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Application of Law of Limitation in Computing Time Period Under Section 34(3) of the Arbitration & Conciliation Act, 1996

Tue, 2019-01-08 02:34

Devansh Mohta


It is fairly known that the Indian Limitation Act, 1963 (the Limitation Act) constitutes “general law” for Time Periods and its computation. Section 29(2) of the said Act contains the fundamental rule that provisions of Limitation Act would apply for computation of time period prescribed by any special law only to the extent it is not expressly excluded.

The relevance of time period

An application to challenge arbitral award is made under section 34 of the Indian Arbitration and Conciliation Act, 1996 (the Arbitration Act) within the “time period” prescribed in sub-section (3) of section 34, i.e., within three months from the receipt of the award after the expiry of which the Court can permit a party to make the application within 30 days “but not thereafter”. A “time period” has been regarded as necessary for certainty and to ensure expeditious and effective resolution of disputes between the parties.

Express Exclusion Test

Should a rule of computation of time periods contained in the Limitation Act apply to section 34(3) of the Arbitration Act, 1996? To answer this question the Supreme Court has generally resorted to the test of “express exclusion”. The article briefly sets out the legal position about the computation of time limits and analyzes the manner which the Court has applied the express exclusion test.



Starting Point (the first day)

The time period for challenging an award commences only upon its proper receipt. An award would be regarded as properly received only if it is delivered in the manner prescribed by section 31 (5). This means when a “signed copy” has been delivered to the party. The delivery of an award constitutes an important stage in the arbitral proceedings. The Supreme Court has held that “delivery of an arbitral award” is not a matter of formality but of substance; as it confers certain rights on the party. (see: Union of India v. Tecco Trichy (2005) 4 SCC 239)

“Within three months from……”

There is an ordinary rule that where statutes, while prescribing time period, uses the expression “from”, it is an indication that while computing the period so prescribed the rule would be “to exclude the first and include the last day”. (see: section 9 of the General Clauses Act). 

In the case of State of Himachal v. Himachal Techno (2010) 12 SCC 210, the Supreme Court extended this principle to section 34(3). Thus, the time period for filing an application under section 34 would commence “a day after the receipt of the award by the party.

The time in between

Once the time has begun to run, no subsequent disability or inability to institute a suit or make an application would “stop it”. This is a fundamental rule. (see: section 9 of the Limitation Act)

So after proper receipt of award, the time period for a challenge “begins to run”. Apart from the exception of section 33, it cannot be stopped. [section 34(3)]

The last day

The time period under section 34(3) expires after “three months”. The rule of construction of this period would be to not treat this period as 90 days, but actual period of calendar month. Thus, the period would expire in the third month on the date corresponding to the date upon which the period starts. In days it may mean “90 days or 91 days or 92 days or 89 days”. (State v. Himachal Techno (2010)12 SCC 210)

A rule for computation is that in case the last day of the time period expired on a day when the court is closed the proceedings will be instituted “on the day when the court reopens” (see: section 4 of the Limitation Act, 1963)

However, the Supreme Court has held that the benefit of this rule cannot be taken to prefer an application under section 34 after the expiry of the time period. (see: Assam Urban Water v. Subhash Projects & Marketing (2012)2 SCC 628)

The proviso to section 34(3): Additional 30 days

Section 34(3) proviso enables the party to make an application after the expiry of three months upon demonstrating that the applicant was “prevented by sufficient cause” from doing so. In such cases,  the statute has conferred upon the court discretion to entertain the application within a period of 30 days “but not thereafter”.

To “prevent” means to thwart; to hinder or to stop. Thus, while ‘time period’ would never stop under any circumstances but certain circumstances may stop an applicant from making the application. If the court found those circumstances constituted “sufficient cause” it would permit the party to make the application.

It is beyond cavil that the discretion of the court to permit an application beyond the original period cannot extend beyond 30 days being the statutory outer limit for exercise of discretion. (see: Union of India v. Popular Construction (2001)8 SCC 470)

The distinction between “extension of time” and “computation of time”

While time does not stop running, it can be excluded from the computation. The rule of computation  of time period recognizes the concept of “exclusion of time” under certain circumstances: and so far the Supreme Court has permitted parties, to take recourse to section 14 of the Limitation Act, 1963 and exclude from computation the time spent in bonafide litigious activity in other words “mistaken remedy” or “selection of a wrong forum”. (see:  Consolidated Engineers v. Principal Secretary (2008) 7 SCC 169)

However, when a party sought exclusion of time by taking recourse to the plea of fraudulent inducement available under section 17 of the Limitation Act, 1963. The Supreme Court held that once the party has properly received the award the right to challenge comes within their knowledge and no fraudulent act of another party can be made an excuse for excluding the time from computation.

Where fraud has been practised at the time of delivery the award would not be considered as having “properly received”. (see: P. Radhabai & v. P. Ashok Kumar (2018)13 SCALE 60)



The Supreme Court has applied the principle of express exclusion the following manner:

By reference to language of section 34(3) of the Arbitration Act

In Popular Construction (supra) the Supreme Court held that the expression “but not thereafter” found in proviso section 34(3) expressly excluded the applicability of section 5 of the Limitation Act.

In P. Radhabai (supra) the Supreme Court while emphasizing on the expression “had received the arbitral award” found that applicability of section 17 was “expressly excluded”. It also held that extending the benefit of section 17 of the Limitation Act would “do violence” to the provision of section 34 (3).

Interestingly in Himachal Techno (supra) the Supreme Court emphasized on the expression “from the date” found in section 34(3) applied the presumptive rule of interpretation found in section 9 of the General Clauses Act. It therefore held that that the Arbitration Act did not exclude the application of section 12 of the Limitation Act, 1963 which is similar to section 9 of the General Clauses Act. However, the Supreme Court failed to notice the expression “period of limitation” found in that section, which necessarily restricts the applicability of section to those periods which are prescribed by schedule to the Limitation Act, 1963.

By reference to the Limitation Act

In Assam Urban Water Supply (supra) the Supreme Court refused to extend that benefit of section 4 of the Limitation Act on the ground that the section was meant only for the time period prescribed by the Limitation Act and time period under section 34(3) stood outside its purview. To arrive at this conclusion the Supreme Court resorted to the definition “period of limitation” found in section 2(j) of the limitation act.

It is noteworthy that the above decision was delivered two years after the judgment in Himachal Techno (supra).

Principles of equity

It is pertinent to note that in Consolidated Engineers (supra) the Supreme Court laid on two factors: first was the distinction between extension of time and exclusion of time, as explained above and secondly on the principle of equity. On these scores the Supreme Court held that section 34(3) did not excluded applicability of section 14 of the Limitation Act, 1963.



It is clear that where the Supreme Court has applied the express exclusion principle with reference to the language of section 34(3) and Limitation Act the answer about applicability has been in the negative. On two occasion- while applying section 12 and section 14- the Supreme Court has answered the question affirmatively. It would be in consonance with the object of arbitration law- efficient and expeditious adjudication of disputes- to avoid calling in aid the principle “underlying the provisions” of the Limitation Act and read into fixed time periods of section 34(3); benefits of principle of computation found in the Limitation Act.

After all the Supreme Court in Yeshwant Deora v. Walchand AIR 1951 SC 16 had held that “rules of equity have no application where there are definite statutory provisions specifying the grounds on the basis of which alone suspension or stoppage of running of time can arise. While courts are necessarily astute in checkmating or fighting fraud, it should equally borne in mind that statutes of limitation are statues of repose”.

This is a noteworthy principle.

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IFFCO v. Bhadra Products: Increasing Confusion or Clarifying on Matters of Jurisdiction?

Sun, 2019-01-06 18:43

Pragya Chandak and Harsh Salgia

Section 16 (1) of the Arbitration and Conciliation Act, 1996 [“the Indian Act”] confers power upon the arbitral tribunal to decide on matters relating to its jurisdiction. Under section 16 (5), a decision accepting the plea of lack of jurisdiction shall be an appealable order; while decision rejecting the same plea can be challenged only with the final award. Though the term jurisdiction has not been defined, the courts in India have interpreted it to include inter alia scope of the arbitration agreement and arbitrability of disputes.

Recently, the Indian Supreme Court [“the Court”] in M/s Indian Farmers Fertilizers Co-operative Limited v. M/s Bhadra Products (Civil Appeal No. 824 of 2018) [“Bhadra Products”] restricted the scope of section 16 (1), declaring that issue of limitation is not covered under the primitive sense of the term ‘jurisdiction’. It is important to distinguish matters of jurisdiction from that of the merits of claims, as the former goes to the root of the dispute and absence of the same can render the ultimate decision null and infructuous. While relying heavily on English jurisprudence, the Court in Bhadra Products gave a very narrow interpretation to the term ‘jurisdiction’. It was held by the Court that similar to the Arbitration Act, 1996 [“the English Act”] matters of only substantive jurisdiction such as the validity of arbitration agreement and/ or of arbitral tribunal and arbitrability of disputes shall be considered within the scope of section 16(1) of the Indian Act. However, the reasoning is inaccurate on various fronts:

At first, the term jurisdiction derives its meaning from the context in which it is used. The Indian Act provides the tribunal with the power to pass a ruling on any issue that is related to its jurisdiction. In the case of National Thermal Power Corporation v Siemens Atkeingesellschaft 1) (2007) 4 SCC 451 jQuery("#footnote_plugin_tooltip_2475_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2475_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, it was reasoned that any refusal to go into the merits of the claim lies within the realm of jurisdiction. Like any other issue of jurisdiction, the issue of limitation is decided without going into the merits of the particular claim. In other words, while determining the issue of limitation, the tribunal enquires only into the fundamental facts such as when the claim arose and the time period which has lapsed and nothing more.

Secondly, section 16 (1) of the Indian Act is wide enough to permit the tribunal to decide any matter, including any issue relating to jurisdiction which goes to the root of the matter.  In Pandurang Dhoni Chougule v. Maruti Hari Jadhav2) AIR 1966 SC 153 jQuery("#footnote_plugin_tooltip_2475_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2475_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, the Court held that plea of limitation is an issue that goes to the root of the matter and affects the jurisdiction of the tribunal conducting the proceedings. Applying the rationale in a case, the Bombay High Court determined that while ruling on the issue of limitation, the tribunal shall be ruling on its jurisdiction.

Thirdly, the English Act restricts the principle of Kompetenz-Kompetenz by using the term ‘substantive’ jurisdiction. However, the Indian Act has no such restriction and provides for wider amplitude as it reflects tribunal’s power to determine any issue relating to its ‘own’ jurisdiction. Further, it has been held in the case of Union of India v. East Coast Builders 3) 1998 (47) DRJ 333 jQuery("#footnote_plugin_tooltip_2475_3").tooltip({ tip: "#footnote_plugin_tooltip_text_2475_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); that guidance should not be taken from the English Act when the Indian Act expressly deviates from it. Therefore, issue of limitation must be construed as an issue of jurisdiction as provided under section 16(1) of the Indian Act.


Decision on limitation: Order or Interim award?

Section 31(6) of the Indian Act lays down that an interim award can be passed on any matter on which a final award can be passed. In Bhadra Products, the Court held that as issue of limitation is one of the matters raised by parties at dispute, a decision on the same would be an interim award. The Court arrived at this conclusion by wrongly interpreting the term ‘interim award’, as issue of limitation is not a matter on which a final award can be passed. Though the term interim award has not been defined in the Indian Act, the courts have consistently ruled that for a decision to be an interim award, it must finally settle one or few of the claims or issues of liability raised by the parties. For instance, a decision on breach of the contract can be an interim award on which a final award clearly specifying the amount of damages can be passed subsequently. However, adjudication on an issue of jurisdiction does not settle any claim or issue of liability and is a necessary step to be undertaken before determining the substantial relief sought by parties. It is for this reason that under the Indian Act, a ruling on jurisdiction has been classified as an order.


Anomaly based on a different decision on the issue of jurisdiction

A lot of confusion hovers around the tribunal’s decision with respect to its jurisdiction, that is, whether it is an award or an order. This arises primarily because the Indian Act is silent on this aspect. In other words, when an objection regarding tribunal’s lack of jurisdiction is accepted, it has been termed as an appealable order under section 37 of the Indian Act. However, the Indian Act does not expressly categorize the decision of the tribunal accepting its jurisdiction as an order. It is for this reason it had been argued various times that such decision shall be an interim award so that the court can be approached to set aside the same. However, such contention should be rejected for the basic reason that the order under section 16 cannot change its nature based on different outcome that is become an interim award if the tribunal rejects plea of no jurisdiction and is only appealable if plea of no jurisdiction is allowed.


Removing the discrepancy

Section 37 of the Indian Act does not provide a right to appeal against the order if the tribunal accepts its jurisdiction and it can be challenged only later with the ultimate final award. It is believed that such a distinction was created to reduce the role of the courts in the proceedings. But this can result in a waste of time and money in arbitral proceedings in case the court determines that tribunal did not have jurisdiction in the first place. To fill this gap, it is suggested that preferably an amendment should be introduced in section 37 wherein (i) any order whether accepting plea of lack of jurisdiction or rejecting the same shall be appealable and (ii) that the court should decide the matter expeditiously.

However, this might lead to a dilemma of whether the arbitral proceedings should continue or come to a standstill. In such a situation, the arbitral tribunal should have the prerogative to decide whether to continue with the proceedings or not. In this way, a balance can be attained between parties having right to appeal against the order and having an efficient arbitral proceeding.

References   [ + ]

1. ↑ (2007) 4 SCC 451 2. ↑ AIR 1966 SC 153 3. ↑ 1998 (47) DRJ 333 function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Is Brazil an Arbitration-Friendly Jurisdiction?

Sat, 2019-01-05 17:02

Andre Luis Monteiro, José Antonio Fichtner and Sergio Nelson Mannheimer

Recently, the 2018 White & Case International Arbitration Survey confirmed London, Paris, Singapore, Hong Kong, Geneva, New York and Stockholm as the most in-demand places for arbitration in the world.

Brazil is well represented by São Paulo – the economic hub of the country – which occupied eighth place in the overall ranking. This result gives rise to the following question among those not familiar with the country: is Brazil an arbitration-friendly jurisdiction?

In previous Kluwer posts, it has been discussed Brazilian arbitration developments in franchising, extension of arbitration agreements, and facilitation and cooperation investment agreements (here and here),This post aims to answer that question, providing a concise but comprehensive overview of the Brazilian legal framework for arbitration.


Legal Framework

In Brazil, arbitration is governed by Law 9.307, which came into force in 1996. The Brazilian Arbitration Act (hereafter BAA) is partially based on the UNCITRAL Model Law and the 1988 Spanish Arbitration Act.

The BAA adopts the monism regime, which means that its provisions apply equally to international arbitration and domestic arbitration. However, the Act is considered modern, particularly because it leaves plenty of space for party autonomy.

Brazil has not signed the Washington Convention (ICSID Convention) and, therefore, all arbitrations follow commercial standards, even when the State is one of the parties.

Nevertheless, a few mandatory provisions apply to arbitrations involving “State entities”. This term encompasses the Union, states, municipalities, government agencies, government foundations, wholly-owned state companies and state-controlled companies, although not all entities are subject to the same mandatory provisions (explained below).



The scope of arbitrability in Brazil is wide. Article 1 of the BAA declares that “those who are capable of entering into contracts may use arbitration to resolve conflicts related to negotiable and pecuniary matters”. Article 1(1) establishes that “State entities may use arbitration to resolve conflicts related to negotiable and pecuniary matters”. In short, any civil or commercial matter in Brazil can be resolved through arbitration, even when the case involves “State entities”.

Most arbitral proceedings in Brazil arise from construction contracts, corporate conflicts (company v. shareholders, controlling shareholder v. minority shareholder, parties to shareholders’ agreements etc.), energy and insurance contracts and contractual disputes in general.


Choice of Law

According to Article 2 of the BAA, in arbitrations seated in Brazil, parties are unrestrained in the choice of law applicable to the merits, to the arbitral process (lex arbitri) and to the arbitration agreement. This rule applies not only to arbitrations involving foreign parties but also to purely domestic arbitrations. There are a few exceptions: in some cases, if the arbitration involves “State entities”, the application of Brazilian Law is mandatory.



Parties have complete autonomy in selecting the arbitrators who shall rule upon the claims submitted in arbitration. There are no limits regarding nationality, age, gender, religion or language proficiency. As set forth in Article 13 of the BAA, “any individual with legal capacity, who is trusted by the parties, may serve as arbitrator”. This rule also encompasses arbitrations involving “State entities”, where parties in general can even nominate foreign arbitrators.


Arbitral Institutions

Parties are entirely free to choose the arbitral institution, whether international arbitral institutions like the ICC (which has an office in São Paulo) and the LCIA, or one of the renowned Brazilian arbitral institutions: CAM-CCBC (whose rules of arbitration were adopted for the 2017 Vienna Vis Moot), CAMARB, Ciesp/Fiesp, CBMA, Amcham and others.



Finally, parties have total autonomy in choosing the language of the arbitration. Again, there are a few exceptions: in some cases, where the arbitration involves “State entities”, Portuguese is compulsory. However, this does not prevent parties from adopting a bilingual arbitration (Portuguese and English, for example).



Brazilian Arbitration Law recognises both positive and negative effects of Kompetenz-Kompetenz.

According to Article 8(1) of the BAA, “the arbitrator has jurisdiction to decide ex officio or at the parties’ request, any issues concerning the existence, validity and effectiveness of the arbitration agreement, as well as the contract containing the arbitration agreement”. Article 20 of the same Act complements this provision. In turn, the second part of Article 485(VII) of the Brazilian Code of Civil Procedure states that “a judge shall not rule on the merits when (…) the arbitral tribunal confirms its jurisdiction” (i.e., the judge has to dismiss the case).

Legal scholars interpret this latter provision as guaranteeing the chronological priority rule in favour of the arbitral tribunal deciding on its own jurisdiction. Among other cases, the Superior Court of Justice declared in SPPATRIM v. BNE that “as a consequence of the Kompetenz-Kompetenz principle, set forth in Articles 8 and 20 of Law n. 9.307/96, the Brazilian legislation on arbitration establishes a chronological priority rule in arbitral proceedings, allowing access to the courts only after the delivery of the arbitral award”.


