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Why Bother Going Back to the Errant Tribunal When You Can Turn to the Court Instead? Or Should You?

Mon, 2020-11-02 00:33

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

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

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

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

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

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

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

Minimal Curial Intervention

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

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

(Ab)use of the Setting-Aside Process

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

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

Waiver of the Right to Request the Setting Aside

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

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

Veiled Attempt to Review the Award on its Merits

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

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

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

Conclusion

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

 

References   [ + ]

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

Sat, 2020-10-31 23:46

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

 

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

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

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

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

 

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

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

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

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

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

 

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

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

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

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

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

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

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

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

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Incentivising Commercial Space Activities through International Investment Arbitration

Sat, 2020-10-31 00:00

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

 

World Space Week 2020: ‘Satellites Improve Life’

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

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

 

International Space Law

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

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

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

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

 

Testing the Boundaries of Investment Arbitration

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

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

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

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

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

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

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

 

A Developing Field

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

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

Thu, 2020-10-29 21:49

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

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

 

Key themes

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

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

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

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

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

 

Brief comments

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

 

More coverage of Australian Arbitration Week is available here.

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Australian Arbitration Week Recap: Re-assessing Australia’s Bilateral Investment Treaty Practices

Wed, 2020-10-28 21:48

On 14 October 2020, Professor Zachary Douglas QC delivered the 19th annual Clayton Utz and University of Sydney International Arbitration Lecture as part of Australian Arbitration Week. This year’s topic was a response to Australia’s Department of Foreign Affairs and Trade’s (DFAT) review of its bilateral investment treaties (BITs). This blog post provides an overview of the lecture’s main themes; placing them in the context of a broader discussion of ISDS regime reforms.

 

Procedural reform

Professor Douglas began by evaluating the sparse procedural rules of investment treaty tribunals. Surprisingly, rules restricting the sheer volume of materials put before a tribunal are practically absent; so too are rules guiding the parties towards a coherent dispute. That is, parties may lay out their pleadings and evidence over thousands of pages without any requirement that their positions relate to common issues. Equally, without jointly identified issues, party-appointed experts may produce diverging reports. The consequence of this undisciplined procedure is that, at the hearing, the parties might present cases that pass each other like “ships passing in the night”, thereby adding to the length and costs of a hearing.

But what lessons might we draw from this point made in the lecture? While enforcing page limits, joining common issues, and reigning in evidence may not appear glamorous, these procedural rules have the potential to enhance substantive justice. As Sir Henry Maine noted: “[s]ubstantive law has at first the look of being gradually secreted in the interstices of procedure”. Hence, the first recommendation in the lecture was one of procedural change: DFAT should draft its own bespoke set of arbitration rules – ones that are specifically designed to deal with the procedural problems that arise from Australia’s own treaties. By annexing these rules to a BIT, Australia and its treaty partners could bilaterally draft procedural rules to address these issues, thereby avoiding “highly political” and complicated multilateral negotiations.

Primarily, this bilateral approach would allow Australia to address its policy concerns in a proportionate manner. As Professor Chester Brown noted in the lecture: “this review is an opportunity for Australia to reconsider its BIT program, hopefully not to retreat from it, but certainly to improve it.” After all, burdensome litigation costs are not unique to ISDS. In 2009, Sir Rupert Jackson proposed significant reforms to reduce the costs of litigation in England and Wales following complaints of the prolixity of expert evidence, time-consuming procedures, and disproportionate costs.

Despite these common issues, a unique characteristic of ISDS is the disproportionate responses it receives. In the Australian context, there have been numerous “overreactions” to the ISDS regime, including a 2014 Bill to completely ban the Commonwealth from entering into ISDS agreements. Internationally, the decision by some states to withdraw from their BITs, and the EU’s proposal for a multilateral investment court may reflect similar overreactions to investment arbitration. In this context, Professor Luke Nottage quotes Voltaire: “the perfect is the enemy of the good”. Litigation is, and always has been, a “labour intensive process” carried out by skilled adversaries striving mightily; costs are inevitable. Perhaps, then, the lesson to be drawn from Sir Jackson’s report is to be found in its objective of not devising “ways of slashing costs as an end in itself, but to make recommendations to promote access to justice at proportionate cost.” Professor Douglas’ first recommendation appears to resonate with this objective by facilitating a means of anchoring the pleadings and evidence to the dispute.

 

Decoupling investment treaty and commercial arbitration

In this part of the lecture, Professor Douglas addressed the general concern that criticisms levelled against ISDS are unfairly impacting commercial arbitration.

In particular, despite their shared procedural frameworks, commercial arbitration was said not to experience the same procedural excesses plaguing ISDS. This is, in part, due to the relationship dynamics between the parties. Whereas it is likely too late for a state and investor to repair their relationship following a dispute, commercial parties often require the continuation of mutually beneficial relationships. This imposes a certain level of discipline on their conduct during a case.

These points tie into a much wider debate about the similarities and differences between commercial arbitration and investment treaty arbitration, and the concerns of lumping each into a discussion of international arbitration more broadly. Speaking extra-judicially, Chief Justice Allsop of Australia’s Federal Court noted that appreciating the differences between both can help identify potential solutions to the criticisms of commercial arbitration. The same can also arguably be said of the criticisms of investment treaty arbitration – a point exemplified in the lecture.

Professor Douglas noted that merely adding amendments to the commercial arbitration procedural regime will not solve the issues particular to ISDS. Rather, this patchwork approach simply shifts the problem. For example, the UNCITRAL Rules on Transparency sought to achieve legitimate policy aims by ensuring greater transparency for both investment treaty and commercial arbitrations. However, for investment treaty arbitrations, it has produced unfortunate and unintended results. Requests for greater transparency are almost always disputed, with skirmishes about what information should be redacted or made public simply creating arbitrations within arbitrations and increasing the costs and time of the dispute.

Applying a bespoke procedural platform to investment treaty arbitrations could provide a much-needed opportunity to sort out the procedural problems that have emerged with it. This would also have the added benefit of isolating commercial arbitration from the criticisms of ISDS, and thereby help to identify solutions to the problems unique to each.

 

Reducing uncertainty in applying substantive investment treaty protections

On substantive ISDS reforms, Professor Douglas highlighted a concern about the inconsistent application of investment treaty protections by tribunal members and the conventional techniques used by governments to address these concerns to date. One technique has been to link the standards explicitly to the minimum standard of treatment under customary international law. Another has been to raise the threshold for international responsibility through nuances in treaty language (such as a “fundamental” breach of due process, “manifest” arbitrariness or “targeted” discrimination). However, these approaches have done little to counter wayward interpretations of investment protection standards. For example, in Bilcon v Canada, both techniques appeared in the language of the applicable treaty and FET test applied by the tribunal; yet, its members arrived at wildly divergent results.

Those same concerns were also identified (and are still to be considered) as part of UNCITRAL Working Group III. The Working Group is looking at a range of options in addressing uncertain or inconsistent interpretations, including an ISDS appellate body mechanism and a permanent body of full-time adjudicators. Earlier this year, the Working Group also requested preparatory work be undertaken on using existing interpretative tools to aid treaty interpretation to inform its review. Although a range of interpretative tools is available to parties to assist in clarifying treaty obligations (e.g. joint interpretive agreements), these tools can only go so far, and are not substitutes for where substantive reforms are necessary through treaty amendments.

In seeking to address similar uncertainty or inconsistency concerns, Professor Douglas identified a more fundamental problem: unduly expansive or narrow interpretations of investment protection standards stemming from the unstructured reasoning adopted by tribunals. Without a structure to follow, the ideological positions of arbitrators serving on a tribunal can unduly influence the tribunal’s determination of international responsibility under investment treaty protections. In that context, he considered a new, structured approach to treaty drafting is required.

Such an approach, however, was not said to necessitate the re-imagination of investment protection standards. Rather, Professor Douglas recommended drawing on comparative law sources to inform the structure of analysis that a tribunal would follow when applying the investment protection obligations. This approach would eliminate the inconsistent application of domestic principles to treaties in circumstances where the tribunal’s application radically differs from how the principle is applied in that state. For instance, the concept of legitimate expectations is rooted in domestic administrative law but incoherently provides contractual remedies in ISDS.

This recommendation is timely, as a recent study has found that increasing the flexibility or precision of an international investment agreement does not mitigate the risk of attracting ISDS claims. For instance, general public policy exceptions may appear revolutionary, but have little effect where it counts in the reasoning of the arbitrators. Accordingly, by resorting to tried-and-tested domestic principles to inform a roadmap for tribunals to follow, this recommendation is aimed at introducing structure and certainty to the ISDS regime by starting at the arbitration stage.

 

Conclusion

DFAT’s review process is one of many: UNCITRAL’s Working Group III; ICSID’s working papers; and the EU’s investment courts are all indicative of a shared intention to seek to rid investment arbitration of its problems. Almost one decade on from the start of the Philip Morris dispute, Australia appears to be keeping an open mind on the future of its BIT program. Among the various reform proposals, Professor Douglas’ lecture provides a timely and pragmatic approach to addressing Australia’s ISDS policy concerns.

 

More coverage from Australian Arbitration Week is available here.

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Is an Award on Attorneys’ Fees Enforceable in The UAE?

Wed, 2020-10-28 00:18

There has been a lot of debate in recent years on whether attorneys’ fees, or in other words counsels’ fees, can be awarded under the applicable laws in the United Arab Emirates (“UAE”). This post examines a recent decision, Cassation No. 990/2019 Commercial, issued by the Dubai Court which deals with attorneys’ fees. Prior court decisions have set certain principles with respect to the question of attorneys’ fees, but the recent decision examined in this post is noteworthy because it did not follow said principles and established an entirely new rule.

 

Case Summary

In a decision issued earlier this year, Cassation No. 990/2019 Commercial, the Dubai Court of Cassation upheld the decision of the Court of Appeal (“COA”) in the partial nullification of an award which had awarded attorneys’ fees (see Appeal No. 10/2019 Arbitral Award Nullification).

The Claimant had obtained an award for the value of AED 1,021,095 (“Award”) in arbitration proceedings filed under the Dubai International Arbitration Center Rules (“DIAC Rules”). In the Award, the Claimant was ordered to pay part of the attorneys’ fees incurred by the respondents as the Claimant was not successful in the entirety of its claims. Unfortunately for the Claimant, those fees were almost four times the value of the Award (the attorneys’ fees were AED 4,310,005).

The Claimant filed a petition for the partial nullification of the Award before the COA. The Claimant put forward a number of arguments in an attempt to convince the COA that the arbitrator was not empowered to award attorneys’ fees. Ultimately, the COA formulated its own (rather novel) justifications as to why attorneys’ fees should not have been awarded.

 

Applicable Legal Provisions

Before examining the COA’s decision and its reasoning, it is useful to briefly review the rules relating to arbitration costs and legal costs under the relevant legislation. Article 46 of the Federal Arbitration Law (وزارة العدل – بوابة التشريعات, “Arbitration Law”) allows the arbitral tribunal to assess and award arbitration costs. It defines these costs as being the fees and expenses incurred by the tribunal and the costs of tribunal-appointed experts.

The same approach is adopted by the DIAC Rules which, in Article 37.10 and Article 4.2 of the Appendix – “Costs of Arbitration”, empower a tribunal to assess the arbitration costs and apportion them between the parties. The costs of the arbitration according to Article 2.1 of the DIAC Rules include DIAC’s administrative fees, the fees and expenses of the arbitral tribunal as well as the fees and expenses of tribunal-appointed experts.

It is clear from the above that both the Arbitration Law and the DIAC Rules expressly allow an arbitral tribunal to assess and award the costs of arbitration, which cover the costs related to the tribunal and administration of the case, but not the attorneys’ fees incurred by each respective party. Both the Arbitration Law and the DIAC Rules do not empower the tribunal to assess or award such fees.

Over the years, conflicting judgments were issued by the UAE courts until it was eventually largely settled that attorneys’ fees could be awarded if the parties had mutually agreed to empower the tribunal to award such costs (for further analysis on this point, see this prior Blog post by Gordon Blanke). As a result, whenever there is an agreement by the parties or their representatives to allow a tribunal to decide on any award of attorneys’ fees, such agreement is expected to be upheld by the courts.

 

The COA’s Reasoning

In the case at hand, the terms of reference, which governed the arbitral proceedings, did in fact empower the sole arbitrator to award attorneys’ fees. However, the COA was of the view that no such right should have been granted. According to the COA, the authorization granted to a party representative with respect to an arbitration relates to a specific dispute arising from a certain contractual relationship. As a result, the said authorization is limited to that specific contractual relationship and cannot cover any other.

The COA’s decision further explains that attorneys’ fees arise from the “attorney contract”, which is separate from the contract that is the subject matter of the dispute. Therefore, when an attorney is authorized to agree to an arbitration, to appoint an arbitrator and is authorized with respect to other matters related to a dispute, the authorization cannot be extended to cover the fees of the said attorney or those of the opposing counsel even if such fees are related to the arbitration. The entitlement to the fees arises from a contract that is distinct from the contract which is the subject matter of the dispute, and consequently, a special authorization is required.

The COA thus concluded that the Claimant’s legal representatives were not granted the powers to authorize the sole arbitrator to decide upon their own legal fees or those of the opposing party’s legal representatives. Therefore, by empowering the sole arbitrator in the terms of reference with the power to award attorneys’ fees, they exceeded the powers delegated to them.

The decision of the COA was upheld by the Dubai Court of Cassation.

 

Final Observations

It is worth noting that the COA prefaced its reasoning with the rationale that arbitration is an exceptional route to resolving disputes, as the usual route would be for parties to have recourse to the courts. As a result, any arbitration agreement to arbitrate should be narrowly interpreted and applied. Such logic is consistent with prior case law in the UAE and although an arbitration-friendly trend has emerged in the UAE courts in recent years, a conservative approach when dealing with arbitration continues to prevail.

While that reason in and of itself may not be so much of an issue in this specific case, the logic that a party representative should be specifically authorized to empower the tribunal with the right to award legal costs is nevertheless quite surprising. The COA’s decision in this case is not in line with prior UAE court decisions, as no such requirement has existed previously. There have been decisions which denied the arbitral tribunal the power to award attorneys’ fees, while other decisions allowed tribunals to award such fees when there’s an agreement by the parties to empower the tribunal to do so (see Cassation No. 205/2019 Commercial and Cassation No. 333/2015 Commercial).

Several prior decisions issued by Dubai Courts examined the DIAC Rules as awards issued by DIAC would normally be ratified by the on-shore Dubai courts (as opposed to DIFC-LCIA awards which would be ratified by DIFC Courts). As explained above, the DIAC Rules do not expressly state attorneys’ fees as being part of the costs that could be awarded by a tribunal. The applicable law before the promulgation of the Arbitration Law (in 2018) was the arbitration chapter of the UAE Federal Civil Procedures Law, which was silent on the question. Thus, conflicting decisions were issued until the Dubai Courts started, relatively consistently, adopting the principle that with the agreement of the parties, a tribunal may award attorneys’ fees.

Since promulgation of the Arbitration Law, not much changed on the subject given the relevant text of the law set out above. It was therefore to be expected that the courts would continue adopting the view that with the agreement of the parties, an arbitral tribunal may award attorneys’ fees.

The decision examined in this case completely ignores that previously adopted principle and sets a new principle. It is not enough for the parties to authorize the tribunal to award attorneys’ fees. In fact, it would not even be relevant if the applicable law or rules have express provisions allowing a tribunal to award attorneys’ fees. Instead, the court examined whether the parties granted their representatives an express power to agree to empower the tribunal to award attorneys’ fees. This is a very restrictive approach and it is not yet clear whether this approach will be followed in future court decisions (and one hopes it will not be!). For now, it is advisable for parties to bear in mind this specific decision when drafting powers of attorney to their representatives pertaining to arbitral proceedings.

 

The author of this Blog post has been involved in the case discussed.

