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Recognition and Enforcement of Foreign Court Decisions and Arbitral Awards in Greece: Is There a New Trend Towards a More Relaxed Application of the Public Policy Exception to Punitive Damages?

Mon, 2019-06-10 03:00

Alexandros Tsirigos, Panagiotis Krystallis and Danai Skevi

A recent court judgment confirms enforceability in Greece of a US judgment awarding USD 10 million in punitive damages 

The Judgment no. 722 of 2019 of the Single Member Civil Court of Piraeus paves the way to a more permissive approach as regards the enforceability of foreign court judgments and arbitral awards on punitive damages in Greece. This is a breakthrough case law development compared to previous, long standing, jurisprudence of the Greek courts, which have generally relied on the public policy doctrine to resist enforcement of foreign court judgments and arbitral awarding punitive damages by finding them excessive or disproportionate compared to the actual loss suffered. While it consistently applies the criteria already set by previously established case law for the assessment of awards on punitive damages in light of the public policy exception, the recent ruling is novel in that it engages in a holistic, ad hoc assessment of the legal and factual matters of the case at hand in a pragmatic manner, without limiting its review to the amount of the punitive damages award, as previous case law has done.

 

Legal Background

In Greece, as in most jurisdictions, the recognition and enforcement of foreign court judgments and arbitral awards can be resisted, inter alia, on the grounds of public policy considerations. The test applied by Greek courts in this respect is premised on the notion of public policy defined as the most fundamental civil, moral, social, legal and economic considerations prevailing in the country. In a nutshell, the scope of the public policy standard of review is both (i) narrow (in the sense that it comprises a very limited group of fundamental rules and not all mandatory provisions of Greek law) and (ii) dynamic (meaning that the perimeter of such fundamental rules varies from time to time depending on the prevailing liberal or conservative approach adopted in the country, as ascertained by Greek courts).

Greek courts have examined on various occasions whether foreign court judgments and arbitral awards ordering punitive damages are enforceable in Greece in light of the public policy exception and the general principles on damages applicable under Greek law. The common law concept of punitive damages is not recognized as such under Greek law, as it contravenes the general principle that any award of damages should be of a compensatory rather than punitive nature. Exceptionally, certain punitive-like statutory remedies are provided for in special legislation – for example, in case of violation of intellectual property rights the claimant may, under certain conditions, bring a claim for damages without being required to quantify actual loss. On the other hand, Greek law does not reject the concept of contractual penalties of sanctionary nature. Although the common law concept of liquidated damages is alien to Greek law, parties are allowed to agree on monetary penalties for contractual breaches. Such penalties are generally upheld by Greek courts, provided that they are not deemed excessive or out of proportion to the relevant circumstances.1)See Supreme Court judgment no. 2049 of 2017, dealing with the distinction between liquidated damages and penalty clause. jQuery("#footnote_plugin_tooltip_6374_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6374_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In fact, parties are not allowed to waive the judicial review of the legality (reasonableness/proportionality) of such contractual clauses, as this is a mandatory rule (ius cogens).

 

The Public Policy Test

Against this legal background and in line with its rulings on the aforementioned narrow and dynamic scope of international public policy rules, the Greek Supreme Court2)See Supreme Court judgment no. 17 of 1999. jQuery("#footnote_plugin_tooltip_6374_2").tooltip({ tip: "#footnote_plugin_tooltip_text_6374_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); has consistently set the applicable standard for the assessment of the enforceability of punitive damages or similar contractual penalties awarded by foreign courts and arbitral tribunals as follows:

(1) the award of punitive damages does not contravene per se the Greek public policy norms;

(2) the enforcement in Greece of a court judgment or arbitral award ordering punitive damages is permitted under condition that the enforcement court has assessed and confirmed, by means of an in concreto analysis, that the punitive damages awarded are not excessive or disproportional in light of the given circumstances.

Namely, although the Greek courts are not allowed to review the foreign court judgment or arbitral award on its merits, they must actively examine the given factual background against which the award on punitive damages was issued and conclude whether the amount of such punitive damages is within acceptable limits, i.e. not excessive or disproportional.

 

Past Case Law: Reserved Position Towards Punitive Damages Awards

When applying the test, Greek courts have in the past resisted recognition and enforcement of foreign court judgments and arbitral awards ordering punitive damages, either on the basis that the enforcement court did not perform at all the required in concreto analysis or on the basis that the punitive damages awarded were considered excessive or disproportional in light of circumstances, such as the nature and significance of the violation or breach by the debtor, the intensity and measure of the debtor’s fault, the creditor’s legitimate interests, the moral and financial status of the parties and any other special circumstances.3)See Supreme Court judgment no. 6 of 1990; Supreme Court judgment no. 17 of 1999; Supreme Court judgment no. 1260 of 2002; Athens Court of Appeals judgment no. 4332 of 2011; First Instance Court of Thessaloniki judgment no. 13432 of 2012. For a more liberal approach on recognition of enforceability of punitive damages, see First Instance Court of Thiva judgment no. 160 of 2010. jQuery("#footnote_plugin_tooltip_6374_3").tooltip({ tip: "#footnote_plugin_tooltip_text_6374_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The past approach of Greek courts in assessing similar cases was rather conservative and confined in two aspects: (1) the amount of punitive damages or penalties awarded and (2) their ratio vis-à-vis the principal claim for actual loss suffered. Notably, the Supreme Court judgment no. 1260 of 2002 ruled that punitive damages awarded in the amount of USD 60,000 were disproportionally high compared to the principal amount due of USD 100,000. In the same vein, the Athens Court of Appeals judgment no. 4332 of 2011 had found that a penalty for a 5-month contractual delay which corresponded to two thirds of the principal amount was excessive.

 

New Court Ruling: Towards a More Flexible and Pragmatic Approach?

Yet, there are signs that Greek courts are gradually adopting a more flexible approach. In a newly issued judgment, the Piraeus First Instance Court in its ruling no. 722 of 2019 upheld the enforceability in Greece of a US court judgment awarding the significant amount of USD 10 million in punitive damages. Furthermore, it did so notwithstanding that the amount of punitive damages materially exceeded the amount of positive damages awarded (ca. USD 7.8 million). This breakthrough decision is important in view of its reasoning: While it endorses and consistently applies the criteria already set by previously established case law as regards the assessment of awards on punitive damages in light of the public policy exception, it does not confine its assessment to the amount of punitive damages as a proportion of the principal claim, as previous case law has done. Conversely, the court in the subject case engages in a holistic, ad hoc assessment of the legal and factual matters of the case at hand in a pragmatic manner, focusing on the particular circumstances of the case, such as the gravity of the fraud perpetrated, the malicious intention of the defendant and the severe adverse impact on the reputation, and the continuation of the business of the claimant as a going concern.

Furthermore, contrary to previous case law, the court does not consider as an obstacle to enforcement the fact that the amount of punitive damages awarded exceeded the amount awarded for actual loss. On the contrary, while not disregarding the importance of the quantum as one (of the many) relevant criteria, the court in essence reverses the previously held presumption that punitive damages should be considerably lower than the actual loss in order to be acceptable under the public policy test, by invoking as a pro enforcement argument that the punitive damages awarded were not significantly higher than the amount of actual loss. Thus, the party seeking enforcement does not need to demonstrate that the amount of punitive damages awarded is considerably lower than the actual loss (positive condition) but merely that it is not significantly higher than the actual loss (negative condition), therefore materially enlarging the scope of enforceable awards on punitive damages.

 

Conclusion

The newly issued court judgment appears to mark a noteworthy shift on case law, paving the way to a more permissive approach as regards the enforceability of foreign court judgments and arbitral awards on punitive damages – and, perhaps, a first step towards the relaxation of the public policy exception on recognition and enforcement in general. It remains to be seen whether future jurisprudence of Greek courts, especially at the Supreme Court level, will confirm and further elaborate on the pragmatic and flexible approach adopted by the first instance court.

References   [ + ]

1. ↑ See Supreme Court judgment no. 2049 of 2017, dealing with the distinction between liquidated damages and penalty clause. 2. ↑ See Supreme Court judgment no. 17 of 1999. 3. ↑ See Supreme Court judgment no. 6 of 1990; Supreme Court judgment no. 17 of 1999; Supreme Court judgment no. 1260 of 2002; Athens Court of Appeals judgment no. 4332 of 2011; First Instance Court of Thessaloniki judgment no. 13432 of 2012. For a more liberal approach on recognition of enforceability of punitive damages, see First Instance Court of Thiva judgment no. 160 of 2010. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Winning the 2019 Willem C. Vis Moot Court Competition: The Penn State Law Perspective

Sat, 2019-06-08 20:22

Catalina Bizic and William Sandman

“We are!” yells a group in the crowd as the Penn State Law Vis moot team enters the stage excitedly after the tribunal of the final round announces its victory – the first team from the US to win the Vis moot since 2004. “Penn State!” cheers back the team, disregarding the baffled looks of those attending the awards banquet at the Reed Messe Vienna.

The iconic #WeAre chant began in 1948, when the Captain of Penn State’s football team famously pronounced “We are Penn State.” In 1948, this statement was the epitome of inclusion, diversity, and comradery. The captain, Steve Suhey, was responding to calls to prohibit an African-American player, Wally Triplett, from playing in the biggest game of their season in segregated Miami. In 2019, #WeAre once again stands for inclusion, diversity, and comradery, values that also greatly define the Willem C. Vis moot as well as international arbitration in general. This year, it brought together nine individuals from seven different countries and motivated them to achieve something spectacular, to win the world’s largest private law moot.

Most teams know how much hard work, how many sleepless nights, how many internal quarrels it takes to make it through the 8 months of preparation until reaching Vienna (and, on top of it all, argue about frozen racehorse semen along the way). Most teams would also agree you need some luck as well, especially in a record-breaking Vis year, with more than 372 universities from 38 countries, a colossal expansion since the 11 schools from 9 countries participated in first edition of 1993-1994.

Our team had a distinct advantage – instead of limiting our pool of potential students to only J.D. students (like most American teams that we are aware of), Penn State Law combines the best of the J.D. and the LL.M. students to create a balanced civil law-common law ratio between the seven team members and the two coaches.

The abundance of diversity gave us something very special, a multi-legal and multi-cultural lens through which to view, interpret, and understand the Vis moot experience. It also helped by allowing us to be relatable to as many arbitrators as we would have the chance to encounter – a very tough task given the 1406 arbitrators from 81 countries, out of which nearly 1000 came to Vienna for the oral rounds.

The teams that we have met and, most importantly, befriended along the way, either through online practice rounds or at the Fordham and Belgrade pre-moots, as well as in the rounds in Vienna all contributed immensely to our ultimate success as well. As we advanced in the elimination rounds, we faced remarkable competitors that truly challenged our arguments and composure, but we prevailed also because were cheered on by those we had become close with along the way.

The perfect embodiment of that was the final round. Of all the teams in the world we could have faced for our final challenge, the team across the stage from us were our friends from the University of Ottawa, one of the most historically reputed teams in the competition. It was no coincidence that just a month prior to Vienna we had had the honor to host the Ottawa team and their coach, Professor Anthony Daimsis, for a 2-day workshop at Penn State. Over the course of those two days we shared ideas, practiced and tested our arguments also with the help of Professor Petra Butler of Victoria University, Wellington, which helped both teams hone their skills significantly.

Finally, the team would not have made it this far without the guidance on oral advocacy of Mr. Henry Brown, Director of Attorney Training with Morrison & Foerster LLP, faculty supervisors and professors Catherine A. Rogers and Jud Mathews, and former Penn State Vis mooties that all contributed to making this a year that none of us will ever forget.

The Penn State Law team members were J.D. students Ashley Clasen, Alice Gyamfi (who also won an Honorable Mention for Best Individual Oralist), Yousra Jouglaf, Adam Wage, and LL.M. students Augusto Garcia (Panama), Sanya Kishwar (India), and Muhamed Tulic (Bosnia & Herzegovina). The team was coached by J.D. student William Sandman and LL.M. student Cătălina Bîzîc (Romania).

 

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The Muddy Waters of Pre-Arbitration Procedures – Are they Enforceable? Answers from an Indian Perspective

Sat, 2019-06-08 19:22

Chahat Chawla

Modern day arbitration agreements usually contain provisions that require parties to take certain steps before the commencement of arbitration. Such clauses, often described as “multi-tiered” clauses, set out a sequence for invoking the arbitration agreement. Typically, pre-arbitration steps include procedures such as time-bound mediations, amicable settlements, cooling-off periods, and other forms of non-binding determinations.

Despite being a recurrent feature in dispute resolution clauses, the legal character of pre-arbitration procedures in India is unclear. An overview of the judgments shows that the courts have addressed this issue on numerous occasions, often rendering conflicting decisions. Broadly, the courts have taken two views. A majority of the courts have given effect to the plain meaning of the arbitration clause (on a case-by-case review) and have held that pre-arbitration procedures are mandatory and go to the jurisdiction of tribunals. Other courts (the minority view) have characterized (as a matter of general principle) pre-arbitration steps as optional and non-mandatory.

 

The majority view – mandatory and jurisdictional nature of pre-arbitration procedures

Supreme Court

In M.K. Shah Engineers, the Supreme Court of India (SCI) considered whether an award could be set aside if certain “procedural pre-requisites” were not achieved. The arbitration clause in this case required the parties to initially submit their disputes to the “Superintending Engineer”, and thereafter to arbitration in the event a party was dissatisfied with the decision of the Superintending Engineer. The SCI formulated the issue in the following terms: “[t]he principle issue for decision is what is the effect of absence of decision by the Superintending Engineer proceeding the demand for reference and commencement of the arbitration proceedings”. Giving effect to the text of the clause, the SCI held that such conditions were “essential” and necessarily had to be observed. However, eventually it was found that the parties had, by conduct, waived this procedural pre-condition.

A similar view was taken by the SCI in S.K. Jain.1)Also see decision of the SCI in Rajesh Construction. jQuery("#footnote_plugin_tooltip_5819_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5819_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });In this case, the tribunal refused to assume jurisdiction on the basis that the appellant had not complied with certain “mandatory requirements”. The petition against the tribunal’s decision was dismissed on the basis that the language of the arbitration clause required prior satisfaction of certain conditions.

Recently, in Oriental Insurance Company and in United India Insurance Co. Ltd., the SCI took the view that arbitration clauses must be construed “strictly”, therefore requiring completion of the “pre-conditions” to arbitration. In these cases, the disputes arose out of certain insurance claims. The arbitration clauses stipulated that disputes could not be referred to arbitration if the insurance company disputed its liability under the applicable policy. The SCI in United India Insurance Co. Ltd., found that the arbitration agreement was “hedged with a conditionality” and the non-fulfilment of the “pre-condition” rendered the dispute “non-arbitrable”. However, even though the existence of an arbitration agreement was not disputed, the SCI found that the arbitration agreement could be “activated” or “kindled” upon the competition of the pre-conditions, and the same was “sine qua non for triggering the arbitration clause.

The appointing authority in Demerara Distilleries took a different approach. In this case, the language of the clause required parties to engage in mutual discussions, followed by mediation. In the absence of a resolution, the parties had the option of referring their disputes to arbitration. In the circumstances, the SCI found that objections relating to the appointment application being “pre-mature” did not merit “any serious consideration”. It was held that various correspondence between the parties indicated that any mutual discussions or mediation would be an “empty formality”.

It appears that in some situations (like in Demerara Distilleries), the SCI, other than being guided by the parties’ intentions (i.e., by the language of the arbitration clause), may also consider the likelihood of success of pre-arbitration procedures. Interestingly, in disputes involving the Indian state or its entities, the courts may also test the constitutional validly of the prescribed pre-conditions. For instance, the SCI in Icomm Tele Ltd struck down a pre-condition requiring a deposit of 10% of the claimed amount as it found this obligation to be “arbitrary”, making the process “ineffective” and “expensive”.

Bombay High Court

A full bench of the Bombay High Court in S Kumar Construction had to decide whether prior compliance with pre-arbitration procedures was mandatory. After reviewing previous decisions on this issue, the Court answered this question in the negative.  The Bombay High Court found that the cases which held such procedures to be compulsory were decided on the basis of a differently worded arbitration clause, and thus could be distinguished on facts. Importantly, the Bombay High Court did not pronounce that as a general rule all pre-arbitration procedures are optional. Instead, it was held that such procedures could be mandatory and go to the jurisdiction of the tribunal depending on the language of the arbitration clause. Similarly, the Bombay High Court in Atlanta Infrastructure declined to set aside an award on the ground of violations of pre-arbitral steps as it found that the satisfaction of such procedures was not mandatory under the dispute resolution clause.2)Similar view was taken by the Bombay High Court in Johnwin Manavalan. jQuery("#footnote_plugin_tooltip_5819_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5819_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

The other view – Delhi High Court

In contrast, the Delhi High Court has adopted a distinct position. In Ravindra Kumar Verma, the Court held that prior requirements before referring a dispute to arbitration are “only directory and not mandatory”. The Ravindra Kumar Verma Court followed earlier decisions of the Delhi High Court in Sikand Construction and Saraswati Construction Company which held that “the procedure/pre-condition has to be only taken as a directory and not a mandatory requirement”.

Following Ravindra Kumar Verma, the Delhi High Court in Baga Brothers, Siemens Limited, and Sarvesh Security Services has reaffirmed that pre-arbitration procedures are not mandatory.

 

Comment

In view of the above, it is difficult to ascertain with certainty whether pre-arbitration procedures are enforceable. However, a reasonable approach is to proceed on the basis (with the exception of the Delhi High Court decisions) that courts in India are likely to interpret arbitration clauses strictly and give effect to the language of clause. The courts however have not expressly examined this question (of pre-conditions to arbitration) as a matter of “admissibility” or “jurisdiction” or “procedure”.  The distinction between these concepts has been discussed in Professor Jan Paulsson’s article here, and Professor Gary Born’s article here.

 

The proper forum to determine if pre-arbitration steps have been satisfied and the consequences

It is also noteworthy that the 2015 Amendments have considerably limited the extent of court intervention whilst making arbitrator appointments. Previously, Indian courts exercised wide jurisdiction at the appointment stage and could decide on a host of issues at this juncture which lead to considerable delays. Accordingly, the amended arbitration act introduced a statutory limitation on the scope of a court’s enquiry at the appointment stage to the “examination of the existence of an arbitration agreement”. The legislative intent behind the amendments was to confine the court’s jurisdiction, and to make the arbitral tribunal the appropriate forum for the determination of such controversies. Accordingly, the SCI in Duro Felguera, held that at the appointment stage, the courts can only “see whether an arbitration agreement exists – nothing more, nothing less”. However, despite these legislative reforms, and the decision in Duro Felguera, a larger Bench of the SCI (three-judge bench in United India Insurance Co. Ltd.) went into the question of whether arbitration “pre-conditions” were met at the pre-constitution stage. With respect, this decision may be inconsistent with the recent legislative effort to designate the arbitral tribunal as the proper forum to determine such questions. Further, there is little clarity regarding the standard of judicial review to be applied whilst making these determinations.

 

Suggested approach

As a middle path, the Indian courts could consider adopting a similar approach taken by the Singapore Court of Appeal in International Research Corp PLC v Lufthansa Systems where the Court took the view that if the pre-conditions are defined with sufficient clarity and specificity, they are mandatory in nature whereas if they are vague and general in nature, they cannot be mandatorily enforced.

Further, the courts could offer clarity on the standard of compliance needed to satisfy the pre-arbitration conditions. Similar to the ruling in International Research Corp PLC, the Indian courts could also require “actual compliance” (or strict compliance) of the pre-conditions as opposed to “substantial compliance”. These determinations could be made on a case-by-case basis and with an underlying objective to uphold the parties’ intentions.

A clear statement of law would also enable parties to achieve a greater understanding on their pre-arbitration obligations and prompt them to make bona fide efforts to comply with the same. This could result in successful settlements in some cases and truly achieve the rationale behind pre-arbitration mechanisms, which is to save time and costs by voluntary settlement.

Finally, legal certainly would be particularly useful in the Indian context where the respondents routinely resist applications for the appointment of arbitrators and raise jurisdictional objections on the basis that certain “pre-conditions” (such as mediation) have not taken place. Clarity on this subject would discourage respondents from advancing unmeritorious objections thereby accelerating arbitrator appointments and the arbitration process as a whole.

