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Paris Arbitration Week Recap: The Impact of COVID-19 on International Construction Projects and Disputes: Is It Really All That Bad?

Wed, 2020-07-15 06:00

How severely are international construction projects affected by global COVID-19 pandemic? What does the COVID-19 pandemic mean for international construction disputes? As with so many other questions arising in relation to the pandemic, these questions will only be answered definitively in retrospect. For construction arbitration practitioners though, one of the immediate and graspable effects has been the cancellation of a trip to Paris for the annual GAR Live Construction Disputes embedded in the Paris Arbitration Week, which for the first time took place on 9 July 2020 in a virtual format.

 

Key Note Address “Quo Vadis International Construction Arbitration

The key note address “Quo Vadis International Construction Arbitration” which was delivered by Professor Doug Jones, focused not only on the impacts of the COVID-19 pandemic but discussed the topic which was probably already the most imminent one for the industry even before the outbreak: what is needed to resolve cross-border infrastructure disputes in a fair and efficient manner. According to Jones, resolution of these disputes, which are characterized by their ever-growing factual and technical complexity and the large amounts of evidence involved, is a tremendous challenge for the arbitrators. To successfully “manage the unmanageable”, it is crucial for Jones not only to be aware of the available procedural tools, but also of the right time when these tools shall be deployed.

As an example, Jones pointed out that for the Case Management Conference it is particularly important to strike the right balance between creating a degree of certainty as to the length of the proceedings and providing enough flexibility to react to issues unfolding as the arbitration proceeds. Jones proceeded with a reference to the recently introduced Rules on the Efficient Conduct of Proceedings in International Arbitration (so-called “Prague Rules”), which he – in particular for parties with a Civil Law background – considered as another positive measure to promote efficiency of arbitral proceedings.

In this context, Jones also focussed on the issues of document production and expert evidence. Regardless of the general debate as to whether disclosure is a necessary feature for a fair and efficient dispute resolution, Jones stressed the need to keep pace with the rapidly evolving data technology assisting in voluminous amounts of documents being produced electronically. With regards to the idea of tribunal-appointed experts, Jones acknowledged that a more active role of the tribunal might indeed in some cases be useful to achieve the aim of rendering arbitration proceedings more efficient. However, he pointed out that the vast majority of experts in reality are party-appointed and suggested six steps be followed for their use, for e.g. the establishment of a common list of questions and the production of a joint report on undisputed issues with separate reports only on disputed points, to enhance the efficiency of arbitration proceedings.

With regards to technological innovations, Jones pointed out that in construction arbitration cases investments into technologies necessary to conduct virtual arbitration hearings might have the potential to outweigh travel and accommodation costs. Even though virtual arbitration hearings would be unlikely to fully replace in-person hearings, they could be one of the mechanisms for the future to render arbitration proceedings more efficient if deployed at the right time (e.g. during Case Management Conference).

 

Panel “The show must go on

Under the title “The Show Must Go On”, moderated by Peter Rosher (Reed Smith) the first panel discussed the challenges of the global pandemic for construction projects in different regions worldwide.

With regards to the situation in the Middle-East, Erin Miller Rankin (Freshfields) mentioned that the precarious financial situation for many players in the construction industry might even end some international contractors’ presence in the gulf region. Especially in the context of labour camps, Miller Rankin stressed that social distancing measures are currently still difficult to be implemented due to many workers’ housing situation. She suggested that for the way forward parties would renegotiate their force majeure-clauses to cover the possibility of a potential second or third wave of the pandemic. She explained that most COVID-19 related disputes would currently be on the subcontractor level.

For the Asian region, Dan Perera (Reed Smith) reported that many construction projects have been negatively affected due to travel restrictions preventing many international consultants, architects and engineers from being able to travel to site. A similar issue exists with regards to the interruption of supply chains. Even though there has just been a slight reopening of the borders, leading to construction projects being continued, it is however currently too early to assess in detail whether these COVID-19 related impacts will lead to an increased number of arbitration proceedings.

For the UK, James Doe (Herbert Smith Freehills) reported that there has been considerable initial confusion as regards governmental guidance in March and April. Even though the government did not formally order construction sites to be closed, many contractors felt pressured to do so. This in turn led to many projects being severely delayed. With regards to dispute resolution, Doe pointed out that there seems to be increasing suspicion amongst employers that contractors are trying to use COVID-19 as a cover for delay incurred prior to the pandemic.

 

Panel: “If you could turn back time

Under the topic “If You Could Turn Back Time” moderated by Jane Davies Evans (3 Verulam Buildings), a particular focus was put on the impact of COVID-19 on progress of ongoing construction projects and how delays can be determined with regards to claims for extension of time and whether there is a threat of COVID-19 being in fact used by contractors as a “get of jail free card”, this time from the delay experts´ perspective.

Don Harvey (Secretariat Advisors) suggested an assessment of the impact of COVID-19 in two steps – first, by identifying the real practical impact on materials, workforce and productivity, and second, by quantifying the COVID-19 impact on a specific event. He also distinguished the situation in metropolitan and rural areas. While in areas such as Manhattan, safety measures such as social distancing might severely affect works to be carried out e.g. in a 60 stories commercial building because of the limited number of people being allowed to use an elevator, the situation might be different for an onshore windfarm in a rural area.

Simon Braithwaite (BDO) drew a distinction between non-essential construction projects negatively affected by the COVID-19 shut down and the critical projects that remained active during this phase of the pandemic in New York. Due to the shut-down, some non-essential infrastructure projects would be stuck. Some critical projects, however, could even benefit from the reduced number of commuters which enabled infrastructure works to be carried out even faster than planned. For instance, in the case of some railway projects for which the reduced schedules would allow for larger windows to execute works.

Lucy Fusager Johnsen (Barslund) even reported that the lockdown in Denmark would actually have no negative delay effects on the projects that she would currently work on. The pandemic actually even allowed for a quicker resolution of problems at site due to reduced traffic and the efficient use of virtual inspections.

In any case, considering the ripple effects of the pandemic that will likely be seen in about a year, Anamaria Popescu (BRG) rightly pointed out that the need for proper project documentation has become even more important than what it was prior to the pandemic. Even if not appreciated by all project parties, documentation should always be kept at a level of sophistication that allows the parties to initiate arbitration proceedings if need be.

 

Conclusion

Is the impact of COVID-19 on international construction projects and disputes really all that bad? The event showed that this is not necessarily the case. As always, a crisis – such as COVID-19 – also provides for chances.

As the pandemic does not affect all countries and regions to the same extent, international construction projects are, of course, not affected in a uniform manner worldwide. The effects are differing but international supply chains and the global deployment of technical specialists across borders sometimes cause unexpected disruptions. As confirmed during this event, some regions have so far experienced only very limited negative effects, while others have even seen some positive effects due to less impediments on site and the efficient use of digital tools. Unsurprisingly, it has nevertheless become a global phenomenon that contractors with poor performance have started attempts to use COVID-19 as an excuse. To identify and adequately deal with the delays and effects which were actually caused by COVID-19 will be one of the key challenges to come.

One can only hope that all firms involved in major construction projects will act reasonably with regards to open claims related to COVID-19 and try to find commercially viable solutions to avoid long-term negative effects for the entire industry. So far, it seems – which was also confirmed during this event – that there is a cooperative approach between the parties to deal with the crisis in commercially practical ways. This is, of course, not the case for all projects as in some cases emergency arbitrations have been initiated which shows that immediate conflicts occurred and could not be instantly resolved.

For those conflicts that will need to be resolved by way of arbitration proceedings, an efficient conflict resolution will require the professional and timely (!) use of the available and established tools. The growing popularity of virtual hearings might be an interesting additional feature for greater efficiency and reduced costs, which are strongly demanded by the construction industry. Virtual hearing tools might even prove to be effective to avoid an escalation to full-fledged arbitration, as they can equally be used by permanent dispute adjudication boards for regular meeting and “site visits”. This event was a good proof that such a format can be very useful – although it certainly cannot compensate for a missed trip to Paris.

 

More coverage from Paris Arbitration Week is available here.

More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
by Edited by Crina Baltag & Cosmin Vasile
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Paris Arbitration Week Recap: Recent Developments and Key Arbitration Trends in Asia

Wed, 2020-07-15 02:00

On 10 July 2020, a panel of arbitration practitioners discussed the topic of “Recent Developments and Key Arbitration Trends in Asia” as part of the 2020 Paris Arbitration Week. The panel discussion covered the distinctive features of and the latest developments in five different jurisdictions: Singapore, China, Hong Kong, South Korea and India. Hosted by the Singapore International Arbitration Centre’s YSIAC group, the panel was moderated by Ms Marina Zenkova (Member, YSIAC Committee; Senior Associate, White & Case (Moscow)), and the speakers were Mr Manish Aggarwal (Partner, Three Crowns LLP), Ms Edwina Kwan (Partner, King & Wood Mallesons), Ms SeungMin Lee (Partner, Peter & Kim), Mr Daryl Chew (Member, YSIAC Committee; Partner, Shearman & Sterling) and Ms Ong Pei Ching (Partner, TSMP Law Corporation.

Asia has become one of the world’s most important arbitration regions, with Singapore being the third-most preferred arbitration seat after London and Paris, and SIAC being the third most-preferred arbitration institution after ICC and LCIA. Singapore continues to offer users secure, stable and sustainable solutions even amidst COVID-19, while new opportunities for foreign arbitrations open up in China and Hong Kong particularly in the Pilot Free Trade Zones. In South Korea, users of arbitration are paving the way forward for IP disputes which are uniquely dense in the market, while India continues to showcase innovation through its arbitral rules.

 

Singapore continues to be a secure, stable and sustainable hub for dispute resolution

Singapore continues to be a popular seat due to its three distinctive features: security, stability and sustainability. These characteristics were demonstrated by Singapore’s effortless transition into the “new norm” of online hearings in the current COVID-19 climate. Despite the severe disruptions created by movement restrictions and social distancing rules, the courts and arbitral institutes turned seamlessly towards various forms of online and other hearing arrangements, minimising the interruption to ongoing cases.

In addition to these characteristics, the Singapore courts and government take a proactive stance that supports arbitration. For example, recent case law demonstrates the robust approach taken by the Singapore courts to enforce the obligation to arbitrate by the firm adoption of the “prima facie” threshold that some jurisdictions have departed from.1)AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Company) [2020] SGCA 33; Hai Jiang 1401 Pte Ltd v Singapore Technologies Marine Ltd [2020] SGHC 20. jQuery("#footnote_plugin_tooltip_5742_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5742_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The Ministry of Law and the Law Reform Committee of the Singapore Academy of Law also actively consider reforms to arbitration law. A noteworthy proposal under consideration is to introduce to the International Arbitration Act (IAA) an “opt in” mechanism that would allow parties to appeal to the High Court on a question of law arising out of an award made in the proceedings. If this proposal is accepted, it will be interesting to see how it operates in practice. It is not clear the extent to which commercial users would agree to opt in; although the option of inviting the court’s intervention may afford parties greater autonomy, it may also protract the proceedings.

Another proposal is to amend the IAA to give parties the option to waive or limit the grounds to set aside an arbitral award under Article 34(2) Model Law and section 24(b) IAA, on the condition that the agreement is reached after the award is rendered.

In addition, the Ministry is also considering amendments that would give the Singapore courts the power to order costs in certain situations, such as when an arbitral award is successfully set aside. This would plug a lacuna in the existing legal framework, since tribunals cannot render new costs awards once the award is set aside.

 

New opportunities for foreign arbitration open up in China and Hong Kong

The arbitration scene in China and Hong Kong is marked by efficiency, speed, and the endorsement of hybrid ADR approaches such as med-arb and conciliation-arb. Market trends tend to be heavily shaped by the China’s Belt & Road Initiative (BRI). Equally shaping the scene is the China’s more recent vision for the Greater Bay Area (GBA), an economic corridor connecting the delta of the Pearl River including Hong Kong SAR, Macao SAR and the nine most developed cities (including the megacities of Guangzhou and Shenzhen) in the adjacent Guangdong Province. The nine different arbitration institutions in the GBA are discussing how to make dispute resolution user-friendly and facilitate more cross-border investments in those regions. At the same time, there is discussion on how to reconcile the different laws (Chinese law, Hong Kong law which is based on common law, and Macau law which is based on Portuguese law), and different currencies.

As to recent developments, from 1 January 2020 foreign (non-Chinese) arbitral institutions have been permitted to set up branches in the Shanghai Pilot Free Trade Zones (Pilot FTZs).2)Measures for the Administration of Overseas Arbitration Institutions’ Establishment of Business Departments in the China (Shanghai) Pilot Free Trade Zone Lin-Gang Special Areas effective from 1 January 2020. jQuery("#footnote_plugin_tooltip_5742_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5742_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); On the one hand, this now signals an opening up of the Chinese arbitration market but it is clear that China is cautious not to fully open up. Foreign arbitral institutions are only entitled to lawfully administer civil and commercial arbitral disputes that have a “foreign-related element”.3)Measures for the Administration of Overseas Arbitration Institutions’ Establishment of Business Departments in the China (Shanghai) Pilot Free Trade Zone Lin-Gang Special Areas effective from 1 January 2020, Article 14. jQuery("#footnote_plugin_tooltip_5742_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5742_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The Shenzhen Municipal Government has updated the rules for arbitration proceedings administered by the Shenzhen Court of International Arbitration (SCIA).4)Provisions on the Administration of Shenzhen Court of International Arbitration effective from 1 June 2019. jQuery("#footnote_plugin_tooltip_5742_4").tooltip({ tip: "#footnote_plugin_tooltip_text_5742_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The rules now allow parties to conduct hybrid arbitrations where parties can select a set of arbitration rules while engage in another arbitration institution as the appointing agency for arbitrators.5)Provisions on the Administration of Shenzhen Court of International Arbitration effective from 1 June 2019, Article 17. jQuery("#footnote_plugin_tooltip_5742_5").tooltip({ tip: "#footnote_plugin_tooltip_text_5742_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Most recently on 18 June 2020, Shenzhen and Singapore signed a series of memoranda of understanding (MOUs) for the Singapore-China (Shenzhen) Smart City Initiative (SCI).6)Singapore-China (Shenzhen) Smart City Initiative (SCI). jQuery("#footnote_plugin_tooltip_5742_6").tooltip({ tip: "#footnote_plugin_tooltip_text_5742_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); International awards by SIAC or SCIA will have similar standing as those awarded by each other, meaning a SIAC award can be converted into a SCIA award, and thus enforceable in China as a domestic award. This important development will increase the predictability of enforcement outcomes in China. We expect to see more of these procedural developments over the course of the year.

 

South Korea’s users pave the way forward for IP arbitration  

Perhaps one of the only jurisdictions where arbitration practitioners will spend a solid amount of their time on IP disputes, is South Korea. The arbitration market is moving in sync with the increasing popularity of Korean cultural content such as online and offline games which accounted for 69.2% of the country’s total content exports in the first half of 2019, as well as animation, knowledge and information services, and no doubt, Korean music. Statistics show that the value of the South Korean cultural content was worth 64 billion USD in 2019.

IP disputes are particularly dense in the region. Since last year, many arbitral awards were rendered concerning infringement of intellectual property rights of Korean IP owners, and these were administered by different arbitral institutions such as KCAB, SIAC and ICC. Users of arbitration, who are predominantly IP owners, are thus paving the way forward as they challenge the Korean arbitration community with issues of arbitrability, validity of IP rights, estoppel and parallel proceedings. There are also discussions underway to address IP issues through legislative amendments to the Korean Arbitration Act. It will be interesting to watch the South Korean market develop into a specialised hub for IP disputes.

 

Procedural innovations continue in India

In India, all three wings of the Indian state – the legislature, executive and judiciary – have been making significant efforts to develop India into an arbitration-friendly jurisdiction.

For example, insofar as enforcement of awards is concerned, following certain amendments to the Indian Arbitration and Conciliation Act 1996 and certain judicial pronouncements, there is no longer an automatic stay on enforcement if a domestic award is challenged before the courts. Similarly, for foreign awards, the Indian courts are taking a proactive approach to enforcement, which is reflected in the vast majority of foreign awards having been enforced in the last five years (albeit with some delays).

There have also been a string of procedural innovations designed to make the arbitral process expeditious and more cost-effective. For instance, following certain amendments made in 2015 and 2019, the Indian Arbitration Act now requires a tribunal in purely domestic arbitrations to render an award within 12 months from the completion of pleadings, which in turn must be completed within six months of the notification of constitution of the tribunal. In case of international commercial arbitration seated in India, this time limit is not mandatory. The parties can agree to extend the statutory 12-month period to 18 months. However, if the award is not rendered within the original 12-month period or the extended 18-month period (in case of an extension), the tribunal’s mandate will terminate, unless it is extended by courts on application.

Broadly speaking, the perception within the arbitration community and users remains that the recent measures to improve the Indian arbitration landscape are well-intended; however, they could have been better executed. In particular, uncertainty over a long period regarding the prospective or retrospective effect of the amendments made in 2015 and 2019, and the prevailing lack of clarity regarding some other important aspects (such as ability of foreign lawyers to participate in India-seated arbitrations), have adversely affected India’s emergence as an arbitral hub.

 

More coverage from Paris Arbitration Week is available here.

References   [ + ]

1. ↑ AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Company) [2020] SGCA 33; Hai Jiang 1401 Pte Ltd v Singapore Technologies Marine Ltd [2020] SGHC 20. 2. ↑ Measures for the Administration of Overseas Arbitration Institutions’ Establishment of Business Departments in the China (Shanghai) Pilot Free Trade Zone Lin-Gang Special Areas effective from 1 January 2020. 3. ↑ Measures for the Administration of Overseas Arbitration Institutions’ Establishment of Business Departments in the China (Shanghai) Pilot Free Trade Zone Lin-Gang Special Areas effective from 1 January 2020, Article 14. 4. ↑ Provisions on the Administration of Shenzhen Court of International Arbitration effective from 1 June 2019. 5. ↑ Provisions on the Administration of Shenzhen Court of International Arbitration effective from 1 June 2019, Article 17. 6. ↑ Singapore-China (Shenzhen) Smart City Initiative (SCI). 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
by Edited by Crina Baltag & Cosmin Vasile
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Paris Arbitration Week Recap: Do and Don’t’s When Choosing a Seat and Enforcing in CEE/CIS/Russia: State of Play

Tue, 2020-07-14 07:00

The third edition of the Jeantet “Arbitrating in CEE and CIS” roundtable was held virtually during the Paris Arbitration Week on Wednesday, 8 July 2020. The topic of this year’s edition laid stress upon “Do and Don’t’s When Choosing a Seat and Enforcing in CEE/ CIS/ Russia: State of Play”.

Because of both the significant legal and practical effects it carries, the choice of an arbitral seat requires careful consideration of the peculiarities attached to the national system where it is found. Jeantet’s 2020 “Arbitrating in CEE and CIS” roundtable thus aimed at providing the perspective of arbitrators, academics, lawyers, and in-house counsels all acting in this region. The panelists were: Crina Baltag (Senior Lecturer, Stockholm University), Alice Fremuth-Wolf (Secretary General, Vienna International Arbitration), Maria Hauser-Morel (Counsel, Hanefeld), and Michael McIlwrath (Global Litigation Counsel, Baker Hugues GE). The debate was supplemented by the interventions of Metodi Baykushev (Managing Partner, Dimitrov, Petrov & Co), Andras Laszlo (Partner, Laszlo Fekete Bagamery) and Davis Lasfargue (Partner, Jeantet) on their respective jurisdictions (Bulgaria, Hungary and Russia, respectively). The roundtable was once again moderated by Ioana Knoll-Tudor (Local Partner, Jeantet).

Three topics of particular interest had been chosen for discussion to best highlight the variety of questions which may arise when contemplating the choice of an arbitral seat in the CEE/Russia/CIS region: (1) the arbitrability of disputes, (2) the monopoly of national arbitral institutions, and (3) logistical as well as procedural issues.

 

Arbitrability

Rules relating to the arbitrability of disputes often constitute a real challenge for arbitrators seating in CEE/ Russia/ CIS arbitrations. Various reasons may explain this, not the least of which is that some States in the region demonstrate a rather protective approach when it comes to adjudicating certain types of disputes.

As the panel pointed out, there is, in particular, a thread of disputes that are not arbitrable in the region.

First of all, parties and arbitrators should be mindful of the arbitrability of their disputes when dealing with State entities or subject matters. In Hungary, for instance, and pursuant to the 2012 Act on State Assets and the 1994 Arbitration Act amended, no arbitration procedure could take place in matters relating to national assets or any relating rights, claims or demands. Although this approach was abolished from both Acts in 2015, the question remains open with regard to arbitration agreements concluded between 2012 and 2015. Similarly, in Romania, there is a presumption that public entities may not enter into arbitration agreements unless they exercise commercial activities, whether by law or by statutes.

Second, certain jurisdictions such as Czech Republic or Russia do not allow disputes regarding insolvency matters to be referred to arbitration. With respect to real property, while only certain property rights are arbitrable in Bulgaria (e.g. tenancy agreements), Romanian law imposes broader restrictions which, for example, will require an arbitral award concerning the property rights of immovable assets to be taken before a public notary or before a court in order to be opposed to third parties.

Third, local restrictions have also extended to matters of pure contract law. By way of illustration, in Bulgaria, Article 1(2) of the International Commercial Arbitration Act (ICAA) has been interpreted so as to indicate that disputes about filling gaps or adaptation of a contract to new circumstances must be explicitly provided for in the arbitration agreement, or risk the award being set aside if the arbitration clause is too “general” or “standard”.