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The Contents of the Brazilian Arbitration Journal, Volume XVII, Issue 67 (September 2020)

Tue, 2020-10-27 19:00

In this 67th edition of the Brazilian Arbitration Journal, the National Doctrine section introduces Tatiana Dratovsky Sister and Thiago Del Pozzo Zanelato’s analysis about the recent modifications to the legal framework applied to the franchise system and the use of arbitration in franchise contracts. Cristina M. Wagner Mastrobuono explores the legislative and regulatory landscape on the rules of impartiality and independence in the production of evidence in arbitration and presents the results of the research conducted within the Brazilian arbitration community and the arbitral institutions of the country.

In the International Doctrine section, Matthieu de Boisséson and Katherine Spyrides discuss how arbitration and the oil and the gas fields have been and continue to be built and developed reciprocally. Frederico Singarajah examines the development of English case law regarding the determination of the law governing the arbitration agreement. Finally, María Solana Beserman Balco addresses the changes in arbitration practice that have emerged as a response to the COVID-19 crisis.

In the Nacional Judicial Case Law section, Mateus Aimoré Carreteiro comments on a decision rendered by the Superior Court of Justice, in which it was recognized the possibility of the Judiciary, in justifiable cases, to rely on its authority to request cooperation from a third party in order to enforce the arbitral decision.

Switching to the International Judicial Case Law section, Thomas Granier assesses two recent decisions issued by the Paris Court of Appeal and by the French Court of Cassation regarding the need for the parties to allege before the arbitral tribunal procedural irregularities that could affect the validity of the award if they wish to invoke them before the French courts.

Furthermore, in the General Information, Isabel Cantidiano comments on the Decree nº 10.025/2019, published on September 23, 2019, which regulates arbitration as a method for the resolution of disputes involving the Federal Public Administration in the ports and road, rail, waterway and airport transport sectors. The Brazilian Congress on Arbitration and Public Administration, held on February 13 and 14, 2020, is reported by Aristhéa Totti Silva Castelo Branco de Alencar, Cristiane Cardoso Avolio Gomes and Tatiana Mesquita Nunes. In addition, Gisela Ferreira Mation comments on the Investment Cooperation and Facilitation Treaty signed between Brazil and India on January 25, 2020.

This edition’s Arbitration Classic is Emmanuel Gaillard’s Article “Les Manoeuvres Dilatoires des Parties et des Arbitres Dans l’Arbitrage Commercial International”, containing an introductory note by Natália Mizrahi Lamas.

Lastly, the present edition includes Cristina Saiz Jabardo and Flavia Foz Mange’s review of the book “Multi-Party and Multi-Contract Arbitration in Brazil”, authored by Leonardo Ohlrogge.

Stay safe in these times of pandemic!

João Bosco Lee, Director

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Nothing Changes if Nothing Changes: An Introduction to the 2021 ICC Rules of Arbitration

Tue, 2020-10-27 02:49

On 6 October 2020, the International Court of Arbitration of the International Chamber of Commerce (ICC) approved and released its 2021 Rules of Arbitration (2021 Rules), in draft. These Rules are subject to editorial changes and the final version is to be officially launched in December 2020. The 2021 Rules of Arbitration will then come into force on January 1, 2021, replacing the 2017 Rules of Arbitration. The new Rules make noticeable changes to the framework of ICC arbitration, while not altering its character.

Most significantly, the 2021 Rules update the provisions concerning multi-party arbitrations, party representation, disclosure of external funding, and clarify the powers of the ICC Court to appoint all arbitrators itself to prevent unequal treatment of parties.

 

Virtual Hearings and Electronic Communication

Keeping in mind the demands of work caused by COVID-19, the 2021 Rules have updated Article 26(1) (Hearings) to reflect explicitly in the rules that the Tribunal has the jurisdiction to conduct virtual hearings.  While Tribunals under the ICC Rules already had the discretion to conduct virtual hearings (for instance, see para 23 of the ICC Guidance Note on Possible Measures Aimed at Mitigating the Effects of the COVID-19 Pandemic), the 2021 Rules clarify any doubts that may have remained.

Under the 2021 Rules, virtual hearings may be held if either party so requests or if the tribunal on its own motion decides to conduct the hearing virtually. After consulting with the parties and considering the facts and circumstances of the dispute, the tribunal may decide that hearings be conducted by physical attendance or remotely, by video conferencing, telephone, or other appropriate means of communication. The new provision clarifies the tribunal’s discretion to decide the most appropriate manner of hearing the parties and is also a step to future-proof the 2021 Rules, by allowing for “other appropriate means of communication” to continue to evolve and include future technology.

The ICC Secretariat has been encouraging parties to dispense with written communication through paper copies for many years now. To further solidify this practice, Articles 3, 4 and 5 have been amended to ensure that paper copies of pleadings are only required when a party specifically requests transmission by delivery against receipt, registered post or courier (Articles 3(1), 4(4)(b) and 5(3)).

 

Changes in Multi-Party Arbitration

The 2021 Rules have made changes to Article 7 (Joinder of Additional Parties) and Article 10 (Consolidation of Arbitrations). Of the two, Article 7 sees a more significant change due to the inclusion of a new paragraph 7(5) which allows for requests for joinder to be made even after the confirmation or appointment of an arbitrator. Such requests are to be decided by the tribunal after its constitution and are subject to the additional party accepting the constitution of the tribunal and agreeing to the Terms of Reference, where applicable. While making its decision on a request for joinder, the tribunal is required to take into account all relevant circumstances, including the prima facie jurisdiction of the tribunal over the additional party, the timing of the request for joinder, potential conflicts of interest and the impact of the joinder on the procedure of the arbitration. The new paragraph further clarifies that a decision to allow for the joinder of an additional party is without prejudice to the tribunal’s decision as to its jurisdiction over that party.

The new Article 7(5) marks a shift from the 2017 Rules, where no additional party could be joined to an arbitration after the confirmation or appointment of an arbitrator, unless there was agreement among all parties, including the additional party, to that effect. The 2021 Rules dispense with the need for an agreement from all parties and gives the decision-making power to the arbitral tribunal to join a consenting additional party.

Article 10 has also been updated in the 2021 Rules to now explicitly allow for consolidation where all of the claims made in the arbitration arise from the “same arbitration agreement or agreements” (Article 10(b)). This change clarifies any doubts regarding the application of Article 10(b) to more than one arbitration agreements, when previously it could only be used when one arbitration agreement was being relied upon. The updated Article 10(c) further clarifies that it applies to claims not made under the same arbitration agreement or agreements.

 

Disclosure of Funding Parties

The 2021 Rules add an important provision in paragraph 7 of Article 11 (General Provisions). According to this addition, for any prospective arbitrator to effectively render their duties independently and impartially, parties must promptly inform the ICC Secretariat and other parties of the existence of a non-party which has entered into an arrangement for the funding of claims or defences under which it has an economic interest in the outcome of the arbitration. This inclusion is in line with the ICC’s existing outlook on such relationships. The Note to Parties and Tribunals on the Conduct of Arbitration under ICC Rules (1 January 2019) had previously clarified that a relationship between an arbitrator and “any entity having a direct economic interest in the dispute” would be required to be disclosed by an arbitrator. It must also be noted that, for parties, a similar disclosure obligation already existed under General Standard 7 of the IBA Rules on Conflict of Interest in International Arbitration.

 

Changes in Appointment of Arbitrators and Arbitrator Nationality

In addition to the provision of Article 12(8), a new paragraph 9 has been added in Article 12 (Constitution of Arbitral Tribunal) which gives the ICC Court the power, in exceptional circumstances, to appoint each member of the tribunal even if a different method of appointment is envisaged in the arbitration agreement, to avoid a significant risk of unequal treatment and unfairness that may affect the validity of an award. This rule is only intended to apply in rare circumstances where an appointment method may seriously impact the validity of an award issued by the Tribunal as envisaged in the arbitration agreement.

Sole arbitrators and presidents of tribunals continue to be a different nationality than the parties unless the parties agree otherwise within the time limit fixed by the ICC Secretariat. The new paragraph 6 in Article 13 (Appointment and Confirmation of Arbitrators) states that no arbitrator may be of the same nationality as any of the parties, where the arbitration agreement arises from a treaty, unless the parties agree otherwise.

 

Party Representation

The title of Article 17 has been changed from ‘Proof of Authority’ to ‘Party Representation’. The new Article 17 requires parties to immediately notify the ICC Secretariat, the tribunal, and other parties of a change in their representation. The tribunal also now has the power to exclude new representatives from participating in the whole or part of the proceedings if it is found necessary to avoid a conflict of interest of an arbitrator with the new party representative.

 

Additional Award for claims that were not addressed by the Tribunal

The 2021 Rules allow a tribunal to issue an additional award to address claims that were not addressed in an award per the new Article 36(3). The definition of an award under Article 2(v) now includes an additional award under the new Rules.

A party seeking an Additional Award from the Tribunal under this rule must submit an application requesting the same within 30 days of receipt of the Award.

 

Increasing Transparency with regards to the working of the ICC Court

Appendices I and II of the 2021 Rules now make available information regarding the operations of the Court to all stakeholders. The 2021 Rules note a two consecutive term limit for all members, the creation of Special Committees for specific purposes and annual meetings of the plenary of the Court to make decisions with respect to the Special Committees. Appendix II contains updated rules for the constitution of the Court, and most significantly states in the revised Article 5 that the Court will communicate its reasons for its decisions, upon a party’s request, on Articles 6(4) (whether and to what extent the arbitration shall proceed), 10 (consolidation of arbitrations), 12(8) (appointment of tribunal in multi-party arbitrations), 12(9) (appointment of tribunal in exceptional circumstances), 14 (challenges to an arbitrator) and 15(2) (replacement of arbitrator on the Court’s own motion) in a dispute. However, in exceptional circumstances, the Court retains the discretion to not disclose its reasons.

 

Other Changes

Under the 2021 Rules, the addition of Article 43 (Governing Law and Settlement of Disputes) makes it explicit that any claims arising concerning the administration of the arbitration proceedings by the ICC Court shall be settled by the Paris Judicial Tribunal in France and be governed by French law.

Additionally, the revised Article 29(6)(c) excludes the application of Emergency Arbitrator Provisions to treaty-based arbitration.

The 2021 Rules also revise the pecuniary threshold for Expedited Procedure Rules to apply and increase it from $2 million to $3 million if the arbitration agreement was concluded on or after January 1, 2021 (Article 1(2) in Appendix VI).

 

Final Remarks

The 2021 Rules cater to the ICC Court’s continued efforts to enhance efficiency, increase transparency and accountability to the parties. As arbitration continues to grow from developed to developing parts of the world, it is important that all arbitral institutions continue to strive and meet user expectations.

The global launch of the 2021 Rules is scheduled for 1 December 2020.

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Stepping into a Niche: Exploring the World of International Sports Arbitration

Tue, 2020-10-27 00:00

As two young female practitioners with barely any experience in sports, both, on and off-the field, the idea of getting involved in the practice of sports law and arbitration was certainly not par for the course. Yet, it was everything about sports law and arbitration – ranging from the concept of strict liability in doping, the interplay between human rights and eligibility, the Olympic ideals and sportsmanship, as well as the overlapping nature of the various tenets of the law that brought about our desire to learn more about this burgeoning area of dispute resolution.

Being the only official alternative hearing centre for the Court of Arbitration for Sport (“CAS”) in the ASEAN region, the AIAC has led the way in the promotion and development of sports dispute resolution in Southeast Asia. And so, straight from the AIAC’s sports-desk, we give you a play-by-play of what we consider to be the key characteristics of international sports arbitration that distinguish it as a unique field of arbitration.

 

What makes sports law and sports arbitration distinct?

Sports law was traditionally viewed as representing nothing more than an amalgamation of various areas of the law that were relevant to the sporting context. In recent times, however, sports law has grown into a developing area of law in its own right. It is now recognised as a specialised practice, encompassing not only the relevant substantive laws applicable to the sports industry, but also regulations and judicial decisions that govern sports federations and athletes at both domestic and international levels.

As Rigozzi and McAuliffe noted, the practice of sports arbitration is very much distinct from general and commercial arbitration practice. Unlike commercial or non-sports-related arbitral awards, awards rendered by CAS are in most instances made public. This is in contrast to the principle of confidentiality that is the cornerstone of commercial arbitration proceedings. Interestingly, the publication of CAS awards has been positively welcomed for promoting greater transparency and consistency between decisions and awards in the sporting world, resulting in the emergence of a harmonised body of sports regulation and jurisprudence – known as the lex sportiva – which sports arbitration users can rely on. It has also, in turn, provided for a more uniformed application of the formal rules and equitable principles in sport – known as the lex ludica – across different sports and geographical boundaries, with sports arbitrators regularly referring to past awards rendered by other arbitrators and governing bodies in similar matters which, whilst not binding in nature, are highly persuasive.

Although CAS awards are publicly available, CAS proceedings are mostly held behind closed doors unless the parties agree otherwise, or, at the sole request of the athlete in disputes relating to misconduct. It has, accordingly, always been possible for CAS hearings to be held in public; the first taking place in 1999. Apart from general public interest, the rationale for public hearings, as stated by the European Court of Human Rights (ECtHR), is to inculcate greater trust in the independence and fairness of the decision-making process. Despite this, the recent public hearing of disgraced Olympic champion Sun Yang’s CAS appeal, which was made available for live-streaming around the world, was only the second of CAS’ kind. That said, a public hearing would undoubtedly be a rare sight in commercial arbitration proceedings, let alone a widely televised one.

Another distinct feature of sports arbitration is the expedited nature of its proceedings during major sporting events such as the Olympic Games vide CAS’ Ad Hoc Division. Given the scheduled nature of sporting events, and the fact that, at times, participation in championships is dependent on the outcome of disputes arising from preceding matches and tournaments, the arbitration rules applied by CAS’ Ad Hoc Division require awards to be rendered in under 24 hours – giving new meaning to the phrase “time is of the essence”.

Unlike commercial arbitrations, all CAS arbitrations are seated in Lausanne, by default, without reference to the choice or preference of the disputing parties. This has the effect of compelling any party seeking to challenge or enforce a CAS award to do so only at the Swiss Federal Tribunal pursuant to Swiss Law. This process was somewhat questioned in the Pechstein saga, although resulting in the ECtHR maintaining the status quo.

A further intriguing aspect of CAS arbitrations is the fact that parties may only nominate an arbitrator from CAS’s closed list of arbitrators. Although highly controversial, many have justified this restrictive system as a means of ensuring that matters are determined only by sports law specialists. In contrast, parties in commercial arbitrations have the freedom of nominating an arbitrator of their choice.

 

Why sports arbitration is an area to look out for?

Since the establishment of CAS in 1983, sports arbitration has developed into a specialised area of arbitration practice that has grown in both repute and standing; its success and utility are evident from the rapid increase in the number of CAS cases in recent years. As a result of this, the need for specialised practitioners in the sports law and sports arbitration sectors are expanding. Given the unique nature of sports dispute resolution, many commercial arbitration practitioners may find themselves stumbling into the world of sports arbitration one way or another. Although this often happens much later in their careers, it should in no way deter interested young arbitration practitioners from pursuing a career in this field.

 

The Development of Sports Law and Sports Arbitration in Malaysia

Over the years, there has been a growing trend towards the development of sports law in Malaysia. The amendments to the Sports Development Act in 2018 saw the establishment of the Sports Dispute Committee, an entity entrusted with the statutory responsibility of resolving sporting disputes. Recognising that there are limitations to the structure, scope and application of the Sports Dispute Committee, including, in particular, its neutrality and independence (or perceived lack thereof), the AIAC strives to continue its engagement with all relevant stakeholders to push for a more globally recognised and harmonious platform for the resolution of domestic sporting disputes. In tune with the international recognition of arbitration as the preferred and oft-adopted mechanism for the resolution of sporting disputes, the AIAC has, in the pipeline, a proposal for the establishment of a national sports arbitration tribunal, modelled along the procedures and set up of CAS. Although such national CAS-like tribunals are not new, the AIAC envisions its model to be a cost-effective and accessible forum not just for domestic athletes, but also international athletes in the ASEAN region and beyond.