References   [ + ]

1. ↑ Also see decision of the SCI in Rajesh Construction. 2. ↑ Similar view was taken by the Bombay High Court in Johnwin Manavalan. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Interviews with our Editors- Insights from Dr Rukia Baruti, Secretary General of AfAA

Fri, 2019-06-07 19:21

Sadaff Habib (Assistant Editor for Africa)

 

Dr. Rukia Baruti, Secretary General of the AfAA

A common concern for arbitration practitioners in Africa is that when it comes to African seated arbitrations, African practitioners are underrepresented. The African Arbitration Association (AfAA) was set up as a combined vision of practitioners in the region to create a platform that would encourage and create more opportunities for greater representation of African practitioners in African arbitrations.

Kluwer Arbitration Blog invited Dr. Rukia Baruti, an international arbitrator and the Secretary General of the AfAA to provide some insight into her career progression, the establishment of the AfAA and what else can be done to improve Africa as an international arbitration hub.

Dr. Baruti’s key advice to fellow female practitioners is “pay it forward”- wise words for all practitioners.

  1. What attracted you to disputes and arbitration?

I wouldn’t say I was attracted to disputes but I was attracted to arbitration as a dispute resolution mechanism because of its semi-formal setting (I’m not a fan of formality), flexibility in terms of where it can take place and its almost fluid nature insofar as the parties’ ability to choose their own rules of procedure is concerned.

I grew up wanting a career that was “international”. I did not quite know what form that would take. At one stage I thought I wanted to be a diplomat but after working in the dispute resolution department of a law firm for a while, I was naturally attracted to international arbitration.

  1. There have been a number of recent developments in arbitration across the African continent. What in your view has been one of the most significant?

Without wanting to sound biased, I would say it was the establishment of the African Arbitration Association (AfAA). My view is supported by the Best Development Award that the AfAA won at the Global Arbitration Review Awards last month.

To me, the establishment of the AfAA is the most significant development in arbitration across the African continent because it came about as a result of a concerted effort by African arbitration practitioners to address their common concern that they were not getting a fair share of the arbitration work out there – especially Africa-related international arbitration work. What united us all was the frustration we all felt at the lack of acknowledgment of the pool of qualified international arbitration practitioners from or within Africa.

What made it all the more urgent was the realisation that many of us were involved in various arbitration initiatives designed to address the issue in different parts of the world in one way or another. The lack of coordination amongst us as well as a lack of awareness of each other’s initiatives, resulted in a duplication of efforts leading to incoherence as to what is being offered by whom and what distinguished the initiatives. It was against this backdrop that the AfAA was formulated and I think it is the impetus we needed to approach the concern at a continental level.

  1. A common concern for African practitioners is the comparative under representation of African arbitrators and counsel for that matter in arbitrations that are either seated in Africa or concern an African entity. To what extent do you think the AfAA will assist with this concern? How would the AfAA be able to assist with this?

This is one of the main goals (if not the main goal) of the AfAA.

The AfAA would be able to assist with this by creating a globally visible platform to promote not only African arbitrators and African counsel but also African arbitral institutions and African arbitral seats. The AfAA also aims to facilitate the appointment of African arbitrators and counsel and encourage the use of Africanbarbitration institutions.

The AfAA intends to achieve these objectives by among other things, maintaining a searchable online directory of its members consisting of African arbitration experts; promoting its members through various activities of the AfAA, including AfAA promotional initiatives, emails and materials, the AfAA website and newsletters; involving its members in AfAA’s activities, including promotional roles, lecturing and participation in conferences; working with African governments and businesses to raise awareness of the existing arbitration capacity from and within Africa and encouraging African governments and businesses to appoint African arbitrators and African counsel in their arbitration cases as well including African arbitration forums in their international contracts.

  1. I can see that you also sit as an international arbitrator. Have any of the cases you arbitrated had a seat in an African nation. What was the key legal issue in debate?

Only one of my arbitrations has had a seat in an African nation despite the fact that they all involved an African party. In that case there were no legal issues in debate. The issues were purely factual.

  1. In your view, what more needs to be done to improve the visibility of different countries in Africa as an International Arbitration hub?

There needs to be a more proactive approach to international arbitration by African States. This includes, for example, African States demonstrating a willingness to review, update and strengthen their legislative and judicial frameworks on international arbitration. It also includes ensuring that their countries are accessible, not only in terms of means of travel but also in terms of entry requirements.

I also think it is unfortunate in circumstances where both parties are African but end up choosing a non-African seat for their arbitration. In many ways, this hinders the development of potential African arbitration seats because there is no motivation on the part of African countries to develop one of their cities into an international arbitration hub. On the other hand, if African parties regularly chose an African seat, the incentive to develop it into an international arbitration hub in order to encourage more parties to choose it, naturally arises.

There also needs to be an open dialogue between African States and the private sector on how to promote the use of international arbitration within Africa as a means of resolving international disputes. Dialogue can be encouraged through attending and speaking at multilateral forums where African States are represented e.g. the African Union. The AfAA is well-placed to facilitate and be the platform for such dialogue. The AfAA can work closely with Heads of State to ensure they understand the importance of arbitration to the development of their countries. This understanding should lead to policies and programmes being developed and implemented which ensure that arbitration is streamlined into national governments. The AfAA can also work closely with national court Judges by providing technical assistance, which ensures that judges have an enhanced awareness of the practice of international arbitration and its application.

  1. It is acknowledged that African arbitration practitioners are underrepresented in arbitration.

(a) Do you see this particularly challenging as a female arbitrator and lawyer? Do you see introducing quotas as a feasible option?

It is no secret that arbitral tribunals are male-dominated. So, while I find it particularly challenging to get appointments being African as well as female, I also see it as an opportunity to advocate for diversity in arbitration. A good example is what The Pledge has done to advocate for increased representation of women as arbitrators.  Another way is the inclusion by arbitration institutions of criteria requiring diversity for making arbitral appointments. While in theory quotas may seem like a good way to address inequality in arbitration, I think in the long run imposing quotas is not going to be sustainable. I believe arbitration appointments should be based on merit but that opportunities should be offered to both males and females on an equal footing.

(b) What steps do you think need to be taken to improve the representation of Africans in African arbitrations and particularly women?

There are so many steps that can be taken. However, I think it is important for Africans to realise that it is up to them to take these steps. So for instance, African women should make themselves more visible, more vocal and more proactive in letting others know about their expertise in arbitration. They should, for example, write arbitration articles that can get published in relevant journals and online blogs; seek out and secure speaking engagements at arbitration conferences; or get involved in capacity building initiatives or giving lectures on arbitration at seminars. These activities have seemed to work for me to a certain degree.

Furthermore, African States and African parties should be actively appointing qualified Africans in international arbitrations. This will not only build confidence in African arbitration expertise within Africa, but also outside of Africa.  Lastly, those that make appointments e.g. arbitration institutions or parties, should ensure that at least one African and one female is appointed in Africa-related arbitrations.  Without that, there is a danger of perceiving such arbitrations as lacking legitimacy especially if the tribunal is made up entirely of non-Africans in an African-related arbitration.

  1. What would be your key advice to fellow female practitioners in the field?

My advice would be to “pay it forward” by recommending or appointing fellow female practitioners whenever an opportunity presents itself. Mentorship between female practitioners is another very good way to “pay it forward” and I would encourage it as it ensures continuity and the eventual growth of more female arbitration practitioners. There are many experienced female arbitrators out there that I am sure would be more than happy to take on a mentee.  Mentorship is something that the AfAA also wants to establish, although it will not be restricted to female practitioners.

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The Harvest Report of the First Half of 2019

Fri, 2019-06-07 04:30

Nikos Lavranos

The regular readers of the Kluwer Arbitration Blog will recall my blog at the beginning of this year in which I predicted that 2019 would be the ‘Year of the big Harvest’ for the European Commission regarding its efforts to permanently change the landscape of international investment law and arbitration.

This posts will review the first half of 2019 and assess to what extent my predictions have come true.

The Intra-EU BITs

Already on 15 January 2019, the European Commission could bring home its first harvest when all Member States issued a political declaration in which they expressed their intention to terminate all existing intra-EU BITs by 6 December 2019. If that is indeed going to happen, the European Commission’s decade long relentless campaign to extinguish intra-EU BITs would be successfully concluded. The aim is apparently to terminate all intra-EU BITs by way of a multilateral treaty among the EU Member States. However, so far this treaty seems not yet to have been finally drafted. In the meantime, Member States are terminating their intra-EU BITs. For example, Poland terminated its BIT with the Netherlands as of February 2019. However, termination of the intra-EU BITs itself will not stop the number of cases unless the sunset clauses contained in the intra-EU BITs are also removed. So, it remains to be seen whether, and if so how, the Member States will execute their stated intention.

The ECT

The above mentioned political declaration also addressed the ever growing problem of the increasing tension between EU law and the Energy Charter Treaty (ECT). In that declaration, 22 EU Member States stated that due to the CJEU’s Achmea judgment, EU investors cannot invoke the ECT against Member States anymore. Moreover, the Member States proclaimed that arbitral tribunals have lost their jurisdiction to hear intra-EU ECT disputes any longer. In addition, these Member States committed themselves to intervene in all proceedings before domestic courts and argue that intra-EU ECT awards are no longer to be recognized or enforced within the EU.

Despite the increasing pressure from the EU and the Member States, ECT arbitral tribunals continue to be unimpressed and are forcefully defending their jurisdiction. In early May, the Ekosol v. Italy tribunal – following the Vattenfall tribunal’s extensive 70-page analysis – also rejected the arguments of the EU and the Member States.

Accordingly, the matter will have to be ultimately settled by the CJEU, once it receives a request for a preliminary ruling from a domestic court. However, the Swedish Court of Appeal reportedly has recently rejected such a request by Spain. On the other hand, Italy has reportedly been successful before the same Swedish court in staying enforcement proceedings regarding ECT awards against it in order to obtain preliminary rulings from the CJEU. Thus, it will be only a matter of time until such a request will land on the docket of the CJEU.

In the meantime and as predicted, the European Commission requested a mandate to start negotiating for reforming the ECT. In light of the dozens of ECT cases against several Member States, one can expect that the European Commission will do its utmost to “cetarize” the ECT and declare the ECT non-applicable for intra-EU disputes. Since the ECT is a multilateral treaty, it remains to be seen to what extent the other ECT Contracting Parties will follow the European Commission.

The “New Generation” EU Trade and Investment Agreements

As far as the investment court system (ICS) as contained in CETA and the other “new generation” EU trade and investment agreements is concerned, the Court of Justice of the EU (CJEU) finally gave its blessing.  In its Opinion 1/17, issued on 30 April 2019, the CJEU concluded that the ICS is compatible with EU law and thus the agreement on the ICS can finally be ratified and enter into force. However, the CJEU made clear that the CETA tribunals, which make up the ICS, may under no circumstances apply or interpret EU law provisions, but are confined to interpret only CETA provisions. Moreover, the CJEU stressed that the CETA tribunals

“[…] have no jurisdiction to call into question the choices democratically made within a Party relating to, inter alia, the level of protection of public order or public safety, the protection of public morals, the protection of health and life of humans and animals, the preservation of food safety, protection of plants and the environment, welfare at work, product safety, consumer protection or, equally, fundamental rights.” para. 160.

Considering the fact that the balancing of public interests against legitimate interests of investment and investor protection is the core business of every investment tribunal, one wonders what is left of the jurisdiction of the CETA tribunals.

In contrast to that, it is noteworthy that the CJEU explicitly prohibited the retroactive application of joint binding interpretations of the CETA parties. In this regard, the CJEU protected the Rule of Law and corrected a situation that was obviously violating the most fundamental principles of law.

However, by and large, the European Commission received full support for its envisaged ICS.

The MIC

Since the CJEU in its Opinion 1/17 also approved the envisaged multilateral investment court (MIC), which is based on the CETA ICS text, this Opinion gives a boost for the European Commission’s efforts to promote its idea of a MIC, which is currently discussed in UNCITRAL Working Group III.

However, at the last meeting of the Working Group in the first week of April, the negotiations did not go as smoothly as the EU had anticipated. Several countries, under the leadership of Japan, continue to question the need for the MIC and instead prefer more incremental changes, which can be implemented much easier and faster. It is also noteworthy to mention that the interest of States in the subject of ISDS reforms has increased dramatically with more than 100 State present in the room. This enlarged group of participants certainly did not help to speed up the process. At the end of the day, the deadlock was resolved by a two-path approach in which both incremental improvements of the ISDS and the MIC proposal will be further discussed in parallel at the next meeting in the autumn. In the meantime, the European Commission will continue to step its efforts in convincing African and Latin American States to support its MIC proposal. It will be interesting to see whether the European Commission can start harvesting in the autumn.

Good Prospects for the Rest of the Year

Looking back to the first half year, it must be concluded that the harvest for the European Commission was very good indeed and the prospects for the rest of the year are good as well. If the intra-EU BITs are indeed terminated by the end of this year, that would finally close this file.

Similarly, the establishment of the CETA tribunals will enable the European Commission to prove to other States that a MIC can indeed be established according to the CETA ICS blueprint. After all, who could question the legality of the CETA tribunals after having received the blessing of the CJEU?

As far as the ECT is concerned, the harvest remains difficult to predict. A lot will depend on whether ECT tribunals will continue to hold the line and whether the CJEU will get an opportunity to pass its judgment on this issue soon. Besides, the ECT reform process will most likely not be concluded by the end of this year.

In short, most of the predictions at the beginning of this year were true. Nonetheless, just as in farming, weather conditions remain unpredictable and so are the predictions for the rest of this year.

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The Dubai International Arbitration Centre’s Founding Statute is Revised – What Has Changed?

Thu, 2019-06-06 05:34

Sergejs Dilevka and Maria Darwish

Introduction

The Dubai International Arbitration Centre (“DIAC”) is a regional arbitration centre created by statue in 1994 as part of the Dubai Chamber of Commerce and Industry (the “Chamber”).

On 23 April 2019, the Ruler of Dubai issued Decree No. 17 of 2019 approving a new statute for DIAC (the “New DIAC Statute”). The New DIAC Statute replaced the previous DIAC statute on 2 May 2019, the day of publishing the decree in the Official Gazette.

Unlike the proposed changes to the DIAC Rules, which have been widely circulated in draft form, no proposed changes to the previous DIAC statute were circulated prior to its enactment as far as the authors of this blog post are aware. However, there are important changes recorded in the New DIAC Statute and this brief blog post highlights some of these provisions, specifically with regard to DIAC’s structure, the functions and authority of the relevant bodies, and the recorded process for implementing the long-awaited new DIAC arbitration rules.

1. DIAC’s Structure

According to Article 6 of the New DIAC Statute, DIAC consists of a Board of Trustees (the “BoT”), an Executive Committee (the “EC”), and an Administrative Body. Article 2(B) of the New DIAC Statute states that DIAC “shall enjoy full independence in the provisions of its services for settling disputes through arbitration or conciliation”. However, upon perusing the New DIAC Statute and for the reasons set out below, it is apparent that the Chamber’s Board of Directors appoints the BoT, and that the structure of DIAC is as follows:

Accordingly, based on the contents of the New DIAC Statute, the level of actual independence of DIAC vis-à-vis the Chamber is, arguably, not as apparent as it was under the previous DIAC statute, and DIAC will need to take care to ensure its independence is maintained and seen to be maintained.

A. Board of Directors of the Chamber

The only noteworthy reference to the Chamber in the previous DIAC statute simply recorded the fact that DIAC forms part of the Chamber. According to the New DIAC Statute, however, the role of the Chamber’s Board of Directors (the “BoD”) at DIAC is presently indispensable, for example:

● all members of the BoT are to be appointed by the Ruler upon proposal of the BoD;
● the DIAC Manager (the “Manager”) is to be appointed by a BoD resolution; and
● any amendments to the New DIAC Statute or DIAC Arbitration Rules 2007 (the “DIAC Rules”) are to be prepared in consultation with the BoD, which has the authority to submit said amendments for approval by the competent authorities of the Emirate of Dubai.

The examples above make evident the BoD’s fundamental role, pursuant to the New DIAC Statute, in appointing DIAC’s senior management, overseeing DIAC’s structure and operations, and implementing any important changes. However, we understand the BoD does not have any involvement in the handling of cases which remains with DIAC.

B. Board of Trustees

The BoT is the governing body carrying out the overall responsibility for the management of DIAC.

Similar to the previous DIAC statute, the New DIAC Statute prescribes that the BoT will comprise a chairperson, a vice-chairperson, and a number of members with arbitration experience. The number of BoT members, however, was cut from 20 in the previous DIAC statute to 15 members in the New DIAC Statute. As mentioned in the previous section, the New DIAC Statute now specifically prescribes that the BoT members will be proposed by the BoD to the Ruler for appointment by decree for three years, the same term as in the previous DIAC Statute.
Furthermore, the New DIAC Statute contains a particularised list of the BoT’s functions, for example:

● to adopt DIAC’s general policies;
● to propose amendments to the New DIAC Statute and the DIAC Rules and procedures; and
● to approve DIAC’s organisational structure, regulations and by-laws.

However, as mentioned in the previous section, the BoT’s functions set out in the New DIAC Statute are generally subject to approval of the BoD.

C. Executive Committee

The EC assists with implementing the BoT’s decisions and carries out various functions assigned to it in the DIAC Rules. The EC consists of at least five members, including the EC’s chairperson and vice-chairperson, who are appointed by the BoT chairperson after consulting the members of the BoT.

The BoT also has authority to form and delegate certain EC’s duties and powers to EC’s sub-committees.

D. Manager

The Manager, as the job title suggests, is responsible for controlling and administering DIAC and its Administrative Body. In the previous DIAC statute, the Manager was called a Director. To the authors’ best knowledge, since the departure of the former Director in August 2013, the position of Director (and now Manager) has been vacant.

Under the previous DIAC statute, the Director could be appointed by the BoT. However, the New DIAC Statute prescribes that the Manager may be nominated by the BoT and then ultimately appointed by a BoD resolution.

E. Administrative Body

The Administrative Body is the body responsible for ensuring that the services provided by DIAC and the arbitration proceedings between parties are running in a smooth and effective manner and, importantly, in accordance with the DIAC Rules. The Administrative Body comprising case management and other administrative staff is supervised by the Manager.

2. Implementation of the New DIAC Arbitration Rules

One peculiar feature to note about the DIAC Rules is that they were issued by Decree No. 11 of 2007. Thus, in order to introduce a new set of DIAC arbitration rules, it is necessary for the Ruler to issue a new Decree.

The current DIAC Rules have been in force for more than 12 years. Despite the “Launch and Discussion of the New 2018 Arbitration Rules” during the Dubai Arbitration Week in November 2017 (approximately 18 months ago) and the subsequent flurry of articles and analysis based on various drafts of the new DIAC arbitration rules, the new rules are yet to see the light of day.

It is possible that the New DIAC Statute is another step in this direction as it sets out a process for updating the DIAC Rules, i.e., issuing new DIAC arbitration rules. The process now involves the EC making the relevant proposal to the BoT, which has to be approved by the BoT in consultation with the BoD. Subsequently, the BoD has the authority to submit the new DIAC arbitration rules for consideration by the Dubai government authorities, which may forward the new DIAC arbitration rules to be issued under a decree passed by the Ruler. The process may be visualised as follows:

3. Independence and Autonomy

The UAE Federal Law No. 6 of 2018 on Arbitration brought in significant changes in the UAE arbitration law. More specifically, under Article 10(2), the previously mentioned law provides qualifications required for arbitrators, which provides the following:

“The arbitrator cannot be on the board of trustees or the administrative body of the Arbitration Institution responsible for administering the Arbitration in the State.”

Accordingly, the DIAC Statute seconds the above-mentioned provision in Article 23 dealing with the ‘Appointment in Arbitral Tribunal’, which states the following:

“A member of the [BoT], a member of the Centre’s committees, the Manager or any of the Centre’s staff shall not be the arbitrator who will consider any dispute submitted before the Centre, whether he is an individual arbitrator or a president or a member of the arbitral tribunal”.

Conclusion

Overall, the New DIAC Statute is a more comprehensive document than the previous DIAC statute, which may suggest it is a preparative step to the issuance of the long-awaited new DIAC arbitration rules by Decree of the Ruler. It is difficult to say how important the involvement of the BoD will be on the functioning of DIAC – it may be a tectonic shift in the oversight and control of DIAC in favour of the Chamber; or a simple reflection of the changes at DIAC over the last decade such that no change in DIAC’s functioning will be noticed. In any event, DIAC will need to ensure that it maintains its independence if it is going to keep its position as the most used arbitral institution in the region.

* The authors would like to express their gratitude to Aditya Chauhan and Jana Al Mulla for assistance in preparation of this blog post.