Finally, the arbitrability of corporate issues in the CEE/ Russia/ CIS region is not precisely defined and remains heterogeneous. For instance, while intra-corporate disputes (shareholders’ decisions, shareholders’ exclusion from the company) are not arbitrable in Romania and Poland, local courts in other jurisdictions such as Ukraine are sometime unable to provide straightforward answers as to the arbitrability of corporate disputes. By contrast, the 2016 Arbitration reform brought some clarity in Russia: since 1 February 2017, all “corporate disputes” (i) must be administered by accredited “Permanent Arbitration Institutions” only, (ii) subject to special corporate rules, and (iii) with a seat of arbitration in Russia. However, neither the HKIAC nor the VIAC – the only foreign accredited arbitration institutions – have yet implemented such special corporate rules, as those rules prescribe the publication of the identity of the parties as well as of the matters of the dispute and thus risk thwarting the confidentiality of arbitration.1)In February 2020, the VIAC and the HKIAC jointly applied to the Russian Ministry of Justice and to its Council for the Development of Arbitration for clarification of certain “grey areas” of the Russian Arbitration legislation, in particular regarding the unclear distinction between corporate disputes that are subject to special rules and corporate disputes that are not subject to such rules. jQuery("#footnote_plugin_tooltip_2375_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2375_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Monopoly of national arbitral institutions

In view of the fact that, following the parties’ will, many disputes involving CEE/ Russia/ CIS parties are arbitrated outside of the CEE/ CIS region, some States have tried to implement, either contractually or by way of legislation, monopolies favoring local arbitral institutions. As emphasized by the panel, the existence of these monopolies must be carefully examined when choosing a seat and enforcing in the region.

As an example, ICC awards relating to FIDIC contracts have been annulled by Romanian courts because the contractual reference to “the Court of International Arbitration” was interpreted as referring to the CCIR-CICA Court (Romanian national court of arbitration) instead of the ICC Court  even when specific reference was made to the ICC Rules. The ICC tribunals had upheld their jurisdiction, but ultimately saw their awards annulled. Similarly, the Bucharest Court of Appeals annulled an ICC award on the basis that the parties had not stated in full the name of the ICC, even though they had expressly referred to FIDIC in their contract (which is most often associated to the ICC Court of Arbitration).2)Decisions No. 1747 dated 12 April 2018 and 4119 dated 16 October 2018, Bucharest Court of Appeal. jQuery("#footnote_plugin_tooltip_2375_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2375_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Moreover, the Government Decision 1/2018, replaced the former standardised public procurement contracts based on FIDIC Conditions of Contract with new ones, extending at the same time their applicability to all investment objectives financed by public funds of which the total estimated value is equal to or exceeds € 5 million, and including a mandatory arbitration clause which provides that disputes shall be settled by the CCIR-CICA.

In Hungary, Article 59(1) of the 2017 Arbitration Act provides that “[a]s institutional Arbitration Court in Hungary, the Commercial Arbitration Court or the panel of arbitration formed according to its rules of arbitration shall proceed.” This provision has stirred an important debate as to whether it constitutes an exclusion of jurisdiction or a mere rule distributing jurisdiction. As it stands, and as acknowledged by the panel, the possibility for parties to provide for Budapest as the seat of their arbitration dispute seems very unlikely.

 

Involvement of State courts in the arbitration procedure

More indirectly, in Bulgaria, the reformed ICAA now empowers the Ministry of Justice to scrutinize the work of arbitration institutions and provide compulsory instructions to achieve compliance with the law (as previously discussed on the blog), while in Belarus, under the July 2011 Law on Arbitration Courts, a State registration is needed for permanent arbitral tribunal, even when they are created as separate units of legal persons.

Comparable monopoly measures have been introduced in Slovakia, where only entities empowered by the 2002 Arbitration Act (as amended in 2015) are allowed to establish permanent arbitration institutions. It is therefore doubtful whether foreign institutions would be able to maintain a permanent presence in Slovakia.

Other noticeable restrictions taken by States and discussed by the panel concerned the impact of such measures on the parties’ choice of arbitrators, as for example is the case in Ukraine where the Government has imposed a closed list of arbitrators for national arbitration institutions in order to mitigate the proliferation of rogue institutions.

 

Logistical issues

  • Virtual hearings

While noting that the Covid-19 pandemic has shed light on the logistical aspects of arbitration in the region and that these aspects may also influence parties and arbitrators when choosing a seat and enforcing in CEE/ Russia/ CIS, the panel unanimously concurred that there has been a rapid and excellent response to the pandemic from arbitral institutions in the region, which therefore continue to operate and allowed for procedures to run efficiently.

The panel also observed that, contrary to popular belief, problems that have occurred were neither related to connectivity nor technicalities, but, rather, to time zones or to certain parties refusing to hold virtual hearings. All members stressed that the concern always has to be the fair and equitable treatment of the parties and the respect of due process, which must be assessed by arbitral tribunals in concertation with the parties and their counsels.

In that regard, it is worth mentioning that the VIAC just published a series of guidelines – “the Vienna protocol” – of various elements that arbitrators should take into consideration when deciding whether to hold a virtual hearing or not. The panel stressed that, in any event, tribunals shall adopt a thorough reasoning, also putting forward the comments and positions of the parties on the question, thus allowing to significantly mitigate the risks of seeing an award set aside or its enforcement denied.

  • Original of the arbitration agreement

Importantly, the requirement to provide the original of the arbitration agreement when seeking to enforce an award is not unanimously applied across the CEE/ Russia/ CIS region. While certain countries require an original or a certified copy of the arbitration agreement (e.g. Czech Republic, Finland, Kazakhstan), sometimes even with translation requirements (e.g. Kosovo, Russia), other countries do not, except in some cases, hold it as a prerequisite (e.g. Romania, Austria).

 

In the end, is it all a question of perception vs reality?

The particularly active attendees were quick to point out that one could hardly refer to the CEE/ Russia/ CIS region as a whole and aim at presenting an analysis that could encompass the entire region in a uniform manner. The panel agreed to that comment and emphasized the fact that the region suffers to some extent from an ill-placed lack of attraction as a place for arbitration. Many jurisdictions have indeed reformed and modernized their arbitration laws, while arbitration communities in the region are increasingly dynamic, and national courts are taking a positive approach to arbitration. Yet, the common perception of arbitration users towards these jurisdictions is not always positive.

This unfortunate perception was precisely what the panel’s online survey to the roundtable attendees revealed.

To the question Do you perceive arbitral institutions in the CEE/ Russia/ CIS region as generally neutral and independent?”, 60% of the attendees answered yes and 40% answered no. To the question Would you advise your client/company to incorporate an arbitration agreement to their contracts providing for a seat of arbitration in the CEE/ Russia/ CIS?”, 48% answered yes and 52% answered no.

Drawing on its survey, and as final word of advice, the panel insisted that the great diversity of seats and legal frameworks within the CEE/ Russia/ CIS region should not lead arbitration practitioners to rely upon their perception of the region but, rather, research and investigate in further details about its peculiarities when contemplating a seat of arbitration located in the CEE/ Russia/ CIS region.

 

More coverage from Paris Arbitration Week is available here.

References   [ + ]

1. ↑ In February 2020, the VIAC and the HKIAC jointly applied to the Russian Ministry of Justice and to its Council for the Development of Arbitration for clarification of certain “grey areas” of the Russian Arbitration legislation, in particular regarding the unclear distinction between corporate disputes that are subject to special rules and corporate disputes that are not subject to such rules. 2. ↑ Decisions No. 1747 dated 12 April 2018 and 4119 dated 16 October 2018, Bucharest Court of Appeal. 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Paris Arbitration Week Recap: Sailing the Winds of Change at the 4th ICC European Conference on International Arbitration

Tue, 2020-07-14 03:00

The 4th ICC European Conference on International Arbitration took place on Tuesday 7 July 2020, during the second day of the Paris Arbitration Week. This first-ever digital edition saw record numbers with 1,450 participants connecting from all corners of the world.

Alexis Mourre, President of the ICC International Court of Arbitration, acknowledged in his welcome address the difficult times businesses are facing and emphasised the role that arbitration and its community play “in ensuring that justice continues to be made in international disputes, decisions are not delayed and unnecessary costs are spared to the parties”.

The ICC Court and its Secretariat took immediate action to adapt to the COVID-19 pandemic.1)On 9 April 2020, the ICC published its Guidance Note on Possible Measures Aimed at Mitigating the Effects of the COVID-19 Pandemic previously discussed on the blog. jQuery("#footnote_plugin_tooltip_9317_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9317_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Since March 2020, the ICC Court has held 50 remote court sessions, scrutinised 170 draft awards, decided on 22 challenges, processed 117 requests for arbitration, administered 6 Emergency Arbitrator applications and made 641 other procedural decisions.

Alexis Mourre further acknowledged the changes brought about by the COVID-19 crisis, which prompt for virtual hearings as the norm rather than the exception, at least for cases which do not require extensive evidence and have limited amounts in dispute, and for paperless post-COVID-19 practices in the near future.

Alexander Fessas, Secretary General of the ICC International Court of Arbitration and Director of the ICC Dispute Resolution Services, who successfully led the ICC Dispute Resolution Team during this unprecedented crisis, once again called for caution and celebration as for the previous year, but emphasized that in the current context, access to justice must be maintained, and new avenues for dispute resolution processes should be found.

The ICC Secretary General reflected on the transformative process that we are all witnessing in the world of dispute resolution, and the questions this raises with regards to new disputes arbitral tribunals will hear, new areas to explore, and new processes and procedures to develop in order to offer new and adapted services.

Laetitia de Montalivet, ICC’s Regional Director for Europe, introduced the topics of the two conference panels and thanked the members of the program committee, led by Yas Banifatemi and Erica Stein.

 

First panel chaired by Professor Ruiz Hélène Fabri, Director of the Max Planck Institute for Procedural Law tackled the topic of “Tariff Wars and Supply Chains: Disputes in the making? Sharing views on Europe at the crosshairs of the latest United States/China trade disputes”

James Mendenhall, Partner in Global Arbitration, Trade and Advocacy at Sidley Austin (Washington D.C.), kicked off the discussion and gave an overview on “where we are” on the tariff wars and on the “state of play” in the U.S., while addressing the implications of the resulting dispute settlements. Under the Trump administration, a number of tariffs were applied with an adverse effect on trade results, as the graphic below shows:

In addition to the tariffs mentioned above, a number of additional retaliatory tariffs are being considered pursuant to WTO dispute settlement actions. For example, those resulting from: recently initiated Section 301 investigations of digital services taxes imposed/proposed by Austria, Brazil, Czech Republic, the EU, India, Indonesia, Italy, Spain, Turkey and the United Kingdom; COVID-related trade restrictions; and the political situation in Hong Kong.

James Mendenhall concluded that a number of non-tariff actions may also impact European companies doing business in the U.S. (for example the Executive Order on Securing the Information and Communications Technology and Services Supply Chain).

These tariff and non-tariff measures will significantly affect supply chains by increasing costs, reducing access to materials, creating tremendous uncertainty–not only for trade but also for investment–and contributing to the creation of an unpredictable environment.

Professor Maxi Scherer of Queen Mary University of London; Special Counsel, WilmerHale (United Kingdom) addressed the legal effects that these measures have on commercial (and in particular supply-) contracts, as well as the current health crisis and its effects on contract performance.

While it may seem easier to prove force majeure during a pandemic, given that such clauses commonly include pandemics as examples of force majeure events, Professor Scherer explained that it is necessary to demonstrate its specific effects on the contract and its performance.

Emmanuel Jacomy, Partner at Shearman & Sterling (Beijing & Singapore), focused on the media aspect of the tariff wars, citing incendiary declarations made by President Trump and Chinese officials that illustrate the current unprecedented tension between the U.S. and China. As a result of these declarations and the measures taken by these two countries, both European and Chinese companies operating in Europe have found themselves in the middle of an environment highly conducive to investment disputes.

Similarly, following measures adopted as a result of the pandemic, governments in the U.S., China and Europe have implemented travel bans, essentially frozen non-essential business and construction projects, and have ordered the requisition of companies and production lines, in particular hotels, private hospitals and companies producing medical equipment, including companies owned by foreign investors. These measures could potentially give rise to claims for breaches of standards of fair and equitable treatment or expropriation.

Emmanuel Jacomy then discussed potential dispute concerns related to mandatory changes in private contracts implemented as a result of the pandemic. The arbitral tribunal would likely consider the following three factors when determining the success of these claims: (i) duration and impact: whether the investors have been adequately indemnified for their loss; (ii) transparency: whether the measures were applied in a transparent and predictable manner; and (iii) fairness: whether these measures were applied in a discriminatory manner favouring domestic companies or a certain category of investors.

These changes could provide an immense potential for claims, but seem unlikely to materialise in practice. He highlighted four reasons why: (i) there are few investment treaties between the EU and the U.S. For example, there are only 9 between the U.S. and the EU, and countries falling outside of these treaties will not be afforded protection; (ii) China has substantially more treaties in place, but older treaties provide inadequate or limited dispute resolution mechanisms; (iii) many of the treaties in place contain exception clauses, allowing for legitimate measures taken under the ambit of “public health”, “essential security”, “public order”, etc.; and (iv) there is a chilling effect in place. Claims against China and the U.S. are exceptionally rare, and the current trade war and health crisis are unlikely to convince investors to initiate new claims.

 

Second panel chaired by Patrick Thieffry, Independent Arbitrator addressed the topic of
“The European Green Deal and Climate Law: What is the impact on dispute resolution?”

Patrick Thieffry opened the session by referring participants to a primer on The European Green Deal, Climate Law and Arbitration which he prepared and distributed to all participants in advance, which included a summary of the European Commission’s communication about the European Green Deal (“EGD”), as well as snap shots of current arbitral practices in environmental and climate disputes.

He further stated that the EGD not only proposes contributing to the implementation of the Paris Agreement, but also proposes taking major environmental and climate legislation a step further, including on bio-diversity, circular economy, and even reaching a 0% pollution goal, all of which will impact businesses, giving rise to commercial and investment disputes.

The EGD has become even more relevant in the last three months, with a 7 billion EUR budget and a new invitation to arbitration practitioners to limit carbon emissions by using clean methods of dispute resolutions. Before concluding, Patrick Thieffry reminded everyone that the ICC Commission on Arbitration and ADR has recently released its Report on Resolving Climate Change Related Disputes through Arbitration and ADR, with two concrete results: (i) many types of climate change related disputes are expected to rise from all kinds of business investment and contracts, and (ii) the ICC is equipped to resolve such disputes in a quick and efficient manner.

Frances Lawson, Managing Associate at Orrick (Switzerland) added that the EGD is a game changer. She addressed the issue of the EGD impact on commercial contracts and mentioned three points: 1) key aspects of the EGD, 2) the types of changes, and 3) the scale of changes. She concluded that while the scale of the changes we are likely to see is extensive, the pace of change in the corporate world is typically slow.

She reflected on the mandatory rules upon which the EU may reinforce these measures and how the price of imports will reflect the changes. Non-EU products may need to be aligned accordingly. Emissions targets for states to help accelerate the decarburisation process are also provided. The support of the green sector and products will be necessary. New legislation supported by sustainable products and common methodology is promoted. The 2021 action plan calls for 0 emission in both water and soil.

Contracts will become more detailed and may include binding clauses providing that a certain percent of used materials are sourced from recycled products, and/or products produced using a certain % of renewable energy. Construction contracts may provide for the use of carbon-neutral products and processes. These changes are to be implemented over 25 years, to be attained by 2050.

Climate law is already making its way through the European Parliament and the European Council. By announcing the EGD, the EU has expressed its boldest and most ambitious plan to date to place climate change and protection at the heart of EU policy.

The question is: Do we want to be reactive, playing catch-up and making changes to the way we do business once we are left with no other choice? Or do we want to position ourselves at the head of the curve, looking forward and preparing for what lies ahead? The extent to which future contracts will reflect the EGD in the coming years depends on our answer to this question.

Patrick Baeten, General Counsel of Engie (Brazil), commented on what types of disputes may arise as a result of the implementation of the EGD and climate laws in France and Europe as a whole. The EGD represents a major shakeup of a substantial part of a global interconnected economy and will have major impact on states, corporations and citizens alike.

The EU Commission is aware of “the ecological transition” which will modify existing relationships and create new ones, as well as creating new rights. Shock events generate “business to business” opportunities. International public law references to climate protection are emerging, which would create new rights.

Finally, he referred to the emergence of what has been called “litigating for a change” where citizens and NGOs start or join strategic cases designed to pressure national governments to be more active or to enforce existing legislation.

In general, he concluded, we will see all types of disputes flourishing, including commercial disputes, ISDS, more administrative enforcement procedures and new civil rights disputes.

José Manuel Garcia Represa, Partner at Dechert (France) indicated that implementation of the EGD entails real risks of claims by investors under bilateral and multilateral treaties as a result of changes in environmental laws and dispute resolution. Investors, in particular, will be impacted. There is a tension between a state’s obligations to protect its population and territory against environmental harm and its obligations under various treaties to protect foreign investors against state interference, including for environmental motivations, however legitimate they may be. He questions which interest should prevail, and whether protecting the environment is simply a matter of national law.

EU member states may need to consider treaty reform, either denouncing or amending existing treaties, to mitigate the risk of claims arising from the implementation of the EGD and to avoid liability for environmental protection measures, but this will take time.

This panel finished with an informal poll of the audience about their expectations for the future, revealing that climate and environmental issues were a significant issue for a majority of the audience, and a willingness for changes related to the health crisis, such as going paperless and conducting virtual hearings, to be maintained post-health crisis.

 

More coverage from Paris Arbitration Week is available here.

References   [ + ]

1. ↑ On 9 April 2020, the ICC published its Guidance Note on Possible Measures Aimed at Mitigating the Effects of the COVID-19 Pandemic previously discussed on the blog. 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Virtual Hearings to the Rescue: Let’s Pause for the Seat?

Mon, 2020-07-13 04:00

The COVID-19 pandemic catapulted discussions on online dispute resolution methods like no other phenomenon. With this, determining the proper seat for online arbitration has become the center of conversation. As the world adapted to the challenges presented by the pandemic, so too did international arbitration. Suddenly, there was a wave of virtual hearings, webinars and video calls and even moot court competitions. Practitioners who were otherwise skeptical or doubtful of online dispute resolution’s benefits were suddenly advocating its usefulness and advantages. This proved that it might be a good time to revisit online dispute resolution procedures, particularly online arbitration.

The benefits of virtual proceedings are obvious. Online dispute resolution management, and for that matter virtual hearings, increase overall efficiency in an arbitration. Arbitrations are often document intensive exercises involving large volumes of trial bundles and sifting of documents. Managing the documents through electronic bundles and subsequently referring to these during a virtual hearing save time and cost. Cost is also saved as parties; tribunal members and lawyers do not have to travel from different parts of the globe to attend the hearing. At first blush, it sounds like an all-round winner, albeit with a proviso-the seat.

 

The ever-important seat

Despite its benefits, the question remains what, if anything, happens to the seat of arbitration in a virtual hearing. The seat of arbitration is crucial as it affects arbitrability, determination of the governing law, whether substantive or procedural and determination of the place for the annulment proceedings of the arbitral award. It is generally accepted that the venue of the arbitration, that is, where the hearing and deliberations take place, may be different to the seat of arbitration. This often happens because of sheer convenience when deciding where to hold the hearings. This arises from accepting the seat only as a legal concept; simply as the lex arbitri. It allows parties to select a seat and submit to the procedural law of a specific jurisdiction without being physically tied to that place.

The caveat to this position is that, depending on the seat of arbitration chosen by the parties, some national laws may require that the proceedings or at least part of it take place in the State which is the chosen seat. Failing a sufficient connection of the proceedings with the State, the arbitration law at the seat may not apply or may only partially apply and the host State may not accept an award from such proceedings. This will cause difficulty for a party seeking to enforce a successful award. In common law jurisdictions such as England and Wales, an argument for an arbitration without a seat may not gain traction; but the situation may be different in civil law jurisdictions.

For example, in the ICC Arbitration No. 10’623, Decision of 7 December 2001, the Tribunal consisting of prominent practitioners Emmanuel Gaillard, Piero Bernardini and Nael Bunni found that the decision to hold the arbitration hearing in Paris and not at the seat of the arbitration was made for practical reasons and was without prejudice to the venue of future hearings. It would be interesting to know if this award was successfully enforced.

Therefore, before getting caught up in the wind of virtual hearings, parties should consider if there are any peculiarities that they need to consider in the national laws of the seat which may affect virtual hearings. Where an issue does appear to arise under the national laws of the relevant seat, the parties may consider changing their lex arbitri to a more arbitration friendly State. However, changing the place of arbitration often comes with challenges, particularly where the claimant faces a recalcitrant respondent. In such cases, the arbitral tribunal will find itself in a precarious position of considering changing the seat, whilst keeping within its jurisdiction and considering relevant institutional rules and arbitration laws.

 

What happens if there is no seat?

The question of the seat in online arbitration is not any different than the discussion on delocalized arbitration. There will be no issue, where the parties respecting due process agree the jurisdiction that is to be the seat of online arbitration.

