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Arbitration, Open Data, Justice and Artificial Intelligence: a New Step Forward

Thu, 2020-04-16 03:00

The Report on Online Dispute Resolution platform for consumers issued by the European Commission on 2 October 2019 concludes that “the ODR framework is underused and has yet to reach its full potential”.

Against this background, the French legislator has taken a strong stance to promote the use of artificial intelligence and online dispute resolution, in particular for small and repetitive cases. At the same time, the French approach reveals the intention to regulate the use of technology in order to avoid abuses.

One of the biggest reforms during Mr. Macron’s presidency, the Loi de Programmation de Justice 2018-2022 (“LPJ”), tackles also the issue of the relationship between arbitration and artificial intelligence.

This law issued on 29 March 2019 entered into force – notwithstanding a strong opposition of lawyers and judges – on 1st January 2020.

Amongst other things, the LPJ contains a number of important provisions aiming at modernizing the French justice and at updating the judiciary services to the most recent technological developments.

First, the LPJ pursues the development of the open data of the judicial decisions, started by the Law 2016-1547 on modernization of justice, by significantly widening the access to judicial decisions. However, in order to preserve confidentiality and to avoid the misuse of personal data, it provides for the redaction of the names of the parties, the judges and clerks. Interestingly, the name of the lawyers will not be redacted. It is to be noted incidentally that this intensive redaction process will be handled the tribunals, which in some cases are already overburdened.

Second, the LPJ contains a number of provisions related to the online arbitration (and mediation) platforms: it expressly authorizes the possibility to have online arbitration and mediation services. In addition, these platforms providing such services can be implemented by physical or moral persons free of charge or not. These online arbitration providers can notify an award by e-mail (unless one party objects) without having to issue the hard copy.

Another important development is the online arbitration platform certification. A decree n°2019-1089 published on 27 October 2019 has specified for the online arbitration and mediation platforms the modalities to obtain the certification from one of the approved institutions (such as the Cofrac). The conditions to fulfil in order to obtain the certification have not been specified yet.

The decree is not yet in force but it will enter into force on 1st January 2021 at the latest and the list of the certified platforms providing online arbitration services will be published on the website of the Ministry of Justice (www.justice.fr).

However, to obtain such a certification, the LPJ sets already out one specific condition: these platforms cannot use exclusively artificial intelligence to render decisions. Therefore, a platform exclusively based on algorithms or automatic data processes would not receive the certification.

In other words, the presence of a human arbitrator is still required.

Also, if algorithms or automatic data processes are used as a support, the users must be explicitly informed and provide their consent to the utilization of such technology. To this end, the rules and specifications of the technology used by the platform will be transmitted to the parties upon their request.

In the same vein, the platform provider must ensure the “control of the process and of all its evolutions in order to explain, in details and in a comprehensible manner” how the technology works (« Le responsable de traitement s’assure de la maîtrise du traitement et de ses évolutions afin de pouvoir expliquer, en détail et sous une forme intelligible, à la partie qui en fait la demande la manière dont le traitement a été mis en œuvre à son égard », Article 4 of the LPJ).

Such caution is more than welcome in a highly sensitive sector to avoid any abuse.

The position of the French legislator is clearly a reaction to the huge investments that have been made by Legaltechs on predictive justice and algorithm abilities to render a decision in small and repetitive cases. Just to mention one of them, Jusmundi has started to process all the ICSID decisions in investment arbitration and thousands of awards have been converted from PDFs files to text-searchable documents. It also allows to access statistics on arbitrators’ reasoning which will contribute to building an “arbitral case law”.

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Kluwer Mediation Blog – February and March Digest

Thu, 2020-04-16 02:00

I prefer to hope that this shift in perspective will be a chance for people, organisations, businesses, politics, whatever, to put so many of their ongoing disputes and conflicts aside because with this new perspective comes the realisation that these are not worth fighting. It is time to cooperate. May we go through and come out of this trouble cooperating more.” Greg Bond in In praise of distance

 

The last couple of months on the Kluwer Mediation Blog have offered the usual variety of posts, including posts on: mandatory mediation in Greece; the mediation framework in Uzbekistan; the Global Pound Conference’s North America report; key case-law developments in Singapore; and the World Mediators Alliance on Climate Change. There are also numerous posts addressing the Covid-19 crisis, with a specific focus on its impact on mediation and mediators. You will find below a brief summary of, and link to, each post published on the Kluwer Mediation in February and March. We hope you find these useful.

In The GPC North America report – reading between the lines, Rosemary Howell identifies her key take-outs from The GPC’s North America report. The report is the result of rigorous qualitative research on the data emerging from the open- text questions in the GPC series events across North America. These key take-outs include that: “it is time to lose the “A” in ADR in pursuit of a ‘party-centric approach to disputes resolution’”;  “we are not a unified DR community”; and “We now have a model of what qualitative research can do and how to go about it.”

In Singapore case note: settlement invoked as shield, Nadja Alexander and Shou Yu Chong explain that the Singapore Convention on Mediation makes clear that international settlement agreements may be used as a sword or invoked as a shield in judicial or arbitral proceedings. Nadja and Shou Yu explore this issue in the recent Singapore Court of Appeal case of Rakna Arakshaka Lanka Ltd v Avant Garde Maritime Services (Pte) Ltd [2019] SGCA 33.

In Greece: mediation going compulsory: and they lived happily ever after, Haris Meidanis explains how the “fairytale” of mediation started in Greece back in 2008. He then charts the development of mediation in Greece since then, including the recent law (4640/2019) which establishes a “very broad compulsoriness of mediation.” Haris notes that while resistance to change persists, all the ingredients for success exist. He concludes that it seems that Greece has passed the tipping point for mediation.

In Why mediators need to stop apologising about justice, Charlie Irvine explains that mediators have long been on the back foot about justice. Charlie notes that lists of mediation’s benefits rarely include justice, and focus instead on cost, speed, comprehensibility and humane-ness. In this post, Charlie takes a contrary position and sets out why mediators need to stop apologising about justice.

In Mediation in Uzbekistan, Sherzodbek Masadikov provides an overview of the legal framework for mediation in Uzbekistan. Sherzodbek offers a brief historical background to mediation in Uzbekistan, followed by an analysis of the key provisions of the Law on Mediation which entered into force on 1st January 2019. Sherzodbek also considers further laws to facilitate the use of mediation in Uzbekistan.

In The future is now!, Charlie Woods notes that the start of a new decade provides a great opportunity to reflect and plan. Charlie explains that the UN members agreed a broad agenda for what needs to be achieved by 2030 – as set out in the 17 Sustainable Development Goals and their associated targets. Charlie notes that the UN’s sustainable development report for 2019 “The Future is Now” emphasises the importance of thinking of the goals and targets as a package and of focusing on the potential trade-offs and synergies between them. Charlie argues that mediation and mediators have a vital role to play in facilitating dialogue to help achieve the necessary developments.

In Again, with decision trees, Rick Weiler returns to the topic of decision trees and shares with readers a website, SilverDecisions, that greatly simplifies constructing a decision tree for mediated cases. Rick then explains how he uses the site in his mediations by referring to a recent mediation. Rick emphasises that the use of the decision tree exercise will help those involved in the mediation make better decisions.

In Singapore Convention Series: Bill to ratify before Singapore Parliament, Nadja Alexander and Shou Yu Chong explain that the Singapore Convention will come into force six months after three States have ratified it into their domestic law. Nadja and Shou Yu outline the main provisions of the Singapore Convention on Mediation Bill, which was recently passed into law, and provide a comparative table of provisions between the Bill and the Convention.

In Be water, my friend, Ting-Kwok IU explains his analogy of how the practice of mediation skills is like water. For example, Ting-Kwok explains that “A mediator when faced with highly stressful litigants who are eager to win over the others, has to be like water going along with the mind-set of each of the parties but at the same time retaining the quality of being able to help them see the other dimensions of the same matter in an unnoticeable manner.”

In The World Mediators Alliance on climate change? John Sturrock calls for a World Mediators Alliance on Climate Change (WoMACC). John explains that WoMacc would “advocate for responses to climate change that protect and promote environmentally friendly dispute management and resolution” and that it “would coordinate action, provide leadership and help amplify the voices of mediators across the globe.”

In Mediating landscape and memory, Ian Macduff returns to a theme of local politics and history – the colonial history in New Zealand/Aotearoa and the confiscation of land in the 19th century to use it as a vehicle for thinking about a contemporary role for mediation in resolving the current consequences of historical events.

In Arbitration, neutral adjudication, conciliation: what’s in a word? Designing and naming ADR processes – The example of an industrial relationships dispute in Germany, Greg Bond draws on a large on-going dispute in Germany as a lesson in how to design a dispute resolution process. Greg explains that what we can learn from this example is that ADR has a variety of processes to offer and that they can be cleverly combined in one dispute.

In Coping with Covid fear, Martin Svatos explores the emotion of fear and, in particular, how mediators might tackle fear in the current Covid-19 climate. Drawing on techniques which mediators use to assist parties to overcome fear, Martin shares tips on how mediators might overcome the fears arising from current times, including: accepting fear, staying informed yet relaxed, engaging and continuing to work.

In The interruption game – Why are we still playing? Rosemary Howell explores research in the US and Australia on interruptions, including interruptions of female judges. Rosemary shares the key findings of such research and the reasons why female judges are interrupted at disproportionate rates by male colleagues and male advocates. Rosemary then draws on Stone, Patton and Heen’s Difficult Conversations to suggest how, as a community of dispute resolvers, we might better deal with interruptions.

In Introducing a new definition of mediation, Greg Rooney suggests a new definition of mediation and identifies the variety of approaches to mediation that fit within his proposed definition. Greg then applies the scientific principles of emergence and complexity to mediation and notes that “[t]he potential for the emergence of the new and the unexpected is the true power and promise of mediation.”

In Reflections in the age of coronavirus (Covid-19), Constantin-Adi Gavrila shares his reflections on the current Covid-19 crisis. These include that these times give us: the opportunity for self-reflection, including on the values and lessons arising from the Covid-19 pandemic; cause to pause and consider whether we are ready for what will happen next; and an awareness that the natural strategic approach is collaboration.

In A neuro-linguist’s toolbox – self-care and improvement: working with state (Part 1), in the continuing series of the Neuro-Linguist’s Toolbox, Joel Lee explores the concept of anchoring in neuro-linguistic programming. Joel explains that such anchoring is a stimulus-response conditioning and that it allows you to access states you need when you want them. Joel then describes how such an anchor can be created.

In The new Brazilian data protection law and ODR, in the first of a four-part series, Andrea Maia and Gustavo Caneiro consider the new Brazilian General Data Protection Law which will come into force in August 2020 and, in particular, its relevance for ODR. Andrea and Gustavo identify a number of questions regarding the potential impact of this law on ODR and mediation, which will be answered in the later posts in the series.

In Singapore Convention Series – Book review: The Singapore convention on mediation – a commentary by Nadja Alexander and Shouyu Chong, Michael Leathes provides a review of the aforementioned book by Nadja Alexander and Shou Yu Chong. Michael explains how the book “covers all the principles and details we need to negotiate and draft international settlement agreements.” He describes the book as “essential knowledge for every party, practitioner and dispute resolver.”

In In praise of distance Greg Bond invites us to embrace the perspective shift that distance brings, a distance which has arisen in these Covid-19 times. Greg shares his hope that “this shift in perspective will be a chance for people, organisations, businesses, politics, whatever, to put so many of their ongoing disputes and conflicts aside because with this new perspective comes the realisation that these are not worth fighting. It is time to cooperate.”

In Co-operation and the common good, against the backdrop of the Covid-19 climate Ian Macduff explores how people can be persuaded to do the right thing and act out of public rather than selfish interests. Drawing on works by Martin Nowak, Roger Highfield and Nicholas Christakis, Ian concludes that “the stronger evidence is that we are…on a long path to a humane society.”

In Love over fear – holding on to hope, John Sturrock identifies the qualities needed to get through the current difficult times. John emphasises the importance of the qualities of humility and honesty, noting that leaders who manifest these qualities are emerging. Further, John calls for a continuation of asking questions and of listening to others and urges us to hold onto hope and in particular “[t]he hope of a future where we recognise that we … are interdependent, vulnerable and much in need of cooperation in order to survive.”

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Interviews with Our Editors: In Conversation with Macarena Letelier Velasco, Executive Director of the Center for Arbitration and Mediation of Santiago – CAM Santiago

Tue, 2020-04-14 23:00

Welcome to the Kluwer Arbitration Blog, Ms. Letelier!  We are grateful for this opportunity to learn more about the Center for Arbitration and Mediation of Santiago (“CAM Santiago” for its initials in Spanish), and its administration of complex disputes, as well as about the attractiveness of Santiago as seat for international arbitration. 

 

  1. To start, can you briefly introduce yourself and explain your role at CAM Santiago?

Thank you very much for this invitation to discuss CAM Santiago. First, I would like to start off by saying that I am a mother of three boys, a lawyer with a Master’s degree in Public Law from the University of Chile and, since 2014, the Executive Director of CAM Santiago. Previously, I served as a Prosecutor for the Chilean Ministry of Economy.

I have two main responsibilities as Executive Director of CAM Santiago – apart from my core duty, which focuses on leading our team at the center. The first one consists on promoting and/or strengthening our relations with other local and international institutions, such as universities, ministries, and other arbitration centers. The second comprises leading the development of new projects that keep CAM Santiago at the forefront of innovation, for example, developing digital platforms for e-commerce, online dispute resolution, and the creation of a technological development center.

One of my passions is teaching, which I have had the opportunity to do, both in Chilean and foreign universities. I am also passionate about learning about different experiences from discussions around the world. For two years now, I have been part of the commission for the reform of civil procedure law in Chile.

I am also honored to serve as Vice President of the Inter-American Commercial Arbitration Commission (“IACAC”) and secretary of the ICC Arbitration Commission. This has allowed me to incorporate international standards into CAM Santiago’s practice and to promote the Chilean legal community before these institutions.

 

  1. Please tell us more about your users and their disputes. What kinds of parties do you usually serve, and are there particular industries or types of disputes prevalent among them?

Most of our cases are construction disputes. These cases arise from long term and complex contracts that may change over time from the parties’ initial agreement due to different factors. Because these are long term contracts, there are a series of factors that affect their timely performance such as delays, unforeseen major works, feasibility studies, among others. This is why CAM Santiago has a strong and close relationship with the Chilean Chamber of Construction. Such relationship has not only led us to provide them with relevant trainings and hosting of industry events, but also to more sophisticated assistance including deepening the study of Dispute Boards so that the technical community is aware of these alternatives to traditional dispute resolution methods. In 2015, we issued the Rules on the use of Dispute Boards, and we usually run a series of seminars to explain Dispute Boards to the industry members.

We also administer cases related to mining, electricity, and insurance industries that contain arbitration clauses, as well as contracts that give rise to corporate disputes. Increasingly, other industries have been developing contracts that contain arbitration clauses. In many occasions, we also see multi-tier dispute resolution clauses – when the parties first submit their dispute to mediation and then to arbitration (if necessary).

Overall, there is no doubt that the most prevalent industry in arbitrations at CAM Santiago is the construction industry.

 

  1. What percentage of your arbitrations refer to international disputes?

CAM Santiago administers hundreds of cases a year related to local disputes, and we have raised those numbers considerably in the past ten years. International arbitration cases amount to less than 8% of the total number of cases. However, both the use of technology and a reliable Judiciary have helped us to become an increasingly accessible arbitration center. We also benefit from a legal community specialized on conflict resolution that has been consistently growing. Universities have also been teaching future Chilean lawyers the importance of arbitration as a dispute resolution mechanism.

 

  1. Prior to adoption of Ley N. 19.971 in 2004 (based on the 1985 UNCITRAL Model Law), Chile did not have an International Arbitration Act. How has such adoption impacted CAM Santiago’s workload?

The International Commercial Arbitration Act in Chile was passed in 2004. CAM Santiago’s President, Carlos Eugenio Jorquiera was one of the persons who contributed to CAM Santiago’s success. Mr. Jorquiera went to the offices of the Minister of Justice to request that Congress passed this bill. This new legal framework allowed Chile to count with international standards and benefit from the legal certainty resulting from an arbitration act.

Chile was already a party to the New York Convention, which also motivated our center to draft specific Arbitration Rules applicable to international arbitrations. Until today, even though most of our cases are related to domestic cases, CAM Santiago has administered many international cases.

In addition, based on the International Commercial Arbitration Act, Chile’s national courts are restricted by the “no court intervention principle”, according to which the former can only intervene in arbitration cases when expressly authorized by the law. Article 5 of the Act establishes this principle. Although this is a rule that applies in principle to international arbitration cases only, courts also apply it to domestic cases because they have recognized the relevance of the principle of party autonomy in both scenarios.

 

  1. Based on Chile’s political and economic stability, rule of law and strength of its institutions – compared to its neighbors in the region – in the last few years, Santiago has received some support as a seat for international arbitrations. Do you think that the social unrest experienced last year hinders the public’s perception of Chile and, hence, Santiago’s competitiveness as a seat?

Our perception is that there has been no impact in this regard because international arbitration had been agreed upon in arbitration clauses prior to this political situation. Also, the social issues we experienced last year, have now been considerably impacted by the COVID-19 global pandemic. With all of the technology we have implemented, we have shown the capacity to work on international cases remotely. Every country is going through a complex moment, but our professional and institutional capacity (in addition to the national courts’ support) are still intact.

 

  1. Through the recommendation of the World Bank, in April 2019, CAM Santiago and Ecuador signed a MoU, providing for the possibility that arbitrations arising in connection with investment contracts with the Ecuadorian government be administered by CAM Santiago. How has the MoU affected CAM Santiago’s caseload? What are some takeaways from this MoU?

The MoU was great news not only for CAM Santiago, but also for Chile as an international arbitration seat. This recognition from the World Bank is a testament to the hard work that we have been undertaking for the past 30 years. It was also a recognition of the collaboration carried out by the legal community on various topics, as well as the little intervention from national courts, which is welcomed by the arbitration community.

 

  1. Does CAM Santiago have similar agreements with other foreign governments or international organizations?

We do not have similar agreements with other foreign governments. However, we have a close relationship with Ecuador, which was strengthened with the World Bank’s support. We belong to IACAC, an organization that comprises 28 National and Associated Sections dedicated to the administration of arbitrations and mediations in the North Hemisphere, Spain and Portugal. IACAC is a leading institution, responsible for the development and protection of the arbitration culture through the promotion of new pro-arbitration laws and supporting existing pro-arbitration laws. IACAC is committed to promoting arbitration through various initiatives such as education and training on various aspects of arbitration and mediation and the ongoing training and updating of a highly qualified group of arbitrators and mediators.

Being part of this organization allows CAM Santiago to access an international network, which is key to our goal of continuously raising our standards. We also host the ICC Chile National Committee, which allows us to work directly with the International Court based in Paris, where we have also been able to promote renowned Chilean arbitrators.

In addition, we have assisted and participated in annual events such as in the ICC Miami Conference on International Arbitration, and the Paris Arbitration Week. This offers us a prospective view that puts us at the forefront of the latest legal issues discussed in the international community.