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Is the D.D.C. Becoming a Specialized Enforcement Court?

Wed, 2019-06-05 19:00

Jason Rotstein and Jason Rotstein

Introduction

The enforcement bar is becoming more specialized. This development follows the trend in U.S. litigation towards increasing specialization and the growth of niche practice industries; but it also stems from specific changes to the enforcement regime that are addressed in this article and that have important implications for the life-cycle of an international arbitration.

This trend towards specialization is driven by: (1) the number and average length of enforcement actions; and primarily, (2) recent changes to the enforcement procedure, causing more enforcement cases to be brought in the United States District Court for the District of Colombia (“D.D.C.”).

This article examines enforcement actions in the D.D.C. over the last six months, December 2018 to May 2019. Initial experience indicates several tendencies and trends. It posits that a motion/petition to confirm an arbitral award is no longer an adjunct stage to an ICSID award but a standalone procedure and a tough fight; it also considers whether the D.D.C. has become a default venue and “specialized court” for the enforcement of international arbitral awards.

Background

The goal of every arbitration is to secure a final and enforceable award. The same transaction or occurrence can give rise to awards under the New York Convention (1958) and the Washington (ICSID) Convention (1966). Until recently, commentators observed “[a] striking disparity between the two enforcement systems”, distinguishing between ICSID annulment committees, on the one hand, and domestic court proceedings under the New York Convention, on the other. Kenneth B. Reisenfeld and Joshua M. Robbins writing in Finality under the Washington and New York Conventions: Another Swing of the Pendulum? concluded in 2017 that ICSID is a preferable venue based on “ICSID’s potential finality advantage”.

In 2017, the ICSID enforcement stream experienced a systemic change. Mobil Cerro Negro v. Bolivarian Repub. Venezuela, 863 F.3d 96 (2d Cir. 2017), the first federal appellate court to address the procedure for converting an ICSID award into a federal judgment, held that the ICSID Convention and its enabling statute, 22 U.S.C. § 1650(a), are subject to the procedures under the Foreign Sovereign Immunities Act of 1976 (“FSIA”) for obtaining jurisdiction over a foreign sovereign. Previously, there had been a disagreement between and within district courts in multiple circuits as to the procedure for enforcement and whether an ex parte summary procedure was sufficient.

In Mobil Cerro Negro v. Bolivarian Repub. Venezuela, the Second Circuit held that the FSIA requires a plenary procedure for enforcement even of ICSID awards: petitioners must file a complaint and satisfy service (four methods of service) and venue requirements. In addition, the defendant sovereign must have the opportunity to appear and file responsive pleadings. The enforcement action is completed when a motion to dismiss or a motion for judgment on the pleadings/summary judgment is granted. Finally, under 28 U.S.C. § 1391(f) of the FSIA, the D.D.C. is the default (but not exclusive) venue for actions against foreign sovereigns.

Enforcement Outcomes in the D.D.C.

The Second Circuit’s decision has corralled more ICSID enforcement actions into the D.D.C. and extended the lifetime of an ICSID arbitration. Arguably, the plenary proceeding has resulted in delay, additional costs and affected settlement opportunities and enforcement outcomes. A survey of enforcement actions in the D.D.C. in the past six months reveals such trends. The cases discussed below involve enforcement actions relating to ICSID awards against Venezuela and Spain.

Venezuela Cases

Tidewater Inv. SRL v. Bolivarian Repub. Venezuela, No. 17-1457, 2018 WL 6605633 (D.D.C. December 17, 2018) ended in a default judgment after Venezuela failed to appear or respond to the complaint. The court was satisfied that it had personal jurisdiction after Tidewater attempted all four methods of service on Venezuela under the FSIA. Although Tidewater had initially secured an ex parte judgment in the United States District Court for the Southern District of New York (“S.D.N.Y.”) from a 2015 ICSID award, Venezuela was able to vacate that judgment following Mobil Cerro Negro’s change in the law. The enforcement action was filed in the D.D.C. in July 21, 2017. The time to judgment was more than three years.

Another enforcement action of a 2015 ICSID award against Venezuela, OI European Group BV v. Bolivarian Republic of Venezuela, Case No. 16-1533, was confirmed on May 21, 2019. Venezuela moved for a stay as a result of changes in government, but the court found that this stay was “unnecessary” and “would only serve to delay plaintiff’s entitlement to judgment in a case that has been pending for three years and has already been stayed once before”. The case was originally filed in July 27, 2016. The court granted Venezuela’s earlier motion for a stay pending a decision on annulment, which was rendered on December 6, 2018. A similar action is pending from a 2017 ICSID award, Koch Minerals Sàrl v. Bolivarian Repub. Venezuela, Case No. 17-2559. The complaint was filed on November 28, 2017.

Spain Cases

Eiser Infrastructure Ltd. was granted an ex parte judgment, enforcing its 2017 ICSID award on May 23, 2017 in the S.D.N.Y. The same court later vacated that judgment on November 13, 2017, after the Second Circuit’s Mobil Cerro Negro decision. Eiser Infrastructure Ltd. then re-filed its petition to confirm the arbitral award in the D.D.C. on July 19, 2018, Case No. 18-1686.

The enforcement action in the D.D.C. has gone through multiple rounds of briefing on reciprocal motions to dismiss and for summary judgment. Spain is raising jurisdictional objections to enforcement. Judge Kollar-Kotelly has accepted an amicus brief from the European Commission in support of the Kingdom of Spain, March 18, 2019.

Masdar Solar & Wind Cooperatif U.A. also initiated an action on September 28, 2018 to enforce a 2018 ICSID award against Spain—Masdar Solar & Wind Cooperatief U.A. v. Kingdom of Spain, Case No. 18-2254. On May 3, the European Commission filed a motion for leave to enter the case as amicus curiae.

Observations and Conclusions

A foreign arbitral award can always be enforced under the New York Convention; but a major advantage of enforcement of an ICSID award under the ICSID Convention is the supposed simple, streamlined, and spontaneous enforcement at the end of the ICSID’s internal review (annulment) process. However, an examination of a small sample of enforcement cases in the D.D.C. from the past six months suggests that enforcement actions under the ICSID Convention are operating on a similar timeline—due in part to  similar procedural practices—to enforcement actions under the New York Convention.

The effects of Mobil Cerro Negro, however, are still being captured. One effect to watch for is whether the D.D.C. will effectively become the default venue for enforcement actions in general.  Another possible effect is the diminution in value of an ICSID award over a non-ICSID award; or a downgrade of the U.S. as the default country for enforcement. Ex parte enforcement procedures for ICSID awards continue to be used in such countries as the United Kingdom; nevertheless, in the United States, the opportunity for responsive pleadings created by the Second Circuit has turned what was intended to be a summary procedure into new rounds of litigation. This activity has led to a robust enforcement practice centered around the D.D.C. (blocks away from ICSID) and is an interesting development viewed in the context of renewed debate over an ICSID appeals facility.

Time will tell the repercussions to and responses of the ICSID system. Under Article 53(1) of the ICSID Convention, an award “shall not be subject to any appeal or any other remedy” and shall only be “stayed pursuant to relevant provisions of this Convention”, such as a stay of enforcement pending an application for annulment (Article 52(5)). These requirements are arguably not being fulfilled as a result of the Second Circuit’s Mobil Cerro Negro decision. As Judge Kelly states, in Tidewater, district courts have only a “perfunctory role” to play in these actions.

The policy concern behind requiring the FSIA procedures, as registered by the Department of State in its third-party submission in Mobil Cerro Negro, is to afford foreign sovereigns proper notice, the same treatment the United States would hope to be afforded in foreign courts. But these recently clarified procedures for enforcement of ICSID awards are having a major impact on the length and life-cycle of an ICSID arbitration and the choice of arbitral venue.

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An Argentine Court Orders a Corporation Not to Initiate Arbitration Before ICSID: Should Investors be Worried?

Wed, 2019-06-05 05:04

Emmanuel E. Kaufman, Knoetzl

In April 2019, an Argentinean court ordered a company not to initiate an investment arbitration before ICSID based on the bilateral investment treaty between the Argentine Republic and the Republic of Chile (“BIT”).  The Federal Court in Civil and Commercial Matters No. 5 (the “Court”) ordered the interim measure in a case between the Argentinean State’s Assets Administration Agency (“Agencia de Administración de Bienes del Estado”, in the following “AABE”) and Cencosud S.A. (“Cencosud”)1)It is also the author’s understanding that Cencosud S.A. is the Argentinean subsidiary of the Chilean group Cencosud. jQuery("#footnote_plugin_tooltip_3469_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3469_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); relating to AABE’s claim for asset reversion.  AABE’s claim is based on Cencosud’s alleged failure to comply with certain contractual obligations relating to sanitation and urbanization investments.

 

  1. The Court’s decision

In the reply to AABE’s claim for asset reversion, Cencosud – inter alia – alleged that any arbitrary violation of its rights could trigger a claim of its shareholders before ICSID, since they were protected under the BIT. Based on this allegation, AABE requested the Court to issue a provisional measure requesting ICSID to not register any claims relating to the subject matter in dispute filed by either Cencosud or any of its shareholders.

In a 5-page decision, the Court granted an interim measure to block the commencement of an arbitration proceeding before ICISD. In the decision, the Court found that it had exclusive jurisdiction to entertain the dispute based on the following grounds:

First, the Court stated that Cencosud accepted the jurisdiction of that tribunal by not challenging the jurisdiction of that Court in the answer to AABE’s claim under the applicable law of the Argentine Republic.

Second, the Court also found that the BIT was applicable since the dispute related to the sanitation and urbanization investments which were allegedly not made by Cencosud. In connection with the application of the BIT, the Court concluded that both AABE and Cencosud chose to submit the dispute before the Argentine Republic’s courts. Thus, the parties in the Court proceedings had made a definitive choice in favor of the jurisdiction of the domestic Court and thereby triggered the fork in the road provision contained in Article 10(2) of the BIT.

Third, the Court also mentioned that the dispute resolution clause incorporated in the public bid referred the disputes before the federal courts of the City of Buenos Aires.

In connection with the scope of the interim measure, the Court appeared to have limited its scope. Instead of ordering that ICSID not register any claim filed by Cencosud or its shareholders as it was requested by the applicant, the Court only ordered that Cencosud refrains from filing an arbitration before ICSID.

 

  1. The manner the Court interpreted and applied the BIT

The decision of the Court is short, but it raises several questions relating to the conclusions regarding a) the triggering of the fork in the road provision contained in Article 10(2) of the BIT, and b) the impact of forum selection clauses on the jurisdiction of an ICSID tribunal to hear a dispute.  The conclusions reached by the Court create inherent doubts about the correctness of the decision.

The conclusion that AABE’s claim and Cencosud’s failure to contest the jurisdiction of the Court triggered the fork in the road provision in the BIT is, in the author’s view, incorrect. Pursuant to the last paragraph of Article 10(2) of the BIT, “[o]nce a national or corporation submitted the dispute to the jurisdictions of the Contracting Party or to international arbitration, the choice of one or the other proceeding will be definitive”.2)Article 10 (2) of the BIT, “Una vez que un nacional o sociedad haya sometido la controversia a las jurisdicciones de la Parte Contratante implicada o al arbitraje internacional, la elección de uno u otro de esos procedimientos será definitiva.” jQuery("#footnote_plugin_tooltip_3469_2").tooltip({ tip: "#footnote_plugin_tooltip_text_3469_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Thus, irrespective of whether Cencosud is a protected investor under the BIT, the choice between local courts and arbitration is to be made by a national or company of one of the contracting Parties, and not by the State.  Moreover, the appearance before a court in a local proceeding does not automatically mean a choice in favor of a local court in every case.3)Schreuer, Christoph and Dolzer, Rudolf, “Principles of International Investment Law”, Second Edition (2012), Oxford University Press, p. 267. jQuery("#footnote_plugin_tooltip_3469_3").tooltip({ tip: "#footnote_plugin_tooltip_text_3469_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Furthermore, in the case pending before the Court, the dispute arises out of the alleged failure to fulfill contractual obligations, and not the BIT.4)Id. jQuery("#footnote_plugin_tooltip_3469_4").tooltip({ tip: "#footnote_plugin_tooltip_text_3469_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Thus, the subject matter of the dispute before the Court does not seem to be covered by the BIT.

In this respect, it is also to be noted that, under the terms of the BIT, Cencosud is not a company falling under the scope ratione personae of the BIT. The BIT does not contain an express definition of the term “investor” in Article 1 and only refers to investors and companies that are located in the other Contracting Party as the protected persons in the BIT. There is no provision extending the scope ratione personae of the BIT to locally incorporated companies owned or controlled by a national of one of the contracting parties in the country of the other Contracting Party.

As regards the reference to the forum selection clause in the bidding conditions, the Court’s finding goes against established case law in investment arbitration. Arbitral tribunals have consistently found that forum selection clauses do not preclude the jurisdiction of an ICSID tribunal over treaty claims.5)AES Corporation v. the Argentine Republic, Decision on Jurisdiction (26 April 2005), ICSID Case No. ARB/02/17, paras. 90-99; CMS Gas Transmission Company v. the Argentine Republic, Decision of the Tribunal on Objections to Jurisdiction (17 July 2003), ICSID Case No. ARB/01/08, paras. 70-76; Compañía de Aguas del Aconquija et al. v. the Argentine Republic, Award (21 November 2000), ICSID Case No. Arb/97/03, para. 53. jQuery("#footnote_plugin_tooltip_3469_5").tooltip({ tip: "#footnote_plugin_tooltip_text_3469_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });.

 

  1. The effects of the Court’s measure

With the change of the government at the end of 2015, the Argentine Republic has taken measures to position itself as an important, relevant and predictable hub for Latin American arbitrations. The new Argentine international commercial arbitration law – based on the UNCITRAL Model Law and its 2006 amendments – coupled with the issuance of several arbitration-friendly decisions by the Courts have cleared up the doubts generated by the regulation of arbitration in the new National Civil and Commercial Code in 2015. In this context, the question is whether this recent decision can be interpreted as a drawback to these efforts.

It is the author’s opinion that the decision should not have an impact on the perception of Argentina as an arbitration-friendly jurisdiction. Besides the fact that the decision could be reviewed by the appeal court (there is no publicly available information as to whether Cencosud filed an appeal against this decision although the time period for filing an appeal has elapsed), the scope of the decision also appears to have left the request by AABE without any material effect towards Cencosud’s shareholders. Because the interim measure is case specific and only directed to Cencosud, its shareholders – which are protected investors under the BIT – are not prevented from resorting to arbitration before ICSID. Furthermore, the author does not see a procedural avenue by which the interim measure directed to Cenconsud could be enforced against its shareholders, which are the protected investors under the BIT.

All in all, while the decision and rationale of the Court is unfortunate, it appears that there is no harm in sight to the efforts of the Argentine Republic to position itself as an arbitration-friendly jurisdiction.

References   [ + ]

1. ↑ It is also the author’s understanding that Cencosud S.A. is the Argentinean subsidiary of the Chilean group Cencosud. 2. ↑ Article 10 (2) of the BIT, “Una vez que un nacional o sociedad haya sometido la controversia a las jurisdicciones de la Parte Contratante implicada o al arbitraje internacional, la elección de uno u otro de esos procedimientos será definitiva.” 3. ↑ Schreuer, Christoph and Dolzer, Rudolf, “Principles of International Investment Law”, Second Edition (2012), Oxford University Press, p. 267. 4. ↑ Id. 5. ↑ AES Corporation v. the Argentine Republic, Decision on Jurisdiction (26 April 2005), ICSID Case No. ARB/02/17, paras. 90-99; CMS Gas Transmission Company v. the Argentine Republic, Decision of the Tribunal on Objections to Jurisdiction (17 July 2003), ICSID Case No. ARB/01/08, paras. 70-76; Compañía de Aguas del Aconquija et al. v. the Argentine Republic, Award (21 November 2000), ICSID Case No. Arb/97/03, para. 53. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Kluwer Mediation Blog – April and May Digest

Tue, 2019-06-04 02:10

Anna Howard

In negotiations of all kinds, the greater your capacity for empathy – the more carefully you try to understand all of the other side’s motivations, interests and constraints – the more options you tend to have for potentially resolving the dispute or deadlock”. Deepak Malhotra of Harvard Business School quoted by John Sturrock in Process And Empathy Are Critical For Success In Political (And Other) Negotiations

The last couple of months on the Kluwer Mediation Blog have offered the usual diversity of posts, both in terms of subject matter and geographic reach. They include updates on new mediation legislation in Azerbaijan, Romania and Georgia, a detailed summary of a bold Australian research initiative on dispute resolution, and posts on the extent to which mediators manipulate parties and the impact of such manipulation. You’ll find below a brief summary of, and link to, each post on the Kluwer Mediation Blog in April and May.

In The Surprising Effectiveness Of Hostile Mediators, Rick Weiler shares the unexpected finding of recent research by Ting Zhang, Francesca Gino and Michael I. Norton that hostile behaviour by mediators leads to not just more agreements but better agreements. Rick then considers the relevance of this finding for mediators and their practice.

In Is A Bird In The Hand Worth Two In The Bush?, Charlie Woods explores some of the cognitive biases to which parties are susceptible in mediation and which are also relevant to addressing some of the significant challenges we face, such as climate change. In response to his question, Charlie concludes that in order to answer this question we “really need to know much more about the birds, how and why they are valued, how those involved value the future and what the probability is of there being a bush with birds in it when they get there!”.

In It’s Not Just About The Money And Other Food For Thought For Mediators, John Sturrock draws on some of his recent mediations to identify the following guidance which he hopes will be helpful to other mediators: it’s not all about the money; when the wheels come off, re-engage the key players; get under the surface; ask questions; use a worked example; encourage forward-thinking momentum; and last but not least, provide food.

In Mediation Without Mediator, Constantin-Adi Gavrila explains a recent Romanian law which provides for “mediation” between tax authorities and taxpayers. Constantin notes that the “mediation” described in this law is not actually mediation but negotiation as a third-party mediator is not part of the process. Constantin-Adi explores the possible reasons behind the incorrect use in this law of the term “mediation” and their consequences.

In Mediation Lessons From The Cases –Part 3, Alan Limbury draws on the New South Wales Court of Appeal Case of Studer v Boettcher to identify lessons for lawyers, disputants and mediators regarding their approach to mediations. For mediators, Alan’s guidance includes the importance of holding joint sessions with the disputants, noting that ‘shuttling can inhibit opportunities for the disputants themselves to restore relationships and find creative solutions’. Alan also identifies the importance of ensuring beforehand that all the “right” people attend the mediation, and of being available for as long as the parties want.

In Mediator = Manipulator?, Greg Bond responds to Rick Weiler’s earlier post on  The Surprising Effectiveness Of Hostile Mediators and explores the meaning of manipulation and the various ways in which a mediator might manipulate the parties. Greg identifies, for example, that “when I sit between my clients and the door to make it just a little harder for them to walk out, or when I engage with one person I feel needs more support, or who I feel needs to be heard … then I am manipulating. And I am doing so because I believe that this will increase the chance of a good process and a good result.” Greg then identifies important questions and conclusions about the relationship between a mediator and his or her clients.

In Conflict, Framing And Accountability, drawing on the recent tragedies in New Zealand and Sri-Lanka, Ian Macduff notes that if ever there were powerful – and tragic – examples of the importance of how we frame our perceptions of conflicts and of others, these two events stand out. Ian explains that well-established research in communication theory has pointed out that framing is more communicative than cognitive action. He adds that how significant parties frame issues such as these recent events is a way of conveying a message about how we might collectively continue the conversation.

In Why Your Experience Is Important In International Dispute Resolution, Nadja Alexander, Matthew Coghlan and Aziah Hussin identify key recent developments in international dispute resolution and note the important role which research can play in developing international dispute resolution systems. They then summarise notable recent research in this field and explain the aim of Singapore’s first International Dispute Resolution Survey with the assistance of Singapore Ministry of Law.

In After Italy And Turkey, Azerbaijan Also Follows The Opt-Out Mediation Model, Ruslan Mirzayev provides a detailed overview of Azerbaijan’s Law on Mediation which came into force on 29th March 2019. Ruslan explains the reasons for this law and examines its provisions, including the opt-out mediation model which the law adopts. Ruslan identifies particular challenges which such a model raises for Azerbaijan.