The problem arises where the parties did not agree the seat in their arbitration agreement. There has been a long-standing debate between those who argue that the seat of arbitration is mandatory and those that argue that the seat of arbitration need not be determined, that is, the arbitration is floating/decentralized. When it comes to online arbitration, the issue becomes even more controversial as there is no geographical location in cyberspace. The internet does not fall within the borders of any sovereign jurisdiction. Online arbitration, because of its nature, will not have a seat, rather it will be ruled by the parties’ convenience. Therefore, adoption of delocalized arbitration in cyberspace becomes the sensible option. Yet, jurisdictions may have different views on delocalized arbitration. For instance, France may be open to not having a seat, given its history of enforcing annulled awards. In contrast, majority of courts in England do not recognize floating arbitrations. However, there seems to be hope for delocalized arbitration in England as the English Arbitration Act 1996 is based on UNCITRAL Model Law, which in fact provides for the delocalized system. For example, Section 3 of the Act allows the seat to not be directly related to a forum.

Even if online arbitration is allowed to continue without being tied to a lex arbitri, some argue that it may not survive under the current international arbitration regime as it could be inconsistent with the framework drawn by the New York Convention, particularly with Article  V(1)(e) that allows the court of the seat to reject enforcement.

With this in mind, there are various ways to determine the seat of an online arbitration. These include the following:

  1. The place where the website of the case in question is. This web site would be established by determining where all case files and submissions by the parties are
  2. The place where the servers are
  3. The place where the computer is based or where the emails of the arbitrator are sent and collected.
  4. The place where the e-arbitration provider is located.
  5. The place where the e-platform used for the conduct of the e-arbitral proceedings is located.

It is also suggested that the arbitral tribunal or the e-arbitration provider should determine the seat of arbitration. Domicile or place of business of the parties, nationality of the parties and the location of the e-arbitration provider are listed as the connecting factors while establishing the seat.

Some ahead-of-their-time institutions have online arbitration rules that may provide guidance on how to take on this issue. Although some of them such as Russian Arbitration Center or Shenzhen Court of International Arbitration (SCIA) have a set of rules for online arbitration, they do not have a specific rule on the seat of online arbitration. On the other hand, China International Economic and Trade Arbitration Commission (CIETAC) Online Arbitration Rules give precedence to the parties’ agreement. If the parties fail to reach an agreement, the seat of online arbitration is considered to be the location of the CIETAC. Russian Arbitration Association (RAA) Online Arbitration Rules provide the seat of arbitration to be in Moscow, Russia unless parties agree otherwise. The Georgia Dispute Resolution Center (DRC) Online Arbitration Rules also do not address the seat of arbitration but recommend an online arbitration agreement which states the place of arbitration as Tbilisi.

Parties entering into arbitration agreements post COVID-19 should take into account lessons learnt from this crisis and perhaps should consider expressly providing for online dispute resolution (either as the main arbitration agreement or an ancillary provision) and choose an appropriate seat which will accommodate this. Institutions could also take this time to renovate their approach towards dispute resolution as it is anticipated that the ADR providers will be the winner of the outbreak since it is likely that the parties will go for the alternatives to litigation. Going forward, the institutions providing ODR services that minimize the handicaps with their rules could be favored more, since it seems like online arbitration is here to stay.

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The Drawbacks of Two Arbitral Awards: How Can We Avoid Another ‘Putrabali’ Controversy?

Mon, 2020-07-13 03:00

An award set-side underlines that it has been annulled in the jurisdiction in which it has been rendered. The grounds for setting aside an award are provided by the UNCITRAL Model Law and are quite similar throughout numerous jurisdictions. Article V of the New York Convention (‘NYC’) presents a set-aside award as one of the potential grounds for refusal of award recognition by state courts.

Despite an award being been set aside, the winning parties have nevertheless sought its enforcement in other jurisdictions. Whether an annulled award should be enforced or not, there are diverse approaches of the contracting states of the NYC. The Putrabali v. Rena case is peculiar on its own and the French court decision made it even more bizarre. Years later, the uncertainty regarding the enforcement stage when there exist two awards on the same matter, continues to loom in the air, somewhat undermining arbitration as a dispute resolution mechanism in the international arena.

The French courts are continuously relying on the Putrabali precedent, as demonstrated in their latest decision to enforce an award which was set aside in Egypt. Although the award was closely associated with the national interests of Egypt, the court refused to admit such view. This shows the importance of further academic research and regulation necessary on this issue.

 

Enforcement of Set-Aside Awards

The approach of French courts has always leaned towards Article VII rather than Article V of the NYC when refusing enforcement of arbitral awards. Article VII allows parties to enjoy the rights provided by the country in which the award is to be enforced, regardless of the NYC. In France, this leads to the application of national law, namely  Article 1520 (former Article 1502) of the French Civil Code, which contains ‘violation of public policy’ as a ground for refusal of enforcement of set aside awards.

 

Violation of Public Policy

In one of the judgments delivered by Judge J. Smith, he emphasized that public policy violation could be invoked if “…enforcement would violate the forum state’s most basic notions of morality and justice”.

In absence of a unified or statutory, public policy has provoked various legal thoughts throughout jurisdictions and varied interpretations. Most definitions provided by judges usually note that public policy consists of justice and morality.

The International Law Association report asserts that the procedural public policy refers to the issues such as fraud, corruption, breach of natural justice, etc. The French renowned jurist, Philippe Fouchard, stated that “the French procedural public policy underlines rejecting an award enforcement when it involves a proceeding in which the basic notions of justice have been violated”.1)Philippe Fouchard, Droit International Prive, Paris 1996, p. 972. jQuery("#footnote_plugin_tooltip_8516_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8516_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The Hamburg Court of Appeal noted in Firm P v. Firm F that the argument that the arbitral award would be the same even if a fair trial was conducted, would still present a violation of public policy. The German Federal Court of Justice held that “the recognition of an arbitral award can generally only be denied in those cases where the violation of the duty of impartial administration of justice had a real impact on the arbitral proceedings”.

 

The Putrabali v. Rena Case

The contract between Putrabali and Rena contained by reference the IGPA Rules, which designate the Arbitration Act 1996 as the applicable law and England as the seat of arbitration. The Arbitration Act 1996 allows for appeal of award on questions of law. Therefore, the possibility for appeal agreed by the parties was clearly indicated.

An award was rendered in favor of Rena, which Putrabali appealed on points of law in front of the English High Court. The latter set aside the award and sent the case back to arbitration. The second award was rendered in favor of Putrabali, with the identical case number as the first award. Now with two awards in place, Rena filed an application for recognition and enforcement of the first award of 2001 before the French court. Enforcement was granted by the court and Putrabali immediately filed an appeal, which was not successful.

The arguments provided by the French Cour de Cassation rest on two premises: (i) the fact that an international arbitral award is not anchored in any legal system; (ii) the fact that an international arbitral award is an international judicial decision.

 

What Was Wrong with the Decision of the French Cour de Cassation?

  • Good faith

The wrongful acts committed by Rena are easy identifiable. It accepted the appeal made by Putrabali and fully participated in the second arbitration proceedings. Once the award was issued in favor of the other party, Rena quickly decided to enforce the first award in France. The only reasonable explanation of such behavior is Rena’s expectation of another award rendered in their favor, applying double standards and positioning itself in a ‘win-win’ situation.

Similarly, in an arbitration case in which the American party demanded from the US courts to have the award set-aside because the arbitrator was corrupt, the judge reasoned that the American party was aware that the arbitrator was corrupt from the commencement of the proceedings. Such behavior indicated that the American party was expecting somehow to either win its arbitration case in Russia or appeal the award in United States if it loses. The judge characterized such position as “heads I win, tails you lose”, resembling the situation in Putrabali.

  • Party autonomy

Party autonomy is the fundamental principle of arbitration.2)See G. Born, International Arbitration: Law and Practice, 2012, p. 4-5. jQuery("#footnote_plugin_tooltip_8516_2").tooltip({ tip: "#footnote_plugin_tooltip_text_8516_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); With state courts having the authority over settlement of dispute, it takes both parties’ will and agreement to go to arbitration. Additionally, almost all civil codes and arbitration statutes entitle the parties to determine their arbitration procedure. Furthermore, the significance of party autonomy is recognized in article II (1) of the NYC.

Putrabali and Rena did not opt-out of the appeal provision; they agreed to have it. In the Chromalloy case, the U.S. courts emphasized the party autonomy in choosing to opt out of any appeal or other recourse. Although they had chosen Egyptian Law (which allows for appeal), they specifically wanted the award to be final and binding, and they thus opted out of appeals. Note how the U.S. courts made the deference of weight towards party’s autonomy:

…the parties agreed to apply Egyptian Law to the arbitration, but, more important, they agreed that the arbitration ends with the decision of the arbitral panel.

  • Race to the court

Despite the arguments made by the Cour de Cassation, in the end the same result is reached: the race to the court. When there are two contradictory awards, the party that is faster to enforce the award, wins the case. Is this matter totally unregulated, so that state courts have such powerful discretion to enforce an award based on a marathon? Nevertheless, Putrabali could not have brought the award before French courts for enforcement before Rena due to logical and practical reasons. First Putrabali could not have reasonably expected that the counterparty would enforce the first award after it willingly participated in the second trial proceedings. Second, if Rena’s plan during the whole time was to enforce the first award immediately upon the rendering of the second award (in case the outcome of such an award was not in its favor), it had the time and opportunity to do so, which Putrabali did not have.

 

What Can Be Done?

  • Adequate interpretation of public policy violation

Going back to the previous discussion of the NYC, Article VII provides for violation of public policy as a ground for refusal of recognition and enforcement of award. However, NYC does not offer a definition of  public policy, and its legislative history does not provide any guidelines. In the drafting process, an ad hoc committee simply claimed that the public policy exemption should apply to awards violating fundamental legal principles.

The behaviour of Rena affected basic procedural rights of Putrabali and it affected the outcome of the case entirely. The court, as an impartial adjudication organ, ought to have an answer for it. Any court facing an award enforcement request is destined to carefully assess any probable abuse of procedural rights before it grants enforcement. The French court could have issued a decision in favour of Putrabali by reasoning that enforcing the first award would be a violation of the international public policy, pursuant to its own national law and by using its discretionary power to retain notions of justice.

  • Amending the rules

There is quite some literature on this matter and criticism on the current version of the NYC.3)See for example A. van den Berg, The New York Arbitration Convention of 1958: towards a uniform judicial interpretation, 1981. jQuery("#footnote_plugin_tooltip_8516_3").tooltip({ tip: "#footnote_plugin_tooltip_text_8516_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The problem with it is that it remains silent on the nature and status of annulled awards; it does not define whether an annulled award in a jurisdiction continues to exist in other jurisdictions. Therefore, if the current convention is amended or a new convention is adopted, the following article is proposed:

1. A second arbitral award replacing the first arbitral award, as a result of an appeal by one of the parties, shall prevail, if one of the following criteria is fulfilled:

  1. the parties agreed on the appeal mechanism in their agreement

  2. the arbitration seat chosen by the parties provides for an appeal

  3. Paragraph b) above is not applicable if parties opt out of any appeal recourse in their agreement

Nevertheless, as long as the courts of Contracting States of the NYC would approach the ‘award set-aside’ challenges differently, the implications of adding paragraph number 2 could make this matter even more complex than it is. Therefore, a more detailed analysis would be required to determine whether such paragraph should be amended or not added at all. After all, it has been already emphasized by other authors that the success of arbitration is dependent on the courts’ support.

 

Conclusion

The presented solutions would presumably enhance the arbitration concept around the world by recognizing the hierarchy of two rendered awards equivalent to state court judgments. The integration of second awards within the national jurisdictions is not necessarily needed but merely a recognition of the international binding nature of a second arbitral award would strengthen the gravity of arbitration for parties willing to have an opportunity to appeal the award. Although it might take time, like it took decades for countries to recognize the doctrine of separability, this objective is likewise achievable. Thus, it is reasonable to claim that the principles of good faith and party autonomy were embraced by the authors when drafting the New York Convention, rather than a race to the court or ‘first come, first served’ rule.

 

The views expressed in this article are those of the author and do not necessarily reflect those of PwC Legal.

References   [ + ]

1. ↑ Philippe Fouchard, Droit International Prive, Paris 1996, p. 972. 2. ↑ See G. Born, International Arbitration: Law and Practice, 2012, p. 4-5. 3. ↑ See for example A. van den Berg, The New York Arbitration Convention of 1958: towards a uniform judicial interpretation, 1981. 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Born v. Born: The Battle of Scholarly Citations in the Canadian Supreme Court’s Uber v. Heller Decision

Sun, 2020-07-12 04:00

Most individuals with involvement in international arbitration—as a scholar, practitioner, arbitrator, or as a brave student participating in a moot competition—have cited Gary Born for some legal principle. Indeed, sometimes this name is cited by opposing sides in support of their contrary legal arguments. While this has been a common practice among students and, in particular, Mooties, it now seems that a similar practice is reflected in the majority and dissenting opinions in the long-waited and important international arbitration decision, Uber v. Heller, 2020 SCC 16.

 

Relevant legal issues in the case concerning the UNCITRAL Model Law

The facts of Uber v. Heller have already been discussed on the Blog in a prior post. An aspect not addressed in that prior post is that, in part, the Supreme Court based its decision on that the arbitration law applicable to the arbitration agreement was the Ontario’s domestic arbitration law, rather than Ontario’s International Commercial Arbitration Act (“ICAA”), which is based on the UNCITRAL Model Law (“Model Law”). (¶ 21.) For ICAA to be applicable, the arbitration agreement must be both international and commercial. The Supreme Court correctly decided that the agreement was “international.” The Uber majority decided that the agreement was not “commercial” because employment disputes are not covered in the term “commercial” as is presented in the Model Law and its domestic counterpart the ICAA. (¶ 28.)

This case presented two issues related to the Model Law. First, the Justices focused on whether the term “commercial” of the Model Law refers to the “type of dispute” (the majority position) or “the nature of the relationship” between the parties (the dissenting Justice Côté’s position). Second, the Justices considered whether employment disputes were excluded from the term “commercial” of the Model Law.

 

Does the term “commercial” of the Model Law focus on the nature of the claim or of the relationship between the parties?

On the first issue, the majority cited UNCITRAL commentary on the Model Law to indicate that labour or employment disputes are not covered by the term “commercial” as defined in the footnote of art. 1(1) of the Model Law. Based on this commentary, the majority determined that the analysis of whether a dispute is “commercial” should focus on the nature of the dispute instead of the nature of the parties’ relationship.

By contrast, in the dissenting opinion, Justice Côté used a different interpretation of the same source to reach the opposite conclusion. She reasoned that the same footnote of art. 1(1) of the Model Law confirmed that “the term ‘commercial’ should be given a wide interpretation so as to covers all relationships of a commercial nature.” (¶ 212.) The analytical commentary cited by the Supreme Court indicates that “the fact that a transaction is covered by the Model Law by virtue of its commercial nature does not necessarily mean that all disputes arising from the transaction are capable of settlement by arbitration.” (UNCITRAL commentary at 108.) Thus, the focus should be on the nature of the transaction or relationship between the parties. If a transaction is commercial, the Model Law will apply, but not all the claims proceeding from that transaction may be arbitrable. That will depend on the domestic law.

In support of her analysis, Justice Côté relied on Born’s treatise on international commercial arbitration: “Among other things, the term [commercial] applies without regard to the nature or form of the parties’ claims and looks only to the character of their underlying transaction or conduct.” (Gary Born, International Commercial Arbitration (2d ed. 2014) at 309.) In citing the Born’s treatise, Justice Côté pointed out that the majority had itself relied extensively on his treatise. (¶ 215.)

 

Are employment disputes excluded from the term “commercial” of the Model Law?

On the second issue, the majority cited Born’s treatise in support of the proposition that the reference in art. 1(1) Model Law to “trade” transactions does not refer to consumers or employees. (¶ 27.) Specifically, the majority quoted a footnote, which states that “one could draw a negative inference from the definition’s omission of ‘employment’ relations.” (¶ 27 citing Born at 309, fn. 454.) This footnote is one of the key sources relied on by the majority to conclude that the employment disputes are not covered in the Model Law, and as such are not considered “commercial.”

In answering this second question, Justice Côté again also cited the same authority, but again as a basis for reaching the opposite conclusion to that drawn by the majority. Justice Côté argued that Born’s treatise “does present the proposition that consumer and employment disputes are excluded from the Model Law, but as an alternative to his own view.” (¶ 215.) Perhaps more importantly, Born’s treatise’s conclusion is that “the better view, therefore, is that the Model Law includes within its coverage both consumer and employment matters, subject to any specific nonarbitrability rules adopted in particular states pursuant to Article 1(5) of the Law.” (Born at 309.) Thus, according to Born’s treatise, the Model Law includes employment disputes. Further, contrary to the majority’s interpretation, Justice Côté correctly interpreted Born’s treatise indicating that, so long as the underlying relationship is commercial, the Model Law may apply to employment disputes. (¶ 306.)

Even though the issue was whether employment disputes are included in the Model Law, Justice Côté disagreed with Born’s treatise indicating that employment relationships are outside of the scope of the Model Law based on Canadian jurisprudence (¶ 213.) and UNCITRAL commentary. (¶ 214.) Justice Côté indicated that a superficial review of the evidence established that the relationship between Heller and Uber was commercial in nature, as the service agreement expressly stated that it did not create an employment relationship, but it was a software licensing agreement. (¶ 216.) She then concludes that the court should not engage in any further analysis of the evidence because that would be a usurpation of the role of an arbitral tribunal. (¶ 217.)

In sum, while both the majority and dissent quoted Born’s treatise, the majority did not cite this authority in its analysis of the first issue and only cited one aspect of its reasoning that, while supportive of its position, was inconsistent with the treatise’s ultimate substantive conclusion on that very issue. The dissent pointed out this apparent “cherry picking” of quotes from the treatise and interprets the authority in a way that appears to be more consistent with its overall approach to the issue of the interpretation of the term “commercial” of the Model Law.

While competing views over the interpretation of “commercial” in the Model Law may be of greater interest to the international arbitration community, ultimately the outcome of the case rested on the independent ground that the arbitration agreement was unconscionable because there was an inequality of bargaining power and the bargain was improvident.

 

Conclusion

Beyond its insights about how to interpret the Model Law, the Uber decision also provides insights about the use of sources and in particular a treatise as comprehensive as Born’s treatise. It is not entirely persuasive to rely on a source’s outline of provisional arguments or steps in analysis, while turning a blind eye to the same source’s final conclusions at the end of those arguments. Justice Côté was right to challenge the majority for this inconsistency, which was ultimately an unnecessary exercise given that the majority’s decision in Uber hinged on an interpretation of domestic law unconscionability of contracts. The Uber decision may give rise to unnecessary confusion over the definition of “commercial” in international arbitration settings. Finally, the decision is also a lesson to future moot students and practitioners about how not to cite Born’s treatise.

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Dangerous Liaisons in International Investment Arbitration: The Annullmment of the Eiser V Spain ICSID Award

Sun, 2020-07-12 03:00

In a recent decision, in Eiser Infrastructure Limited and Energia Solar Luxemburg S.À.R.L. v Kingdom of Spain (ICSID Case No. ARB/13/36), an International Centre for Settlement of Investment Disputes (ICSID) ad-hoc committee decided to annul an award in its entirety. The reason being a conflict of interest. For the first time in ICSID’s history, an award is annulled on the grounds of improper constitution of the tribunal and a serious departure from a fundamental rule of procedure.

 

Background of the Dispute

The claim was brought by Eiser Infrastructure Limited and Energia Solar (collectively the “Eiser Parties”) under the Energy Charter Treaty. The Eiser Parties alleged that regulatory reforms relating to the energy sector implemented by Spain caused them to suffer €256 million in damages. The ICSID Tribunal (the “Tribunal”) unanimously determined that Spain had violated its international obligations and awarded the Eiser Parties €128 million inclusive of interest.

In the annulment proceedings, the ad hoc committee (the “Committee”) concluded that Spain had sufficiently demonstrated that the undisclosed business relationship between the arbitrator appointed by the Eiser Parties, Mr Stanimir A. Alexandrov, and the Eiser Parties’ experts, the Brattle Group, had been improper. As a result, the Committee annulled the award on the following grounds: (i) an improper constitution of the Tribunal, and (ii) a serious departure from a fundamental rule of procedure.

 

Improper constitution of the tribunal

First, the Committee considered whether the Tribunal had been properly constituted. In doing so, the Committee examined the parties’ respective interpretations of Article 52(1)(a) of the ICSID Convention, before turning to the issue of the applicable standard when determining if an award should be annulled under Article 52(1)(a).

 

The interpretation guideline of Article 52(1)(a) of the ICSID Convention

The Committee interpreted Article 52(1)(a) of the ICSID Convention by considering the following parameters:

  • The text

The Eiser Parties’ assertion that the provision only applies to procedural deficiencies regarding the constitution of the Tribunal at the outset of the arbitration was rejected. Instead, the Committee reasoned that “the Tribunal must have not only been correctly formed, initially but must also continued to remain so for the duration of its existence”.1)para. 158. jQuery("#footnote_plugin_tooltip_2377_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2377_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

  • The context

The Committee explained that Article 14(1) of the ICSID Convention sets out the qualifications of arbitrators designated to sit on arbitral tribunals. The Committee then rejected the Eiser Parties’ reasoning that a failure to exercise “independent judgement” cannot provide a ground for annulment. The Committee instead reasoned that “a tribunal cannot be held to be ‘properly constituted’ under Article 52(1)(a) where an arbitrator, whose ability to exercise independent judgment is in doubt, is either appointed to or continues to be a member of, a tribunal”.2)para. 167. jQuery("#footnote_plugin_tooltip_2377_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2377_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In the same manner, the Committee also dismissed Eiser Parties’ argument that the award should be revised rather than annulled.