Interim Measures

As Article 22-B(1) of the BAA states, “if arbitration proceedings have already commenced, the request for the interim measure will be directly addressed to the arbitrators”. In short, pursuant to that provision, arbitrators have the power to grant interim measures. Before the appointment of the arbitrators, parties can seek an interim measure before Brazilian courts. Whether granted or denied by the courts, the arbitrators have the power to confirm, modify or reverse any such judicial decision following their appointment (Article 22-A(1)). If the party against whom the interim measure was granted does not voluntarily comply with the arbitral decision, the interim measure can be enforced before the courts.



The BAA provides in Article 31 that “the arbitral award shall have the same effect on the parties and their successors as a judgement rendered by the courts and, if it includes an obligation for payment, it shall constitute an enforceable instrument thereof”. This means that the arbitral award has the same effect as decisions issued by Brazilian courts, which shall encompass the res judicata effect.


Appellate Proceedings

The BAA does not give the losing party the right to appeal against arbitral awards (neither awards on jurisdiction nor awards on the merits). There are no appellate proceedings in arbitrations seated in Brazil. As described below, parties can apply for annulment of the arbitral award.


Enforcement of Arbitral Awards

Arbitral awards issued in Brazil can be directly enforced before Brazilian courts (Article 32 of the BAA and Article 515(VII) of the Brazilian Code of Civil Procedure). There is no need for exequatur or any kind of judicial authorisation to give effect to arbitral decisions. Arbitral awards are enforced as judicial decisions, following the same legal proceedings, which means that the winning party can seize the losing party’s bank accounts and other assets.

There is only one exception: when the losing party is the Union, a state, a municipality, a government agency or a government foundation, a “certificate of judgment debt” (the so-called precatório) shall be issued in favour of the winning party. Hence, it is legally impossible to seize their bank accounts or other assets. Payment in these cases occur only after inclusion of the debt in the State entity’s budget, in average two years after the decision becomes enforceable. However, investors in Brazil can be reassured that in most cases the State uses state-controlled companies to carry out its largest projects. These companies are subject to normal foreclosure proceedings, what means that their assets can be seized and the precatório regime does not apply to them.


Annulment of Arbitral Awards

Arbitral awards can be set aside before Brazilian courts should the losing party apply for such within 90 days of receiving the award (Article 33(1) of the BAA), either partial or final. Article 32 of the BAA states that there are seven limited grounds upon which annulment can be sought. In a few words, the grounds are related to formal requirements, validity of the arbitration agreement, due process, impartiality of the arbitrator, excess of power, arbitrability and public policy. In Brazil, courts are not allowed to control arbitral awards on the merits.


Recognition of Foreign Arbitral Awards

Brazil ratified the 1958 New York Convention in 2002, and the country thus adopts international standards for the recognition of foreign arbitral awards (i.e., awards made in another State). The court with jurisdiction to recognise foreign awards is the Superior Court of Justice. This court is the second highest court in Brazil (only below the Supreme Federal Court), which means there are no avenues for endless appellate proceedings. In addition, case law has largely been in favour of the recognition of arbitral awards.



In assessing whether a jurisdiction is arbitration-friendly, one must naturally judge the quality of decisions rendered by courts of the seat in connection with arbitral proceedings. In Brazil, the Supreme Court demonstrated its pro-arbitration approach by declaring the constitutionality of the BAA in 2001. In its turn, the Superior Court of Justice is also undoubtedly pro-arbitration. To cite one example, the Court said in SERPAL v. Continental do Brasil that “arbitration, as an alternative dispute resolution method, fulfils precisely the fundamental right of access to justice, provided by Article 5(XXXV) of the Brazilian Constitution”. It is the current understanding that Brazilian courts support arbitration when faced with any challenge concerning that procedure.


Anti-arbitration Injunctions 

Brazilian courts have in few cases granted anti-arbitration injunctions that prevented parties from commencing arbitral proceedings. There are two decisions that became notorious among international arbitration practitioners: (i) a 2003 decision by a first-instance judge in Paraná in the case Copel v. UEG; and (ii) a 2012 ruling by the São Paulo Court of Appeals in the case Sulamérica v. ENESA (also known as the “Jirau case”). It is well established in Brazil that these decisions represent exceptions.



In conclusion, based on all the above mentioned reasons, we can affirm with confidence that Brazil is currently an arbitration-friendly jurisdiction.

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Can Article 25 Arbitration Serve as a Temporary Alternative to WTO Dispute Settlement Process?

Fri, 2019-01-04 22:45

Bashar H. Malkawi

The World Trade Organization (WTO) was born on January 1, 1995 and its Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) provides a binding means for WTO members to resolve disputes arising under WTO agreements.  This post summarizes WTO DSU dispute settlement and considers, whether in light of recent developments, article 25 of the WTO DSU, which provides for binding arbitration, can provide a temporary alternative.

When the WTO was first formed, DSU dispute settlement effectively replaced the weaker dispute settlement process that had existed before under the General Agreement on Tariffs and Trade (GATT) 1947, which until then had served as the principal multilateral agreement whereby contracting parties negotiated liberalizing trade by reducing tariffs.

Under the GATT, the Tokyo Round (which lasted from 1973 to 1979, with 102 countries participating) established separate dispute resolution procedures in some of the separate codes negotiated during that period, such as the code on subsidy and anti-dumping. In effect, the GATT consisted of independent agreements with their own dispute settlement mechanism. Moreover, under GATT, dispute panels handed down findings that had to be accepted by both sides and other GATT Contracting Parties before they were adopted. Refusal by one Contracting Party, such as the losing party, meant that a panel report was simply set aside. Thus, under the GATT dispute settlement mechanism, the losing party in a dispute could block the adoption of a panel ruling.

WTO DSU dispute settlement created a more potent dispute settlement process than had existed previously and was part of the global gradual shift from a diplomatic and power-based approach in the settlement of international disputes to a more legalistic, law-based approach for dispute resolution.

To summarize, the WTO DSU dispute settlement is administered by a Dispute Settlement Body (DSB) which consists of the WTO’s General Council. Among its powers, the DSB has the authority to establish panels, adopt panel and Appellate Body reports, maintain surveillance of implementation of rulings and recommendations, and authorize suspension of concessions and other obligations under WTO agreements.

The WTO DSU provides a dispute resolution forum and its rules establish firm deadlines to file initial submissions, appeals, and enforce rulings (Understanding on Rules and Procedures Governing the Settlement of Disputes, arts. 4.4, 4.7). Also, the DSU rules govern notice, consultations, discovery, panel establishment and proceedings, and report circulation. Furthermore, the DSU set up a permanent Appellate Body to review appeals of panel decisions. Throughout its existence, the DSU has proved its efficiency in settling disputes between WTO members covering many WTO agreements.

WTO DSU dispute settlement has now been in effect for nearly twenty-three years and has been described as the “crown jewel” of the WTO legal system. Over the span of its existence, the WTO has decided 350 cases through its dispute settlement process. As a result, the WTO has succeeded in serving as a forum for negotiating international trade agreements and the monitoring and regulating body for enforcing these agreements among member nations.

Yet, today, the WTO dispute settlement process is in a critical stage as the U.S. is preventing filling vacancies in the seven-member Appellate Body. Of the seven-member Appellate Body, right now there are  only three seats filled.  Two of these vacancies were created at the end of 2018 when the incumbents’ terms expired.  The U.S. blockade further affects the Appellate Body’s ability to function even as disputes continue to pile up. The lack of full panels put huge pressure on other Appellate Body members who would have to decide many cases and within tight schedules. Under these circumstances, it is worth considering whether article 25 in the WTO DSU, which provides for binding arbitration, can serve as a “temporary alternative”? Theoretically, the answer is in the affirmative.

Article 25.1 of the WTO DSU allows “for expeditious arbitration within the WTO as an alternative means of dispute settlement which can facilitate the solution of certain disputes that concern issues that are clearly defined by both parties”. Recourse to arbitration under the DSU is permitted only as an alternative. Types of disputes that can be resolved under the article 25 mechanism are wide open. However, these types of disputes must concern issues that are defined by the concerned parties to the dispute at hand.

As a procedural matter, all WTO members should be notified of agreements to resort to arbitration sufficiently in advance of the actual commencement of the arbitration process (art. 25.2). The purpose of this language is to ensure transparency and that multilateralism is maintained by informing all members. Parties to article 25 arbitration can agree on the procedures to follow (art. 25.2). In other words, parties to a dispute have the freedom to choose their own procedures in the arbitration process. There are no limitations on procedures for selecting arbitrators, evidence submitted, hearings, and other relevant matters.

Once rendered, the arbitral award is binding on the concerned parties (art. 25.3) and there is no ability to object to or appeal enforcement of an award. WTO members can only raise certain points regarding the award such as the evidence presented or interpretation of the panel. Therefore, the arbitral award under article 25 is final. The award also should be notified to the DSB and other WTO members who can raise any point regarding the award.

Although the use of article 25 arbitration seems attractive especially in the current environment, as a practical matter, article 25 would not serve as a “viable or permanent solution” to the ordinary WTO dispute settlement process. Over the past decades, WTO members have developed a wealth of expertise and knowledge regarding WTO DSU, which they cannot simply forgo. Reports of WTO Appellate Body and panels helped define and shape many treaty provisions. It is hard to envisage that WTO members would put aside such experience and enter into article 25 arbitration, which is essentially uncharted territory.

Throughout the history of the WTO, article 25 has been used only one time, in U.S-Section 110(5) of the U.S. Copyright Act- Recourse to Arbitration under Article 25 of the DSU, WT/DS160/ARB25/1, Nov. 9, 2001 (Award). That arbitration concerned a narrow issue of whether it was reasonable for the European Community (EC) to calculate losses for all potentially realizable income.  The arbitrators in US – Section 110(5) Copyright Act observed that recourse to article 25 arbitration is not subject to multilateral control and that, accordingly, “it is incumbent on the Arbitrators themselves to ensure that it is applied in accordance with the rules and principles governing the WTO system” (Award, para. 2.1). The arbitrators in the case also ruled that international tribunal may consider the issue of its own jurisdiction on its own initiative. The arbitrators decided that the U.S., the defendant in the original panel proceedings, had to provide a prima facie proof that the methodology and estimates proposed by the EC did not accurately reflect the EC benefits being nullified or impaired (Award, para. 4.4). To maintain confidentiality, the arbitrators decided that two versions of the award would be prepared. One, for the parties, which would contain all the information used in support of the determinations of the arbitrators. The other, which would be circulated to all WTO members, would be edited so as not to include sensitive information (Award, para. 1.24). In general, arbitrators in US – Section 110(5) Copyright Act determined important issues regarding jurisdiction and procedures so that future article 25 arbitrators can follow suit.

Add to all of this, that article 25 arbitration does not provide any appeal mechanism. As discussed above, arbitral awards under article 25 arbitration are final and there is no appeal process. Nor is there any need for article 25 arbitration award to be adopted by the DSB. This is in contrast with the WTO ordinary dispute settlement mechanism, where appeals are available regarding issues of law covered in the panel report and legal interpretations adopted by the panel (DSU, art. 17.6). The panel’s findings on factual issues thus escape from appellate review. The appellate review process is limited to upholding, modifying or reversing the panel’s legal findings and conclusions. Under WTO ordinary procedures, panel decisions are adopted unless all WTO members present at the meeting of the DSB decide by consensus not to adopt panel decisions (known as inverted consensus).


While theoretically article 25 arbitration seems to be a viable alternative past practice and wealth of experience and knowledge developed under WTO ordinary dispute settlement mechanism would prevent utilization of such an alternative. However, WTO members should not shy away from utilizing article 25 arbitration. The dispute settlement mechanism as a whole – including article 25 arbitration – is not only about disputes; it is an evolving body of international trade law principles.

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Peeking Behind the Curtains: Insights from the Swiss Supreme Court’s Recent Public Hearings in Appeals against Investor-State Dispute Settlement Awards

Fri, 2019-01-04 03:05

Michael Falck

In a marked departure from its usual closed-doors policy, the Swiss Federal Supreme Court (the “Supreme Court”) recently held public deliberations in two separate appeal proceedings concerning foreign investment arbitrations. In both cases, a public deliberation by all five judges of the first civil chamber was necessitated due to the lack of unanimity among the regular panel of three (Articles 20 and 58 of the Swiss Federal Tribunal Act). In both cases, the majority decided to uphold the decisions in the relevant UNCITRAL arbitrations that favored investment protection, with a dissenting minority advocating for a more restrained interpretation of the scope of application of the relevant bilateral investment treaties (“BITs”).

The first hearing, held on 16 October 2018, concerned two cases in which the Russian Federation sought to set aside the interim awards in two PCA-administered UNCITRAL arbitrations with seat in Switzerland for lack of jurisdiction (4A_396/2017 and 4A_398/2017, published on 16 November 2018). The disputes centered on the territorial scope of the Russia-Ukraine BIT of 27 November 1998 (the “R-U BIT”), namely on whether the Crimea was part of the host state territory from the perspective of a Ukrainian investor.

The Supreme Court confirmed the arbitral tribunal’s finding that the BIT extended to the Crimea, over which Russia exercised de facto control. As for the scope of investments covered by the BIT, the Supreme Court backed the arbitral tribunal’s finding that the term “investment” included investments initially located in the investor’s home state that ended up in the host state only subsequent to a change in territorial borders.

Judge Kathrin Klett, the lone dissenting judge, criticized the majority’s finding, arguing that the arbitral tribunal’s jurisdiction should have been declined for two reasons. For one, the investment notion under Article 1 (1) of the R-U BIT was in Klett’s view transaction-based, i.e. it only covered investments that were made by investors of one state in the territory of another state. Judge Klett argued that, by contrast, the majority wrongly based their assessment on an asset-based definition of investment, which she considered to be a definition more commonly used in recent BITs. Judge Klett found that her view was also in line with a systematic interpretation of the R-U BIT, which specifically mentions the need for a cross-border investment ab initio (based on the wording in Article 12 of the R-U BIT: “… investments carried out by the investors of one Contracting Party on the territory of the other Contracting Party …”), thereby excluding investments that only become international later on. She further opined that her stance was supported by the BIT’s goal of attracting foreign investment. Secondly, Judge Klett criticized the majority’s approach as an impermissible supplementation of a lacuna in the BIT. In her view, Russia and Ukraine in 1998 did not consider the possibility that investments would change ‘nationality’ as a result of shifting borders and this gap in their agreement could not be filled by a judicial or arbitral body.

In the second hearing, held on 11 December 2018 and for which the reasoned judgement is still outstanding, the Supreme Court rejected India’s set-aside appeal to an interim arbitral award in a satellite telecommunications dispute with Deutsche Telekom. In the UNCITRAL arbitration with seat in Switzerland, the tribunal had rejected India’s jurisdictional objections and found the force-majeure repudiation of the contract by the Indian state-owned entity to be a violation of the fair and equitable treatment standard. The Supreme Court confirmed the arbitral tribunal’s finding that the subjective scope of the 1995 Germany India BIT (the “G-I BIT”) extended to both direct and indirect foreign investments and thus covered Deutsche Telekom’s Indian investment made through a Singaporean subsidiary.

The majority considered that the G-I BIT covered indirect investments despite not being mentioned explicitly in the text. It based its interpretation on the BIT’s purpose of promoting foreign investment. Christina Kiss, the presiding judge, explained that a state should not be allowed to restrictively interpret such a treaty to exclude the type of investment it intended to attract when entering into the BIT. The majority also found support for its position in the fact that the use of special purpose investment vehicles was common in foreign investment and should not be disallowed by way of a restrictive interpretation. By contrast, the two dissenting judges adhered to a more literal interpretation, with Judge Klett emphasizing that Deutsche Telekom’s investment was in Singapore and not in India. Judge Martha Niquille expressed the view that the treaty’s silence on indirect investments should be interpreted as a conscious omission by the treaty partners since some contemporary BITs explicitly included such investments.

While no assessment on the basis of a sample size of two can be conclusive, the two decisions nevertheless invite a joint assessment in light of the fact that their contested and, in the case of the Crimean decision, politically sensitive subject matter led both to be publicly deliberated in the space of only two months. Seen together, the two decisions betray the possibility of an ideological divide among the judges of the first civil chamber. In common terms, this divide would distinguish Judges Klett and Niquille as the more ‘conservative’ faction favoring a more restrictive interpretation of BITs’ scopes of application, which ultimately favors states’ sovereignty. By contrast, the majority seems to show a willingness to interpret the BITs brought before it based on their objective purpose, thereby maintaining their broad scope (as reflected e.g. in Article 2 of the G-I BIT by the phrase “all investments made”) and refusing to exclude investments that a more restrictive historical or literal interpretation of the BIT would not cover.

It remains to be seen whether this divide follows the described lines or even truly exists. In any case, the Supreme Court’s recent jurisprudence in investor-state dispute settlement disputes can still be said to reflect its customary and long-standing practice as a gate-keeper: it assiduously uses its broad power of review when assessing an arbitral tribunal’s legal reasoning on jurisdiction yet exercises the judicial restraint mandated by Article 190 (2) of the Swiss Private International Law Act on all other grounds of appeal. The result is a body of established precedents that is very consistently in favor arbitri, which is good for investor-state arbitrations with seat in Switzerland and good for business.

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Procedural Reform: Two Party-Appointed Arbitrators and a Presiding “Expert”

Fri, 2019-01-04 01:00

Ylli Dautaj and William F. Fox

Arbitration in the 21st Century requires some bold, fresh thinking.  We must seek flexibility and innovation if legal civilization is to survive. 1) Thomas E. Carbonneau, The Law and Practice of United States Arbitration, xxix (6th. ed. 2018) jQuery("#footnote_plugin_tooltip_2608_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2608_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Similarly,  when the market speaks strongly, we should  listen very carefully. We believe that open and free markets, receptive to innovation, have proven superior for economic growth and political and legal stability.

It is not a coincidence that arbitration has been the dispute resolution choice of merchants for hundreds of years. While it has never been perfect, arbitration grew out of  free markets and promotes rule of law and private justice. Procedural workability and reasonable substantive fairness have trumped the need for a full-blown, court-like procedure.

Even so, arbitration should not be exempt from criticism. In the past, arbitration has been attacked on the false assumption that it usurps the courts’ inherent prerogatives. Some argue that party-appointed arbitrators take justice in their own hands, and overriding the twin goals of fairness and justice.  We disagree.  Arbitration has not usurped the role of judges. The arbitral procedure merely provides for an alternative to court litigation—not a complement to the courts. The free choice of expert arbitrators enhances private justice and overall freedom. Like free and open markets, the desire for private justice through arbitration is evidenced by arbitration clauses in international commercial agreements. The bottom line is this: arbitration’s workability has been demonstrated by the test of time.