In Commercial Mediation and Good Decisions, Rick Weiler draws on recent Canadian scholarship dealing with the psychological costs of litigation to question whether the currently predominant model of commercial mediation – a single session of 3 or 6 hours – supports good decision-making by litigants. Rick explores whether changes might be needed to truly meet the interests of the clients, such as whether commercial mediators should offer a more client-centred process involving multiple sessions and whether mediators should be better trained in the available tools clients can use for making a good decision.

In Don’t Sit On Your Ass[ets] – Part 1: The People, in the first in a short series on how parties and advisers can best deploy the “assets” at their disposal in a mediation, Bill Marsh notes that often an under-employed asset is the parties.  Bill identifies the reasons why too often the parties can end up taking a back seat. He explains how the key to understanding client participation is to think of it in terms of impact and influence: the impact which comes from someone telling their own story; and how that can influence the outcome of the mediation. Bill then identifies a number of questions, the answers to which determine whose voices should be heard, to what extent, and on what topics.

In A Coffee With Ati Alipour, Andrea Maia shares a question and answer session with Ahdieh (Ati) Alipou Herisi, one of the judges of the recent CPR International Mediation Competition, which took place during an event for the Young Mediators Committee of the Brazilian Center for Arbitration and Mediation. Topics explored in the Q&A session include the Singapore Mediation Convention, the future of mediation in resolving international commercial disputes, mediation in the US courts and the role of co-mediation.

In Formality and Informality: Mediating In The Shadow Of The Courts, Charlie Irvine questions the description of mediation as “informal” compared to the “formal” method of court proceedings.  Charlie uses an example from when he was a duty mediator in court to illustrate the trickiness of navigating the different levels of formality of the communication registers in each of mediation and the court. Charlie concludes by arguing that characterising mediation as “informal” seems irrelevant and unhelpful.

In Courts Should Be The Alternative! Georgia Soon To Adopt The Law On Mediation, Sophie Tkemaladze provides a detailed overview of Georgia’s draft law on mediation. Sophie explains how the draft is divided into two parts: the substantive regulation of mediation, and its institutional set-up. Sophie notes how the issue of who can be a mediator was one of the main points of difference within the drafting group. Sophie describes how the process in Parliament seems to be unusually collaborative, where most stakeholders are driven by a common purpose: How to ensure the most efficient regulatory framework which will foster usage and trust in mediation.

In Here’s How Mediation Science Truly Can Originate In The Real World, following his earlier post What If Mediation Science Originated In The Real World? Michael Leathes identifies the need for large-scale field-based research on real-life mediations. Michael then explores how such research may be carried out, including the use of an “in-group” researcher, such as a member of one party’s in-house business or legal team, and why potential funders may be willing to fund such research.

In Optimism In Mediation: Part II – Opportunity In Every Difficulty, Martin Svatos offers some guidance to help mediators’ improve their interpretation of actions which they cannot influence. Drawing on Martin E.P. Seligman’s, Learned Optimism – How to Change Your Mind, Martin applies Seligman’s three characteristics of permanence, pervasiveness and personalization to a hypothetical situation which may occur a mediation. Martin also identifies practical and accessible ways in which mediators may improve themselves.

In Mining Frank Sander’s Legacy – Triage And More In A Bold Australian Experiment, Rosemary Howell provides a detailed overview of a bold Australian research initiative sponsored by the Dispute Settlement Centre of Victoria and led by Danielle Hutchinson, a lawyer, mediator and academic. The Triage Resourcing Modality Matrix (TRAMM) combines two hierarchical axes to

  1. predict an outcome,
  2. recommend the dispute resolution process that is most resource-effective and best for the dispute, and
  3. maximise opportunities for a good outcome.

One of the key outcomes of TRAMM is that it is outperforming human operators in matching parties to processes and in predicting outcomes.

In Brexit And No End In Sight: A View From The Perspective Of A Theory Of Negotiation, Greg Bond draws on negotiation and conflict theory to identify possible explanations for why UK members of parliament have not been able to agree to Theresa May’s deal with the EU. These include the best alternative to a negotiated agreement (also known as your no-agreement alternative), cognitive biases and the differing interests of principals and their agents.

In Process And Empathy Are Critical For Success In Political (And Other) Negotiations, John Sturrock draws on the work of Deepak Malhotra and Kenneth Cloke to identify the three central components of effective negotiation: framing, process and empathy. John emphasises that any new negotiating approach to Brexit must address these issues of process and empathy and that we must find ways to deal with complexity, volatility, uncertainty, and ambiguity.

More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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African Dynamism: Morocco as a Potential Hub for International Arbitration

Tue, 2019-06-04 02:05

Munia El Harti Alonso

In light of several recent developments in Morocco, its status as an international arbitration hub in Africa is worth a focus. This blog post will specifically consider the rise and recognition of economic opportunities in Africa, Morocco’s lead as a diplomatic power in Africa, the country’s experience with investment and commercial arbitration, and the emergence of the Casablanca International Mediation and Arbitration Center (CIMAC) in order to conclude that Morocco is a dynamic and key player in international arbitration that should be monitored.

1. Background: Foreign Direct Investment (FDI) in the African Region

The recrudescence in FDI flows in Africa positions the continent well to become a key player in the current international arbitration scene. Indeed, International Court of Justice President, Judge Yusuf urged in his 2016 ICCA keynote speech address:

with the growing importance of African States and private corporations in international economic transactions and the unparalleled economic growth in the continent in the last decade, it is high time that this should be matched by a better recognition of African institutions’ ability to serve as a venue for arbitration in the continent.

Several arbitral institutions have been operating in Africa, such as the Cairo Regional Center for International Commercial Arbitration (CRCICA) and the construction-specialized National Construction Council (NCC) of Tanzania. Further, and notably, in July 2018, the ICC Court announced its initiative to create an Africa Commission to “coordinate ICC’s expanding range of activities and growth in the continent”.

Although Egypt remains the main recipient for investments in Africa, the World Investment Report accounts FDI into Morocco was up 23% to USD 2.7 billion in 2018, while Morocco’s investments into Sub-Saharan African countries are leading with approximately USD 5 billion, according to UNCTAD.

Moreover, Casablanca, Morocco’s economic capital, is considered the first financial hub in Africa since the institution of the Casablanca Finance City (2004), ranked 22 out of 121 cities by the 2019 Global Financial Centers Index, above cities such as Paris or Geneva. An instrumental feature of the Casablanca Finance City is undeniably its international dispute resolution center, the Casablanca International Mediation and Arbitration Center (CIMAC). Despite a rise in BIT terminations within the EU, the conclusion of megaregional agreements (e.g. CETA, USMCA, CPTPP) maintained impetus, especially in Africa, pending the promising operationalization of the African Union’s first CFTA.

2. Morocco’s Diplomatic Network Consolidated in the African Continent

Morocco has been consolidating its plurilateral diplomatic network with Africa over the years. The country has been an Observer to the Economic Community of West African States (ECOWAS) since 2005, and recently filed an application to join the organization as a Member. Amidst some pushback from some African Member States, the ECOWAS Authority of Heads of State expressed its support to Morocco’s membership in view of the “strong and multidimensional ties it has with Member States”. Similarly, Morocco is in the phase of joining the Organization for the Harmonization of Business Law in Africa (OHADA), which notably adopted a revised version of its arbitration rules in November 2017.

The Moroccan comeback to the African Union in 2017, after 33 years of absence, also allowed the Kingdom to strengthen its plurilateral relations with African states based on already existing bilateral ties. Additionally, Morocco is a member of the OIC and Arab League Investment Agreements, treaties of the MENA region which have been revived by some recent cases. Morocco, as a cardinal point between the Middle East and North Africa, could serve as a hub between the regions. These diplomatic alliances are complemented by an overall political stability and geographic proximity to the European Union, with Morocco being one of the two strategic partners of the EU in the EUROMED Partnership.

3. The Current Status of International Arbitration in Morocco

In view of the Kingdom’s trade and investment protagonism in Africa and Morocco’s experience in international arbitration since the 1960s, this constitutes a know-how that could serve as a basis to credibly set-up a regional institution, the CIMAC.

a. The Moroccan Experience of International Investment and Commercial Arbitration

Morocco was notoriously the very first state to be part of an ICSID arbitration under the Washington Convention of 1965 through Holiday Inns v. Morocco (the case was settled by both parties in 1978), as well as one of the early signatories of the ICSID Convention. One of the most emblematic cases in investment arbitration, concerning the definition of an investment under the ICSID Convention (known as the “Salini test”) stemmed from the Salini v. Morocco case. Recently, Morocco has also been faced with four ICSID cases brought in 2018 and May 2019, based on the US-Morocco FTA and the Bilateral Investment Treaties (BITs) of Germany-Morocco and Sweden-Morocco. It is worth noting that Morocco ranks second (after Egypt) in Africa with regards to the number of BITs in force, as it has 50 BITs.

Concerning commercial arbitrations, Morocco is a contracting state to the New York Convention since 1959. Moroccan courts could be deemed arbitration friendly because their approach to enforcement of foreign arbitral awards 1)Provided in Decree No. 1-59-266 of 19 Feb. 1960 relating to the ratification of the New York Convention and Articles. 306-327 of the Civil Code of 1974, modified by Law No. 08-05 of 2007 jQuery("#footnote_plugin_tooltip_1934_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1934_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });. An order that decides to recognize or enforce a foreign award may be appealed only on very restricted grounds. Further, under the Moroccan Code of Civil Procedure (Art. 327.32), an order that refuses to grant enforcement or recognition of a foreign award is subject to appeal. In addition, Law No. 08-05 of 2007 establishes a dual system, distinguishing international arbitration from domestic arbitration.

As for ICC arbitration proceedings, the ICC has established a branch in Morocco, in the city of Casablanca. The ICC statistics of 2018 reveal 10 cases involving Moroccan parties (7 claimants and 3 respondents).

Concerning Morocco’s liberal take on arbitration, it has been noted that third party funding in commercial arbitration in Morocco has potential, as currently there is no legislation forbidding the funding of costs of a commercial arbitration by a third party to the dispute.

b. The Casablanca International Mediation and Arbitration Center (CIMAC)

The CIMAC was instituted in late 2014. It is a fairly new institution compared to the CRCICA or the Dubai International Arbitration Center (DIAC), which focuses on disputes arising in the Middle East. The international composition of the panel of arbitrators of CIMAC (as discussed further below), combined with the strengths of Casablanca Finance City, give the center an undeniable potential not just in Morocco but throughout the African continent.

The Casablanca Arbitration Days (the fifth edition of which took place in 2018), which replicated the Paris Arbitration Week concept, shone a spotlight on the institution. It is worth mentioning that during Paris Arbitration Week (which took place from 1 to 5 April 2019), there were four high level events on international arbitration in Africa, two of which were themed on CIMAC. The first event titled “Regionalization of Arbitration in Africa: Perspective of Three Arbitration Centers (CAG, CIMAC, MARC)” covered the promotion of African diversity and local talent, the advantages of using African arbitration institutions and solutions implemented regionally. The second event featured “CIMAC’s bilingual debate between Professors Maxi Scherer and Thomas Clay”, two prominent CIMAC members.

The CIMAC provides the efficiency and quality features expected from an arbitral institution, such as a diverse arbitrator list, expertise, a facility with proximity to major economic hubs, and clear flexible rules. In concreto, the Court is composed of renowned international experts in the field of arbitration: President Laurent Levy, Vice Presidents Jacob Grierson (Partner at Mc Dermott Will and Emery, Paris) and Jalal El Ahdab (Bird & Bird, Paris, and also the current UNCITRAL Delegate for Lebanon). The CIMAC rules of arbitration embody the clarity and flexibility criterion mentioned above:

  • The international composition of the panel at Article 2 (RI.2.1) provides that “the Court will ensure the international character of its composition through a balance between the number of Moroccan and foreign members”.
  • Arbitration can be conducted in four languages upon agreement of the parties: French, English, Arabic or Spanish (Article 17.4).
  • The seat of arbitration is decided by the parties, but if the parties do not agree, by default the seat will be Casablanca (Article 17.1).
  • Regardless of the seat, hearings can take place in any venue worldwide (Article 17.3).

Furthermore, CIMAC signed a cooperation Agreement with the Vienna International Arbitration Center (VIAC) in October 2018, providing for the possibility of cases to be managed by either center.

Concluding Remarks

In conclusion, in view of Africa’s dynamism in arbitration – inter alia, the ICC African Commission, the first African CFTA, and OHADA’s new arbitration provisions – Morocco’s positioning as a stable FDI portal in Africa, combined with CIMAC’s unique assets, potentiate Morocco as a hub for international arbitration. Whilst a new Pan-African Investment Arbitration Court might not see the light yet, building on already existing arbitration institutions such as CIMAC, makes the case for a repatriation of international arbitration to the African continent, upholding Judge Yusuf’s vision.

References   [ + ]

1. ↑ Provided in Decree No. 1-59-266 of 19 Feb. 1960 relating to the ratification of the New York Convention and Articles. 306-327 of the Civil Code of 1974, modified by Law No. 08-05 of 2007 function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Post-award Bargaining Power of States: Examples from Bolivia

Mon, 2019-06-03 05:05

José Carlos Bernal Rivera

One of the main objectives of investment arbitration, as a feature of international investment law, is to provide a neutral forum for the parties in dispute. Neutrality is necessary because the parties are fundamentally different: while the investor is a private entity, the state is a sovereign entity with sovereign immunity. However, the scenario of neutrality that is created by the arbitral procedure ends with the issuing of an arbitral award. The situation of imbalance between the state and the investor, which was present before the start of the arbitral procedure, resurfaces once the jurisdiction of the arbitral tribunal has ceased, and the parties sit again at the negotiation table.

The reason for this imbalance is that enforcement of an award against a state cannot be sought before a neutral arbitral tribunal, but must be sought before local courts, those of the very own losing state, or those in other countries where assets of the losing state can be located. The task of enforcing arbitral awards against states is complex, to say the least, and both parties are aware of this. The situation creates considerable leverage for states, which can be used to negotiate significant discounts on the amounts awarded by the arbitral tribunal, in exchange for prompt payment. This article examines briefly the sources of this leverage, and describes examples from Bolivia, to try to grasp the magnitude of this post-award bargaining power of states.

 

Sovereign immunity as the main leverage factor

Leaving aside all factors related to recognition of the arbitral award, the investor must also take into consideration the problems related to sovereign immunity. As entities subject to international law, states have sovereign immunity rights, from both jurisdiction and enforcement. Immunity from jurisdiction is deemed to be waived through the state´s consent to arbitration. However, immunity from enforcement is not, as it is the investor’s task to enforce the award against assets not covered by this immunity.

Specific immunity provisions are regulated by the internal laws of each state. For instance, in the US, the applicable law is the US Foreign Sovereign Immunities Act of 1976. Therefore, investors are subject to the specific laws of each country where enforcement of the award is sought, and such laws vary. A common criteria for determining whether specific assets can be seized (under the prevailing doctrine of restrictive immunity), is based on the “commercial” use of such assets. Embassies, for example, cannot be seized, as they are not commercial in nature.

The task of trying to defeat the sovereign immunity of a state is considerably burdensome. Argentina, for example, successfully avoided compliance of investment arbitration awards for years, creating doubts on the entire international system of investor-state dispute resolution 1) See Lin, Tsai-yu, Systemic Reflections on Argentina’s Non-Compliance with ICSID Arbitral Awards: A New Role of the Annulment Committee at Enforcement? (May 31, 2012). Contemporary Asia Arbitration Journal, Vol. 5, No. 1, pp 1-22, May 2012. Available at SSRN: https://ssrn.com/abstract=2115553 jQuery("#footnote_plugin_tooltip_2808_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2808_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });. There are no broadly used mechanisms to avoid this problem. States and investors could explicitly provide for a waiver of the state’s immunity from enforcement, included in their specific investment contracts, or in the relevant investment treaty. However, states are understandably reluctant to waive their immunity from enforcement.

 

Lack of well-organized information on post-award settlement agreements

The conventional wisdom is that most states voluntarily comply with arbitral awards, which is true, but misses the point of this analysis. It is unclear how post-award actions of states should be analyzed and recorded, but they are certainly not receiving the attention that they deserve.

Take as an example the several investment arbitration awards settled by Argentina in late 20132) These cases are: CMS Gas Transmission Company v the Argentine Republic (ICSID Case No. ARB/01/8), Azurix Corp v the Argentine Republic (ICSID Case No. ARB/01/12), Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v the Argentine Republic (ICSID Case No. ARB/97/3), Continental Casualty Company v the Argentine Republic (ICSID Case No. ARB/03/9), and National Grid plc v. the Argentine Republic (case under UNCITRAL rules) jQuery("#footnote_plugin_tooltip_2808_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2808_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });. The arbitral awards in these cases had established various compensation amounts in favor of the investors, but following the negotiations between the Argentinian government and the investors, the terms of the compensation had varied considerably. Yet, the outcomes of these post-award negotiations are not shown in the web database of ICSID, or in other popular sources of information such as UNCTAD’s “Investment Policy Hub”.

It is understandable that arbitration records do not to pay particular attention to whether the award was paid in full, or whether the state had successfully negotiated a discount. However, the lack of well-organized information regarding the aftermath of arbitral awards, could be deceiving the arbitration practitioner’s perception of the value of an arbitral award in the real world. It seems like a country which has bargained the amount of the arbitral award, would still be considered by academics and practitioners, for all general purposes, as having complied voluntarily with the award. So, the conventional wisdom declaring that almost all states voluntarily comply with investment arbitration awards, is not particularly useful to assess the bargaining power of states.

 

Examples from Bolivia

Bolivia has taken part of investment arbitration cases, as respondent state, in at least 8 opportunities; however, most of the commenced arbitration cases – and other potential cases arising from nationalizations – were settled by the Bolivian government before an arbitral award was rendered. Only two investment arbitration cases brought against Bolivia have reached an award.

In Quiborax S.A., Non Metallic Minerals S.A. and Allan Fosk Kaplún v. Plurinational State of Bolivia (ICSID Case No. ARB/06/2), the arbitral tribunal awarded US$ 48,619,578 to the investors, plus interests on 16 September 2015. Bolivia requested the annulment of the award, but the application for annulment was dismissed by the ad hoc committee.

The interest of this award was established at 1-year LIBOR + 2%, compounded annually, calculated from 1 July 2013 until payment in full. The date of the settlement agreement was 7 June 2018. At that point in time, the total amount of the award – with interest – would have been of approximately US$ 57,1 million. However, after the negotiations between the parties, they agreed to a settlement of US$ 42,6 million. In this case, the bargaining power of the state represented a reduction of 26,4% of the amount of the award.

In Guaracachi America, Inc. and Rurelec PLC v. The Plurinational State of Bolivia (PCA Case No. 2011-17) the arbitral tribunal awarded US$ 28,927,582 to the investor plus interest, on 31 January 2014. The award established annually compounded interest at a rate of 5.633331% starting on 1 May 2010.

A settlement agreement was reached by the parties on 29 May 2014, for US$ 31,5 million. However, applying the interest provided for in the award, the compensation would have been approximately of US$ 36,18 million. In this case, the bargaining power of the state represented a reduction of 12,93% of the amount of the award.

These limited examples, are only intended to show that states do, in fact, have a bargaining power, and that in certain situations, this leverage can be as powerful as to allow the discount of even a quarter of the total amount awarded by the arbitral tribunal to the investor.

 

Bargaining power as market valuation of the arbitral award

The market is the best judge of the true value of most things, including the real value of investment treaty arbitration awards. An analysis of the bargaining power of states is, in essence, an analysis of the true value of the arbitral awards, as determined by the players in the market.

Of course, every arbitral award can be valued differently. The specific characteristics of the case, and of the respondent state, could play an important role in the valuation of every specific award. For example, in the case of Argentina, political pressure of the US and other countries pushed Argentina to settle and pay some of its pending arbitration cases, but it is unlikely that this would happen in all scenarios of recalcitrant states. In addition, the investors could “sell” their rights under the award to firms specialized in performing complex multinational enforcement proceedings, widening the pool of market participants. All these factors will, in ultimate instance, affect the value of the arbitral award, and the willingness of the parties (investor and state) to settle the award at a discount. Whatever the circumstances are, it is predictable that the parties will end up sitting again at the negotiations table, after the award is issued, and that the state will intrinsically have a leverage to negotiate more favorable terms.

 

Conclusions

It is only logical that the complexities of enforcing arbitral awards against states would considerably diminish the true value of arbitral awards, augmenting the bargaining power of states. A more thorough analysis of the spread between awards (as provided by the arbitral tribunal) and settled amounts, could offer arbitration practitioners a better understanding of the entire value of investment arbitration claims. Understating the importance of this bargaining power of states would only alienate the entire investment arbitration system from its true value in the real world.