  • Object and Purpose

The Committee stated that the object and purpose of the provision is centred around the notions of procedural legitimacy and procedural integrity. The Committee went on to emphasise that there is no greater threat to the legitimacy and integrity of the proceedings than the lack of impartiality of independence of one or more of the arbitrators.3)para. 175. jQuery("#footnote_plugin_tooltip_2377_3").tooltip({ tip: "#footnote_plugin_tooltip_text_2377_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

  • Interpretation in accordance with relevant rules of international law

The Committee highlighted that its interpretation of Article 52(1)(a) is consistent with Article 31(3)(c) of the Vienna Convention, which provides that relevant rules of international law applicable to the relations between the parties shall be taken into account. The Committee went on the state that the right to an independent and impartial tribunal has been recognised as a general principle of international law and that, therefore, this rule must be considered when interpreting the meaning of “improper constitution” under Article 52(1)(a). The Committee concluded that: “for purposes of determining whether the Tribunal was properly constituted, it has the authority to examine whether the members of the Tribunal were and remained (and were seen to be/remain) impartial and independent throughout the proceedings”.4)para. 178. jQuery("#footnote_plugin_tooltip_2377_4").tooltip({ tip: "#footnote_plugin_tooltip_text_2377_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

What is the applicable standard then?

The Committee applied a similar test as the three-step test set out in EDF v Argentina; namely:

  1. was the right to raise this matter waived because the party concerned had not raised it sufficiently promptly?
  2. if not, has the party seeking annulment established that a third party would find a visible or obvious appearance of lack of impartiality or independence on the part of an arbitrator on a reasonable evaluation of the facts of the case (the Blue Bank standard)? and
  3. if so, could the manifestly apparent lack of impartiality or independence on the part of that arbitrator have had a material effect on the award?5)para. 180. jQuery("#footnote_plugin_tooltip_2377_5").tooltip({ tip: "#footnote_plugin_tooltip_text_2377_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In relation to the first limb of the test, the Committee rejected the Eiser Parties’ argument that Spain knew or should have known about the relationship between the arbitrator and the Brattle Group. It was instead opined that the Eiser Parties had failed to demonstrate that Spain was aware of the relevant information and inter alia that “the existence of the information in the public domain does not discharge the burden of the Eiser Parties to prove that Spain was aware of the relevant facts”.6)para. 190. jQuery("#footnote_plugin_tooltip_2377_6").tooltip({ tip: "#footnote_plugin_tooltip_text_2377_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In analysing whether the second and third limbs of the test had been satisfied, the Committee looked at whether the standard for disqualification had been met. Consequently, the Committee stated that the appropriate standard is the one adopted in Blue Bank v Venezuela, where the Chairman of the Administrative Council of the ICSID disqualified the claimant’s appointed arbitrator on the grounds that his law firm was acting against Venezuela in a different arbitration.

In this sense, the applicable legal standard to the Committee is an “objective standard based on a reasonable evaluation of the evidence by a third party.”7)Blue Bank v Venezuela, para. 60. jQuery("#footnote_plugin_tooltip_2377_7").tooltip({ tip: "#footnote_plugin_tooltip_text_2377_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Therefore, the subjective belief of the party requesting the disqualification is not enough to satisfy the requirements of the ICSID Convention.

Considering this standard, the Committee decided against the Eiser Parties, holding that:

  1. on an assessment of the facts, an objective third party would conclude that the existence of the relationship between the arbitrator and the Brattle Group created a manifest appearance of bias; and
  2. given the extent of the “past and present professional connections and interactions” between the arbitrator and The Brattle Group, the arbitrator was under a clear obligation to disclose this relationship.

 

A serious departure from a fundamental rule of procedure

Both parties agreed that, for an award to be annulled, a fundamental rule of procedure must be severely affected and that the right to an independent and impartial tribunal is a fundamental rule of procedure. However, the parties disagreed on the question of when there has been a departure from a cardinal rule of procedure. The Eiser Parties submitted that it was necessary to prove, firstly, that the deviation from the fundamental rule of procedure influenced the outcome of the case, and then, in a second step, that without the deviation, the result would not have been the same. Conversely, Spain argued that it only requires demonstrating a “potential effect” of the departure on the award.

According to the Committee’s analysis, this fundamental rule of procedure had been violated because the arbitrator did not reveal his relationship with one of the parties, depriving Spain of having a fair trial. At the same time, the Committee also considered that if the other arbitrators had been informed of the existing relationship with one of the parties, they could have taken it into account at the stage of deliberation. As such, the Committee did not render a “blanket rule”, but rather highlighted the importance of disclosure at the outset of the arbitration.

Finally, the Committee analysed whether this deviation can be considered serious according to Article 52 (1)(a) and (d) and thus have a material effect on the result. The Committee reasoned that if the other arbitrators had been aware of the relationship between Mr Stanimir A. Alexandrov and the Brattle Group, they would have given another value to the arbitrator’s contributions and therefore it cannot be considered unlikely that the non-disclosure of the relationship with the expert influenced the final result.

Considering the above, the Committee annulled the award on the grounds that:

  1. a conflict of interest may have existed; and
  2. a failure to disclose it may have affected the outcome of the award, annulling the award, therefore.

 

Conclusion

At a point where stakeholders in ICSID arbitration are in desperate need for a solution to the ever-increasing bias challenge, the reasoning of the Committee is enlightening and marks the first time that a challenge on the basis that a tribunal was improperly constituted has succeeded in an ICSID annulment proceeding. The decision of the Committee demands that tribunals meet a high degree of transparency in order to be considered “properly constituted” under Article 52 (1)(a). Going forward, there will be less and less room for members of the tribunal to have professional relationships with parties or experts involved in the arbitration.

The high bar set by the Committee will, in turn, demand that tribunal members engage in a more rigorous and comprehensive disclosure process, making more information on potential conflicts of interest available; that is, any information that may risk a decision becoming annulled, with this new standard in mind, should be carefully considered.

References   [ + ]

1. ↑ para. 158. 2. ↑ para. 167. 3. ↑ para. 175. 4. ↑ para. 178. 5. ↑ para. 180. 6. ↑ para. 190. 7. ↑ Blue Bank v Venezuela, para. 60. 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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NAFED v. Alimenta S.A.: Has the Indian Supreme Court Opened a Pandora’s Box on Enforcement of Foreign Awards?

Sat, 2020-07-11 03:00

In a recent decision, National Agricultural Co-operative Marketing Federation of India (NAFED) v. Alimenta S.A. (“NAFED”), the Indian Supreme Court (“SC”) refused to enforce a foreign award on the ground of it being opposed to public policy under Section 7 (1) (b) (ii) of the Foreign Awards (Recognition and Enforcement) Act, 1961 (“the 1961 Act”). The decision raises questions on the propriety of a court reviewing the merits of a foreign award at the stage of enforcement and the scope of public policy exception to enforcement of foreign awards in India.

 

The Facts in NAFED

In 1980, NAFED and Alimenta S.A entered into a contract under which NAFED would supply a fixed quantity of Indian HPS groundnut. Clause 11 of the contract incorporated the terms and conditions as per the FOSFA 20 (Federation of Oils, Seeds and Fats Association Ltd.) contract. Clause 14 of the FOSFA 20 contract provided that, in case of prohibition of export by executive order or by law, the contract would be treated as cancelled. [Para. 32]. NAFED was only able to supply a part of the quantity stipulated in the contract. This led to the parties’ executing two addenda, which allowed NAFED to supply the remaining quantity in the subsequent year. However, NAFED could not supply the outstanding quantity because it had no permission under the Indian government’s Export Control Order- to carry forward the exports from the 1979­-80 season to the subsequent year due to a restriction on exports under a quota system. Alimenta treated this as a default and initiated arbitration proceedings before FOSFA, London. FOSFA passed an award in 1989 directing NAFED to pay $4,681,000 as damages (along with interest), to Alimenta. This award was upheld by the FOSFA Board of Appeal in 1990.

 

Proceedings before the Indian Courts

In 1993, when Alimenta filed a petition to enforce the award before the Delhi High Court (“High Court”), NAFED raised objections inter alia on the ground that the award is opposed to the Indian government’s export policy and consequently, to the public policy of India. In 2000, a single judge of the High Court rejected NAFED’s contentions and held that the award is executable as a decree of the court. NAFED filed an application for review against this decision, which was dismissed. Thereafter, it filed an appeal before the division bench (comprising two judges) of the High Court, which was dismissed in 2010. Against this dismissal, NAFED filed an appeal before the SC.

 

The Approach of the SC

The SC extensively reviewed the award on its merits and held that without government’s permission, it was not possible for NAFED to carry out its contractual obligations and both the parties knew that the contract would be cancelled in such an exigency for non-supply in quantity. [Para. 57]. The SC then scrutinized whether the award was contrary to the public policy of India. The SC referred to its previous decisions on the interpretation of “public policy” exception to enforcement of awards such as, Renusagar Power Co. Ltd. v. General Electric Co. Ltd. (“Renusagar”), O.N.G.C. v. Saw Pipes, Shri Lal Mahal Ltd. v. Progetto Grano Spa (“Shri Lal Mahal”),  Associate Builders v. Delhi Development Authority and Ssangyong Engineering & Construction Co. Ltd. v. NHAI  (“Ssangyong”) and observed that the defence of public policy under Section 7(1)(b)(ii) of the Act of 1961 should be construed narrowly. [Para. 65]. However, the SC concluded that the enforcement of the award would contravene the public policy of India relating to export for which permission of the Indian government was necessary. Thus, enforcement of the award was refused as being opposed to the fundamental policy of Indian law and basic concepts of justice. [Para. 69]

 

Analysis

It is noted that although the 1961 Act has been repealed by the Arbitration and Conciliation Act, 1996 (“the 1996 Act”), Section 7 (1) (b) (ii) of the 1961 Act is retained in Section 48 (2) (b) of the 1996 Act. The SC referred to most of the relevant precedents on the question of when an award can be said to be opposed to the “public policy of India” and on the approach to be taken when considering a challenge to foreign award. However, it omitted to refer to another recent judgment in Vijay Karia v. Prysmian Cavi E Sistemi Srl (“Karia”), which laid down the following principles on dealing with challenge to enforcement of foreign awards. This omission may be because NAFED was reserved for judgment before the decision in Karia. Had the SC taken Karia into account, the following propositions would be relevant:

  1. It would only be in a very exceptional case of a blatant disregard of Section 48 of the 1996 Act that the SC would interfere with a judgment which recognises and enforces a foreign award however inelegantly drafted the judgment may be. [Para. 24]
  2. The “pro-enforcement bias” of the New York Convention has been adopted in Section 48 of the 1996 Act. Foreign awards cannot be set aside by second guessing the arbitrator’s interpretation of the agreement of the parties. [Para. 45]
  3. The “fundamental policy of Indian law”, as has been held in Renusagar, must amount to a breach of either a legal principle or legislation which is so basic to Indian law that it is not susceptible of being compromised. The Court also approved the dictum of the High Court in Cruz City 1 Mauritius Holdings v. Unitech Ltd. that one of the principal objectives of the New York Convention is to ensure enforcement of awards notwithstanding that the awards are not rendered in conformity to the national laws. Thus, the objections to enforcement on the ground of public policy must be such that offend the core values of a member State’s national policy that is beyond compromise. The expression “fundamental policy of law” must be interpreted in that perspective and must mean only the fundamental and substratal legislative policy and not a provision of any enactment. [Paragraphs 82 and 83]
  4. Interference and denial of enforcement on the ground that the award offends the most basic notions of justice is an award that either shocks the conscience of the court or is illegal given the prevailing mores of the day. It will be attracted in exceptional circumstances. [See: Footnote no. 1 in paragraph 78, referring to the decision in Ssangyong]

Proposition no. 2 above is also reflected in Explanation 2 to Section 48 (2) (b)of the 1996 Act inserted by the 2015 Amendment, that a review on the merits of the award is impermissible to find out whether the award is in contravention with the fundamental policy of Indian law. The failure to consider the above propositions will result in unnecessary judicial intervention at the stage of enforcement of the award, which is against the policy of minimal judicial intervention envisaged by Article V of the New York Convention and the 1996 Act.

The SC in NAFED treats the contravention of export policy as contravention of public policy of India but does not offer any reason as to how or why it contravenes the public policy of India. The High Court in C.O.S.I.D. Inc. v. SAIL, (“C.O.S.I.D.”), which was also in the context of the 1961 Act, held that contravention of export policy contravenes the public policy of India. However, C.O.S.I.D. is distinguishable for the following reasons:

Firstly, C.O.S.I.D. was before the judgment in Renusagar which took a narrow interpretation of the term “public policy” under Section 7 (1) (b) (ii) of the 1961 Act. Secondly, C.O.S.I.D. was a case where the award was against the government order banning exports. While any contravention of an order banning exports will fundamentally affect the export policy, contravention of a restriction or quota in the export policy may not necessarily do so. Such a narrow interpretation of an export policy is in tune with the dictum in Renusagar, as explained in Karia, that every violation of an economic legislation cannot amount to violation of public policy. In other words, something more than contravention of the law is required to refuse enforcement of a foreign award as being contrary to the public policy of India.

The finding that the award is opposed to the basic concept of justice is also without any reasoning. Normally, this ground will apply in very exceptional circumstances when the conscience of the court is shocked by infraction of fundamental notions or principles of justice. It cannot possibly include what the court thinks is unjust on the facts of a case for which it then seeks to substitute its view for the arbitrator’s view and does what it considers to be “justice”.

The decision in NAFED is also problematic in terms of its precedential value. The decisions in Renusagar, Shri Lal Mahal and Karia, from which NAFED made a departure, are all decisions of three-judge benches of SC like NAFED. NAFED has neither distinguished nor offered any reason to depart from these decisions. NAFED has thus put the Indian law on public policy exception to enforcement of foreign awards in a state of confusion.

 

Conclusion

The decision in NAFED opens the door for a review on merits at the stage of enforcement, a view that is contrary to the pro-enforcement bias stipulated in Section 48 of the 1996 Act. The finding that contravention of export policy contravenes public policy of Indian law expands the scope of public policy exception enunciated by the earlier decisions. It will prompt award debtors to engage in speculative litigation with hope that “some mud flung would stick” – an approach reprimanded by the SC in Karia [Para. 102]. The uncertainty caused by NAFED as a precedent is likely to be a challenge for Indian Courts in the coming days. However, considering that the facts of NAFED arose at a time when the Indian economy had rigid export-import policy restrictions, it is possible that the SC may restrict its applicability to its particular facts. Otherwise, it will be detrimental to India’s push as a hub of international arbitration.

 

R. Harikrishnan is an Advocate in the High Court of Kerala.

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The Impact of COVID-19 on the Administration of Justice

Fri, 2020-07-10 04:00

In addition to the serious implications for people’s health and public healthcare services, the COVID-19 pandemic also imposes challenges for the administration of justice.

 

Increasing Demand for Amicable Methods of Dispute Resolution

The current crisis creates a need for business and its legal representatives to consider carefully appropriate and alternative options for the efficient, timely and cost-effective resolution of disputes. They may need to focus on rebuilding their business relationship, re-negotiating the contract, or finding alternative paths to resolve their conflicts, rather than insisting on strict enforcement of contractual terms. This may lead to more demand for mediation, conciliation and other amicable methods of dispute resolution, as well as the combination of different dispute resolution processes.

 

Digitalization of Arbitration

The COVID-19 pandemic is also exerting greater pressure for the arbitration community to find innovative ways to incorporate greater use of technology, through more use of online dispute resolution (“ODR”) or virtual hearings. Many leading arbitration institutions have provided guidelines and tools to facilitate virtual hearings (some insights from the ICC and SIAC are discussed in earlier blogs). More collaborations between different institutions are also emerging, such as the formation of the International Arbitration Center Alliance (“IACA”), and the Joint Statement on Arbitration and COVID-19 (“Joint Statement”) issued by thirteen arbitration institutions.

When the entire evidentiary hearing is conducted virtually, a number of issues could arise, which need to be carefully considered.

 

Access to Justice and the Due Process Issue

One question that arises is whether arbitrators can proceed with the virtual hearing if one or both parties object. One may argue that a face-to-face hearing is necessary for a party to fully present its case. Arguably, cross-examination of a witness is best conducted in person in order to see the facial expression and body language of the witness (particularly a factual witness) to test his/her credibility. Other practical and technical issues could also arise if a hearing is shifted fully online (such as accessibility of internet connection and other technological limitations; and separation of legal teams). In normal circumstances, tribunals are often inclined to hold at least one face-to-face hearing on the merits to ensure that each party is afforded procedural fairness. However, the pandemic may mean that it is not possible to hold a face-to-face hearing in a reasonable time. Waiting until it becomes possible may cause unwarranted and even prejudicial delay in the arbitration proceedings. “Justice delayed is justice denied”. Arbitrators need to carefully consider and balance the parties’ right to present one’s case and arbitrators’ overriding duty to conduct the arbitration in an expeditious and cost-effective manner.

The Joint Statement asks arbitral tribunals and parties to mitigate the effects of any impediments to the largest extent possible while ensuring the fairness and efficiency of arbitral proceedings. The ICC Guidance Note on Possible Measures Aimed at Mitigating the Effects of the COVID-19 Pandemic (“ICC Note”) allows the tribunals, in appropriate circumstances, to adopt different approaches as they exercise their authority to establish procedures suitable to the particular circumstances of each arbitration and “fulfill[s] their overriding duty to conduct the arbitration in an expeditious and cost-effective manner”. The Delos Checklist on Holding Arbitration and Mediation Hearings in Times of COVID-19 (“Delos Checklist”) suggests that rather than an automatic suspension of the proceedings or of time limits due to COVID-19, tribunals should decide each case taking into account the provisions the dispute resolution agreement, the specific characteristics of the case, and requirements at the seat of arbitration.

Some institutional rules and practice guidance have progressively acknowledged the possibility of virtual hearings. For instance, 2017 Rules of the International Commercial Arbitration Court of the Chamber of Commerce and Industry of the Russian Federation (“ICAC”) allows a party to request the arbitral tribunal to “participate in the hearing by means of videoconferencing” (article 30(6)). Article 25(2) of the ICC Rules of Arbitration 2017 also does not preclude a hearing taking place “in person” by virtual means if the circumstances so warrant, as indicated by the ICC Note.

Interestingly, in the case of Capic v Ford Motor Company of Australia Limited (Adjournment) [2020] FCA 486, the Australia Federal Court denied the Respondent’s application for adjournment of the trial and decided that the trial would proceed as scheduled in the virtual mode. His Honour accepted that many aspects of a virtual trial were onerous and undesirable, but believed that those obstacles were not insurmountable and did not mean the trial would be unfair or unjust. Noting that “public institutions such as the Court must do all they can to facilitate the continuation of the economy and essential services of government, including the administration of justice”, his Honour concluded that a virtual trial should proceed, because the adjournment of matters indefinitely did not serve the public interest.  The above decision may provide some comfort for arbitrators if they decide to proceed with virtual hearings despite the parties’ objections.

 

Confidentiality and Privacy

It is imperative to ensure all participants feel secure about the confidentiality of the information they disclose in a remote hearing. The ICODR’s Free Guide to Video Arbitrations (“IOCDR Guide”) provides some guidance to secure confidentiality, such as a written commitment of no recording of audio or video, nor screen shots of the hearing, and locking the rooms once all parties have joined. It also recommends the use of a secure videoconferencing platform with end-to-end encryption. The CIArb Guidance Note on Remote Dispute Resolution Proceedings (“CIArb Guidance Note”) suggests circulation of full names and roles of all participants to a remote proceeding as well as their allocated virtual hearing and breakout rooms between parties and neutrals in advance and strict adherence to it.

 

Cybersecurity and Data Protection

Related to confidentiality, cybersecurity is crucial in arbitration as the credibility and integrity of the dispute resolution process depends on it. When an arbitration hearing is conducted virtually, it is important for arbitrators to consult with the parties with the aim of implementing a cyber-protocol to comply with any applicable data privacy regulations (such as the European Union General Data Protection Regulation).

To this end, the ICCA-NYC Bar-CPR Protocol on Cybersecurity in International Arbitration (2020 edition) provides guidelines on how to adhere to a high standard of information security during an international arbitration. The ICCA-IBA Roadmap to Data Protection in International Arbitration (public consultation draft) has been developed by the ICCA-IBA Task Force on Data Protection in International Arbitration to help arbitration professionals better understand the data protection and privacy obligations to which they may be subject in relation to international arbitration proceedings. The ICC Note includes suggested clauses for cyber-protocols and procedural orders dealing with the organization of virtual hearings (Annex II). The African Arbitration Academy Protocol on Virtual Hearing in Africa also provides minimum cybersecurity standards (Annex I) and tribunal-issued cyber protocol (Annex IV).

 

Practical and Technical Issues

There are other important technical and practical issues that need to be considered to ensure the quality of the virtual hearings. The ICC Note suggests the tribunals to ensure any video sharing platform used for virtual hearings “is licensed and is set to maximum security settings”. The Seoul Protocol on Video Conferencing in International Arbitration (“Seoul Protocol”) provides more detailed guidance on best practice in this context, including the logistical and technological guidelines to ensure quality of video conferencing. The HKIAC Guidelines for Virtual Hearings provides detailed guidelines for virtual hearings based on HKIAC’s experience and aims to ensure that participants experience a seamless and effective virtual hearing. The ICODR Guide suggests that if one party disconnects, the session should be suspended until they can re-join, in order to ensure fairness, impartiality and neutrality. It also recommends to always have a back-up option for sound, for instance dialing in by the phone.