Sports dispute resolution in Malaysia remains at its infancy; but the commitment and the optimism shared amongst sports stakeholders to develop this area further is assuring. To that end, the AIAC has been relentless in empowering athletes and sporting organisations through capacity-building initiatives and knowledge-sharing efforts.

 

Conclusion

The world of sport bridges cultures, provides entertainment, and creates emotional attachments and affiliations; be it to a favourite player, team or club. Like everything in this world, there will always be two sides to the game; the beautiful and the ugly. When a sporting dispute arises, if mishandled, the entire sanctity of the game can be brought into disrepute. However, if handled correctly through the right amount of diplomacy and impartiality, the honour and goodwill of the game can be safeguarded. In this respect, sports arbitration has, to some extent, provided a modicum of relief to disputing parties through harmonisation of the law and better access to remedies. With changes to the governance of sport imminent, the time is now upon aspiring and veteran sports arbitration practitioners alike to be on the ball and to study the impact that these developments will have on the lex sportiva and lex ludica, which may place sports arbitration further apart from the common commercial arbitration practice.

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Reflection: The AIAC September Sports Month 2020

Mon, 2020-10-26 23:04

Ask any person on the street, and one would often find that sports has, in one way or another, played a role in or had an impact on their life. Commercially, the global sports industry has been one of the fastest growing industries. Like other growing industries where disputes are expected, the legal framework surrounding the resolution of sporting disputes has also witnessed its own evolution over the past century, with arbitration and mediation taking centerfield as the preferred dispute resolution mechanisms. The understanding of these mechanisms, however, has remained within the small circle of those practicing sports law.

As part of efforts to increase awareness on sporting disputes and to highlight international sports law and sports arbitration to a wider dispute resolution community, the AIAC annually organises an entire month of sports-related initiatives dedicated to this niche area of the law, with its third edition coming to a close just last month. Below is a recap of the events that took place as part of the AIAC’s September Sports Month 2020.

 

ADR Online: September Sports Month Webinar Series

Following the outbreak of the COVID-19 pandemic and its halting of international travel, the AIAC replaced its annual Sports Law Conference with a special September Sports Month Webinar Series (the “Webinar Series”), held every Tuesday of the month, on its ADR Online platform.

The first of the 5-episode Webinar Series was held on 1st September 2020, titled “Building Your Career As A Sports Arbitrator”. The panel featured prominent sports arbitrators – Clifford Hendel (Hendel IDR), Takuya Yamazaki (Field-R Law Offices), and Paul J Hayes QC (39 Essex Chambers), who each shared their experience on how they began their careers in sports arbitration as well as their first accounts as a sports arbitrator, with Thomas Delaye-Fortin (Badminton World Federation) expertly moderating. Practical words of wisdom for budding sports arbitrators echoed by the Panel include having to build one’s own trustworthiness and brand within the industry by developing the relevant expertise, as well as displaying professionalism, passion and dedication in this field of law.

The second episode, titled “Employment and Contractual Issues in Sports: Recent Developments Post COVID-19” was held on 8th September 2020. The session was moderated by Henry Goldschmidt (Morgan Sports Law) and featured industry experts, namely Nick De Marco QC (Blackstone Chambers), David Menz (Martens Lawyers), and Aahna Mehrotra (TMT Law Practice). The panel highlighted some of the critical employment and contractual issues faced by the sports industry in the UK, Europe and India following the outbreak of the COVID-19 pandemic. This included unpaid wages, the invocation of force majeure clauses as well as the reorganisation of major sports competitions. The Panel concurred that although there are signs of recovery, the huge disruption to the sports industry is far from over. As with all sports regulatory bodies and federations alike, it is also important for sports lawyers to adapt, evolve, and be innovative in formulating solutions for their clients in these unprecedented times.

The momentum of the Webinar Series continued with its third episode titled “The Challenges in Regulating Sports: From Gender Equality to Anti-Doping Requirements” which took place on 18th September 2020. Moderated by Shivam Singh (Chamber 20A) and featuring Nandan Kamath (LawNK), Melanie Schärer (MS Sports Law), and Chris Lavey (Bird & Bird), the Panel spotlighted the various challenges that governing bodies face in ensuring equality and uniformity in sports regulations. From a critical analysis of the Chand and Semenya cases to the issues plaguing women’s football as well as questions of self-determination and the right to livelihood, the Panel delved deep into the legitimacy and human rights implications involved, as well as what can be done to address them. Concurring that thoughtful and considered approaches needed to be taken to address the imbalances, the Panel also stressed the importance of having equal representation at the decision-making tables as well as ensuring ethical boundaries are not crossed at the expense of athletes and all stakeholders involved.

The fourth episode, titled “International Sports Arbitration and Athletes’ Rights – Maintaining a Level Playing Field,” was held on 22nd September 2020 and featured an experienced and diverse international panel of speakers, namely Malcolm Holmes QC (Eleven Wentworth), Benoît Pasquier (BP Sports Law), Lau Kok Keng (Rajah & Tann Asia), and Carol Roberts (Carol Roberts Law Corporation). Moderated by Guo Cai (Jin Mao Law Firm), the Panel discussed the prevailing issues in international sports arbitration ranging from the cultural, gender and language biases in hearings, the issue of diversity in the Court of Arbitration for Sport’s (“CAS”) closed list of arbitrators as well as the general lack of access to legal representation. Suggested improvements to the current framework include the need for establishing domestic sports arbitration tribunals and expanding the pool of sports law experts and arbitrators from less developed jurisdictions. The Panel also called upon young practitioners to continue pushing for improvements to the current framework as their career progresses.

The fifth and final episode of the Sports Month Webinar Series took place on 29th September 2020, titled “Sports Mediation: An Underused Tool in Resolving Sporting Disputes”. The panel consisted of seasoned sports lawyers and CAS Mediators, Jeffrey Benz (Jams & 4 New Square), Konstantina Morou (Konstantina Morou Law Office), Abdul Salim Ahmed Ibrahim (United Legal Alliance LLP), and John Shea (Lewis Silkin LLP), with AIAC’s Diana Rahman moderating. Following the sharing of perspectives and experiences, the Panel concluded that transactional lawyers were in the best position, and thus, bore a greater responsibility to promote mediation – by including mediation clauses in sports contracts at the federation and association levels as well as having mediation be part of internal dispute resolution processes.

 

September Sports Month Workshop Series

Aiming to provide an affordable and accessible platform for sports law education in Malaysia, the AIAC kept the ball rolling with its second edition of the Sports Month Workshop Series, with its first session on 4th September 2020, titled “Introduction to Sports Dispute Resolution”. Conducted in partnership with the Sports Law Association of Malaysia (SLAM) and supported by the Olympic Council of Malaysia, The Asian Football Confederation and the AIAC Young Practitioners’ Group, the workshop brought together industry experts, namely, Richard Wee (Richard Wee Chambers), Nik Erman Nik Roseli (Amir Khusyairi & Associates), Sri Sarguna Raj (Christopher & Lee Ong), and Liu Jiahe (The Asian Football Confederation). The Panel began by examining the governing structures and legal principles applied in sports law, followed by the dispute resolution procedures in sports, and the structure of the CAS. The session rounded off with a sharing by the Asian Football Confederation on its approach in resolving disputes at the continental confederation level.

Focusing on the rapidly growing esports market, the second session of the Workshop Series was held on 11th September 2020 and featured a young panel of esports lawyers, including Bryan Boo (Bryan & Co), Joseph Cheah (Paul Cheah Associates), and Marlysa Razak (Richard Wee Chambers). Titled “Understanding Esports: Legal Rights and Implications”, the Panel kicked off with an overview of esports, followed by an analysis of the legal issues arising from contracts, sponsorships, intellectual property, cross-border governance and dispute resolution. A key takeaway from this workshop was the importance of having a thorough understanding of the esports industry given its synergy with constantly evolving technology, as well as its differing nature from conventional sports.

On 18th September 2020, the AIAC concluded the final fixture of its Workshop Series for the year, titled “Negotiating Sports Contracts and Agreements: What to Expect”. This session brought together experienced individuals from the sports industry, namely Brian Song (Song & Partners), Susanah Ng (Susanah Ng & Associates), and Stanley Bernard (Malaysian Football League). Kicking off with an engaging and interactive introduction to sports contracts, the Panel then moved into the essentials of negotiating sports contracts, including key provisions and considerations. The participants also benefitted from a unique perspective with insight from Stanley Bernard, who himself was once a professional athlete.

 

AIAC-SLAM Sports Month Networking Session

The AIAC’s September Sports Month 2020 ended on a high note with a Sports Month Networking Session which was hosted on 25th September 2020 at the AIAC’s Bangunan Sulaiman. Fun activities including a sports pub quiz and a sports movies-themed charade was organised, amidst strict social distancing measures. The event was a timely catch-up amongst local sports law enthusiasts to discuss the development of sports dispute resolution in Malaysia.

 

Conclusion

If sports stadiums could embrace the new norm with cardboard fans, the AIAC is just as determined to innovate in the face of the pandemic. The 2020 September Sports Month is indeed a testament to AIAC’s unwavering commitment to roll out initiatives and offer knowledge-sharing opportunities on sports dispute resolution, pandemic or no pandemic. It is hoped that this effort will pave the way for further discourse and dialogue towards the continued development of sports law.

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The First (Tricky) Interpretation of the Consent to Arbitrate in CARICOM-DR FTA: The Lee-Chin v Dominican Republic Award

Mon, 2020-10-26 01:33

On 15 July 2020, an UNCITRAL Tribunal rendered a Partial Award on Jurisdiction in a dispute between Mr. Lee-Chin ­­and the Dominican Republic (DR) concerning the alleged expropriation of a landfill in Santo Domingo. The arbitrators had to decide whether the arbitration clause – enshrined in Article XIII, Annex III, of the Caribbean Community-Dominican Republic Free Trade Agreement (CARICOM-DR FTA) – provided the Tribunal with jurisdiction or – as suggested by the DR – it required a subsequent ad hoc agreement to arbitrate. Article XIII reads as follows:

  1. Disputes between an investor of one Party and the other Party […] shall […] be submitted to the courts of that Party or to national or international arbitration.
  2. Where the dispute is referred to international arbitration, the investor and the Party concerned in the dispute may agree to refer the dispute to an international arbitrator or ad hoc arbitration tribunal to be appointed by a special agreement or established under the [UNCITRAL Rules].

The Award is noteworthy inasmuch as it was the first to deal with the interpretation and application of the (indeed, poorly written) Article XIII. Furthermore, as similarly drafted arbitration clauses are very common in IIAs (see e.g. Churchill Mining v Indonesia), the Tribunal’s interpretation is sure to be a relevant precedent for future investment tribunals.

This post argues that the majority, in interpreting Article XIII, unconvincingly broadened the scope of the Respondent State’s consent to arbitrate. Furthermore, it contends that the Dissenting Opinion of Prof. Kohen – albeit reaching the sounder conclusion that Article XIII was incapable of grounding the jurisdiction of the Tribunal – equally followed an approach which should not be endorsed.

 

The Decision of the Majority

The majority found that Article XIII(1) could grant jurisdiction, since the wording “shall […] be submitted” did represent an offer to arbitrate which, to be perfected, only needed the unilateral acceptance by the investor through the institution of arbitral proceedings.

As for Article XIII(2), the majority interpreted it as only offering the possibility to conclude a subsequent agreement to choose between a sole arbitrator and a three-member tribunal. In the Tribunal’s view, absent such a choice, the UNCITRAL Rules would apply by default, thus enabling the establishment of the tribunal without any further step by the parties.

In support, the Tribunal advanced two main arguments. First, it relied on the effet utile doctrine, stating that “[t]he effet utile of the provision that establishes the obligation to submit a dispute to arbitration […] is to serve as an offer of consent” (para. 118). Secondly, the Tribunal found that the verbs “appointed” and “established” were to be respectively interpreted as requiring a special agreement between the parties and, lacking that, providing for the default application of the UNCITRAL Rules (paras. 185 ff.). Hence, the Tribunal concluded the dispute was within its jurisdiction. However, neither of the mentioned arguments appear compelling.

Firstly, the reliance on the effet utile – or ‘useful effect’ – doctrine seems misplaced. According to the International Law Commission, the doctrine requires that

[w]hen a treaty is open to two interpretations one of which does and the other does not enable the treaty to have appropriate effects, […] the former interpretation should be adopted.

Furthermore, a corollary of such doctrine requires that when a treaty is open to multiple interpretations, the interpretation which would achieve the treaty’s intended effect should be preferred. However, as clearly pinpointed by the International Court of Justice in its Advisory Opinion on the Interpretation of Peace Treaties with Bulgaria, Hungary and Romania,

[i]t is the duty of the Court to interpret the Treaties, not to revise them. The principle of interpretation […] often referred to as the rule of effectiveness, cannot justify the Court in attributing to the provisions […] a meaning which […] would be contrary to their letter and spirit (p. 229, emphasis added).

In this respect, the Tribunal appears to have disregarded the wording of the treaty (“may agree to refer”) by relying on the effet utile doctrine. Furthermore, even if the clause were to be interpreted as not containing an offer to arbitrate, it would not be futile, inasmuch as it would still create an obligation de contrahendo, i.e. the one to later consent to arbitrate a dispute. Therefore, to argue that an obligation to submit a dispute to arbitration only makes sense if interpreted as an offer to arbitrate seems to distort the treaty’s meaning. This is confirmed by the very existence of various IIAs whose arbitration clauses require a case-by-case consent.1) Article 6 Malaysia-Sweden BIT; Article 10 Japan-Pakistan BIT; Article 9 Korea-United Arab Emirates BIT. See also, Planet Mining v Indonesia. jQuery("#footnote_plugin_tooltip_4246_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4246_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Secondly, the distinction between the verbs “appointed” and “established” sounds quite arbitrary. The Tribunal neglected to notice that both the options follow the only verb “may agree to refer”. Hence, the application of the UNCITRAL Rules would also require the subsequent agreement of the parties. Furthermore, the fact that the verb “to establish” conveys the idea that UNCITRAL Rules operate automatically is contrasted by the Garanti Koza v Turkmenistan decision, which the Tribunal explicitly quoted as endorsing its interpretation of Article XIII. Indeed, the provision at issue in Garanti Koza – Article 8(2) UK-Turkmenistan BIT – established that

Where the dispute is referred to international arbitration, the [investor] and the Contracting Party concerned in the dispute may agree to refer the dispute either to: […]

  1. c) an international arbitrator or ad hoc arbitration tribunal to be appointed by a special agreement or established under the [UNCITRAL Rules].

If […] there is no agreement to one of the above alternative procedures, the dispute shall at the request in writing of the national or company concerned be submitted to arbitration under the [UNCITRAL Rules] (emphasis added).

To the extent that this provision mirrors Article XIII(2),  the automatic application of UNCITRAL Rules as the default option cannot be solely derived from the difference between the two verbs “appointed” and “established”. A contrario, if the interpretation of the Tribunal were to be followed, the last part of the quoted provision would be deprived of any effect since the application of UNCITRAL Rules would directly stem from Article 8(2)(c).

 

Prof. Kohen’s Dissenting Opinion

In light of the foregoing, it seems that Article XIII does not contain any offer to arbitrate. In this regard, we share the conclusion of Prof. Kohen. In his Dissenting Opinion, he agreed with the majority’s interpretation of Article XIII(2) but adopted a different interpretation of Article XIII(1). According to his view, nothing in this paragraph suggested that the investor could unilaterally elect one of the three dispute settlement mechanisms provided therein. In this respect, he stated that

[t]here is no offer by the State to one of the three options at the investor’s choice […]. There is here no consent to any of the three possibilities: there is just an obligation for the parties to settle the dispute by any of the three options (Dissenting Opinion, para. 6).

Prof. Kohen further contended that the principle of equality of the parties compelled this interpretation, to the extent that

[d]ispute settlement mechanisms shall be deemed open to both parties alike unless the treaty imposes the opposite. […] In fact, when arbitration is the dispute settlement means agreed upon, the State waives its right to pursue the domestic administrative and judicial channels and, therefore, it must have a manner to solve its dispute with the foreign investor (Dissenting Opinion, para. 10, emphasis added).