 

  1. The COVID-19 health crisis has caused and is expected to keep causing unprecedented disruptions to several sectors of the economy and business relationships. How is CAM Santiago preparing to face the challenges brought by this new reality?

CAM Santiago continues to provide users with its full range of services. In March 2020, for example, we received approximately 40 new notices of arbitration. This is possibly a result of the center’s use of available communication technology, as well as our own disputes management system – “e-CAM Santiago” – that parties can use to submit their filings. That being said, and due to the current situation, by recommendation of CAM Santiago and agreement of the relevant parties, approximately 30% of our active cases have been suspended until the current conditions improve.

In addition, we have taken further concrete action aimed at addressing the current crisis:

  • We have established a remote work system, whereby all of our colleagues are currently working from home, providing our usual services via different communication technologies e.g., email, phone, videoconference applications, etc.
  • We have supported the development and adoption of Bill 015-368, whereby the Chilean Legislature authorizes our courts, as well as arbitration tribunals, to suspend the conduction of hearings until the current situation is overcome.
  • We understand that the difficulties brought by COVID-19 will give rise to a high number of conflicts relating to many businesses and individuals not being able to honor prior commitments. In order to reduce the potential congestion of our judicial system, CAM Santiago has decided to provide our community with 1,000 online, pro bono mediations for cases with disputes not higher than US$ 100,000.

 

  1. As its 30th anniversary approaches, what is your vision for CAM Santiago for the years to come?

We are very hopeful that CAM Santiago will be a modern and one of the highest standard centers in South America. We have been growing and developing a considerable number of programs for the past 30 years, and we expect to keep on growing. Our mission is focused on training young arbitrators, investing in technology, engaging with national courts, developing transparency standards, and creating relationships with the Chilean society so that our dispute resolution mechanisms not only reach companies, but also those in need of pro bono services or discounted rates. This is our future vision. We want to be part of the policy decision-makers in this country so we can all cooperate to the development of a better and more comprehensive Chilean state.

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The United States’ Non-Disputing Party Practice in Investment Arbitrations in 2019

Tue, 2020-04-14 00:05

In 2019, the United States (‘U.S.’) made six non-disputing Party submissions in investment treaty arbitrations, three of which took place under the NAFTA (Lion Mexico Consol. L.P. v. MexicoVento Motorcycles, Inc. v. Mexico; and Tennant Energy, LLC v. Canada), and one each of which took place under U.S. agreements with Korea, Peru and Panama (Jin Hae Seo v. KoreaGramercy Funds Mgmt. LLC  and Gramercy Peru Holdings LLC v. Peru; and Bridgestone Licensing Servs. and Bridgestone Americas, Inc. v. Panama). All six submissions are available on the U.S. Department of State’s web site. (I drafted the Bridgestone submission, and helped review others.)

The six submissions provided the U.S. interpretive view of various provisions contained within the Investment Chapters of the four agreements. Five of the submissions were written; the sixth (in Bridgestone) was one of the few oral submissions made by the United States as a non-disputing Party. The Jin Hae Seo submission was the first submission the United States has made under its agreement with Korea.

The subject matter of the U.S. submissions included a wide range of topics found in the jurisdictional, merits and damages phases of investment arbitrations, as well as on other issues that do not necessarily fit neatly into one of these categories, such as the standard of proof in the case of alleged corruption; the proper interpretation of the expedited review mechanism found in many modern U.S. international investment agreements, and interim measures of protection. The U.S. files these submissions with the hope that they will assist the tribunals in interpreting the agreements, and some investment tribunals have held that such submissions may serve to form “subsequent practice” as used in Article 31(3) of the Vienna Convention on the Law of Treaties,1)Canadian Cattlemen for Fair Trade v. United States of America (NAFTA/UNCITRAL) Award on Jurisdiction ¶¶ 188-89 (Jan. 28, 2008); Bilcon of Delaware et al. v. Government of Canada, PCA Case No. 2009-04, Award on Damages ¶¶ 52, 379 (Jan. 10, 2019). Mobile Investments Canada Inc. v. Canada (ICSID Case No. ARB/15/6) Decision on Jurisdiction and Admissibility ¶¶ 158, 160 (July 13, 2018). jQuery("#footnote_plugin_tooltip_8997_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8997_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); requiring that treaty interpreters take such practice into account. This blog post will primarily focus on aspects of the 2019 interpretations which provided new insights into U.S. interpretive views.

 

Jurisdiction

Jurisdictional topics that the United States addressed in its 2019 non-disputing Party submissions included (i) the three-year limitations period found in the relevant agreements, (ii) the waiver of any right to pursue other dispute settlement procedures with respect to the challenged measures, and (iii) continuous nationality.

The United States made four submissions on applicable limitations periods (GramercyJin Hae SeoLion and Vento). For the most part these submissions cover well-trodden ground. However, the Gramercy submission addressed the concept of “date of breach” in the expropriation context in more detail than other submissions, which is relevant to when the limitations period starts running. The U.S. explained that a breach of an international obligation occurs when the act of a State is not in conformity with the relevant obligation. If at the time of the expropriation a host State does not compensate or make provision for the prompt determination of compensation, the breach occurs at the time of the taking. However, when a State provides a process to determine adequate compensation, but then fails to promptly determine and pay such compensation, a breach may occur later than the time of the taking.

The U.S. submissions on waiver (Gramercy and Lion) generally repeated interpretations of previous years, explaining that a waiver has both formal and material requirements (the former being a written waiver that complies with the substantive waiver requirements, and the latter being conduct that is consistent and concurrent with the written waiver). In Gramercy the U.S. explained that the waiver requirement in the Peru agreement was a “no U-turn” waiver, which allows a claimant to pursue a remedy in domestic courts without relinquishing the right to pursue arbitration under the agreement (as long as the limitations period has not expired). This is different from a “fork in the road” provision, which typically does not allow a claimant to change its dispute settlement mechanism decision once made.

The only submission the U.S. made on “continuous nationality” was in Vento, where the U.S. explained that in order to submit a claim to arbitration under the NAFTA an investor must have been a national of a NAFTA Party at three dates and at all times between them:  the time of the alleged breach, the submission of the claim to arbitration, and the resolution of the claim.

 

Merits

On merits issues the U.S. submitted interpretations of (i) the minimum standard of treatment (MST), (ii) expropriation, (iii) national treatment (NT), and (iv) most-favored-nation treatment (MFN).

The U.S. made submissions discussing the MST obligation in Bridgestone, Gramercy, Lion and Vento. All but the Vento submission discussed MST in the context of judicial measures. All three submissions discussing judicial measures explained that such measures must accord treatment to the relevant investment for there to be a breach (unlike, for example, the NT and MFN obligations, where treatment extended to an investment or investor could constitute a breach). Additionally, the Bridgestone submission explained that for a denial of justice claim related to an adjudicatory proceeding to succeed, a claimant must establish that it was a party to the proceeding, or that it sought to become a party to the proceeding but was denied the opportunity.

Two submissions (Gramercy and Lion) discussed the expropriation obligation, both of which explained that decisions of domestic courts acting in the role of neutral and independent arbiters of litigants’ legal rights cannot give rise to an expropriation claim. If, however, the judiciary is not separate from other organs (executive or legislative) of a State and those organs direct or otherwise interfere with a domestic court decision so as to cause an effective expropriation, the executive or legislative acts could form the basis of an expropriation claim.  Additionally, the Gramercy submission discussed the “police powers” principle, explaining that a bona fide, non-discriminatory regulation will not ordinarily be deemed expropriatory. Further, the U.S. noted its view that this principle is a recognition that certain State actions do not engage State responsibility, and is not an exception that applies after an expropriation has been found.

The Gramercy and Vento submissions were the only two to discuss NT and MFN, both of which explained that these provisions are designed “only” to ensure a Party does not treat entities in like circumstances differently based on nationality. Further, the Gramercy submission discussed a provision that has not often been in dispute in arbitrations under U.S. agreements, a non-conforming measures (NCM) clause. NCMs are measures that are inconsistent with one or more Services or Investment Chapter obligations in the relevant agreement, and would thus constitute a breach of the agreement, except that by listing the NCMs in an annex, the Parties reserve the right to adopt or maintain such measures as specified in the annex. With respect to the MFN provisions of the investment and services chapters of the U.S.-Peru Trade Promotion Agreement (TPA), the Parties reserved the right to adopt or maintain measures according “differential treatment to countries under any bilateral or multilateral international agreement in force or signed prior to the date of entry into force” of the TPA. Thus, a Party’s application of a measure to an investor of a third State by virtue of an obligation in an older third-country treaty would not fall within the scope of the U.S.-Peru TPA. Additionally, the Gramercy submission clarified that a tribunal cannot ignore the MFN requirement that a claimant demonstrate that investors of another Party or non-Party “in like circumstances” were actually afforded more favorable treatment.

 

Damages

The Bridgestone and Vento submissions discuss damages, both of which explain that damages must be based on satisfactory evidence that is not inherently speculative and further that the agreements limit an investor’s ability to recover damages it incurred in the territory of the breaching Party.

 

Standard of Proof when Alleging Corruption

In the Bridgestone submission, the United States explained that although the standard of proof in international arbitrations is generally a preponderance of the evidence, when allegations of corruption are raised, either as part of a claim or defense, the disputing party must establish the corruption through clear and convincing evidence.

 

Interim Measures of Protection

The Tennant submission was limited to discussing interim measures of protection, and it was the first non-disputing Party submission the United States has made on this topic. The Tennant submission explained that under the NAFTA, interim measures may be ordered to preserve the rights of a disputing party, including both existing rights and contingent rights. Two examples of contingent rights that a tribunal may protect by way of interim measures are the potential future right to have evidence disclosed (depending on the tribunal’s authority under the applicable arbitration rules to order such disclosure), and the potential future right to recover a disputing party’s costs.

 

Expedited Review Mechanism

The Jin Hae Seo submission discusses the expedited review mechanism that the United States has included in its investment agreements concluded after the NAFTA. This mechanism authorizes a respondent to raise any objection that a claim is not one for which a tribunal may issue an award as a matter of law (similar to a Rule 12(b)(6) of the U.S. Federal Rules of Civil Procedure) and have it addressed in an expedited fashion.

 

* John I. Blanck is an Attorney Adviser at the U.S. Department of State.  The views expressed here are his own, and do not necessarily reflect those of the U.S. government.

References   [ + ]

1. ↑ Canadian Cattlemen for Fair Trade v. United States of America (NAFTA/UNCITRAL) Award on Jurisdiction ¶¶ 188-89 (Jan. 28, 2008); Bilcon of Delaware et al. v. Government of Canada, PCA Case No. 2009-04, Award on Damages ¶¶ 52, 379 (Jan. 10, 2019). Mobile Investments Canada Inc. v. Canada (ICSID Case No. ARB/15/6) Decision on Jurisdiction and Admissibility ¶¶ 158, 160 (July 13, 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Pandemics, Emergency Measures, and ISDS

Mon, 2020-04-13 01:00

Extraordinary Times 

These are extraordinary times in many regards. The spread of novel coronavirus (“COVID-19”), now considered a pandemic, continues to have a significant global impact on several fronts. For States, the pandemic of course presents significant public health challenges. As we are seeing, it also presents significant economic challenges, due to the convergence of disruptions in daily life, which have immediate implications for businesses and their workforce, with macro-level pressures on financial markets, accelerated by inflated global corporate debt as a share of gross domestic product.

In extraordinary times, States take extraordinary measures. In the current moment, States have adopted (and very likely will adopt additional) emergency measures to address the severe and interwoven public health and economic threats posed by the pandemic. History tells us that such measures often have downstream effects on investor-State dispute settlement (“ISDS”). Expanding on themes considered by others recently, this post briefly explores these issues.

 

Revisiting the Argentine Economic Crisis

Many readers will be familiar with the Argentine economic crisis (approximately 2001-2003) and its effect on ISDS. It provides an instructive lens through which to consider the current situation. To recall, in 1989, after several significant currency devaluations, Argentina passed an emergency measure privatizing state-run public services, catalyzing subsequent foreign investment across the gas, electricity, and water sectors. The convergence of several economic factors, however, resulted in a severe economic downturn, marked by a near-20 percent contraction of the Argentine economy over the 1998-2002 period.

In 2002, Argentina passed sweeping emergency measures. These measures, inter alia, abandoned the peg of the Argentine peso to the US dollar and ushered in a new system of exchange rates, which immediately affected existing foreign investment interests. Many disputes arose, wherein Argentina sought to have its breaches of obligations under the relevant investment treaties absolved of liability, due to the unique circumstances that were the impetus for the emergency measures.

Several disputes were decided based on the US-Argentina BIT which, in Article XI, excepts measures taken for the maintenance of “public order”. Other disputes were decided based on Article 25 of the International Law Commission’s Responsibility of States for Internationally Wrongful Acts (“ARS”), which provides the customary international law defense of necessity. Under Article 25, the measure must be “the only way for the State to safeguard an essential interest against a grave and imminent peril” and it cannot “seriously impair an essential interest of the State . . . towards which the obligation exists, or of the international community as a whole”. Article 25 does not permit a state to invoke necessity if either “the obligation in question excludes the possibility of invoking necessity” or “[t]he state has contributed to the situation giving rise to necessity”. Finally, some disputes were decided based on both the US-Argentina BIT and Article 25 under ARS.

Some controversy existed with regard to the relationship between Article XI of the US-Argentina BIT and Article 25 of ARS. For example, the annulment committee in CMS, although it did not annul the award, criticized the tribunal for assuming, absent further analysis, that both Article XI and Article 25 had the same requirements. The annulment committee in Sempra took a similar view, but actually annulled the award. Later, the annulment committee in Enron also annulled the award, based on the view that the tribunal had insufficiently applied Article 25. Overall, nearly all of the disputes, whether based on US-Argentina BIT, another investment treaty, or Article 25 of ARS, were decided in favor of the claimants, resulting in Argentina having to pay compensation for its breaches. In particular, how the tribunals viewed the relationship between Article XI and Article 25 impacted the outcome. The tribunals that read into Article XI the “only way” requirement from Article 25 ultimately ruled against Argentina. Those that did not see this relationship acknowledged Argentina’s broad regulatory autonomy and, in part for this reason, ruled in the State’s favor.

 

The Effects of COVID-19 Emergency Measures 

As discussed in a previous post, States affected by the pandemic have adopted emergency measures that take various forms. While some emergency measures began as voluntary, many have now become compulsory. Broadly, these measures include, inter alia, restrictions on intra-State movement (e.g., quarantines, curfews), restrictions on inter-State movement (e.g., flight and other travel restrictions), and cancellations of events above a specified number of attendees (e.g., sporting events). If the trend toward compulsory measures is any indication, future measures may even more significantly impact business operations. Such measures could affect foreign investment interests in, inter alia, the construction, utilities, aviation, entertainment, and pharmaceutical sectors.

It is foreseeable that investment disputes will arise regarding, in particular, indirect expropriation and fair and equitable treatment (FET), given the dramatic effect that compulsory measures in the above-mentioned categories have on business operations. This may present challenges for States seeking to delicately balance the scope and strength of their emergency measures, due to obligations arising under full protection and security (FPS) clauses, which tribunals have construed as requiring both physical security and legal protection. In this sense, insufficient State action or outright inaction may prove equally problematic. Relatedly, States have recently been considering economically focused emergency measures. If future emergency measures seek to specifically stimulate national economic interests, disputes may likewise raise national treatment and most-favored-nation (MFN) treatment, particularly if foreign investors have been disproportionately impacted.

 

Potential State Responses

States would have several legal theories and defenses to potentially raise in such disputes. A pandemic would be a novel factual backdrop for disputes and, specifically, for the context in which defenses would be raised and considered. While tribunals are no strangers to public health-related issues, a pandemic is qualitatively different because of its pervasive and simultaneous impact on human rights, economic interests, and national security. As the case law arising out of the Argentine economic crisis demonstrates, however, tribunals have been reluctant to entertain the relevance of human rights considerations, focusing instead on the economic dimensions of the disputes. Equally, as that case law demonstrates, the relationship between exceptions provisions and necessity under customary international law may bear on the outcomes of future disputes.

 

Police Powers

States generally enjoy broad regulatory autonomy, or police powers, to enact measures to protect the health, safety, and welfare of their citizens. Indeed, the tribunal in PMI v. Uruguay recognized that “[p]rotecting public health has since long been recognized as an essential manifestation of the State’s police power”. Moreover, several tribunals, including Tecmed and Saluka, confirm that exercise of a State’s police powers via non-discriminatory measures of general applicability does not require compensation. As such, States likely have significant latitude in the current moment, even where emergency measures significantly burden a single sector. For example, border control measures that disproportionately impact the aviation sector are, ceteris paribus, likely squarely within the State’s police powers, given the nature of pandemics. However, tribunals may require the challenged measures to be proportionate, suggesting that potentially overbroad measures may be problematic for a police powers argument.

Relatedly, as in Azurix, whether and to what extent the State may have contributed to the public health crisis, could bear on how a tribunal may weigh and balance a police powers argument. Note that these considerations would apply equally under Article 25(2)(b) of ARS. Importantly, a tribunal could defer to a State’s regulatory judgment, but still question whether its actions exacerbated the ongoing crisis. Moreover, as in Azurix, it may even deprioritize the purpose for taking the measures, focusing instead on the effects. Possible risks for States in this regard are many. Indeed, this would likely be the most significant hurdle for States, not least because a seemingly endless spectrum of State actions could be relevant in this regard and nothing would in principle preclude a tribunal from considering all of them.

Tribunals may point to insufficient preparedness efforts in the preceding years, despite being “on notice” of the risks, based on the severity of prior epidemics or pandemics. They may point to insufficient or inconsistent public messaging from governmental health authorities during the pandemic, which could have exacerbated the spread of COVID-19. They may point to delayed public health response efforts, due to ignoring early risk signals, especially where paired with over-burdensome measures that seek to counterbalance the effects of the delay. They may point to failures to fulfill obligations under the International Health Regulations (“IHR”), including notification requirements when a threat emerges within a State and failing to take required health system capacity-building steps, which could have militated against both the rapid spread and the severe public health consequences. Finally, they may point to non-adherence to WHO recommendations during a declared public health emergency of international concern under the IHR, especially where the State cannot justify why its regulatory judgment necessitated deviation.

 

Exceptions Provisions

As discussed in a previous post, investment treaties may contain general exceptions permitting a State to enact measures in certain circumstances that would otherwise breach treaty obligations. If the applicable investment treaty contained an exception for measures adopted to maintain the public order, as in the US-Argentina BIT, States may raise this exception to seek to avoid liability. Relatedly, many investment treaties except measures taken for the maintenance of national security, and some except measures taken to protect human rights or public health specifically.