 

Language and Interpretations

In terms of language, the ICC Note suggests the parties should coordinate amongst themselves, with a view to agreeing, among other things, whether an interpreter is needed, arrangements needed to ensure that the interpreter is able to provide his/her services virtually, whether interpretation will be simultaneous or consecutive, and whether certain additional equipment is needed. The Seoul Protocol also states the importance of ensuring interpretation services are made available to the witness, and recommends consecutive interpretation over simultaneous interpretation as a general rule.

 

Internet Courts and Robot Justice

Courts around the world are also adapting to find “remote” alternatives to traditional hearings to ensure ongoing access to justice. Remote Courts Worldwide is one effort to capture remote-court innovations.

China is at the frontlines of the use of technology in court services. It is encouraging digitization to streamline case-handling within its sprawling court system using cyberspace and technologies like blockchain and cloud computing, according to the Supreme People’s Court.   Millions of legal cases are now being decided by internet courts that do not require citizens to appear in court.

The Hangzhou internet court was established in August 2017, followed by Beijing internet court and Guangzhou internet court established in September 2018. Digital court cases in China have seen a sharp increase in recent years, as the number of mobile payments and internet-based businesses has grown. The internet courts mainly deal with cases involving legal disputes over digital matters, such internet trade issues, copyright cases and disputes over online product sales. Non-human judges powered by artificial intelligence (“AI”) have been used to carry out simple functions, so as to help ease the burden on human judges, who can focus their efforts in monitoring the proceedings and making the major rulings.

In response to the COVID-19 pandemic, the Beijing Internet Court has developed a matrix, combining physical court, online court based on physical court environments, online platforms, virtual courts and virtual technology-based physical cabins to enhance its efficiency. Based on the technology of semantic segmentation model in deep learning, the virtual courts resemble real court scenes with national emblems displayed. Since the start of the pandemic, the number of cases received is basically the same as last year, with 30 cases heard via the virtual court. Such initiatives may become a new model of building for the administration of justice, consistent with the goals of sustainable development.

 

Conclusion

“Justice delayed is justice denied”. The greater and better use of technology in the administration of justice is an inevitable trend, and the current pandemic may have significantly pushed the digitalisation process much forward, leading to more e-mediation, e-arbitration, online courts and the use of AI in the future. Alan Kay says “the best way to predict the future is to invent it”. Arbitrators, judges, counsels, parties, arbitration institutions and courts should prepare themselves to such evolution and make best efforts to facilitate the just resolution of disputes as quickly, inexpensively, and efficiently as possible.

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Document Production: Quality Over Quantity

Fri, 2020-07-10 03:00

Document production is widely regarded as one of the most time-consuming and costly elements of international arbitration.1)The 2018 International Arbitration Survey: The Evolution of International Arbitration by the School of International Arbitration at Queen Mary University of London and White & Case lists “cost” as arbitration’s worst feature, followed by “lack of effective sanctions during the arbitral process“, “lack of power in relation to third parties” and “lack of speed“. jQuery("#footnote_plugin_tooltip_8576_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8576_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In its consultation regarding the proposed amendments to the ICSID arbitration rules, many states expressed their concern “that document production is too lengthy, expensive and burdensome“.3)ICSID Proposals for Amendment of the ICSID Rules, Working Paper #4, para. 89. jQuery("#footnote_plugin_tooltip_8576_3").tooltip({ tip: "#footnote_plugin_tooltip_text_8576_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Prague Rules actively encourage the parties “to avoid any form of document production, including e-discovery“.2)Rules on the Efficient Conduct of Proceedings in International Arbitration (Prague Rules), Article 4.2. jQuery("#footnote_plugin_tooltip_8576_2").tooltip({ tip: "#footnote_plugin_tooltip_text_8576_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The pros and cons of document production, and a search for the right balance, have fueled many discussions amongst scholars and practitioners, including on this forum.

In an attempt to reduce the burden imposed by document production while maintaining – and even increasing – its benefits, I propose here the inclusion of an oft-neglected recommendation by the ICC Task Force’s report on Techniques for Controlling Time and Costs in Arbitration: a limitation of the number of document production requests each party is allowed to make.4)ICC Commission on Arbitration and ADR Task Force on Reducing Time and Costs in Arbitration, Techniques for Controlling Time and Costs in Arbitration, Second Edition, 2012, para. 52. See also Report of the ICC Commission on Arbitration and ADR Task Force on the Production of Electronic Documents in International Arbitration, Techniques for Managing Electronic Document Production When it is Permitted or Required in International Arbitration, 2016, para. 5.8. jQuery("#footnote_plugin_tooltip_8576_4").tooltip({ tip: "#footnote_plugin_tooltip_text_8576_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

The Proposal: Limiting the Number of Document Requests

The proposal is rather straightforward. It is recommended that the parties agree (or the arbitral tribunal rule) as part of the procedural arrangements struck at the outset of the arbitration, that the number of document production requests put forward by each side be limited to a maximum of ten requests.

The rationale behind this proposal is obvious. Limiting the number of document requests relieves the opposing side of the obligation to respond to, and the tribunal of the obligation to rule on, a potentially large number of requests, without depriving the parties of the right to put forward those requests that have a high chance of success and can have a material effect on the outcome of the case. Concomitantly, the burden imposed on each party to conduct – often extensive – searches for documents responsive to the requests is alleviated.

Three clarifications need to be made. First, the limitation can be laid down either in an agreement between the parties, or in an order by the tribunal. Ideally, the limitation would be included in the arbitration agreement, as at that stage the parties are least likely to perceive the limitation as benefitting one party over the other. However, arbitration clauses typically do not rank highly on the list of priorities during contractual negotiations, making this option largely theoretical. A more practicable option is to include the limitation in the procedural arrangements at the outset of the arbitration – either in the terms of reference or in the tribunal’s first procedural order.5)Reto Marghitola, Document Production in International Arbitration, Kluwer Law International 2015, pp. 154-155. jQuery("#footnote_plugin_tooltip_8576_5").tooltip({ tip: "#footnote_plugin_tooltip_text_8576_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); At that stage, while being more prone to the idea that the limitation favours one party over the other, there is still a considerable chance that both sides are amenable to reducing the time and costs involved in document production. Alternatively, the tribunal may also consider imposing the limitation unilaterally, e.g. as a middle ground in cases where one party objects to the inclusion of document production altogether.

Second, while the number of ten requests by each side is somewhat arbitrary, the actual number of requests agreed upon should not deviate substantially from it. After all, a balance must be struck between providing sufficient opportunity to cover all documents that are materially relevant to the outcome of the dispute and limiting the burden put on the other party and the tribunal. In most cases five requests would probably be insufficient to cover all the material issues, while twenty would not lead to the desired increase in efficiency.

Third, the number of requests is limited to ten requests “by each side“. This turn of phrase is intended to cover the possibility of multiple parties, be it on the side of claimants, respondents, or third parties that have joined the proceedings. Thus, even if there were multiple parties involved, the aggregated number of requests would not exceed a total of twenty.

 

A Number of Potential Objections Considered

As any suggested measure that deviates from established practice in order to increase efficiency, several objections may be leveled against the above proposal. Some of the most likely objections will be considered below.

A first objection would be that the proposed measure imposes an excessive limitation on the parties’ freedom and jeopardizes their due process rights. This objection is misguided for the following reason. While some form of limitation of the parties’ freedom will always be required in order to obtain a material increase in efficiency, the proposed measure does not jeopardize the parties’ due process rights in any material way. In the vast majority of cases, ten document requests will be sufficient to cover all documents that could have a material effect on the outcome of the case.

A second objection, as formulated by Reto Marghitola, would be that the proposed limitation is not “sophisticated enough“, and would be “too rigid and schematic to gain broad acceptance in practice.“6)Reto Marghitola, idem, p. 160. jQuery("#footnote_plugin_tooltip_8576_6").tooltip({ tip: "#footnote_plugin_tooltip_text_8576_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); However, this alleged downside is actually one of the strengths of the proposed limitation. Contrary to the more sophisticated proposals made by Marghitola himself,7)Reto Marghitola, idem, p. 156ff. jQuery("#footnote_plugin_tooltip_8576_7").tooltip({ tip: "#footnote_plugin_tooltip_text_8576_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); the suggested measure does not require any form of technical analysis or debate between the parties, and adherence to it can thus easily be maintained by the arbitral tribunal. Moreover, Marghitola’s proposed model clauses categorically exclude certain types of documents. The impact of such exclusion may be more difficult to assess for the parties at the outset of the arbitration, and will therefore be harder for them to accept. A limit on the number of requests put forward by each side is therefore more likely to be implemented in practice.

A third objection would be that the proposal does not lead to the desired increase in efficiency, because the parties will find ways to circumvent the agreed-upon limitation, e.g. by subdividing each request into multiple smaller requests. This is indeed a likely scenario – after all, many lawyers have a habit of trying to wiggle out of supposedly firm commitments. However, the general requirement of “specificity” of document requests will bar many such attempts. Moreover, one should avoid throwing away the baby with the bathwater. In many cases, the parties will not try to deviate from the proposed measure, which will thus lead to the intended reduction of time and costs. In other cases, when one of the parties tries to circumvent the limitation, the opposing party may seek guidance from the tribunal to determine whether it needs to respond to all of the subdivided requests put forward, likely resulting in an increase in efficiency even in such cases. Finally, it is by no means guaranteed that a more sophisticated proposal – e.g. containing specific provisions regarding internal documents or e-discovery – would be less prone to circumvention and debate. In fact, the reverse is more likely, as they invite discussion regarding the exact definition and scope of the intended limitations.

A final objection would be that the proposal does not lead to the desired increase in efficiency, because the limitation in the number of requests will be offset by a more extensive debate on each of the individual requests. This may be true to a limited extent. However, a more elaborate discussion of each document request is not necessarily a downside. After all, one often sees a large number of document requests that are poorly substantiated (frequently copying or referring back to the reasoning included for other requests) in an attempt to save space and present the document requests in a format that is still palatable for the arbitral tribunal. Forcing the parties to get rid of the lesser important requests frees up space for the ones that actually matter, and allows such requests to get the attention they deserve. Moreover, a more substantive discussion between the parties on each request allows the tribunal to give each request its due consideration and to provide a more extensive reasoning for granting or dismissing the various requests.

 

Conclusion

Limiting the number of document requests put forward by each side is a simple but effective way to increase the efficiency of document production in arbitration. By choosing quality over quantity, such limitation alleviates the burden in time and costs imposed on each party while retaining – and even increasing – its benefits.

References   [ + ]

1. ↑ The 2018 International Arbitration Survey: The Evolution of International Arbitration by the School of International Arbitration at Queen Mary University of London and White & Case lists “cost” as arbitration’s worst feature, followed by “lack of effective sanctions during the arbitral process“, “lack of power in relation to third parties” and “lack of speed“. 2. ↑ Rules on the Efficient Conduct of Proceedings in International Arbitration (Prague Rules), Article 4.2. 3. ↑ ICSID Proposals for Amendment of the ICSID Rules, Working Paper #4, para. 89. 4. ↑ ICC Commission on Arbitration and ADR Task Force on Reducing Time and Costs in Arbitration, Techniques for Controlling Time and Costs in Arbitration, Second Edition, 2012, para. 52. See also Report of the ICC Commission on Arbitration and ADR Task Force on the Production of Electronic Documents in International Arbitration, Techniques for Managing Electronic Document Production When it is Permitted or Required in International Arbitration, 2016, para. 5.8. 5. ↑ Reto Marghitola, Document Production in International Arbitration, Kluwer Law International 2015, pp. 154-155. 6. ↑ Reto Marghitola, idem, p. 160. 7. ↑ Reto Marghitola, idem, p. 156ff. 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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The Supreme Court of Canada Charts a Safe Route between the Scylla and Charybdis of Hostility to Arbitration and Competence-Competence Absolutism

Thu, 2020-07-09 03:00

From practically the moment the Supreme Court of Canada’s (SCC) decision in Uber Technologies v Heller was released, commercial arbitration practitioners and scholars—including on this blog—have criticized it for weakening the cherished competence-competence principle.

We submit that those who defend Uber’s problematic arbitration clause in the name of protecting competence-competence love arbitration not wisely, but too well. Given the historical hostility of courts to arbitration—ongoing hostility in some jurisdictions—it is not surprising that many in the international arbitration community jump to defend competence-competence from any perceived threat. But such competence-competence absolutism is ill-suited to the gig economy era, where the line between commercial and employment relationships is particularly unclear. It wrongly assumes that all arbitration clauses are written to be used, and ignores the strategic use of arbitration clauses by stronger parties to effectively insulate themselves from all forms of legal redress. Although we have concerns about the majority opinion in Uber v Heller, we write to defend the Court’s overall approach and to explain why it will ultimately be good for international arbitration.

 

Arbitration agreements and online marketplaces

In Uber v Heller, an online platform nearly collided with the UNCITRAL Model Law. In deciding that the Uber’s standard arbitration clause was unconscionable and therefore unenforceable, the SCC swerved to avoid the crash. The majority opinion, written by Justices Abella and Rowe, steered toward the Ontario Arbitration Act and away from Ontario’s Model-Law-based International Commercial Arbitration Act. The court reasoned that the case involved an employment dispute, and was therefore outside the scope of the Model Law, which applies only to arbitrations that are both international and commercial. Strictly speaking, therefore, Uber v Heller should have no bearing on international commercial arbitrations.

Still, a collision between arbitration clauses like Uber’s and the Model Law will come sooner or later. Platforms like Uber form two-sided markets, bringing together buyers and sellers of goods or services and taking a cut of each transaction. Consumer protection laws typically cover the buyers, but the position of the sellers is less clear. Some, such as drivers for Uber and DoorDash, might have claims that they are legally employees. Others, such as Amazon’s third-party sellers, might have concerns around business practices and antitrust. In many instances, individuals contracting with these online marketplaces will be bound by arbitration clauses. However, the arbitration clauses in their contracts are often designed not to facilitate arbitration, but rather to inhibit it.

Uber’s contract with its Canadian drivers, including Heller, called for mediation and then arbitration, seated in Amsterdam, under the ICC’s Mediation and Arbitration Rules. The filing fees alone would have amounted to more than half of Heller’s annual income as an UberEats driver. The SCC was unanimous that something was amiss with Uber’s arbitration clause. Even Justice Côté, the lone dissenter, would have granted a stay of court proceedings on the condition that Uber “advance the funds needed to initiate the ICC proceedings.” (para 199).

Uber has been the subject of driver lawsuits in the US, the UK, France, and Brazil. However, Uber v Heller appears to be the first real test of the arbitration clause Uber has used in much of the world. The same clause appeared in a 2015 driver misclassification case in front of an English employment tribunal, but Uber decided not to seek to compel arbitration. In the US, where quite a few courts have tackled the question of whether drivers should be required to arbitrate, Uber’s driver agreement arguably made arbitration more accessible than the agreement faced by Heller, by sending drivers to JAMS under rules that require far lower filing fees. However, Uber added a class arbitration waiver in an effort to prevent drivers from combining their claims; drivers would be unlikely to pursue their claims without some form of consolidated proceeding. A majority of the US Supreme Court has made its dislike of class arbitration and support for such clauses clear, yet some form of consolidated proceeding is the only practical way for drivers to access this representation. In response to these class arbitration waivers, creative plaintiffs’ lawyers have filed hundreds of identical claims in cases against Uber, Lyft, and DoorDash, in an attempt to trigger ad hoc consolidations. Uber responded by refusing to pay its share of JAMS’ fees, and the proceedings ground to a halt.

 

Access to arbitration and competence-competence

Online platforms, like other businesses, want to avoid both regulation and court litigation (especially class actions), so they choose arbitration. Many, like Uber, are tempted to choose arbitration processes that are hard for individuals to access, a fact that the international arbitration community must acknowledge. The Model Law does not anticipate this sort of situation. Instead, the whole structure of the Model Law envisions protecting arbitration against threats that come from outside: courts blocking arbitration ex ante or improperly annulling awards or refusing enforcement ex post.  That is why the Model Law enshrines the competence-competence principle, the main practical effect of which is to ensure that arbitral proceedings go ahead in most cases, even if a court might later decide that the arbitration agreement was invalid. Without competence-competence, any jurisdictional challenge would throw an arbitration off course, giving respondents a powerful tool to delay and deny resolution of a dispute.

This view, however, rests on the assumption that both parties—at one point at least—wanted to resolve their disputes by arbitration. But under an arbitration clause like Uber’s, the arbitration is a mirage,1)William G. Horton and David Campbell, “Arbitration as an Alternative to Dispute Resolution: Class Proceedings and the Mirage of Mandatory Arbitration” [2019] Ann. Rev. Civ. Litig. 93. jQuery("#footnote_plugin_tooltip_1916_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1916_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); an oasis in the desert that lulls a party into thinking they have access to a remedy, but always disappears over the horizon. In such a context, competence-competence is rendered pointless. For arbitrants, the tribunal’s power to determine its own jurisdiction has no value if it will never have an opportunity to exercise that power. For employees and consumers who are promised access to justice then presented with a barrier to it, such clauses engender only resentment, and resentment is likely to yield backlash and over-regulation of all types of arbitration. The SCC’s invalidation of Uber’s arbitration clause should thus be seen as a pro-commercial arbitration decision.

Accordingly, to the extent that the Model Law aims to facilitate arbitration as a legitimate alternative to litigation, its provisions on stays of litigation should be interpreted to give courts space to act in the rare event that a commercial dispute is unlikely ever to reach an arbitrator. One could argue that such arbitration agreements are “incapable of being performed”, and therefore unenforceable under Article 8(1) of the Model Law. However, in commercial disputes this provision has rightly been interpreted narrowly, to apply only to exceptional situations in which performance of the arbitration agreement as written is not practically possible. Some other principled basis is needed on which courts can allow litigation to proceed when an arbitration clause is made deliberately inaccessible.

 

The Supreme Court of Canada navigates toward a solution

The Uber v Heller majority’s approach was animated by two sets of concerns arising from the facts of the case. The first was the nature of the claim in the litigation: that Mr. Heller was an employee, an issue that he is entitled to have determined according to Ontario law. The best solution to this problem is legislation that creates certainty for contracting parties, which has been acknowledged by the Supreme Court in previous decisions involving consumer relationships. The second was the selection of arbitration rules designed for commercial disputes, when the case was not between commercial parties who could both access arbitration under those rules. Although the first concern was one that could be adequately addressed by a commercial arbitrator using tools such as mandatory rules of law and public policy, the second concern meant that no arbitrator would ever be in a position to address the first.

The majority opinion invalidated Uber’s arbitration agreement—and justified doing so before a tribunal had a chance to rule on the question of validity—on the basis that the arbitration clause was unconscionable. Accordingly, it ruled that litigation could proceed. Justice Brown concurred in the result but would have based the exception to competence-competence on public policy rather than unconscionability. In a “stable, predictable and ordered society”, he wrote, the rule of law requires that parties have actual, not just theoretical, access to a legal remedy (para 111). Courts should therefore intervene to invalidate arbitration agreements that act to prevent arbitration on the ground that these violate public policy.

Both the majority and concurring opinions in Uber v Heller share the virtue of acknowledging the problem created when arbitration, although agreed to, will not be effective in resolving the parties’ disputes. Both approaches serve to protect commercial arbitration from being harmed amidst a backlash to employment and consumer arbitration—a backlash that has begun in Canada and is already widespread in the US. If we empower courts to protect those who are subject to adhesive, inaccessible arbitration agreements like Uber’s, we can better hold the line on competence-competence in the kind of commercial disputes for which the Model Law was designed.

That said, Justice Brown’s concurring decision has the better approach, and should be the model that courts in other jurisdictions follow. Even accepting that the clause was an unfair one—as the SCC unanimously agreed—unconscionability is a poor basis for an exception to competence-competence because it invites extensive fact-finding and argument on the fairness of arbitration clauses before courts can decide on stay applications. Public policy draws a clearer line around what courts can consider at this initial stage, and accords with the Model Law’s approach in viewing national courts as a necessary support for arbitration, not just a threat to it.

International commercial arbitration is a privileged form of dispute resolution, whose privilege rests on a foundation of the rule of law. It has achieved almost universal acceptance as an alternative to litigation because it provides an effective and fair method of enforcing contractual rights. This notion of public policy should be seen as universal, as it is essential to commercial certainty; its application by courts should result in predictable outcomes rather than greater uncertainty. In addition, public policy is already embedded in the New York Convention and national arbitration legislation (including the Model Law) as an accepted but narrow exception to competence-competence and to the enforceability of awards. Courts in most jurisdictions are familiar with it and have a similar sense of its limited scope.

 

Access to arbitration as access to justice

International commercial arbitration faces continuing challenges to its legitimacy in the consumer, employment, and investor-state contexts. An approach that reminds us of the fundamental reasons for commercial arbitration’s widespread acceptance should therefore be welcomed and not feared. A limited exception to competence-competence where the arbitration clause itself makes arbitration inaccessible is appropriate. As Justice Brown put it: “It really is this simple: unless everyone has reasonable access to the law and its processes where necessary to vindicate legal rights, we will live in a society where the strong and well-resourced will always prevail over the weak” (para 112). Insisting on absolute adherence to competence-competence means accepting such injustice, which will only generate hostility to all forms of arbitration in the long run. The route charted by the SCC passes safely between the Scylla and Charybdis of hostility to arbitration and competence-competence absolutism.