As agreeable as the outcome may be, Prof. Kohen’s reasoning does not seem entirely convincing. The argument according to which a State – by consenting to arbitrate an investment dispute – waives its right to pursue domestic remedies does not find support in the practice of international investment law.2)C. Schreuer, Consent to Arbitration, in P. Muchlinski, F. Ortino and C. Schreuer (eds), The Oxford Handbook of International Investment Law (2008), p. 836-837. jQuery("#footnote_plugin_tooltip_4246_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4246_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Actually, the only purpose of an offer to arbitrate is to provide the investor with a mere faculty to resort to arbitration; this does not entail any waiver of the right to go before domestic courts on the part of either the host State or the investor. What the Dissenting Opinion does not properly stress is that the whole construction of Article XIII(2) is sustained by the verb “may agree”, thus subordinating the jurisdiction of the tribunal to a subsequent agreement of the parties.

 

Conclusions

In conclusion, the reasoning of both the majority and Prof. Kohen seems to disregard the wording of the arbitration clause providing that the parties “may agree to refer” the dispute to arbitration. In addition, one has to stress that the reading maintained by Prof. Kohen risks weakening the effectiveness of ISDS. Indeed, it would follow from such an interpretation that every arbitration clause which does not expressly entitle the investor to unilaterally resort to arbitration should be interpreted as requiring a subsequent agreement between the host State and the specific investor. This seems to both contradict the common interpretation of this kind of clauses and undermine the well-established mechanism of arbitration without privity.

References   [ + ]

1. ↑ Article 6 Malaysia-Sweden BIT; Article 10 Japan-Pakistan BIT; Article 9 Korea-United Arab Emirates BIT. See also, Planet Mining v Indonesia. 2. ↑ C. Schreuer, Consent to Arbitration, in P. Muchlinski, F. Ortino and C. Schreuer (eds), The Oxford Handbook of International Investment Law (2008), p. 836-837. 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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“Special meanings” in the Interpretation of Dispute Resolution Clauses: A Commentary on Lee-Chin v. the Dominican Republic

Sun, 2020-10-25 23:34

A recent partial award on jurisdiction in Michael Lee-Chin v. the Dominican Republic debated the interpretation of dispute resolution clauses and State consent to investment arbitration. While interpreting the Free Trade Agreement between the Caribbean Community and the Dominican Republic (“CARICOM-DR FTA”), the majority concluded that Respondent gave advance consent to submit disputes to one of the three mechanisms listed in Article XIII, pursuant to the principle of effet utile. Prof. Marcelo Kohen dissented, concluding that the tribunal lacked jurisdiction over the dispute.

This post addresses the debate on the use and value given to treaty drafting practice of States when interpreting a dispute resolution clause, which is likely to take place in other cases. The majority analyzed the use of drafting practice to discern a “special meaning” under Article 31(4) of the 1986 Vienna Convention on the Law of Treaties, (VCLT); while the dissent analyzed treaty practice as a circumstance of conclusion of the treaty under Article 32 of the VCLT.

 

The majority’s approach to the interpretation of State consent

  • Characterizing State consent

The parties debated whether the existence of three dispute settlement alternatives in Article XIII (domestic litigation, national arbitration and international arbitration), and the absence of express language entitling the investor to initiate proceedings, constituted consent to arbitrate. Article XIII reads:

Disputes between an investor of one Party and the other Party concerning an obligation of the latter under this Agreement […] shall, […] be submitted to the courts of that Party or to national or international arbitration. […]

In line with landmark cases such as Plama v. Bulgaria (¶ 198), the majority emphasized the need for clear and unambiguous consent to arbitrate. Recalling Judge Higgins’ opinion in Oil Platforms, the interpretation of jurisdictional clauses should not be liberal nor strict while asserting jurisdiction, as doing so would be contrary to the principles of treaty interpretation.

As to the existence of multiple dispute settlement alternatives, the partial award concluded that the way in which the obligation is assumed by the State does not undermine its existence. Instead, the options in Article XIII referred to ways of implementing such obligation (¶ 109). Thus, while consent shall not be presumed, the existence of conditions in the means by which consent was provided shall not be invoked “to escape freely assumed obligations” (¶ 110).

 

  • Analyzing “special meaning” in contrast with other treaties

Article 31 (4) of the VCLT has been rarely invoked in investment arbitration, and never successfully. The provision addresses treaties in which a term has a special meaning, reflecting a technical concept or a particular intention of the contracting parties. Article 31 (4) of the VCLT establishes that “A special meaning shall be given to a term if it is established that the parties so intended.”

For example, in Parkerings-Compagniet AS v. Lithuania the tribunal considered whether Lithuania and Norway intended a special meaning for the terms “fair and reasonable treatment.” The tribunal concluded that a difference between “reasonable” or “equitable” was insignificant, and no evidence supported a different protection than granted by the fair and equitable standard (¶ 277). In other cases, States have argued that terms such as “investment” (Quiborax v. Bolivia, ¶ 212; KT Asia Investment Group v. Kazakhstan, ¶ 165) and “public order” (Continental v. Argentina, ¶ 171) had special meanings per Article 31(4) of the VCLT. However, arbitral tribunals have not found clear agreements between the States parties to depart from ordinary meanings of such terms in the respective treaties.

While in the cases mentioned the analysis concerned the meaning to be given to a term in the treaty, in Lee-Chin, Respondent’s argument and the point of divergence between the arbitrators concerned the absence of certain terms to be attributed a special meaning. Respondent argued that unlike the language in other treaties it signed, Article XIII (1) does not expressly allow the investor to choose among the three fora (¶ 129). The majority was not persuaded. While such provision did not specify the investor’s right to choose the dispute resolution mechanism, that did not imply that such right was not conferred.

The partial award noted that a difference in wording between treaties could hardly prove which interpretation should be preferred, or evidence a “special meaning” for a term under Article 31 (4) of the VCLT (¶ 129). For the majority, a reference to the different terms used in a State’s other treaties to ascertain a “special” meaning for a term at issue in the treaty before it might pose difficulties. First, it considered that a difference in wording does not necessarily imply a difference in the effects the clauses are aimed to produce (¶ 130). Second, the context of a negotiation must be considered when determining the meaning to be given to the treaty’s terms: the differences in wording choices between treaties may reflect factors such as the conditions of negotiation, the objectives pursued, and the particularities of the relationship of the parties to each treaty (¶ 129).

The burden of proof to establish that a treaty’s contracting parties intended a special meaning for a given term falls on the party invoking such special meaning. However, the standard of proof has not been established clearly. The International Court of Justice suggested that the party claiming the special meaning must “demonstrate convincingly the use of the term with such special meaning” (Western Sahara Advisory Opinion, ¶ 116). The majority in Lee-Chin was slightly more specific. The partial award considered that relying on treaty provisions to influence the interpretation of the specific wording (or its absence) in a different instrument will be relevant only if “specific and conclusive data show that the former [treaties] qualify as interpretative guidelines … [or] …to identify the intention of each of the contracting parties” (¶ 130). Thus, the special meaning intended by the parties per article 31(4) of the VCLT would require a high burden for the party asserting it, to demonstrate an actual agreement of the parties to depart from the ordinary meaning of the terms (or eventually their absence).

 

Dissenting opinion: State practice as the ‘circumstances of conclusion’ of the treaty

The Dissenting Opinion agreed on the need for clear and unambiguous State consent but argued that the determination of who could initiate the proceedings was a key question in assessing the existence of consent. In the view of the dissenter, the Dominican Republic had not provided through the treaty a standing offer to arbitrate, but a list of alternatives upon which the investor and the State could agree to in future disputes.

Prof. Kohen dissented from the majority’s approach to the use of State practice in the interpretation of Article XIII. Pursuant to Article 32 of the VCLT, he considered that other investment agreements concluded by parties to the treaty and the “probable origin” of Article XIII, may in fact be considered as circumstances of the treaty’s conclusion (¶ 51). Article 32 of the VCLT establishes that:

Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of article 31, or to determine the meaning when the interpretation according to article 31:

(a) Leaves the meaning ambiguous or obscure; or

(b) Leads to a result which is  manifestly absurd or unreasonable.

The dissenting opinion compared provisions in treaties entered into by the Respondent, CARICOM and Jamaica with express references to the investor’s unilateral choice among dispute resolution alternatives. Among the circumstances of conclusion of the treaty, the dissent also considered the text of article 8(1) the UK Model BIT of 1991 as the “probable origin” of Article XIII (¶70), and Article 8(1) of the Turkmenistan-UK BIT, which was based on the same model BIT (¶ 74).

While not referring expressly to Article 31(4) of the VCLT, the dissenting opinion concluded that the Respondent did not intend to allow the investor to choose among dispute settlement alternatives. For Prof. Kohen, the investor’s possibility to choose had been implied by the majority while “the Dominican Republic actually decided not to include it” in contrast with other treaties (¶ 61). Thus, the absence of an express enabling clause for the investor to initiate international arbitration did not constitute “clear and unambiguous” consent of the Respondent and should have resulted in a tribunal without jurisdiction.

 

Conclusion

Article XIII of the CARICOM-DR FTA prompted a debate likely to occur in other cases concerning the use and value given to a State’s treaty practice in the context of interpretation. Unlike the use of State practice where a term is not clear, or has changed over time, this interesting discussion was provoked by the controversy over an absent wording, and whether such absence should be attributed a specific value.

The standard of proof suggested by the majority for the party arguing a “special meaning” under Article 31(4) of the VCLT could provide a reasonable threshold to depart from the “ordinary meaning” of the terms. As the analysis concerns the intention of each of the parties in choosing specific words, such threshold could avoid a speculative exercise as to the specific reasons to include or exclude certain wording. Requiring a party to conclusively demonstrate the intention of each of the contracting parties has two relevant effects. First, it could prevent the tribunal (or the parties, via interpretation) from re-drafting the treaty. Second, it acknowledges the need to avoid plain term-comparison, and requires the parties and arbitrators to analyze other factors that may have influenced the treaty-drafting process.

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MZM Construction Company – Third Circuit Affirms “Clear and Unmistakable” Standard, But Did Its Dicta Go Too Far?

Sun, 2020-10-25 00:32

Recently, the U.S. Court of Appeals for the Third Circuit (the “Third Circuit” or the “Court”) addressed what it referred to as a “mind-bending” and “seemingly circular” question “dubbed ‘the queen of all threshold issues’ in arbitration law:” whether a court or arbitrator(s) decides if an agreement exists when the alleged agreement itself “includes an arbitration provision empowering an arbitrator to decide whether an agreement exists.” (MZM Construction Company, Inc. dba MZM Construction & Transportation v. New Jersey Building Laborers Statewide Benefit Fund, Case Nos. 18-3791 & 19-3102 (3d. Cir. Sept. 14, 2020).)

The Third Circuit affirmed the U.S. District Court for the District of New Jersey’s (the “District Court”) determination that under the Federal Arbitration Act (the “FAA”), 9 U.S.C. § 4, “questions about the making of the agreement to arbitrate are for the courts to decide unless the parties have clearly and unmistakably referred those issues to arbitration in a written contract whose formation is not in issue.” (Emphasis added.) This post discusses the background of the dispute, its procedural history, and where the decision falls within broader discourse on the FAA and U.S. public policy on arbitrability.

 

Background of the Dispute

In 2001, MZM Construction Company (“MZM”) hired local labor union workers for the construction of the Newark Liberty International Airport in New Jersey. The following year, in 2002, MZM signed a short form agreement (“SFA”) with the union.  Importantly, the SFA fully incorporated prior collective bargaining agreements (“CBAs”). The 2002 CBA included an arbitration clause, which read in relevant part that the parties agree to arbitrate: “questions or grievances involving the interpretation and application of this Agreement” and “[t]he Arbitrator shall have the authority to decide whether an Agreement exists, where that is in dispute.”

A dispute arose when the New Jersey Building Laborers’ Statewide Benefit Fund (the “Fund”), into which employers were to make contributions under the 2002 CBA, determined that MZM owed unpaid contributions. The Fund then filed for arbitration pursuant to the 2002 CBA’s arbitration provision.

 

MZM’s Action in District Court

MZM sought a declaratory judgment in the District Court that it was not a signatory to the CBA, that it had no obligation to arbitrate under the CBA, and that it was not liable to the Fund under any CBA. MZM importantly argued that “fraud in the execution voided the SFA and the incorporation of the CBAs, and therefore, no agreement exists between MZM and the Funds.” (Emphasis added.) In response, the Fund argued that MZM had not alleged a claim for fraud in the execution, but instead alleged a claim for fraud in the inducement. The Fund argued that this “distinction is material to whether the court or the arbitrator decides if an enforceable contract exists.” After oral arguments, the District Court doubted whether a valid arbitration agreement existed due to fraud in the execution and granted a preliminary injunction to preserve the status quo.

 

Discussion

On appeal, the Third Circuit considered whether MZM intended to execute the SFA incorporating the CBA’s arbitration provisions, or simply execute the SFA without the CBA’s arbitration provision. The Third Circuit began with the “threshold issue” of whether the District Court had the “power to resolve questions about the formation or existence of a contract when the putative contract includes a provision delegating ‘the authority to decide whether an Agreement exists’ to the arbitrator.”

A. Strong U.S. Federal Policy Favoring Arbitration and Severability Doctrine

The Third Circuit first discussed the U.S. federal policy of compelling arbitration and “guarding against unwarranted judicial interference with arbitration.” (see Sandvik AB v. Advent Int’l Corp., 220 F.3d 99, 104 (3d Cir. 2000); Prima Paint Corp. v. Flood & Conklin Mfg. Co., 338 U.S. 395, 406 (1967) (holding that arbitrators have the primary power to decide legal issues relating to the parties’ contract absent evidence indicating the parties intended to exclude those issues from arbitration).

The Third Circuit considered Prima Paint relevant, stating the severability doctrine prevents a party from avoiding arbitration by attacking the container contract, but rather the party must challenge the arbitration agreement itself. The Court explained that under the severability doctrine, “a claim of fraud in the inducement of the arbitration clause is for the court to decide, but a claim of fraud in the inducement of the container contract is for the arbitrator.” The Court acknowledged that Prima Paint did not specifically address the question at hand: whether the severability doctrine applies when the formation of the container contract is at issue.

B. Federal Courts Should Not Assume Parties Agreed to Arbitrate Arbitrability Unless There Is Clear and Unmistakable Evidence

After noting that Prima Paint did not address the issue presented, the Court questioned: “So, who decides whether an arbitration agreement exists when the formation or the existence of the container contract is disputed – the court or the arbitrator?”

Relying upon Sandvik (220 F.3d at 108-09) and section 4 of the FAA, the Court determined that it must compel arbitration if it has been satisfied that the “making of the agreement for arbitration … is not an issue” and, to do so, must decide whether there was mutual assent to the arbitration agreement. The Court explained that this is a “necessary prerequisite” of the federal court’s “gate keeping function.” The Court additionally noted the federal jurisprudence against arbitrators deciding their own jurisdiction, something which is provided for in other jurisdictions, such as in France. (See Article 1448 of the French Code of Civil Procedure.)

However, the Court acknowledged U.S. Supreme Court precedent that parties may contractually empower arbitrators to decide their own jurisdiction. The Court reiterated that federal courts should not “should not assume that the parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so.” The Court explained that when parties agree to arbitrate arbitrability, such provisions are called “delegation provisions.” Therefore, pursuant to the severability doctrine, if a party does not challenge the delegation provision specifically, the court must treat the delegation provision as valid and send “any challenge the validity of the underlying arbitration agreement to the arbitrator.”

C. Whether a Delegation Provision or Not, Courts Retain Primary Power to Decide Mutual Assent to Agreement to Arbitrate

Satisfied with the foregoing, the Court moved to addressing the following question: “So, what happens when, as here, the container contract, whose formation or existence is being challenged, has a delegation provision empowering the arbitrator to decide whether an agreement exists? Who decides the threshold issue then?”