 

The views expressed are those of the author alone, and should not be regarded as representative of or binding upon the author’s law firm.

References   [ + ]

1. ↑ See Lin, Tsai-yu, Systemic Reflections on Argentina’s Non-Compliance with ICSID Arbitral Awards: A New Role of the Annulment Committee at Enforcement? (May 31, 2012). Contemporary Asia Arbitration Journal, Vol. 5, No. 1, pp 1-22, May 2012. Available at SSRN: https://ssrn.com/abstract=2115553 2. ↑ These cases are: CMS Gas Transmission Company v the Argentine Republic (ICSID Case No. ARB/01/8), Azurix Corp v the Argentine Republic (ICSID Case No. ARB/01/12), Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v the Argentine Republic (ICSID Case No. ARB/97/3), Continental Casualty Company v the Argentine Republic (ICSID Case No. ARB/03/9), and National Grid plc v. the Argentine Republic (case under UNCITRAL rules) function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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The Role of International Investment Law in Armed Conflicts, Disputed Territories, and “Frozen” Conflicts – A Workshop Report

Sun, 2019-06-02 02:00

Maximilian Bertamini

On 1 and 2 March 2019, a group of international humanitarian law (IHL) and international investment law (IIL) experts came together for a workshop at Ruhr-University Bochum, Germany. The event, organized and hosted by Tobias Ackermann (Bochum) and Sebastian Wuschka (Hamburg / Bochum), dealt with the interplay between IIL and the legal regimes that apply in armed or “frozen” conflicts and to disputed territories. Such conflicts heavily expose foreign investments to risks, as already the example of the first BIT-based ICSID case, AAPL v. Sri Lanka, shows. While doubts might be raised regarding the benefit IIL could bring to conflict situations, it is ultimately rooted in the minimum standard for treatment of foreigners, which was not only designed to protect foreigners but also foreign property in times of conflict. IIL could therefore even mitigate the effects of conflicts, similar to the goal of IHL. Territorial disputes and “frozen” conflicts raise additional sets of issues from the perspective of IIL. The workshop’s purpose was to contribute to the understanding of these complex and multifaceted legal relationships.

Panel 1 – Investment Law and Armed Conflicts

Moderated by Prof. Marco Sassòli (Geneva), the first panel examined whether and how notions from IIL and IHL influence or even exclude each other. First, Dr. Tillmann Rudolf Braun (Berlin) presented on the tension between IIL and IHL with a focus on non-international armed conflicts. He discussed whether IHL or IIL should be considered lex specialis in times of conflict, before questioning the value of the lex specialis principle given the potential lack of a normative conflict in the strict sense – after all, IHL does not oblige states to destroy foreign investments. Dr. Braun then turned to the meaning of the term “necessity” in BITs as compared to the concept of military necessity in IHL and to how the ‘extended war clauses’ in BITs relate to other protection standards in the same treaty. Building on the same extended war clauses and notion of “necessity” in IHL and BITs, Ira Ryk-Lakhman (London) argued for continuity across both legal regimes. Her main proposition was that the investment treaty provisions do in fact incorporate certain rules of customary IHL and thereby provide for a continuity between notions from IHL to IIL. The topics of the presentations were discussed lively and passionately among the speakers and workshop participants. The discussion revolved around the transferability of IHL notions to IIL while the positions emphasized the history of the “necessity” terminology on the one hand and the singularity and autonomy of BITs on the other hand.

After a break, Prof. Christina Binder (Munich) elaborated on the effect of occupation and armed hostilities on investment treaty obligations with a focus on the force majeure rule. In her view, this rule can connect the worlds of IIL and IHL in armed hostilities. Her presentation suggested some modifications to the burden of proof threshold for the invocation of force majeure in longer lasting conflicts. As the force majeure rule could leave investors uncompensated in cases of damages to their investments, Prof. Binder made a case for equity-based compensation in certain cases. Dr. Emily Sipiorski (Hamburg) then set out to identify the limits of the full protection and security investment treaty standard during armed conflicts. She analyzed the effects of different types of interventions in an armed conflict depending on the role that the investor plays therein, e.g. by supporting the intervening state or taking the side of the intervened state. According to Dr. Sipiorski, the standard of protection under IHL as well as IIL’s full protection standard will be informed by such considerations. The discussion of the two presentations addressed the relationship of treaty based force majeure clauses and the corresponding customary rule of state responsibility in addition to different hypothetical conflict scenarios – in particular from the perspective of the full protection and security standard.

Panel 2 – Investment Law and Disputed Territories

Marco Benatar (Luxembourg) opened the second panel – moderated by Prof. Pierre Thielbörger (Bochum) – with a presentation on investments in disputed maritime zones. After a short introduction about disputed maritime zones and their legal framework, he elaborated on the territorial scope of international investment agreements and in how far they follow or depart from the general rule codified in Article 29 of the Vienna Convention on the Law of Treaties (VCLT). The presentation concluded with a discussion of the positive and negative effects which the exercise of jurisdiction by tribunals could have in certain potential investor-state controversies with an underlying territorial dispute between states. The following discussion focused inter alia on the legitimate expectations investors can have with respect to investment protection when choosing to operate in disputed territories.

In the following presentation, Marina Reznichuk (Augsburg / Kyiv) addressed current issues and challenges in the Ukrainian Donbass region. She emphasized the importance of accurately determining the legal status of the occupied territories of Ukraine and the degree of involvement of actors such as Russia in these. She then argued in favor of a special protective legal regime in these areas in order to close existing legal gaps. Her contribution sparked a discussion about the competence to legislate in occupied territories.

The second panel concluded with a presentation via Skype, delivered by Prof. Vasilka Sancin (Ljubljana), on the potential of the European Convention on Human Rights (ECHR) in general and Article 1 of the First Additional Protocol to the ECHR specifically as an alternative to investment arbitration for investors in case of a territorial conflict. Prof. Sancin’s assessment included factors such as the duration of the proceedings before the European Court of Human Rights (ECtHR), the possible remedies to be awarded by the Court and the enforcement of judgements, compared to duration, remedies and enforcement of arbitral proceedings and awards. During the subsequent discussion, the experts exchanged views with Prof. Sancin on the admissibility of cases before the ECtHR which have previously been submitted to an arbitral tribunal and related questions, such as issues of double recovery. The workshop participants were in agreement that also the ECtHR would likely be reluctant to engage with questions of territorial sovereignty.

Panel 3 – Investment Law and Annexed Territories and “Frozen” Conflicts

The final panel, moderated by Dr. Isabella Risini (Bochum), raised a number of questions regarding the applicability of investment treaties to conflict territories as well as possible implications of the duty of non-recognition. Precisely the potential contradiction between this duty and the territorial scope of investment treaties was addressed by Sebastian Wuschka, who presented on the difficulties of applying investment treaties in occupied or annexed territories. He argued in favor of a broad interpretation of territorial clauses contained in investment treaties in line with Article 29 VCLT, which – as he stressed – provides that treaties bind states on their “entire territory” (see also here). He then illustrated the reasoning recently employed by the Swiss Federal Tribunal, which confirmed two awards on jurisdiction in cases filed by Ukrainian claimants against Russia regarding “internationalized” investments in Crimea (for a summary of the decision, see here). A topic of the ensuing discussion was to what extend also Article 43 of the Hague Regulations could lead to the application of investment treaties in annexed or occupied territories.

For the perspective of the European Union and its free trade agreements, Dr. Stefan Lorenzmeier (Augsburg) shared his views on the lessons the European Union can and should draw from the Front Polisario case with regard to the duty of non-recognition. After establishing its content, legal basis and reasons for the application at the European level, Dr. Lorenzmeier elaborated on the effects of said duty for European free trade agreements and investment treaties in general. The discussion recurred to the legal basis of the duty of non-recognition in general international law.

In the last presentation, Prof. Vlada Lisenco (Tiraspol) and Prof. Karsten Nowrot (Hamburg) assessed “national” investment laws in frozen conflict situations by using the example of Transnistria. Prof. Lisenco first offered insights into the legal framework applicable in Transnistria and its differences to the general Moldovan rules for investments. Prof. Nowrot then illustrated Transnistria’s situation as an unrecognized state in general, as well as its foreign investment policy in particular, which he compared to international standards of investment protection. The subsequent discussion – in addition to issues of investment law – also focused on the specifics of the situation in Transnistria as a non-recognized territorial entity.

Résumé

In sum, the workshop provided for two days of intense and detailed discussions of an emerging topic in international investment law and arbitration, as well as much food for thought. The discussions at the workshop also showed the need for further reflections on the topics debated in Bochum.

The clarification of the applicable legal framework and its exact content for investment protection in times of armed conflicts will be essential for arbitral tribunals, states and investors alike. The potential normative conflicts between IIL and IHL and the legal insecurity resulting from them may be a serious hurdle to effective investment protection in times of conflict, when foreign investments are especially vulnerable. It is, however, likely that the IIL regime remains applicable in times of armed conflict, as most BITs envisage a conflict scenario and the UN International Law Commission’s Articles on the Effects of Armed Conflicts on Treaties also generally establish a presumption of continued application. The extent to which protection is provided, however, will mostly still have to be determined conclusively. The contributors to the workshop dealt with the notion of necessity in that context and asked whether the IIL notion of that term is congruent with the concept of necessity under IHL. An argument for the reconciliation of the two terms and the regimes of IIL and IHL in general, which did not take center stage during the workshop, but might provide for some insights, is that reconciliation could be achieved through the application of Article 31(1)(c) VCLT in interpreting the investment treaties. In general, the discussion about the interactions between IIL and IHL will potentially also have implications for the overarching discussion about fragmentation and constitutionalism in international law.

Another aspect that needs to be dealt with rather sooner than later is the complicated role of investment tribunals in conflict scenarios, especially in cases that involve disputes concerning territory. While judicial restraint by tribunals in order not to escalate conflicts any further might be wise from a political perspective, it may undermine the very purpose of IIL. Investment tribunals therefore need to find a way to handle the cases before them without explicitly or implicitly taking a stand on the underlying territorial conflict. Only in that way can the law be upheld effectively without fueling a territorial conflict. Whether tribunals could do so by assuming jurisdiction without prejudice to any territorial claims, whether the interpretation of the term “territory” in investment treaties to merely denote de facto control over a piece of land as accepted by the Swiss Federal Tribunal is really apposite (see to the contrary, for instance, Prof. Matteo Vaccaro-Incisa’s position), or whether other legal bases for effective investment protection regardless of BIT territorial clauses (such as property protection claims before human rights courts) might be a promising alternative, can by far not be considered settled issues. The workshop organizers hope to contribute to the further clarification of these questions by publishing a collection of the papers presented at the workshop.

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The UK Supreme Court to Hear Deepwater Horizon Appeal Seeking Removal of an Arbitrator

Sat, 2019-06-01 02:50

Lee Carroll and Joshua Paffey

Introduction

The UK Supreme Court will hear an appeal from Halliburton Company v Chubb Bermuda Insurance Ltd [2018] EWCA Civ 817 on whether an arbitrator may accept appointments in multiple references concerning the overlapping subject matter with only one common party, without giving rise to an appearance of bias and without disclosure. As it stands, the decision of the Court of Appeal means that arbitrators can accept multiple appointments in arbitrations with overlapping subject matters, without disclosure, and without necessarily giving rise to doubts about their impartiality.

The Factual and Procedural Background of the Case

The factual backdrop to this case is the BP oil spill in the Gulf of Mexico. Transocean was the owner of the Deepwater Horizon oil rig. Halliburton was engaged to provide cementing and other services in relation to the abandonment of the well. Both settled claims against it arising from the oil spill.

Halliburton made a claim on its insurance policy with Chubb, who refused to pay. Halliburton commenced an arbitration against Chubb in London under the insurance policy. Both parties appointed an arbitrator but, unable to agree on the chairman, the English High Court appointed ‘M’ as chairman.1)Exercising its powers under section 18 of the Arbitration Act 1996 (UK). jQuery("#footnote_plugin_tooltip_9090_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9090_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Subsequent to his appointment, M accepted appointments as an arbitrator in two other references arising out of the oil spill. First, a claim by Transocean against Chubb in relation to the settlement of its claims; secondly, a claim by Transocean against another insurer. In the first reference, M was appointed by Chubb.  In the second reference, M was appointed as chairman by agreement of the parties. M failed to disclose these appointments to Halliburton.

When Halliburton learned of the appointments and challenged M’s impartiality, M said that it had not occurred to him that he had a duty to disclose the appointments but offered to resign if Chubb agreed.2)M considered that, given he had been appointed by the Court following a contested hearing, resignation should be conditional on the consent of Chubb. jQuery("#footnote_plugin_tooltip_9090_2").tooltip({ tip: "#footnote_plugin_tooltip_text_9090_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Chubb did not agree so Halliburton sought to have M removed as an arbitrator under section 24(1)(a) of the Arbitration Act 1996 (UK) which provides that a party may apply to the court to remove an arbitrator if “circumstances exist that give rise to justifiable doubts as to his impartiality”.  The application was founded on a submission that M’s conduct (in accepting and not disclosing the appointments, and then not resigning) gave rise to an appearance of bias.

First Instance Decision

In the Commercial Court, Popplewell J said that whether circumstances exist which give rise to justifiable doubts as to an arbitrator’s impartiality is determined by applying the common law test for apparent bias. The test is whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased.3)Porter v Magill [2002] 2 AC 357, [103]. jQuery("#footnote_plugin_tooltip_9090_3").tooltip({ tip: "#footnote_plugin_tooltip_text_9090_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Popplewell J concluded that there was nothing in M’s acceptance of the appointments which gave rise to an appearance of bias.

His Honour considered that experienced arbitrators should be able to sit in different arbitrations which arise out of the same factual circumstances or subject matter. Party autonomy, which underpins arbitration, dictates that parties should be free to appoint their chosen arbitrator and, as part of that freedom, parties want their tribunal to have particular knowledge and expertise:

[i]t is undesirable that parties should be unnecessarily constrained in their ability to draw on this pool [of talent] if there are multiple arbitrations arising out of a single event or overlapping circumstances. (Popplewell J)

Popplewell J further reasoned that arbitrators are able to put out of their minds material they may have encountered in another reference if it is not introduced as material in the case they are deciding. He concluded that the informed and fair-minded observer would not regard M as being unable to act impartially because “his experience and reputation for integrity” would enable him to approach the evidence and argument with an open mind.

Having found that M’s acceptance of the appointments did not give rise to any justifiable concerns over his independence, it followed, Popplewell J said, that he was under no obligation to disclose the appointments.

Court of Appeal’s Decision

The Court of Appeal upheld the judgment. The Court agreed that the mere fact that an arbitrator accepts appointments in multiple references concerning the overlapping subject matter with only one common party does not, of itself, give rise to an appearance of bias.

As to whether M should have made the disclosure to Halliburton of the appointments, the Court concluded that, as a matter of good practice and as a matter of law, M ought to have disclosed the appointments.

The Court referred to the IBA Guidelines on Conflicts of Interest in International Arbitration 2014, Orange List 3.1.5, which calls for disclosure where an arbitrator serves in an arbitration on a related issue involving one of the parties. Under English law, disclosure is required of facts and circumstances known to the arbitrator which might give rise to justifiable doubts as to his impartiality (i.e. facts or circumstances which might lead the fair-minded and informed observer to conclude that there was a real possibility the arbitrator was biased). Whether disclosure should be made depends on the prevailing circumstances at that time.

Notwithstanding that M ought to have made the disclosure, the Court concluded the non-disclosure alone would not have led the fair-minded and informed observer to conclude that there was a real possibility that M was biased. This was because, among other things, the non-disclosed circumstance (the appointment) did not justify an inference of apparent bias, the failure to disclose was not deliberate, and there was a limited degree of overlap between the arbitrations.

The Court stressed that although in the eyes of a party, an appointment in related references may be a cause for concern or uneasiness, it was another step to conclude that the common arbitrator lacked impartiality. The arbitrator should be trusted to decide the case solely on the evidence or other material adduced in the proceedings in question.

Comment

As it stands, the Deepwater Horizon case means that arbitrators can accept more than one appointment in arbitrations with overlapping subject matters, without necessarily giving rise to doubts about their impartiality.

The IBA Guidelines already provide that any doubt as to whether an arbitrator should disclose certain facts or circumstances should be resolved in favor of disclosure. It is clear from this case, however, that arbitrators need more guidance.

The ICC recently issued a revised note to parties and arbitral tribunals on the conduct of arbitrations under the ICC Rules, which applies from 1 January 2019. This note extends the existing disclosure obligations of arbitrators and prospective arbitrators to “non-parties having an interest in the outcome of the arbitration”. Therefore, arbitrators are now required to consider relationships with interested non-parties which may give rise to doubts as to impartiality.

Thus, even if the Supreme Court agrees with its lower courts and finds that, on the facts, the circumstances do not give rise to justifiable doubts as to M’s impartiality justifying removal, the Supreme Court has an invaluable opportunity to provide guidance on disclosure duties and obligations.

First, the Supreme Court should take the opportunity to clarify disclosure obligations and clearly opine that disclosure must include disclosure of related arbitrator appointments, irrespective of the extent of factual overlap between the cases. It may then fall to arbitral institutions to pick up and incorporate this extension in their rules.

Second, it is important that the Supreme Court provides this guidance since it is not clear currently whether such disclosure must be made. Notwithstanding the IBA Guidelines Orange List 3.1.5, M, an experienced arbitrator, said that “it had not occurred to him” to disclose the appointments. The Court of Appeal said M ought to have disclosed the appointments as a matter of good practice and as a matter of law.  Yet, Popplewell J said M was under no such obligation.

Third, it is equally important that the Supreme Court offers guidance because where arbitrators fail to abide by the requisite standards, often unintentionally, it imposes significant costs on the parties. Proceedings on challenging arbitrator appointments or on the annulment of arbitral awards can leave the parties with the prospect of having to start proceedings afresh. A failure to abide by requisite standards also undermines public confidence in arbitration. To maintain its legitimacy, international arbitration must ensure that its decision makers are and are perceived to be impartial.

The outcome of the appeal will impact the elements critical to preserving the legitimacy and integrity of the arbitral process – arbitrators’ trustworthiness and reliability. Ideally, the Supreme Court should confirm that arbitrators are required to disclose, at any stage of the proceedings, related arbitrator appointments, irrespective of the extent of the relation. We, in any event, look forward to the Supreme Court’s further guidance on the issue.

References   [ + ]

1. ↑ Exercising its powers under section 18 of the Arbitration Act 1996 (UK). 2. ↑ M considered that, given he had been appointed by the Court following a contested hearing, resignation should be conditional on the consent of Chubb. 3. ↑ Porter v Magill [2002] 2 AC 357, [103]. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Efficiently Resolving International Construction Disputes

Fri, 2019-05-31 02:12

Loukas A. Mistelis and Alexander Ferguson

Anecdotally, the time and cost of arbitrating international construction disputes is one of the biggest sources of dissatisfaction. This was reflected in the discussion on the final day of London International Disputes Week at the international construction disputes panels. This is unsurprising as previous Queen Mary University of London (QMUL) surveys identified cost and lack of speed as some of the worst characteristics of international arbitration, and the construction industry accounts for a significant number of international arbitrations.

What is perhaps more surprising is that notwithstanding concerns about the time and cost of arbitration, it continues to be overwhelmingly preferred over litigation. In the 2018 QMUL/White & Case Survey, 92% of in-house counsel respondents preferred international arbitration for resolving international disputes. This is an increase from the first Survey, in 2006, that found 73% of corporations prefer international arbitration over litigation for resolving cross-border disputes.

At the same time, arbitration faces competition from newly established international commercial courts, such as in China. This comes at a time when the construction sector, and consequently international construction disputes, are forecast to increase. Globally, the construction sector is forecast to grow to reach a total size of US$17.5 trillion by 2030. To take one example, arising from China’s belt and road initiative it is predicted that disputes will be arbitrated.

Whilst arbitration remains popular, to serve its current and likely expanding user base effectively, it is clear that changes will need to be made. It is in this context that the 2019 QMUL International Arbitration Survey seeks to understand existing user experiences and identify ways to improve the efficiency of resolving international construction disputes. The survey, conducted in partnership with Pinsent Masons, is now available here.