In principle, a State could argue that its emergency measures fall within the definition of such terms, assuming such language exists in the applicable investment treaty. Indeed, in Continental, Argentina successfully relied on a public order exception to shield its emergency economic measures from liability. Tribunals have weighed various considerations in the context of exceptions provisions. As example, in Continental, the tribunal weighed whether the measures were praised by the international community, which could well be a factor to consider around the pandemic, given disagreement over appropriate State responses. The role of experts may, as in CMS, bear on how tribunals make such determinations, especially with regard to the complex epidemiological considerations involved in responding to the pandemic.

 

Customary International Law

States may raise, as Argentina did, the defense of necessity under ARS. A few prongs of Article 25 of ARS are worth highlighting, including whether a State contributed to the situation of necessity, mentioned above. First, some tribunals, like Sempra, set a high threshold for whether an “essential interest” had been imperiled, weighing whether the situation giving rise to the challenged measures “compromised the very existence of the State and its independence”, although this is not the prevailing approach. Other tribunals, like LG&E, set a lower threshold, permitting a severe economic crisis to qualify, absent needing to determine whether it imperiled the State’s existence. Notably for public health, in the context of the Argentine economic crisis, several tribunals considered the provision of water and sewage services in Buenos Aires to be an essential interest. The close nexus between public health and economic interests may provide further support for characterizing the circumstances as a threat to an essential interest. In the current moment, the cumulative impact of the pandemic on human rights, economic interests, and national security would likely satisfy this lower threshold.

Second, regarding whether the challenged measures were the “only way” to protect the essential interest, tribunals have generally set a high threshold, based on whether any other means might be available, without regard to cost or convenience. For the pandemic, this prong may prove problematic. Individual measures, such as large-scale lockdowns of cities or States, are by definition broad and burdensome, and tribunals may question whether they were the only available course of action for the State. It is, however, unlikely that a single measure would be challenged; more likely a package of measures would be challenged, as in the case law relating to the Argentine economic crisis. If that case law is any indication, tribunals would have to weigh and balance discrete measures within a package to arrive at a determination based on the package as a whole. Whether a single, particularly ill-advised measure might prove fatal for an entire package is an open question and represents an underappreciated risk for States.

 

Looking Ahead

We are, by most accounts, far from the end of this pandemic. It is too soon to ascertain its ultimate effects on ISDS, but as additional emergency measures are adopted, and foreign investment interests continue to be affected, the likelihood of litigation will likely grow. Moving forward, to militate against the attendant litigation risks, States could focus on adopting evidence-based public health measures that are no more restrictive than necessary and do not disproportionately burden foreign investment interests. Equally, because the foundation for packages of measures has arguably already been established in many States, States could scale back earlier discrete measures, as appropriate, to ensure that their cumulative response efforts do not conflate temporally distinct phases of the pandemic requiring different approaches.

 

The Kluwer Arbitration Blog is closely following the impact of COVID-19 on the international arbitration community, both practically and substantively. We wish our global readers continued health and success during this difficult time. All relevant coverage can be found here

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Interviews with Our Editors: China Insights from Dr. Li Hu of CIETAC

Sun, 2020-04-12 02:01

Dr. Li Hu is Deputy Secretary-General of China International Economic and Trade Arbitration Commission (“CIETAC”), Vice Chairman of China Maritime Arbitration Commission, and also Board Member of the Arbitration Institute of Stockholm Chamber of Commerce. He has authored several publications on dispute resolution in China and has served as arbitrator in over 120 domestic and international arbitration cases. We are privileged for this chance to interview Dr. Li for our Blog.

 

  1. We first want to know more about CIETAC’s phenomenal growth in the past decade. Please tell us what you think were the most important factors behind CIETAC’s success.

We have seen a 125% increase in terms of the caseload and 605% increase in terms of the disputed amount between 2009 and 2019. CIETAC’s cases in 2019 involved parties from 72 countries/regions in the world, and covered 21 different types of disputes. Further, we had 66 cases where neither party was Chinese.

In my view, these are the most important factors for CIETAC’s growth: the CIETAC Arbitration Rules include modern innovations such as emergency arbitrator procedures, single arbitration under multiple contracts, as well as joinder provisions, but they also allow for the continued use of a unique and salient feature of Chinese arbitration – its combination of arbitration and conciliation. Further, CIETAC has made its panel of arbitrators more international so that non-Chinese parties may make their nomination with more and greater choices. The current CIETAC Panel consists of 1,439 arbitrators from 65 countries or regions, including 315 foreign arbitrators and 92 arbitrators from Hong Kong, Macau and Taiwan. Under the CIETAC Rules, it is also possible for the parties to nominate arbitrators who are not on the CIETAC Panel if the parties have such agreement in their arbitration clause. In 2019, 106 cases were conducted in English or in English and Chinese with 78 foreign arbitrators appointed. Further, the Chinese government adopted the Reform and Opening up Policy after 1978. Relevant policies, regulations, and laws were issued and updated to create a more favorable and stable environment for foreign investments in China. Chinese companies were also encouraged to make foreign investments especially under the recent Belt Road Initiative. The development of China-related international trade and investment has led to CIETAC flourishing.

 

  1. What accomplishments are you most proud of at CIETAC thus far?

The first is the policy we adopt of continuously promoting the internationalization of CIETAC arbitration. CIETAC is always developing, modernizing and internationalizing its dispute resolution services while keeping some characteristics unique to Chinese arbitration. Since 1994 when I joined CIETAC, I have always done my best to promote the internationalization of CIETAC arbitration.

The second is arbitration-centered multi-ADR services, which have been provided since 2000, when CIETAC became authorized to resolve domain name disputes. (I was in charge of managing such disputes for CIETAC up to 2009.) This was CIETAC’s first step toward providing other ADR services besides commercial arbitration. CIETAC multi-ADR services include mediation, construction dispute adjudication and online arbitration.

The third is the setting-up of CIETAC’s overseas branch offices. In 2011, I was appointed to be responsible for establishing the CIETAC Hong Kong Arbitration Center, and in 2017 I proposed once again to create another two arbitration centers in Europe and North America. CIETAC Hong Kong Arbitration Center, European Arbitration Center and North American Arbitration Center are CIETAC’s overseas branch offices, but they are also institutions established in accordance with local laws where the branches are set up. By setting up these overseas branch offices, CIETAC is aiming to materially internationalize its arbitration practice, and serve parties under different systems of law.

 

  1. What are the main developments at CIETAC that have been stimulated by the Belt and Road Initiative (“BRI”) over the past few years?

In the past few years, efforts have been undertaken to promote CIETAC arbitration under the framework of the BRI. Here are some examples:

First, we are widely strengthening cooperation with international and national ADR institutions and have signed cooperation agreements with more than 70 arbitration centers throughout the world.

Second, in order to formulate a flexible ADR mechanism and better serve the BRI, the Supreme People’s Court (“SPC”) included CIETAC in the SPC’s Panel of Arbitration and Conciliation Institutions so that for the relevant international arbitrations conducted by CIETAC, the parties may enjoy direct support from the SPC for reviewing jurisdiction, granting interim measures, and setting aside or enforcing awards.

Third, according to the CIETAC Constitution, our Panel of Arbitrators is to be updated once again before May 2020. We are also considering initiating the revision process of the CIETAC Rules to respond to the latest developments in the past years and to meet the demands of the parties in the future.

 

  1. What do you think are the most unique aspects of arbitration in China compared to arbitration in Europe?

The following four aspects of arbitration in China are the most unique when compared to arbitration in Europe:

Arbitration in China is more institutionalized. In China, the institutions have assumed some functions which are vested in the tribunals in European countries. Under Chinese Arbitration Law, it is not the tribunal but the arbitration institution that decides on questions of jurisdiction. The chairman of the institution decides on the challenge of an arbitrator, and the proper body that decides the interim measures is not the arbitral tribunal but the competent court. Similarly, if one of the parties to an arbitration applies for the preservation of evidence or property, the application can be made to the arbitration institution, which will then transfer such application to the competent court for decision in accordance with the applicable law. Under the CIETAC Rules, besides scrutiny of the draft award, in the absence of the agreement of the parties, CIETAC will also decide the language or seat of arbitration, which is different from the practice of some European countries where such functions shall be performed by the arbitral tribunal.

The case manager may serve as the tribunal secretary. CIETAC has been implementing the professional case manager system since its establishment in 1956. The CIETAC Rules, as well as its former editions, recognize the practice of case manager, who also performs the functions of the tribunal secretary. This is also the usual practice adopted for Chinese arbitration. As an assistant to the tribunal, the case manager is actually playing the natural role of the tribunal secretary.

The arbitrator may serve as the conciliator but not as amiable compositeur. In Chinese arbitration, the combination of arbitration and conciliation is a kind of practice popularly adopted where the arbitrator can serve as the conciliator to conciliate the case. This practice is confirmed by the Chinese Arbitration Law. In arbitration proceedings, pursuant to the request of a party or with the consent of both parties, the arbitrator may serve as the conciliator to conciliate the case. If the conciliation is successful and the parties have reached a settlement agreement, the claimant may request to withdraw the case, or the parties may jointly request that the arbitral tribunal make a consent award based on the settlement agreement. If the conciliation fails, the arbitration proceedings shall be resumed and the arbitral tribunal shall make the final award in due course. Such practice combines the advantages of arbitration and conciliation, and saves time and cost for the parties, and may allow the parties to maintain good relations for future cooperation. What is more important is that the consent award is more likely to be voluntarily enforced by both parties without a subsequent setting aside or enforcement procedure in the court. Such practice works well at CIETAC, and at least 15% of the average 2,375 cases annually awarded in the past five years have been concluded by such conciliation in arbitration.

On the other hand, in Europe, in accordance with the relevant domestic law provisions, by express authorization of the parties, the arbitrator may decide the case as amiable compositeur. Chinese laws keep silent on the issue and arbitrator must decide the case only in accordance with the law.

More attention is paid to documentary evidence than witnesses. Different from the practice in common law countries, Chinese arbitration – relatively speaking – emphasizes and pays more attention to documentary evidence than the witnesses if the documentary evidence by itself is sufficient to ascertain the case facts. In Chinese arbitration, the examination of witnesses, if necessary, is generally conducted in a simplified manner without the strict procedure of examination, cross-examination and re-examination, and the oral hearing will often last only one or one-and-half days. The discovery and privilege system are not clearly and completely adopted by Chinese law, and Chinese arbitration therefore seldom involves such practice, although the exchange of evidence may occur before oral hearing.

                                                                                                                                                        

  1. As concluding remarks, please share with our readers your tips for next generation arbitration lawyers.

For the arbitration service, China has been and will continue to be a big market. Under the BRI, outward-focused Chinese enterprises need transnational assistance from international lawyers both in drafting legal documents and in resolving disputes. Foreign (non-Chinese) arbitration lawyers can benefit from knowing more about Chinese culture, which is gateway to understand China and Chinese people. I know that, for the big international arbitrations, the Chinese party is likely to have lawyers from at least one Chinese law firm and one international/offshore law firm to jointly serve as the legal counsel. It is common for Chinese legal professionals to be appointed as expert witnesses. It is helpful for the foreign lawyers to strengthen friendly cooperation with Chinese lawyers and Chinese arbitration community. Up to the end of 2019, there are 255 arbitration institutions in China, most of which are the institutions established after Chinese Arbitration Law of 1994, and they mainly deal with the domestic arbitrations. But among these, in practice, most of the foreign-related or international disputes are still submitted and will continue to be submitted to CIETAC for arbitration by the agreement of the parties. It can be said, at present, the international arbitration in China, to a large degree, means CIETAC arbitration. It is also necessary for foreign lawyers to know more about CIETAC arbitration. In my capacity of the Deputy Secretary General, I sincerely welcome more and more international arbitration lawyers to participate in CIETAC arbitration as legal counsel or arbitrators!

Thank you for your time and perspectives.

 

This interview is part of Kluwer Arbitration Blog’s “Interviews with our Editors” series.  Past interviews are available here.

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Protecting Arbitrator Discretion in Decision-Making: A Malaysian Take on Due Process Paranoia

Sat, 2020-04-11 00:44

Due process paranoia remains a live issue in international arbitration. Arbitrators can feel under pressure to fulfil their duties to give parties an opportunity to present their case whilst also ensuring that they produce an enforceable arbitral award. This concern to be seen to have delivered due process can arguably be increased when coupled with added levels of judicial scrutiny in certain jurisdictions, potentially resulting in arbitrators exercising undue caution in their treatment of parties’ arguments in the arbitration and in the final award.

The Malaysian High Court had a recent opportunity to test and dispel these fears in Allianz General Insurance Company Malaysia Berhad v Virginia Surety Company Labuan Branch (“Allianz”),1)Allianz General Insurance Company Malaysia Berhad v Virginia Surety Company Labuan Branch, Originating Summons No. WA-24NCC(ARB)-13-03/2018. jQuery("#footnote_plugin_tooltip_1090_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1090_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); where it set a useful precedent for arbitrator discretion in relation to their deliberation process and the reasoning contained within their award. More significantly, Allianz provides an authoritative statement protecting the decision-making latitudes of Malaysian-based tribunals in the future, which further highlights Malaysia’s alignment with the growing pro-arbitration trends in Southeast Asia.

 

Background Facts

Allianz concerned an application to set aside a majority arbitration award under Section 37(2)(b)(ii) of the Malaysian Arbitration Act 2005 (“MAA“) for “a breach of the rules of natural justice [occurring] in connection with the making of the award” – a due process infraction.

Section 37 MAA replicates the setting aside grounds of Article 34 of the UNCITRAL Model Law but with a slight modification. The MAA, similar to the Singapore Arbitration Act, specifies non-exhaustive instances of when an arbitration award contravenes Malaysian public policy. One of these instances is where there has been a breach of the rules of natural justice.

The impugned majority award arose from a dispute concerning the subsistence and interpretation of two reinsurance contracts. The plaintiff was an insurer providing insurance cover for motor vehicles under an extended warranty programme. The defendant provided long-term reinsurance cover for the extended warranty programme that was recorded by two ”treaty” arrangements between the two parties.

Both agreements contained express provisions on reinsurance coverage periods, which deemed a mutual intent to terminate the policies at their next anniversary dates through the automatic issuance of provisional notices of cancellation (“PNOC”), unless otherwise advised. A dispute arose regarding the actual meaning of the PNOC regime; whether both agreements were renewed; and whether there existed a duty of utmost good faith between the parties. This dispute subsequently went to arbitration seated in Malaysia before a three-member tribunal.

The majority of the tribunal dismissed the claim and issued a majority award in favour of the defendant. A separate dissenting award was issued by the remaining arbitrator. Dissatisfied with the majority award, the plaintiff applied to the Malaysian High Court to set it aside under, amongst others, Section 37(2)(b)(ii) MAA complaining that the tribunal’s majority had breached natural justice requirements.

In its challenge, the plaintiff contended that the majority award failed adequately to address the issue and submissions on the duty of utmost good faith, which it viewed as a fundamental issue to be determined by the tribunal. To substantiate this alleged failure, the plaintiff emphasised that the tribunal’s majority had only made reference to the utmost good faith principles in four paragraphs of the majority award. The defendant denied that there had been any such alleged infraction by the tribunal.

 

High Court Decision

The Malaysian High Court dismissed the plaintiff’s due process challenge against the majority award in its entirety, emphasising that natural justice does not entitle a party to receive an arbitrator’s response to all submissions and arguments presented. It was sufficient that the parties were given a right to be heard on these matters.

The arbitrators were not bound to explain their disagreement with the plaintiff’s position regarding the existence of an utmost good faith duty beyond the four paragraphs in the majority award. That they did not do so could not be an immediate basis to suggest a breach of natural justice and due process.

 

Affirming Arbitrator Discretion in Decision-Making

The court’s finding gives significant comfort to Malaysian-seated tribunals. It underscores the latitude afforded to arbitrators under Malaysian law – aligned with international arbitral best practices – in determining what issues and arguments are essential in order to write the arbitration award. When identifying what is “essential”, arbitrators are entitled to view that a reference can be disposed of without further consideration of certain issues.

Where an arbitrator does address an argument, Allianz makes clear that the arbitrator cannot legitimately be expected to “religiously follow the stance or any specific arguments presented by one party or the other” (see also Intraline Resources Sdn Bhd v Exxonmobil Exploration and Production Malaysia Inc [2017] MLJU 1299 at [88]). The tribunal has discretion to reformulate and refashion the way in which different arguments and concepts have been consolidated, and to make its own value judgements and conclusions between the range of contentions made before it.

Although not raised in Allianz, the regional practice that issues need not be addressed expressly in an award would likely have found favour with the Malaysian High Court. Arbitrators can implicitly resolve issues, particularly those which outcomes flowed from the conclusion of a specific logically prior issue. In such event, the arbitrator could dispense with delving into the merits of the arguments and evidence for the former, making the decision-making process more efficient (see TMM Division Maritima SA de CV v Pacific Richfield Marine Pte Ltd [2013] 4 SLR 972 at [72]-[74]).

 

Malaysia’s Arbitration-Friendliness

Overall, Allianz demonstrates Malaysia’s commitment to upholding arbitral awards. This is reflected in the Malaysian High Court’s repeated emphasis that Section 37 MAA is not an appellate provision. Where invoked, and not just in cases concerning Section 37(2)(b)(ii) MAA, Malaysian courts must not sit in appeal over the arbitrator’s decisions by re-examining and re-assessing the materials brought in the arbitration (see also Antara Steel Mills Sdn Bhd v CIMB Insurance Brokers Sdn Bhd [2015] 5 CLJ 1018).

This approach is particularly reassuring where a setting aside application is premised on an alleged breach of public policy, which could be an inherently amorphous assessment. Allianz makes clear that, in such cases, the Malaysian courts adopt a similar approach to that taken by other Model Law jurisdictions (see also Jan De Nul (M) Sdn Bhd & Anor v Vincent Tan Chee Yioun & Anor [2019] 2 MLJ 413 at [41]-[58]; Sigur Ros Sdn Bhd v Master Mulia Sdn Bhd [2018] 3 MLJ 608).

While the ultimate outcomes of recent public policy-based challenges before Malaysian courts have been very consistent, the way in which the Malaysian courts have interpreted the concept of public policy or phrased the test under Malaysian law has been far less consistent. The High Court in Allianz provided helpful guidance in summarising the current Malaysian approach to public policy-based challenges under the MAA:

  • The concept of public policy, and breaches of it, have to be assessed narrowly and restrictively. This accords with the peremptory principle that the court’s curial intervention should be sparingly used, in keeping with Section 8 MAA (Article 5 UNICTRAL Model Law).
  • The threshold to be met for a public policy-based challenge is a high one. By its nature, “it should be immediately obvious or at least fairly rapidly apparent that there has been such a breach“.
  • The mere fact that an arbitration award is irrational or unreasonable will not justify its setting aside. When considering a public policy-based challenge, the concept of public policy must be one taken in the “higher sense, where some fundamental principle of law and justice is engaged, some element of illegality, where enforcement of the award involved clear injury to public good or the integrity of the court’s process and powers will thereby be abused“.

Malaysian courts should be slow in accepting arguments that a breach of public policy, including where the rules of natural justice are involved, occurred where this results in an arbitration award being set aside.