Noting that MZM did not specifically challenge the delegation provision, the Court reduced the parties’ dispute between “an unchallenged delegation provision in a disputed contract be enforced as presumptively valid, and section 4 of the FAA, which, as construed in Sandvik, 220 F.3d at 109, ‘affirmatively requires’ a court to rule on the formation of the container contract.” Further noting that the Third Circuit has not addressed this issue, the Court believed that its decision in Sandvik dictated a similar outcome. In so doing, whether a delegation provision or not, the Court stated that it is “inevitable that a court will need to decide questions about the parties’ mutual assent to the container contract to satisfy itself that an arbitration agreement exists and vice versa.”

The Court, however, acknowledged that neither the Third Circuit nor the U.S. Supreme Court have specifically addressed “a contract-formation dispute involving a delegation provision assigning that task to the arbitrator.” Nevertheless, recognizing the Supreme court’s “repeated admonition that, at its core, ‘arbitration is a matter of contract,’” the Court stated that “we believe that the text of section 4 of the FAA – mandating that the court be ‘satisfied’ that an arbitration agreement exists – tilts the scale in favor of a judicial forum when a party rightfully resists arbitration on grounds that it never agreed to arbitrate at all.” The Court therefore held that “under section 4 of the FFA, courts retain the primary power to decide questions of whether the parties mutually assented to a contract containing or incorporating a delegation provision.”

 

The Court’s Dicta May Have Gone Too Far

While the Court reached a holding consistent with U.S. precedent, the Court’s dicta may have opened the gates to arguments of mutual assent and may have also set the bar too high to draft an arbitration agreement delegating arbitrability to the arbitrator.

Notably, the Court stated “it can hardly be said that contracting parties clearly and unmistakably agreed to have an arbitrator decide the existence of an arbitration agreement when one of the parties has put the existence of that very agreement in dispute.” (Emphasis added.) At first glance, if taken to its limits, parties could troublingly put the existence of the agreement to arbitrate in issue merely by arguing an alleged lack of mutual assent to escape an otherwise objective, clear and unmistakable agreement to arbitrate.

The Court also provided guidance on drafting delegation provisions to empower arbitrators with competence-competence. For example, the Court stated “parties can enter into pre-negotiation contracts in which they agree to arbitrate all arbitrability issues pertaining to future contracts between them.” (Emphasis added.) Such a high bar seems counter to reality. As arbitration clauses are knowingly called “champagne clauses,” which in many respects are not considered of paramount importance in the midst of negotiations, it seems unlikely that parties are going to seriously enter into pre-negotiation contracts on this precise issue. Such a request from one party, especially when not in a strong bargaining position, seems unlikely.

Nevertheless, despite its recommended example, the Court cautioned: “Even then, the arbitrators’ determination as to whether the parties agreed to arbitrate in the first place will be reviewable de novo by a court of competent jurisdiction on the backend if the arbitrators render an award in the absence of a validly existing arbitration agreement over a party’s objection.” (Emphasis added.) In the end, even if the parties enter a pre-negotiation contract to empower arbitrators with competence-competence, as recommended, if one party objects, parties may still find themselves in court.

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Antitrust Arbitration: How German Courts Are Supporting the Pro-Arbitration Trend Launched in the Microsoft Case

Sun, 2020-10-25 00:27

During the last decade, antitrust arbitration has experienced some turbulent times. While many national courts decided against the arbitrability of competition disputes, a handful of them allowed for such proceedings to take place before an arbitral tribunal. Recently, the U.S. Department of Justice has relied on arbitration to resolve an antitrust dispute in the United States v. Novelis Inc. et al. Case. In Europe, the trend of enforcing arbitration clauses for the resolution of antitrust matters was launched in Microsoft Mobile OY v. Sony Europe Ltd. et al. case, EWHC 374 (Ch) (2017) (“the Microsoft Case”). This blog post talks about the German stance on the matter.

In the Judgement 8 O 30/16, decided by the Regional Court of Dortmund (“the Court”) on 13 September 2017 (“the Judgement”), the plaintiff’s action was deemed inadmissible because the Court considered that the arbitration agreements concluded between the parties cover claims for cartel damages, and thus these claims should be brought before an arbitral tribunal.

The plaintiff was a joint venture set up to implement a railway construction project, whereas the defendant offered the full range of track superstructure materials the plaintiff needed for the realisation of its undertaking. Back in 2003, the plaintiff placed an order with the defendant for the supply of brand-new rails, and the creation of a continuous railway track. Concerning this order, the parties concluded an arbitration agreement, according to which “all disputes arising from the order […] shall be settled by a court of arbitration in accordance with the Arbitration Regulation for the Construction Industry”. In connection with the second order, the parties also agreed to the jurisdiction of an arbitration court in a very broad clause covering “all disputes arising in connection with the subcontractor agreement”.

Concerning the above-mentioned transactions, the plaintiff raised two claims:

  1. demanding a declaration that the defendant is liable for compensation for all damages plus interest which were incurred to the plaintiff on the basis of cartel agreements and/or anti-competitive agreements by the defendant in tenders within the meaning of Section 298 German Criminal Code in connection with the contracts granted by the plaintiff to the defendant in the years 2001 to 2011 for the supply of permanent way materials,
  2. and also requesting that the defendant is obliged to indemnify the plaintiff for the costs of the extrajudicial legal prosecution plus interest.

The plaintiff claimed that the arbitration agreements did not cover claims for damages under cartel law such as those asserted in the present case. On the other hand, the defendant objected to the jurisdiction of the Court due to the existence of the arbitration agreements.

The Court discussed and addressed several points pertinent to private enforcement of antitrust damages in arbitration – the issue of arbitrability, the scope of the arbitration clause, and the foreseeability of antitrust claims – which we will address in this blog post in turn.

 

The Arbitrability of Antitrust Matters

The Court considered both aforementioned agreements to arbitrate as valid according to Sections 1029 and 1030 of the German Code of Civil Procedure, and adjudicated that they cover disputes under cartel law for compensation for damages because cartel infringements and resulting claims for damages are generally arbitrable under German law. It has been consistently established under German court practice that priority must be given to a broad interpretation owing to the pro-arbitration approach. This applies both to narrow and broad arbitration clauses.

To better understand the significance of this decision, it is worthwhile taking a look at the historical development of the arbitrability of antitrust matters at international level.

In the landmark case Mitsubishi Motors v. Soler, 473 US 614 (1985), discussed in an earlier post, the US Supreme Court laid the groundwork for antitrust arbitration by declaring antitrust claims as arbitrable, if they are “encompassed within a valid arbitration clause in an agreement embodying an international commercial transaction”. Up to this moment, the arbitrability of competition disputes was widely considered an exclusive matter reserved to state courts. In its decision, the US Supreme Court argued that the pro-arbitration approach and promoting the development of American business and trade speak in favour of a change of paradigm, which could be implemented by allowing arbitral tribunals to rule on antitrust claims.

More than a decade later, the Eco Swiss China Time Ltd. V. Benetton International NV case, C-126/97 (1999), dealt with the question whether arbitral tribunals are obliged to apply European Community (“EC”) competition law ex officio in cases where no competition law claims were asserted by the parties, considering that under Dutch law an arbitral award exceeding the limits of the parties’ mandate could be set aside. Unsurprisingly, the ECJ gave priority to EC competition law due to its significance for the functioning of the internal market.1)Common Market Law Review 37, 459-478, 2000. jQuery("#footnote_plugin_tooltip_8503_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8503_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The Microsoft Case, addressed in a previous blog post, marks a further essential step in the development of antitrust arbitration. In its decision of 28 February 2017, the English High Court stayed the court proceedings on antitrust damages commenced by Microsoft, giving effect to an arbitration clause concluded between the parties despite the risk of fragmentation of claims. The High Court also emphasised the considerable connection between contractual and tort claims.

The case decided by the Regional Court of Dortmund reaffirms the basic assumptions made in all three decisions with one exception. Starting with the Mitsubishi Case, the German Court also unequivocally confirmed the arbitrability of antitrust claims. However, the Court did not specifically address the question if the arbitral tribunal has the right to decide on antitrust matters ex officio. A comparison with the Microsoft Case shows that the claim before the German court was also dismissed because effect was given to the arbitration clause, and treating contractual and tort claims differently was to a large extent considered unnecessary.

 

The Scope of Arbitration Clauses

Furthermore, the Court dealt with the issue of whether the arbitration clauses in this case cover competition law matters. The issue was addressed at two levels: First, were the clauses narrow or broad and to what extent that mattered, and secondly, are the claims of tortious nature in general covered by such clauses. The answers are intertwined and co-dependent to an extent. The issue of narrow and broad arbitration clauses stems from the wording of an arbitration clause, especially the juxtaposition between the phrases “claims arising out of the contract” and “claims in connection to the contract” respectively. The Court opted for the in favorem approach, which governs both narrow and broad clauses, and invoked previous cases that confirmed that “preference is to be given to the interpretation that leads to the validity and applicability of the arbitration clause and thus paves the way for arbitration” (Judgement, para. 20). Furthermore, the Court concluded that the scope of application of arbitration agreements is not limited to contractual claims. Unjust enrichment claims due to the invalidity of the contract are also recognised as “claims arising from the contract”, and even fall within the scope of narrow arbitration clauses. Considering that claims for damages under cartel law based on Section 33 Subsection 3 of the Federal Act against Restraints of Competition (old version, now Section 33a) are of a tortious nature, they should be treated as ordinary tort claims. It is recognised in German practice that even where a narrow arbitration clause was concluded, tort claims fall within its scope if the conduct in dispute is identical with a breach of contract. Whether these two actions are identical, could be determined by comparing the life circumstances surrounding the cartel infringement and the acquisition process in dispute, or the act of which the defendant is accused. The Court further argued that the plaintiff should not be able to avoid the application of the arbitration clause by basing its claim on tort law instead of on the underlying contract.

It is clear from the Court’s reasoning that despite the thus far prevailing stance of European courts not to enforce arbitration clauses under similar circumstances,2)See, e.g., decisions in District Court of Helsinki, in CDC Hydrogen Peroxide Cartel Damage Claims SA v. Kemira Oyj, interlocutory judgement 36492, 4 July 2013, case number L 11/16750; District Court of Amsterdam, in CDC Project 13 SA v. Akzo Nobel N.V. and Others, 4 June 2014, ECLI:NL:RBAMS:2014:3190; Amsterdam Court of Appeal, in Kemira Chemicals Oy v. CDC Project 13 SA, 21 July 2015, ECLI:NL:GHAMS:2015:3006; District Court of Rotterdam, in Stichting De Glazen Lift v. Kone B.V. and Others, 5 May 2016, ECLI:NL:RBROT:2016:4164; District Court of Rotterdam, in Stichting Elevator Cartel Claim v. Kone B.V. and Others, 23 October 2019, ECLI:NL:RBROT:2019:8230. jQuery("#footnote_plugin_tooltip_8503_2").tooltip({ tip: "#footnote_plugin_tooltip_text_8503_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); the Court sided with the English court’s decision in the Microsoft Case. This is a welcoming development having in mind party autonomy, but it might as well raise a further question in regards to the adequacy of “regular” arbitration procedures for the resolution of competition law matters, especially since the EU Damages Directive has identified the minimum procedural and substantive standard to be applicable before national courts.

 

The Foreseeability of Claims

Finally, the Court dealt with the ECJ’s decision in the Cartel Damage Claims Case,3)C-352/13, Cartel Damage Claims (CDC) Hydrogen Peroxide SA v. Akzo Nobel and Others. jQuery("#footnote_plugin_tooltip_8503_3").tooltip({ tip: "#footnote_plugin_tooltip_text_8503_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); introduced by the plaintiff, in which the ECJ held that for a jurisdiction clause to apply to antitrust damage claims, it must have been foreseeable at the time of the conclusion of the clause that such claims would also be covered by it. The ECJ concludes that claims for damages under cartel law should thus only be covered by such jurisdiction clauses which also relate to disputes arising from liability due to a violation of competition law.

The Court tackled this argument directly and persuasively by stating that the lack of foreseeability at the time of the conclusion of the arbitration agreement is not a convincing criterion for exclusion

because even in the case of other breaches of contract, e.g., fraudulent misrepresentation or even an initial objective impossibility – which, however, would easily lead to claims under the contract – the respective circumstance is certainly not known to one of the parties at the time of conclusion of the contract and the arbitration agreement.” (Judgement, para. 35)

Furthermore, the Court argued that the decision of the ECJ only applies to jurisdiction agreements, and its results could not be automatically transferred to arbitration agreements; thus, excluding the ECJ decision as an authority in this case. It is worth highlighting here that the English court in the Microsoft Case came to a similar conclusion by stating that there is “nothing in the decision of the [ECJ] to require […] to displace the effect of the arbitration clause as something inimical to EU law.” (Judgement in the Microsoft Case, para. 81). These two decisions rendered by the English and the German court provide a solid ground for national courts to disregard the application of the ECJ judgement on arbitration clauses in the future and an incentive for the ECJ to directly address the enforceability of arbitration clauses in competition law matters.

References   [ + ]

1. ↑ Common Market Law Review 37, 459-478, 2000. 2. ↑ See, e.g., decisions in District Court of Helsinki, in CDC Hydrogen Peroxide Cartel Damage Claims SA v. Kemira Oyj, interlocutory judgement 36492, 4 July 2013, case number L 11/16750; District Court of Amsterdam, in CDC Project 13 SA v. Akzo Nobel N.V. and Others, 4 June 2014, ECLI:NL:RBAMS:2014:3190; Amsterdam Court of Appeal, in Kemira Chemicals Oy v. CDC Project 13 SA, 21 July 2015, ECLI:NL:GHAMS:2015:3006; District Court of Rotterdam, in Stichting De Glazen Lift v. Kone B.V. and Others, 5 May 2016, ECLI:NL:RBROT:2016:4164; District Court of Rotterdam, in Stichting Elevator Cartel Claim v. Kone B.V. and Others, 23 October 2019, ECLI:NL:RBROT:2019:8230. 3. ↑ C-352/13, Cartel Damage Claims (CDC) Hydrogen Peroxide SA v. Akzo Nobel and Others. 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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In a ‘First’ Worldwide, Austrian Supreme Court Confirms Arbitral Tribunal’s Power to Hold Remote Hearings Over One Party’s Objection and Rejects Due Process Concerns

Sat, 2020-10-24 01:05

On 23 July 2020, the Austrian Supreme Court (Oberster Gerichtshof, OGH) rendered a decision examining whether conducting an arbitration hearing by videoconference over the objection of a party may violate due process (Case No. 18 ONc 3/20s). To the authors’ knowledge, this decision, rendered in the context of the COVID-19 pandemic, is the first national supreme court’s decision worldwide addressing this issue.1)The German Federal Court of Justice (Bundesgerichtshof, BGH) issued a ruling on the same day that addresses discrete issues of the potential for witness tampering during the remote taking of witness evidence. See BGH, Beschluss vom 23. Juli 2020 – I ZB 88/19. For an analysis of further case law on remote hearings, see Maxi Scherer, ‘The Legal Framework of Remote Hearings’ in Maxi Scherer, Niuscha Bassiri and Mohamed S Abdel Wahab (eds), International Arbitration and the COVID-19 Revolution (Kluwer 2020). jQuery("#footnote_plugin_tooltip_8464_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8464_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The Respondents in an arbitration seated in Vienna and administered by the Vienna International Arbitral Centre (VIAC) had challenged the arbitral tribunal over its decision to conduct an evidentiary hearing remotely by videoconference. After the VIAC had rejected the challenge, the case went to the OGH. The OGH held that arbitrator challenges based on allegations of procedural irregularity can only succeed under Austrian law if the tribunal’s conduct of the proceedings were to result in serious procedural violations or in permanent and significant (dis)advantages to a party. The court found that holding a remote hearing against the objection of a party does not meet this high threshold. Specifically, the OGH confirmed that remote hearings are generally permissible under Austrian arbitration law, that the arbitral tribunal enjoys broad discretion as to the organization and conduct of the proceedings, and that the alleged inadequacies of remote hearings do not exist (or can be remedied). The OGH therefore rejected the Respondents’ challenge.