These days, most of the debate on the efficacy of arbitration involves a discussion of potential changes that can improve an already efficient arbitral procedure. Most current debate focuses on procedural efficiency and cost-reduction and how these two features can be balanced in light of substantive quality. Spotting the contemporary issue with respect to increased costs and lengthier procedures is easy. Proposing possible solutions is more difficult. One recent proposal that is gaining traction—and is to be applauded—is that of “expedited procedures” (e.g. fast-track arbitration).

There is another procedural reform that we find both provocative and intellectually stimulating. We propose one significant change for appointment and composition of arbitral tribunals. In an arbitration with three arbitrators, the presiding arbitrator could be selected subsequent to the exchange of written submissions, or, perhaps,  subsequent to the case management conference. Appointing the presiding arbitrator before the case review conference, or before the first procedural order, would reduce costs and allow the third arbitrator to be appointed based on his or her relevant experience and expertise vis-á-vis the issues at hand—or, put a bit differently, the presiding arbitrator will be appointed only after a showing of demonstrated experience and expertise.


Traditional practice among international merchants is to refer disputes to a tribunal comprised of three arbitrators under the supervision of a recognized arbitration institution. Usually each party nominates one arbitrator and the party-appointed arbitrators choose the presiding arbitrator.  Much less frequently, an arbitral institution (or national court) may be the final appointing authority. The freedom to choose one’s own arbitrator is considered a major advantage and central hallmark of arbitration. But there is frequently a great deal of disagreement and contentiousness when the two party-appointed arbitrators begin the selection process for the presiding arbitrator.  We urge two changes: first, the credentials of the presiding arbitrator should include not only competence as an arbitrator but also significant expertise and relevant education in the subject matter of the dispute. Second, if the presiding arbitrator is appointed later in the process, it will be much easier to identify the specific expertise necessary to resolve the dispute.  These two innovations may reduce excessive hostility and contentiousness and the parties may be more prone to settle. If the presiding arbitrator is appointed subsequent to the exchange of written submissions—the parties can appoint an acknowledged expert in the relevant subject matter. Moreover, this procedural reform would potentially allow parties to save money since the presiding arbitrator will be a qualified expert by experience, expertise, and relevant educational background. With this “built-in” expertise parties might be willing to forego the expense and hassle of appointing their own expert.


Lack of speed and excessive costs are among the worst perceived features of international commercial arbitration. 2)White & Case, 2018 International Arbitration Survey: The Evolution of International Arbitration, 2 (2018) jQuery("#footnote_plugin_tooltip_2608_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2608_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); As has been said in this blog: “the key to efficiency is to identify when resources are being invested and when they are being wasted.” Reducing costs and minimizing procedural intricacies while at the same time delivering on procedural workability and substantive fairness is a tough task. Conducting a preliminary case assessment is a good practice prior to selecting the tribunal. In a “best case” scenario a dispute might settle subsequent to a preliminary case assessment. At the very least the important issues might be identified and narrowed with some certainty.  Similarly, letting the parties work out the crux of the matter and the time table with their own party-appointed arbitrator might reduce adverserialism and hostility and promote cooperation leading to, hopefully, early settlement. If not, at least costs will be significantly reduced and appointing a true expert might be an easier task.

One step in implementing our proposal will require arbitral institutions to investigate the credentials of their arbitrators in terms of both arbitration experience and subject matter expertise and to provide lists of potential arbitrators that are broken down into various subject matter areas.  So, for example, the institution could provide a list of experienced arbitrators who have a minimum of, say, ten years’ experience in international energy matters.3)We acknowledge that our proposal is a work in progress.  We believe a ten-year level of expertise (while perhaps a bit arbitrary) to be close to the minimum necessary to achieve our ultimate goal of dispensing with party-appointed expert witnesses jQuery("#footnote_plugin_tooltip_2608_3").tooltip({ tip: "#footnote_plugin_tooltip_text_2608_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });.  A similar list could be compiled from arbitrators with significant expertise in communications law or securities regulation or employment law.  Diligent parties may be able to identify experts on their own with no assistance from the arbitral institution.  The second step is drafting an arbitration agreement that reflects the requirement of presiding member expertise.


The following language, based heavily on language suggested by the London Court of International Arbitration (LCIA) in its Model Arbitration Clause, could be added to arbitration clauses and submission agreements:

“Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the LCIA Rules, which Rules are deemed to be incorporated by reference into this clause, except for the establishment of the Tribunal.

The number of arbitrators shall be three. One arbitrator shall be chosen by each party and the two shall chose the presiding arbitrator within 30 days after the exchange of written submissions. The choice of the presiding arbitrator shall be based on both demonstrated experience as an arbitrator and specific expertise in the subject matter of the underlying agreement.  If an agreement cannot be reached, the [arbitral institution] shall appoint the presiding arbitrator by identifying presiding members who have both arbitration experience and subject matter expertise. If a provisional measure is sought, an emergency arbitrator will be appointed by the LCIA to issue an order. The seat, or legal place, of arbitration shall be Washington DC, United States. The language to be used in the arbitral proceedings shall be English. The governing law of the contract shall be the substantive law of the State of New York, United States.”

We recognize that inserting the “expertise” element in the choice of the presiding member can seriously complicate the search for an appropriate person.  But if our prediction bears out–that a presiding member with bona fide subject matter credentials will eliminate the need for party-appointed expert witnesses—such additional time and expense will be well-justified.

While arbitral institutions have an important role in shaping arbitral procedure, the users of international arbitration should make the final decisions on procedure. Arbitration is after all a reflection of party autonomy. As has been said here, institutional reform “should never be a substitute for meaningful self-reflection and self-discipline by the parties, their counsel and the arbitrators that they themselves select.”


We believe our proposal is consistent with the main theoretical advantages of arbitration: flexibility, procedural efficiency, cost-reduction, and expertise, reflecting best practices, legal theory, and rational doctrine. Most importantly, the proposal like arbitration itself, is grounded in party autonomy and that classic expression of freedom—Liberté, Egalité, and Fraternité.  Giving parties the autonomy to tailor the procedure and choose their expert presiding member is directly related  to the broader goal of freedom. We believe our proposal will fulfil the purpose and destiny of arbitration without disturbing its underlying mandate. It keeps the process in the hands of and under the control of the users.

References   [ + ]

1. ↑ Thomas E. Carbonneau, The Law and Practice of United States Arbitration, xxix (6th. ed. 2018) 2. ↑ White & Case, 2018 International Arbitration Survey: The Evolution of International Arbitration, 2 (2018) 3. ↑ We acknowledge that our proposal is a work in progress.  We believe a ten-year level of expertise (while perhaps a bit arbitrary) to be close to the minimum necessary to achieve our ultimate goal of dispensing with party-appointed expert witnesses function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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The ICC Secretariat Behind the Scenes: A Chat with Ana Serra e Moura

Wed, 2019-01-02 17:05

Gloria Alvarez (Associate Editor)

The endeavours of the ICC go beyond the definition of an arbitration institution; it is indeed one of the most important agents of cultural integration, incubator of diversity and best arbitration practices. 1)Stavros Brekoulakis, The Culture in International Arbitration: Integration or Fragmentation?, CBAr Conference, Salvador Bahia, 18 September 2018 jQuery("#footnote_plugin_tooltip_4403_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4403_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); A true manifestation of this is the ICC Young Arbitrators Forum (YAF); a global space for the young arbitration community which provides networking opportunities while engaging with the highest quality in the debate of topical issues.

To celebrate the end of the year and a successful UK ICC YAF cycle; Maria Claudia Procopiak and Rachael O’Grady invited the ICC Deputy Secretary: Ana Serra e Moura to a Q&A session in London. The interviewer, Luiz Aboim distilled some of the most relevant information we need to know as members of the young arbitration community.

As starting point of the discussion, Ana mentioned her own personal experiences, including her first arbitration job at a boutique arbitration firm in Madrid. Ana highlighted the importance of new learnings and mentoring:

“Sometimes, you are too young to make decisions yourself and it is the arbitration market that make those decisions for you, so be ready and open to learn, either as administrative secretary or counsel.

In building an arbitration career, Ana advised not to focus exclusively on the ultimate result, but instead to work hard in the learning process. Maria Claudia added that it is crucial to work on your experience and exposure and most importantly: make the most of your first arbitration opportunity!

Empirical research supports Ana’s advice. Consistent with the 2018 White & Case Survey, parties are likely to select institutions capable of handling arbitrations in a multitude of locations and respond to specific needs. These specific needs also apply in seeking the right arbitrator’s profile; including its ability to speak different languages. Therefore, for young practitioners aspiring to become an arbitrator; an extra language(s) on your pocket is always a bonus.

According to a the 2018 White & Case Survey, the ICC is the preferred institution by 77% of the arbitration users. Therefore, it is not a surprise that the ICC has 11 teams organised by regions in the world. The 11 teams are managed by: 1) the Secretary General, 2) the Deputy Secretary General, and 3) the Managing Counsel. In addition to the seven teams based in Paris; the ICC also has offices in Hong Kong, New York, Singapore and São Paulo. The Deputy Secretariat also continues to work on further improvements and developments including the ICC’s IT system composed by an internal and external platform and several other projects, including research.


Source: ICC Secretariat.

Founded in 1923 with more than 24,000 cases – the ICC Court has achieved full gender parity (88 women and 88 men). This endeavour will continue to be one of the flagship commitments of the ICC at ensuring genuine diversity. The ICC also understands that parity and equality is also achieved with regional presence. The ICC Africa Commission illustrates the Secretariat’s commitment on this matter. The Africa Commission’s main objectives comprise: raising arbitration awareness on the region, while focusing their efforts on expanding the pool of African arbitrators qualified and available to resolve the increasing number of disputes in the region.

Source: ICC Secretariat.

Source: ICC Secretariat.

Another example on genuine diversity; is the ICC’s long-term commitment and trust in Latin American arbitration practice, which continues to be a story of success and mutual prosperity. The ICC has contributed at bringing down cultural barriers to the ever-expanding Latin American arbitration market. The 2018 White & Case Survey highlighted the efforts made by the ICC at opening an office in São Paulo, Brazil, which also includes a modern hearing centre. In less than one year, the São Paulo office have registered 40 cases, involving 123 parties (117 Brazilian parties and 6 foreign parties).

The ICC owes much of its success to its international external structures, namely its Court Members, National Committees, and ICC YAF Representatives. Ana explained that all decisions submitted to the ICC Court help the Secretariat to develop the best practices on the ICC Arbitration Rules. In terms of appointments, the ICC receives proposals from their national committees when seeking a specific profile for an arbitrator.

Luiz Aboim asked the Deputy Secretary General about Expedited Procedures, an arbitration process for disputes below USD 2 million, where the final award should be rendered within 6 months. So far 85 parties from 38 countries have been involved in an ICC Expedited Procedure. This is another example of the ICC constantly adapting to the needs of the market and broadening the portfolio of its services. The most frequent type of disputes are sales and purchase of goods; construction and engineering; consultancy and agency.

In responding to Luiz’s request on predictions for the future; Ana concluded that technology will continue changing the way young arbitrators work and probably double-hatting will be less common in the future. While remaining confident arbitrators are not going to be replaced by AI; Ana suggested to keep an eye on predictive justice.

Lastly, Alina Sartogo joined the panellists for a Mock ICC Arbitration Court Plenary Session. The ICC Court Plenary Sessions are open to all Court members and take place once per month to discuss relevant issues with respect to ICC awards involving states and state entities and challenges.

The key message from the ICC Deputy Secretary General to us, young aspiring arbitrators, is to focus on our learning process and networking; the first appointment will then come naturally.

References   [ + ]

1. ↑ Stavros Brekoulakis, The Culture in International Arbitration: Integration or Fragmentation?, CBAr Conference, Salvador Bahia, 18 September 2018 function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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The Whispered Conversation: Hong Kong v. Singapore

Tue, 2019-01-01 21:00

Gary L. Benton

Hong Kong v. Singapore. It’s not the next big football match or title of an upcoming Japanese monster film. It’s the question of where to bring international arbitration claims in Asia. It’s a topic whispered at cocktail receptions and routinely reserved for hushed discussion in law firm conference rooms. It’s the topic rarely if ever discussed with sincerity at arbitration conferences – and it’s certainly not a topic to debate too loudly while in Singapore or China, especially if you’re on the “wrong” side of the debate.

The West has slowly come to recognize Hong Kong and Singapore as credible seats for international arbitration in Asia and one can barely deny that Hong Kong and Singapore are rapidly becoming global arbitral seats in their own right.

Their development is very much an Asia-first model, fueled largely by economic potential and, in considerable part, by disregard from the West. With European nations and the US focusing arbitration resources on the Atlantic and largely ignoring the Pacific Rim, East Asia simply took matters into its own hands, building arbitral centres that attract Asia-related disputes. With the rise of credible seats in Asia, there is rarely a need to travel to Paris or London for arbitration and, in turn, Asia may soon be challenging the West for matters without regional ties.

The potential for further expansion in Asia is significant. The International Monetary Fund ranks the US, China and Japan as the world’s largest economies and, in fact, most of their economic activity is focused on Asia and the Pacific Rim. In the US, California, ranked alone, is the fourth largest economy in the world, with China, Hong Kong and Japan ranking among its top 5 export regions. California companies, particularly companies in the technology sector, look principally to Asia for trade and, not surprisingly, are under growing pressure to submit disputes to courts and tribunals in Asia for resolution. The same holds true for companies supplying raw materials and finished goods from Western Canada and throughout much of Latin America – the focus is largely on trade with China and other Asian countries. Looking North from Oceana or East from Central Asia, particularly with China’s planned Belt and Road Initiative, the epicenter of further global economic growth appears to be Asia.

Accordingly, a question increasingly asked in jurisdictions facing Asia is where to arbitrate in Asia. At present, the choice is largely between Singapore and Hong Kong. Although regional centers in Seoul, Tokyo, Kuala Lumpur, mainland China and elsewhere in Asia are developing, and may be a solution for specific cases, there is no doubt that Hong Kong and Singapore remain the standard-bearers.

Both have their virtues. Singapore is a modern, vibrant shopping mecca; Hong Kong is a cosmopolitan cultural delight with ready access to mainland China. But, of course, the answer more importantly turns around each jurisdiction’s receptiveness to arbitration and the rule of law.

As rich and cosmopolitan as Singapore and Hong Kong may be, there is an underbelly to both to be considered. Freedom House, the leading international research institute that ranks freedom, democracy and the rule of law around the world, ranks Singapore as only partly free giving it a freedom score of 52/100. Freedom House ranks Hong Kong as partly free as well giving it a slightly better score of 59/100. Similarly, judicial independence rankings by The World Economic Forum place Hong Kong 13th in the world and Singapore at 19th.

Relative to much of the world, these rankings are not bad but the question can be asked whether jurisdictions that have less than ideal rankings for freedom and judicial independence can be entrusted with administering international arbitrations and enforcing arbitration awards. And, as between Hong Kong and Singapore, putting aside the relatively minor differences in their pro-arbitration laws and the rules of their leading institutions, which is to be preferred as an arbitral seat?

Starting with Singapore, the little city-state is on steroids when it comes to government initiatives to promote Singapore as an international dispute resolution mecca. Anchored by Singapore International Arbitration Centre and the well-accoutered Maxwell Chambers, Singapore is attracting a growing share of international work notably from Southeast Asia and India while regularly taking strategic steps to gain footholds in mainland China. The ICC, ICDR and other global players are scrambling to implement strategies to strengthen their positions there and Singapore has seen a large influx of Western practitioners who hope to benefit from Singapore’s rise.

Behind the curtain, Singapore’s political system receives mixed marks. Singapore’s parliamentary political system has been dominated by the ruling People’s Action Party (PAP) and the family of current prime minister Lee Hsien Loong since 1959. According to Freedom House, the electoral and legal framework allows for some political pluralism and considerable economic prosperity but critics contend that what effectively amounts to a one-party system limits freedoms of expression, assembly, and association. Death penalties for drug traffickers, canings for some 35 other offenses and prohibition on chewing gum are reminders that Singapore adheres to different standards than many Western jurisdictions.

That said, it is not believed that political interests unduly influence the judicial system, at least when it comes to international commercial matters. The courts in Singapore are well-respected and have a strong record for following a British tradition honoring the rule of law. Nonetheless, the question remains how independent the courts can truly be given the political constraints and the pressures faced by the small, regionally isolated city-state.

Hong Kong has a far different past and faces a far different future than Singapore largely because of its intertwined relationship with mainland China. Despite China opening its doors to international business, Hong Kong remains an important gateway to the mainland. Hong Kong’s continuing strength as an international banking and financial center, combined with its access to mainland markets, provide strong economic advantages. The international arbitration sector in Hong Kong, built largely around the HKIAC and a talented legal and academic community, have made Hong Kong the traditional leader in Asia Pacific-based international arbitration. ICC is active in Hong Kong and CIETAC and other arbitral institutions are also looking to reap rewards.

Hong Kong residents have traditionally enjoyed substantial civil liberties and economic freedoms. As a Special Administrative Region of China, Hong Kong abides by the rule of law under its local constitution, the Basic Law. However, the Chief Executive and half of the Legislative Council are chosen through indirect electoral systems that are widely viewed to favor pro-Beijing interests, and the territory’s freedoms and autonomy have come under threat in recent years due to growing political and economic pressure from the mainland.

In the meantime, Hong Kong remains a stubborn bastion of democracy. Its legal system is fitted with a long history of English law jurisprudence including a court system that remains independent and widely respected. Hong Kong maintains a system of appointing pre-eminent jurists from around the world as non-permanent judges on its highest court. Hong Kong is an attractive forum for enforcement of arbitral agreements and the recognition of awards and, to date, the courts have not hesitated to enforce awards against Chinese state-owned enterprises. Like Singapore, Hong Kong is proactive with respect to legislation favoring arbitration.

Hong Kong has the added benefit of ties to the mainland and some argue mainland courts are more likely to enforce arbitral awards coming from Hong Kong than from foreign jurisdictions. The Arrangement Concerning Mutual Enforcement of Arbitral Awards made between Hong Kong and China has proven to work in enforcing awards and mainland China has taken steps to ensure international arbitration awards are given protections.