The lengthy judicial consideration of the Malaysian setting aside regime in Allianz is important, as it provides an encouraging restatement of Malaysia’s arbitration-friendly philosophy in public policy-based challenges, particularly those involving elements of due process. Tribunals in arbitrations governed by Malaysian law can therefore rest with a degree of assurance – and perhaps discard any due process paranoia – when exercising their discretion in the deliberation of issues and their drafting of arbitration awards in making their arbitrations more efficient.

References   [ + ]

1. ↑ Allianz General Insurance Company Malaysia Berhad v Virginia Surety Company Labuan Branch, Originating Summons No. WA-24NCC(ARB)-13-03/2018. 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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SIAC Rule 29 On Early Dismissal: How Early Is Early?

Fri, 2020-04-10 01:33

Introduction

Rule 29 of the 2016 SIAC Rules (“SIAC Rules”) introduced a procedure for enabling an ‘early’ dismissal of claims and defences. Rule 29 is akin to summary judgment and striking out in common law courts. It is aimed at allowing a tribunal to dismiss patently unmeritorious claims and defences without having to conduct full-fledged proceedings. In this article, the authors discuss the interpretation of two legal standards contained in Rule 29, and conclude by proposing certain changes to the standard of exceptional circumstances under Rule 29.

Standard of manifestly without legal merit

Rule 29 permits an application for early dismissal on the basis that a claim or defence is “manifestly without legal merit.” While “manifestly without legal merit” is not defined in the SIAC Rules, guidance may be drawn from cases which have considered the term “manifestly without legal merit” under Rule 41(5) of the ICSID Rules, from which Rule 29 was adopted.1)See also A PRACTICAL GUIDE TO THE SIAC RULES, Nish Shetty, Harpreet Singh Nehal SC, Kabir Singh; and The 2016 SIAC Rules: New Features, Elodie Dulac (Indian Journal of Arbitration Law, Indian Journal of Arbitration Law, Vol. 5, No. 2, January 2017) jQuery("#footnote_plugin_tooltip_1949_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1949_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Relying on the well-known work tracks of Professor Schreuer in the origin of the word ‘manifest’, ICSID jurisprudence on the interpretation of ‘manifest’ has generally been taken to mean something which is ‘easily understood or recognized by the mind’. The word relates not to the seriousness of the excess or the fundamental nature of the rule that has been violated but rather to the cognitive process that makes it apparent.2)See Christoph H. Schreuer, The ICSID Convention: A Commentary (2001); Referred to at paragraph 85 of the decision of the Tribunal in Trans-Global Petroleum, Inc. v. Hashemite Kingdom of Jordan. jQuery("#footnote_plugin_tooltip_1949_2").tooltip({ tip: "#footnote_plugin_tooltip_text_1949_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

For instance, in the first ever decision made under Rule 41(5) of the ICSID Rules, the tribunal in Trans-Global Petroleum, Inc. v. Hashemite Kingdom of Jordan3) ICSID Case No. ARB/07/25. jQuery("#footnote_plugin_tooltip_1949_3").tooltip({ tip: "#footnote_plugin_tooltip_text_1949_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); found that an applicant would have to “establish its objection clearly and obviously, with relative ease and despatch” in order to prove that the claim in question is manifestly without merit. Similarly, in Brandes Investment Partners, LP v. Bolivarian Republic of Venezuela,4)ICSID Case No. ARB/08/3, Decision on the Respondent’s Objection under Rule 41(5) of the ICSID Arbitration Rules (Feb. 2, 2009) jQuery("#footnote_plugin_tooltip_1949_4").tooltip({ tip: "#footnote_plugin_tooltip_text_1949_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); the tribunal considered that the scope of the term ‘manifestly without legal merit’ under Rule 41(5) of the ICSID Rules would include “all objections to the effect that the proceedings should be discontinued at an early stage because, for whatever reason, the claim can manifestly not be granted by the Tribunal.” The tribunal concluded that the objection concerning a legal impediment to a claim could be examined on an expedited basis.

Standard of exceptional circumstances

Another legal standard introduced under Rule 29 is that of “exceptional circumstances.” If a tribunal allows an application for early dismissal to proceed under Rule 29.3, the tribunal is required to make an order or award on the application (for which reasons may be in summary form) within 60 days from the date of filing the application. However, the SIAC Rules do not define what “exceptional circumstances” would justify an extension of the time for a tribunal to render an order or award in an early dismissal application.

By way of comparison, Rule 9.8 permits the LCIA Court to extend the 14-day deadline for an emergency arbitrator to decide an emergency relief, in “exceptional circumstances”. Whilst LCIA has set out through certain case studies, what circumstances could constitute an “exceptional urgency” in the LCIA Notes on Emergency Procedures, no comparable exercise has been undertaken to enlist potential scenarios on the interpretation of “exceptional circumstances” in terms of Rule 9.8. Looking at another example, Article 37(c) of WIPO Rules permits the tribunal to extend deadlines set in the arbitral procedure, in “exceptional cases”, and in “urgent cases”. The Commentary on WIPO Arbitration Rules sets out that what constitutes an “exceptional circumstance” for the purposes of Article 37(2), is a matter which is decided by the tribunal in consultation with the parties. The Commentary goes on to note that “…it is difficult to express in the abstract what qualifies as ‘exceptional circumstances’. Some element of unpredictable circumstances will need to be present…

In addition to the above, the expression “exceptional circumstances” has been considered by the courts of England. In Haven Insurance Company Ltd. v. EUI Limited (T/A Elephant Insurance),5)[2018] EWCA Civ. 2494 jQuery("#footnote_plugin_tooltip_1949_5").tooltip({ tip: "#footnote_plugin_tooltip_text_1949_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); the English Court of Appeal departed from the usual position that parties should comply with contractual time bars in bringing arbitration proceedings. This was because the facts of the case involved ‘quite exceptional circumstances’ in which the established custom of the Technical Committee (that heard the dispute between the parties) allowed a period of 30 days to file an appeal from the date of the minutes passed by the Technical Committee.

Similarly, in P v. Q,6) [2018] EWHC 1399 (Comm.) jQuery("#footnote_plugin_tooltip_1949_6").tooltip({ tip: "#footnote_plugin_tooltip_text_1949_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The High Court of England and Wales granted an extension of time in terms of Section 12(3) of the Arbitration Act, 1996 in circumstances that were “relatively exceptional”. In both these cases, the English courts also took the view that in order to ascertain what qualifies as “exceptional circumstances”, there has to be an element of unpredictability.

From the broad review of the interpretations of ‘exceptional circumstances’ the authors’ view is that an “exceptional circumstance” must be one that is unpredictable, i.e. something that the parties / the tribunal could not have foreseen.

Proposed changes relating to the standard of exceptional circumstances

The authors, having been involved in separate early dismissal proceedings under Rule 29, were faced with a situation where several simpliciter extensions were granted under Rule 29.4. The respective proceedings lasted for a period of almost five months. Interestingly, six months is the time period prescribed for completion of expedited proceedings under the SIAC Rules. Accordingly, the authors propose certain changes in an attempt to address this.

In order to give practitioners and parties some insight into what “exceptional circumstances” would warrant an extension under Rule 29, SIAC could consider drawing from the LCIA Notes on Emergency Procedures and provide ‘Case Studies’ to supplement Rule 29. The SIAC Annual Reports for 2017, 2018 and 2019 suggest that as on December 2019, SIAC received a total of 30 applications under Rule 29. Of these, 9 were allowed to proceed. As on date, 2 out of the 9 applications are yet to be decided. It is unknown whether the other 7 applications were decided within the prescribed 60-day timeline. If not, SIAC could analyse the circumstances which caused the grant of extensions in passing the order / award and set them out as ‘Case Studies’.

Further when extending the time for passing an order/ award on applications under Rule 29, SIAC could set out, at the least, reasons in brief regarding what unusual circumstances beyond the control of the tribunal made it impossible to render the award within 60 days. The authors have independently identified some circumstances which may warrant the extension of timelines under Rule 29:

  • A party challenges the appointment of an arbitrator;
  • The Registrar receives an application for joinder/ consolidation under the SIAC Rules; and
  • Certain new evidence which was not available to the parties for justifiable reasons (e.g. documents which were earlier not or could not have been in the possession or control of the party) at the time of completion of pleadings/ arguments, under Rule 29.

More importantly, hectic schedules and/or excessive workload of arbitrators should not qualify as an “exceptional circumstance” for the purpose of extending the 60-day time limit for making an order or award.

Alternatively, SIAC could consider re-wording the language used in Rule 29.4. The rule can account for the grant of a simpliciter extension of the 60-day time limit, by subjecting such an extension to the discretion of the Registrar. The SIAC Rules confer discretionary powers upon SIAC’s President,7) Rules 9 and 17 of the 2016 Rules jQuery("#footnote_plugin_tooltip_1949_7").tooltip({ tip: "#footnote_plugin_tooltip_text_1949_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); SIAC’s Registrar,8) Rule 34.7 of the 2016 Rules jQuery("#footnote_plugin_tooltip_1949_8").tooltip({ tip: "#footnote_plugin_tooltip_text_1949_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); as well as tribunals9) Rules 18, 19.4 and 29.3. jQuery("#footnote_plugin_tooltip_1949_9").tooltip({ tip: "#footnote_plugin_tooltip_text_1949_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); constituted under the Rules. Rule 29.4 could simply be brought in line with such rules of discretion.

Either way, any departure from the specified timeline in Rule 29 should be justified with transparency, which would contribute towards the development and clear understanding of this summary procedure in the context of commercial arbitration.

 

References   [ + ]

1. ↑ See also A PRACTICAL GUIDE TO THE SIAC RULES, Nish Shetty, Harpreet Singh Nehal SC, Kabir Singh; and The 2016 SIAC Rules: New Features, Elodie Dulac (Indian Journal of Arbitration Law, Indian Journal of Arbitration Law, Vol. 5, No. 2, January 2017) 2. ↑ See Christoph H. Schreuer, The ICSID Convention: A Commentary (2001); Referred to at paragraph 85 of the decision of the Tribunal in Trans-Global Petroleum, Inc. v. Hashemite Kingdom of Jordan. 3. ↑ ICSID Case No. ARB/07/25. 4. ↑ ICSID Case No. ARB/08/3, Decision on the Respondent’s Objection under Rule 41(5) of the ICSID Arbitration Rules (Feb. 2, 2009) 5. ↑ [2018] EWCA Civ. 2494 6. ↑ [2018] EWHC 1399 (Comm.) 7. ↑ Rules 9 and 17 of the 2016 Rules 8. ↑ Rule 34.7 of the 2016 Rules 9. ↑ Rules 18, 19.4 and 29.3. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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The Republic of Palau Accedes to the New York Convention

Thu, 2020-04-09 23:30

On 31 March 2020, the Republic of Palau (“Palau”) became the 163th state to accede to the United Nations Convention on Recognition and Enforcement of Foreign Arbitral Awards 1958 (the “Convention”).1)The authors were engaged by the Asian Development Bank (“ADB”) as part of a team of experts to advise on Palau’s accession to the Convention and continue to assist the ADB with the drafting of Palau’s international arbitration legislation. This is part of a broader technical assistance project promoting international arbitration reform in the South Pacific overseen by the ADB’s Office of the General Counsel’s Law and Policy Reform Program and led by Christina Pak, principal counsel at the ADB. The project includes other countries in the South Pacific such as Fiji, Papua New Guinea, Samoa, Timor Leste and Tonga. jQuery("#footnote_plugin_tooltip_8465_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8465_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Pursuant to Article XII (2) of the Convention, it will enter into force for Palau on 29 June 2020, 90 days after the deposit of its instrument of accession. Palau’s accession to the Convention has been previously reported here.

Palau becomes the 5th state in the Pacific region to accede to the Convention, after Fiji, the Cook Islands, the Marshall Islands and Papua New Guinea. As recognized in the Joint Resolution to ratify the Convention passed by the Palau House of Delegates on 27 January 2020, this significant development sends a powerful signal to potential trading partners and investors that Palau is committed to enforcing and respecting the rights of foreign parties doing business in Palau.

 

Background

Palau is a small island state with slightly over 20,000 people, located in the Northern Pacific, roughly between the Philippines and Guam. Originally the subject of competing claims by Spain, Germany and then Japan, in 1947, after the Second World War, Palau became a part of the United Nations Trust Territory of the Pacific Islands administered by the United States.  Palau became independent in 1994, although the United States still provides financial aid and undertakes responsibility for Palau’s defence under a Compact of Free Association.

Palau’s legal system is modelled after that of the United States. Palau has a federal system with sixteen states, but the national government retains all powers not expressly delegated to individual state governments.  Under Section 303 of the Palau National Code, the “rules of the common law, as expressed in the restatements of the law approved by the American Law Institute and, to the extent not so expressed, as generally understood and applied in the United States, shall be the rules of decisions in the courts of [Palau].” Palauan courts therefore often look towards United States jurisprudence for guidance, although they are not bound to do so in every case, particularly where a local statute applies, and Palauan law has developed in a number of independent directions.

 

Arbitration in Palau

Palau does not currently have an arbitration law in place that sets out a legal framework for supervising arbitration proceedings that are seated in Palau, or that regulates the enforcement of international arbitration agreements or foreign arbitral awards. However, arbitration is referred to under several discrete laws as a method of dispute resolution. For instance, Section 861 of the Palau National Code sets out an arbitration procedure for labour disputes between crew members and vessel owners and provides for the enforcement of such arbitral awards. Section 7 of the Petroleum Act also sets out an arbitration procedure for disputes between the holder of a license issued pursuant to this Act and the national or state governments in Palau.

In the absence of a statutory framework, Palauan courts have applied United States arbitration law principles, pursuant to Section 303 of the Palau National Code, in their resolution of arbitration-related issues. Thus, for example, in Haruo v Resort Trust, Inc., 17 ROP 234 (2010), the Palauan Supreme Court applied United States case law to determine whether the defendant’s participation in litigation and delay in seeking arbitration constituted a waiver of its right to arbitrate under an arbitration agreement.

 

Accession and Next Steps

Following accession, Palau will need to establish a predictable and effective supervisory statutory regime that regulates international arbitration and provides for the enforcement of arbitration agreements and arbitral awards in accordance with the terms of the Convention. The application of United States case law is an imperfect solution, particularly given that much of that case law is based on the United States Federal Arbitration Act, which has no equivalent in Palau. Without an arbitration statute, for example, Palau lacks clear statutory guidance for courts on when they are required to refer disputes subject to an international arbitration agreement to arbitration, including the definition of an “arbitration agreement.” Palau also lacks statutory provisions that provide guidance to courts on the permissible grounds for refusal of enforcement of an arbitral award.

A modern international arbitration statute that is based on international best practices will go some way towards fulfilling Palau’s objectives of attracting international commerce and foreign investment. The UNCITRAL Model Law on International Commercial Arbitration is a tested and well-established model for legislative reform. It is a modern and comprehensive legislative template and is the easiest way for states to assure all parties and arbitration practitioners about the quality of its arbitration legislation. A number of Palau’s larger neighbours, including Fiji and Papua New Guinea, have recently adopted, or are in the process of adopting, legislation based in the UNCITRAL Model Law.

Since the most recent revision of the UNCITRAL Model Law in 2006, there have been a number of significant trends and developments in international arbitration. Palau should also consider a number of modifications, based on international best practices and consistent with the UNCITRAL Model Law, including (i) provisions expressly dealing with the liability and immunity of arbitrators, appointing authorities and institutions; (ii) provisions addressing representation in arbitral proceedings; (iii) provisions expressly setting out an obligation of confidentiality and the exceptions thereto; and (iv) provisions permitting the enforcement of orders or awards made by emergency arbitrators. All of these modifications have been included in Fiji’s International Arbitration Act 2017 and the recently published Papua New Guinea Arbitration Bill 2019 (not in force yet), which are both based on the UNCITRAL Law and provide a template for legislative reform in Palau.

Throughout this process, policy considerations specific to Palau and its unique environment should not be overlooked. Particularly given the importance of the scuba diving and snorkelling tourism sector and the fishing sector to Palau’s economy, careful consideration must be given to the environmental impacts of foreign investment. At the same time, these considerations will need to be balanced against the importance of ensuring a stable and predictable business environment for foreign investment, which can contribute to the flourishing of Palau’s economy and investments in climate adaptation mechanisms.

 

Future Directions  

Palau’s accession to the Convention is a very welcome step. This opens the door for future work, including the development of a statutory arbitration regime, to ensure Palau enjoys the economic benefits that should come with its accession to the Convention. Meanwhile, the authors and the Asian Development Bank will continue to assist Palau as it works to strengthen local institutional capabilities and to educate businesses and lawyers on the use of arbitration. This will ensure that Palauan businesses and lawyers reap the potentially significant benefits of Palau’s accession to the Convention.

References   [ + ]

1. ↑ The authors were engaged by the Asian Development Bank (“ADB”) as part of a team of experts to advise on Palau’s accession to the Convention and continue to assist the ADB with the drafting of Palau’s international arbitration legislation. This is part of a broader technical assistance project promoting international arbitration reform in the South Pacific overseen by the ADB’s Office of the General Counsel’s Law and Policy Reform Program and led by Christina Pak, principal counsel at the ADB. The project includes other countries in the South Pacific such as Fiji, Papua New Guinea, Samoa, Timor Leste and Tonga. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Dispute Resolution in the India-Brazil BIT: Symbolism or Systemic Reform?

Wed, 2020-04-08 23:00

On 25 January 2020, India and Brazil signed an investment agreement  (the “India-Brazil BIT”). As an agreement that has been signed at the dawn of the new decade, it is symbolic for a few reasons. First, it is a south-south agreement between two large and growing economies. Second, it abandons investor-state arbitration in favor of state-to-state arbitration with an increased focus on dispute prevention. Third, unlike most investment agreements, it expressly provides that a tribunal cannot award compensation. Instead, it only permits a tribunal to interpret the BIT or order conformity of any noncomplying measure—a move potentially inspired from the WTO dispute settlement mechanism.

The India-Brazil BIT marks a significant shift from the decades-old practice of investor-state arbitration. This BIT instead brings dispute prevention to the center stage with the adversarial form of dispute resolution being a secondary consideration. Further, the adversarial form (by way of an arbitration) is available only between the states party to the treaty, reminiscent of traditional rules of diplomatic protection. This is even reflected in the Preamble, in which India and Brazil note their intention of: “Seeking to maintain a dialogue and foster government initiatives that may contribute to an increase in bilateral investments.” Consequently, the investor has no right under the India-Brazil BIT to directly bring a claim against a state.

 

The Global Rethink on Investor-State Arbitration

This approach of abandoning or moving away from investor-state arbitration is not anachronistic, even though it may appear so. Rather, it is a sentiment that is currently being shared by both the developing and developed world alike. There is a global rethink on investor-state arbitration today. Since 2017, UNCITRAL Working Group III has been evaluating different options for the reform of investor-state arbitration. In Europe, the European Commission has decided to cancel all intra-EU BITs. More than 168 BITs, including their sunset clauses, will terminate if/when the new multilateral treaty is ratified. There is also a proposal by the European Commission to replace investor-state arbitration with a court structure. Similarly, the EU-Canada CETA and EU’s agreements with Singapore, Vietnam, and Mexico adopt an Investment Court System to represent “a new EU approach to investment-related disputes eliminating the risk of abuse and safeguarding the right to regulate in the public interest.” Similarly, since 2018, ICSID has published a set of proposed changes to modernize its rules. Likewise, other countries are redrafting their model BITs, with several recent examples from countries such as Ecuador, Colombia, and the Netherlands, among others.