This case is of particular interest for a number of reasons. It addresses the legal framework related to remote arbitration hearings, including the relevance of Article 6 of the European Convention on Human Rights (ECHR). In addition, the OGH provides useful guidance on practical questions as to whether a hearing should be postponed or proceed remotely if an in-person hearing is not possible, including: whether different time zones must be considered in organizing remote hearings, and how to address concerns that witnesses could be unduly influenced in a remote setting.

 

Facts of the case

The arbitration proceedings at issue had been pending since 2017 and a one-day evidentiary hearing was originally scheduled for March 2020. In mid-January 2020, the tribunal rescheduled the hearing for 15 April 2020, with a starting time at 10.00 am CEST. In a case management conference call held in mid-March, the parties discussed the possibility of holding the hearing remotely in light of the outbreak of the COVID-19 pandemic and ensuing travel restrictions. The Respondents rejected this option and proposed that a hearing be conducted in person at a later point in time. On 8 April 2020, the tribunal decided that the hearing would proceed as scheduled, on 15 April 2020, and, due to the COVID-19 pandemic, by way of a videoconference. The start time was moved to 3.00 pm Vienna time. As the Respondents’ counsel and one of their witnesses to be examined at the hearing were based in Los Angeles, California, this placed the beginning of the hearing at 6.00 am local time.

At the start of the hearing, the Respondents complained about the remote nature of the hearing and the early start. (The Respondents would later allege that the co-arbitrator appointed by Claimant rolled his eyes in response.) After the hearing, the Respondents filed a challenge with the VIAC Board against all three members of the tribunal and, subsidiarily, against the co-arbitrator appointed by Claimant alone. After the challenge was rejected by the VIAC Board, the respondents filed their challenge with the OGH (pursuant to Section 589(3) of the Austrian Code of Civil Procedure, ZPO).

The Respondents claimed that they were not given appropriate notice of, and could not adequately prepare for, the 15 April hearing, because the tribunal’s decision not to postpone the date was issued only three business days before the hearing. In addition, they argued that the tribunal’s decision to start the hearing at 3.00 pm Vienna time (the time zone of the Claimants) and 6 am Los Angeles time (the time zone of the Respondents’ counsel and witness) amounted to an unequal treatment of the parties. Lastly, the Respondents argued that holding a remote hearing amounted to a violation of the tribunal’s duty to treat the parties fairly because the tribunal did not put measures in place to prevent witness tampering. Specifically, the Respondents claimed that neither the tribunal nor the parties were able to ascertain which documents witnesses would have access to; whether there were other persons present in the witness’s room; and whether witnesses would receive chat messages while being examined.

 

Decision

The Austrian Supreme Court rejected the Respondents’ challenge. The court first established the applicable legal standard for the challenge of arbitrators, and then examined each ground raised by the Respondents in turn.

 

On the legal standard for the challenge of arbitrators

The court noted that under Austrian arbitration law (Section 588(2) ZPO) a challenge against an arbitrator is only successful if justifiable doubts exist as to his or her impartiality or independence. The statutory reasons for the challenge of state court judges serve as a guideline for this assessment and reflect “an exacting standard” to safeguard the reputation and authority of judicial decision-making. Still, the court held that an inappropriate conduct of proceedings and procedural errors by the arbitrators are not, as a general rule, enough to give rise to the appearance of prejudice. Rather, arbitrators can only be successfully challenged if their case management decisions result in a serious violation of fundamental procedural principles or in a permanent and significant (dis)advantage for a party. Specifically, when exercising its procedural discretion, the tribunal is bound by the duty to treat the parties fairly during all stages of the proceedings (expressly codified in Section 594(2) ZPO for all arbitrations seated in Austria and in Article 28(1) of the 2013 Vienna Rules (Vienna Rules) for all arbitrations conducted under the auspices of the VIAC).2)For an in-depth treatment of arbitrator challenges under the Vienna Rules and Austrian law, see Franz T Schwarz and Christian W Konrad, The Vienna Rules: A Commentary on International Arbitration in Austria (Kluwer 2009) ch 16; and for procedural fairness, at ch 20. jQuery("#footnote_plugin_tooltip_8464_2").tooltip({ tip: "#footnote_plugin_tooltip_text_8464_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

On the tribunal’s decision not to postpone the hearing and to conduct it remotely

The OGH held, in line with established Austrian precedent, that the duty to treat parties fairly applies to all stages of the arbitral proceedings, including the determination of the date of the hearing and decisions on requests to postpone. This includes an obligation to ensure that both parties have a fair opportunity to participate in the hearing. However, the OGH ruled that in the circumstances of the case the tribunal’s decision not to postpone the in-person hearing in light of the current COVID-19-related restrictions but to conduct the hearing remotely at the scheduled date did not amount to a breach of the tribunal’s duty to treat the parties fairly.

In particular, the court rejected the Respondents’ claim that they were not given appropriate notice. It held that the relevant time for this assessment was when the hearing date was originally communicated (i.e. 15 January 2020), and not when the tribunal decided on the Respondents’ request to postpone the hearing (i.e. 8 April 2020). Parties must consider that the tribunal may not grant a request for rescheduling a set hearing date which had been known to both parties for months.

The fact that the tribunal decided that the hearing would be conducted remotely also did not violate the fundamental principle that both parties be treated fairly or their right to be heard. The OGH noted that videoconferencing technology (both for the taking of evidence and the conduct of hearings) is widely used in judicial proceedings before state courts (citing to a range of procedural laws on the domestic and European level) and that this is also relevant for arbitral proceedings. The OGH emphasized that the Austrian legislature has expressly promoted the use of videoconferencing technology during the COVID-19 pandemic to ensure that judicial proceedings could be advanced; and it recognized that commentators have similarly endorsed the use of remote hearings in arbitral proceedings during the pandemic.

Importantly, the OGH then expressly confirmed that, as a general rule, remote arbitration hearings are not only permissible if both parties agree, but also over the objection of one of the parties. For this, the court relied on Article 6 ECHR. Article 6 ECHR provides for a party’s right to get effective access to justice and to be heard. In circumstances like the COVID-19 pandemic, in which insisting on an in-person hearing would lead to a standstill of proceedings, videoconferencing provides a useful tool to ensure both effective access to justice and the right to be heard. According to the OGH, this general conclusion in favor of remote hearings could only be reversed by sufficiently strong countervailing factual considerations in a particular case. The court did not find any in the case at hand.

 

On the issue of different time zones

With regard to time zones, the court considered that the time difference between Vienna and Los Angeles meant that the hearing could not take place during core business hours for all hearing participants. The OGH held that by concluding an arbitration agreement providing for VIAC arbitration, an institution based in Vienna, the Respondents had, in principle, accepted the disadvantages resulting from the geographical distance to their place of business, including substantial travel and time differences. In addition, the court noted these disadvantages were not exacerbated by a remote hearing. To the contrary, the court took the view that starting a hearing at 6.00 am local time was less burdensome than having to travel from Los Angeles to Vienna for an in-person hearing.

 

On the fear of witness tampering

Finally, the court held that blanket allegations concerning the potential misuse of videoconferencing technology in examining witnesses could not render them inappropriate as such. As a preliminary matter, the OGH found that the risk of witness tampering also existed in in-person hearings (e.g. through influencing a witness’s testimony prior to the hearing or feeding the witness information on other evidence adduced during the course of the hearing). The court then added that remote hearings allow for measures to control witness tampering that “partly go beyond these available at a conventional hearing”. Such measures specific to remote witness testimony include

  • the (technical) ability of all participants to observe the person to be examined closely and from the front;
  • the possibility to record the evidence;
  • the option to instruct the witness to look directly into the camera and keeping his or her hands visible onscreen at all times (making it impossible to read any chat messages); and
  • showing the room in which he or she is testifying (ensuring that no other person is present).

 

Comment

The OGH’s judgment is a landmark decision, as it appears to be the first decision by a national supreme court specifically addressing remote hearings in international arbitration.

Even though the decision was taken in the specific context of a challenge of an arbitral tribunal, it has broader significance. The standard that the OGH applied was whether the tribunal’s decision to hold a remote hearing violated fundamental procedural principles: the parties’ right to be heard and their right to be treated fairly. According to the OGH, as a general rule, there is no violation of these core due process rights if an arbitral tribunal decides to hold a hearing remotely, even over the objection of one of the parties. Such a decision will therefore neither endanger the tribunal nor the award – particularly in times of a global pandemic like COVID-19. This conclusion of the OGH rests on three main pillars.

First, it rests on the general principle under the Austrian arbitration law (and the Vienna Rules) that arbitral tribunals enjoy broad discretionary power in how to manage the arbitral proceedings and conduct hearings. A decision to hold a hearing remotely falls within this prerogative of an arbitral tribunal and thus generally rests on safe ground.3)On this point, see also Scherer (n 1) paras 3.2.2 and 5. jQuery("#footnote_plugin_tooltip_8464_3").tooltip({ tip: "#footnote_plugin_tooltip_text_8464_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This is a welcome confirmation exactly because of the widespread use of videoconferencing technology in arbitration proceedings.

Second, the OGH’s decision is based on Article 6 ECHR, which is of constitutional rank in Austria and was the reason for Austria to adopt Article 18 of the UNCITRAL Model Law (the parties’ right to “equal” treatment) in a broader way, providing for a fundamental right to “fair” treatment (Section 594(2) ZPO).4)Schwarz and Konrad (n 2) paras 20–019 and 20-064 et seq; Paul Oberhammer, Entwurf eines neuen Schiedsverfahrensrechts (Manz 2002) 92–93; Christian Hausmaninger, ‘§ 594 ZPO’ in Hans W Fasching and Andreas Konecny (eds), Kommentar zu den Zivilprozeßgesetzen (§§ 577 bis 618 ZPO) (2nd edn, Manz 2007) paras 98–99. jQuery("#footnote_plugin_tooltip_8464_4").tooltip({ tip: "#footnote_plugin_tooltip_text_8464_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Notably, the OGH directly applied Article 6 ECHR in the present case and emphasized that this constitutional provision is designed to ensure both the parties’ right to be heard and effective access to justice. Particularly in times of a global pandemic that makes in-person hearings impossible for an extended period of time, remote hearings offer a welcome alternative that allows arbitral tribunals ensure continued access to justice while also protecting the parties’ right to be heard.

Third, under the OGH’s test a party wanting to challenge a remote hearing must overcome a strong presumption that such remote form is legitimate. In this context, it cannot simply rely on blanket and generalizing allegations of factual or practical concerns. Rather, such a party would be required to clearly identify concrete circumstances that will likely result in substantial unfairness in a particular case. Moreover, the OGH takes the view that any such arguments are unlikely to succeed, at least if they relate to concerns on time zone differences or witness tampering, because these concerns are also a reality in traditional in-person hearings but can also be controlled in remote hearings.

With regard to the issue of time zone differences, the courts’ general approach of highlighting the reduced effort and discomfort in accommodating somewhat usual hearing hours (within reasonable limits and at least for shorter hearings) compared to long travel and jet legs is powerful. The OGH’s reasoning that the Respondents’ consent to VIAC arbitration implied its acceptance of the disadvantages ensuing from the time zone difference to Vienna is less convincing. There is no need for in-person hearings to take place at the geographical location of the administering institution (and they often do not). Therefore, there is no reason to read any implied acceptances in parties’ choice for one institution over another. If any legal construct can be considered in this regard, it would be the parties’ choice of seat where remote hearings are regularly “presumed” to take place.

When summarizing the parties’ positions, the court also mentioned that the tribunal in the underlying arbitration had issued a procedural order at the outset of the proceedings according to which witness evidence could be taken remotely. This is a useful reminder that arbitral tribunals can further diminish the (already small) likelihood that the decision for a remote hearing would cause any issues by expressly providing for this option in its first procedural order. Where arbitral tribunals clarify this at the outset, remote hearings cannot come as a surprise to parties and there is no room for tactical objections. At an even earlier stage, parties might want to consider adding relevant provisions on the possibility of remote hearings in their arbitration clauses.5)For samples clauses, see Scherer (n 1) para 6.1. jQuery("#footnote_plugin_tooltip_8464_5").tooltip({ tip: "#footnote_plugin_tooltip_text_8464_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

References   [ + ]

1. ↑ The German Federal Court of Justice (Bundesgerichtshof, BGH) issued a ruling on the same day that addresses discrete issues of the potential for witness tampering during the remote taking of witness evidence. See BGH, Beschluss vom 23. Juli 2020 – I ZB 88/19. For an analysis of further case law on remote hearings, see Maxi Scherer, ‘The Legal Framework of Remote Hearings’ in Maxi Scherer, Niuscha Bassiri and Mohamed S Abdel Wahab (eds), International Arbitration and the COVID-19 Revolution (Kluwer 2020). 2. ↑ For an in-depth treatment of arbitrator challenges under the Vienna Rules and Austrian law, see Franz T Schwarz and Christian W Konrad, The Vienna Rules: A Commentary on International Arbitration in Austria (Kluwer 2009) ch 16; and for procedural fairness, at ch 20. 3. ↑ On this point, see also Scherer (n 1) paras 3.2.2 and 5. 4. ↑ Schwarz and Konrad (n 2) paras 20–019 and 20-064 et seq; Paul Oberhammer, Entwurf eines neuen Schiedsverfahrensrechts (Manz 2002) 92–93; Christian Hausmaninger, ‘§ 594 ZPO’ in Hans W Fasching and Andreas Konecny (eds), Kommentar zu den Zivilprozeßgesetzen (§§ 577 bis 618 ZPO) (2nd edn, Manz 2007) paras 98–99. 5. ↑ For samples clauses, see Scherer (n 1) para 6.1. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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#ArbitrationIdol: Community Spirit in Times of Crisis and Beyond

Fri, 2020-10-23 20:51

February 2020: Everyone was looking at the events calendar for the year. Flights were booked, hotel prices had been compared and the list of people that we hoped to meet and speak to at various conferences was growing longer. Fast forward four months to June 2020 and the picture was bleak: all in-person events cancelled; social gatherings postponed indefinitely; and – for some of us – enforced isolation, with no physical interaction for weeks. The warm familiarity of sharing a cup of coffee or tea with friends or colleagues is but one of the many comforts that vanished in the wake of the Covid-19 global pandemic. Social distancing remains the “new normal”. Even now, four months later, meeting for coffee can still be a challenge.

It was a few weeks into the current pandemic when, in June 2020, Svenja Wachtel (Digital Coffee Break in Arbitration), Chris Campbell (Tales of the Tribunal) and Amanda Lee (Careers in Arbitration) decided to try and find a way to make the best of the situation, create opportunities for the arbitration community to engage and help those in need. What everyone was lacking was social interaction, the opportunity to actually talk to one another in person. Therefore, we wanted to find a way to connect experienced leaders in the field of international arbitration with lucky individuals from around the world for a digital coffee break, while collecting money for children, who were particularly badly affected by the pandemic.

The idea was simple: anyone, anywhere in the world, could donate whatever they could afford (minimum donation EUR 1) in exchange for the chance to win a one-on-one digital coffee break with a leader from the field of international arbitration. The proceeds would be donated to UNICEF. And so #ArbitrationIdol was born!

The idea was just the start: action was required. Finding a charity platform, contacting UNICEF, preparing advertisement material and – of course – identifying arbitration leaders who were willing to participate in #ArbitrationIdol and asking them to donate their time and support. While the word “Idol” might sound questionable to some, an idol describes “someone who is admired and respected very much“. In this context it was a play on words, a tongue-in-cheek parody of the US singing competition show “American Idol”. It is not solely the outstanding work of each individual chosen, but their willingness to support and help others in difficult times that was relevant. We are beyond grateful to the distinguished leaders who became our #ArbitrationIdols. We wholeheartedly wish to thank:

Catherine Rogers, Dana MacGrath, Darius Khambata, Eleonora Coelho, Funke Adekoya SAN, Gabrielle Kaufmann-Kohler, Gary Born, Joongi Kim, Lucy Reed, Michael McIlwrath, Mohamed Abdel Wahab, and Toby Landau QC.

for immediately agreeing to donate their time and share their valuable experience with our winners.