For the immediate future, Hong Kong and China remain intertwined in a way that favors international arbitration. China benefits from Hong Kong’s positioning as a global financial center and well-deserved reputation as the epicenter for the rule of law in Asia. China is surging forward with new economic initiatives. The Belt and Road initiative, representing US$900 billion of investment infrastructure investment, is expected to bring strong returns and, undoubtedly, international arbitration work. The growth of arbitration in mainland China, largely through CIETAC and many other impressive regional institutions like BAC/BIAC in Beijing and SCIA-SAC in Shenzhen will likely benefit mainland China and Hong Kong in providing a broad network of domestic and international arbitration resources. So long as Hong Kong and Beijing work to find a proper balance in their relationship that protects Hong Kong’s judicial independence, both will thrive from their relationship.

For both Singapore and Hong Kong, the next step is to move from being the leading regional Asian seats to leading global seats. For that, they need to demonstrate they can provide fair and independent dispute resolution – for Western and Asian parties – consistent with the leading seats in the West.

For Singapore, the challenge is to not lose sight of political pluralism and to expand beyond parochial interests by maintaining a judiciary which remains impartial and independent, by ensuring international arbitration initiatives are not driven largely by local interests and short-term economic goals and, relatedly, by providing genuine opportunities for non-local practitioners and arbitrators. As well, Singapore must find some way to manage its dependence on India for legal work. While Singapore will undoubtedly remain an important shipping port, it needs to find a way to remain relevant legally and economically as India develops its own infrastructure. If Singapore achieves these goals, Western and Asian parties will be comfortable looking to Singapore as a global seat.

Hong Kong has an advantage given the long history of its independent judiciary and its intimate access to mainland China. However, its challenge is to convince Beijing that democracy and an independent judiciary in Hong Kong will further long-term economic growth throughout China and not threaten state security. Hong Kong’s related challenge is to ensure Beijing understands that Hong Kong can’t be replaced. China has made extraordinary investment and generated extraordinary growth in the Pearl River Delta Economic Zone, just as it is now doing in many other parts of the country, but Beijing needs to understand that arbitral seats governed in socialist law will always be a second choice for foreign parties, particularly Western parties. If Hong Kong achieves these goals, Western and Asian parties will continue to hold it in high regard and it will be able to expand its base.

Certainly, practitioners in Singapore and Hong Kong, and in jurisdictions around the world, will have their own perspectives. Ironically, it’s a topic that can’t be too openly debated in Singapore or China given the political pressures that come to bear. But a genuine debate is needed for Hong Kong and Singapore to rise to the top of the Queen Mary seat survey.

Until then, it will remain mostly a topic for those whispered cocktail parties, those closed conference rooms – and, of course, the Kluwer Arbitration Blog.

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Costs in International Arbitration – Are Changes Needed?

Tue, 2019-01-01 02:00

Neil Newing, Ryan Cable and Johnny Shearman

A little under ten years ago Sir Rupert Jackson proposed significant reforms to reduce the costs of litigation in England and Wales. It is fair to say that while his reforms have received both praise and criticism over the past decade, they are largely considered to have been a success in curtailing the costs of litigating in England. As this anniversary of reforms in English litigation approaches, it is an opportune moment to consider whether lessons can be learnt concerning the way in which costs are dealt with in international arbitration, without, crucially, undermining the advantages associated with the flexibility of arbitration as a dispute resolution method.


Costs in English Litigation

The fundamental principle in English civil litigation is that costs follow the event (i.e. the unsuccessful party pays the costs of the successful party). However, the court has a discretion as to the final amount awarded and it is, on a standard basis, typical for a successful party to recover approximately sixty per cent of its costs from the other side.


While the above principle has not changed, since Jackson’s reforms the approach taken by the English courts in respect of costs has. Costs management is now a significant component of case management in litigation. Costs budgets, one of Jackson’s more controversial reforms, are fixed early on in proceedings and consistently monitored and reviewed. Any request to increase the budget requires a party to convince the court why such an increase is reasonable and necessary in the circumstances. As such, costs have become a primary consideration from the outset.


With that being said, unless the parties otherwise agree, the court usually determines the final costs award in a separate hearing following the substantive judgment on the merits of the dispute. Costs are then determined on the basis of what is reasonable and proportionate, also taking into account the conduct of the parties. This requires the parties to provide each other, and the court, with a large amount of detail in respect of how their costs were incurred. As such, there are often two separate judgments: one dealing with the substantive dispute and one dealing with costs.


Costs in International Arbitration

Costs in arbitration usually fall into two broad categories: (i) costs of the arbitration (i.e. the costs of the tribunal and institution (if any)), and (ii) legal costs. The approach to these costs adopted in international arbitration largely mirrors that in English litigation in so far as costs are generally recoverable by the successful party. Commonly, the “costs of the arbitration” are awarded in full, whereas the legal costs may be reduced on the grounds of “reasonableness”. However, when it comes to the tribunal assessing these costs, this tends to be a far less forensic exercise than in costs proceedings in English litigation.


In determining costs, the tribunal may take into account various aggravating or mitigating factors such as; the level of success of a claim, the behaviour of the parties towards the efficient conduct of the arbitration, or the pursuit of unfounded arguments. See for example Articles 38(4) and (5) of the ICC Rules and Article 28.4 of the LCIA Rules. In this regard, it is notable that efficiency and cost-effectiveness appears to have been at the forefront of recent updates to institutional rules. For example, the new Vienna International Arbitral Centre (“VIAC“) rules which came into force in January 2018, place an explicit obligation on the parties and the tribunal to conduct proceedings in an efficient and cost-effective manner, with tribunals expressly permitted to take into consideration the parties’ efforts in this regard in making their decisions on costs (Articles 16.6, 28.1 and 38). Additionally, in what is a first under institutional rules, the VIAC secretary general is also able to consider the tribunal’s contribution to the conduct of efficient proceedings in determining the arbitrators’ fees. The VIAC secretary general has the authority to increase and decrease arbitrators’ fees by up to forty per cent in light of the efficient (or inefficient) conduct of the proceedings (Articles 16.6 and 44.7).


It is standard practice for issues of costs to be dealt with at the end of the arbitration, typically as part of the final award. This includes costs sought for interim applications – whilst it is common to include a request for those costs in the application, tribunals will often defer their determination until the conclusion of the proceedings as a whole, rather than deal with them at the time of ruling on the application.


What Can be Learnt from English Litigation?

Whilst rules driving toward time and cost-efficiency are helpful, they only serve to encourage the tribunal to have consideration to such issues in attempting to manage the conduct of parties. It is down to the tribunal to make clear that costs consequences can, and will, flow from clearly dilatory and unjustified conduct. To reinforce this notion, tribunals must be prepared to make the necessary costs orders in order for parties to take them seriously. The English courts frequently make such costs orders, which leads parties to think carefully before pursuing applications that may be without merit. Arbitral tribunals, on the other hand, commonly leave all issues of costs until the end of the matter and there is often little correlation between a party’s conduct and the final costs order, providing little to no deterrence for bad behaviour.


Tribunals, however, are not required to wait until their final award to deal with the issue of costs. As noted in the 2015 ICC Commission Report, ‘Decisions on Costs in International Arbitration’, most institutional rules and national arbitration legislation permit tribunals to allocate costs in partial awards which determine preliminary issues and to make awards or interim orders in respect of costs, including in connection with applications for interim relief and other procedural applications.


Thus, in instances where an application without merit was most likely made in an effort only to delay the proceedings, counsel can and should make submissions to the tribunal that costs be dealt with at the outcome of the application rather than being deferred. It may well be appropriate for the tribunal to deploy cost consequences at that time to curtail further such behaviour by the parties or to punish the party causing the delay. This is a common feature of English litigation and applications (if brought at all) are often settled before being heard in order to avoid the risks of immediate costs consequences. Arguably, this is an area where arbitral tribunals can learn from the English court’s approach. It is the tribunal’s duty to actively manage proceedings to be cost and time efficient and cost orders are a key tool available to achieve this.


Returning to Jackson (who now sits as an arbitrator), in a recent speech given at the 11th annual international conference for Law and Alternative Dispute Resolution, he called for cost budgeting to be used to tackle the high costs now associated with arbitration. He acknowledged that such cost management may only be suitable for lower value claims in the first instance, but he noted the success that such a regime can have: a reference to the English litigation system.


A very pared-down version of costs budgeting already exists in maritime arbitrations under the London Maritime Arbitrators Association’s terms. Parties are required to provide an estimate of their costs through to the end of the arbitration. The tribunal can then take this estimate into account when assessing recoverable costs. However, as to whether a more rigid regime should be adopted more widely (as put forward below) there is perhaps a fence to be sat on.


Where Does Arbitration Get It Right?

As already mentioned, English courts often deal with costs in separate proceedings following the substantive judgment. This is necessary due to the detailed nature of the process and often a specialist costs judge is required to determine this stage of the claim. In arbitration, however, costs can and often are dealt with together with the decision on the merits in one final award, saving both time and costs by avoiding lengthy further proceedings.


Here comes the fence. The lack of a rigid costs budgeting regime is an attractive quality of international arbitration. Its introduction would likely undermine the much-touted flexibility enjoyed by users and practitioners alike. The requirement for parties to prepare cost budgets, have them approved and then to slavishly monitor them would likely stymie the adaptability of the arbitration process. Furthermore, the confidential nature of arbitration would make it difficult for tribunals to compare costs when determining what is reasonable.


Therefore, given the existing reluctance of tribunals to consider the costs of even interim applications, it appears Jackson has another uphill struggle in front of him if he is to convince tribunals to consider the entire costs of the arbitration at the outset of the dispute.

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The New Year Arbitration Quiz

Sun, 2018-12-30 20:25

Michael McIlwrath

The New Year is upon us. You have a major submission that is now due and a hearing about to start in another case.  How did that happen?  Not to worry! To help you keep procrastinating, the Kluwer New Year’s International Arbitration Quiz is here to help.

As in years past, the first reader to submit the correct answers, or the first submission with the most correct answers, will win a dinner in Florence (not including travel or hotel) at your convenience and a free subscription to Kluwer Arbitration Blog for 12 months.  Please send your answers to [email protected] by 6 January 2019.

Answers will be published next week.


1. Which current prime minister of a European country had to resign from commercial arbitration appointments upon being named head of state?

a. Lars Løkke Rasmussen, Denmark

b. Giuseppe Conte, Italy

c. Dimitri Medvedev, Russia

d. Juha Sipilä, Finland

e. Emmanuel Macron, France


2. The “Singapore Convention” for the enforcement of mediated settlements was introduced at the 2014 UNCITRAL Working Group II session by which country?

a. Singapore

b. The United States of America

c. Ecuador

d. Australia

e. The Netherlands


3. Which set of arbitral rules incorporates a code of conduct for arbitrators, with the possibility of removal from pending proceedings and/or being stricken from future appointments for failing to adhere?

a. Milan Chamber of Arbitration (CAM)

b. International Centre for Dispute Resolution (ICDR)

c. Hong Kong International Arbitration Centre (HKIAC)

d. International Court of Arbitration of the International Chamber of Commerce (ICC)

e. North Antarctic Arbitration Court of McMurdo Sound (COLD)


4. Know your arbitrator! Match the following:


5. According to standardized data reported in 2018 by the ICC, LCIA, SIAC, HKIAC, and the ICDR, the average time to appoint a three-arbitrator tribunal in 2017 was:

a. 12 days

b. 23 days

c. 47 days

d. 81 days

e. Hah! There is no such data


6. In Rethinking Choice of Law (Eleven Publishing Int’l 2018), Gustavo Moser reviews a substantial body of empirical data that suggests the principle reason parties who choose to exclude the application of the UN Convention on the International Sale of Goods (CISG) from their contract choice of law provisions, do so because of:

a. Strategic preferences for a particular law that they do not wish the CISG to displace.

b. Ignorance of the CISG.

c. The two-year statute of limitations for liability for latent defects under Art. 39 of the CISG.

d. A perception that the CISG favors parties from common law countries, leading them to prefer instead the Prague Law on the Sale of Goods.


7. The ICCA/Queen Mary report on Third Party Funding in International Arbitration (2018) made which recommendation with respect to disclosure of funding agreements when determining requests for security for costs?

a. Arbitral tribunals should not require disclosure of the funding agreement, only the identity of the funder, because of the privileged and confidential nature of the agreement.

b. A tribunal may require disclosure of the third-party funding agreement in order to assess whether the funded party is impecunious, which is necessary to determine whether security for costs is warranted.

c. A tribunal may require the funder to disclose the funding agreement to determine whether the funder has agreed to pay an adverse costs award, not to determine whether the funded party is impecunious.


8. Participants in the Global Pound Conference ranked in-house counsel as having the greatest ability to influence the future of commercial dispute resolution. According to the data, which of the voting stakeholder groups shared this view the least?

a. Arbitrators, mediators, judges

b. External counsel

c. Government representatives (ministries of justice)

d. Academics

e. In-house counsel


9. “Happy Fun Time” refers to:

a. When parties settle their dispute and the arbitration institution refunds a substantial portion of the fees they advanced.

b. How arbitral tribunals refer to their Procedural Order n. 23.

c. The lighthearted discussion at the end of each episode of The Arbitration Station podcast.

d. Art. of the IBA Guidelines of Conflicts of Interest, “the Yellow List”, which provides that arbitrators need not disclose more than three drinks with a party so long as the arbitrator paid for them.


10. Which of the following celebrities was not involved in a highly-publicized dispute over the initiation (or not) of an arbitration in 2018?

a. Stormy Daniels

b. Jay-Z

c. Donald Trump

d. Brad Pitt


11. Which of the following institutions offers ODR (online dispute resolution) for manufacturing disputes on the basis of documents only, and in which the arbitrators are engineers?

a. ICC Mediation and ADR Services

b. Hong Kong International Arbitration Centre (HKIAC)

c. Court of Arbitration of the Stockholm Chamber of Commerce (SCC)

d. Court of Innovative Arbitration (COIA)

e. International Centre for Dispute Resolution (ICDR)


12. Extra points. Write the conclusion of a joke that begins with the line below. We will publish our favorite response with the Answers to the Quiz.

An arbitrator, a law firm partner, and an in-house counsel walk into a bar together……………

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2019: the Year of the Big Harvest!

Sat, 2018-12-29 23:51

Nikos Lavranos

While the jury is still out on whether winter is coming or has already arrived regarding ISDS and investment treaties, I would rather turn to agriculture and use the metaphor of sowing the seeds and harvesting.

Since July 2010, when the European Commission published its very first Communication on ISDS and investment treaties, it has been relentless sowing the seeds for changing the current ISDS system for good. In the beginning, the Commission was rather careful and claimed that its efforts were build upon the Member States’ 50 years of “gold standard” BITs expertise, so the EU’s policy would “not be a revolution, but rather an evolution”. However, since the high times of the TTIP debate around 2013/14, the Commission – pushed by the European Parliament and anti-ISDS NGOs – has become much more active, self-assured and radical.

As will be highlighted below, the Commission has been sowing several plots of land in parallel and 2019 promises to be the year of the big harvest for the Commission and the Member States.


The Intra-EU BITs

Regarding the intra-EU BITs plot of land, the Commission had to be particularly patient and tenacious. Since the early 2000’s the Commission had been pushing the Member States to terminate their intra-EU BITs for their apparent incompatibility with EU law. Whereas most Member States failed to respond to that pressure, the number of intra-EU BITs cases was continuously increasing, while at the same time the Commission remained unsuccessful with its amicus curiae interventions to convince arbitral tribunals to relinquish their jurisdiction. Hence, the Commission eventually initiated infringement proceedings against five Member States, while the Achmea setting aside proceedings were unfolding before the German courts. The moment the German Bundesverfassungsgericht had submitted preliminary questions to the CJEU as to the compatibility of the ISDS provision in the relevant intra-EU BIT, the Commission knew that the time of harvest was coming. Indeed, the vaguely formulated Achmea judgment of the CJEU essentially forces the Member States to terminate their intra-EU BITs (and may even have a spill over effect on the ECT). Accordingly, one can expect that the Member States will take steps towards terminating the intra-EU BITs in 2019. Thus, soon the Commission can expect a big harvest by the termination of some 190 intra-EU BITs – potentially including their sunset clauses.


The “New Generation” EU Trade and Investment Agreements

Also, the second plot of land, namely of developing the so-called “new generation” EU trade and investment agreements, faced initial problems by using the wrong seeds and by failing to anticipate the heavy anti-ISDS/TTIP storms, which raged throughout Europe. Whereas the Commission first tried to save TTIP by incremental changes of the ISDS provisions, it became clear that there would be no chance of getting it approved by the European Parliament. Leaving TTIP unattended and letting it quietly die, the Commission turned its attention to the other treaties by using a different sort of seeds for CETA and EU-Vietnam FTA. The Commission replaced several important DNA bits of investment arbitration with DNA new bits, such as for example replacing the broad FET standard with a closed list of FET-breaches and by replacing the ISDS system with the investment court system (ICS). The new crop was fairly successful since the Commission was able to incorporate it into the EU-Mexico FTA and EU-Singapore FTA. However, Japan did not like this new crop, so it was not included in the EU-Japan FTA. Moreover, the ICS crop is not even part of the FTA negotiations with Australia and New Zealand. Hence, it seems that the Commission has lost appetite to include investment protection and dispute resolution provisions in its FTA. This, of course, has mainly to do with the fact that the CJEU did not give the EU full exclusive competence regarding the ISDS provisions.

Moreover, the fate of the ICS in CETA is still in the hands of the CJEU, which will render its Opinion in 2019. Thus, it remains to be seen whether the Commission will have a big harvest from that plot of land, though it seems unlikely that CJEU will spoil the harvest.



The MIC plot of land, which lies next to the CETA plot, is a new testing ground to roll out a modified ICS crop for the global market. In the UNCITRAL glass houses in New York and Vienna, the Commission has been testing the idea of replacing ISDS with a multilateral investment court (MIC) with appeal tribunal on a global level. The first two rounds of tests have been concluded and the results look promising enough for launching the new crop in 2019 by tabling a draft text for a MIC. The Mauritius Convention will serve as an example, which will allow each State to decide whether, and if so, for which of their BITs they want to defer the disputes to the MIC. If all EU Member States, plus Canada, Singapore, Vietnam, Mexico and Mauritius sign up to it, this would arguably constitute a sufficiently sustainable basis. Thus, with some luck and good weather, the Commission could have the first MIC harvest in 2019.