 

Dispute Resolution in the India-Brazil BIT: More Brazilian than Indian?

India and Brazil (both BRICS countries) have redrafted their model BITs in the recent past after elaborate consultations and discussions. Regarding the dispute resolution model, both countries adopt very different approaches. Where India’s Model BIT permits investor-state arbitration, this is only possible after an investor has exhausted local remedies before domestic courts for five years. The Brazil Model BIT abandons investor-state arbitration to create instead a unique scheme to resolve disputes through joint consultations, failing which it provides for state-to-state arbitration. This model is evocative of traditional rules of diplomatic protection in international law. An earlier post on the Blog discusses how the India-Brazil BIT varies from the India Model BIT. The India-Brazil BIT retains features from both the model BITs while also adding new elements. The approach to dispute prevention and resolution, however, appears to be influenced by the Brazilian Model BIT. Under Art. 18 of the India-Brazil BIT, any state that believes a specific measure constitutes a breach of the BIT can refer the matter to a Joint Committee comprising government representatives of both parties (the “Dispute Prevention Procedure”). Such Joint Committee can recommend findings in relation to the alleged breach of the BIT. The referral can relate to a general measure or can be in relation to a specific investor and, if it is in relation to the latter, representatives of the affected investor “may be invited to appear before the Joint Committee” (Art. 18(3)(b)). If the dispute cannot be resolved through the Dispute Prevention Procedure, the matter may be referred to arbitration between the states if both parties mutually agree to do so (Art. 19).

 

Prohibition on Compensation in the India-Brazil BIT

The dispute resolution clause of the India-Brazil BIT may appear to be similar to the Brazilian Model BIT, but it is different on one crucial point. It expressly takes away the power of the tribunal to award any compensation. The Brazil Model BIT in Art. 24.13 provides that the states may enter into a specific arbitration agreement and request an arbitration tribunal to examine the existence of damages and establish compensation for such damages through an arbitration award. Art. 24.13(c) further states that if the arbitration award provides monetary compensation, the state receiving such compensation shall either transfer to the holder of rights of the investment or request the arbitral tribunal to order the transfer of compensation directly to the holders of rights. However, the India-Brazil BIT does not stipulate the possibility of any specific agreement by way of which an arbitration tribunal may award any sort of compensation to either of the parties. Rather, the language appears to be prohibitory in nature. The table below contrasts the approach for dispute resolution among the various instruments in relation to the power to award monetary compensation:

India Model BIT Brazil Model BIT India-Brazil BIT “A tribunal can only award monetary compensation for a breach of the obligations under Chapter II of the Treaty. Monetary damages shall not be greater than the loss suffered by the investor or, as applicable, the locally established enterprise, reduced by any prior damages or compensation already provided by a Party.” (Art. 26.3)

  “[T]he Parties may, through a specific arbitration agreement, request the arbitrators to examine the existence of damages caused by the measure in question under the obligations of this Agreement and to establish compensation for such damages through an arbitration award.” (Art. 24.13) “The purpose of the arbitration is to decide on interpretation of this Treaty or the observance by a Party of the terms of this Treaty. For greater certainty, the Arbitral Tribunal shall not award compensation.” (Art. 19(2))

The clause in the India-Brazil BIT appears to be inspired by the WTO regime where the Dispute Settlement Body appoints panels that decide whether disputed trade measures break a WTO agreement or an obligation. It recommends measures to conform with the WTO rules and how this could be done. It does not, however, award any compensation to either of the disputing parties. It remains to be seen whether remedies under customary international law such as restitution are available if they could be couched as matters dealing with the “interpretation” or “observance by a party of the terms of this Treaty” under Article 19 of the India-Brazil BIT. What is clear is that this BIT seeks to promote a dialogue between the states to resolve any outstanding issues even after they have been interpreted by the arbitration tribunal.

 

Evaluating the Dispute Resolution Mechanism

Critics might note that the exclusion of the possibility of investor-state arbitration requires investors to depend on diplomatic avenues between states to resolve their disputes. This they argue may hamper investor sentiment and prevent further investments. For example, an investor will likely need to have a good relationship with its state machinery to be able to persuade it to initiate a dispute on its behalf. The home state’s decision to engage with the host state may also depend on several other factors such as: the relationship with the other state at the time when a dispute has arisen; the political climate within both the states; and other deals which may be in the pipeline between both the states, giving either one of them a better bargaining power.

Others would counter that Brazil is an example of a growing economy that continues to receive substantial investments without ever having ratified a treaty providing for investor-state arbitration. Similarly, after finalizing its revised Model BIT, India sent notices terminating or not renewing BITs that had expired to at least 57 countries. The revised Indian Model BIT was largely a result of a spate of claims against India after it lost the White Industries case. The change in India’s approach towards investor-state arbitration has not necessarily hindered its image as a lucrative destination for foreign investment. India was among the top ten recipients of foreign investment in 2019. Similarly, it is among the world’s top ten improvers in the World Bank’s Doing Business report for the third consecutive year, being the only large economy to maintain the streak in the last two reports.

The efficacy of this genre of BITs remains to be established, but as is evident, states appear to be interested in testing new water. Several countries are creating and adopting different models for dispute resolution, including maintaining investor-state arbitration, abandoning investor-state arbitration, or restricting investor-state arbitration. The India-Brazil BIT fits into this narrative and provides another model for consideration to the global community. Ultimately it remains to be seen which model will prevail in this highly polarized debate. As stated by Michael J. Gelb, “Confusion is the welcome mat at the door of creativity.”

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Investment Treaty Claims in Pandemic Times: Potential Claims and Defenses

Wed, 2020-04-08 02:00

In response to the escalating COVID-19 crisis, States around the world have taken a variety of measures seeking to stem the spread of COVID-19 and to provide for medical supplies and protective equipment, including emergency declarations empowering governments to take control of private businesses, closure of borders, quarantines, stay-at-home orders, suspension of mortgage and utility payments, closure of non-essential businesses, and in some cases, export controls. While States have begun to undertake measures to support their citizens and businesses, it is likely that some foreign investors may seek relief and/or compensation for any losses resulting from State measures. In this post we analyze the main substantive treaty standards that could become the basis for claims arising out of State measures regarding COVID-19, and address potential public health defenses for host States. If investors are able to establish violations of substantive treaty obligations, States may also have defenses based on treaty-specific exceptions or under customary international law.

 

Fair and Equitable Treatment (FET) and Full Protection and Security (FPS)

The fair and equitable treatment standard is one of the most invoked substantive standards in investment treaty arbitrations, and encompasses both procedural and substantive elements.

Procedurally, fair and equitable treatment requires a State to afford due process to investments. One tribunal has determined that a State is required to “act in a consistent manner, free from ambiguity and totally transparently” in relation to foreign investors (Tecmed v. Mexico, ¶ 154).  Under such a strict view, State responses downplaying the risks of COVID-19 and subsequently reversing course and imposing drastic measures could violate the fair and equitable treatment standard. For example, in Azurix v. Argentina the State’s misrepresentation of its failure to remove algae contributed to a water quality crisis and was a consideration for finding a breach of fair and equitable treatment standard (¶¶ 143, 374).

Substantively, tribunals differ on the degree of deference they afford to States when evaluating measures aimed to protect public interests. Under a proportionality approach, State conduct could violate the fair and equitable treatment standard if the tribunal determines that a State’s interference with the investment was not proportionate in light of the public interest pursued by State policy (Occidental v. Ecuador II, ¶ 338). Moreover, a tribunal is more likely to find that a discriminatory measure, such as any arbitrary border closures, violates the fair and equitable treatment standard.

A related standard, often contained in the same treaty provision, obligates the host State to provide “full protection and security” for investors and their investments. Once aware of risks to investments, the host State is required to “take all measures of precaution to protect the investment” in its territory. (AMT v. Congo, ¶ 6.05; see also Wena Hotels v. Egypt, ¶¶ 85, 131).  While such “protection and security” is predominantly concerned with the State’s due diligence obligations to ensure physical security of investments, some tribunals have given weight to the term “full” and indicated that “security” cannot be confined to physical security (Biwater Gauff v. Tanzania, ¶ 729). A State’s failure to take early measures to contain the spread of the virus could violate this obligation to provide “full protection and security” if such failure necessitated avoidable and drastic State measures at a later time period that harmed the investments significantly.  See, for example,  Azurix v. Argentina, where the State’s disinvestment in infrastructure contributed to the crisis on water quality (¶¶  144, 408).

 

Expropriation

Expropriation claims under investment treaties include both direct expropriation and indirect expropriation. While direct expropriation—the State’s outright seizure or assumption of legal title over the assets without adequate compensation—is relatively rare nowadays, State measures having the equivalent effect, resulting in effective control or interference with the use, value, or benefit of the investment, can constitute indirect expropriation.

To determine whether an indirect expropriation occurred, some tribunals adopt a “sole effects” approach, looking at whether the investor is being deprived of the “use or reasonably-to-be-expected economic benefit of property.” (Metalclad v. Mexico, ¶ 103). Even under this relatively expansive approach, the loss of value must “amount to a deprivation of property” before a claim for indirect expropriation can be established (Charanne v. Spain, ¶ 464).

Moreover, while “ephemeral” deprivation of property would not constitute indirect expropriation, and such determination is likely context-specific, tribunals have found the suspension of an export license for four months (Middle East Cement v. Egypt, ¶ 107), and investor’s loss of control of property for one year (Wena Hotels v. Egypt, ¶ 82) can constitute indirect expropriation. If the seizure of a private production lines to produce medical equipment, as the Spanish government now is empowered to do and the U.S. has done under the Defense Production Act, lasts for a sufficiently long period of time without adequate compensation,  investors could have a claim for unlawful indirect expropriation.

As more countries follow Spain’s lead in taking control of private hospitals and clinics, investors in the healthcare industry could also have indirect expropriation claims if turning over control was involuntary. Similarly, if the State does not return control after the end of the outbreak or if the State’s control left permanent harm to the investment, investors could also have a claim for indirect expropriation.

A series of State measures over a period of time amounting to such a result can also constitute indirect expropriation in the form of a “creeping expropriation” (Generation Ukraine Inc. v. Ukraine, ¶ 20.22). Therefore, under this approach if a series of COVID-19 measures, such as border closures or lockdown orders, results in the investment shutting down permanently, the investor could have a claim for indirect expropriation.

Some tribunals consider not only the effect of State measures, but also its purpose and characteristics (Feldman v. Mexico). Under such an approach, it is less likely that State measures aimed to protecting its population from COVID-19 would amount to indirect expropriation.

On the other hand, as States are weighing nationalization options, foreign investors could have a strong claim for expropriation if a State, taking advantage of plummeting commodity and stock prices, nationalizes or engages in a forced bailout of businesses not directly related to its responses to COVID-19, such as airlines, utilities and natural resources companies. Forced bailout at a low price by the State can give rise to compensation claims when the values of such companies recover at a later point (See Ping An v Belgium: Belgian government’s forced bailout of Fortis gave rise to BIT claims).

 

National Treatment

The national treatment standard deals with situations where the host State affords less favorable treatment, either de facto or de jure, to a foreign investor compared to a domestic investor in similar situations. Analysis under this standard generally depends on a tribunal’s interpretation of “similar situations.”  While border closures to non-citizens may on its face raise a national treatment claim, a tribunal could consider justification such as the more fundamental right of a citizen to enter its own country.

In determining comparable investments, tribunals may look to competitive relationships of different products or industries (Cargill v. Mexico, ¶ 211). Therefore, bailout measures that only support certain domestic industries but not industries with significant foreign investments with a competitive relationship may constitute a violation of the national treatment standard.

 

Public Health Defenses

In defending an investment treaty claim, a State could seek to justify its measures to protect the public health. Some more recent investment treaties, such as Canada-EU Trade Agreement, offer a carve-out for non-discriminatory regulatory measures aimed to protecting legitimate public welfare objectives, such as public health. Some tribunals could analyze a State’s pursuit of public health interests and therefore adopt a balancing approach in evaluating a claim for breach of substantive treaty obligations.

Overall, tribunals almost certainly will need to consider the pursuit of public health as a legitimate State goal. But investors may be able to argue that (1) the State measures in pursuant of public health were discriminatory, and therefore cannot be justified on that ground; (2) public health was used as a pretext for another motive in the attempt to justify certain aspects of a State’s COVID-19 related measures, such as community pressure (Tecmed v. Mexico) or electoral motivations (Azurix v. Argentina), as would be the case if a State nationalizes airlines, utilities companies, or natural resources industries controlled by foreign investors during COVID-19; (3) State actions worsened the extent of the crisis and therefore harmed the investments at a later time (Azurix v. Argentina); or that (4) States could have adopted measures to fulfill both investment obligations and its obligations to protect the public health (AWG v. Argentina).

 

Lucas Bento FCIArb FRSA is Of Counsel at Quinn Emanuel Urquhart & Sullivan LLP’s New York office.  Jingtian Chen is an associate at the firm.  The views expressed in this post are the authors’ personal views, and do not reflect the opinions of Quinn Emanuel or of its clients.  The authors would like to sincerely thank the heroic work done by healthcare workers in these challenging times.

 

The Kluwer Arbitration Blog is closely following the impact of COVID-19 on the international arbitration community, both practically and substantively.  We wish our global readers continued health and success during this difficult time.  All relevant coverage can be found here

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Free Zone Arbitration in the UAE: Some Highlights of 2019 (Part 1)

Tue, 2020-04-07 03:00

As some readers of this blog will, no doubt, be aware, free zone arbitration is a comparatively recent phenomenon that has been championed in particular by the UAE in order to create an alternative to arbitrations seated onshore. By way of reminder, in the UAE, free zone arbitrations are seated in one of the judicial free zones, i.e. the Abu Dhabi Global Market (“ADGM“) or the Dubai International Financial Centre (“DIFC”). Arbitrations seated in the ADGM are governed by the 2015 ADGM Arbitration Regulations (the “ADGMAR”) and those seated in the DIFC by DIFC Law No.1 of 2008 (the “DIFC Arbitration Law), both modeled to some extent on the UNCITRAL Model Law, and benefit from the curial assistance of the ADGM and the DIFC Courts, both in essence English law courts, respectively.1)That said, whereas the DIFC has custom-made its own body of substantive laws on the basis of English law, the ADGM has incorporated almost the entire body of English law by reference. jQuery("#footnote_plugin_tooltip_7348_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7348_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Whereas the DIFC Courts have had ample opportunity to hear a number of arbitration-specific cases in their capacity as curial and enforcement courts under the DIFC Arbitration Law over the years, the younger ADGM Courts only had a first taste of arbitration-relevant case law in 2019. Two cases more specifically came up for decision before the ADGM Court of First Instance (“ADGMCFI”) in 2019, one concerning the enforcement of an ADGM arbitration agreement, the other the enforcement of a foreign award under the New York Convention 1958 (“NYC”). Apart from these two cases, which create important precedent for the enforceability of ADGM arbitration agreements and the enforcement of NYC awards in the ADGM, the DIFC Court of First Instance (“DIFCCFI”) was presented with an opportunity to re-consider the proper scope of application of Art. 7 of the UAE Judicial Authority Law as amended (Law No. 12 of 2004, the “JAL”).

I will briefly discuss each case and its ramifications for free zone arbitration in the UAE in two blog posts. This Part 1 deals with the two rulings of the ADGMCFI, Part 2 will discuss the DIFCCFI’s ruling on the scope of application of the JAL.

 

A3 v. B3 [2019] ADGMCFI 0004 (4 July 2019)

In this case, the ADGMCFI was asked to consider a claim for a declaration that a lease arrangement between A3 and B3 for a property in Al Maryah Island, Abu Dhabi, (the “Lease”), which was governed by ADGM laws, contained a valid and binding arbitration agreement providing for arbitration under the ICC Rules with seat in the ADGM (the “Arbitration Agreement”). This Arbitration Agreement was the result of the exercise by A3 of a unilateral option to amend the underlying terms of arbitration, which provided for a dispute arising from the Lease to be finally settled by reference to the Arbitration Regulations of the Abu Dhabi Commercial Conciliation and Arbitration Centre (“ADCCAC”) with seat in Abu Dhabi (the “Arbitration Clause”). The terms of the unilateral arbitration option under the Arbitration Clause stated, “should the [ADGM] establish an arbitration centre, in advance of the formal commencement of any relevant proceedings, [A3] may notify [B3] that the arbitration provisions set out in [the Arbitration Clause] shall be replaced by reasonable alternative provisions in order to provide for jurisdiction by such newly established centre within [ADGM] and B3 shall sign such documentation as may reasonably be required by [A3] to give effect to such alternative.”

By notice of late 2018 (the “Notice”), A3 sought to exercise its unilateral option under the Arbitration Clause, (i) informing B3 that the ADGM Arbitration Centre (ADGMAC) had been established and had started operations in the ADGM from 17 October 2018 onwards; and (ii) introducing the following amendments to the Arbitration Clause: any dispute between the parties to be finally settled by arbitration under the ICC Rules with seat in the ADGM, default-appointments care of the ICC Court.

The ADGMCFI enforced the Arbitration Agreement on the basis that the unilateral arbitration option did not require the amendment of the Arbitration Clause in writing (B3 not having responded to the Notice), it was enforceable under English law and met with the requirements of commercial reasonableness (considering the ADGMAC a proper arbitration institution within the meaning of the unilateral arbitration option).