In the end, we counted 92 donors and collected EUR 1,936 for UNICEF! THANKS to everyone who participated, donated, shared the links, advertised #ArbitrationIdol and otherwise helped to make our initiative the great success it was! Every penny helped, and we are thrilled to be part of a professional community that actually cares.

After the winners enjoyed their digital coffee breaks, we received plenty of positive feedback about the unique opportunity to talk to such experienced professionals provided by #ArbitrationIdol. Discussion topics ranged from arbitration to hobbies, families, books, nature and so much more.

We sincerely hope that everyone who participated feels as happy as we do about #ArbitrationIdol. Stay tuned for Season Two of #ArbitrationIdol.

Some of the Arbitration Idols and winners share their experiences below:

 

I was incredibly impressed by how prepared my paired person was for our virtual meeting, he had spent time learning my background and put together a list of questions for me, both substantive about arbitration funding and mentoring/career advice questions. It was quite reaffirming to see the passion the younger generation has to succeed in this field and with such positivity during a climate of challenges and uncertainty

Dana MacGrath

 

“I was delighted to help support UNICEF and, hopefully, the international arbitration community by participating in #ArbitrationIdol. Thanks so much to everyone who made – or still plans to make – a donation, no matter how large or small!”

Gary Born

 

“We all carry the seeds of greatness within us, but we need an image as a point of focus in order that they may sprout.”. Epictetus was right, wasn’t he? We all need idols or mentors who will help us become the best version of ourselves. In the middle of a global crisis, Amanda, Svenja and Chris managed to gather the most influential arbitrators, who generously offered their valuable free time for a virtual coffee with a few fortunate fans, for a good cause.  To be in with a chance of winning the only thing we had to do was to donate any amount of money to UNICEF, which has been playing a pivotal role in helping children in danger. It worked as an excellent reminder of the fact that COVID-19 is either a source of new tragedies or an additional layer to pressing problems and emergencies for the vulnerable groups of the society that we tend to turn a blind eye on. I was offered an amazing opportunity to enjoy a digital coffee with Professor Lucy Reed, with whom we discussed about archaeology, her career path, my struggles, her views on a number of IA issues, including her genuine commitment to diversity that covers brilliant colleagues who have been facing a high degree of bias because they need special facilities. We are all familiar -to a certain extent, as there are many more aspects to be discovered- with her phenomenal work, but a discussion with her enlightened me on her “plus” qualities that make the difference between a good, famous IA practitioner and an IA idol. I am most grateful to Lucy, Amanda, Svenja and Chris for this lesson.”

Dr. Artemis P. Malliaropoulou, MCIArb

 

“I was incredibly lucky to be paired with Mohamed Abdel Wahab. I loved hearing about how Mohamed has crafted his career – from being the top law student in Egypt, to study in the UK, and building his career from Egypt to the world. He also introduced me to his family and it was wonderful to get to know that personal dimension to his life. He was also so generous in listening to my story and offering advice and support. Thank you again to Svenja, Chris and Mandy for this amazing #ArbitrationIdol opportunity.”

Elizabeth Chan

 

“The interview with Prof. Kaufmann-Kohler on my birthday made it definitely a most memorable one. After checking for the essentials (“Do you have your coffee and some chocolate ready?”) we talked about the arbitration world, career paths and everything else that came to mind and she gave me great advice as well as some pointers for which I will be forever grateful. Many thanks again to the Arbitration Idol team for this opportunity and to Prof. Kaufmann-Kohler, who is just as amazing and impressive in person as you would expect from afar.”

Dr. Sandra Gröschel (née Kühn)

 

“I missed networking a lot during the confinement and thanks to Svenja, Chris, and Amanda for launching an initiative that supports a social cause and offers a chance to network at the same time with some big names. If it wasn’t for Arbitration Idol, I don’t know how I would have had a virtual coffee with Toby Landau. We need Arbitration Idol Season 2 very soon!”

Sneha Ashtikar

 

“Participating in Arbitration Idol is an experience that I will always cherish. I really enjoyed taking part in this worthwhile initiative at such challenging times and meeting Funke Adekoya was a great honour. Here’s to more projects connecting arbitration practitioners and academics worldwide!”

Zeyad Abouellail

 

“It was wonderful to meet Joongi Kim particularly at a time like this when we are all missing the opportunities to connect which arise at conferences. When you work in private practice you can see things through a certain lens and become very impatient so it was eye opening to talk to a senior arbitrator with a different perspective. As an experienced arbitrator and academic Joongi was both very generous with his time and also had lots of helpful advice and ideas that were new to me. As you progress in your career it is important to seek advice from people outside your own firm and with a wide range of perspective. Thank you very much Arbitration Idol for giving me the opportunity to meet Joongi and support a great cause at the same time.”

Paula Gibbs

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Hong Kong Arbitration Week Recap: GAR Live Debate on Arbitrator Challenges

Thu, 2020-10-22 23:32

For its 10th anniversary, GAR Live Hong Kong took place on day four of the 2020 Hong Kong Arbitration Week.1)The views expressed in this article are those of the author’s and should not be attributed to Kim & Chang. jQuery("#footnote_plugin_tooltip_1018_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1018_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });  Held in full virtual format, the conference was rebranded “GAR Interactive” for the occasion.  The final session featured the classic GAR Live debate adopting the Oxford Union style on the motion: “this house believes that there is no such thing as a bad challenge”.

 The debate was judged by Doug Jones of Atkin Chambers with:

  • Judith Levine; and
  • Robert Wachter of Lee & Ko

For the motion, and

  • Meg Utterback of King & Wood Mallesons; and
  • Ing Loong Yang of Latham & Watkins

Against the motion.

 

Submissions

As the first speaker for the motion, Ms Levine introduced her team’s main argument, that there is no such thing as a bad challenge since all challenges, even the rejected ones, can bring about positive systemic change by clarifying certain issues.  Ms Levine presented four examples of such issues.

  1. The case of “the overbooked arbitrator”, where a challenge was brought before the PCA as the challenged arbitrator’s schedule was deemed so busy as to constitute a de facto incapacity to perform her mission: Although the challenge was rejected, it put the spotlight on an issue that indeed has become a cause of both concern and attention over the years. Positive change occurred as a result, with the obligation of every nominated or otherwise considered arbitrators to fill out a two-year calendar as part of their statement of acceptance in ICC arbitration cited as an example.
  2. The case of “the delegator”, where an arbitrator was challenged for not reading the submissions or drafting the award himself or herself – an issue often linked to the one above: The use of administrative secretaries, for instance, has become a common practice, but the implementation of such practice has attracted increased scrutiny since Russia brought its infamous challenge in the Yukos case. However unjustified, such challenges have flagged a sensitive issue and have indeed led to positive systemic change, with the HKIAC Guidelines on Use of Secretary to Arbitral Tribunal being a prime example thereof.
  3. The case of “the bully”, where a challenge was brought against an arbitrator who banged her fist on the table to interrupt counsel: Although the challenge was rejected and the arbitrator was found to have acted within the scope of her mandate and power to conduct the proceedings, this type of instance has also led to the publication of new guidelines, such as the recent ICCA guidelines on standards of practice.
  4. “The nuclear option”, a rarely deployed strategy of challenging the whole tribunal: Here, a party challenged the whole tribunal after it decided to hold, over that party’s objection, the hearing by videoconference. The challenge was rejected, as the PCA found that the tribunal’s general power to conduct the proceedings included the power to decide that the hearing should be virtual despite one party’s objection to that solution, and that such decision provided no basis for an appearance of bias. Here again, this particular challenge helped clarify a significant and most timely issue.

Ms Levine concluded that none of the above challenges, despite being rejected, were not “bad” challenges since they raised topical issues and helped clarify them.

As the first speaker against the motion, Mr Yang immediately pointed out the fact that, based on available statistics, bad challenges far outnumber good ones.  Mr Yang stated that, at the heart of arbitration, there is a need to strike a balance between a party’s right to a fair arbitration and a party’s right to select its arbitrator.  Three points were developed against the motion.

First, what is a bad challenge? As illustrated by the previous session of GAR Interactive of the same day, the “GAR decision time”, there are a number of scenarios where parties, in-house counsel and external counsel have had to consider whether a challenge should be brought.  Parties have to consider their chances of success in challenging an arbitrator – “if you shoot the king, make sure you do not miss” or “shoot to kill” were some of the phrases used to illustrate that point – but also the potential ramifications for the case after the decision on the challenge is received, particularly if it fails.  In other words, a challenge is not always a good option.

Second, in practice, the majority of challenges do fail.  The heavy and advertised filtering of challenges by institutions suggests that bad challenges do exist.  Looking at Article 11.6 of the HKIAC Rules for instance, the use of the term “justifiable” means that the challenging party will have to evaluate whether its challenge is good or bad.

Third, a bad challenge is not always one brought to intimidate the arbitrator or simply because an adverse decision has been rendered.  Even a meritorious challenge may bring about undesired effects, and, in that sense, it may constitute a bad challenge, in that it could undermine the confidence of other arbitrators or derail the proceedings.

Mr Yang concluded by reminding the audience that before an arbitrator is confirmed, she must declare her independence, impartiality and availability.  This declaration constitutes a cornerstone of arbitration and should not be sullied by bad challenges.

 

Speaking second in support of the motion, Mr Wachter asked: what is good for arbitration?

Parties should not be afraid to make their rights heard.  Mr Wachter submitted that all members of the arbitration community, counsel, arbitrators and institutions, are in service to the parties.  User confidence is the most important, and the right to challenge is essential to the overall process.  With that foundation in mind, such a right would be meaningless if it could not be exercised without fear.  Mr Wachter submitted that, as a community, arbitration practitioners should push against the sentiment that if the challenge fails, the Tribunal will hold a grudge for the duration of the case, or indeed forever.  He argued that the approach to challenges has been too conservative, putting too much emphasis on the assurance of success.

Mr Wachter also submitted that there are too few challenges, and he cited the LCIA statistics which show that challenges are only introduced in 2% of the cases.  Mr Wachter stressed how useful the publication by the LCIA of its data on 60 anonymized cases of challenges has been to him, and submitted that everyone would benefit from more challenges.

Mr Wachter concluded by noting that, in actual practice, challenges do not really cause delay, as a number of institutions issue their decisions within two weeks, so there is no need to consider that challenges are bad.  Self-regulation being the best regulation, we will be stronger if we accept that there is no such thing as a bad challenge.

 

Speaking last and against the motion, Ms Utterback stressed at the outset that the premise of the debate was that there is no such thing as a bad challenge and clarified that she and Mr Yang did not submit that there should be no challenges, but that they should be valid and appropriate.

On systemic change, Ms Utterback submitted that we should turn to our community and discuss these issues in fora such as GAR.  The bad challenges that we are considering here, Ms Utterback submitted, are the black arts, challenges brought about to gain an advantage, or pretending that a disclosure leads to a justified challenge. These can be identified and discussed.

Against the proponents of the motion, Ms Utterback also submitted that bad challenges do not create beneficial or useful case law.  They are introduced in bad faith and we learn nothing from their rejection.  Referencing the IBA guidelines, Ms Utterback stated that “unless you’re in the red, careful where you thread”, and procedural challenges also almost always fail, with little to learn from that.  Statistics from various institutions such as the LCIA, the ICC or the HKIAC indeed show that challenges in general rarely succeed, because most of them are bad challenges.

A bad challenge, Ms Utterback submitted, is when a challenge is brought for reasons other than removing the arbitrator, such as to disrupt, delay or intimidate.  There is a high risk for a bad challenge to backfire.  A bad challenge, if brought simply because an unfavorable decision was issued, can also reinforce an adverse ruling.

Both sides made rebuttals.

 

Vote

Speaking after both teams had concluded their submissions and before the audience was asked to vote – per the interactive and virtual format adopted this year – on whether or not the motion should be accepted, Professor Jones immediately remarked that today’s debate had been the most substantive contribution to the subject he had ever heard and that this is indeed a very important issue.

The fate of the motion was put to a poll, and the results were 36% for and 64% against.  Professor Jones noted that this was a very close run for a debate that was not so easy to run.

 

Conclusion

Indeed, the result of the interactive decision by the audience was quite surprising.  It may well be that the vote mostly recognized the quality of the submissions made for the motion, rather than an actual opinion that there is no such thing as a bad challenge.  As most practitioners having had unfortunate experiences with challenges would recognize, the first reaction that would come to mind when seeing the motion proposed today would be that bad challenges indeed do exist.  These can be challenges brought for tactical reasons, challenges brought simply to cause delay or disruption, or maybe challenges brought out of spite or a lack of experience.

The proponents of the motion, however, approached it from a different and more systemic angle, suggesting that challenges are in fact always good in that even their rejection clarifies issues and can bring about positive change.  In that sense, the interactive vote may also have sent a different message: that despite constant and positive evolution, there is still a need for more transparency in international arbitration.

Most institutions have in recent years taken steps towards greater transparency, and in particular with respect to arbitrators’ disclosure and challenges.  The IBA Guidelines are most often referred to by counsel but other and sometimes more specific standards have been laid out so as to provide further guidance.  One can think of the developments found in the ICC Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration for instance.  It would appear, at least judging from the audience’s reaction to today’s debate, that this is still not enough.  Publication of statistics by institutions does not appear very useful without providing actual details of the challenges themselves and the reasoning of the deciding body, which can easily be done in anonymized formats, as was argued today.

By way of example, Professor Jones mentioned arbitrators who were successfully challenged for defending other members of the tribunal who had been the target of an unmeritorious challenge. The same sometimes is true for the challenged arbitrator herself, who responds too strongly to what she perceived as an unjustified or hostile tactic.  Whether this type of challenge should be accepted would of course be heavily dependent on the circumstances of the case, but the arbitration community could also do more so that such situations do not arise in the first place.  That may be achieved through different means, and the unwavering stance against unmeritorious challenges is one of them.  Clarity on what does constitute a bad challenge and how parties, counsel, arbitrators and institutions should approach them, is also necessary, and today’s debate certainly contributed to the discussion on arbitration’s path towards more transparency.

 

This concludes our coverage of Hong Kong Arbitration Week 2020. More coverage from Hong Kong Arbitration Week is available here.

References   [ + ]

1. ↑ The views expressed in this article are those of the author’s and should not be attributed to Kim & Chang. 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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Hong Kong Arbitration Week Recap: ADR in Asia Conference on US-China Relations – Challenges and Opportunities

Wed, 2020-10-21 20:00

Day three of Hong Kong Arbitration Week 2020 featured, as part of the ADR in Asia Conference, a panel session on US-China relations and the challenges and opportunities that arise out of that relationship.  The session was chaired and moderated by Mr Peter Yuen of Fangda Partners.  Mr Yuen was joined by a diverse group of panellists who each brought a different perspective on the current state of US-China relations and its impact on the global economy and how businesses operate.  The panellists were:

  • Ms Janet Pau of the Economist Corporate Network;
  • Mr Mark Feldman of Peking University;
  • Mr Randall Lewis of EHC Global; and
  • Ms Jingyi Li Blank of Mintz Group.

Mr Yuen opened the session by observing that US-China relations have rapidly deteriorated in recent years, pointing to events such as: (1) the ongoing US-China trade war; (2) the protests in Hong Kong; (3) the US presidential elections, where the candidates hold differing views in respect of US relations with China; and (4) increased military activities by both the US and China around the region.  Mr Yuen then invited the panellists to each share their perspectives and thoughts on this particular phenomenon.

 

US-China relations – a multi-faceted and pervasive issue

The key observation that can be drawn from the session is that the issue of deteriorating US-China relations is a pervasive and multi-faceted one that can be examined from many different angles.  Indeed, Ms Pau opened the stage by sharing her views as a director at the Economist Corporate Network, an institution that, amongst others, assists business leaders with navigating the increasingly complex global environment.  In Ms Pau’s view, the US-China relationship is both a cause and a consequence of a global trend that involves governments taking a more interventionist approach, often justified on the basis of national security, whether real or false.  She observed that there has been a fragmentation of the global order, with countries forming alliances on an issue-by-issue basis, rather than working with traditional allies. This fragmentation of the global order has caused voices that are more neutral and centric to be sidelined, making it difficult for businesses that are accustomed to remaining neutral.