References   [ + ]

1. ↑ William G. Horton and David Campbell, “Arbitration as an Alternative to Dispute Resolution: Class Proceedings and the Mirage of Mandatory Arbitration” [2019] Ann. Rev. Civ. Litig. 93. 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Bosnia and Herzegovina: High Time to Tackle Legislative Loopholes Making It Possible to Avoid Arbitration

Wed, 2020-07-08 04:00

Despite the fact that Bosnia and Herzegovina (BiH) has two arbitration courts – The Arbitration Court attached to the Foreign Trade Chamber of Bosnia and Herzegovina which has existed since 2003 and the Foreign Trade Court of Arbitration of the Republika Srpska (‘RS’) Chamber of Commerce and Industry since 1998 – arbitration still remains an underdeveloped and avoided mechanism of dispute resolution (institutional arbitration in BiH was discussed previously on the blog here). Part of the reasons why this is so may be found in the shortcomings of BiH Civil Procedure provisions regulating arbitration. I propose in this post amendments to the arbitration provisions in the BiH legal system that may be seen as flawed.

 

BiH Civil Procedure Acts (CPA) – Stumbling Block for Arbitration

Due to the complexity of BiH legal system, three separate acts govern civil procedure in BiH – and all three allow parties to settle disputes through arbitration and provide regulation of arbitration.

Notwithstanding the fact that the provisions are installed in different acts, arbitration provisions contained in all three are essentially the same and are based on the UNCITRAL Model Law. All three Acts classify arbitration proceedings as ”special procedure”, thus placing it collectively with other forms of ”special procedures” such as trespass litigation and employment disputes. Aceris Law notes that none of the three Acts expressly elaborates general principles of arbitration. Nevertheless, some general principles can be drawn from the provisions dealing with arbitration. For example, the principle of party autonomy is enshrined in Article 443 of the Civil Procedure Acts of the Federation of Bosnia and Herzegovina (‘FBiH’) and RS, as it allows the parties to agree on rules of arbitral procedure. Also, Articles 434-453 of the Civil Procedure Act FBiH and RS contain basic elements of arbitral proceedings: arbitrability, formal validity of an arbitration agreement, constitution of the arbitral tribunal, challenge of an arbitrator, the general power of the tribunal and the form and legal effect of an arbitral award. Provisions on procedure for setting aside of an arbitral award are contained in Chapter V of the Acts.

Insight into particular language of the Civil Procedure Acts used in BiH can shed some light as to why commercial entities in Bosnia and Herzegovina avert from arbitration as a dispute resolution mechanism. Several provisions of these Acts – These are contained in Articles 440 (Article 419 in CPA of BD), 441 (Article 420 in CPA of BD), and 446 (Article 425 in CPA of BD) – can be seen as contentious, potentially causing procedural flaws within the arbitral proceedings as they can provide easy access to avoidance of the arbitration agreement to parties.

 

Possible Termination of the Arbitration Agreement for Failure to Appoint an Arbitrator or Not Electing the President of the Arbitral Panel

One of the shortcomings I discuss is contained in Article 440 CPA FBiH/RS – Article 419 CPA BD that states as follows:

1) If an arbitrator has not been appointed on time, the arbitrator shall be appointed by court.

2) If the arbitrators cannot agree as to the election of the president of the arbitration board, the president shall be appointed by the court.

(…)

5) A party that does not want to use the authorization referred to in the paragraphs 1 and 2 of this Article may request in the complaint that the court competent for the appointment proclaims the contract on arbitration terminated.

Relying on the provisions of  Article 440.5., a party who wishes to avoid resolution of a dispute through arbitration and have the arbitration agreement terminated, may simply not appoint an arbitrator in time or not to appoint one at all, as envisaged in the Article 440.1. Similarly, events from Article 440.2. would lead the dispute to the same conclusion if the appointed arbitrators cannot agree as to the election of the president of the arbitration board. Even if one party asks of the court to appoint an arbitrator for the other party who does not want to make an appointment, the latter party could still exercise their right from Article 440.5. and request the termination of the contract on arbitration.

All these situations create possibilities that previously agreed upon arbitration could be avoided quite easily. Comparable provisions can be found, for example, in the Dutch Code of Civil Procedure, in Article 1027, which takes a similar stand regarding the court appointment of the arbitrator if the party or parties fail to appoint their arbitrators on time. However, unlike Article 440.5. of BiH Acts, the Dutch Code of Civil Procedure does not see the failure or unwillingness to appoint an arbitrator as grounds for termination of the entire arbitration agreement. Amending Article 440. of BiH Acts, so to strike out paragraph 5 would maintain its key purpose of permitting the court to solve the procedural gridlock and appoint the arbitrators and the president of the arbitral tribunal without unnecessarily jeopardizing the arbitration agreement.

 

Termination of the Arbitration Agreement in Case of an Arbitrator Unwilling or Unable to Perform Their Duty

Another shortcoming of the BiH legal system that I discuss is included in Article 441 CPA FBiH/RS – Article 420 CPA BD that states as follows:

Any party may request that the court terminates the arbitration agreement if the parties cannot agree on the appointment of arbitrators or when an appointed arbitrator does not want to or is not able to perform that duty.

Similarly to Article 440, Article 441 allows the parties to request that the competent court terminates the arbitration agreement if the parties cannot agree on the appointment of the arbitrators. Additionally, scenario set forth in the Article 441.2. would lead to the judicial termination of an arbitration agreement if a person who has been appointed as an arbitrator does not want to or is unable to perform that duty. This enables the party who wants to avoid pursuing arbitration after signing the arbitration agreement to do so by simply appointing an arbitrator for whom that party knows, or has reason to believe, will not want or will not be able to perform that duty. Seeing that potentially unruly Article 441 does not devise a method for the court to appoint a substitute arbitrator instead of one unwilling or unable to arbitrate, better legal certainty in the matters of arbitration would be achieved if this entire article was removed from the discussed BiH Acts.

 

Possible Termination of The Arbitration Agreement For Failure of Arbitrators to Reach a Majority of Votes

Article 446 CPA FBiH/RS – Article 425 CPA BD states as follows:

When the arbitration board is comprised of more than one arbitrator, the judgment shall be reached by majority of votes, and the board is obliged to notify the parties if they cannot reach a majority. In such cases, each party may request the court to terminate the arbitration agreement.

Article 446 potentially leads to the termination of the entire arbitration agreement if the arbitration board is not able to reach a required majority of votes. The situation remains unsolved in the Rules of the Bosnian Arbitration Court. Article 47 of the Rules on Organization and Operation of the Court of Arbitration provides that:

An arbitral tribunal shall pass its award by a majority of votes. If it is not possible to achieve the majority, Litigation Law shall apply.

This provision is in contrast with, the majority of foreign arbitration rules providing in such case that the award shall be made by the president of the tribunal. See Article 26.5 of the LCIA Arbitration Rules (2014); Article 63 of the WIPO Arbitration Rules (2020); Article 38 of Arbitration Rules of the Arbitration Court at the Chamber of Economy of Montenegro (2015). Article 32(1) of the 2017 ICC Rules:

When the arbitral tribunal is composed of more than one arbitrator, an award is made by a majority decision. If there is no majority, the award shall be made by the president of the arbitral tribunal alone.

Similarly, Article 40(1) of the 2014 Ljubljana Arbitration Rules provides:

When the tribunal is composed of more than one arbitrator, it shall make the arbitral award or decision with a majority of the votes of its members. If a majority of the votes cannot be achieved, the arbitral award or decision shall be made by the Chairman of the tribunal.

In order to avoid the termination of the arbitration agreement as a result of the tribunal’s failure to reach a majority of votes, the text of Article 446 should be amended so as to empower the president of the arbitral tribunal to single-handedly deliver an award.

 

Conclusion

In order to promote and give a much needed impetus to arbitration, a reform of Civil Procedure Acts which regulate arbitration is a must for BiH and its entities, as explained above. Similar need for revision of the current arbitration framework regarding consolidation was discussed here.

The importance of arbitration for BiH, both national and international, is constantly increasing. That has been recognized by many Bosnian legal scholars and practitioners, increasing number of students participating in the Willem C. Vis Moot Competition in International Commercial Arbitration since 2015, and on a non-governmental level by Association ARBITRI continually organizing educations and promotions of arbitration. Now it is the time for the legislators to do their part.

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The Contents of the Brazilian Arbitration Journal, Volume XVII, Issue 66 (June 2020)

Wed, 2020-07-08 03:00

In its 66th edition, the Brazilian Arbitration Journal presents, in the National Doctrine section, Bruno Pellegrini Venosa’s analysis about the interaction between the applicable law to the arbitral procedure and foreign arbitral urgent measures. In addition, Rafael Branco Xavier discusses the possibility of implementing the disregard doctrine in arbitration.

In the International Doctrine section, Eugenie Caroit and Paloma Garcia Guerra examine the trends in international arbitration regarding privilege-related issues.

Carlos Eduardo Stefen Elias and Amauri Silvestre Pavão contribute to the National Judicial Case Law section, by noting a decision from the Third Panel of the Brazilian Superior Court of Justice (STJ), in which the possibility of attachment of a right disputed in an arbitral procedure was recognized.

Furthermore, Henrique Barbosa and Isabel Cantidiano comment on a conflict of jurisdiction case decided by the Second Section of the Brazilian Superior Court of Justice, which found that the state jurisdiction is competent to analyse the scope of the arbitration clause.

In the International Judicial Case Law section, Daniel Levy examines a decision rendered by the Queen’s Bench Division of England and Wales High Court of Justice, in which the English Commercial Court allowed an application under Section 68 of the English Arbitration Act for challenging an arbitral award.

Switching to the General Information section, Mauricio Morais Tonin concentrates on the Law no. 17,324/2020 from the Municipality of São Paulo, which establishes the policy of “desjudicialização” – diversion of legal claims from the judiciary to alternative means of preventing/settling disputes – in matters involving the Direct and Indirect Municipal Public Administration. The 2020 ICC-FIDIC Conference, held in São Paulo on 10-11 February 2020, is reported by Anna-Katharina Scheffer da Silveira. João Marçal Rodrigues Martins da Silva writes about Covid-19’s impacts in the administration of arbitral proceedings. Finally, Debora Visconte presents the ICC Guidance Note on Possible Measures Aimed at Mitigating the Effects of the Covid-19 Pandemic as well as the CIArb Guidance Note on Remote Dispute Resolution Proceedings.

This edition’s Arbitration Classic is Alan Redfern’s Article “The Jurisdiction of an International Commercial Arbitrator”, containing an introductory note by Marcelo de Souza Richter.

Lastly, this edition includes Ricardo de Carvalho Aprigliano’s review of the book “Árbitro e direito: o julgamento do mérito na arbitragem”, authored by Rafael Francisco Alves.

Stay safe in these times of pandemic!

João Bosco Lee, Director

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Amendments to Japan’s Foreign Lawyers Act Clarify and Broaden the Scope of Party Representation by Foreign Counsel in International Arbitration

Tue, 2020-07-07 04:00

Arbitration in Japan recently received a domestic boost when two Japanese industry titans agreed to arbitrate their dispute over a South African coal plant, with claims worth several billion US dollars, before the JCAA. However domestic arbitration in Japan tends to be used sparingly and this is often cited as a reason for many Japanese companies’ relative unfamiliarity with arbitration.

Japan has made no secret of its desire to attract a larger share of the international arbitration market. The Japanese government, with support from an increasingly world-class international arbitration community in Japan, has worked to shore up the legal foundations necessary to support a robust international arbitration scene.

Those efforts have resulted in the opening of a new mediation center in Kyoto in 2018 and new hearing facilities in Osaka and Tokyo in 2018 and 2020, respectively. Further the Japan Commercial Arbitration Association (“JCAA”) made some significant upgrades to its online resources, public relations approach, and roster of arbitrators. The JCAA also updated its commercial rules. These rules were and remain in line with international standards.  

 

Amendment of the Foreign Lawyers Act

Recently, the Japanese Diet amended the Foreign Lawyers Act (the “Act”)1)Unofficial English translation. jQuery("#footnote_plugin_tooltip_2271_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2271_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); to, among others, expand the scope of services that foreign lawyers can render in international arbitration proceedings (the “Amendments”). The Amendments will become effective on 29 August 2020.

The Amendments consist of the following three pillars:

(1) Expansion of the scope of representation in international arbitration and introduction of provisions on representation in international mediation by Registered Foreign Lawyers and Foreign Lawyers (as defined in the amended Act);

(2) Easing of the requirement of professional experience to become a Registered Foreign Lawyer; and

(3) Establishment of a system for joint co-operation between local attorneys and Registered Foreign Lawyers.

Below, we focus on the expansion of the scope of representation in international arbitration by Registered Foreign Lawyers and Foreign Lawyers.

Prior to the Amendments, an “International Arbitration Case”, in which Registered Foreign Lawyers and Foreign Lawyers may represent the parties, was more narrowly defined as a civil arbitration case with the seat of the arbitration as Japan, and in which all or some of the parties are persons who have an address or a principal office or head office in a foreign jurisdiction.

Under the amended Act, Foreign Registered Lawyers and qualified Foreign Lawyers are permitted to represent parties in arbitrations considered “international.” An arbitration is an “International Arbitration” if it falls within the following circumstances:

  • any party to the case has an address (individuals) or a principal office or a head office (corporate entities) in a foreign jurisdiction, including the case where a person or company that is not a party holds a majority of the issued shares (with voting rights) of a party to the case and has an address (individuals) or a principal office or a head office (corporate entities) in a foreign country;
  • those in which the governing law that the parties have established by agreement is anything other than Japanese law; or
  • those in which the place of arbitration is a foreign jurisdiction (if, for example, the proceeding for an examination of witnesses takes place in Japan).

 

Potential Impact

The hope is that this will boost Japan’s ability to compete with other successful international arbitration hubs in the region. Parties’ freedom to choose their counsel is often seen as one of the drivers of agreements to arbitrate. Because of this, successful international arbitration hubs in Asia, particularly Singapore and Hong Kong, tend not to unduly restrict foreign counsel representation. Japan’s current system is not overly restrictive with respect to foreign counsel representation of parties in international arbitrations. However, it fails to compete with other more “open” jurisdictions.

The amended Act does several things in terms of broadening who may represent parties in international arbitration in Japan. First, a Japanese subsidiary that is more than 50% owned by a foreign company or individual is effectively considered a foreign company for the purposes of deeming an arbitration “international” and permitting foreign counsel representation. There are no ownership exceptions in the current law and companies incorporated under the laws of Japan, even if wholly foreign-owned, are considered domestic companies for arbitration purposes. The rationale for amending this provision is that a foreign-owned domestic corporation likely has decision makers and witnesses in the foreign jurisdiction, making the character of the dispute international.

Second, the amended Act makes clear that if the governing law is other than Japanese law, foreign counsels may act for any party regardless of their ownership or domicile. Where foreign law applies, the amended Act treats the arbitration as sufficiently international for the purposes of permitting foreign counsel representation. While the likelihood of two domestic Japanese companies electing foreign law to govern their dispute seems remote, should they do so, they will have the option of selecting counsel from those foreign jurisdictions.

Finally, the amended Act makes two changes with respect to the place/seat of arbitration. An arbitration is no longer required to have its place in Japan to be handled by foreign lawyers. If the parties designate a place of arbitration outside of Japan, the arbitration is also considered international for the purposes of party representation by foreign counsel. This development is welcome. The current law only applies to arbitrations with a place/seat in Japan. However, many international arbitrations are not unified in terms of the place/seat and the location of physical hearings. Moreover, because the place or seat provides the legal framework as to what jurisdiction’s arbitration law applies, the amended Act recognizes the ability of even purely domestic parties to elect to establish a foreign law nexus sufficient to deem their disputes international.

References   [ + ]

1. ↑ Unofficial English translation. 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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“No-Win No-Fee” Arbitration: a Win-Win for Hong Kong and Singapore?

Tue, 2020-07-07 03:00

While Hong Kong and Singapore legislated in 2017 to allow third party funding of arbitrations (“TPF”),1)In Hong Kong, the amendments to the Arbitration Ordinance (Cap. 609) ultimately took effect in February 2019. jQuery("#footnote_plugin_tooltip_3768_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3768_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); both jurisdictions presently still bar “No-Win, No-Fee” and other outcome related fee arrangements between parties to arbitration and their lawyers. This is out-of-step with many other jurisdictions where outcome related fee arrangements are allowed on the basis that, like TPF, they can enhance access to justice for parties as well as offering increased flexibility with respect to capital and risk management.

This post looks at the latest announcements in Hong Kong and Singapore of plans to relax restrictions on outcome related fee arrangements and considers how these reforms may operate in practice if implemented.

 

Announcements in Hong Kong and Singapore

Singapore’s Ministry of Law issued a Public Consultation Paper on Conditional Fee Agreements (the “Singapore Paper”) in August 2019 inviting feedback on its proposal to allow conditional fee agreements (“CFAs”) for arbitrations as well as certain Singapore International Commercial Court proceedings. (Singapore Paper, paragraphs 1, 7)

The Singapore Paper describes CFAs as agreements where a lawyer representing a client in pursuing a claim receives payment of his legal fees only if the claim is successful. (Singapore Paper, paragraph 2) Such payment may include an “uplift” or “success” fee, in addition to the lawyer’s standard legal fees.

The Ministry of Law’s proposal therefore encompasses No-Win, No-Fee CFAs where lawyers do not receive payment of any legal fees unless the claim succeeds. It is less clear whether the proposal includes No-Win, Low-Fee or hybrid CFAs where lawyers receive a reduced fee if the claim does not succeed.

Hong Kong’s Secretary of Justice announced during 2019 Hong Kong Arbitration Week that a sub-committee of the Law Reform Commission would consider the introduction of Outcome Related Fee Structures for Arbitration. The sub-committee’s task is to review the current position relating to outcome related fee structures for arbitration, consider whether reform of the relevant law and regulatory framework is needed and, if so, make recommendations for reform.2)Website of the Law Reform Commission of Hong Kong. jQuery("#footnote_plugin_tooltip_3768_2").tooltip({ tip: "#footnote_plugin_tooltip_text_3768_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The sub-committee’s broad remit appears to encompass not only CFAs but also damages or contingency fee based arrangements (“DBAs”) where lawyers share in an agreed percentage of the damages recovered by the client if the case succeeds. No-Win, No-Fee and No-Win, Low-Fee variants of both CFAs and DBAs may therefore be on the horizon in Hong Kong.

DBAs do not feature in the Singapore Ministry of Law’s proposal. The Singapore Paper is silent on why this is so beyond noting that DBAs lead to lawyers receiving remuneration with “no direct correlation to the work done”. (Singapore Paper, paragraph 2) Their exclusion may have been inspired by the 2007 Final Report of the Committee to Develop the Singapore Legal Sector, which favoured the adoption of CFAs over DBAs for domestic litigation.3)Report of the Committee to Develop the Singapore Legal Sector: Final Report (September 2007), paragraphs 3.22-3.23. A sub-committee of the Law Reform Commission of Hong Kong adopted a similar position in 2005 when it recommended that CFAs be allowed for litigation while DBAs remain prohibited as being contrary to public policy. See Law Reform Commission of Hong Kong, Conditional Fees Sub-Committee, Consultation Paper (September 2005), paragraph 7.41 and Recommendation 10. jQuery("#footnote_plugin_tooltip_3768_3").tooltip({ tip: "#footnote_plugin_tooltip_text_3768_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Growing International Acceptance of Outcome Related Fee Arrangements

Hong Kong and Singapore’s moves towards outcome related fee arrangements are welcome and, arguably, overdue.

International acceptance of outcome related fee arrangements has grown in recent years with increasing recognition of their ability to enhance access to justice by allowing parties to enforce their contractual or investment treaty rights through arbitration when they may otherwise be unable or unwilling to bear the cost of doing so. They can also promote greater efficiency and risk management between parties and their lawyers by more closely aligning their interests.