The fourth plot of land on which the Commission has been sowing for several years without much of a harvest is the ECT. As in the case of intra-EU BITs, the number of intra-EU ECT disputes against Member States has exploded, notably against Spain, but also – albeit at a much lower level – against Italy, Czech Republic, Slovak Republic and last but certainly not least Germany (Vattenfall). Also, in the ECT cases the Commission and the Member States have been so far unsuccessful in convincing ECT arbitral tribunals to refuse their jurisdiction. In addition, in contrast to intra-EU BITs, the ECT is a different type of – multilateral crop – and the applicability of the Achmea judgment on the ECT remains a matter of discussion. In spite of these obstacles, for the following reasons,  the poor harvest situation regarding the ECT may very well change in 2019.

First, preliminary questions as to the compatibility of ECT awards with EU law have been asked to the CJEU, though the CJEU will most likely not issue its judgment in 2019, that may be the case with the Opinion of the Advocate General. It would seem likely that the outcome will be similar to the Achmea judgment.

Second, the “modernization” process of the ECT will take off in 2019. This offers the Commission and the Member States an excellent opportunity to “disconnect” themselves from the ECT – either by adopting a unilateral declaration or, following the example of Italy, by withdrawing from the ECT. Indeed, this “modernization” process encompasses a whole range of ECT provisions, protection standards and principles, which could be “CETAarized”. For example, by replacing the open FET provision with  the closed list of FET breaches contained in CETA or by narrowing down the definitions of investor and investment. In short, 2019 could be a good year for a big ECT harvest for the Commission and the Member States.


The Unpredictable Art of Farming

The art of farming is not one for the faint of heart. The reality of farming is a lot of hard work and never knowing for sure if your crop will be a bounty or a loss until harvest time arrives. Everyone understands that weather conditions play a large role in determining how well farmers’ crops are growing, but the realities are subtle and vary from crop to crop.

However, with a little bit of luck and help from the CJEU, the Member States and some States, the Commission might be able to have some successful harvests for the various plots of land discussed above. In any event, the Commission has certainly been working hard for the past nine years in rooting out the weeds from the existing investment arbitration landscape.

A first assessment of the 2019 crop condition will take place at the EFILA Annual Conference on 31 January 2019.

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Commensalism in International Investment Arbitration: The Rule of Law and CSR in the New Dutch Model BIT

Sat, 2018-12-29 21:55

Marcin Menkes

Commensalism of IIL Critique

While the popular criticism of investment arbitration provides fertile ground for the academic proposals for ISDS reform, the latter hardly shape the development of (investment) law and even less so, its popular perception. Reform proposals are usually firmly grounded in positive law, and as such they are inherently constrained. Alternatively, general overhaul suggestions are taken with a pinch of salt for lack of normative basis.

We should thus cherish the opportunity when ambitious ideas can shape reality. This may be the case of the Netherlands draft model BIT, notably its two articles on the Rule of Law and Corporate Social Responsibility (CSR).


Dutch Trailblazers

Why could this Model BIT be a breakthrough? Two reasons: the geopolitical context and the unique position of the Dutch BITs. From the geopolitical perspective, populists swept through liberal democracies by questioning international order and normative constraints on governments. Sufficient to recall the U.S. withdrawal from UNESCO, the Paris climate agreement, the JCPOA, and UN Human Rights Council, and derailing TTIP, NAFTA and TPP talks. Obviously, the clash between yearning for freedom and security is nothing new. There is no reason to assume that this time the renouncement of Rule of Law (RoL) and Escape from Freedom will not take us on Road to Serfdom. Accordingly, despite the recent backlash against ISDS, the general public may soon reconsider its desirability.

As for the Dutch BITs, they are the second most-frequently used basis for bringing investment claims (1987–2016). If the Netherlands remains committed to curtailing tax evasion, notably through the new requirement of substantial business activities (Art. 1(b)(ii)), their attractiveness will drop. However, they will still constitute an important normative benchmark.


Investment Tug-of-War

The criticism of investment arbitration has various facets, but it mostly amounts to the “private, secret courts” disregarding public concerns. It reflects the phenomena of changing geometry, where social sympathies for “our” entrepreneur struggling against administration shift, once the “selfish” investor files a claim against “our” government. An investor is thus accused of reaping the benefits of a BIT without taking the host country’s interests into account. So far, the response has been to strengthen the government’s capacity to protect the public interest, notably with the right to regulate (Dutch Model BIT, art. 2(2)). Also, the other narrative – luring investors and then abusing the host advantage – entails broadening of treaty protection. Yet, waging a normative arms race creates the risk of losing the rationale behind International Investment Law (IIL).


 (Towards) the Dutch Formula

The striking feature of both strands of criticism is that they describe the investor-state interactions in some form of a symbiotic relationship: the commensalism of the foreign investor reaping the benefit of ISDS without a counter contribution, or parasitism, where the host-state, having locked-in the foreign investment, may strip it of profitability. Hence, two elements, and a missing link, deserve particular attention in the Dutch model BIT.

Starting with the Rule of Law, Art. 5 stipulates:

  1. The Contracting Parties shall guarantee the principles of good administrative behaviour, such as consistency, impartiality, independence, openness and transparency, in all issues that relate to the scope and aim of this Agreement.

  2. Each Contracting Party shall ensure that investors have access to effective mechanisms of dispute resolution and enforcement, such as judicial, quasi-judicial or administrative tribunals or procedures for the purpose of prompt review, which mechanisms should be fair, impartial, independent, transparent and based on the rule of law.

  3. As part of their duty to protect against business-related human rights abuse, the Contracting Parties must take appropriate steps to ensure, through judicial, administrative, legislative or other appropriate means, that when such abuses occur within their territory and/or jurisdiction those affected have access to effective remedy. These mechanisms should be fair, impartial, independent, transparent and based on the rule of law.

It is not an all-new provision. RoL lurks in various normative components of modern BITs. IIL can even be “squared with” the concept of RoL and the idea of “equality before the law”, which is inherent to it. And yet, it is hardly ever acknowledged explicite. Model treaties of Brazil, Colombia, Czech Republic, Germany, Mexico, the UK, or the US, or even those which are renowned for its progressive wording, as in India, do not stipulate RoL per se. Another progressive Norwegian model reaffirms the commitment to the Rule of Law in the preamble. So does the Austrian model or the Swiss Confederation-China FTA. More ambitious is the EU-Korea and EU-Vietnam Framework Agreement (RoL constitutes “an essential element” of the agreement).

As for the Dutch model, the wording of the RoL clause poses practical concerns. For instance, the notion of RoL appears both in the title of the above-mentioned article and its paragraphs 2-3, where it is just one of the prerequisites of dispute resolution and enforcement (the others—fairness, impartiality, independence, transparency—usually considered as pillars of RoL). Also, the article mentions administration and judiciary, which raises the question as to the applicability of RoL to the law-maker. All this is provided without mentioning the ephemeral normative contents of the RoL; as studies by the International Law Association on the Rule of Law and International Investment Law show, although RoL is a universal concept, its contents vary significantly between jurisdictions.

And yet, matched with specific duties under the Fair and Equitable Treatment clause (Art. 9(2)), this could be the first in a two-stage path towards equilibrium between host-state rights and duties vis-à-vis an investor. Instead of enumerating ever-new state competences, such a general clause should be paired with a clear acknowledgement of the public nature of IIL, the goals and purposes of the treaty and the respective socio-economic role of investors.

Furthermore, the RoL clause would serve as an antidote for a legitimacy crisis. Not only it can provide the formal and substantive underpinning for restoring legitimacy, but also be flexible enough to accommodate regional differences.

Equilibrium requires counterbalance. By virtue of Art. 7(2), the parties stipulate:

The Contracting Parties reaffirm the importance of each Contracting Party to encourage investors operating within its territory or subject to its jurisdiction to voluntarily incorporate into their internal policies those internationally recognized standards, guidelines and principles of corporate social responsibility that have been endorsed or are supported by that Party, such as the OECD Guidelines for Multinational Enterprises, the United Nations Guiding Principles on Business and Human Rights, and the Recommendation CM/REC(2016) of the Committee of Ministers to Member States on human rights and business.

A similar provision can be found in other BITs, such as the India model BIT, which calls on investors to “endeavour to voluntarily incorporate internationally recognized CSR standards” (similarly in the Brazil model BIT). States may undertake to adopt some CSR-fostering measures (e.g., investor duties stemming from domestic law). This mostly occurs through soft obligations (e.g., Canadian treaties, including the Canada–Nigeria BIT (2014) and the Canada–Mali BIT (2014), some EU treaties such as the EU–Vietnam Framework PCA and the Norwegian model BIT. Sometimes, CSR is merely signalled in the Preamble (China–Switzerland FTA (2013), Czech model BIT). However, some treaties include obligations binding directly on investors. For instance, the Morocco–Nigeria BIT (2016) obliges investors to conduct a social-impact assessment.

Hence, stressing the “importance” of “encouraging” investors to “voluntarily incorporate” CSR standards, even matched with the additional CSR-related duties (art. 7(1, 4)) and provisions on the sustainable development (Art. 6), is not overzealous. And yet, the whole could be greater than the sum of its parts.


 The Synergy of Investment Promotion and Protection

Trying to conceptualise the actual and desirable relationship between both articles, it is necessary to start with an acknowledgement that they are excluded from the scope of ISDS (Art. 16). When put in the normative context, RoL as an element of “promotion and facilitation” of investments (section 2) and CSR as an element of sustainable development (section 3), it turns out that both become subsequent steps in the normative tug-of-war. Is that all we can get?

Instead, RoL and CSR should in tandem perform the balancing function in the review of compatibility of a state’s actions with its duties towards an investor: 1) an interpretation guideline and 2) flexibility feature of the normative contents:

Ad. 1) This could take various normative embodiments, both in terms of treaty wording and arbitral practice. For instance, a normative test consisting of two factors: adherence to a particular RoL standard by the host-state compared with a CSR standard applied by the investor. Espousing a high or low level of the standards would influence a tribunal’s perception of public actions. In light of the local RoL acquis, on the one hand, and the investor’s approach to the social (and environmental) responsibilities, limitations of investor rights should be more or less likely to be read as, for instance, violating legitimate expectations or FET.

Ad 2) The advantage of flexible normative contents reflects a lack of a universal understanding of the normative contents of RoL (not to mention CSR standards). Accordingly, a model BIT should stipulate a fair equilibrium of rights, in which the normative contents would adapt to the specific context.

When it is seen from a broader perspective, the social capital constitutes the blood in the circulatory system of the liberal democracy and free-market. It allows entrusting power from one to another, subject to expectations that it will be exercised for the mutual benefit. Thus, investment arbitration is supposed to broaden cooperation networks beyond family and friends. To the contrary, the current legitimacy crisis undercuts ratio legis of ISDS, rendering it counter-efficient and economically unreasonable. Whether one believes that IIL is structurally tainted or that it compromised its original mission, restoring the trust between foreign investors, host states and host population is necessary for the subsistence of ISDS in the long run. Paradoxically, the broader crisis of liberal democracy provides a great opportunity for such a reform effort as the demand for impartial, yet trusted, investor-state arbitration will increase. The Netherlands is on the brink of such a major contribution to international law. The beauty of the new Model BIT is the opportunity to both address the most pressing challenges of IIL and harness its ever-greater legal complexity by restoring the conceptual underpinning of the system. Just to seize the opportunity.


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Paraguayan Court of Appeal Recognizes Arbitrators’ Powers to Decide Issues of Illegality and Corruption

Fri, 2018-12-28 19:00

Raul Pereira de Souza Fleury

In a decision from June 6, 2018, the Third Chamber of the Paraguayan Court of Appeal (the “Court”) decided an annulment application, recognizing that issues of illegality and corruption are arbitrable, as long as such decision does not imply the imposition of sanctions, something that is left to the local criminal courts1)Recurso de Nulidad interpuesto por el Abg. Hugo Enrique Cañiza en representación de la Secretaría del Ambiente c/ Proceso Arbitral caratulado: Taller RC de Crispín Ruffinelli c/ Secretaría Nacional del Ambiente (SEAM) s/ cumplimiento de contrato, A.I. No. 49, 6 June 2018, Civil and Commercial Court of Appeal of Asunción, Third Chamber. jQuery("#footnote_plugin_tooltip_7422_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7422_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Although the issue is relatively settled in the international arbitration community 2) See Blackaby, Partasides et al., Redfern and Hunter on International Arbitration, p. 120; Lew, Mistelis and Kroll, Comparative International Commercial Arbitration, pp. 210, 215 jQuery("#footnote_plugin_tooltip_7422_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7422_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, in the sense that arbitrators can rule on these matters, it is an important development for arbitration in Paraguay, considering the scarce jurisprudence related to recognition, enforcement and set aside of arbitration awards.

The case involved a contract between Taller RC (hereinafter “Claimant”) and the Paraguayan Environmental Secretariat (hereinafter “SEAM” for its Spanish acronym), for the provision of maintenance and repair services of SEAM’s vehicles. Claimant initiated arbitration after SEAM failed to pay several invoices for works performed under the contract. The sole arbitrator ruled in favor of Claimant, prompting SEAM to apply for the set aside of the award.

SEAM based its annulment application on article 40(b) of the Paraguayan Arbitration Act (the “PAA”), which has its origin in article 34(b) of the UNCITRAL Model Law, and article V(2) of the New York Convention,  SEAM argued that the controversy was not capable of being settled by arbitration under Paraguayan law and therefore, the award was contrary to public policy. SEAM’s main argument was that the Prosecutor’s Office needed to participate in the arbitration because a corruption and illegality complaint had been filed in relation to the contract which could result in criminal sanctions against the implicated officers.

Claimant, on its part, argued that the claim before the arbitrator concerned a breach of contract, a subject matter that is arbitrable under the PAA. Claimant also added that the claim did not seek a criminal penalty for SEAM, but only the payment of the unpaid invoices.

As such, the Court delimited its analysis on both of SEAM’s arguments, namely whether: (a) the dispute was arbitrable given an alleged necessary participation of the Prosecutor’s Office; and (b) the award was contrary to public policy.

  • Arbitrability of the dispute

Regarding the first issue, the Court reasoned that, while there was an open criminal cause for irregularities in the execution of the contract between Claimant and SEAM, such allegation of illegality did not “in itself deprive the arbitral tribunal of jurisdiction. On the contrary, it is generally held that the arbitral tribunal is entitled to hear the arguments and receive evidence, and to determine for itself the question of illegality.” The Court continued adding that “if in the course of an arbitration an allegation of corruption is made in clear terms, the arbitral tribunal has a clear duty to take it into consideration and decide whether it has been sufficiently proven or not.”

In this sense, the Court recognized a clear power of arbitrators to pursue the analysis of corruption allegations brought before them, irrespective of whether there is an ongoing criminal investigation pending resolution.

The Court concluded that the SEAM did not prove its allegation that the claim was not arbitrable because its only evidence on this matter was a memo from its Anticorruption Office recommending SEAM’s Minister to order an administrative investigation against the officers involved in the corruption allegations.

The Court then took the opportunity to clarify certain issues. First, it indicated that the fact that a criminal investigation was on course did not mean that the Prosecutor’s Office needs to participate in the arbitration, because in the criminal case, the Prosecutor has an active role, as plaintiff, whose main interest is the investigation and punishment of the crime. On the contrary, the claim submitted to arbitration was for the breach of a contract. Second, the Court addressed the administrative nature of the contract, explaining that nothing specific or ex-post laws prevented or limited the arbitrability of disputes arising from its performance.

  • Public policy violation

On the second issue, the Court clarified that while each State may have its definition of “public policy”, the story is different with arbitration, which is an “institution that develops from the autonomy of the parties with a transnational framework” and as such, adopted the definition of international or transnational public policy from the interim report of the Committee on International Commercial Arbitration of the International Law Association on the topic of public policy as a ground for refusing the recognition and enforcement of international arbitral awards, which comprises fundamental rules of natural law, principles of universal justice, jus cogens in public international law, and the general principles of morality accepted by what are referred to as “civilized nations”.

Under this premise, the Court explained that issues of corruption certainly raise questions of public policy, but such questions relate to the criminal and disciplinary consequences of corrupt actions, and not to the performance of the contract. Thus, since SEAM neither proved that there was a flagrant violation of the judicial and economic system, nor that the arbitration process violated the most basic and fundamental principles of justice, morality and customs, and that the dispute had the arbitrability requirements, the petition to set aside was denied.

As indicated above, the issue of the arbitrators’ powers to decide on issues of illegality and corruption in the execution and performance of a contract is relatively settled in the field of international arbitration, however, for a country in which arbitration is still in an “embryonic” stage, this decision is certainly welcomed. The Court made a clear distinction as to which matters pertaining to illegality and corruption are for national courts, and which ones can be decided by the arbitrators, that is, are arbitrable. This is in line with the modern approach based on the separability principle, according to which an arbitration clause, even though included in, and related to an underlying contract, is a separate and autonomous agreement. As such, a claim that the contract is invalid because it was procured by corrupt means, does not invalidate the arbitration clause contained in it, it only means that arbitrators can hear arguments and admit evidence to determine such questions of illegality and corruption underlying the contract.

The reasoning on the issue of public policy violation is also welcomed, since it provides for a standard that can be applied in future cases of annulment and enforcement before Paraguayan courts. As it is well known by arbitration practitioners, the issue of set aside and denial of enforcement on the grounds of public policy violation is always a tricky one. Each State may have its own definition and clarifying the standard of proof gives more security to practitioners that choose Paraguay as their seat.

There is still much to be done in Paraguay for the development of arbitration, in order to shorten the gap with the important players of the region, such as Brazil, Chile, and Argentina, however, each small step forward is welcomed and celebrated.

References   [ + ]

1. ↑ Recurso de Nulidad interpuesto por el Abg. Hugo Enrique Cañiza en representación de la Secretaría del Ambiente c/ Proceso Arbitral caratulado: Taller RC de Crispín Ruffinelli c/ Secretaría Nacional del Ambiente (SEAM) s/ cumplimiento de contrato, A.I. No. 49, 6 June 2018, Civil and Commercial Court of Appeal of Asunción, Third Chamber. 2. ↑ See Blackaby, Partasides et al., Redfern and Hunter on International Arbitration, p. 120; Lew, Mistelis and Kroll, Comparative International Commercial Arbitration, pp. 210, 215 function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Arbitration in Argentina: More Positive Signs Towards Certainty?