Mr Feldman in turn shared his views from the perspective of a law professor.  Focusing on two recent multilateral international treaties, the Regional Comprehensive Economic Partnership and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, coupled with the introduction of the One Belt, One Road initiative and the Asian Instructure Investment Bank, he observed that there is going to be greater regional integration of the Asian economy.  Mr Feldman contrasted this with the decoupling of the US-China relationship and how both countries are intervening more in global business through tariffs and national security legislation.  He noted that the business community would have to learn how to balance these tensions.

Mr Lewis provided his perspective as the general counsel of a Canadian multinational company headquartered in the US with global operations.  Speaking from experience, Mr Lewis shared that doing business in China has become increasingly difficult with an increase in social media pressure (for example, having to watch what the firm’s employees say about China) and a more aggressive Chinese policy in promoting local businesses.  That being said, he stated that these are obstacles one would expect from doing business in China.  Where the ground has shifted, according to Mr Lewis, is the US-China trade war, which has caused a whole host of problems ranging from having to shift production to other countries due to tariffs, and levels of regulatory scrutiny on US-based businesses hitherto not experienced.  This has led to delays in key M&A transactions and compliance issues with their supply obligations.  Interestingly, Mr Lewis said it was the COVID situation that gave businesses some respite as Chinese regulators became more cooperative in order to boost the economy.  However, he pointed out that this respite will not last for long and businesses will still have to consider how to manage their global operations and how much of it to base in China.

Finally, Ms Li Blank provided a unique perspective as a partner of the Mintz Group, a financial investigations company.  She observed that whilst the US-China relationship has certainly worsened in the last twelve months, many of the issues have been going on for some time.  Ms Li Blank noted that with increasing tensions between US and China, certain information, whilst not illegal to collect, has become too sensitive to collect.  She cited collection of human rights data in Xinjiang as an example – the Mintz Group had to stop sending investigators into the region and think of other ways to collect information.  Ms Li Blank also stated that with economies becoming more insular and nationalisation on the rise, information collection has become more difficult.

 

Impact on Hong Kong

Mr Yuen also asked the panellists to chime in on how US-China relations have impacted Hong Kong.  Ms Pau noted that the views of business leaders have largely fallen into two camps.  One group of executives think that there will be little change because some of the advantages Hong Kong has are hard to replicate.  Amongst others, Hong Kong has been able to ‘play both sides’ whilst upholding many global standards in terms of legal and financial systems, a feature that these executives think will not change.  The other group of executives are worried about how Hong Kong is becoming increasingly caught in the crossfire between the US and China, with governments increasingly requiring businesses to pick sides (and therefore winners and losers).  Mr Feldman thought that arbitration numbers continued to look strong in Hong Kong, with the mutual enforcement arrangement of arbitral awards between Hong Kong and China being a significant contributor to that.

 

Who are the likely winners?

Mr Yuen ended off by asking the panellists to pick the likely winners to emerge from the US-China saga.  Mr Lewis thought that businesses that had to rethink their supply chain strategy as a result of the trade war are going to come out stronger and better.  Mr Feldman thought that an integrated Asian economy will emerge on top.  Ms Li Blank’s view was that businesses involved in dealing with and resolving dispute resolution will benefit.  Finally, Ms Pau thought that global investors who are able to think flexibly and place capital where there is growth will emerge winners.

 

Conclusion

The issue of US-China relations is obviously one with many faces.  Whether it presents itself as a bane or a boon will depend on who you ask and where those individuals’ interests lie.  Nevertheless, it is safe to say that uncertainty and unpredictability remain a common theme in all answers.

 

More coverage from Hong Kong Arbitration Week is available here.

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Hong Kong Arbitration Week Recap: Reimagining Arbitration – Technology and the Pandemic

Tue, 2020-10-20 20:00

On the second day of the Hong Kong Arbitration Week 2020, the British Institute of International and Comparative Law (“BIICL”) hosted a virtual workshop on the impacts of technology and the pandemic which allows (or rather, demands) us to “re-imagine” arbitration.

 

Smart Contracts, Blockchain and Cryptocurrencies

The first panel discussion addressed “Smart Contracts, Blockchain and Cryptocurrencies”. Panelists include Sir William Blair, former Judge of Commercial Court (England and Wales), Sir Bernard Rix, former Lord Justice of Appeal, Mr Jacob Turner, barrister of Fountain Court Chambers, and Dr Mimi Zou, Lecturer and Director of Studies in Law of the University of Oxford. The panel discussion was moderated by Professor Spyros Maniatis, Director of BIICL.

Non-deterministic technologies

Mr Turner started the discussion by exploring legal challenges posed by “non-deterministic technologies”, which develop minds of their own. Mr Turner gave the example of Alpha Go which not only beat the human world champion in the chess game of Go, but did so through surprising moves that even human experts did not understand at the time of watching the game. The challenge in the legal context therefore is, while existing laws and ethical standards are designed for and by humans, non-deterministic technologies are capable of making “surprising decisions” that is beyond the human mind which could in turn become very difficult to supervise. As raised by Mr Turner, there is also the broader question of who is responsible for the harm caused and who is entitled to the benefit created by such technologies? It was suggested that arbitration could be valuable to both common and civil law jurisdictions as a “test bed” for these unprecedented issues.

Potential of DLT in arbitration

Sir William highlighted the potential for employing distributed ledger technology (“DLT”) including smart contracts in arbitration, as it could enable automated initiation of proceedings, collection and integration of data as evidence, production of arbitral awards compatible with relevant digital platforms, and the automated enforcement of awards. Further, Sir William pointed out the synergies between green/spatial finance and dispute resolution; for example, spatial finance offers potential for certification of projects by embedding smart contracts, which could then serve as useful evidence in case of dispute. Sir William then summarised that technology would improve “not only in the efficiency but also the quality of decision-making”.

New challenges and old principles

Also in connection with smart contracts, Sir Bernard offered valuable insights by juxtaposing two propositions: (i) there is “nothing new under the sun”, but at the same time (ii) “the past is a foreign country and each day dawns anew”. Put in the context of smart contract dispute resolution, while issues have to be decided by application of existing legal principles, those principles will also have to be applied “with a new understanding of new things”. Sir Bernard illustrated this by way of a lively case study of the Singaporean case of Quoine Pte Ltd v B2C2 Ltd [2020] SGCA (I) 02, which raised important questions as to how to balance between conflicts of fundamental legal principles, such as between achieving certainty and substantial justice. On this point, Sir Bernard remarked that since arbitration awards do not have binding precedential effect, there may be more flexibility in finding a position that leans on the side of substantial justice.

DLT and dispute resolution

Dr Zou gave an overview of the Aragon Court, a decentralised dispute resolution mechanism based on DLT designed to handle disputes requiring human judgment. Dr Zou then highlighted the irony when Aragon decided to file a traditional lawsuit against a blockchain developer funded by it, which sparked much controversy. Dr Zou also took the opportunity to highlight the need for “trust” as it is important for blockchain networks to provide trustworthy dispute resolution methods and services. Dr Zou also opined that given the novelty involved and the need for speed and confidentiality, arbitration is very much suited to resolve smart contract and blockchain disputes, hence there will be ample opportunities for arbitral institutions to develop new initiatives in this emerging market space.

 

Responding to Pandemic Disputes: Breaching Space and Guiding Principles

The second panel discussion was on “Responding to Pandemic Disputes: Breaching Space and Guiding Principles”. Panelists include Professor Eva Lein, Director of the Comparative Law Center at BIICL, Ms Helen Dodds, Global Head of Legal, Dispute Resolution of Standard Chartered Bank (London), and Professor Dr Maxi Scherer, Professor of Law of Queen Mary University of London and Special Counsel at WilmerHale. The session was moderated by Ms Chiann Bao, Independent Arbitrator and Vice President of ICC International Court of Arbitration, and Professor Chin Leng Lim, Professor of Law of the Chinese University of Hong Kong and Barrister of Keating Chambers.

Breathing space

Professor Lein started with the idea of “breathing space” in the context of COVID-19, where businesses are faced with unprecedented issues and pressures. As described by Professor Lein, the pandemic not only slowed down the judicial system, but also led to consideration of difficult legal issues pertaining to the allocation and assumption of risks in particular. In this regard, Singapore and the CIArb, among others which have offered innovative options for more effective dispute resolution mechanisms following the pandemic, were mentioned as examples of “breathing spaces” created. Professor Lien also urged commercial parties to take a step back and be mindful of principles of solidarity and fairness in these times of crisis.

Along similar lines, Ms Dodd spoke of “breathing space” in the context of dispute resolution mechanisms as causing the “least collateral damage to the fragile environment” especially as economic recovery could take at least a few years, and recommended in this regard the practical guidelines prepared by BIICL which consider how the legal and business communities may cope with the pandemic in order to promote economic recovery. Further, Ms Dodd encouraged commercial parties to “think beyond formal parameters”, and pause and reflect on the different paths to dispute resolution, including further negotiations, other alternative dispute resolution means, and narrowing of issues.

Asynchronous forms of arbitration

Finally, Professor Scherer introduced the concept of “asynchronous” forms of arbitration, where things do not occur at the same time (see also discussion in previous post). Professor Scherer invited parties to consider whether asynchronism can be taken further, for example, by pre-recording opening statements to be made available in advance of the evidentiary hearing. Professor Scherer outlined the efficiency benefits brought by asynchronism as well as challenges in its implementation, e.g., counsel may feel that it is less effective and engaging while arbitrators may not be able to clarify questions contemporaneously. Professor Scherer finally remarked that the degree of asynchronism is ultimately a matter for parties to decide based on actual circumstances of each case.

 

Concluding remarks

The workshop very comprehensively addressed the two forces that have re-shaped, and will no doubt continue to re-shape, the arbitration landscape. Technological developments are very much welcomed and embraced in the context of dispute resolution where there is much room for further advances in the areas explored. As for the pandemic, long-lasting impact on our society, economy and our collective memory is expected. Having said that, it is up to us to emerge from the crisis elegantly by leaving breathing spaces both for ourselves and our neighbours.

 

More coverage from Hong Kong Arbitration Week is available here.

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Hong Kong Arbitration Week Recap: International Arbitration in Times of COVID

Mon, 2020-10-19 20:00

The first day of Hong Kong Arbitration Week 2020, hosted by the Hong Kong International Arbitration Centre (“HKIAC”), was an opportunity for practitioners to discuss the topic: “Socially Distanced or Procedurally Flawed: International Arbitration in times of COVID“, which sought to address some of the ever-evolving challenges of conducting virtual hearings in times of COVID.1)The views expressed in this article are those of the authors and should not be attributed to Herbert Smith Freehills. jQuery("#footnote_plugin_tooltip_7331_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7331_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Insights were shared on a range of topics, from hybrid hearings to witness credibility and future trends to monitor.

The moderator guiding the event’s discussion was Mr Nicolas Wiegand of CMS Hong Kong, and he was joined by experts in the field representing the perspectives of clients, arbitrators, experts and counsel:

  • Ms Christina Taeuber of STRABAG;
  • Ms Judith Levine; and
  • Mr James Nicholson of FTI Consulting.

Mr Wiegand opened the session by asking the panellists for their observations on the benefits and challenges of the shift to virtual hearings in the wake of the COVID pandemic.

The panel broadly noted that the shift to virtual hearings, while difficult, had been relatively smooth. For example, Ms Levine noted that for arbitrators, some unexpected advantages had been not only time saved on travel, but time saved on travel planning and travel recovery. The online format has also facilitated easier discussions between arbitrators in different locations outside of hearing dates. Mr Nicholson, as an expert witness, noted that the expert actually can have more impact in a virtual hearing. Being the person navigating the online participants through the material, he can make sure that a tribunal gets a clear picture of what he is seeking to convey.

Ultimately, virtual hearings have not made physical hearings redundant, but they do open new opportunities.

 

How hearings are structured and whether hybrid hearings are effective

Broadly speaking, the panellists noted that wherever possible, the structure and format of the arbitration should conform to the circumstances of the case. This ranges from considerations of protocol, whether a hybrid format works for each party, whether a hearing should be delayed so it can be held in person, and whether a different approach may be appropriate for different stages within the arbitration.

While currently, a purely virtual hearing may be the only format available in some places, in others where lockdowns have eased, a hybrid format might be a possibility. This could take the form of some parts of the arbitration being held online, or with some participants appearing in person and some online as needed.

For example, Ms Taeuber noted that even if an in person element would be helpful for witnesses, it may still be possible to assess preliminary or final questions, such as jurisdictional issues or opening/closing submissions generally, in an online format. Alternatively, parties might decide that only those with speaking roles, such as counsel and witnesses are required in person, with support personnel participating online, creating cost efficiencies.

However, this hybrid model can also create issues. Ms Levine stated that in a hybrid model there may be a perceived, or real, inequality if there is no equality of physical representation for each party, and Mr Nicholson suggested that where one expert is in the room and the other is not, this could create a perception of disadvantage.

 

Issues surrounding witnesses

The panellists noted that while there are differing views on whether assessment of witness credibility is more difficult, no different, or even easier in an online format, in most circumstances issues with online witness evidence were able to be overcome and ultimately did not prevent a fair hearing.

While some parties have gone to extreme measures to combat any reliability issues, for example in one case, each party sending a witness to be physically present to monitor the giving of evidence in the expert’s house, generally a more common sense approach has developed, in which protocols are tailored for the specific circumstances. For example, a protocol may require the door to the room being visible, or the witness giving a 360 degree view of the room prior to giving evidence.

For witness observation, while online evidence means that tribunals may miss out on physical cues, such as nervous tapping or fidgeting, some perceive that all parties being able to see the witness in front-on profile allows for easier observation.

 

New issues, trends, and looking ahead to the future of arbitration

Going forward, the panellists agreed that there were real issues surrounding party agreement and digital equality in relation to virtual hearings, which need consideration by the arbitration community.

As Ms Levine noted, an online hearing is only as good as its weakest internet connection and for virtual hearings to be effective and just, this must be a paramount consideration. While a virtual hearing may give greater access to arbitration for those who may find it difficult to physically travel, a virtual hearing may also pose problems for those with weak connections or unstable power supplies.

Further, while many parties are willing to participate in online proceedings, there will of course be times when that is not the case. Two particular instances in which issues may arise are in respect of enforcement of judgments and challenges to arbitrators themselves. Ms Levine suggested that, while arbitration regimes are catching up with the sudden online shift, it is particularly important for tribunals to provide very clear reasons in deciding to conduct an arbitration online against the wishes of one party.

Finally, Mr Wiegand invited the panellists to comment on issues and trends to monitor over the coming period.

Mr Nicholson suggested that economically, there are likely to be parallels to the global financial crisis, with loss of profit claims poised to be a significant issue in the coming months and years. For these claims, whether loss is assessed before or after the beginning of the pandemic will result in significant ranges in damages.

Ms Taeuber believed that digital literacy of arbitrators will be significant, and may lead to a new generation of arbitrators getting opportunities previously not available to them. She further reiterated that developments in force majeure cases will be important to watch.

Ms Levine suggested that flexibility, preparation and equality are key for the profession going forward. The online and hybrid formats can create significant advantages, but pose issues of planning, digital equality and timing that must be properly considered.

In summary, despite the many and significant challenges for arbitrations raised by the COVID pandemic, the profession has quickly developed solutions to many of these challenges. These solutions will not only help the arbitration community weather the ongoing pandemic itself but, with care and consideration, will hopefully be the beginning of creating a stronger, more flexible, commercial and efficient arbitration framework for the post-COVID world.

More coverage from Hong Kong Arbitration Week is available here.

References   [ + ]

1. ↑ The views expressed in this article are those of the authors and should not be attributed to Herbert Smith Freehills. 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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