 

Filling the information gap about efficiency

Before considering how to improve the efficiency of international construction arbitration, we first need to understand the nature and extent of the problem. The first challenge is that there is no agreed definition of efficiency in international arbitration, let alone in international construction arbitration. The time and cost to resolve a dispute are common understandings of what is meant by efficiency, but there is more to efficient dispute resolution. For example, resolving ancillary disputes related to the construction project, such as bonds or guarantees, as part of the resolution of the key construction issues can help to avoid future disputes. Similarly, resolving a dispute before it reaches arbitration, such as by a dispute board, can avoid significant expense; but what is less clear is the role arbitration should play in supporting that pre-arbitral dispute resolution. When looking at the conduct of the arbitration itself, identifying the key causes of inefficiency can help us to understand what efficiency means. For example, arbitrator or counsel inexperience in international construction arbitration may prove to be significant causes of inefficiency.

Whilst international arbitration continues to be preferred over litigation, that does not necessarily mean that parties prefer arbitration because of its efficiency. The 2018 Survey found that enforceability of awards and avoiding specific legal systems/national courts are the most valuable characteristics of arbitration, whilst speed and cost were amongst the lowest ranked. To understand the extent to which concerns about efficiency are hindering the resolution of international construction disputes, we can use the proxy of whether parties have chosen not to pursue international construction arbitration because of concerns about its efficiency.

Another dimension to efficiency is the possibility of parallel proceedings. The same, or similar, factual matter can be arbitrated before both an investor state and an international commercial arbitral tribunal. For example, arising out of the planned Ras Sudr International Airport in Egypt was both an ICSID investor-state arbitration and CRICA arbitration under the contract. This occurred notwithstanding the different paradigms of the two types of arbitration. What is less clear is whether the difference in paradigms means that there are different views about efficiency in the conduct of those arbitrations. One way to measure this is to look for the appetite for an in-built arbitral appeals mechanism. The approach taken also differs between the two. For example, Article 3.39 of the EU-Vietnam Investment Protection Agreement would establish an internal arbitral appeal mechanisms. However, the internal appeals mechanisms established as part of the AAA/ICDR is optional. This might suggest that in-built arbitral appeals mechanisms are more palatable for investor-state awards. Alternatively, it may also just be a reflection of the different parties negotiating the investment treaty (both states) compared to a construction contract where it is more likely that only one party will likely be a state.

 

Improving efficiency of international construction arbitration

Regardless of the paradigm of arbitration, the issue of due process paranoia can arise. Identified in the 2015 survey, this is ‘a reluctance by tribunals to act decisively in certain situations for fear of the arbitral award being challenged on the basis of a party not having had the chance to present its case fully’. However, in their disputes, parties may be willing to forego due process elements, so as to reach a quicker and cheaper conclusion. It is through a non-identifiable form, like the Survey, that respondents can guide arbitrators about the due process aspects that they would be willing to forego without directly affecting any existing arbitrations. More significantly, understanding the due process elements that a party would be willing to forego can serve as an indication of when an award should or should not be set aside when enforced in domestic courts.

Looking at the arbitral procedures themselves, there is significant scope to improve efficiency. Procedural efficiencies have been suggested (see here). To implement those, and other, procedural improvements, actors will need to act efficiently. How those actors can act with greater efficiency may be unclear to other actors. It is easy to see the responsibility for acting more efficiently being borne by an actor other than oneself. Further, the non-identifiable format can allow actors to communicate with each other without compromising their current disputes. For example, an expert may wish to inform an arbitrator how they can be better used to resolve the dispute. Impartiality and due process concerns can prevent experts from making these statements in the course of an arbitration, but through a non-identifiable survey, experts can share their views for the benefit of their clients.

These are just some of the improvements to efficiency that the 2019 QMUL International Arbitration Survey seeks your responses. Others include, improvements to arbitral procedure, the role of pre-arbitral dispute resolution, diversity, costs, and dispute resolution agreements.

 

Conclusion

This week the QMUL, in partnership with Pinsent Masons, is opening its international construction arbitration survey to respondents (here). We are grateful to our focus group for their comments on the Survey. This is, however, not the end of the empirical research, interviews will be conducted. If you would like to be part of those interviews please contact the Pinsent Masons Research Fellow in International Arbitration, Alexander Ferguson at [email protected].

The survey will be available until Friday 26 July 2019. We look forward to sharing the results with you in the latter part of 2019.

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The Silk Road to Uzbekistan: A Report from the Inaugural Tashkent Law Spring Legal Forum

Thu, 2019-05-30 17:29

Kiran Nasir Gore (Associate Editor)

Introduction

According to UNESCO, the first caravans aiming to connect East (China) with West (Central Asia) were dispatched in 138 AD, leading eventually to the formulation of what we know today as the Great Silk Road.  In this way, the Uzbek corridor, consisting of Bukhara, Tashkent, and Samarkand, provided key routes for trade and also served as a burgeoning center for thought leadership, cross-cultural exchange, and relations.

Registan in Samarkand, Photo courtesy Kiran Nasir Gore

Uzbekistan’s position has evolved many times over the years, but it has always remained strategically positioned.  During the Soviet era, Tashkent was a political hub in Central Asia.  And even today it is the only nation in the region that shares borders with so many of its neighbors (Kazakhstan, Kyrgyzstan, Tajikistan, Afghanistan, and Turkmenistan). These facts remained even as the political leadership of Islam Karimov led Uzbekistan into obscurity for decades.

Against this backdrop, and with Karimov’s death in 2016, Uzbekistan has sought to reestablish itself as an important global and regional player.  The openness, enthusiasm, and innovation underlying this initiative cannot be overstated.  Indeed, it was expertly on display during the inaugural Tashkent Law Spring Legal Forum, organized by the Ministry of Justice of Uzbekistan and held April 25-27.

 

Grand Opening Plenary

The conference began with a grand opening plenary moderated by Carolyn Lamm (Partner, White & Case; Chairman, American-Uzbekistan Chamber of Commerce).  Focusing on the Forum theme, Law in an Era of Rapid Modernization, an audience of approximately 1,200 delegates from across 40 different jurisdictions heard remarks reflecting various national perspectives on developing effective legal regimes and supporting the rule of law.  Featured speakers included Ruslanbek Davletov (Minister of Justice, Uzbekistan), Alberto Mora (Associate Executive Director for Global Programs, American Bar Association), Kim Oe-sook (Minister of Government Legislation, South Korea), and Edwin Tong (Senior Minister of State for Law and Health, Singapore).

Grand Opening Plenary, Photo courtesy of Tashkent Law Spring Facebook Page

Although the conference theme and topics covered were broad, there was significant focus on arbitration as a means of supporting Uzbek investment, development, and effective international dispute resolution.  Indeed, throughout the Forum speakers discussed the role and future of arbitration, international legal principles, and best practices in the field.  In this way, the Forum was a microcosm for current issues and debates.

 

Perspectives on Investment and Commercial Arbitration

An all-star program, called International Arbitration and Judicial Proceedings, focused on investment arbitration and various arbitral institutions was co-moderated by Ms. Lamm and Dr. Islambek Rutambekov (Head of Department on Legal Protection of Interests, Ministry of Justice, Uzbekistan).

Mikhail Galperin (Deputy Minister, Ministry of Justice, Russian Federation) first provided the State’s view on the future of investment arbitration.  The focus then shifted to provide the arbitral institution’s perspective.  Alice Fremuth-Wolf (Secretary General, VIAC), Sarah Grimmer (Secretary General, HKIAC), Andrey Gorlenko (Executive Administrator, Russian Arbitration Center), and Martina Polasek (Deputy Secretary General, ICSID) each provided remarks on the strengths and relevance of their institutions for potential disputes arising out of or relating to Uzbekistan.

Diana Bayzakova (Head, Tashkent International Arbitration Centre (TIAC)) provided a stand-out presentation.  TIAC is the youngest arbitral institution in the world – it was officially established under the Chamber of Commerce and Industry of Uzbekistan in November 2018, with its Opening Ceremony in early April at Paris Arbitration Week.  TIAC strives to meet users’ needs and is amenable to administering disputes seated elsewhere in the world, and also overseeing disputes guided by a different arbitral institution’s rules.   TIAC has also poised itself to become an important player in the arbitration community:  just recently Ms. Bayzakova announced that TIAC would host the world’s first International Tech Moot Court Competition.

The audience for this program was the largest of any other breakout session during the Forum – owing in no small part to the Uzbek legal community’s recognition that arbitration is a key component to ensuring the rule of law and progressing its development.  It will be interesting to see how future arbitration clauses are shaped, including choice of administering arbitral institutions, seat, and applicable law.

 

A Closer Look at Applicable Law for Uzbek Disputes

Previewing many of the conversations that would soon take place at London International Disputes Week (LIDW), an in-depth program focused exclusively on Do Investors Prefer English Law? The program was moderated by Bobur Shamsiev (Partner, Dentons) and featured as speakers Christopher Campbell-Holt (Registrar and Chief Executive of AIFC Court and the International Arbitration Centre, Kazakhstan), Sebastian Lawson (Partner, Freshfields Bruckhaus Deringer), Murat Akuyev (Partner, Clearly Gottlieb Steen & Hamilton), Anastasia Malyugina (CIS Forensics Desk Leader, PricewaterhouseCoopers), and Nodir Sidikov (Partner, Fieldfisher).  Among the topics discussed were how Uzbek domestic legislation can strategically attract investment, why English common law is widely used in international business deals, and the lessons that can be learned from other CIS jurisdictions that have engaged with English common law principles.

It is interesting to see this debate continue in Central Asia following last year’s establishment of the AIFC Court and International Arbitration Centre in Kazakhstan.  With the rise of opportunity in Central Asia it seems that the region is following the leads of Dubai and Singapore.  With regional finance hubs based on English law, in the English language, and with a central independent court, investors may develop a regional presence under the auspices of a law that is more familiar, transparent, and seemingly flexible than that traditionally found in Central Asian jurisdictions.  (See past Blog coverage the establishment of the AIFC here and coverage of the related and recent discussion at LIDW here.)

 

Other Highlights

Further programs engaged with the details of arbitration practice:

  • John Hay (Partner, Dentons) and Diora Ziyaeva (Senior Managing Associate, Dentons) co-presented a workshop on practical aspects of preparing a case in international arbitration, followed by a presentation by Alexei Dudko (Partner, Hogan Lovells) on the end game of all dispute resolution – international search and foreclosure on assets.
  • During a program on Legal Services (organized by the Uzbek Chamber of Advocates), Lisa Richman Kelley (Partner, McDermott Will and Emery) discussed effective oral advocacy skills and Kiran Nasir Gore (Legal Consultant, American Bar Association Rule of Law Initiative; Professorial Lecturer, The George Washington University Law School) discussed best practices for global legal practice. Both drew from their personal experiences as counsel in international arbitrations.
  • At a program on the Digital Economy, Sergey Alekhin (Associate, Wilkie Farr & Gallagher) discussed dispute resolution related to smart contracts and blockchain technology. This was a very timely discussion in light of an announcement in November 2018 that Uzbekistan plans to implement arbitration mechanisms to resolve disputes in the cryptocurrency space.

One of the main goals of Tashkent Spring Law was to create a forum for Uzbek lawyers and the international legal community to discuss and exchange ideas in light of burgeoning opportunity within the jurisdiction.  It was heartening to see arbitration practitioners in the front lines of many of these conversations as often times dispute resolution options and best practices are not considered until after a dispute emerges.

 

Concluding Thoughts

The natural question I am left with, as a foreign participant in the Forum, concerns the future of arbitration in Uzbekistan domestically, and in Central Asia regionally.  To answer this question perhaps it is best to look at Uzbekistan’s track record since it began to engage in reform and modernization following Karimov’s death in 2016.

As a historic and modern regional hub it is no surprise that Uzbekistan has attracted the attention of China’s Belt and Road Initiative.  By the end of 2018, Uzbek-Chinese cooperation through trade and investment had reached USD$5.4 billion and more than 1,000 Chinese companies were operating in various Uzbek sectors.  In addition, by the end of 2018, direct investment by Chinese companies was valued at USD$500 million (further detailed statistics and information on investment available here).  This alone creates great opportunity for international arbitration practitioners to watch.  But there is also an added layer with Uzbekistan’s engagement with Europe.  For example, in September 2018, the EBRD strategically re-engaged with Uzbekistan, opening a partner office in Tashkent and preparing a new Country Strategy and cumulatively investing €1,517 million in the jurisdiction.

Uzbekistan has more than 40 BITs currently in force and is a party to several treaties with investment provisions.  This is separate from its interest in supporting the development and use of commercial arbitration, as evidenced by the establishment of TIAC, and even more recently, TIAC’s strategic Cooperation Agreement with VIAC.  In this way, Uzbekistan is poised for a renaissance of economic development, reemerging as a strategic meeting point between both East and West – a ripe jurisdiction for international arbitration practitioners to watch with interest.

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A Data Investigation of the Iran-US Claims Tribunal’s Jurisprudence

Thu, 2019-05-30 04:14

Damien Charlotin

During its most active years, between 1982 and 1994, the nine members of the Iran-US Claims Tribunal (at all times 3 from Iran, 3 from the US, and three “neutral” arbitrators) ruled on hundreds of disputes, sometimes involving particularly fraught points of international law, all this while applying and interpreting the UNCITRAL Rules of arbitration (lightly amended) in ways that have informed their reception by countless other tribunals since.

Unfortunately, now that the Tribunal has entered its “long twilight”, this impressive legacy is too often forgotten, while the value of the tribunal’s experience is sometimes challenged on account of its allegedly “political” nature.

Crucially, many of the criticisms the Tribunal has attracted then and now (focusing for instance on the appointment of the Tribunal’s members by the parties, or the arbitrators’ practice of issuing concurring and dissenting opinions) have found echoes in the current criticisms aimed at investment tribunals.

Taking another look at the Tribunal’s output, we find that the outcomes of the matters decided by the Tribunal (in some 581 decisions on jurisdiction or merits) were far from being stacked against Iran, as sometimes believed.

In particular, after the first few years of the tribunal’s life, and therefore after the “easy” cases and decisions on jurisdiction (usually favourable to US claimants) have been rendered, disputes proved quite open to be won or lost by Iran or the US, and ultimately US claimants only won slightly more than 55% of all final awards on the merits.

This score is striking when one considers that the Tribunal heard substantially more disputes brought by US claimants than Iranian ones. In such asymmetrical circumstances, it would be a mistake to consider that a 50/50 outcome rate should necessarily be the proper benchmark – a fact often forgotten or overlooked by some current detractors of investment arbitration, in which the asymmetry is even greater. Besides, the bulk of Iran’s financial liabilities ($1.5 out of an estimated total of $2 billion) stemmed from settlements endorsed by the Islamic Republic.

In a time of concerns about inconsistency among investment tribunals, it is also interesting to observe that the Tribunal’s three chambers, ruling on roughly the same number of cases, did not display sharp differences on relevant metrics (e.g., success rate for Iranian and US claimants). A network analysis of the decisions cited by each chamber and the Full Tribunal shows that no development of a chamber-specific jurisprudence, hinting at a great degree of coordination between Tribunal members.

A fairly large majority of the Tribunal’s decisions, however, were accompanied by individual opinions, concurring or dissenting, penned by US and Iranian arbitrators (with the occasional opinion by a “neutral”). This reflects the fact that 320 out of the 581 decisions were adopted by majority. While some arbitrators hoped that, in writing a dissent, they would lessen the authority of the majority award and its role as a future precedent, it might have actually strengthened them: majority awards are nearly three times as long as unanimous ones, and cited twice as much in later cases.

Individual opinions were however also a way for every arbitrator to air their opinions and, together with votes, build coalitions. For instance, an analysis of the citations to individual opinions shows distinct blocs of US arbitrators citing other US arbitrators, and Iranian arbitrators citing their co-nationals – with limited engagement between the two blocks.

Apart from the Tribunal’s own jurisprudence, the tribunal’s members drew from a wide variety of sources in analysing and applying the law – with interesting patterns in this respect. For instance, the Tribunal’s own precedents accounted for 85% of all citations in awards and decisions, against 63% of all citations in dissenting opinions and only 37.5% in concurring opinions – where doctrinal sources, ICJ precedents and other international arbitral awards played a significantly larger role.

Remarkably, these patterns differ little between Iranian and US arbitrators – although the exact sources cited differed greatly. Tellingly, however, US arbitrators were twice as likely to cite precedents from the few (but growing) existing ICSID cases as the Iranian arbitrators.

In order to probe further the main trends of the Tribunal’s jurisprudence, a topic analysis over the awards and individual opinions is required. Here as well, the analysis revealed some interesting patterns:

  • The Tribunal chose to move the discussion of certain topics to certain points in time, as when it decided to postpone controversial cases about dual nationals to the 90s;
  • Opinions, whoever their author, are much more likely to focus on more “abstract” legal matters such as “interpretation” or “applicable law”, whereas most discussions of nut-and-bolts contractual matters or counterclaims are found in awards and decisions;
  • Questions of “evidence” (standard, weight, etc.), however, are quite prevalent in individual opinions, reflecting the fact that the Tribunal never really agreed on clear principles in this respect and this was one way for arbitrators to criticise the majority’s findings; and
  • Opinions by US and Iranian arbitrators differ in their centres of interest, with Iranian opinions more likely to discuss, for instance, notions of unjust enrichment, while US opinions gave a slightly stronger emphasis on questions of procedure.

Another point of discussion relates to the frequent claim that the tribunal has been a “political” organ due to its appointment method.

Certainly, there is a lot of empirical truth to back up the intuitions that party-appointed arbitrators, and notably the Iranian ones, (i) voted predominantly, if not always, for the party that appointed them; (ii) were somewhat more likely to cite precedents that favoured their appointing party; and (iii) mostly cited opinions by arbitrators of the same nationality.

However, to go from these patterns to the idea that the Tribunal was “political”, or to discount the legal value of the Tribunal’s precedents, is a non sequitur. To the contrary, the frank divergence of views between the two blocks of arbitrators might have had the effect of strengthening the tribunal’s majority decisions.

Ultimately, the fact that the tribunal handed down hundreds of awards, despite (or thanks to) the frequent and, sometimes, harsh individual opinions of its arbitrators, for an overall not-too-unbalanced outcome, strengthens rather than undermines the merits of the system of party appointment. It certainly should put the Tribunal on our radar as one successful experience of international and arbitral dispute-settlement, and prompt us to further study this experience and its legacy.

 

This post is a summary of the paper on “A Data Analysis of the Iran-Us Claims Tribunal’s Jurisprudence – Lessons for International Arbitration Today”, authored by Damien Charlotin, Ph.D. candidate at Cambridge University, UK, and to be published in ITA in Review. The paper won the Young ITA Writing Competition and Award “New Voices in International Arbitration” (2018-2019). The Competition is supported by Wolters Kluwer.

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Djibouti Signs the ICSID Convention: The Big Question is Why?

Thu, 2019-05-30 03:00

Uche Ewelukwa Ofodile

On April 12, 2019, the Republic of Djibouti (“Djibouti”) signed the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (“ICSID Convention” or “Convention”). To date, the Convention has been signed by 163 countries and ratified by 154 countries.

Why is Djibouti signing the ICSID Convention at a time when a good number of countries are reevaluating their participation in the investor-State dispute settlement (ISDS) system and a few have actually denounced the ICSID Convention?1)For example, see ICSID News Release, “Bolivia Submits a Notice under Article 71 of the ICSID Convention,” (May 16, 2007), available  here. See also, Sullivan & Cromwell LLP., Venezuela Withdraws From ICSID, January 27, 2012, available here. jQuery("#footnote_plugin_tooltip_1904_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1904_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); There are two plausible explanations for Djibouti’s recent move. On its face, Djibouti’s decision to sign the ICSID Convention may simply be part of a broader strategy to create a more enabling business environment in the country.  However, Djibouti’s decision to sign the ICSID Convention may be connected with the country’s on-going legal battles with DP World, a Dubai-based and Dubai-government controlled global port operator. These battles are playing out in the London Court of International Arbitration (“LCIA”) and in the court rooms of a few other jurisdictions around the world. These two explanations are elaborated on in this post in turn.

As noted, joining the ICSID may simply be part of on-going efforts by the Government of Djibouti to foster a more conducive business environment in the country. It is not hard to understand why the Government of Djibouti might be trying to create a more enabling business environment in Djibouti. Djibouti ranks 99 out of 190 on the World Bank Group’s Doing Business 20192)World Bank Group, Doing Business 2019 (2019), available here jQuery("#footnote_plugin_tooltip_1904_2").tooltip({ tip: "#footnote_plugin_tooltip_text_1904_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, and is one of the most improved economy in Africa having moved up 55 places from 154 in 2018 to 99 in 2019. However, on the “Enforcing Contract” benchmark, Djibouti ranks a very dismal 140 out of 190; hence, the need for continued reform efforts.