Fri, 2018-12-28 17:54

Tomas Ambrosini and Leandro Caputo

Arbitration in Argentina is finally finding its way to certainty. On 4 July of this year, Argentina passed the International Commercial Arbitration Act, based on the UNCITRAL Model Law. Furthermore, Argentinian domestic courts have recently handed down arbitration-friendly decisions. In this regard, a new judgment just been issued by the Argentine Federal Supreme Court of Justice is of the utmost importance for the development of arbitration in the country.

On 6 November 2018, the Argentine Federal Supreme Court of Justice in re “Estado Nacional – Procuración del Tesoro Nacional s/ recurso directo” (“Estado Nacional”) held that the setting aside of an arbitral award is limited to the specific grounds for annulment set forth under the law and must be not treated as a recourse of appeal. The Supreme Court thus refused to enter into an analysis of the merits of the case. A number of conclusions can be drawn from this judgment:

First, the Supreme Court’s decision contributes to certainty for arbitration in Argentina by affirming the approach in the case “Ricardo Agustín López [et al.] v. Gemabiotech S.A.” (“López”), previously commented on this Blog. Said criterion is based on the limited scope of judicial intervention in annulment proceedings of an award. As the Supreme Court confirmed, pursuant to Argentine law, any recourse against an arbitral award cannot be based on the merits of the case.  Neither is the court allowed to review the merits of the arbitral tribunal’s decision.

In López, the Supreme Court referred to the grounds for annulment contained in the Civil and Commercial Procedural Code. Article 760 states that arbitral awards may be set aside if: (i) there is an essential flaw in the proceedings – which could include the failure to give reasons for the decision, constituting a violation of the due process of law, (ii) an award is rendered beyond the stipulated term, and (iii) an award is rendered on issues not listed as requiring resolution. In addition, Article 761 states that (iv) an award may be annulled if it contains incompatible and contradictory decisions.

Second, while the “López” case involved private parties, this new case involved the Argentine Federal State as a party to both the arbitration and judicial proceedings. The decision is not only regarded as a ratification of the previous criteria in “López” but extends its scope to arbitrations against the Argentine Federal State. It is promising that the Supreme Court decision in Estado Nacional rejected the Federal State’s attempt to reopen the merits of the case in recourse against a final award.

Long-established Supreme Court doctrine recognises the capacity of the Federal State to resort to arbitration in all matters not related with public policy or sovereignty issues, if agreed in a contract and authorized by law. Nonetheless, Article 1651 of the Civil and Commercial Code of Argentina expressly declares that disputes involving the Federal or local State are outside the scope of its arbitration provisions. By excluding the State from being subject to such provisions, the Federal Congress sought, at that time, to uphold a perceived advantage for the State in litigating before domestic courts, which are sometimes devoted to protecting the State from private individuals. The Supreme Court’s decision in “Estado Nacional” appears to retreat from this old-fashioned dogma.

Third, the new Supreme Court’s decision can be construed as a clarification of the isolated doctrine espoused by the controversial judgement in “José Cartellone Construcciones Civiles S.A. v. Hidronor S.A.” (“Cartellone”), decided in 2004. In that case, the Supreme Court ruled that an arbitral award is not subject to appeal, but judicial review is permitted if the arbitral award is unconstitutional, illegal or unreasonable.

Although the vague and imprecise wording that the Supreme Court used in “Cartellone” has led to ambiguities as to its intended scope, it raised concerns about the extent of judicial review that the Supreme Court permitted in applications for the annulment of arbitral awards. Despite this, the new Supreme Court’s decision appears to overrule the approach in “Cartellone”, upholding the limited scope of the annulment procedure under the Civil and Commercial Procedural Code.

Fourth, the new Supreme Court’s decision may shed some light on the interpretation of Article 1656 of the Civil and Commercial Code of Argentina. Although – following enactment of the International Commercial Arbitration Act – this provision now only applies to domestic arbitration, this controversial rule provides a non-waivable ground for a party to object in court to any award that is “contrary to the legal system”. The provision essentially creates a right of appeal against arbitral awards.

Argentine courts have, however, clarified some of the uncertainty created by these provisions. In this vein, courts have held that the wording in Article 1656 should be interpreted as a procedure for setting aside an award. Accordingly, three out of six of the chambers of the Commercial Court of Appeals have so far held that, under Argentine law, the remedy of annulment is the only available recourse against final awards.

The new Supreme Court judgment in “Estado Nacional”, together with its previous decision in “López”, may be understood as an affirmation of the lower courts’ line of reasoning. By recognizing that the only grounds for setting aside a final award are those contained in Articles 760 and 761 of the Civil and Commercial Procedural Code, the Supreme Court put an end to the possibility of a broad and mistaken interpretation of Article 1656 of the  Civil and Commercial Code of Argentina.

In sum, the new Supreme Court’s decision is in line with arbitral standards and procedure that Argentina has recently adopted and clarifies previous mistaken and inaccurate interpretations. Such pro-arbitration case law, together with the legal certainty accompanying the enactment of the International Commercial Arbitration Act, paves the way for further positive development of arbitration in Argentina, both relating to the resort to arbitration within the users in the country, along with setting Argentina up as a possible hub for international arbitration in the region.

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A Wind of Change! Tanzania’s Attitude towards Foreign Investors and International Arbitration

Fri, 2018-12-28 05:10

Ibrahim Amir

In 2014, Tanzania was identified as the top destination for foreign direct investment in East Africa by the United Nations Conference on Trade and Development (“UNCTAD”). Between 2011 and 2013, the country signed five new Bilateral Investment Treaties (“BITs”). With these, it would seem like the country is opening up and attracting foreign investors.

However, since the new government came to power in 2017, the country has shown a hostile attitude towards international arbitration. Tanzania’s current government has adopted a rather combative stance toward foreign investment. The government has also taken measures that have substantially changed investment conditions for foreign investors, especially those in the natural resources sector. Since 2017, and over the past several months, the government terminated its BIT with the Netherlands and passed several laws that limit foreign ownership of natural resources.  It has also limited the use of international arbitration in the country’s natural resources industry. These legislative reforms appear to reduce the country’s exposure to possible international investment claims, both contractual and treaty-based. These shifts in the regulatory framework, nonetheless, has proved to affect the country as the state is faced with a wave of new arbitration claims. The recent attitude by the Tanzanian government will discourage foreign investment, as most foreign investors prefer international arbitration as a method of resolving their disputes with states. This post intends to discuss the significant legislative changes in Tanzania over the past eighteen months.


Measures Taken by the Tanzanian Government towards Foreign Investors and International Arbitration:


(i) ‘International’ Arbitration is Prohibited in Disputes Related to the Country’s Natural Resource Sector

The first of these measures took place last year when Tanzania’s parliament passed three controversial pieces of legislation that made significant reforms to the legal and institutional frameworks governing oil, gas and mineral extraction. These are: (1) the Written Laws (Miscellaneous Amendments) Act 2017 (“Amendments Act”), (2) the Natural Wealth and Resources (Permanent Sovereignty) Act 2017 (“Sovereignty Act”) and (3) the Natural Wealth and Resources (Review and Re-Negotiation of Unconscionable Terms) Act 2017 (“Review and Renegotiation of Unconscionable Terms Act”). With these legislations, the government aimed at correcting the shortfalls in the way the country has been managing its natural resources and to significantly increase its control over mining, oil and gas operations in the country.

For instance, the Review and Renegotiation of Unconscionable Terms Act empowers the Government to renegotiate or remove terms from contracts relating to natural resources that the government deems ‘unconscionable.’ Under section 6(2)(i), any clause that subjects the “State to the jurisdiction of foreign laws and fora” is“deemed to be unconscionable.” This means that if a contract contains a clause that refers disputes to international arbitration, the clause might be deemed unconscionable and could be subject to renegotiation. If the investor, however, refuses to renegotiate or renegotiation fails, then the term ceases to have any effect and is treated as having been expunged (section 6 (3) (1) and section 7 (1)).

Furthermore, Section 11(2) of the Permanent Sovereignty Act prohibits investors from resorting to international dispute resolution mechanisms or any foreign court or tribunal. It stipulates that any “disputes arising from extraction, exploitation or acquisition and use of natural wealth and resources shall be adjudicated by judicial bodies or other organs established in the United Republic and in accordance with laws of Tanzania.” Section 11(3) further requires that “judicial bodies or other bodies established in the United Republic and application of laws of Tanzania shall be acknowledged and incorporated in any” contracts or agreements relating to natural resources. These provisions would appear to rule out any arbitration clause that makes reference to international arbitration bodies as well as the application of foreign laws to the dispute.

These changes in the regulatory framework dramatically alter the conditions that were in place for foreign investors in the country’s natural resources sector. As a result, the state has faced a wave of arbitration claims filed by many foreign investors.


(ii) ‘International’ Arbitration is Prohibited in Public Private Partnership  (“PPP”) Agreements

 Notwithstanding the pending cases brought against the country due to the 2017 legislative reform, in September this year, the government made another significant legislative reform when it passed a new law that bans international arbitration as a method for resolving investor-state disputes with the country. The Public-Private Partnership (Amendment) Act, No. 9 of 2018 came into force this past September. Under Section 22 of the Act (Dispute Resolution), any dispute arising during the course of the PPP agreement “shall in case of mediation or arbitration be adjudicated by judicial bodies or other organs established in Tanzania and in accordance with its laws.” Accordingly, ‘international’ arbitration is no longer permitted in the PPP Agreements particularly those projects relating to natural resources. This a key change to the old act (Public-Private Partnership Act, No. 19 of 2010) which permits foreign investors to resort to international arbitration under international bodies. Foreign investors in PPP agreements under the new Act are compelled and can only seek recourse over disputes through domestic courts and in accordance with Tanzanian laws.

As was the case with the 2017 reform, the government intends to ensure that investor disputes are resolved locally and that the government is not subject to international arbitration forums such as the International Centre for Settlement of investment Disputes (“ICSID”). It was reported that the Tanzanian government has said that it has no faith in multilateral arbitration bodies because they lack impartiality when it comes to resolving disputes between member countries and investors. Multilateral arbitration bodies, in the government’s view, were formed to protect the interests of investors, not member countries.It has also argued that international arbitration is inherently biased against developing countries and that there is no neutral ground in international arbitration.


(iii) Termination of the Tanzania-Netherlands BIT Which was Up for Renewal

The most recent major reform also occurred this past September when Tanzania terminated its BIT with the Netherlands. The state gave the Dutch government the notification of its intention to terminate the treaty ‘only hours’ before the October 1 deadline when the treaty was set to expire on April 1, 2019. Article 14 of the BIT states, “[u]nless notice of termination has been given by either Contracting Party at least six months before the date of the expiry of its validity, the present Agreement shall be extended tacitly for periods of ten years.” The reason for this move by the Tanzanian government is unclear considering that the termination notice/decision was given and made in the last minutes. It is unclear whether this move was directed only towards the Dutch BIT or whether the government will also terminate all its remaining BITs.

However, it was reported that NGO groups have pushed the country to take this step. The East African Strategic Group on Influencing Multi and Bi-lateral Trade and Investment Negotiations, as well as the Southern and Eastern Africa Trade Information and Negotiations Institute, also played a role in pushing the country to bring the BIT to an end. It was also reported that several civil society lobbyists from both countries met over the last summer to review the BIT and started a campaign for that purpose.

Unlike all other Tanzanian BITs which are in force, the Tanzanian-Dutch BIT is the only one which could be renewed automatically if neither party issues a notice of intention to terminate at least six months after its expiry. For this particular BIT, a deadline was set. Therefore, if Tanzania had not terminated the BIT before the said deadline, October 1, 2018, it would have been extended automatically to April 2029. The other remaining BITs in force grant Tanzania the right to give a notice of termination at any time after the initial ten years from the date of entry into force. Thus, it remains to be seen whether the Tanzanian government will end any of its remaining BITs in the near future. It also remains to be seen whether the state intends to formally denounce the ICSID Convention and other multilateral investment agreements providing for international arbitration.

To date, the country has signed 19 BITs, of which 10 were entered with European countries, 5 with Asian countries, 4 with African countries, and Canada. Remarkably, of the 19 BITs, only 11 are in force, and 2 were already terminated (Switzerland-Tanzania in 1965 and Netherlands-Tanzania in 2018). As to investment dispute, Tanzania has been a Respondent in several investment arbitration cases – six cases under ICSID and one case under the PCA. In these cases, investors have invoked an investment contract and different BITs. Three cases are pending before ICSID and the PCA, and four have already been concluded.

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Proposed Repeal of Section 11 (6A) of the Arbitration and Conciliation Act, 1996: Who Decides the Question of Existence of an Arbitration Agreement?

Thu, 2018-12-27 06:14

Sugandha Batra


Section 11 of the Arbitration and Conciliation Act of India, 1996 (the Act), demonstrates in detail the procedure for appointment of arbitrators. It empowers the court to examine the existence of an arbitration agreement while deciding the application for such appointment. The gravity and significance of such proceedings is vast, in both domestic and international arbitrations, as they ascertain that any inadvertent or conscious failure to constitute an arbitral tribunal does not hold up the commencement of arbitral proceedings.

With the Arbitration and Conciliation (Amendment) Bill, 2018 (the 2018 Bill), progeny of the Justice B.N. Srikrishna Committee (the Committee), the legislature proposes to bring about significant changes to Section 11, to augment the growth of institutional arbitration in India which also include doing away with the requirement of examination of the existence of an arbitration agreement by the courts. Certain amendments proposed at diminishing the role of the judiciary may, however, lead to counter-intuitive ramifications.

I attempt to reason here that some degree of judicial intervention, especially when it comes to the question of determining the existence of an agreement, is necessary to ensure that the dispute resolution process does not become unnecessarily protracted.

The scope of existing Section 11(6A)

Since the decision in SBP vs. Patel Engineering AIR 2006 SC 450, it was within the powers of the court to preliminarily decide its own jurisdiction to entertain the arbitration petition and also the existence of a live claim i.e. one not hit by limitation. Distinct categories of issues, which are within the domain and competence of the Court while exercising powers under Section 11, were discerned by the Supreme Court (the SC) in the subsequent case of National Insurance Company Limited v. Boghara Polyfab Private Limited (2009) 1 SCC 267, vis-à-vis (i) issues which the Chief Justice or his designate is bound to decide i.e. decisions on the jurisdiction and existence of a valid arbitration agreement; (ii) issues which he can also decide i.e. whether the claims made by the parties are tenable., and (iii) issues which should be left to the Arbitral Tribunal to decide.

The position hereinabove was narrowed down altogether under the 2015 Amendment Act with the insertion of Section 11(6A) and the power of the court is now confined only to the examination of the existence of an arbitration agreement. While every other power of the Court under Section 11 was curtailed by the 2015 Act, the legislature thought it appropriate, and rather necessary, to insert clause 6A, leaving it to the court to decide on the existence of a valid arbitration agreement, no more and no less.

In the case of Duro Felguera, S.A. v. Gangavaram Port Limited (2017) 9 SCC 729, one of the initial cases on Section 11 (6A), the SC succinctly analysed its scope and effect. While the factual matrix of the case was rather complex, involving disputes arising out of six agreements, the Court took a simplistic view in appointment of tribunals, limiting itself to deciding the existence of a valid arbitration agreement, strictly in terms of Section 11 (6A). Since there were six arbitrable agreements, each containing an arbitration clause, the SC appointed six separate tribunals.

The SC has, however, redefined the scope of Section 11 in a recent judgment in United India Insurance Co. Ltd. & Anr. vs. Hyundai Engineering and Construction Co. Ltd. & Ors. Civil Appeal No. 8146 of 2018, pronounced on 21.08.2018. The apex court elucidated on the ambit of Section 11(6A) and clarified that holding that no other enquiry (apart from that on the mere existence of an arbitration agreement) can be made by the Court while examining the arbitration agreement, would be misreading the decision in Duro Felguera and the amended provision

Recommendations of the Committee and the 2018 Bill

A cardinal recommendation of the Committee is the constitution of the Arbitration Council of India (the ACI) that would grade arbitral institutions in India and set benchmarks for their performance. The 2018 Bill has finally assigned the pivotal role of appointment of arbitrator(s) to arbitral institutions designated by the Supreme Court.

The 2018 Bill, while specifying that the appointment shall be made by the arbitral institution designated by the SC, proposes to delete Section 11(6A), taking away even, what can be termed, the residual powers of the Court to decide the question of the existence of an arbitration agreement. This recommendation is in consonance with the kompetence-kompetence principle of an arbitral tribunal ascertaining its own jurisdiction.

Who decides on the existence of an arbitration agreement?

The question which begs consideration now is, with the power to appoint an arbitrator being divested to arbitral institutions and the contemporaneous deletion of Section 11 (6A), will an arbitration commence without any decision as to the existence of a valid arbitration agreement on a mere reference to the arbitral institution?

Deciding on the existence of an arbitration agreement is, a small, but a significant power exercised by the Courts. Section 11 (6A) was inserted with the intent to provide relief against frivolous and misconceived actions by implementing a system for actual costs as is implemented in the UK and other jurisdictions. The decision of the Supreme Court in United India Insurance has further clarified that in order to avoid any prejudice being caused to a party, it is not only vital to determine the existence of an arbitration agreement, but it is also imperative that the arbitration clause and the dispute raised may be examined. The repeal of Section 11(6A) would entail automatic appointment of tribunals even for claims that are not legally arbitrable vis-a-vis tenancy, guardianship, insolvency, winding up of companies and various matters which cover rights in rem. The appointment may eventually be rendered futile if the arbitral tribunal were to ultimately conclude that there does not exist a valid arbitration agreement, leading to further delays.

Loopholes in the Committee’s recommendations

The Committee recognized that examining whether a valid arbitration agreement exists or not, could lead to delays as extensive evidence and arguments may be led on the same, and hence recommended the deletion of clause (6A). The committee, with an aim to reduce interference of the judiciary in the arbitration processes, drew inspiration from various regimes vis-à-vis Singapore, Hong Kong, United Kingdom etc., while recommending that similar systems be embraced in India as it would circumvent any delays and set the momentum for institutional arbitration in India.

