery("#footnote_plugin_tooltip_5001_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5001_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, the company’s goal is to produce ethically sourced cobalt from artisanal mines in the Congo using a bagging and tagging system and adhering to the iTSCi requirements regarding supply chain information. Cobalt Blockchain believes blockchain can close loopholes in the iTSCi system and protect it from tampering. The company plans to partner with DLT Labs, the creator of a supply chain and logistics management product called DL Asset Track, to develop a new blockchain-based platform for tracking base and precious metal supply chains.

How Might Arbitration Benefit?

Disputes arising from mining are often the subject of domestic, international and investor-state arbitrations. Such disputes invariably pit the often-foreign mining company seeking to exploit a natural resource against local or national governments seeking to regulate it, with indigenous populations on whose land or territory the extractive activities take place in the middle and being the most affected.

Arbitrators should be prepared for the arrival of blockchain technology in the realm of mining sector disputes and should welcome it. This is because automating transparency in the supply chain will help manage the evidence and will make it easier to make findings relating to the origin of a mineral. It will do this by removing the need to spend time and energy backtracking the chain of ownership and sifting through the evidence to establish whether the mineral was sourced from a mine in a conflict area and whether anyone benefitted from human rights violations when doing so.

Blockchain technology will also assist in the determinations that an arbitrator will be called upon to make relating to breaches of contract amongst members of the supply chain. The Working Group on International Arbitration of Business and Human Rights described the impact that can be expected from inserting human rights commitments and arbitration clauses into contracts between members of a supply chain in this way:

These contracts could contain perpetual clauses that require each member of a supply chain, in turn, to insert such clauses in contracts with its own suppliers. An entire supply chain could be covered by an arbitration arrangement that allows the originating business to instigate arbitration against any supplier in the chain that breaches the commitment to observe human rights. This would not be expanding its own liability, only exposing any breaching supplier to relatively prompt enforcement.3)C. Cronstedt, J. Eijsbouts et. al, “International Arbitration of Business and Human Rights: A Step Forward”, Kluwer Arbitration Blog, November 16, 2017, http://arbitrationblog.kluwerarbitration.com/2017/11/16/international-arbitration-business-human-rights-step-forward/?print=print, <June 3, 2018>. jQuery("#footnote_plugin_tooltip_5001_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5001_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

By adopting the smart contract functionality of a blockchain, members of the mining supply chain can ensure compliance with such clauses by creating a blockchain whose protocol will only allow the transfer of ownership of minerals if the transferor transfers ownership of the mineral through a smart contract which obligates the transferee to agree to be subject and to adhere to the human rights commitment and arbitration clause. In this way, a subsequent transferee will have certainty that all the members of the supply chain have contractually committed to the human rights standard. This will reduce the risk of exposure to human rights related liability arising from the acts or omissions of another member of the supply chain. The blockchain protocol can even be made to notify all the members in the supply chain when supply chain members have commenced arbitration over a human rights related matter.

Corporate social responsibility requirements on businesses together with smart contract enabled blockchain are creating opportunities for arbitration to become a more effective dispute resolution mechanism4)If it is stipulated that every member in the network is notified when a dispute is submitted to arbitration over a human rights matter, members in the supply chain (i.e. members of the network) are incentivized to comply with due diligence requirements. A system that requires compliance with due diligence requirements and which exposes human rights violations to your business partners will incentivize members of a supply chain to comply thereby becoming a self-regulating system and reduce the need to resort to the regulator or to the court system. jQuery("#footnote_plugin_tooltip_5001_4").tooltip({ tip: "#footnote_plugin_tooltip_text_5001_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); in this context. The increased concerns over transparency in the mining supply chain and the burden that related legislation impose on businesses together call for the application of novel technologies that can help facilitate compliance. As companies are drawn to the application of blockchain, arbitrators should be considering and preparing for how this development will impact the process of arbitrating disputes. At a minimum, the smart contract capability of blockchains will assist arbitrators to play a more effective role in arbitrating issues as to the formation, verification and performance of agreements among the members of the mining supply chain.

References   [ + ]

1. ↑ UK Modern Slavery Act, French Due Diligence Law, USA Section 1502 of the Dodd-Frank Act (although this is currently under threat from the Financial Choice Act which seeks to undo the regulations imposed on financial institutions post 2008 economic crash) and in 2021 the EU’s Regulation 2017/821 of the European Parliament and of the Council will come into force across the EU. 2. ↑ R. Quarisa, “Cobalt BlockChain tries new model in DRC”, The Northern Miner, April 16-29, 2018, VOL. 104 Issue 8. 3. ↑ C. Cronstedt, J. Eijsbouts et. al, “International Arbitration of Business and Human Rights: A Step Forward”, Kluwer Arbitration Blog, November 16, 2017, http://arbitrationblog.kluwerarbitration.com/2017/11/16/international-arbitration-business-human-rights-step-forward/?print=print, <June 3, 2018>. 4. ↑ If it is stipulated that every member in the network is notified when a dispute is submitted to arbitration over a human rights matter, members in the supply chain (i.e. members of the network) are incentivized to comply with due diligence requirements. A system that requires compliance with due diligence requirements and which exposes human rights violations to your business partners will incentivize members of a supply chain to comply thereby becoming a self-regulating system and reduce the need to resort to the regulator or to the court system. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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