“Joining ICSID is part of a series of actions that the government of Djibouti has undertaken to transform the business and investment environment in Djibouti, create employment opportunities for youth and women, and to boost economic growth in the country”, Mr. Ilyas Moussa Dawaleh, Djibouti’s Minister of Economy and Finance is quoted as saying.3)ICSID, ICSID News Release: Djibouti Signs the ICSID Convention, April 11, 2019. jQuery("#footnote_plugin_tooltip_1904_3").tooltip({ tip: "#footnote_plugin_tooltip_text_1904_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); “Today’s signature of the ICSID Convention underscores Djibouti’s commitment to creating an environment in which private investment serves as a catalyst for growth and job creation”, Meg Kinnear, ICSID Secretary-General said during the signing ceremony.4)ICSID, ICSID News Release: Djibouti Signs the ICSID Convention, April 11, 2019. jQuery("#footnote_plugin_tooltip_1904_4").tooltip({ tip: "#footnote_plugin_tooltip_text_1904_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Quite apart from the desire to create a more enabling business environment in Djibouti, the decision to sign the ICSID Convention may be related to on-going legal battles over who gets to control Djibouti’s port terminals. The legal battles pits DP World against the Government of Djibouti, Port de Djibouti SA (Djibouti’s state-owned port company), Doraleh Container Terminal SA (a joint venture company in which Djibouti and DP World held shares), and even a Chinese conglomerate (China Merchants Port Holdings Company Ltd of Hong Kong). The battles stem from a concession agreement between DP World and the Djibouti government. When in February 2018, the Government of Djibouti seized control of the Doraleh Container Terminal SA, DP World filed claims with the LCIA. On 31 July 2018, an arbitral tribunal ruled that Djibouti could not terminate DP World’s Doraleh Container Terminal’s concession agreement. In April 2019, a London court ordered Djibouti to pay approximately $530 million in compensation and unpaid royalties. Significantly, Djibouti refused to participate in the arbitral process and was not represented in the case.5)Press Release: Djibouti Does Not Recognize The Arbitral Award Rendered By The London International Arbitral Court, August 3, 2018. jQuery("#footnote_plugin_tooltip_1904_5").tooltip({ tip: "#footnote_plugin_tooltip_text_1904_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Djibouti also refused to recognize the arbitral award which, according to the Government, “consists in qualifying the law of a sovereign State as illegal.”6)“London court rules DP World Djibouti contract ‘valid and binding’ – Dubai government”, Reuters, Aug. 2, 2018. jQuery("#footnote_plugin_tooltip_1904_6").tooltip({ tip: "#footnote_plugin_tooltip_text_1904_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });  “We are not concerned by what the London Arbitral Tribunal has said, we have never lodged a complaint with this court and the judgement it has rendered does not concern us”, Aboubaker Omar Hadi, the Chairman of Djibouti Ports and Free Zones is quoted as saying.7)“London court rules DP World Djibouti contract ‘valid and binding’ – Dubai government,” Reuters, Aug. 2, 2018. jQuery("#footnote_plugin_tooltip_1904_7").tooltip({ tip: "#footnote_plugin_tooltip_text_1904_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Ignoring a decision of an arbitral tribunal can be risky business for any but especially small developing country in dire need for foreign capital and keen to attract foreign investors. Such a move inevitably raises questions about the quality of a country’s regulatory environment. Already the Dubai Government and DP World are calling attention to regulatory climate in Djibouti.  “DP World will continue to pursue all legal means to defend its rights as a shareholder and concessionaire in Doraleh Container Terminal in the face of Djibouti’s blatant disregard for the rule of law and respect for commercial contracts”, the Government of Dubai said in August 2018 after an LCIA tribunal ruled in favor of DP World. “Investors across the world must think twice about investing in Djibouti and reassess any agreements they may have with a government that has no respect for legal agreements and changes them at will without agreement or consent”, a DP World spokesperson said in a press release in 2018. Given its legal battles with DP World, the Government of Djibouti may see joining the ICSID as a way to reassure foreign investors that Djibouti is still open for business even while it continues to defy the decisions of LCIA tribunals; an interesting strategy to say the least.

Djibouti’s recent moves, on the one hand choosing to ignore the decisions of LCIA tribunals and on the other hand signing the ICSID Convention, underscores the love-hate relationship between many African States and the ISDS system.8)See generally, Uche Ewelukwa Ofodile, Africa and the System of Investor-State Dispute Settlement: To Reject or Not to Reject?, Transnational Dispute Management, Vol. 1 (2014). jQuery("#footnote_plugin_tooltip_1904_8").tooltip({ tip: "#footnote_plugin_tooltip_text_1904_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Although many countries in the region have expressed dissatisfaction with the ISDS system, very few have adopted a coherent and consistent response to perceived problems in the system. What is more, very few are taking reasonable steps to limit exposure to the system and only a handful are engaged in on-going discussions regarding the future of the ISDS system and possible pathways for reform.9)See also, Uche Ewelukwa Ofodile, Africa and International Arbitration: From Accommodation and Acceptance to Active Engagement in Dealing with Diversity in International Arbitration (L. Barrington, and R. Rana eds.; Transnational Dispute Management (2015)). jQuery("#footnote_plugin_tooltip_1904_9").tooltip({ tip: "#footnote_plugin_tooltip_text_1904_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); If and when Djibouti ratifies the Convention, it will become the forty-sixth country in Africa to do so. The last African country to sign and ratify the Convention was South Sudan in 2012.

By signing the ICSID Convention, Djibouti joins three other countries in Africa that have signed but not ratified the treaty: Ethiopia, Guinea Bissau, and Namibia.

 

References   [ + ]

1. ↑ For example, see ICSID News Release, “Bolivia Submits a Notice under Article 71 of the ICSID Convention,” (May 16, 2007), available  here. See also, Sullivan & Cromwell LLP., Venezuela Withdraws From ICSID, January 27, 2012, available here. 2. ↑ World Bank Group, Doing Business 2019 (2019), available here 3, 4. ↑ ICSID, ICSID News Release: Djibouti Signs the ICSID Convention, April 11, 2019. 5. ↑ Press Release: Djibouti Does Not Recognize The Arbitral Award Rendered By The London International Arbitral Court, August 3, 2018. 6. ↑ “London court rules DP World Djibouti contract ‘valid and binding’ – Dubai government”, Reuters, Aug. 2, 2018. 7. ↑ “London court rules DP World Djibouti contract ‘valid and binding’ – Dubai government,” Reuters, Aug. 2, 2018. 8. ↑ See generally, Uche Ewelukwa Ofodile, Africa and the System of Investor-State Dispute Settlement: To Reject or Not to Reject?, Transnational Dispute Management, Vol. 1 (2014). 9. ↑ See also, Uche Ewelukwa Ofodile, Africa and International Arbitration: From Accommodation and Acceptance to Active Engagement in Dealing with Diversity in International Arbitration (L. Barrington, and R. Rana eds.; Transnational Dispute Management (2015)). function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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The Kompetenz-Kompetenz Rule in Brazilian Arbitration Law

Wed, 2019-05-29 02:05

Andre Luis Monteiro

Introduction

Unlike other pillars of arbitration like recognition-enforcement of foreign awards and independence-impartiality of arbitrators, the Kompetenz-Kompetenz rule is far from a universal standard. Each jurisdiction has a particular rule, with clear distinctions between the approaches adopted, for example, by the US, the UK, France, Switzerland and China.1)For a comprehensive comparison of these legal systems, please see: BORN, Gary B. International Commercial Arbitration. 2nd ed. Kluwer: The Hague, 2014, p. 1.077-1.215; ERK, Nadja. Parallel Proceedings in International Arbitration: A Comparative European Perspective. The Hague: Kluwer, 2014, p. 25-70; BERMANN, George A. International Arbitration and Private International Law. AIL: Brill-Nijhoff, 2017, p. 90-115. jQuery("#footnote_plugin_tooltip_5319_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5319_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The aim of this post is to present an overview of the positive and the negative effects of the Kompetenz-Kompetenz rule in Brazil, specifically examining the Superior Court of Justice’s (SCJ) case law. It also updates and discusses new developments to previous posts in this Blog (here, here and here).

The positive effect of the Kompetenz-Kompetenz rule ensures that the arbitral tribunal can rule on its own jurisdiction, while the negative effect implies that that courts cannot decide on arbitral jurisdictional challenges before the arbitrators (chronological priority). In Brazil, the boundaries of these effects have been tested in several cases, as it will be addressed below.

 

Positive Effect

The Brazilian Arbitration Act 1996 (BAA) sets forth the positive effect of the Kompetenz-Kompetenz rule in Articles 8(1)and 20.

BAA, Article 8(1):
The arbitrator has jurisdiction to decide ex officio or at the parties’ request, any issues concerning the existence, validity and effectiveness of the arbitration agreement, as well as the contract containing the arbitration agreement.

BAA, Article 20:
“The party wishing to raise issues related to the jurisdiction, suspicion or impediment of an arbitrator or arbitrators, or as to the nullity, invalidity or ineffectiveness of the arbitration agreement, must do so at the first opportunity, after the commencement of the arbitration”.

For its part, the SCJ has been interpreting these legal provisions in an arbitration-friendly way. The SCJ affirmed in Kwikasair v. AIG that “one of the basic principles of arbitration assigns the arbitrator the power to rule on his/her own jurisdiction, which is why any attempts from the parties or courts to change this reality should be condemned.”2)The same reasoning can be found in Everlast v. Onkoy, Samarco v. Ana Pereira, Cuiabá Plaza Shopping v. Antônia Barbosa, Multigrain v. Portway and Germano Sukadolnik v. Baru. jQuery("#footnote_plugin_tooltip_5319_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5319_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Discussions about the scope of arbitration agreements sometimes end up in court proceedings, generally because parties argue that arbitrators do not have jurisdiction over issues not covered by the arbitration agreement. In Estado da Bahia v DM, the SCJ affirmed that “the arbitral tribunal has jurisdiction to define the scope of the arbitration agreement”3)In the same sense, see Portal do Café v. Vanilla Caffe. jQuery("#footnote_plugin_tooltip_5319_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5319_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, fortifying again the positive effect of the Kompetenz-Kompetenz rule.

Another common issue in arbitration is the extension of the arbitration agreement to non-signatory parties (and, therefore, who should solve this problem: courts or arbitrators?). In Agra v. Leal Moreira, the SCJ held that “this issue, which deals with the extension of the arbitration as well as the jurisdictional limits of the arbitral tribunal, was submitted to the arbitral tribunal, as it was supposed to be”.

Jurisdictional issues also arise in cases where cooling-off periods have been disregarded. In these cases, parties usually argue that such disregard results in the inapplicability of their arbitration agreement. In Ecodiesel v. Dedini, the SCJ stated that “regarding the defendant’s argument that the non-adversarial methods to solve the dispute were ignored (…), this Court understands that any issues concerning the existence, validity and effectiveness of the arbitration agreement shall be ruled by the arbitrators (Kompetenz-Kompetenz)”, which meant that arbitrators should have the power to decide this issue.

All of these cases illustrate the pro-arbitration approach taken by the SCJ in applying the positive effect of the Kompetenz-Kompetenz rule.

 

Negative Effect

The negative effect of the Kompetenz-Kompetenz rule can be found in Article 485(VII)4)CCP, Article 485(VII): “A judge shall not rule on the merits when (…) the arbitral tribunal confirms its jurisdiction”. jQuery("#footnote_plugin_tooltip_5319_4").tooltip({ tip: "#footnote_plugin_tooltip_text_5319_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); of the Code of Civil Procedure and also in Articles 8(1) and 20 of the BAA (the two latter provisions are interpreted a contrario sensu).

Fortifying these legal provisions, the SCJ has built case law favourable to the negative effect, highlighting the chronological priority of arbitrators to rule on their own jurisdiction. In SPPATRIM v. BNE, the SCJ ruled that “as a consequence of the Kompetenz-Kompetenz rule, set forth in Articles 8 and 20 of Law n. 9.307/96 [BAA], the Brazilian legislation on arbitration establishes a chronological priority rule in arbitral proceedings, allowing access to the courts only after the issuance of the arbitral award.”5)In the same sense, see also Vik-Sandvik v. Vik-Sandvik, Agra v. Leal Moreira, Everlast v. Onkoy, Álvaro Tavares v. Samarco, Samarco v. Aristides Vitório, Samarco v. Jesus Mayrink, Samarco v. Jorge Paiva, Samarco v. Maria Nascimento, Germano Sukadolnik v. Horacio Quilice, Astromarítima v. Hornbeck, Paulo Cançado v. MAIO, Porcellanati v. Banco Safra, Partout v. Belle Comercio, Ambev v Cosme e Vieira and Haakon Lorentzen v. Hugo Figueiredo. jQuery("#footnote_plugin_tooltip_5319_5").tooltip({ tip: "#footnote_plugin_tooltip_text_5319_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In Samarco v. Jerson Cruz, the SCJ adopted a prima facie approach deciding that “apart from pathological arbitration agreements, the jurisdiction of the courts provided in the Arbitration Act [BAA] only emerges after the issuance of the arbitral award, as set forth in Articles 32(I) and 33 [setting aside proceedings].”6)To some extent, a similar reasoning can be found in Odontologia Noroeste v. GOU and SPPATRIM v. BNE. jQuery("#footnote_plugin_tooltip_5319_6").tooltip({ tip: "#footnote_plugin_tooltip_text_5319_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This decision reinforces the negative effect of the Kompetenz-Kompetenz rule, prohibiting courts from dealing with arbitral jurisdictional challenges, except for cases of pathological arbitration agreements.

These decisions provide evidence that the SCJ strongly supports the negative effect of the Kompetenz-Kompetenz rule and, therefore, the arbitrators’ chronological priority, albeit with a few exceptions based on a prima facie review (v.g.: pathological arbitration agreements).

 

No Special Treatment to State Entities

In 2017, the SCJ had to determine the applicability of the Kompetenz-Kompetenz rule in a case involving state entities (Petrobras v. ANP).

Petrobras (a state-controlled company) commenced an arbitration under the ICC Arbitration Rules against ANP (the Brazilian oil and gas regulatory agency) regarding the distribution of oil fields and corresponding royalties in Brazil. According to Petrobras, ANP had issued a decree that indirectly changed the concession agreement signed by the parties. In response, ANP filed an anti-arbitration injunction against Petrobras, arguing that the dispute was not arbitrable since it dealt with the regulatory power of the agency.

Ruling on the case, the SCJ understood that “the arbitral jurisdiction precedes the court’s jurisdiction, which means the arbitrators have the power to decide on the limits of their jurisdiction before anyone else (the Kompetenz-Kompetenz rule), as well as ruling any issues concerning the existence, validity and effectiveness of the arbitration agreement”.

In the end, the decision made it clear that the pro-arbitration approach regarding the Kompetenz-Kompetenz rule is applicable even to cases involving state entities.

 

Forgery of Signatures in Arbitration Agreements

In jurisdictions where the Kompetenz-Kompetenz rule is subject to occasional exceptions, an allegation of forgery of the parties’ signatures is definitely one of them. The reason is simple: a forged signature may mean no consent to arbitrate at all.

The case KfW v. CGTEE dealt with this matter. In loan agreements entered into by two Brazilian private companies and a German state-owned bank (KfW), a Brazilian state-owned energy company (CGTEE) provided the debt security. After a breach of contract by the borrowers, CGTEE initiated court proceedings against KfW seeking the invalidation of the guarantees based on the alleged forgery of the signatures of its legal representatives.

The question in this case was the following: should the courts dismiss the case at the very beginning in respect of the Kompetenz-Kompetenz rule or should the courts look deeply into the case to discover if the signatures were forged?

In a 3-2 ruling, the SCJ understood that the Kompetenz-Kompetenz rule should prevail. According to Justice Villas Bôas Cueva, “only by expert evidence is it possible to assert the veracity of the documents and the signatures of the parties in the contract”, which meant this issue had to be submitted to “arbitrators, as set forth in Article 8º, sole paragraph, of the Arbitration Act”. In turn, Justice Bellizze reasoned that “the arbitral tribunal has jurisdiction, prior to anyone, to decide on the regularity of the arbitration, even when it involves public policy issues, like the allegation of forgery of the signatures in the contracts”.

The case had an extra particularity. In a preliminary criminal investigation, Brazilian Federal Police produced expert evidence demonstrating that the signatures had been forged. This evidence was presented in the case. In my view, the SCJ went beyond reasonable limits by applying the Kompetenz-Kompetenz rule, since forgery might be a matter of pure consent to arbitrate.

 

“Conflito de Competência”

According to Article 105(1)(d) of the Brazilian Constitution, the SCJ decides on conflicts of jurisdiction between judges and/or courts. For example, if a federal judge and a state judge believe they both have jurisdiction over the same case, the SCJ will decide who is right. The legal tool to bring this issue to the SCJ is called “conflito de competência”.

Since 2013, the SCJ has extended its jurisdiction to also decide conflicts of jurisdiction between judges/courts and arbitrators/arbitral tribunals/arbitral institutions, although Article105 (1)(d) does not make any reference to arbitration. This happens when, v.g., a state judge declares the invalidity of an arbitration agreement while an arbitral tribunal confirms its jurisdiction over the same case.

In CEB v. SE, the SCJ ruled that “the activity undertaken in arbitration has jurisdictional nature, so that the conflict of jurisdiction is the suitable legal resource to define who has jurisdiction between a state judge and an arbitral institution”. This position has since been applied in other cases (Agra v. Leal Moreira, Astromarítima v. Hornbeck, Petrobras v. ANP, and Partout v. Belle Comercio). This quirk of the law is unique to Brazil.

The majority of legal scholars criticise this position, arguing that the “conflito de competência” works as a wrongful exception to the Kompetenz-Kompetenz rule, since, in the end, the jurisdictional challenges are decided by the SCJ, a judicial body. Although I concur with this criticism, it is also important to highlight that the SCJ’s case law has been broadly favourable to arbitration, confirming the jurisdiction of arbitral tribunals in nearly all cases.

 

Conclusion

In conclusion, based on the case law mentioned above, the Kompetenz-Kompetenz rule in Brazil is well-established and contributes to an arbitration-friendly environment. The SCJ’s case law expressly recognises both the positive and the negative effects of the Kompetenz-Kompetenz rule, even in cases involving state entities. Although this impressive development, there is still room for rethinking the approach to cases involving forgery of the parties’ signatures and the so-called “conflito de competência”.

References   [ + ]

1. ↑ For a comprehensive comparison of these legal systems, please see: BORN, Gary B. International Commercial Arbitration. 2nd ed. Kluwer: The Hague, 2014, p. 1.077-1.215; ERK, Nadja. Parallel Proceedings in International Arbitration: A Comparative European Perspective. The Hague: Kluwer, 2014, p. 25-70; BERMANN, George A. International Arbitration and Private International Law. AIL: Brill-Nijhoff, 2017, p. 90-115. 2. ↑ The same reasoning can be found in Everlast v. Onkoy, Samarco v. Ana Pereira, Cuiabá Plaza Shopping v. Antônia Barbosa, Multigrain v. Portway and Germano Sukadolnik v. Baru. 3. ↑ In the same sense, see Portal do Café v. Vanilla Caffe. 4. ↑ CCP, Article 485(VII): “A judge shall not rule on the merits when (…) the arbitral tribunal confirms its jurisdiction”. 5. ↑ In the same sense, see also Vik-Sandvik v. Vik-Sandvik, Agra v. Leal Moreira, Everlast v. Onkoy, Álvaro Tavares v. Samarco, Samarco v. Aristides Vitório, Samarco v. Jesus Mayrink, Samarco v. Jorge Paiva, Samarco v. Maria Nascimento, Germano Sukadolnik v. Horacio Quilice, Astromarítima v. Hornbeck, Paulo Cançado v. MAIO, Porcellanati v. Banco Safra, Partout v. Belle Comercio, Ambev v Cosme e Vieira and Haakon Lorentzen v. Hugo Figueiredo. 6. ↑ To some extent, a similar reasoning can be found in Odontologia Noroeste v. GOU and SPPATRIM v. BNE. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Tips from the Top: YICCA Blog Interview with Jadranka Jakovcic

Tue, 2019-05-28 22:44

Young ICCA

  1. What drew you to the world of International Arbitration?

Before moving to the United States, I practiced law in Croatia where I gained litigation experience, among other. I love the dispute resolution aspect of legal work, and especially that of advocating for clients before a court or tribunal. During my Bluebook traineeship at the Legal Service of the European Commission, I had the invaluable opportunity of attending a hearing before the Court of Justice of the European Union, which inspired me to continue my professional development as a dispute resolution lawyer.