The Committee has however ignored the provisions of Section 18 of the English Arbitration Act, 1996 (which is in consonance with Section 11 of the Indian Act) which requires that the party applying to the court for appointment of arbitrator must establish a “good arguable case” that a tribunal would have jurisdiction to hear the case, and emphasises that any jurisdictional arguments remain matters for the tribunal to decide in accordance with the principle of kompetenz-kompetenz. (Silver Dry Bulk Company Limited v Homer Hulbert Maritime Company Limited [2017] EWHC 44 (Comm). Thus, there is an initial threshold test that must be met in order for an application under section 18(3) to succeed. In the Indian context, with the proposed deletion of Section 11(6A), the requirement of meeting the initial threshold of the existence of a valid arbitration agreement has been done away with. The consequences of this could be precarious.


The recommendations of the committee, propounded at a) divesting the power of appointment of arbitrators entirely to the arbitral institutions and b) the omission of Clause 6(A) which necessitates a court seized to delve into the existence of an arbitration agreement before progressing with an application filed under Section 11, does carry with it an element of uncertainty and ambiguity. The most common problem likely to arise will be a party challenging the validity of the arbitration agreement as a counter-blast to one party filing an application under Section 11. Explicit rules and guidelines will have to be formed and implemented if the above task is to be deputed to arbitral institutions.

The status quo is insufficient and suffers from various infirmities. The 2018 Bill does not specifically detail the scope of the ACI’s role and its powers, which is rather indispensable if the ACI is to be entrusted with the responsibility of accreditation of institutions which will ultimately be designated by the Supreme Court and the High Court to appoint arbitrators, and may even be ascertaining the existence of a valid arbitration agreement (if so provided in the future). Furthermore, the course of action to be adopted in the event where a party is objecting to the validity of the arbitration agreement itself needs to be specified.

Repeal of Section 11(6A) of the Act is likely to result in more litigation and will rather defeat the aim of expeditiously resolving applications for appointment. In the absence of any legislative clarity on the above aspects, speedy resolution cannot be ensured.

While it is important to minimize intervention of the courts to achieve prompt and expeditious results through arbitration, in the absence of a coherent system in place, some amount of judicial interference is imperative to render a degree of certainty and reduce the number of appeals and challenges arising out of pre-arbitration decisions. One hopes that the Indian judiciary endeavours to provide the requisite clarity on the controversies which inundate the instant situation.

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The US Courts and Their New York Convention Public Policy Gloss Revisited: Hardy Exploration & Production (India), Inc. v. Government of India, Ministry of Petroleum & Natural Gas: Glossing with International Comity

Wed, 2018-12-26 03:12

Marike R. P. Paulsson

The decision made in the case of Hardy Exploration & Production (India), Inc. v. Government of India, Ministry of Petroleum & Natural Gas (Civ. Action No. 16-140 (D.D.C. 7 June 2018)) (“Hardy case”) is yet another decision in a string of outcomes under the New York Convention proving that the repeated adagio “if it ain’t broken, don’t fix it” is at least frustrating. Public policy under Article V(2) of the New York Convention was an expression of sovereignty by the delegates agreeing to the text of the Convention in 1958 – as such has a legitimate place in this treaty, and it made sense not to dictate its exact meaning in the text itself. It would have been impossible for legislators and courts of all Contracting States to comply with a narrowly circumscribed and detailed description of public policy.

In the United States, courts have adhered to a narrow concept of public policy: fundamental notions of morality and justice. The landmark case on the matter is Parsons & Whittemore Overseas Co. Inc. v. Societe Generale de l’Industrie du Papier (RAKTA), Bank of America, rendered in the Second Circuit and followed across the nation.1)Rendered by the Second Circuit in 1974, in Yearbook Commercial Arbitration I (1976) (United States no. 7), at 205. See also M. Paulsson, “The New York Convention in Action” (Kluwer 2016), p. 218. jQuery("#footnote_plugin_tooltip_5654_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5654_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This year, the District Court of Columbia, when requested to enforce an award rendered in Kuala Lumpur, denied the enforcement under Article V, after it refused to stay the enforcement due to the pending setting aside proceedings under Article VI of the New York Convention. The award was not one that granted damages to the claimant. It was an award ordering the respondent, the Government of India, to reinstate the investor, i.e. it ordered a government specific performance.

Beware the billiard balls of sovereignty:

“[…]independent sovereigns States act too often like billiard balls which collide, and do not co-operate.” (Fali Nariman, Introduction to the New York Convention – The Convention and Sovereignty)

These are the famous words of Fali Nariman at the occasion of the Judicial Dialogue with the Supreme Court of India. In the Hardy case, the court held that the enforcement of the award would violate public policy of the U.S. (Article V(2)(b)). The Convention allows Contracting States to stop enforcement if that enforcement violates the public policy of the enforcing State. The drafting of that provision demonstrated that the right to impose sovereignty was important: States were not willing to sign on to the Convention if they could not stop enforcement in their territory of awards that somehow clashed with public policy (which, in return, is an expression of sovereignty). This is described by Nariman as the colliding billiard balls. The enforcement of this award would violate the U.S. notions of public policy of Article V(2)(b), but for reasons other than the billiard balls. Indeed, the District Court refused to enforce the award on the basis of Article V(2)(b). However, it was not for imposing on its own right of sovereignty. It was out of respect for the sovereign rights of the country against whom enforcement was requested, i.e. this is an expression of international comity.

After the award was rendered in favor of the investor, India filed for the setting aside in India, not in Kuala Lumpur, whereas an award can only be set aside in the country where the award was rendered by the competent authority. This was confirmed in the Karaha Bhodas case2)Karaha Bodas Co., L.L.C. v Perusahaan Pertambangan Minyak Dan Gas Bumi Negara et al., 335 F. 3d 357 (5th Cir. 2003), in Yearbook Commercial Arbitration XXIX (2004), (no 482), at 1262-1297. jQuery("#footnote_plugin_tooltip_5654_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5654_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, in which the District Court of Columbia held that parties could not exclude the jurisdiction of the competent court.3)M. Paulsson, “The New York Convention in Action” (Kluwer 2016), p. 205, footnote 198. jQuery("#footnote_plugin_tooltip_5654_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5654_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); While respondent – the government of India – filed for the setting aside with the court that was not competent, the claimant filed a request with that same court, but for the enforcement of the award. An enforcement request can be filed anywhere in the world and if the country is a Contracting State to the New York Convention it must comply with its obligations under that treaty. The Indian Court applied the philosophy of Karaha Bhodas and dismissed the request for setting aside as it did not have jurisdiction to address the setting aside request. However, the court held that the court with jurisdiction was not so much a court in Kuala Lumpur but the Madras courts as the site that was the subject of the dispute was closest to that court. Then, the appellate court held that the courts with jurisdiction to address the request for setting aside would be the courts of Malaysia. This is a turn of events that puts to question the proper application of the Indian Arbitration Act. Furthermore, it is the refusal to enforce in the U.S. that begs the question: What to do with the international comity gloss of Article V(2)(b)? For, in the end, the successful party in the arbitration proceeded to request the enforcement of the award in the U.S. but unsuccessfully.

 The U.S. District Court reiterated the U.S. view on public policy under the New York Convention. The U.S. courts tend to construe the notion of public policy narrowly but then they transplant it as a gloss to Article V(1)(e). In the Pemex case, the court allowed for the enforcement of an annulled award by glossing Article V(1)(e) with public policy. The Court of Appeal in Pemex confirmed the lower court’s holding that the award could be enforced notwithstanding the annulment judgment because the latter violated the most fundamental notions of morality and justice of the United States (which is a narrow interpretation of public policy in the respective jurisdiction). However, in the Hardy case, the court went on to hold that it was the sovereign right of the government of India to control and regulate the extraction and processing of natural resources within their own territory. Therefore, the court refused to enforce the award on the basis of Article V(2)(b) because the enforcement would violate the public policy of the United States. It held that the enforcement would effectively be interference in India’s governance over its own territories. That interference – based on international comity – trumped the U.S. favorable attitude towards international arbitration and their so-called pro-enforcement bias.

The Court finds that India does not overstate the United States’ public policy interest in respecting the right of other nations to control the extraction and processing of natural resources within their own sovereign territories. (Hardy Exploration & Production (India), Inc. v. Government of India, Ministry of Petroleum & Natural Gas, Civ. Action No. 16-140 (D.D.C. 7 June 2018), memorandum opinion, p. 21.)

This is not so much the application of public policy under the New York Convention and it is not a clash of sovereignty here, but rather the opposite. It is the application of international comity, i.e. respecting the sovereignty of another State by withholding the reliance on its own sovereignty. Within the premise of the New York Convention, the US courts have done so before in the Thai Lao Ignite case.4)Thai-Lao Lignite (Thailand) v. Government of the Lao People’s Democratic Republic, (2nd Cir. 2017). jQuery("#footnote_plugin_tooltip_5654_4").tooltip({ tip: "#footnote_plugin_tooltip_text_5654_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Over and over again, when enforcing against States, the courts of other nations seem hesitant to play a role in the enforcement against States. Whenever a court of another country is requested with the enforcement of an award against a State or a State-owned entity, there is a real chance that courts will not allow for it. For instance, a court may declare a case inadmissible because it has no jurisdiction under the doctrine of forum non conveniens.

The idea of arbitration was to provide parties in international trade with a fair forum to level the playing field: When commercial parties undertake to engage with governments or state entities for commercial purposes, both parties often agree to submit any disputes to a neutral tribunal, not to State organs – national courts. Somehow, at the end, when the enforcement of binding awards is due, nations are less willing to honor those commitments when it means they must hold other States to their obligations under those agreements to which they were not a party. With that, the U.S. courts have not only developed a practice of glossing Article V(1)(e) with public policy as explained above and in earlier posts on the Pemex case. The U.S. courts want to apply the idea of international comity when applying the New York Convention in cases where the respondent is a State and cases that involve that respondent State controlling and exercising its own sovereign rights. It appears that with these line of cases that the U.S. courts gloss Article V(2)(b) with international comity. It is their way of respecting the sovereign rights of other States and so it seems in that case the billiard balls actually do co-operate.

References   [ + ]

1. ↑ Rendered by the Second Circuit in 1974, in Yearbook Commercial Arbitration I (1976) (United States no. 7), at 205. See also M. Paulsson, “The New York Convention in Action” (Kluwer 2016), p. 218. 2. ↑ Karaha Bodas Co., L.L.C. v Perusahaan Pertambangan Minyak Dan Gas Bumi Negara et al., 335 F. 3d 357 (5th Cir. 2003), in Yearbook Commercial Arbitration XXIX (2004), (no 482), at 1262-1297. 3. ↑ M. Paulsson, “The New York Convention in Action” (Kluwer 2016), p. 205, footnote 198. 4. ↑ Thai-Lao Lignite (Thailand) v. Government of the Lao People’s Democratic Republic, (2nd Cir. 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: Arbitration in Belgium: A Practitioner’s Guide
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From the Editors of Kluwer Arbitration Blog: 2018

Tue, 2018-12-25 03:22

Crina Baltag (Acting Editor)

December is the month when we slow down, enjoy the festive season and (the well-deserved) holidays. December is also the month of retrospection and of planning for the year to begin, always hoping to do better, and today we would like to do the same for the Kluwer Arbitration Blog.

Last year, we were expecting (and predicting) several developments in international arbitration. Most of them have happened and have generated considerable reaction on the Blog: the CJEU judgment in the Achmea Case, characterized as “A Loud Clap of Thunder on the Intra-EU BIT Sky” by Clément Fouchard and Marc Krestin from Linklaters in the post published the next day after the  judgment was issued; the final report of the ICCA-QMUL Task Force on Third Party Funding in International Arbitration, with its findings explained by the co-chairs of the task force, William (Rusty) Park, Stavros Brekoulakis and Catherine A. Rogers; the discussions in the UNCITRAL Working Group III on Investor-State Dispute Settlement Reform, in New York and Vienna, and the latest Free Trade Agreements signed by the EU; and a proactive approach in ensuring diversity, equality and inclusion in international arbitration, one of the main issues highlighted by the 2018 Queen Mary/White & Case International Arbitration Survey. Kluwer Arbitration Blog also continued its series of live coverages of arbitration conferences: ICCA Sydney and 2018 Hong Kong Arbitration Week. Starting with this year, we will publish a “Year in Review”, in several parts, covering geographical regions and areas of significant development reflected in the posts published on Blog.

2019 will mark the Blog’s 10th anniversary. In one of the first posts published on the Blog, Professor Roger Alford summarized the mission of the Blog as follows:

The international arbitration world is a unique epistemic community. We come from every corner of the globe and yet we all deeply care about the same issues. We number in the thousands and yet there is a remarkable degree of collegiality among our members. The arbitration world is marked by an astonishing variety of individuals who share the common attributes of cosmopolitanism, professional competence and emotional intelligence. The people in the arbitration world are a fascinating lot, and we hope to make this new forum as interesting a venue for discussion as the people who occupy this field.

We are looking forward to the next decade of the Blog in which we will make sure that, first and foremost, the Blog genuinely reflects the “unique” and “fascinating” international arbitration community.

For 2019, we are expecting an increased reaction from arbitration institutions on the current issues raised in practice and triggered by changes in national legislations or in ongoing discussions in international forums, such as the UNCITRAL Working Group III. The ICC, for example, has already published the new Notes to Parties and Arbitral Tribunals, to enter into force on 1 January 2019, and addressing the particularities of investment treaty arbitration proceedings before the ICC, as well as the interaction between GDPR and arbitration. Furthermore, 2019 is expected to be the year when arbitration will establish itself as the preferred dispute resolution mechanism in new regions and fields of law and appropriate measures and mechanisms will be implemented for this purpose. As an example, California’s Governor Jerry Brown signed the bill into law under which foreign attorneys may now participate in international arbitrations seated in California. And, of course, we will all be closely following the discussions on the ISDS reform, within the UNCITRAL and outside it.

Of course, this is also the time to acknowledge and recognise the contributions of the Blog’s many collaborators and supporters. 2018 was the year when the Editorial Board welcomed several new Assistant Editors to the Blog. It is, thus, a pleasure to introduce to our readers the Kluwer Arbitration Blog team:

Dr Crina Baltag, Acting Editor, Senior Lecturer in Law, University of Bedfordshire

Dr Gloria Alvarez, Associate Editor, Lecturer in Law, University of Aberdeen

Dr Patricia Živković, Associate Editor, Head of Legal Department at NSoft d.o.o.

Jawad Ahmad, Associate Editor, Associate, Mayer Brown LLP

Kiran Gore, Professorial Lecturer, The George Washington University Law School, Assistant Editor to the Acting Editor

Sadaff Habib, Solicitor, Beale & Company; and Liilnna Kifle, Associate, Mehrteab Leul and Associates, Assistant Editors for Africa

Esme Shirlow, King’s College, Assistant Editor for Australia and New Zealand

Fabian Bonke, Associate, Hogan Lovells; Deyan Dragiev, Associate, CMS Cameron McKenna Nabarro Olswang LLP; and Nevena Jevremovic, Association ARBITRI, Assistant Editors for Europe

Ulyana Bardyn, Senior Managing Associate, Dentons; and Giorgio Sassine, Associate, Stein Ray LLP, Assistant Editors for North America

Benson Lim, Senior Associate, Hogan Lovells, Assistant Editor for PR China, Hong Kong and Central Asia

Daniela Paez-Salgado, Associate, Herbert Smith Freehills; and Enrique Jaramillo, IHS Markit, Assistant Editors for Central and South America

Irene Mira, International Case Counsel, Asian International Arbitration Centre; and Christine Sim, Associate, Herbert Smith Freehills LLP, Assistant Editors for South-East Asia

Dalal Al Houti, Senior Associate, Al Tamimi & Company; and Zahra Rose Khawaja, Assistant Editors for the Middle East

Janice Lee; Mary Mitsi and Ashutosh Ray, Assistant Editors.


The Blog is also the result of the fruitful collaboration with its publisher, Wolters Kluwer, and the Editorial Board is grateful to Eleanor Taylor and Vincent Verschoor, editors and content managers with Wolters Kluwer, for ensuring that we deliver the best final product for our readers. Furthermore, the Editorial Board is particularly grateful to the permanent contributors and to the affiliates of the Blog, some being with us from the first days of Kluwer Arbitration Blog.

At Kluwer Arbitration Blog, our mission is not only to bring you the latest developments in arbitration or to encourage discussions about unsettled topics in the field. As mentioned, we strive to ensure that the diverse voices of the arbitration community are equally represented on the Blog, while being aware of the responsibility we have in shaping the arbitration practice. For this, the Blog continues to be committed in promoting young practitioners and welcomes the collaboration with Young ITA, Young ICCA, YIAG, YSIAC and AIAC YPG.

With these thoughts, we would like to thank you for reading the posts and for actively contributing to Kluwer Arbitration Blog. The editors of Kluwer Arbitration Blog are always available at [email protected].

Wishing you the best for the Festive Season and a prosperous 2019!

Dr Crina Baltag, Acting Editor, on behalf of the Editorial Board

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Apple v. EBizcuss.com: Agreeing A Forum For Your Antitrust Disputes

Mon, 2018-12-24 23:24

Aren Goldsmith, Rüdiger Harms and Paul Stuart

In a recent judgment providing a preliminary ruling in the case, Apple Sales International et al. v. EBizcuss.com (C-595/17, October 24, 2018) (“EBizcuss.com”), the Court of Justice of the European Union (“CJEU”) affirmed that jurisdiction clauses subject to EU law may be enforced by Member State courts in the context of actions for damages for abuse of dominance based on Article 102 TFEU.

As part of its judgment, the CJEU rejected any requirement that the jurisdiction clause make explicit reference to disputes relating to liability incurred as a result of an infringement of competition law.  The CJEU thereby confined its earlier judgment in CDC v. Akzo Nobel et al. (C-352/13, May 21, 2015) (“CDC”), which had held that such an explicit reference was a prerequisite for applying a jurisdiction clause to cartel-related claims based on violations of Article 101 TFEU.  CDC turned on the CJEU’s view that cartel-based claims would not have been foreseen by the parties at the time of contracting and thus could not be found to have been included within the scope of the jurisdictional agreement, unless explicitly identified. [see here; R. Harms/J. Sanner/J. Schmidt, EuZW 2015, pp. 584-592].  The CJEU reasoned in EBizcuss.com that claims alleging abuse of dominance based on Article 102 TFEU, unlike cartel-damages claims based on Article 101 TFEU, may be foreseeable to parties at the time of contracting.