No doubt, the ADGMCFI’s findings evince a distinctly arbitration-friendly message that forebodes well for the future of arbitration in the ADGM. Nevertheless, they raise a number of concerns:

  • A conflict of jurisdiction – Albeit that the ADGMCFI was arguably properly seized in the prevailing circumstances, and that by virtue of the area of free movement for judicial instruments between the ADGM and the Abu Dhabi Courts,2)Established by the Memorandum of Understanding between the Abu Dhabi Judicial Department and the ADGM Courts concerning the Reciprocal Enforcement of Judgments, dated 11 February 2018. jQuery("#footnote_plugin_tooltip_7348_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7348_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); the ADGMCFI’s order for enforcement of the Arbitration Agreement binds the onshore Abu Dhabi Courts, these latter would likely have had parallel jurisdiction to hear the action on the basis of the Arbitration Clause providing for arbitration seated in onshore Abu Dhabi (with the Abu Dhabi Courts exercising their curial competence under the 2018 UAE Federal Arbitration Law). In doing so, the Abu Dhabi Courts – contrary to the ADGMCFI – would likely have found in favour of the application of the ADCCAC Regulations with seat in Abu Dhabi given the lack of a clear agreement between the Parties in favour of arbitration offshore.
  • Mis-qualification of the ADGMAC and ICC – The ADGMCFI’s findings depart from the premise that the ADGMAC qualifies as an “ADGM-based arbitration centre which may have ‘jurisdiction’ over the dispute between the Parties” within the meaning of the Arbitration Clause. In reality, the ADGMAC is not such arbitration institution, but only an arbitration logistics provider, offering a venue (not a forum) and state-of-the-art hearing facilities for arbitrations seated in the ADGM or elsewhere. The ADGMAC does not dispense a set of institutional rules of its own and as such does not administer arbitral proceedings. As a result, it is arguable that (a) the Arbitration Agreement was invalid and as such unenforceable, any unilateral amendments to the Arbitration Clause depending on the establishment of a proper arbitration institution in the aforementioned terms as a condition precedent, and that (b) the original arbitration obligation under the Lease remained enforceable. This concern is not fully addressed by the presence of the ICC with offices at the ADGMAC, as even the ICC only operates as a representative office in the ADGM and not as an arbitration institution in its own right.
  • Unilateral arbitration clauses – Even though unilateral arbitration options might well be enforceable under English common law, the procedural imbalance they create question their enforceability under UAE law (which might come to bear within an enforcement context). More specifically, the mutuality of arbitration agreements might qualify as public policy under UAE law and as such would also bind the ADGM Courts (which form part of the UAE family of courts and are as such subject to UAE public policy). On this premise, the ADGMCFI should have investigated whether the unilateral option under the Arbitration Clause and hence the Arbitration Agreement might have been invalid and as such unenforceable.

 

A4 v. B4 [2019] ADGMCFI 0007 (8 October 2019)

In this case, the ADGMCFI considered an award rendered under the LCIA Rules in London for recognition and enforcement in the ADGM. Importantly, both the award creditor, A4, and the award debtor, B4, were incorporated in mainland Abu Dhabi, and the award debtor was not known to have any assets in the ADGM. Nor were there any other reported links to the ADGM.

By way of background, the subject arbitral award found in favour of A4, ordering B4 to make outstanding payments to A4 for services provided under a series of service contracts between the two, plus interest. The service contracts were governed by English law and contained a reference to A4’s General Terms and Conditions, which, in turn, provided for disputes to be resolved by arbitration under the LCIA Rules with seat in London. In its answer to request for arbitration, B4 raised jurisdictional objections, stating a lack of privity between the parties. In further course, B4 essentially fell silent, failing to attend the ADGM Court proceedings in order to substantiate its jurisdictional objections.

In essence, the ADGMCFI emphasised that Art. 56(1) ADGMAR was cast in mandatory terms and required the ADGMCFI to recognise and order the enforcement of an award unless one of the grounds for refusing recognition and enforcement under Art. 57 ADGMAR was satisfied. In the presently prevailing circumstances, the ADGMCFI could identify none. In any event, under Art. 57(1)(a)(ii) ADGMAR, it was not for the ADGMCFI to consider ex officio the potential invalidity of the underlying arbitration agreement, which formed the basis of B4’s jurisdictional objections, the burden of proof resting on B4 as the applicant party.

The ADGMCFI also tested whether the recognition and enforcement of the subject award might be contrary to UAE public policy within the meaning of Art. 57(1)(b)(ii) ADGMAR or the corresponding provision of Art. V(2)(b) of the NYC, either of which invites a competent supervisory court to initiate a public policy investigation ex officio. In essence, it concluded that there was no sound factual basis that would warrant an investigation into any public policy violation. In this context, the ADGMCFI focused in particular on the question of whether the ADGM Courts were able to operate as a conduit jurisdiction for the recognition and enforcement of non-ADGM awards for onward execution against award debtor’s assets onshore. The ADGMCFI seemed to intimate that if the sole purpose behind the offshore enforcement application was execution outside the ADGM (no assets of the award debtor being present within), the ADGMCFI should not entertain the application:

“there is no evidence that B4 do not have assets within the ADGM, and still less is there any proper basis to conclude that they will not have assets within the ADGM in the foreseeable future or that A4 have no reason to believe that they will do so. Accordingly, there is no proper reason to suppose that A4 seek recognition and enforcement in these proceedings simply as a device to execute against assets elsewhere in the UAE.” (para. 23)

“Should this Court be concerned about whether A4 might be seeking recognition and enforcement of the Award not in order to enforce it against assets in the ADGM, but as a device to have an order of this Court (rather than the Award itself) enforced elsewhere in the UAE, and in particular elsewhere in Abu Dhabi, without having other UAE Courts, including those of the Abu Dhabi Judicial Department (‘ADJD’), examine for themselves whether the Award should be recognised and enforced within their jurisdictions?” (para. 20)

That said, it is worth noting in this context that the Memorandum of Understanding Between Abu Dhabi Judicial Department and ADGM Courts Concerning Reciprocal Enforcement of Judgments, dated 11 February 2018 (the “MoU”) facilitates the mutual recognition onshore/offshore of ratified arbitral awards irrespective of the location of an award debtor’s assets and without allowing – let alone requiring – a review on the merits. This evidently reflects the position under Art. 7 JAL, which establishes an area of free movement of judicial instruments, including ratified awards, between the onshore Dubai and offshore DIFC Courts. In this sense, both Art. 7 JAL and the MoU encourage the operation of the free zone courts as conduit jurisdictions.

Part 2 will discuss a ruling issued by the DIFCCFI, which re-considers the proper scope of application of Art. 7 JAL.

References   [ + ]

1. ↑ That said, whereas the DIFC has custom-made its own body of substantive laws on the basis of English law, the ADGM has incorporated almost the entire body of English law by reference. 2. ↑ Established by the Memorandum of Understanding between the Abu Dhabi Judicial Department and the ADGM Courts concerning the Reciprocal Enforcement of Judgments, dated 11 February 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Free Zone Arbitration in the UAE: Some Highlights of 2019 (Part 2)

Tue, 2020-04-07 02:00

This is Part 2 of a blog published in two parts. Part 1 dealt with the Abu Dhabi Global Market Court of First Instance (“ADGMCFI”)’s rulings in A3 v. B3 [2019] ADGMCFI 0004 (4 July 2019), enforcing an ADGM arbitration agreement, and in A4 v. B4 [2019] ADGMCFI 0007 (8 October 2019), enforcing a foreign LCIA arbitral award under the New York Convention. This Part 2 discusses a ruling issued by the Dubai International Financial Centre Court of First Instance (“DIFCCFI”), which re-considers the proper scope of application of Art. 7 of the UAE Judicial Authority Law (“JAL”).

 

YYY Limited v. ZZZ Limited [DIFC] 2017 ARB 005 (17 November 2019)

In this case, the DIFCCFI dealt with the question of whether it was bound by a prior declaratory ruling of the Dubai Court of Cassation (DCC”) in the same matter, finding in favour of the invalidity of an arbitration agreement between the parties due to a purported lack of capacity of one of them to sign. The DIFCCFI found that it was not so bound given that the binding force of Art. 7(4) and (5) JAL was limited to judgments that were properly capable of enforcement by execution against the award debtor’s assets (the term “executory” as used in Arts 7(2)(a) and 7(4)(a) JAL being properly translated as “appropriate for enforcement [by execution])”. Declaratory judgments typically were not, whereas money judgments were. The DCC’s ruling was declaratory in nature, declaring the invalidity of the underlying arbitration agreement, and could as such not produce a binding effect upon the DIFC Courts under Art. 7(4) and (5) JAL. As a consequence, the DIFCCFI refused the automatic recognition of the DCC’s ruling under Art. 7(4) and (5) JAL. According to the DIFCCFI, this outcome was also dictated by the limitations of the execution process operated within the DIFC as provided for in Part 45 of the Rules of the DIFC Courts, which lists a limited range of methods of execution to the exclusion of enforcement by execution of declaratory judgments.

In concluding against automatic recognition, the DIFCCFI distanced itself from the broader approach taken by former Chief Justice Michael Hwang in Oger v. Daman1)See CFI-013-2016 & ARB-002-2015. jQuery("#footnote_plugin_tooltip_9296_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9296_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, in which the Chief Justice held that “under Article 7(5), [the DIFC Courts] ha[d] no power to review the merits of any judgment of Dubai courts, except as to form, [but that instead,] it had to recognise and enforce it” (paras 75-77).

The DIFC Courts also refused to recognise the DCC’s ruling at common law. According to the DIFCCFI, pursuant to the conflict of laws rules applicable in the DIFC (which draw in general on the English conflict of laws rules), “[a] foreign judgment is impeachable on the ground that its enforcement or, as the case may be, recognition, would be contrary to public policy.” (ibid., at 81). In applying this rule, the DIFCCFI found that the DCC’s ruling must not be recognised as to do so would be contrary to the public policy of the DIFC (ibid., at 82). Handing down the DIFCCFI’s ruling, Justice Sir Richard Field reasoned as follows:

 

“82.     […] The NYC [i.e. the New York Convention] requires the courts of the contracting states to uphold arbitration agreements and I regard it as plain that when a domestic court is asked to find that an arbitration agreement is null and void in the circumstances contemplated in Article II.3, it should make that decision, as implicitly required by Article V 1. (a), on the basis of the law to which the parties have subjected the arbitration agreement [i.e. English law as the governing law of the underlying Hotel Management Agreement]. […] […] With very great respect, it therefore appears to me that, in deciding as it did, the Dubai Court of Cassation was in breach of the NYC. It was suggested in argument that the Dubai law as to the authority necessary for an arbitration agreement to be binding through the consent of an agent is in the nature of ordre public and cannot be contracted out of. Even if this be so, I respectfully still take the view that the CC Decision [i.e. the DCC’s ruling] was made in breach of the NYC and for this reason that decision should not be recognized by this Court. The NYC compelled the Dubai Cassation Court to apply English law in determining the validity of the arbitration agreement.

83.   Even if the CC Decision was not made in breach of the NYC, there are two further reasons why, in my opinion, it would be contrary to the public policy for the DIFC to recognise the decision. First, recognition of the CC Decision would put the DIFC Court itself in breach of the NYC for failing to uphold the validity of the arbitration agreement, there being nothing in the English law of agency, the applicable law, which is of the nature of ordre public. Second, the DIFC Court is the court of the seat and therefore the supervisory court whilst the arbitration is in progress and recognition of the CC Decision would disable this Court from carrying out this very important function.

84.   Even if the correct view is that the CC Decision falls within Article 7 (4) and (5) of the JAL, notwithstanding that it is a declaratory judgment, I would still hold that the DIFC Court has a residual discretion in very exceptional circumstances not to recognise Dubai judgments covered by those provisions. And for the reasons given in paragraphs 82 and 83 above, I would still decline to recognise the CC Decision.”

 

At first sight, the DIFCCFI’s reasoning with respect to the limited scope of application of Art. 7 JAL is compelling. To the extent that it affects the proper construction of both Arts 7(2)(a) and 7(4)(a) JAL, it will limit the automatic recognition of both onshore Dubai and offshore DIFC declaratory rulings. In other words, as a result of the DIFCCFI’s ruling (provided its reasoning is recognised and adopted as the standard interpretation of the onshore/offshore operation of Art. 7 JAL), the system of mutual recognition between the onshore Dubai Courts and the offshore DIFC Courts will no longer operate with respect to declaratory rulings of the Dubai and the DIFC Courts.

In this sense, going forward, the area of onshore/offshore free movement of judicial instruments will exclude declaratory rulings. This could have significant ramifications, in particular considering that such limitation might extend to orders for the recognition and enforcement of declaratory awards, such as awards on jurisdiction. In addition, it is worth noting that even though English law might be considered properly applicable to the arbitration agreement, to the extent that the issue of lack of capacity addressed by the DCC is properly qualified as of UAE public policy, it would need to be given full credit by both the onshore Dubai and offshore DIFC Courts, both of them being UAE Courts, which in turn are bound by UAE public policy. This even holds in application to the New York Convention, which is based on the public policy at the seat of the supervisory court.

 

Conclusion

In the round, it is fascinating to witness the gradual mutual integration of the onshore and offshore legal systems in both Abu Dhabi and Dubai. The extent to which the offshore courts will ultimately be able to serve as a conduit for the recognition and enforcement of onshore arbitral awards for onward execution outside the free zone is of residual importance. It will ultimately not affect the process of full integration between onshore and offshore, even though offering an intermediary forum for recognition and enforcement would, no doubt, promote onshore/offshore forum shopping.

In any event, it is encouraging to see that the ADGM Courts welcomed their first arbitration-relevant case law in 2019, testing the limits of free zone arbitration à la ADGM. For ADGM arbitration to mature and grow into its own, many more such cases will have to come before the ADGM Courts in years to come. Watch this space for future developments!

References   [ + ]

1. ↑ See CFI-013-2016 & ARB-002-2015. 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Safeguarding the Future of Arbitration: Seoul Protocol Tackles the Risks of Videoconferencing

Mon, 2020-04-06 01:02

Significant advances in technology over the last decade have made videoconferencing a viable alternative to traditional, in-person witness examinations in arbitration. As the use of videoconferencing in international arbitration grows more common, we must ask ourselves: do we have the right tools to eliminate the risks that arise with this new technology? This question led to the drafting of the Seoul Protocol on Video Conferencing in International Arbitration (the “Seoul Protocol”).

 

The Rise of Low-Cost Videoconferencing

Technological capacity to make reliable video calls was limited in the past as it required expensive and specialised equipment. However, we now have video call providers such as Zoom, Google, and Skype providing high-quality video calls at relatively low cost. Stable internet connections and appropriate equipment are also more readily available in many countries.

In addition, there is increased user demand for facilities and services that enable arbitration procedures to be conducted in a truly transnational manner, usually with cost and time savings. A 2018 survey conducted by White & Case LLP showed that 43 percent of respondents used videoconferencing “frequently” during arbitrations, 17 percent “always” used it, and 30 percent used it “sometimes”. Additionally, 89 percent said that videoconferencing should be used more often in arbitration.

Recent events arising from the COVID-19 crisis (which has developed into a global pandemic) have reinforced the demand for effective and seamless cross-border conferencing facilities to ensure that critical services, including dispute resolution services, are able to continue without prolonged disruptions that would have serious knock-on economic consequences. These events have highlighted the importance of appropriate technological infrastructure, as well as legal and regulatory frameworks, to support effective remote working and conferencing. In the international arbitration context, the importance of arbitral institutions, arbitrators and counsel being conversant with technology and virtual hearings, and guidelines to ensure their seamless adoption and deployment, have also come to the forefront.

 

Incorporating Videoconferencing into Arbitration Laws and Rules

Countries and arbitral institutions are addressing the emergence of videoconferencing in their legislation and rules. The amendments to arbitration legislation in recent years by states such as the Netherlands,1)Article 1027b, Dutch Arbitration Act 2015. jQuery("#footnote_plugin_tooltip_7176_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7176_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Austria,2)Section 595 (2), Austrian Arbitration Act 2013. jQuery("#footnote_plugin_tooltip_7176_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7176_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and Hong Kong,3)Article 20(2), Hong Kong Arbitration Ordinance 2011. jQuery("#footnote_plugin_tooltip_7176_3").tooltip({ tip: "#footnote_plugin_tooltip_text_7176_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); allow witness examination to be conducted without the physical and personal appearance of the witness at the hearing.

Arbitral institutions have similarly amended their rules so that videoconferencing can be accommodated. For example, Article 24(2) of the Korean Commercial Arbitration Board (“KCAB”) International Arbitration Rules 2016 expressly permits hearings and meetings to be heard at any physical location that the Tribunal deems appropriate. KCAB’s 2016 International Arbitration Rules Commentary explains that this provision exists to enhance the efficiency and convenience of arbitrations, and videoconferencing would naturally be allowed by this reasoning. The International Chamber of Commerce’s commission report on controlling time and costs in arbitration suggests that arbitration users may utilize videoconferencing in place of physical meetings to save time and costs.4)See paragraphs 22 and 71. jQuery("#footnote_plugin_tooltip_7176_4").tooltip({ tip: "#footnote_plugin_tooltip_text_7176_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Arbitral institutions realise that the appropriate facilities for videoconferencing will be increasingly crucial in attracting users and thus have made efforts to update their equipment to the latest models and to promote their videoconferencing services. Hearing facilities are now equipped with the necessary technology which is now increasingly made use of. For example, we understand the Seoul International Dispute Resolution Center now conducts approximately four to five arbitrations each year through video conferencing, using its high-quality videoconferencing equipment, and that it expects this number to continue to rise.

 

Tackling the Risks of Videoconferencing: The Seoul Protocol

The Seoul Protocol represents an initiative in response to the advent of videoconferencing in arbitration. It was first introduced by a panel at the Seoul ADR Festival 2018, comprising chairman Kevin Kim (Peter & Kim) and panellists Yu-Jin Tay (Mayer Brown), Ing Loong Yang (Latham & Watkins LLP) and Seung Min Lee (Shin & Kim). The panel had drafted the Seoul Protocol to enable users to easily identify potential issues with videoconferencing and to address them effectively by, for example, making necessary preparations in advance. We discuss three such issues below.

 

Due Process and Videoconferencing

The following provisions in the Seoul Protocol directly address the need for fairness and impartiality:

  • Article 2.1c ensures equal chance for parties to present their case during witness examination as it provides that the videoconferencing venue be in a neutral location that gives fair, equal and reasonable right of access to all involved.
  • Article 1.7 states that the conference is terminated if the videoconferencing will result in unfairness to a particular party.
  • Article 5.1 provides that the parties and the Tribunal can agree on mutual technical requirements for videoconferencing, which will reduce the risk of unfairness against parties with witnesses that have access to lesser technical capabilities and know-how.
  • Article 3.1 addresses the issue of witnesses being unfairly guided by off-screen individuals as it requires that all persons in the videoconferencing venue be relevant to the hearing and identified at the start of the videoconference.
  • Article 4.1 ensures that the hearing is transparent by requiring that any relevant documents be clearly identified and disclosed.

 

Confidentiality and Videoconferencing

Eyebrows have also been raised with respect to the confidentiality of the arbitration in videoconferencing. As a form of information technology, videoconferences may be breached and intruded upon in the absence of appropriate measures to ensure confidentiality and security. Although today’s videoconferencing technology is much more sophisticated and advanced than before, so too are the skills of hackers. Cybersecurity breaches do occasionally occur in international arbitration: during the 2015 Philippines-China territorial dispute, hackers famously targeted the Philippines’ Department of Justice, the law firm representing the Philippines, and the website of the Permanent Court of Arbitration.

Equally problematic is when the provider of the videoconferencing service fails to uphold its security duty. Zoom, the popular videoconferencing service provider, was in hot water after a flaw in its systems meant that anyone with a link to the call could view the video call. Transferring this situation to an arbitration setting would mean detrimental results as other parties could potentially gain details of the dispute, trade secrets and other confidential information.