Jurisdictions that already allow CFAs include Australia, China and England & Wales while Canada, England & Wales and the United States all permit DBAs.4)Singapore Paper, paragraph 5; Lord Justice Jackson Law Society Speech “Commercial Litigation: The Post-Jackson World”, paragraphs 3.10, 3.17. jQuery("#footnote_plugin_tooltip_3768_4").tooltip({ tip: "#footnote_plugin_tooltip_text_3768_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Australian state of Victoria controversially passed legislation on 18 June 2020 permitting DBAs for class action litigations.5)Part 2, Justice Legislation Miscellaneous Amendments Act 2020; see also Victorian Law Reform Commission, Access to Justice— Litigation Funding and Group Proceedings: Report (March 2018), page 63 (Recommendation 7). jQuery("#footnote_plugin_tooltip_3768_5").tooltip({ tip: "#footnote_plugin_tooltip_text_3768_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Arbitration users have exhibited demand for both CFAs and DBAs. A 2013 global survey of in-house counsel showed, of the respondents using flexible fee structures in arbitration, 27% had used No-Win, Low-Fee DBAs, 22% had used No-Win, Low-Fee CFAs, and 10% had used No-Win, No-Fee DBAs.6)2013 International Arbitration Survey: Corporate Choices in International Arbitration – Industry Perspectives (Queen Mary-PWC), page 19. jQuery("#footnote_plugin_tooltip_3768_6").tooltip({ tip: "#footnote_plugin_tooltip_text_3768_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

A common objection to CFAs and DBAs in the past has been that they incentivise lawyers to pursue vexatious claims. In reality, such arrangements are more likely to encourage lawyers to pursue cases with good prospects of success since their fees rely on a successful outcome.7)See Report of the Committee to Develop the Singapore Legal Sector: Final Report (September 2007), paragraph 3.23. jQuery("#footnote_plugin_tooltip_3768_7").tooltip({ tip: "#footnote_plugin_tooltip_text_3768_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Targeted regulation can help to address related objections to CFAs and DBAs that they create conflicts of interest between lawyers and their clients and encourage unethical behavior. The Singapore Paper, for example, sensibly proposes reinforcing lawyers’ duty to act in the best interests of their client, with clients retaining control over the conduct of the arbitration and the decision whether to settle, when CFAs are in place. (Singapore Paper, paragraph 15(b))

A more difficult issue is whether there are benefits to introducing both CFAs and DBAs. While an argument exists that DBAs are unnecessary if CFAs are available and vice-versa,8)Victoria Law Reform, Access to Justice— Litigation Funding and Group Proceedings: Consultation Paper (July 2017), paragraph 8.17. jQuery("#footnote_plugin_tooltip_3768_8").tooltip({ tip: "#footnote_plugin_tooltip_text_3768_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); the more compelling view is that CFAs and DBAs each provide a valid method for funding arbitrations when properly regulated.9)For a strong endorsement of DBAs, and hybrid / No-Win, Low-Fee DBAs in particular, see Lord Justice Jackson Law Society Speech “Commercial Litigation: The Post-Jackson World”, paragraphs 3.1-3.20. jQuery("#footnote_plugin_tooltip_3768_9").tooltip({ tip: "#footnote_plugin_tooltip_text_3768_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Lawyers and their clients should therefore be free to enter into CFAs or DBAs if they so wish or, indeed, opt for a combination of these arrangements with TPF.

 

Implementing Outcome Related Fee Arrangements in Hong Kong and Singapore

Hong Kong and Singapore will need to address several important policy issues to introduce outcome related fee arrangements successfully. Three key issues are considered below.

First, implementing a framework for outcome related fee arrangements that enables parties and their lawyers to share the risks and rewards of arbitrations in a mutually beneficial manner.

Rigid arrangements that do not give parties and their lawyers the ability to tailor the risk-reward allocation to suit the specific circumstances of the case are of limited use in the real world. On the other hand, regulators may consider it necessary to cap the financial returns lawyers can realise to, among other things, protect parties from unfair arrangements. Indeed, the Singapore Paper requests feedback on whether to cap CFA success fees. (Singapore Paper, paragraph 14(a))

Alongside caps, another important consideration in creating a workable framework for outcome related fee arrangements is whether to permit No-Win, Low-Fee arrangements, which allow for greater flexibility than No-Win, No-Fee arrangements. England & Wales, for example, allows:

  • No-Win, No-Fee and No-Win, Low-Fee CFAs with success fees capped at 100% of lawyers’ normal fees;10)Courts and Legal Services Act 1990, Section 58(2); The Conditional Fee Agreements Order 2013, Article 3. jQuery("#footnote_plugin_tooltip_3768_10").tooltip({ tip: "#footnote_plugin_tooltip_text_3768_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and
  • No-Win, No-Fee DBAs with the lawyer’s share of damages capped at 50% of the sums ultimately recovered by the client.11)Courts and Legal Services Act 1990, Section 58AA; The Damages-Based Agreements Regulations 2013, Section 4(3). jQuery("#footnote_plugin_tooltip_3768_11").tooltip({ tip: "#footnote_plugin_tooltip_text_3768_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The “illogical” unavailability of No-Win, Low-Fee DBAs has widely been blamed for the limited uptake of DBAs in England & Wales.12)Lord Justice Jackson Law Society Speech “Commercial Litigation: The Post-Jackson World”, paragraphs 3.2, 31.13; Civil Justice Council, The Damages-Based Agreements Reform Project: Drafting and Policy Issues (August 2015), page 77. jQuery("#footnote_plugin_tooltip_3768_12").tooltip({ tip: "#footnote_plugin_tooltip_text_3768_12", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The 2019 DBA Reform Project therefore proposes allowing No-Win, Low-Fee DBAs to enable lawyers to receive payment, albeit at a discounted rate, as long-running cases progress.13)The 2019 DBA Reform Project: Explanatory Memorandum (October 2019), pages 14-15. jQuery("#footnote_plugin_tooltip_3768_13").tooltip({ tip: "#footnote_plugin_tooltip_text_3768_13", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This proposed reform could encourage a significant increase in the use of DBAs in England & Wales by providing clients and their lawyers with more flexibility in allocating risk.

Second, should the costs of outcome related fee arrangements be recoverable from the unsuccessful party to the arbitration?  

The Singapore Paper proposes excluding CFA success fees from costs orders. (Singapore Paper, paragraph 17) This has the significant advantage of not burdening losing parties with excessive and disproportionate costs as well as encouraging efficiency in the arbitral process.14)Lord Justice Jackson’s Response to Ministry of Justice Consultation Paper CP 13/10 (29 November 2010), paragraphs 2.1-2.15. jQuery("#footnote_plugin_tooltip_3768_14").tooltip({ tip: "#footnote_plugin_tooltip_text_3768_14", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

On the other hand, it may be equitable for tribunals to award such costs where, for example, the reprehensible conduct of the respondent forced the claimant to enter into a CFA or DBA.15) For an example of such a situation in the context of TPF, see The Essar Oilfields [2016] EWHC 2361 (Comm). See Final Report of the Committee to Develop the Singapore Legal Sector (September 2007), paragraph 3.27(f). jQuery("#footnote_plugin_tooltip_3768_15").tooltip({ tip: "#footnote_plugin_tooltip_text_3768_15", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In addition, preventing costs recovery may have negative access for justice implications. Impecunious respondents could find themselves unable to access CFAs since, in the absence of cost recovery, they would be unable to pay the CFA success fee due if their lawyers successfully defended the case.

Allowing tribunals discretion to award costs of CFAs and DBAs, subject to a rebuttable presumption that such costs are not recoverable, may help to balance these competing considerations.

Third, should lawyers or their clients be obliged to disclose the existence of outcome related fee arrangements to the tribunal and parties to the proceedings?

The Singapore Paper proposes lawyers being obliged to disclose the existence of CFAs on the basis that the TPF regime in Singapore also requires disclosure. (Singapore Paper, paragraph 15(a)) Unlike TPF, however, there is no potential conflict of interest arising from the involvement of a third party (the funder) warranting disclosure since a CFA or DBA is strictly between the lawyers and their client.

Moreover, if CFA costs are not recoverable from the unsuccessful party as per the current proposal in the Singapore Paper, it is difficult to see why disclosure is necessary. Disclosure is not required in England & Wales for this reason.16)Civil Justice Council, The Damages-Based Agreements Reform Project: Drafting and Policy Issues (August 2015), pages 100-102. jQuery("#footnote_plugin_tooltip_3768_16").tooltip({ tip: "#footnote_plugin_tooltip_text_3768_16", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Conclusion

Arbitration users should welcome Hong Kong and Singapore’s shifts towards allowing outcome related fee arrangements. No-Win, No-Fee and, in particular, No-Win, Low-Fee arrangements would give parties the freedom to share the risk and reward of arbitrations with their lawyers if they wish to do so and enhance access to justice.

With Singapore’s proposal presently limited to CFAs, Hong Kong has an opportunity to differentiate itself as a seat of arbitration by allowing both CFAs and DBAs. It will be interesting to see whether the Hong Kong sub-committee recommends this course of action.

References   [ + ]

1. ↑ In Hong Kong, the amendments to the Arbitration Ordinance (Cap. 609) ultimately took effect in February 2019. 2. ↑ Website of the Law Reform Commission of Hong Kong. 3. ↑ Report of the Committee to Develop the Singapore Legal Sector: Final Report (September 2007), paragraphs 3.22-3.23. A sub-committee of the Law Reform Commission of Hong Kong adopted a similar position in 2005 when it recommended that CFAs be allowed for litigation while DBAs remain prohibited as being contrary to public policy. See Law Reform Commission of Hong Kong, Conditional Fees Sub-Committee, Consultation Paper (September 2005), paragraph 7.41 and Recommendation 10. 4. ↑ Singapore Paper, paragraph 5; Lord Justice Jackson Law Society Speech “Commercial Litigation: The Post-Jackson World”, paragraphs 3.10, 3.17. 5. ↑ Part 2, Justice Legislation Miscellaneous Amendments Act 2020; see also Victorian Law Reform Commission, Access to Justice— Litigation Funding and Group Proceedings: Report (March 2018), page 63 (Recommendation 7). 6. ↑ 2013 International Arbitration Survey: Corporate Choices in International Arbitration – Industry Perspectives (Queen Mary-PWC), page 19. 7. ↑ See Report of the Committee to Develop the Singapore Legal Sector: Final Report (September 2007), paragraph 3.23. 8. ↑ Victoria Law Reform, Access to Justice— Litigation Funding and Group Proceedings: Consultation Paper (July 2017), paragraph 8.17. 9. ↑ For a strong endorsement of DBAs, and hybrid / No-Win, Low-Fee DBAs in particular, see Lord Justice Jackson Law Society Speech “Commercial Litigation: The Post-Jackson World”, paragraphs 3.1-3.20. 10. ↑ Courts and Legal Services Act 1990, Section 58(2); The Conditional Fee Agreements Order 2013, Article 3. 11. ↑ Courts and Legal Services Act 1990, Section 58AA; The Damages-Based Agreements Regulations 2013, Section 4(3). 12. ↑ Lord Justice Jackson Law Society Speech “Commercial Litigation: The Post-Jackson World”, paragraphs 3.2, 31.13; Civil Justice Council, The Damages-Based Agreements Reform Project: Drafting and Policy Issues (August 2015), page 77. 13. ↑ The 2019 DBA Reform Project: Explanatory Memorandum (October 2019), pages 14-15. 14. ↑ Lord Justice Jackson’s Response to Ministry of Justice Consultation Paper CP 13/10 (29 November 2010), paragraphs 2.1-2.15. 15. ↑ For an example of such a situation in the context of TPF, see The Essar Oilfields [2016] EWHC 2361 (Comm). See Final Report of the Committee to Develop the Singapore Legal Sector (September 2007), paragraph 3.27(f). 16. ↑ Civil Justice Council, The Damages-Based Agreements Reform Project: Drafting and Policy Issues (August 2015), pages 100-102. 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Strategies for Seeking Interim Measures in the Philippines and Singapore

Mon, 2020-07-06 03:00

A special COVID-19-themed SIAC Philippines webinar took place on 18 June 2020. The webinar examined the availability of interim relief to parties to commercial disputes, both in international arbitration and through courts in the Philippines and Singapore, with the panel members sharing their observations on trends and changes since the outbreak of the COVID-19 pandemic.

The panel was moderated by Ms Thea Elyssa Vega (Associate Counsel, SIAC) and comprised Mr Bazul Ashhab (Managing Partner, Oon & Bazul LLP, Singapore), Mr Donemark Calimon (Partner and Head of Quisumbing Torres’ Dispute Resolution Practice Group, Manila), Mr Philip Jeyaretnam, SC (Global Vice-Chair and ASEAN CEO, Dentons, Rodyk & Davidson LLP, Singapore), Mr Louie T. Ogsimer (Partner, Romulo Law Firm, Manila) and Ms Patricia-Ann T. Prodigalidad (Senior Partner, ACCRALAW, Manila).

 

Panel discussion

The panel considered the current state of international arbitration in both the Philippines and Singapore, including discernible trends resulting from COVID-19. Mr Calimon noted that the COVID-19 pandemic had, to some degree, disrupted the forward momentum of international arbitration in the Philippines, but that arbitral institutions such as the Philippine Dispute Resolution Center, Inc. (PDRCI) and the Construction Industry Arbitration Commission (CIAC) have embraced the challenges arising, including through the CIAC’s issuance of guidelines on virtual hearings, enabling accessibility to parties throughout the Philippines. In the case of Singapore, Mr Ashhab noted that virtual hearings have been—and will continue to be—essential to ensuring that life (and business) goes on, recognizing that virtual hearing solutions have been very successfully implemented during the lockdown period.

The panel members then turned to discuss interim relief specifically. Their observations included the following:

  • Instances where interim relief will be needed: Mr Ogsimer said that he generally is seeing a trend of interim applications where one party seeks to restrain the other from, e.g., calling on performance bonds or other security put up in the context of construction contracts, in order to prevent the termination of the contract. In Singapore, Mr Jeyaretnam noted that the government already has dealt with many potential legal consequences through temporary “freezes” in certain areas (e.g., construction), which have kept many disputes away from the courts and arbitration. However, he sees potential down the track for claims of force majeure, frustration, etc, particularly for projects where legislative intervention does not apply.
  • Emergency arbitration vs interim relief court applications. In the Philippines context, Ms Prodigalidad noted several benefits of having emergency arbitration, such as: (a) the potential for delay in the courts due to community lockdown; (b) some courts’ potential lack of familiarity with electronic modes of transmission or virtual hearings; (c) the potential for judges to issue “traditional” relief rather than coming up with relief to address the specific needs of the parties; (d) not being assured that a judge will have the required sector or technical expertise to properly determine the application; and (e) emergency arbitration decisions being enforceable across jurisdictions. From the perspective in Singapore, Mr Ashhab recognized that courts have the power to intervene in arbitral proceedings in limited situations, and accordingly that courts were more appropriate where urgent relief on an ex parte basis is sought due to, e.g., the risk of dissipation of assets.
  • Tips on advocacy in emergency arbitration proceedings. Mr Jeyaretnam stressed that it was very important for practitioners to be well prepared in terms of what they want to demonstrate to the decision-maker and, in particular, being ready to make use of technology for sharing documents (e.g., online platform or PowerPoint presentation containing document excerpts and/or demonstratives). Virtual hearings can be very effective and, in some instances, better than in-person hearings, as it requires both the advocate and the emergency arbitrator to focus on what is being presented.
  • Enforcement of emergency arbitration relief. Ms Prodigalidad noted the silence of the law in the Philippines (and the Supreme Court rules, at that) on the ability to enforce emergency arbitration decisions. However, she views the silence as providing the flexibility to at least fashion an argument for enforcement. That argument includes avoiding the New York Convention altogether and arguing that an emergency arbitration order is, in fact, an “interim measure”, which the Supreme Court rules recognize. At the end of the day, much will depend on the appreciation that judges have of the distinction, but for now the law’s silence is “good” for the argument.

 

Conclusion

With the Philippines described by the panelists as arbitration-friendly, it is to be expected that the upward trend of international arbitration use by parties in the Philippines will continue, notwithstanding (and, perhaps, because of) the challenges arising from the COVID-19 pandemic. With the support of interim relief and emergency arbitration provisions in various arbitral rules such as the SIAC Rules, one would expect that such applications involving parties in the Philippines similarly will increase—notwithstanding potential challenges to enforcement in the Philippines.

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Recent Developments in the Enforcement of New York Convention Awards in India

Mon, 2020-07-06 01:53

This post analyses the recent developments in enforcement of foreign awards in India that were discussed during the Delos’ Tagtime webinar by Mr. Gourab Banerji SA.1) who was “tagged” by Sir Bernard Eder. Mr. Banerji then “tagged” his colleague from the Nigerian Bar Ms. Funke Adekoya SAN to appear in the next Tagtime webinar by Delos. jQuery("#footnote_plugin_tooltip_8424_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8424_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The webinar provided an overview of the application of the New York Convention, 1958 (NYC) in India. Here, we focus on the salient developments considered by Mr. Banerji.

 

Field of Application (Article I)

India’s history with the NYC is as old as the convention itself. India signed the NYC on 10 June 1958 and ratified it in on 13 July 1960 with two caveats, “…the Government of India declare that they will apply the Convention to the recognition and enforcement of awards made only in the territory of a State, party to this Convention. They further declare that they will apply the Convention only to differences arising out of legal relationships, whether contractual or not, which are considered as commercial under the law of India.”

The NYC is applied in India through Part II of the Arbitration and Conciliation Act, 1996 (the Act) titled as ‘Enforcement of Certain Foreign Awards’. The Act is broadly based on UNCITRAL Model Law and India’s reservations under the NYC, can be found in Part II of the Act at Section 44.

Under the first reservation, India only enforces binding awards from 48 NYC notified territories (even though there are currently 164 contracting states to the NYC). Under the second reservation, India has agreed to enforce NYC awards arising from relationships that are ‘commercial’ in nature. But, how does one define a commercial relationship under Indian law? This question assumes significance considering pending investment treaty awards against India. Would awards arising from investment treaty arbitrations be enforceable in India under Part II of the Act? As the term ‘commercial’ has not been defined in the Act, there is confusion over how this reservation is to be applied qua investment treaties. Two judgments of the Delhi High Court have sought to demystify the issue.

In Union of India v. Vodafone Group PLC United Kingdom & Anr. (2017) and Union of India v. Khaitan Holdings (Mauritius) Limited & Ors. (2019), suits seeking anti-arbitration injunctions had been filed by the Union of India before the Delhi High Court. The court, in both these cases, while refusing to grant injunctions, noted that investment treaty awards arose out of relationships that were fundamentally different from commercial disputes as they were based on state guarantees and assurances, and consequently, the NYC under Part II of the Act could not be utilised to enforce such awards.

While this holding of the Delhi High Court doesn’t directly apply the NYC to investment treaty awards, it is possible that these observations will be seen as obiter dicta and hence do not reflect the accurate position of Indian law. This may be a likely scenario because of how the meaning of the word ‘commercial’ has been interpreted in India through the years as construed, for instance, by the Gujarat High Court in Union of India v. Owner & Parties interested in Motor Vehicle M/V Hoegh Orchid) (1983). Here, a charter party contract provided for a London arbitration clause; yet, the Union of India filed an anti-arbitration suit on the ground of commercial reservation under the NYC i.e. the relationship between the parties was not commercial in nature. Denying the injunction request, the court held that the word ‘commercial’ must be given a wide import.

In R.M. Investment and Trading Co. (P) Ltd. v. Boeing Co. (1994), which was a case on the enforcement of a foreign award under the Foreign Awards (Recognition & Enforcement) Act, 1961 (1961 Act, the erstwhile framework under which foreign arbitral awards were enforced in India before the enactment of the newer Act in 1996), the question was whether R.M. Investment’s consultancy agreement with Boeing, under which it had promised to help Boeing sell their aircrafts in India, could be considered a ‘commercial’ agreement. The underlying agreement had an arbitration clause, despite which R.M. Investment filed a suit at the Calcutta High Court. Boeing applied for a stay of the suit in favour of the arbitration. The Supreme Court relied on UNCITRAL Model Law, to observe that, “the expression ‘commercial’ must be construed broadly having regard to the manifold activities which are part of International trade today”, and upheld the stay of the suit.

Even though India has no ‘national law’ specific to the NYC, to ascertain what is considered as commercial under Indian law, the views enunciated above are in consonance with the definition of ‘commercial dispute’ as used in Section 2(1)(c) of the Commercial Courts Act, 2015. A wide number of activities have been enumerated under this definition as being commercial. More pointedly, the Explanation to Section 2(1)(c) states that merely because one of the contracting parties is the state does not mean that a commercial dispute will cease to be one. Additionally, Article 27 of India’s Model BIT also states that disputes submitted to arbitration under this BIT would be considered as ‘commercial’ and are enforceable under the NYC.

Therefore, it is likely that Indian courts will interpret the term ‘commercial’ in a broad manner because that seems to be the approach of both the Indian judiciary and the legislature. Consequently, it is possible that investment treaty awards may be enforceable in India under the NYC. Mr. Banerji also appeared to support this view.

 

Grounds for refusal to enforce a New York Convention Award (Article V)

Article V of the NYC states the grounds for refusal to enforce an arbitral award. These are conditions such as violation of public policy, non-adherence of principles of natural justice etc., which if met, may result in courts refusing to enforce a NYC award made in a Contracting State. In India, Article V finds its place under Section 48 of the Act. The webinar focussed on the ground of public policy. To define this oft-used term, Mr. Banerji quoted Justice Burrough in Richardson v. Mellish (1824), where he observed re public policy that “it is a very unruly horse, and once you get astride it you never know where it will carry you. It may lead you from sound law”.

Over the years, the Indian judiciary’s approach to the enforcement of foreign awards has been inconsistent both under the 1961 Act and the 1996 Act. India’s arduous journey of jurisprudence on public policy reached a pivotal moment with the celebrated judgment of Renusagar Power Co. Ltd. v. General Electric Co. (1994), which formulated the Renusagar test”. It held that enforcement of a foreign award would be refused on the grounds of public policy only if such enforcement contravenes:

  1. fundamental policy of Indian law; or
  2. the interests of India; or
  3. justice or morality.

This test has now been largely adopted by the Indian legislature and is codified in the Explanation 1 to Section 48(2)(b) of the Act.

Over the years, the judiciary has interpreted the Renusagar test in myriad ways. However, a visible pro-enforcement shift was seen in the Indian judiciary after the Supreme Court’s judgment in Shri Lal Mahal Ltd. v. Progetto Grano Spa (2014). In Shri Lal Mahal, a Grain and Feed Trade Association award was sought to be enforced. Resisting enforcement, Shri Lal Mahal argued that public policy was defined widely under the Act. Rejecting this argument, and upholding the Renusagar test, Justice Lodha, in a display of intellectual honesty, overruled his own earlier judgment in Phulchand Exports Limited v. O.OO. Patriot (2011) and enforced the present award. Taking a cue, the subsequent Arbitration and Conciliation (Amendment) Act, 2015 significantly narrowed the definition of public policy.