Case Law In The EU Member State Courts Interpreting CDC In Connection With Agreements To Arbitrate

The judgment in EBizcuss.com did not address agreements to arbitrate and as such has no formal significance for questions of arbitral jurisdiction.  Whereas the CJEU has jurisdiction to resolve questions of EU law related to the scope of jurisdictional agreements subject to the Brussels Regulation and its Recast, it is questionable whether the CJEU has jurisdiction to resolve questions related to the interpretation of agreements to arbitrate, which are subject to national law.

Nonetheless, following the CJEU’s ruling in CDC, national courts in various EU Member States have been asked to consider the relevance of the CJEU’s case law related to jurisdiction clauses when deciding whether agreements to arbitrate drafted in general terms should be enforced to refer cartel-based damages claims to arbitration.  These Member State courts have reached different conclusions, which may be relevant where a party is considering invoking or has invoked an agreement to arbitrate in relation to claims based on EU competition law before EU Member State courts.  The CJEU’s most recent decision will likely enter into discussion as part of this emerging case law.

The first decision to consider CDC in relation to the interpretation of the scope of an agreement to arbitrate involved an action seeking damages based on an infringement of Article 81 of the (old) EC Treaty (now Article 101 TFEU).  In a 2015 decision that does not contain detailed reasoning, the Court of Appeal of Amsterdam concluded that there was no “good reason” to depart from the rule in CDC when interpreting an agreement to arbitrate drafted in general terms.  [see Kemira Chemicals Oy v. CDC, Case No. 200.156.295/01 (July 21, 2015, Court of Appeal Amsterdam), para. 2.16.]  The Court of Appeal did not consider in its decision the distinctions that exist between arbitration law and EU law related to jurisdiction clauses.

A second decision emerged from the English High Court in February 2017.  In its judgment in Microsoft Mobile OY (Ltd) v Sony Europe Limited & Ors [2017] EWHC 374 (Ch), the High Court was called upon to determine, in the context of an action alleging liability pursuant to Article 101 TFEU, an objection based on EU law to the enforcement of an arbitration agreement.  Specifically, while the defendant contended that the claim for damages under Article 101 TFEU was precluded by the parties’ agreement to arbitrate in their underlying supply agreement, the claimant contended that that agreement did not reach the claim because it did not refer expressly to disputes concerning liability incurred as a result of a competition law infringement.

The High Court first found that the relevant agreement to arbitrate reached the competition damages claim, relying on the inclusion in the contract of a specific obligation to negotiate pricing in good faith.  The English court observed that this obligation would in principle have been breached if pricing was distorted by the existence of a price-fixing cartel.  As such, there was a contractual claim falling within the arbitration agreement and the parties could be expected to have intended any tortious claim relating to the same matters to be resolved in the same forum as the corresponding contractual claim.  The fact that the claimant asserted a purely statutory tort claim and did not rely upon a contractual breach as the basis for its claims did not alter the court’s analysis, since the claimant could have alleged contractual claims.  To allow otherwise would have allowed the claimant to circumvent the agreement to arbitrate simply by choosing a tortious rather than contractual cause of action.

The High Court then addressed the question of whether enforcement of the relevant agreement to arbitrate would be contrary to the requirements of EU law, which would have rendered the agreement inoperable and ineffective if found to be the case.  In concluding that this was not the case, the English court considered at length the Opinion of Advocate General Jääskinen in CDC, whose arguments in that case were cited by the claimant in opposing arbitration before the High Court.  Specifically, the court was referred to the Advocate General’s argument that allowing arbitration would undermine EU law, including by causing the fragmentation of the relevant litigation.  The High Court rejected this line of argumentation, noting that the opinion had not been followed by the CJEU, whose judgment did not in any event reach arbitration. Thus, the High Court held as a matter of English law that the arbitration agreement could reach the tortious claim for breach of Article 101 based on an alleged secret cartel.

Most recently, in a judgment dated September 13, 2017, the Regional Court of Dortmund agreed to apply agreements to arbitrate drafted in general terms to cartel-related damages claims based on an infringement decision issued by the Bundeskartellamt (Federal Cartel Office). [see Landgericht Dortmund, Judgment of September 13, 2017 – 8 O 30/16 Kart].  The court observed that, as a matter of principle, arbitration agreements need to be interpreted broadly.  Since parties usually do not intend to split claims based on contractual obligations (falling with the scope of an arbitration agreement) and based on statutory tort claims (to be litigated in court unless deemed to fall within the scope of an arbitration agreement), the court found that the arbitration clauses should be fully applied to the relevant competition-based claim.

While the case involved two German parties and was thus not subject to the then-Brussels Regulation, the court explicitly declined to follow the CJEU’s position on foreseeability in relation to jurisdictional clauses, observing that claims of an unforeseeable nature (such as claims alleging fraud), which are unknown to one party at the time of contracting, may validly be submitted to arbitration under German law.  The court questioned the proposition that the CJEU case law relating to jurisdiction clauses subject to EU law could be applied automatically to the interpretation of agreements to arbitrate, and further questioned the competence of the CJEU to interpret agreement to arbitrate in light of the fact that arbitration is expressly excluded from the scope of both the Brussels Regulation and the Brussels Recast.  Finally, like the English High Court, the Regional Court of Dortmund rejected an argument that the principle of effectiveness of EU law would require a different conclusion.


Potential Relevance Of Apple Sales International et al. v. EBizcuss.com To Arbitration

The CJEU’s most recent judgment provides helpful guidance in clarifying that the CJEU’s earlier case law should not be construed as automatically precluding reliance on jurisdiction agreements worded in general terms whenever a dispute relates to infringements of EU competition law.  The recent case law should have a similar moderating effect in relation to debates over the applicability of agreements to arbitrate drafted in broad terms, at least in relation to many disputes based on infringements of Article 102 TFEU.

The CJEU’s decision to cabin its earlier case law in CDC was not a foregone conclusion.  Prior to referring this question to the CJEU, France’s Court of Cassation, in an earlier 2015 decision in the same matter, construed CDC  as precluding application of the relevant jurisdiction clause to the distributor’s claims based on an infringement of Article 102 TFEU.  [see Apple Sales International et al. v. EBizcuss.com (C-595/17, October 24, 2018), para. 15 (citing the October 7, 2015 decision of the Court of Cassation).]

While the EBizcuss.com judgment appears to allow for greater contractual flexibility overall, the CJEU’s apparent attachment to the decisional logic of the CDC case law, which turns on the foreseeability of specific types of claims, raises questions.  Just as contracting parties rarely contemplate that their contractual relationship will be affected by a secret cartel, contracting parties rarely anticipate distortions resulting from abusive behaviors by a dominant undertaking.  Parties often seek through the use of broad language to refer all disputes arising out of a commercial relationship to one forum for adjudication, and thereby avoid debates over what might or might not have been foreseen at the time of contracting.

The practical importance of the distinction that has been drawn by the CJEU will depend on parties’ willingness to invoke agreements to arbitrate in relation to different types of claims involving EU competition law.  Whereas disputes related to abuse of dominance claims often are bilateral in nature, and thus may be addressed effectively through a single arbitration, cartel-damages actions in practice usually involve multiple parties and multiple contractual relationships.  Multi-party actions may be more difficult to manage through arbitration clauses found in agreements that bind only a limited number of parties to the action.  This limitation poses particular challenges in the context of damages actions based on EU competition law.  On the other hand, certain features of international arbitration can be particularly appealing for complex disputes involving EU competition law.  For further discussion of related issues, see here; A. Goldsmith, “Arbitration and EU Antitrust Follow-On Damages Actions,” 34 ASA Bulletin 1 / 2016, pp. 10-40 (2016).]

Competition-based claims and defenses are asserted regularly in the context of complex commercial arbitrations in Europe.  Thus, parties considering the use of arbitration for disputes involving European business interests would be well advised to follow the case law discussed in this post and to consider its ramifications both at the time of contracting and when any dispute involving violations (confirmed or alleged) of EU competition law breaks out.


The views expressed herein are those of the authors and should not be construed as necessarily reflecting those of their firm or of any of its clients. 

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Do Parties Adopt Model Arbitration Clauses from Arbitral Institutions?

Sun, 2018-12-23 23:11

Christopher Drahozal

Institute for Transnational Arbitration (ITA)

Arbitral institutions commonly offer model arbitration clauses for parties to incorporate into their contracts. Gary Born has stated that “[i]n the overwhelming majority of cases, … international arbitration agreements are straightforward exercises, adopting either entirely or principally the model, time-tested clauses of a leading arbitral institution.”1) Gary B. Born, International Commercial Arbitration 212 (2d ed. 2014). jQuery("#footnote_plugin_tooltip_1706_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1706_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); But there is reason to question whether that is in fact the case. Almost thirty years ago, Stephen Bond examined clauses giving rise to ICC arbitrations and found that “the standard ICC clause, with perhaps minor variations in wording, was used in 47 arbitration clauses (20%) in 1987 and in 21 arbitration clauses (10%) in 1989, generally with the addition of the place of arbitration.”2) Stephen R. Bond, How to Draft an Arbitration Clause (Revisited), 1(2) ICC Int’l Ct. Arb. Bull. 14, 16-17 (1990), reprinted in Christopher R. Drahozal & Richard W. Naimark, Towards a Science of International Arbitration: Collected Empirical Research 69-70 (2005). jQuery("#footnote_plugin_tooltip_1706_2").tooltip({ tip: "#footnote_plugin_tooltip_text_1706_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); So how often do parties use model arbitration clauses from arbitral institutions?

The question is one of many that John Coyle and I consider in An Empirical Study of Dispute Resolution Clauses in International Supply Contracts, 52 Vand. J. Transnat’l L. (forthcoming Mar. 2019).3) The excerpts from the article included in this post are reprinted with permission from the Vanderbilt Journal of Transnational Law. jQuery("#footnote_plugin_tooltip_1706_3").tooltip({ tip: "#footnote_plugin_tooltip_text_1706_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); A draft of the article is available on ssrn.com. We find, consistent with the Bond study, that most of the arbitration clauses in our sample depart in notable ways from the model language suggested by international arbitral institutions—in particular, as to how the clauses define the scope of the agreement to arbitrate and how they identify the seat or place of arbitration.


Sample and Limitations

The sample we studied consists of 157 international supply contracts collected from filings with the U.S. Securities and Exchange Commission (SEC) from January 1, 2011 through December 31, 2015. Of those 157 contracts, 87 (or 55.4%) included arbitration clauses. The text of one of the arbitration clauses was unavailable (because the contract incorporated an arbitration clause by reference from another contract), leaving 86 arbitration clauses in the sample.

Several characteristics of the sample are worth noting:

  • First, as already indicated, the sample is limited to international supply contracts. Because the use of dispute resolution clauses varies across different types of contracts, one must be cautious in extrapolating our findings to types of contracts other than the one studied.
  • Second, almost all of the contracts in the sample have at least one U.S. party, meaning they almost always were entered into between a U.S. party and a non-U.S. party. Because the empirical results here are essentially limited to international contracts with a U.S. party, they may not be generalizable to contracts between non-U.S. parties.
  • Third, the contracts in the sample were all identified by the filing party as “material” contracts, defined by SEC regulations as contracts “not made in the ordinary course of business.”4) 17 C.F.R. § 229.601(b)(10)(i). jQuery("#footnote_plugin_tooltip_1706_4").tooltip({ tip: "#footnote_plugin_tooltip_text_1706_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The contracts we studied thus do not include routine contracts and may not be representative of such contracts.
  • Fourth, the contracts in the sample are concentrated in three industries: the pharmaceutical industry (72 of 157, or 45.9%); companies producing medical supplies (18 of 157, or 11.5%); and manufacturers of electronic components and accessories (12 of 157, or 7.6%). Contracts from other industries may differ.
  • Fifth, while the contracts in the sample were all filed with the SEC from 2011 through 2015, some were entered into between the parties before those years. To the extent the terms of dispute resolution clauses change over time, the results here might not reflect the current state of such provisions.


Scope of the Arbitration Clause

An arbitration clause must define the set of disputes that the parties are agreeing to submit to arbitration—i.e., its scope. Almost all of the arbitration clauses in the sample we studied had broad, general language (all but one, which was limited to certain specified types of disputes). But the variation in phrasing of the scope language is striking. Thus, in the international supply contracts in our sample, the parties rarely followed the scope language in the model clauses suggested by leading arbitral institutions: only nine of the arbitration clauses (of 86, or 10.5%) included language matching the model clauses suggested by the International Centre for Dispute Resolution, the International Chamber of Commerce, or UNCITRAL.

Even more notable is the large degree of variation in each of the central elements of the scope language in the clauses. The 86 clauses used 20 different formulations of the disputes subject to the arbitration clause, with “dispute” or “disputes” the most common (29 clauses), “dispute, controversy, or claim” the second most common (23 clauses), and “controversy or claim” the third most common (11 clauses). They used 35 different formulations to describe the source of the dispute, with “contract” or “agreement” the most common (31 clauses) and “contract, or breach thereof” (10 clauses) the second most common. And they used 21 variations of the language describing the relationship between the two, with “arising out of or relating to” the most common (31 clauses) and “arising out of or in connection with” the second most common (11 clauses).

Overall, combining the three elements, the 86 arbitration clauses in the sample contained 70 different formulations of scope language, with no formulation being included in more than four contracts. The four most common formulations were: controversy or claim arising out of or relating to the agreement or breach thereof (4 clauses); dispute arising out of or in connection with the agreement (3 clauses); dispute arising out of or relating to the agreement (3 clauses); and dispute arising under the agreement (3 clauses).

Ultimately, the variations in language likely have little legal significance. Almost all American courts would treat most if not all of these arbitration clauses as broad clauses (rather than narrow ones),5) Restatement of the U.S. Law of International Commercial and Investor-State Arbitration § 2-15, reporters’ note (ii) to cmt. a. jQuery("#footnote_plugin_tooltip_1706_5").tooltip({ tip: "#footnote_plugin_tooltip_text_1706_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); likely finding the clause to apply to a range of disputes collateral to the contract. But in drafting the scope language, the parties do not appear to have followed the model clauses suggested by leading arbitral institutions.


Choice of the Arbitral Seat

Likewise, the arbitration clauses in the sample did not follow the drafting advice of arbitral institutions in specifying the arbitral seat. The place or seat of an international arbitration is of critical importance because it determines the applicability of the New York Convention, the governing arbitration law, and the country in which actions to vacate the award must be filed.6) Id. § 1-3. jQuery("#footnote_plugin_tooltip_1706_6").tooltip({ tip: "#footnote_plugin_tooltip_text_1706_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); All but eight of the 86 arbitration clauses in the sample specified some location for the arbitration. But of those 78 clauses, barely a third (29 of 78, or 37.2%) expressly labeled the location as the “place” or “seat” of the arbitration, or identified it as the place the award would be issued.

The remaining clauses that named a location for the arbitration did not identify it as the place or seat. Instead, they used language that expressly identified the location as where the arbitral hearing would take place (one clause, or 1.3%) or used language that was ambiguous whether it was specifying the place of arbitration or the location of the hearing. The clauses referred to the “venue” or “location” of the arbitration (4 of 78, or 5.1%), stated that disputes would be “referred,” “submitted,” or subject to” arbitration (4 of 78, or 5.1%) or “settled,” “resolved,” or “determined by” arbitration in the specified location (7 of 78, or 9.0%), or provided that the arbitration would be “conducted,” “held,” or would “occur” or “take place” in (or at) the specified location (33 of 78, or 42.3%).

As a practical matter, the ambiguity in the clauses may not matter because courts and arbitral institutions might nonetheless construe the provision as naming the arbitral seat. But at a minimum, the language further illustrates how the international arbitration clauses studied depart from model arbitration clauses. Thus, the ICDR and UNCITRAL, as well as the IBA Guidelines for Drafting International Arbitration Clauses, all recommend that arbitration clauses specifically identify the “place” or “seat” of arbitration.7) See also Born, International Commercial Arbitration, at 2124 (“It is desirable to avoid references to the ‘situs,’ ‘venue’ or ‘forum’ of the arbitration.… [T]he foregoing usages (referring to the venue, situs, or forum) produce unnecessary uncertainty and should be avoided as a drafting matter.”). jQuery("#footnote_plugin_tooltip_1706_7").tooltip({ tip: "#footnote_plugin_tooltip_text_1706_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Most of the clauses in our sample do not follow that advice. A possible explanation is that the drafters were influenced by drafting practices in U.S. domestic arbitration, in which the arbitral seat is not a particularly relevant concept. The extent to which the drafting of domestic arbitration clauses influences the drafting of international arbitration clauses (and vice versa) is worth further research.

* * * * *

Our study of dispute resolution clauses in international supply contracts provides additional evidence that parties often do not adopt the model arbitration clauses provided by arbitral institutions and others. If that is so, it raises the further question of how parties in fact do draft their international arbitration clauses. And this issue barely scratches the surface of the information available from studying the provisions of arbitration clauses (and forum selection and choice-of-law clauses as well) in international contracts.

References   [ + ]

1. ↑ Gary B. Born, International Commercial Arbitration 212 (2d ed. 2014). 2. ↑ Stephen R. Bond, How to Draft an Arbitration Clause (Revisited), 1(2) ICC Int’l Ct. Arb. Bull. 14, 16-17 (1990), reprinted in Christopher R. Drahozal & Richard W. Naimark, Towards a Science of International Arbitration: Collected Empirical Research 69-70 (2005). 3. ↑ The excerpts from the article included in this post are reprinted with permission from the Vanderbilt Journal of Transnational Law. 4. ↑ 17 C.F.R. § 229.601(b)(10)(i). 5. ↑ Restatement of the U.S. Law of International Commercial and Investor-State Arbitration § 2-15, reporters’ note (ii) to cmt. a. 6. ↑ Id. § 1-3. 7. ↑ See also Born, International Commercial Arbitration, at 2124 (“It is desirable to avoid references to the ‘situs,’ ‘venue’ or ‘forum’ of the arbitration.… [T]he foregoing usages (referring to the venue, situs, or forum) produce unnecessary uncertainty and should be avoided as a drafting matter.”). function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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