The Seoul Protocol aims to protect the confidentiality of the hearing and its parties through the following:

  • Articles 2.1c and 2.2 specifically target the possibility of a security breach and recommends that the videoconference connection be adequately protected. They also set out a duty for the parties to use their best efforts to ensure the security of the videoconferencing participants.
  • Article 3.1 outlines the requirement that only the witness and relevant individuals may be present in the videoconference, and that these individuals must be identified.
  • Article 8 prohibits recordings of the videoconference that are not made in the Tribunal’s presence, and limits circulation of the recordings so that recordings are not exposed to unrelated parties.

 

Practical Difficulties of Videoconferencing

Other than concerns related to due process and confidentiality, there can be disruptions to the momentum of hearings due to delays, power outages and disconnection during videoconferences. As mentioned before, technological failures will likely always remain a risk when technology is involved. In the present day, however, an increasing majority of the world’s companies, organizations and individuals are immersed in sophisticated technology and thus, the risk of these failures can be minimal.

The Seoul Protocol nonetheless provides for this concern through Article 6, which sets out guidelines on Test Conferencing and Audio Conferencing Backup. These guidelines can help smoothen the disruption from an unpredicted communication failure and so allow for a quick recovery during a hearing.

 

Concluding Remarks

The continued advances in technology and rising demand means that videoconferencing will likely be more prominently used in international arbitration. Like all new things, appropriate safeguards are crucial for proper use and the Seoul Protocol has been drafted with this in mind. KCAB INTERNATIONAL invites feedback and comments from interested parties on the Seoul Protocol.5)Feedback and comments on the Seoul Protocol may be emailed to KCAB INTERNATIONAL at [email protected]. jQuery("#footnote_plugin_tooltip_7176_5").tooltip({ tip: "#footnote_plugin_tooltip_text_7176_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

References   [ + ]

1. ↑ Article 1027b, Dutch Arbitration Act 2015. 2. ↑ Section 595 (2), Austrian Arbitration Act 2013. 3. ↑ Article 20(2), Hong Kong Arbitration Ordinance 2011. 4. ↑ See paragraphs 22 and 71. 5. ↑ Feedback and comments on the Seoul Protocol may be emailed to KCAB INTERNATIONAL at [email protected]. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Assignment Without Privity: Disposal of Investment Claims

Sun, 2020-04-05 02:00

This post examines the admissibility of investment claim assignments based on the notion of Investor-State arbitration where there is no contractual relationship between the disputing parties. To do so, it draws on Jan Paulsson’s famous article titled Arbitration Without Privity.

 

Contract Assignments, Assignment of Claim and Arbitration Agreements

The assignment of international contracts is a widespread business practice. By virtue of an assignment, the “assignor” transfers the international contract’s legal and beneficial rights to the “assignee”, who steps into the assignor’s shoes. Whenever such international contracts contain an arbitration agreement, the widespread view is that the arbitration agreement automatically travels together with the assigned contractual receivables. Such view is upheld in many different jurisdictions, such Switzerland, Spain, France, the UK, and Germany. The assignment allows for a substitution of the old creditor (assignor) with a new creditor (assignee) vis-à-vis the original debtor with respect to the same credit, whose underlying binding relationship remains unchanged (e.g. Spanish Supreme Court, 26 September 2002, STS 6222/2002). Accordingly, the new creditor enjoys the same rights as the old one, including ancillary rights, which may consist of the right to arbitrate in case of default by the debtor of its obligations under the contract. Conversely, the debtor may raise the same objections against the assignee as it could have done against the assignor.

It is generally possible to assign an international contract unless the contract expressly states otherwise or was entered into because of the unique characteristics of either of the contracting parties (intuitu personae). Other than these two limitations, a debtor cannot oppose the assignment of the contract.

Furthermore, a party to a contract may assign a claim in a more straightforward manner by voluntarily transferring to the assignee the cause of action for breach of contract and the legal remedies to enforce a right against the other party to the contract, where there has already allegedly been a default on that party’s contractual obligations. In this instance, as well, the assignee may avail itself of the same dispute resolution mechanism that was available to the assignor, including arbitration, if that was the case.

In most jurisdictions, it is also valid to assign a damages claim concerning prospective receivables originating from a future cause of action. The likelihood that the future claim materialises is not a factor in ascertaining the validity of the assignment, provided that the cause of action is or can be determined (by way of illustration, see Italian Supreme Court ruling No. 31896/2018). Besides being possible to assign a future cause of action, a fortiori, it is also possible to assign an existing cause of action intended to take place in the future, or the proceeds of a cause of action (Re Oasis Merchandising Services Ltd (In liquidation); Ward v Aitken and others [1995] 2 BCLC 493).

 

Timing and Forms of Assignments

A claim may be assigned either before or after proceedings have been commenced. If an arbitral award has been rendered, the award may also be assigned and the assignee may seek to enforce it. The assignment of international arbitral awards, including awards issued against States, is not unusual. Energoinvest, for example, assigned to FG Hemisphere its interests in two Awards against the Democratic Republic of Congo.

Assignments may be structured in different ways. For example, an assignment may consist in a complete sale of the claim or in a mere assignment for purposes of collection (where the assignor holds an equitable interest in the claim assigned and the assignee is entitled to collect from the debtor, who discharges itself by making payment to the assignee). An assignment might otherwise be made through a third-party-funding agreement, where a full transfer of the risk of the proceedings to the assignee/funder takes place and the assignor and the assignee split the damages collected according to an agreed percentage. Third-party funding agreements are often regarded as a form of claim assignment. The Spanish construction company Abengoa, for example, agreed to partially monetize an arbitration to fund it by assigning a participation in the credit rights that could arise from the arbitration in exchange for a price of € 75 million (see, further Anna Schmallegger’s thesis on the “Commodification of claims”). The selection of one assignment structure over another is a question of claim management and expediency rather than a legal issue and may be influenced by the models commonly adopted in a given jurisdiction/s.

 

Investment Claim Based on International Treaties

International treaties also may create compulsory arbitration without privity. An aggrieved foreign national does not need to point to any contract to which it is a party to have the possibility of a direct action against the host State by means of an international arbitration. In these cases, the cause of action arises out of a given breach of a treaty-based obligation by the host State. Such a breach constitutes the violation of the primary obligation (stipulated in the provisions of the international instrument) and effectively gives rise to a secondary obligation (the obligation of reparation). The aggrieved party is entitled to dispose of such right to claim since the moment the claim arises, which is when the alleged breach of the primary obligation occurred. The aggrieved party can dispose of such right simply by deciding either to file an arbitration or not. The way the arbitration is filed – either directly or through a form of assignment – falls within the discretion of the aggrieved party, who may assign such arbitral claim to another party. Indeed, investment treaties make it possible for the aggrieved party to file an arbitration against a host State without any underlying contract. This is because the international treaty effectively serves as an instrument binding the host State to arbitration. The aggrieved party may equally seek to transfer a claim arising under such an instrument, much like an assignor may transfer a contract containing an arbitration clause or an arbitral claim to an assignee.

This is in practice what happens with political risk insurers (such as Overseas Private Investment Corporation, OPIC, now renamed U.S. International Development Finance Corporation, DFC) who subrogate to the right to claim of the foreign investors upon the payment of the insurance policy. Most bilateral investment treaties (BITs) expressly allow for such assignments, and no BIT expressly forbids them. A foreign investor may therefore freely dispose of investment claims originating from a breach of a BIT. To forbid these assignments would be to read into these BITs a prohibition that is simply not there. The procedural rules usually applicable to investment arbitrations – such the ICSID Convention and ICSID Arbitration Rules, the UNCITRAL Arbitration Rules 1976, 2010, and 2013 – similarly do not prohibit the assignment of arbitral claims. To treat the silence of these procedural frameworks as a prohibition on arbitral claims assignment would be contrary to the purpose of BITs and the ethos of ICSID and UNCITRAL (which are aimed at promoting international investment and trade). The UNCITRAL has even drafted a Convention on the Assignment of Receivables in International Trade, confirming the admissibility of such transactions in order to promote the availability of capital and credit on the basis of receivables at more affordable rates, and in turn to facilitate the development of trade finance and international trade. In the context of an investment arbitration, where a foreign investor may have had all of its assets expropriated by the host State, and as a consequence entered into bankruptcy proceedings, the assignment of its investment claim may be the only way the claim can be actually pursued. As a result of the unlawful expropriation, the investor may lack the required financial resources to pursue its claim (similarly, to what happens in insolvency procedures, where the insolvency office-holder decides to assign a claim because it has insufficient funds to pursue it on behalf of the estate).

Investors may encounter difficulties if they assign their arbitral claims to assignees incorporated in a third country that has a BIT in force with the host State with the purpose of gaining an otherwise nonexistent jurisdiction (e.g. Mihaly International Corporation v Sri Lanka, ICSID Case No ARB/00/2, Award, 15 March 2002). The country where the assignee is incorporated is of no relevance for the purpose of establishing (or losing) jurisdiction under an investment arbitration, as the claim originates and crystallizes at the time of the host State’s violation.

 

Case Law

Few cases have considered the assignment of investment claims. So far, no investment tribunal has ruled that an assignment is invalid per se. The most vocal case on this topic is Daimler Financial Services AG v The Argentine Republic, ICSID Case No ARB/05/1, Award, 22 August 2012). In that case, the tribunal found that the assignment of claims is compatible with investment arbitration, based on the separability between ICSID claims and their underlying investments. The tribunal went on to note that assignments share the same goals as the ISDS system, as they encourage cross-border foreign investments and reduce their political risk, and greatly facilitate and speed up the productive re-employment of assets in other ventures (see, further Nelson Goh The Assignment of Investment Treaty Claims: Mapping the Principles; Markus Burgstaller, Agnieszka Zarowna, “Effects of Disposal of Investments on Claims in Investment Arbitration”).

 

Conclusion

In summary, the permissibility of assigning arbitral claims under investment treaties can be analysed using a three-step analysis: (1) arbitral claims can be assigned (either by virtue of assigning a contract containing an arbitration agreement or through direct assignment of the claim itself); (2) a foreign investor has a direct arbitral claim against a host-State based upon the host-State’s alleged breach of one of its international obligations (an investment claim, regardless of any prior legal relationship with the host-State); (3) therefore, the investor may freely assign its investment claim without privity.

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If You Want to Know the Value of Two Weeks, Ask the Middle East Vis Pre-Moot Community

Sun, 2020-04-05 01:00

The Middle East Vis Pre-Moot Program (the “Program”), scheduled in Bahrain from 10 to 14 March 2020, was prepared and excited to welcome over 200 students, faculty, and lawyers to celebrate the Program’s 10th anniversary.

However, on 25 February, amid the unfortunate COVID-19 global pandemic, Bahrain took precautionary measures to prevent the spread of the COVID-19 virus, which included shutting down educational facilities and suspending flights from neighboring countries. As a result, the Program’s organizers (BCDR, CILE, and CLDP) had no choice but to cancel the in-person event.

The cancellation was devastating for the participants, because the Middle East Pre-Moot has grown to be more than a just a preparatory competition for the Vis Moot in Vienna and Hong Kong. The Program provides participating students oral advocacy training, much needed access to resources otherwise unavailable to them, and the opportunity to network with scholars, practitioners, and other students.

As the Program was only two weeks away, the organizers had to decide: cancel the Program altogether and go home, or go virtual?

For the students, who had worked tirelessly over the last half-year, cancelling the Program and throwing in the towel would have perhaps been the final nail in the coffin: uncertainty was looming around the in-person Vienna and Hong Kong Vis Moots, and students were exasperated. Yet, they were obsessed with solving the legal questions and possible solutions to this year’s Vis Moot problem, including the patent litigation between Mr. Burdin and Prof. John and its impact on the procedural and ethical questions before the tribunal.

For the organizers, cancelling the event would have meant having to live with the disappointment of knowing that the COVID-19 virus, which has already had such a devastating impact on so many aspects of “normal life”, would in yet another way stand in the way of bringing value to the lives of the students, pioneering their careers, and cause a ripple effect throughout the region.

The organizers searched for a way to turn this perceived loss into an opportunity for growth and betterment: victory may be snatched from the hands of defeat! It only took a 30-second phone call to unanimously decide to go home and go virtual!

We thought it would be easy. However, with only 15 days to prepare, it was as hard as understanding turbines!

As mandatory curfews were imposed in certain countries, schedules had to be constantly amended and communicated to participants to accommodate teams; thus, we had to ensure that a smooth communication process with teams was well thought out. The scheduling also had to accommodate for literally all time-zones, from the US’s west coast, passing through Bahrain, all the way to Wuhan, China. A customized electronic grading form and submission tool had to be developed to instantly calculate scores. We also had to find ways to record the availability of arbitrators. Finally, but obviously most importantly, the right online mooting tool had to be identified and tested to ensure the Program’s smooth running.

The success of this first-ever virtual Program hinged upon three essential pillars. First, ensuring adequate academic resources to support the virtual activities planned. Second, confirming a large pool of practitioners willing to volunteer their time to serve as educational advisors to teams, and as arbitrators for the scheduled competition. Third, and naturally the most important, gaining the trust and interest of teams to participate in this unique digital experiment.

Luckily for us, we underestimated the immense spirit of the teams and the Program itself. It is real, and infinite!

In an extraordinary showcase of unity, resilience, and determination, undoubtedly animated by the spirit of the pre-moot, the Program ultimately had more participants than even initially anticipated! Students from as many as 28 teams and 17 countries, and more than 150 advisors, faculty, and arbitrators made a hobby out of “Zooming” from 10 to 14 March, seamlessly overcoming the COVID-19 outbreak and marking the 10th anniversary of the Program a resounding success!

The Program organizers made available to students pre-recorded training videos accessible to them at their convenience, and from the comfort of their beds (if they so wished), but only if they were resilient enough, as the videos were protected with a telling password: ResilientMootie2020. Students also had two days of live training sessions with Pre-Moot advisors. The training materials covered useful tips for the “mooties” and relevant topics related to both oral presentation and substance. The Program’s most-committed friend, Michael Patchett-Joyce, provided an overview of the moot problem; CISG household-names such as Professor Ronald A. Brand and Professor Harry Flechtner of CILE provided invaluable guidance to the students on matters related to the CISG and arbitration law; the Vis Moot’s very own Professor Stefan Kröll shared a real-life approach to the moot problem; and Professor Zlatan Meškić discussed the procedural issues identified in the moot problem. Vis Advisors shared with the students their recommendations on argument development, efficient use of legal authorities in pleadings, maintaining advocacy skills on a virtual platform, avoiding common mistakes and pitfalls, answering arbitrators’ questions, crafting an effective rebuttal, and other key aspects of a successful oral pleading at the Vis Moot.

Thereafter, the students engaged in general round pleadings with arbitrators from around the world, and eight teams competed in elimination rounds to determine who would prevail. The cherry on top of it all? A final round judged by a top-tier panel: Professor Ingeborg Schwenzer as the Presiding Arbitrator, joined by the LCIA’s former Director-General Adrian Winstanley OBE and Professor Stefan Kröll.

Ultimately, Sri Lanka’s superb Royal Institute of Colombo was victorious against the US’s University of Pittsburgh. The traveling Albert H. Kritzer trophy, which is awarded every year to the winning team of the Program, did not have to travel mid-way across the globe because, conveniently, the trophy could pass to the Royal Institute of Colombo from fellow Sri Lankan university, the University of Colombo, who had won the Ninth Pre-Moot the previous year. The program concluded with a virtual “Gala,” celebrating the Program’s top awardees and recognizing individual and team achievements in written and oral advocacy.

This said, perhaps the greatest achievement of the Program was giving the students a taste of Billboard’s longest top-selling album, the universally-acclaimed CISG song. Professor Flechtner also shared a new hit song “The Bridge,” a musical masterpiece which he wrote and recorded with the assistance of CLDP’s Mais Abousy and her daughter Meena Al Khadiri. The song was specifically adapted to the Program’s focus from Iraq’s Elham El Madfai’s ‘Khattar Ana el Farah’ to honor the efforts of Professor Brand whose contribution to the inception and success of the Program is perhaps the single most clear embodiment of the spirit of the Vis Moot.

Obviously, it would have been impossible to deliver this online Program without the unwavering support, of our colleagues at BCDR, CILE and CLDP, and without our networks of scholars, law schools, students, alumni, and practitioners who volunteered their time for the success of this Program, and to whom we owe many thanks!

The Program aims to raise standards of oral and written advocacy, and, more generally, contribute to the study and practice of international commercial law and arbitration in the wider Middle East region. While launched in 2011 with just four teams, we are proud that it has since graduated more than 650 students from faculties in Afghanistan, Bahrain, Bosnia and Herzegovina, Egypt, Iran, Iraq, Jordan, Kosovo, Kuwait, Lebanon, Maldives, Myanmar, Qatar, Saudi Arabia, Sri Lanka, Tunisia, the UAE, and the USA.

Not coincidentally, the Albert H. Kritzer trophy is inscribed with the 13th verse of Chapter 49 of the Holy Quran which captures the spirit of the Program: “People, We have created you all male and female and have made you nations and tribes so that you would recognize each other.”

While this event surely pushed us to our limits, it was worth it, not only for the organizers, but also for the students.

Some say if you want to know the value of one hour, ask the lovers waiting to meet. When the Middle East Pre-Moot was all set and done, we learned that if you want to know the value of two weeks, ask the Middle East Pre-Moot community!

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The Armesto Schedule: a Step Further to a More Efficient Document Production

Sat, 2020-04-04 03:00

Many will shy away from this article on account of its mere title. This is understandable considering that document production tends to be seen as a nightmarish phase in arbitration for junior, senior lawyers and arbitrators alike. This is because, if not handled properly, document production can turn into a very costly and time-consuming exercise.

In an attempt to render document production more efficient and fair for the parties, international arbitrator Juan Fernández-Armesto and his team at Armesto & Asociados have designed a tool which consists in a collaborative table that systematizes the standards of the IBA Rules on the Taking of Evidence in International Arbitration (“IBA Rules”) and a procedural order that provides, from the outset, clear criteria and instructions on document production.

* * *

Document production is one of the most controversial procedural issues in international arbitration; it is the apotheosis of the clash between Common law and Civil law: the gathering and marshalling of evidence vary widely between these two legal traditions. Common law favours a broad discovery phase in pursuit of the “truth”, and no party can withhold any information or document which may be relevant to establish such truth. Whereas Civil law adopts a limited approach to document production, where a party can only ask for documents if it knows they exist and are necessary to prove its case; it is for the claimant to prove the facts with whichever evidence it controls and the defendant has no duty to reveal all their documents.

At the intersection between these two traditions, international arbitration had to find a third way: the IBA Rules which represent the arbitral community’s attempt to find a middle-ground. This set of rules is intended to provide an efficient, economical and fair process for the taking of evidence, particularly between parties belonging to different legal backgrounds.

Yet, the standards defined by the IBA Rules are fairly broad and leave room for interpretation when it comes to the production of documents. What does a “narrow and specific category of documents” mean? Or what kind of document can be considered “relevant and material for the case”? The fluid character of these concepts can lead to a complex arbitration phase, moreover, when lawyers from different cultures come together. This translates into lengthy, costly and ultimately inefficient document production procedures.