As the number of cases against EU member states started increasing, I saw an opportunity to develop specialized knowledge in the field of Investment Treaty Arbitration, an emerging field that not many in Croatia had knowledge about.

What first drew me to international arbitration remains the reason I keep being drawn to it. Practicing international arbitration requires knowledge beyond solely legal expertise; starting with knowledge of a particular industry to understanding the geopolitical background of disputes.  One is continuously exposed to new subject matters and issues, thus perpetually challenged into learning something new.

 

  1. When did you start laying the groundwork for a career in International Arbitration? (e.g., was it while in law school, during a moot court, during your career or placed on a case within your firm)

Shortly after my tenure at the European Commission, I applied for a master’s program and was awarded a scholarship to pursue an LL.M. in International Dispute Resolution at Fordham Law School. There, I started laying the groundwork for a career in international arbitration. I focused on various dispute resolution courses, from investment arbitration, to mediation, to international investment law.

Knowing I wanted to pursue an international arbitration career after graduating from the LL.M., I was fortunate enough to have some exceptional professors that recognized my passion for the field and prompted me to start researching and writing about topics beyond pure classroom work. Though still only theoretical, this was the first substantial exposure to international arbitration.

In addition to the classes and research projects, I became a member of the Fordham moot court team and competed in an all-LL.M. arbitration moot competition in Washington, D.C that year. The moot case was an investment treaty arbitration, which was the perfect opportunity to better understand how practicing in the field looks like. Working on the submission and preparing for the mock hearing was so rewarding, that I knew this was the career I wanted to continue pursuing for the foreseeable future. Now that I practice in the field and work on actual cases, I know it for a fact.

 

  1. What kind of groundwork did you do to set yourself up? (e.g., what steps did you take to enter the field?)

I understood early on that it would be challenging to break into the field. I knew I needed to excel in school and, moreover, look for opportunities to expand both my knowledge and expertise in international arbitration.

Being part of a class of students who were all smart and hard-working young practitioners, I was honored to graduate valedictorian of the International Dispute Resolution LL.M. program. At the same time, I was conscious of the fact that I needed to grow a professional network before an opportunity would ever arise. I used every occasion to do so, attending arbitration events and participating in projects. Slowly but steadily I started to develop a network that would become a cornerstone to my arbitration career.

Additionally, in order to keep up with the continuous development of international arbitration, I volunteered to work on projects that would hone the skill-set needed in the practice. Some of those projects involved working as a research assistant to Fordham Law Professor Josefa Sicard-Mirabal on her book Introduction to Investor-State Arbitration and being a judicial trainee with Justice Charles E. Ramos who, at that time, was designated to handle all international arbitration cases filed in the Commercial Division of the New York Supreme Court. These experiences were crucial in that they helped me develop the necessary skill-set to get a foot in the community of international arbitration.

 

  1. Describe a pivotal moment in your career in arbitration and how did that affect your career (e.g., an opportunity to work with a prominent arbitrator/on a pioneering case?)

A pivotal moment in my career was the job offer to work for the top tier international arbitration law firm of Curtis, Mallet-Prevost, Colt & Mosle LLP. Being part of a team working on some of the most significant high-stake international arbitration cases in this field has definitely set my career path. At Curtis teams are big enough to cover every aspect of any given case, but at the same time cases are staffed to entrust a lot of responsibilities at an associate level. I am therefore learning much faster than I would have imagined.

I experienced how hard it was to land this type of position, and I feel very fortunate and grateful to have this opportunity to be here today. I look forward to all the challenges that further practice will bring my way to grow into the accomplished arbitration practitioner I aspire to be.

 

  1. If we look at arbitration as a battlefield, what are the three metaphorical weapons any lawyer needs, and why?

Perseverance. Starting with the job search when fresh out of law school, which can be lengthy and, at times, a discouraging process, to day-to-day life and work, it is important to stay levelheaded. Hurdles inevitably arise along the way. Setting clear goals and knowing your priorities helps to stay on the path towards achieving those goals. For those who are trying to enter the field and are still unsure if this is what you really want, try to get a feel of what it is like to practice in international arbitration by talking to practitioners.  Job satisfaction, which ultimately translates into overall complacency, can only be achieved when you are satisfied with the work that you do day in and day out. When you have a clear idea of what you want, tenacity despite “failure” is really the only option.

Dedication. Putting your heart in what you do and perseverance are a must. Nevertheless, no results will be achieved unless these are combined with hard work. And – hard work requires dedication. Setting realistic short-term and long-term goals and devotedly working towards them entails genuine commitment. Like many others, an international arbitration career is a marathon, not a sprint. Therefore, pace yourself, and be patient.

Resilience. Compliments are great, but it is the challenging situations, the criticisms and the mistakes, that will toughen you up and help you prosper. So – be open to hear these criticisms, and be thankful to receive it. If properly accepted, constructive feedback can only help you thrive. The nature of this job, its unpredictability, its uncertainty, and constant change, calls for resilient personalities.

 

  1. Upon reflection, are there any decisions you made that you feel aspiring arbitration practitioners could learn from?

Every day we make seemingly minor decisions, and choose between options. Each of these options can potentially take our life in opposite directions. Therefore, when compounded, these minor decisions can have a major impact on the path our life will take us on.

For me, the decision to start a career in international arbitration in New York, far away from my family and friends back home, might have been one of the toughest so far. At the same time, consciously making this choice, and having selfless support of my family, left no room for doubts.

Like in any demanding job, one has to make many, sometimes tough, decisions and, inevitably, sacrifices. Therefore, it is important to have priorities set right and to know that this is the path we have chosen, and continue to choose every day.

 

  1. Is there any additional candid advice or insight that you can offer to assist those who are entering the field, deciding whether to enter the field, or already are in the field of International Arbitration?

 Do not wait for an opportunity to come up; go out there and create one. Be patient. Be honest. Be genuine. Work hard. Once you break that glass ceiling, and achieve your goals – never forget where you came from, and continue to work harder.

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A Report on the Delos Paris Inaugural Event (April 2018) – Powers of the Arbitrator: How Far is too Far?

Tue, 2019-05-28 05:00

Marine Koenig

As the recent launch of the Prague Rules and the discussions at the Paris Arbitration Week 2019 and London International Disputes Week 2019 have shown, discussions around time and cost efficiency in arbitration remain a key concern of users and the arbitration community. This article accordingly reports on the launch event held by Delos Dispute Resolution at the Paris Arbitration Week 2018, as part of its Inaugural Events Series. Delos is an innovative Paris-based arbitration institution established in 2014 to respond to the needs of business globally in terms of time and cost efficiency in arbitration proceedings.

Hafez Virjee, President of Delos, shared some thoughts about Delos (Part I), and guest speakers Professor Pierre Mayer and Professor Maxi Scherer – both members of Delos’s Board of Advisors – explored the limits to arbitrators’ exercise of their powers and questioned “How far is too far?” with a particular focus on inherent powers. Inherent powers can be defined as those powers that are not expressly granted to arbitrators, but which they need to enjoy in order to ensure the fulfilment of their function of adjudicating disputes. The powers, which are not expressly granted (or only rarely), are of two kinds: inquisitorial powers (Part II) and the power to sanction the parties’ conduct (Part III).

Part I – Why and How Delos Distinguishes Itself from Existing Options?

In 2006, a survey of the Queen Mary University of London emphasized the main disadvantages of International Arbitration, ranking first and second the expenses and duration of the proceedings.  Ten years later, in 2015, in another survey of the same institution, issues of time and cost efficiency ranked as the top four worst characteristics of international arbitrations.

Although these problems have long been identified in the arbitration community, the responses have been inadequate. The main solutions developed to address those costs and time/efficiency issues have been by way of exception.  Thus, most arbitral institutions have set monetary thresholds for the application of their expedited rules, which sit side-by-side with their standard arbitration rules.

Yet, a more efficient market would benefit the users, the law firms, and the arbitrators. For the users, it would mean time and cost savings along with more predictability of these variables at the outset of the proceedings.  For law firms, a pipeline of shorter cases with the same demands in terms of quality would involve more work and therefore generate more revenue, while spreading risk.  As for arbitrators, the demands of shorter cases would justify increased compensation in larger disputes while soliciting a larger pool of arbitrators at any given time.

Delos has addressed the above in a multi-faceted manner. The institution offers administered arbitration pursuant to a single set of Rules, which were first released in early 2014.  It also sets a time-limit for arbitrators to submit their draft award to the institution, which may be an interim, partial or final award. It empowers the arbitrators rather than sanction them – this was further explored by Professor Pierre Mayer and Professor Maxi Scherer in their panel comments.1)See, further, Pierre Mayer, The arbitrator’s Initiative: Its Foundation and Its Limits, Chapter 1, ASA Special Series No. 45, The Arbitrators’ Initiative: When, Why and How Should It Be Used? (Juris, 2016); Maxi Scherer, Inherent Powers to Sanction Party Conduct, Chapter 4, Diego P. Fernandez Arroyo (ed.), Inherent Powers of Arbitrators (Juris, 2018). jQuery("#footnote_plugin_tooltip_5107_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5107_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Further, Delos’s approach considers the full life of the contract rather than the arbitral proceeding only, including key issues that may arise at the contract-making stage and the needs of parties in long-term relationships. In sum, Delos offers the significant gain of time and costs compared to existing solutions.

Part II – The inquisitorial powers of the arbitrator – Professor Pierre Mayer 2)Pierre Mayer, The arbitrator’s Initiative: Its Foundation and Its Limits, Chapter 1, ASA Special Series No. 45, The Arbitrators’ Initiative: When, Why and How Should It Be Used? 3 (Juris, 2016). jQuery("#footnote_plugin_tooltip_5107_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5107_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Some arbitrators consider that there are prerogatives they must enjoy in order to carry out their mission, even if such are not stated anywhere, for example, to be able to ask for a more detailed explanation of the facts, or to point to a clause in a contract that no party has mentioned but which the arbitrators feel might have some relevance, or to suggest an alternative legal ground which has not been invoked.  Are these inquisitorial powers the arbitrators’ inherent powers?

There is no straightforward answer. First, it depends on one’s conception of the power of arbitrators.  Inherent powers are those which arbitrators must enjoy in order to fulfil their mission, but what is their mission?  Secondly, even assuming that they enjoy some inquisitorial powers, one has to define the limits to these powers.

With regard to the arbitrator’s mission, this may be considered with the adversarial lens or the inquisitorial one. Within the choice between these two opposing conceptions of the adjudication of disputes lies the notion of judicial truth.

As Professor Mayer explained,

“[o]ne view is that the judicial truth is the result of a kind of game between the parties and/or their counsel, in which much depends on the skills of counselIf Counsel for one party has missed something essential, it means that the party has made a bad choice, and justice commands that it lose.”3)ibid. jQuery("#footnote_plugin_tooltip_5107_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5107_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Professor Mayer continues:

“[a]nother view is that the truth, even judicial, should bear as much resemblance as possible with the actual truth.  This entails that the judge has the right, and even the duty, to intervene when he or she thinks that the parties have missed something, or have organized the proceedings in an inefficient way.”4)ibid. jQuery("#footnote_plugin_tooltip_5107_4").tooltip({ tip: "#footnote_plugin_tooltip_text_5107_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Considering both conceptions, Professor Mayer considers that “in international arbitration, it is generally accepted, and even expected, that arbitrators enjoy at least some power of initiative,”5)ibid., p. 4. jQuery("#footnote_plugin_tooltip_5107_5").tooltip({ tip: "#footnote_plugin_tooltip_text_5107_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and if such is the starting point, then the limits of such powers remain to be identified.

Many practitioners refer to the duty of impartiality as a first limitation to the powers of arbitrators.  There is another that is less frequently mentioned, namely the principe dispositif.

The duty of impartiality would, according to many, limit the power of an arbitrator more than it limits the power of a judge – it would prevent the arbitrator from helping a party, as this would be to the detriment of the other party. In Professor Mayer’s opinion, “provided that arbitrators give an opportunity to both parties to react to their suggestions, they should be free to explore the avenues which they think would lead them to a better understanding of the case.”6)ibid., p. 5. jQuery("#footnote_plugin_tooltip_5107_6").tooltip({ tip: "#footnote_plugin_tooltip_text_5107_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In so doing, the intention of the arbitrator is not to help a party, but to find the truth, and if that truth is in favor of one party, that does not mean that the arbitrator is being partial.  Indeed, isn’t the arbitrator who abstains from asking a crucial question, by fear of appearing partial, favoring instead the other party who is going to win, because the question was not asked?

Turning to what is called in French the principe dispositif, this is a more serious limit than impartiality.  The correct translation in English would be, “the principle of parties’ disposition,” meaning that “the subject-matter of the dispute is defined by the parties, and only by the parties.”7)ibid., p. 5. jQuery("#footnote_plugin_tooltip_5107_7").tooltip({ tip: "#footnote_plugin_tooltip_text_5107_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Professor Mayer described his surprise when he learnt that this principle did not exist in American law and that, to the contrary, rule 54 c of the Federal Code of Civil Procedure provides that “every other final judgment should grant the relief to which each party is entitled even if the party has not demanded that relief in its pleadings.” Even more surprisingly, the same rule is stated in almost identical terms in the Civil Procedure Rules applicable in England & Wales.

Should an arbitrator exercise the same power? Professor Mayer stated that he would not because that would be ultra petita.

The distinction between what is permitted and not permitted is not an easy one. Professor Mayer stated that the distinction is between what and how. How to resolve the dispute as it has been defined by the parties is an issue in respect of which the arbitrators can exercise certain powers.  What the dispute consists of is within the exclusive domain of the parties.

Professor Mayer concluded by considering the implications of public policy for determining the scope of arbitrators’ power. He noted that, when public policies are involved, the arbitrator’s powers are not only those available for a correct adjudication of the dispute, there are also those needed in order to perform another duty of the arbitrator, i.e. to render an award that will not be in violation of public policy.

III – The power to sanction the parties – Professor Maxi Scherer

Professor Scherer noted at the outset that it is quite striking, when thinking about the powers of arbitrators, that one finds oneself struggling with what should be an obvious topic: There is a lack of clear-cut solutions regarding the power of arbitrators to sanction parties’ conduct.

To illustrate the sort of behavior at issue, Professor Scherer referred to a list compiled by Professor Catherine Rogers:

“[…]‘convincing’ an arbitrator to go home rather than to attend the deliberations, death threats, wiretapping opposing counsel’s meeting room, hiding damaging documents that were ordered to be disclosed, raising fourteen challenges to a single arbitral tribunal…”8)Catherine Rogers, Chapter 5: Guerrilla Tactics and Ethical Regulation, in Guerilla Tactics in International Arbitration 313 (Günter Horvath and Stephan Wilske eds., 2013). cited in Maxi Scherer, Inherent Powers to Sanction Party Conduct, Chapter 4, Diego P. Fernandez Arroyo (ed.), Inherent Powers of Arbitrators 1 (Juris, 2018). jQuery("#footnote_plugin_tooltip_5107_8").tooltip({ tip: "#footnote_plugin_tooltip_text_5107_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

While Professor Scherer had not personally experienced such party misconduct, she noted that there is much debate in the arbitration community about how one should deal with it, i.e. whether, and to what extent, the tribunal has the power to sanction such misconducts.  If there are voices in favor of broad powers of the arbitral tribunal to sanction the parties, others tend to think that it is not for the tribunal to police these types of situations.

In order to offer some answers on the sources of arbitrators’ power to sanction party misconduct, Professor Scherer defined the targeted misconduct and analyzed the types of sanctions used to address them.

To start, Professor Scherer referred to the attempts that had been made to establish a common definition of guerilla tactics and inappropriate behaviors, and to categorize and distinguish them.

The first distinction can be drawn between the conduct of the parties and the conduct of their representatives. Most of the misconducts listed by Professor Catherine Rogers are those of the parties, but one can also imagine situations where counsel is doing something unethical without the parties even knowing (such ex parte communications with the arbitrators or destroying documents).

That distinction is delicate, because of the agency relationship between the parties and their legal representative; namely, what the legal representative does is generally deemed to be done as instructed by the parties.

The second distinction focuses on the intention behind the misconducts.  On the one hand, some of these behaviors try to undermine the efficiency of the arbitral process, the proceedings themselves, which can be called procedural misconducts.  On the other hand, some try to affect the outcome of the proceeding, i.e. the decision.  Those are the substantive misconducts.

Possible sanctions range from a simple reprimand or caution to the parties’ representative being excluded, reporting misconduct to the local bar authorities, or apportioning the costs.  Some such sanctions are levied against the parties’ legal representatives.  Others, however, directly sanction the parties.

The simplest situation is when there is an express power of the arbitrator to sanction those behaviors.  This is the case of the IBA Guidelines on Party Representation in International Arbitration (2013).  There is also an express power in the LCIA Arbitration Rules (2014), which include an Annex with “General Guidelines for the Parties’ Legal Representatives.”  Other arbitral institutions have similar rules providing for arbitrator discretion in assessing and sanctioning party conduct.  For instance, Article 27(1)(l) of the SIAC Arbitration Rules (2016)  states that if a party fails or refuses to comply with the rules or an arbitral tribunal’s order, direction, or partial award, or to attend a meeting or hearing, then the tribunal has the power to “impose such sanctions as the Tribunal deems appropriate in relation to such failure or refusal.”

Outside of the above instances, i.e. where there is no provision granting relevant express powers to the arbitral tribunal, the distinction between procedural and substantive misconducts appears to be helpful in determining the sources of arbitrators’ power to sanction party misconduct.

To conclude, the best way to deal with procedural misconduct is to use robust case management in the first place. For instance, if there are repeated problems of document production requests, the tribunal might swiftly refuse these requests.  As noted by Professor Lucy Reed: “[s]anctions are a last resort, and ultimately a poor resort because sanctions cannot retroactively correct the harm done to the proceedings.”9)Lucy Reed, Chapter 2: Sanctions Available for Arbitrators to Curtail Guerilla Tactics, in Guerilla Tactics in International Arbitration 93, 99 (Günther Horvath and Stephan Wilske eds., 2013) (emphasis added) cited in Maxi Scherer, Inherent Powers to Sanction Party Conduct, Chapter 4, Diego P. Fernandez Arroyo (ed.), Inherent Powers of Arbitrators 9 (Juris, 2018). jQuery("#footnote_plugin_tooltip_5107_9").tooltip({ tip: "#footnote_plugin_tooltip_text_5107_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); As for the rather exceptional circumstances where substantive misconducts occur, they are best dealt with through the use of arbitrators’ inherent powers, and these inherent powers should only be used when there is no other way of dealing with a situation.

 

References   [ + ]

1. ↑ See, further, Pierre Mayer, The arbitrator’s Initiative: Its Foundation and Its Limits, Chapter 1, ASA Special Series No. 45, The Arbitrators’ Initiative: When, Why and How Should It Be Used? (Juris, 2016); Maxi Scherer, Inherent Powers to Sanction Party Conduct, Chapter 4, Diego P. Fernandez Arroyo (ed.), Inherent Powers of Arbitrators (Juris, 2018). 2. ↑ Pierre Mayer, The arbitrator’s Initiative: Its Foundation and Its Limits, Chapter 1, ASA Special Series No. 45, The Arbitrators’ Initiative: When, Why and How Should It Be Used? 3 (Juris, 2016). 3, 4. ↑ ibid. 5. ↑ ibid., p. 4. 6, 7. ↑ ibid., p. 5. 8. ↑ Catherine Rogers, Chapter 5: Guerrilla Tactics and Ethical Regulation, in Guerilla Tactics in International Arbitration 313 (Günter Horvath and Stephan Wilske eds., 2013). cited in Maxi Scherer, Inherent Powers to Sanction Party Conduct, Chapter 4, Diego P. Fernandez Arroyo (ed.), Inherent Powers of Arbitrators 1 (Juris, 2018). 9. ↑ Lucy Reed, Chapter 2: Sanctions Available for Arbitrators to Curtail Guerilla Tactics, in Guerilla Tactics in International Arbitration 93, 99 (Günther Horvath and Stephan Wilske eds., 2013) (emphasis added) cited in Maxi Scherer, Inherent Powers to Sanction Party Conduct, Chapter 4, Diego P. Fernandez Arroyo (ed.), Inherent Powers of Arbitrators 9 (Juris, 2018). function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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