Recently, the Supreme Court pronounced a landmark judgment on enforcement of foreign awards in Vijay Karia v. Prysmian Cavi (2018), where it emphasised that a party resisting enforcement can only have “one bite of the cherry.” Where a party loses in the high court, the Supreme Court’s standard of review only permits interference in an exceptional case of blatant disregard of Section 48. Relying on Renusagar and Shri Lal Mahal, the Supreme Court held it was not permitted to review the merits of the decision, and that an enforcing court cannot interfere by second guessing an arbitrator’s interpretation of the agreement under the guise of public policy. The Supreme Court advanced the international jurisprudence on NYC Article V by holding that a residual discretion remains with the court to enforce a foreign award, despite grounds for its resistance having been made out. On the public policy aspect, it held that a rectifiable breach under Foreign Exchange Management Act, 1999 cannot be held to be a violation of the fundamental policy of Indian law. This judgment re-affirmed the pro-enforcement stance of Indian courts with respect to foreign awards.

However, this position was challenged by the Supreme Court itself in NAFED v. Alimenta S.A. (2020), a judgment delivered a few weeks later in April 2020. In Alimenta, the Supreme Court conducted a review of the case on merits, and held that since there was absence of permission to export a commodity, such “export without permission would have violated the law, thus, enforcement of such award would be violative of the public policy of India”.

Nevertheless, soon after Alimenta, the Bombay High Court in Banyan Tree Growth Capital LLC v. Axiom Cordages Ltd. (2020) pronounced a judgment permitting enforcement of a SIAC award, and in Centrotrade Minerals & Metals Inc. v Hindustan Copper Limited (2020), a case argued by Mr. Banerji, the Supreme Court, reiterated its judgment in Vijay Karia, and enforced the foreign award.

 

Conclusion

Towards the end of the webinar, Mr. Banerji noted that Indian judges are ‘ultra-pro-enforcement’ and that an overwhelming number of foreign awards are enforced in India. Since Shri Lal Mahal, a very few foreign awards have been refused enforcement in India. While the judgment in Alimenta may make us doubt this statement, it appears that Alimenta is an exceptional break from the norm in Indian arbitration (as can be seen in Banyan Tree and Centrotrade). Supporters of the holding in Alimenta may argue that the award ought to have been refused because there were serious infirmities in the arbitral process. Nevertheless, critics also make a strong point. Alimenta adopted an unduly expansive definition of public policy and an enforcing court likely shouldn’t foray into the merits of an award.

Nonetheless, a reason why even a pro-enforcement Indian judiciary is not seen as such, is because of the time taken in enforcing foreign awards in India. For instance, in Centrotrade, an award from 2001 was finally enforced in 2020. While Alimenta may be an aberration, lengthy timelines for enforcement of awards in India are not so. While the recent developments in Indian arbitration point towards consistent enforcement of foreign awards, it is urgent for the judiciary and legislature to work together to ensure that foreign awards are not only enforced, but enforced within a reasonable period of time.

 

Mr. Sahil Tagotra and Ms. Ishita Mishra are Advocates at the Supreme Court of India.

References   [ + ]

1. ↑ who was “tagged” by Sir Bernard Eder. Mr. Banerji then “tagged” his colleague from the Nigerian Bar Ms. Funke Adekoya SAN to appear in the next Tagtime webinar by Delos. 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Time to Re-Evaluate the Common Law Approach to the Proper Law of the Arbitration Agreement

Sun, 2020-07-05 04:00

Three recent decisions of the Courts of Appeal in Singapore and England (BNA v BNB and another [2019] SGCA 84 (“BNA v BNB”); Kabab-JI S.A.L v Kout Food Group [2020] EWCA Civ 6 (“Kabab v Kout”); and Enka Insaat Ve Sanayi A.S. v OOO “Insurance Company Chubb” and others [2020] EWCA Civ 574 (“Enka v Chubb”)) provide an opportunity to re-evaluate the common law approach to the proper law of the arbitration agreement.1)The English Supreme Court will hear an appeal on Enka v Chubb between 27 to 28 July 2020. jQuery("#footnote_plugin_tooltip_8370_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8370_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

All three cases have been discussed on this blog previously, here, here, here, here and here. The focus in this post is whether the English common law approach, going back to the English Court of Appeal decision in Sulamérica Cia Nacional de Seguros SA and others v Enesa Engelharia SA and others [2013] 1 WLR 102 (“Sulamérica”), accords with the New York Convention.

English cases have vacillated between giving primacy to the substantive law of the contract and the law of the seat when implying the proper law of the arbitration agreement; with the caveat that the presumptive law may be rebutted if it invalidates the arbitration agreement. The proper law of the arbitration agreement is most significant where it is invalid under one of the possible applicable laws. Instead of laying down a presumptive implied law, it makes more sense, and is more transparent, to apply the validation principle which expressly aims to validate the arbitration agreement. This gives effect to the parties’ commercial intentions to agree an effective and workable international dispute resolution mechanism. It is also required by articles II and V(1)(a) of the New York Convention.

 

BNA v BNB, Kabab v Kout, Enka v Chubb

In BNA v BNB the Singapore Court of Appeal endorsed the three stage test in Sulamérica (also endorsed earlier by the Singapore High Court in BCY v BCZ [2017] 3 SLR 357 (“BCY v BCZ”)):

  1. Did the parties express a specific choice of law for the arbitration agreement?
  2. If not, is there an implied choice of law? (There is a rebuttable presumption the law of the main contract is the implied choice. If the arbitration agreement is invalid under this law, the fallback implied choice is the law of the seat.)
  3. Failing determination of an implied choice, what law has the closest and most real connection to the arbitration agreement?

The Sulamérica test follows English contract law precedent for determining the proper law of contracts – it appears this was accepted as “common ground” and so was not argued before the court (Sulamérica at [9]). This departs from the New York Convention in one aspect; where no express or implied choice of law is found, the Convention provides for the default selection of the law of the seat, not the law with the closest connection – see article V(1)(a) which points to:

  1. the law to which the parties have subjected it” (including both express and implied choices of law); and
  2. failing any indication thereon”, “the law of the country where the award was made” (i.e. the law of the seat).

While article V(1)(a) deals with awards, the same choice of law principles also apply to arbitration agreements under Art II.2)Gary Born, The Law Governing International Arbitration Agreements: An International Perspective (2014) 26 SAcLJ 814 at [30] and [59]. jQuery("#footnote_plugin_tooltip_8370_2").tooltip({ tip: "#footnote_plugin_tooltip_text_8370_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The difference in the third leg of the Sulamérica test compared to the New York Convention may not have much import on its own. Absent an express choice, the choice of law is most likely resolved by an implied choice (as English precedent recognises, the implied choice usually also has the closest connection to the arbitration agreement (Enka v Chubb at [70(2)]); likewise under the New York Convention recourse to the default choice of the law of the seat is rare). However, as Kabab v Kout shows, reliance on English contract precedent can potentially lead to greater divergence.

In Kabab v Kout (at [70]) the English Court of Appeal questioned, but did not decide, whether the requirement of business efficacy for implied terms can be satisfied under the Sulamérica test, or the New York Convention choice of law principles, where there is a fallback default choice of either the law of the country with the closest connection or where the award was made.  Counsel for Kabab submitted the Sulamérica test did not depend on showing the implied choice of law was necessary for business efficacy. The court queried (at [53]) whether this was correct given the Supreme Court decision in Marks & Spencer plc v BNP Paribas Security [2015] UKSC 72; [2016] AC 742 – where it was held a term will only be implied into a contract if it is necessary for business efficacy.

Reliance on English contract law principles conflicts with the choice of law principles in the New York Convention, which calls for consideration of an implied choice.

In Enka v Chubb the English Court of Appeal endorsed the three stage test in Sulamérica but differed on the weight to be given to the law of the substantive contract versus the seat. The court held there is a strong presumption the parties have impliedly chosen the law of the seat as the proper law of the arbitration agreement. The court gave primacy to the law of the seat for two reasons:

  1. The validity, existence and effectiveness of the arbitration agreement is treated (by the separability doctrine) as separate from the main contract; therefore, the governing law should also be treated as separate (at [92] and [94]).
  2. The overlap between the law governing the arbitration and the arbitration agreement (e.g. formal validity, separability of the arbitration agreement, the power of the tribunal to rule on its own jurisdiction, application of choice of law rules) strongly suggests that they should usually be the same (at [96]).

There is, however, authority (Sulamérica at [26]; and see also BCY v BCZ at [60] and [61]) and commentary3)Choosing the Law Governing the Arbitration Agreement, Glick and Venkatesan in Jurisdiction Admissibility and Choice of Law in International Arbitration (2018), Kaplan and Moser, at [9.05]. jQuery("#footnote_plugin_tooltip_8370_3").tooltip({ tip: "#footnote_plugin_tooltip_text_8370_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); that separability of the arbitration agreement is limited to its validity, existence or effectiveness and does not make the arbitration agreement an entirely separate contract. Moore-Brick LJ said in Sulamérica at [26]:

The concept of severability itself, however, simply reflects the parties’ presumed intention that their agreed procedure for resolving disputes should remain effective in circumstances that would render the substantive contract ineffective. Its purpose is to give legal effect to that intention, not to insulate the arbitration agreement from the substantive contract for all purposes.

Also, the Model Law (article 16) and English Arbitration Act 1996 (section 7) expressly restrict separability of the arbitration agreement to its existence and validity.

Where the seat adopts the Model Law (which applies the same choice of law principles to the proper law of the arbitration agreement as in the New York Convention) the seat court is required to determine the validity of the arbitration agreement according to the law “to which the parties have subjected it or, failing any indication thereon” the law of the seat (article 34(2)(a)(i) of the Model Law). The law of the seat is only applied by default where there is no express or implied selection of choice of law. There is no assumption in the Model Law that the proper law of the arbitration agreement will be the same as the law of the seat (see also BCY v BCZ at [64]).

Even though the court said it was time to “impose some order and clarity on this area” (at [69]), it is not clear the decision in Enka v Chubb achieves this. English authority has vacillated between giving primacy to the substantive law of the contract and the law of the seat. Instead of laying down a presumptive implied law, it makes more sense, and is more transparent, to apply the validation principle as required under articles II and V(1)(a) of the New York Convention.

 

Conclusion on Validation Principle

In BNA v BNB the Singapore High Court rejected the application of the validation principle in Singapore law. The court found the validation principle:

  1. Was impermissibly instrumental (BNA v BNB [2019] SGHC 142 (“BNA HC”) at [53]).
  2. Could be inconsistent with the parties’ intentions (BNA HC at [55]).
  3. Was unnecessary because Singapore law already endorsed the principle in the latin maxim verba ita sunt intelligenda ut res magis valeat quam pereat e. words are to be understood in a manner that the subject matter be preserved rather than destroyed (BNA HC at [62]).
  4. Could create problems at the enforcement stage because article V(1)(a) of the New York Convention contains choice of law provisions for determining the proper law of the arbitration agreement, the starting point of which is the parties’ intentions, whereas the validation principle seeks to validate an arbitration agreement without “necessary regard to the parties’ choice of law” (BNA HC at [65]).

Even though the court rejected the validation principle, it appeared to apply a validation approach (by reading “arbitration in Shanghai” as designating venue only and not seat). The validation principle is not inconsistent with the parties’ intentions; it gives effect to the parties’ agreement to arbitrate. There is no conflict between the validation principle and article V(1)(a) (and article II) of the New York Convention as the validation principle is derived from the choice of law principles and pro-enforcement policy in both articles II and V(1)(a).4)Gary Born, The Law Governing International Arbitration Agreements: An International Perspective (2014) 26 SAcLJ 814 at [27], [56] and [59]. jQuery("#footnote_plugin_tooltip_8370_4").tooltip({ tip: "#footnote_plugin_tooltip_text_8370_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The Court of Appeal in BNA v BNB did not address the application of the validation principle because it was not necessary to do so (at [95)). Since both the New York Convention and Model Law apply in Singapore, when this issue next comes before the court, argument should focus on these instruments and not English authority, which conflicts with both. It is also time for the English courts to reassess the Sulamérica test and its confusing progeny and realign with the New York Convention.

References   [ + ]

1. ↑ The English Supreme Court will hear an appeal on Enka v Chubb between 27 to 28 July 2020. 2. ↑ Gary Born, The Law Governing International Arbitration Agreements: An International Perspective (2014) 26 SAcLJ 814 at [30] and [59]. 3. ↑ Choosing the Law Governing the Arbitration Agreement, Glick and Venkatesan in Jurisdiction Admissibility and Choice of Law in International Arbitration (2018), Kaplan and Moser, at [9.05]. 4. ↑ Gary Born, The Law Governing International Arbitration Agreements: An International Perspective (2014) 26 SAcLJ 814 at [27], [56] and [59]. 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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How the Auditory Dominates the Visual: A Case for Online Advocacy

Sat, 2020-07-04 21:00

While the hurdles of virtual hearings have been documented with numerous intelligible solutions, little attention has been turned towards how advocacy is faring in the offline-online migration. It is an attractive notion to think that advocacy, in its subjective glory, can be seamlessly transplanted from the offline world and into the virtual dimension with little opportunity costs to fear of. However, such a notion ignores the fact that the thrust of advocacy is the ability to connect with one’s audience. With one’s audience now rendered onto a 12×8” screen, the way we advocate must accordingly adapt.

After participating in the Willem C. Vis Moot’s first virtual iteration as a student, and later conducting a cross-examination assessment online as part of the Bar Professional Training Course (‘BPTC’), this author respectfully submits that offline advocacy, for lack of a better phrase, uses both visual and auditory cues in equal effect. Online advocacy, on the other hand, gives auditory cues more persuasive terrain than it does for visual cues. In a virtual hearing, there is greater persuasive weight placed on how we are heard rather than how we are seen.

In advocacy, eye contact and body language make up the bulk of visual presentation; auditory presentation is comprised of pitch and pace. In advocacy, we instinctively adjust, like sliding scales, the amount of visual and audio cues we deploy in order to present our arguments with persuasive effect.

Claiming that the auditory dominates the visual in a virtual hearing may perhaps be counterintuitive, as we may naturally think of ourselves as ‘viewers’ online. However, much of advocacy is about putting forth a sense of gravitas. A good advocate understands the importance of commanding a room – online advocacy takes the room away. Conducting virtual hearings in lock-down dampens any remnant of gravitas the advocate hopes to convey. Only the auditory remains largely intact; the only opportunity cost lost through the offline-online migration is that our speech is projected through speakers, but we nonetheless remain heard. It is even arguable that advocates are heard to a greater effect in a virtual hearing than in an offline hearing, for virtual hearings benefit from having the tribunal hear you up close from their personal headset.

Consider the rhetorical question by way of an example. It is a technique to be used carefully, and perdition awaits those who throw out a rhetorical question without first gauging where the tribunal stands with you on your point. Rhetorical questions thus rely on visual cues; eye-contact is used by an advocate to accurately assess where, and when, the rhetorical question should be used for maximum effect. Rhetorical questions also use audio cues for persuasive effect. We may pause to allow the full effect of a question left unanswered to audibly hang over a tribunal’s head like a damoclean sword. Even the humble technique of emphasizing a single word relies on both visual and audio cues for persuasive effect, for we make eye-contact and adjust to a slow pace as we muse over the chosen word.

Given the fact that most persuasive techniques naturally rely on how they are visually and orally presented for persuasive effect, it is worth reviewing our advocacy in the offline-online migration. Visual cues cannot be relied upon as they normally would be in a virtual hearing. Instead, greater emphasis should be placed on how an advocate sounds. Preparation for an audio hearing should, therefore, include preparation for how an advocate is going to be heard.

To prescribe an exhaustive list of what makes for good online advocacy is a herculean effort. Advocacy, in its primal offline context, is a slippery craft to master. It is tiresomely subjective. A combination of innate instinct and intuition is sometimes all an advocate has left when the unexpected rears its, painfully and poetically, expected head.

Instead, the author hopes that the following points will prompt the reader to explore ways to maximise the persuasive weight of their own advocacy in their next virtual hearing.

 

General Advocacy

• Never lose sight of the fact that the tribunal is hearing your oral submissions for the first time. The act of parties muting themselves offers the advocate the floor, albeit virtually, more so than they would in an offline hearing. Subject to tribunal’s intervention, the advocate is promised absolute attention. Therefore, concinnity becomes a powerful tool. Each point should flow from one to the next, and be watertight against an arbitrator innocuously asking you ‘why?’. After all, this makes for more efficient advocacy, and efficiency is a valuable commodity in our present times. Also, consider that, sometimes, it may be worth drawing out why the point one is making, or about to make, is relevant. It would indicate to a tribunal that a point has come to an end.

• Do not let the best be the enemy of good. Make your point once, and make it twice if you have to. Understand that the tribunal can hear you very well, and are likely to pay more attention to your voice than how you appear. This means that repetition in a virtual hearing may saturate the point, and backfire more quickly than it would in an offline hearing.

• The line between being assertive and being aggressive is fine in a virtual setting. An advocate speaks with full confidence that other parties, excluding the tribunal, have muted themselves. The mute button is effectively a physical representation of parties surrendering themselves and their time to the speaker. Such a mechanism of absolute surrender does not exist in a real hearing. Therefore, it is worth considering whether points need to be submitted as forcefully as an advocate might naturally incline to in an offline hearing. In a virtual hearing, the proximity between the advocate and the tribunal is effectively the proximity between the arbitrator and their screen/headset. We are closer to our tribunal in a virtual setting. Unfortunately, this runs in acute juxtaposition to a virtual hearing conducted during lockdown.

• Not everything needs to be said aloud. A written memorandum offers the opportunity to air out all arguments an advocate may have. We may flex our critical muscles gently in a written memorandum, and feel at liberty to try including as many good points as possible. Those reflexes are usually discarded in an oral hearing, where there is emphasis on making the best points first and foremost. In a virtual hearing, advocates should strenuously strive for brevity, and consider that a large proportion of ‘good’ points should be kept in their back-pocket, so to speak, as material to use during tribunal intervention. It is increasingly accepted that virtual hearings are more tiring than offline hearings, and it may be in the advocate’s interest not to overwhelm the tribunal. If it is agreed that not everyone can withstand, and process, an hour-long podcast, then it is agreed that not everyone can similarly withstand an hour-long hearing.

 

Cross-examination

• Choose your witnesses, wisely. Party autonomy allows parties to select which of their factual/expert witnesses should be called for cross-examination, and cross-examining for cross-examination’s sake may backfire spectacularly in a normal offline hearing. The same applies for a virtual hearing. Witness testimony gets breathed new life when spoken aloud, and will be further uplifted in an online setting where the auditory dominates the visual.

• Consider a list in cross-examination. Cross-examination is about the advocate’s questions. To demonstrate, students on the BPTC course are marked on their questions, and on how they incorporate a witness’ answers. Little regard is given to what the witness gives as an answer. Online advocacy places emphasis on audio presentation over visual presentation. This need not be fatal to the persuasiveness of cross-examination if one is critical in how they present. Consider making a list of all the things the witness says that are in disagreement with one’s case, and make it a point to transition from one discrepancy to the next, tying any strings up along the way. This list will go towards the earlier point of helping narrow down witnesses to call for cross-examination. Not all discrepancies will need to be picked up on, and listing all the issues down may make clear what is an important matter and what needs to be placed in one’s back-pocket. The tribunal, in return, may appreciate your brevity, especially when members of a tribunal are not from a common-law background. To those not trained in common-law, cross-examination has long run the risk of coming across as irritating, or worse, as hostile. Because virtual hearings are more auditory than an offline hearing, the risk of sounding aggressive in a virtual hearing is something an advocate should be alert to.

• Put your case. ‘Putting your case’ is a phrase often thrown around at the BPTC, because there is an ethical dimension letting the witness and opposition know the case they have to meet. But in an online context, putting your case may be crucial as well. It is not just enough to bring up one’s version of the case, but to bring up what the witness’ version of the case is. If one is persuading the tribunal that their client’s case is to be chosen over the other side’s version, it is worth mentioning in cross-examination what the opponent’s version is e.g. “You did not [insert opponent’s case] as you say. Instead, [insert client’s case]”, or “You are fabricating XYZ because ABC”.

• Lastly, be creative in showing credibility. A witness’ credibility is harder to show offline, much less so online. Cultural differences often come into play when assessing credibility – some tribunals may perceive hesitancy or stuttering as a lack of candor in a witness. Thus, drawing comparisons may be a creative way to overcome this hurdle. Consider posing a few questions to the witness which you believe they will answer credibly. Often, this means asking questions one knows the witness will answer yes to, before then moving to grounds of contention. It may be very persuasive for a tribunal to hear a stream of ‘yes’s before a sharp turn into a stream of uncomfortable ‘no’s and a series of fumbled explanations. Sometimes the witness’ answers is less important than the manner in which they answer, and if an advocate can creatively make use of how a witness is heard, this may go towards showing credibility effectively in a virtual hearing.

***

To conclude, online advocacy makes a case for brevity, and cross-examination emphasizes how an advocate will need to re-consider their usual cross-examination techniques. The room for persuasion lies in the auditory in a virtual hearing, and visual presentation accessorizes how we are heard.

Where an advocate may endeavour to be heard in an offline hearing, the advocate is perhaps heard too well in a virtual hearing.

 

The author would like to kindly thank Professor Gary Watt, for he has been a tireless source of inspiration.

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