In nearly 90% of the international arbitrations at Armesto & Asociados, be it under ICC, ICSID or UNCITRAL Rules, the parties request a document production phase. In order to simplify and limit this procedure, we have designed the “Armesto Schedule”. Our team has been using it for four years now, but it remains a work in progress, constantly subject to improvements and modifications based on our experiences, with the aim of making document production a slightly more friendly exercise for all those involved.

 

  1. What is the Armesto Schedule?

Inspired by the classic Redfern Schedule, the Armesto Schedule is a user-friendly collaborative table in which the requesting party describes the requested document, the requested party agrees or objects to this request and the tribunal decides on the admissibility of such request.

Based on the above description, one may wonder whether there is any difference between the so-called Redfern Schedule and the proposed Armesto Schedule. Below, we outline the two main distinctions.

 

A. Format-wise

The Armesto Schedule is a vertical table, instead of a horizontal one, with three columns and several rows (also referred to as “Document Production Schedule”) (see, Annex I). Each page corresponds to a single document request. The pink areas are for the requesting party to complete, while the blue ones belong to the requested party. The white areas are left to the arbitral tribunal.

Each of the parties files its own Document Production Schedule requesting a number of documents or categories of documents.

 

B. Requirements & Objections

The Armesto Schedule integrates the standards of the IBA Rules under three requirements (R1 to R3) and six objections (O1 to O6). The requesting party must demonstrate that each of the requested documents or categories of documents meets the following three requirements, set out in Art. 3.3 of the IBA Rules:

  • R1: The requesting party must identify a document or a narrow and specific category of documents.1)Based on Art. 3.3(a)(i) and (ii) IBA Rules. jQuery("#footnote_plugin_tooltip_1867_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1867_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });
  • R2: The requesting party must prove that the document is relevant and material to the case.2)Based on Arts. 3.3(b) and 9.2(a) IBA Rules. jQuery("#footnote_plugin_tooltip_1867_2").tooltip({ tip: "#footnote_plugin_tooltip_text_1867_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });
  • R3: The requesting party must demonstrate that the document is not in its possession, custody or control.3)Based on Art. 3.3(c)(i) and (ii) IBA Rules. jQuery("#footnote_plugin_tooltip_1867_3").tooltip({ tip: "#footnote_plugin_tooltip_text_1867_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

These requirements have to be met cumulatively. If a single one is not satisfied, the tribunal will automatically dismiss the request.

After filling in the three requirements, the requesting party sends the Schedule to the requested party, without copying the arbitral tribunal. The requested party has the opportunity (i) to deliver the documents voluntarily, (ii) to challenge any or all of the three requirements and/or (iii) to raise one or more of the following six objections:4)Based on Art. 3.5 IBA Rules. jQuery("#footnote_plugin_tooltip_1867_4").tooltip({ tip: "#footnote_plugin_tooltip_text_1867_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

  • O1: The document is subject to legal or settlement privilege.5)Based on Art. 9.2(b) IBA Rules. jQuery("#footnote_plugin_tooltip_1867_5").tooltip({ tip: "#footnote_plugin_tooltip_text_1867_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });
  • O2: Production would be unreasonably burdensome.6)Based on Art. 9.2(c) IBA Rules. jQuery("#footnote_plugin_tooltip_1867_6").tooltip({ tip: "#footnote_plugin_tooltip_text_1867_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });
  • O3: The document has been lost, destroyed or does not exist.7)Based on Art. 9.2(d) IBA Rules. jQuery("#footnote_plugin_tooltip_1867_7").tooltip({ tip: "#footnote_plugin_tooltip_text_1867_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });
  • O4: The document is subject to technical or commercial confidentiality.8)Based on Art. 9.2(e) IBA Rules. jQuery("#footnote_plugin_tooltip_1867_8").tooltip({ tip: "#footnote_plugin_tooltip_text_1867_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });
  • O5: The document has special political or institutional sensitivity.9)Based on Art. 9.2(f) IBA Rules. jQuery("#footnote_plugin_tooltip_1867_9").tooltip({ tip: "#footnote_plugin_tooltip_text_1867_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });
  • O6: Production would affect the fairness or equality of the procedure.10)Based on Art. 9.2(g) IBA Rules. jQuery("#footnote_plugin_tooltip_1867_10").tooltip({ tip: "#footnote_plugin_tooltip_text_1867_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Thereafter, the requested party returns the Schedule to the requesting party, without copying the arbitral tribunal. If any objections have been raised, the requesting party is entitled to reply to them, but must refrain from making any further submission regarding the three requirements.

Finally, the arbitral tribunal must decide if each of the requirements is met and if any objections have been raised, whether they are applicable. This leads to a final decision by which the tribunal solves whether the document should be produced.

If at the outset of the proceedings the parties choose to have a document production phase, the above rules are discussed and defined in the first procedural order, together with the applicable procedural calendar. If each of the parties needs one week to prepare its requests, one week to submit a response to the counterparty’s schedule and a further week to present a reply, while the tribunal takes a final week to make its decision, the document production phase can be over in a month (without taking into account the deadline for the parties to produce the documents).

 

  1. What are the advantages of the Armesto Schedule?

We submit that the Armesto Schedule has three main advantages: it systematizes the standards, it clearly defines the criteria which will be used by the tribunal when making its decision, and it limits document production.

 

A. Systematization

The Armesto Schedule systematizes the IBA Rules requirements and objections in a user-friendly format, which is visually easy to follow.

The Schedule forces the parties to ensure that their requests meet all the necessary requirements. It further makes it simple for the counterparty to reply to a request, by either saying that one or several of the requirements are not met or by raising an objection.

Finally, it allows the tribunal to visualize the position of the parties on each of the requirements and objections, leading to a more straight-forward solution. If the requesting party fails to meet a single requirement, the request will be automatically dismissed by the arbitral tribunal, without the need to examine whether the remaining requirements are fulfilled. The Schedule also helps the tribunal to identify the objections to a document request.

In sum, the Armesto Schedule organizes the information that is generally condensed under a single row of a normal Redfern Schedule, and this allows the parties and the tribunal to quickly identify the specific issue, whether it is the absence of a requirement (R1 to R3) or the existence of an objection (O1 to O6).

 

B. Definition of criteria

The rules governing the Armesto Schedule are contained in a Procedural Order Model (the “PO”) agreed with the parties which defines, from the outset, the criteria that the tribunal will be applying when taking its decision. This provides the parties with certainty: the parties not only have clear instructions to present their requests but also know what to expect from the tribunal.

The PO defines and sets forth the tribunal’s understanding of each of the requirements and objections. For instance, in the case of requirement R2 (relevance and materiality of documents), the requesting party must prove that the documents are relevant and material to the resolution of the case. In order to facilitate this, the tribunal compels the requesting party to identify the paragraph in the written submissions for which proof by way of document production is required.

The Schedule goes on to establish that the following documents will, as a general rule, be considered relevant and material:

  • Documents referred to in other documents which are already on the file,
  • Documents mentioned in witness statements, legal opinions and/or expert reports,
  • Documents used by experts to prepare their opinions/reports (excluding their working documents, such as drafts and others).

Furthermore, the Schedule provides that it is not for a requesting party to disprove, by way of document requests directed to the counterparty, allegations for which the counterparty bears the burden of proof, since failure to discharge such burden will by itself lead to dismissal. Thus, parties know that production with the purpose of disproving the counterparty’s allegations will only be ordered in exceptional circumstances.

The PO sets out similarly detailed instructions for each remaining requirements and objections.

The definition of criteria gives less room for different interpretations, while ensuring that the parties are on the same page.

 

C. Limitation of Document Production

The final advantage of the Armesto Schedule is that it limits the document production exercise.

First, it curtails so-called “fishing expeditions”. For instance, in the case of requirement R1 (identification of a document or description of a narrow and specific category of documents) the requesting party knows that if it wants to request a category of documents, it must comply with the following additional requirements:

  • Provide a clear and well-defined characterization of the narrow and specific category;
  • Marshal circumstantial evidence of the putative existence of the category;
  • Provide the name of the person, authority or entity which has issued the category of documents;
  • Identify the initial and final date of the period during which the documents belonging to the category were issued (there is a specific row for this in the Armesto Schedule).

The PO goes as far as to give specific examples of what shall not be considered a narrow and defined category of documents. This is crucial to avoid fishing expeditions. In the event that the requesting party still attempts to make one, at least it knows that the tribunal will end up dismissing the request.

Second, all the parties’ allegations must be contained in the Schedule, i.e. no further pleadings are allowed. This avoids endless discussions on the extent of document production.

Third, the parties are requested to adhere to the word limit defined for each cell of the Schedule.

Finally, the PO also gives the parties the possibility to agree on limiting the number of document requests.

In sum, the Armesto Schedule incites the parties to be concise in their document production requests and avoids petty fighting over the extent of voluntary production.

 

  1. What makes the Armesto Schedule unique?

The Armesto Schedule contains two unique features, which are rarely seen in traditional document production procedures: the use of affidavits and the imposition of specific costs for the document production phase. The aim of these two tools is to avoid spurious document production requests.

 

A. Affidavits

Common law discovery is based on the assumption that parties and their counsel will comply truthfully with document production requests by delivering all responsive documents that are in the party’s custody or possession. This is all “fun and games” when the parties and their counsel come from a legal tradition in which this is the norm.

However, in most Civil law countries, parties do not file and protect their documents in expectation of a potential litigation. Similarly, there is no culture of delivering documents that are detrimental to one’s case.

This clash of cultures is particularly poignant in international arbitration where lawyers do not necessarily feel under a deontological duty to comply with their document production obligations. How can we ensure that there is a level playing field in production and that all involved parties are indeed delivering all responsive documents?

The Armesto Schedule has tried to come up with a solution in the form of two affidavits:

  • The first is a declaration by the Chief Legal Officer of the requested party (or similar rank, or in the case of an individual, his/her own declaration) (see, Annex III) that the requested party (i) has not destroyed any document, (ii) has carried out a reasonable search for the Documents, and (iii) has produced all requested documents.
  • The second affidavit is a declaration by the External Legal Counsel of the requested party (if applicable) (see, Annex IV) that he/she (i) has explained to the client the obligation not to destroy any document, (ii) has advised the requested party to carry out a reasonable search and to produce all ordered documents (except those that are subject to a privilege or confidentiality exception).

These affidavits are aimed at making the parties take responsibility for the document production from the outset. There is no point in engaging in such a time and cost-intensive exercise if the parties do not feel compelled to truthfully comply with the tribunal’s decision.

 

B. Allocation of costs

Additionally, the Armesto Schedule makes a specific provision for the allocation of costs derived from the document production phase.

The PO provides that the tribunal will take into consideration the reasonableness of the requests and objections, each party’s willingness to produce the documents under its control and the relative success of each party. It further establishes that the parties shall identify in their statements of costs, the charges incurred in preparing their document production requests and responses, and the costs incurred in the search and delivery of the requested documents.

The purpose of this provision is to dissuade parties from making unfounded document requests or launching fishing expeditions. It also encourages parties to cooperate and deliver documents voluntarily.

 

  1. Final considerations

Many argue against the use of document production, alleging that it is a cost and time-consuming procedure, where effort and costs are not matched by results.11)Notably, the Rules on the Efficient Conduct of Proceedings in International Arbitration (“Prague Rules”) encourage tribunals and parties to avoid any form of document production (Art. 4.2 Prague Rules). jQuery("#footnote_plugin_tooltip_1867_11").tooltip({ tip: "#footnote_plugin_tooltip_text_1867_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This is partly based on poor user experience, which frequently is the result of insufficient or improper regulation.

That said, document production is a very useful tool for parties when properly regulated and used: it permits parties to access documents which would otherwise be inaccessible to the requested party who is looking to prove its case.

In order to try to make the document production process more efficient, the Armesto Schedule uses a friendly design, with clearly defined criteria and instructions, which are proposed by the tribunal and agreed by the parties at the outset of the proceedings.

The Schedule is an evolving mechanism that looks to adapt and meet the expectations of parties and arbitral tribunals.

References   [ + ]

1. ↑ Based on Art. 3.3(a)(i) and (ii) IBA Rules. 2. ↑ Based on Arts. 3.3(b) and 9.2(a) IBA Rules. 3. ↑ Based on Art. 3.3(c)(i) and (ii) IBA Rules. 4. ↑ Based on Art. 3.5 IBA Rules. 5. ↑ Based on Art. 9.2(b) IBA Rules. 6. ↑ Based on Art. 9.2(c) IBA Rules. 7. ↑ Based on Art. 9.2(d) IBA Rules. 8. ↑ Based on Art. 9.2(e) IBA Rules. 9. ↑ Based on Art. 9.2(f) IBA Rules. 10. ↑ Based on Art. 9.2(g) IBA Rules. 11. ↑ Notably, the Rules on the Efficient Conduct of Proceedings in International Arbitration (“Prague Rules”) encourage tribunals and parties to avoid any form of document production (Art. 4.2 Prague 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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Could the Strasbourg Court be a Trump Card in the Enforcement of Arbitration Awards in Intra-EU ECT Disputes?

Fri, 2020-04-03 04:00

The aftermath of Achmea

Since the judgment of the Court of Justice of the European Union (CJEU) in Achmea, defending EU Member States and the European Commission have questioned the validity of the application of the investment arbitration clause in the Energy Charter Treaty (ECT) to intra-EU disputes. Although the motions to challenge jurisdiction on the basis of Achmea have proved until now unsuccessful, defending Member States keep on trying to have intra-EU ECT arbitration awards set aside and to oppose enforcement in non-EU States.

Even if it has not ruled yet on the extension of Achmea to ECT arbitration, CJEU, being part of the EU institutional system, is likely to be more willing to arguments on the predominance of EU law over international law. If that were the case, the courts of EU Member States would be bound to follow the CJEU’s position and set aside the awards or oppose their recognition in the EU. Chances for recognition and enforcement outside the EU under the New York Convention would be seriously impaired because the prevailing practice in many States is to deny recognition if the award is set aside in the State of origin, as in Switzerland, or to recognise the annulment decision on the basis of international comity unless it is contrary to fundamental notions of justice, as in the United States or England. However, ICSID arbitration, one of the options afforded in article 26.4 of the ECT, may provide the claimant with other alternatives for enforcement within the EU.

 

The arbitration award as a possession in the case law of the ECtHR

All EU Member States have ratified the European Convention on Human Rights (ECHR), whose article 1 of Protocol 1 requires the protection of property. Several judgments of the European Court of Human Rights in Strasbourg (ECtHR) recognised that an arbitration award is a possession subject to protection under article 1 of Protocol I.

In the case Stran Greek Refineries and Stratis Andreadis, an arbitration award was annulled by the Greek Supreme Court after several ups and downs, including approval of a law that annulled the arbitration agreement and the award, a judgment of the Greek Constitutional Court against such a law and a last-minute change of opinion of the Supreme Court originally opposed to annulment. In order to be protected as a possession, the ECtHR required the claimant to ascertain that the arbitration award had given rise to a debt in its favour that was sufficiently established to be enforceable. The ECtHR considered the award as a possession because it was final and binding in its own words and, according to Greek arbitration law, it was final and enforceable. Even if it could have been repealed, it had already been confirmed in first and second instance. The new legislation enacted by the Government to leave the agreement and award without effect provoked a change of position in the Supreme Court, which was considered an interference by the State in breach of article I of Protocol I.

In the case Regent Company, ECtHR also established that an award of the International Commercial Arbitration Court at the Chamber of Commerce and Industry of Ukraine was a possession. Such award had been declared enforceable by the Ukrainian jurisdiction, but enforcement had been abandoned after the insolvency of the debtor, a Governmental entity. The ECtHR took into account that the arbitration was governed by specific Ukrainian law which treated the award as equivalent to an enforceable court judgment. Furthermore, the claimant, assignee of the award, had been specifically recognised as debtor by the Ukrainian courts in the procedure initiated for the enforcement of the arbitration award.

An award of the Foreign Trade Arbitration Court of the Yugoslav Chamber of Commerce was considered a possession by the ECtHR in the case Kin-Stib and Majkić. The award had been partially enforced and some amounts had been paid by the debtor. However, the repossession of a casino ordered by the award had not been executed despite several orders and fines imposed by the Serbian jurisdiction, which subsequently abandoned full enforcement efforts due to insolvency of the debtor. The Serbian courts had also denied the request of annulment of the award and the reopening of annulment procedures. The ECtHR considered that the claim in the award had been sufficiently be established to be enforceable as the own Serbian jurisdiction had ordered the execution of the award in its entirety, partially enforced the award and taken some measures against the debtor to attempt full enforcement.

In all three cases, through its own legislation on the finality and enforceability of the awards and by judicial measures ordering the enforcement of the award, the State had recognised that the award contained a debt or claim that should be enforced, thus a right or possession that should be protected under article 1 of Protocol 1of the ECHR.

 

An ICSID ECT arbitration award is sufficiently established to be enforceable

In the case of ICSID arbitration, as the annulment procedure is not carried out by a national jurisdiction but undertaken by an ad hoc committee according to article 52 of the ICSID Convention, there cannot be interference by jurisdiction of Member States in the set aside of the arbitration award. Such committee is not bound by Achmea or by the CJEU’s interpretation on the validity of submission to arbitration of intra-EU disputes under article 26 of the ECT. This committee is only bound by applicable international law and may reach a different conclusion on the interaction of ICSID Convention, ECT, the Vienna Convention on the Law of Treaties and EU law.

If the intra-EU ECT award is confirmed by the ad hoc committee, EU Member States and the EU itself, having ratified the ECT, would be bound to ensure the effective enforcement of such ICSID arbitration award. Under article 26.8 of ECT, “The awards of arbitration, […], shall be final and binding upon the parties to the dispute. […] Each Contracting Party shall carry out without delay any such award and shall make provision for the effective enforcement in its Area of such awards”). Moreover, in accordance with article 54.1 of the ICSID Convention, “Each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State”.

Any ICSID ECT arbitration award, even in disputes between EU Member States, has been recognised by those States as being enforceable, without need of further recognition and being equivalent to a court judgment. Following the criteria established by the ECtHR in the above case law, there seems to be sufficient grounds to consider that ICSID ECT arbitration awards are sufficiently established as enforceable and, therefore, the debt recognised in such awards is a possession that may benefit from the protection of Article 1 of Protocol I of the ECHR.

 

Review of interference with ICSID intra-EU ECT awards by the ECtHR

If, as we contend, ICSID intra-EU ECT arbitration awards are possessions protected by the ECHR, successful claimants in these awards could request enforcement in any EU Member State where assets of the defending Member State may be found. Failure to enforce such award based on Achmea or other arguments of EU law could be considered as an infringement of the human right to property of the claimant, who could file a claim and seek compensation before the ECtHR.

Although is not free of encumbrances, including the requirement to exhaust all domestic remedies or sovereign immunity from execution, the Strasbourg venue could have certain advantages. The ECtHR is likely to be at least more neutral and cautious in the application of EU law over the international obligations voluntarily assumed in the ECT by EU Member States and the EU itself. It would be an opportunity for ECtHR to dispense poetic justice after the CJEU’s opinion against the accession of EU to the European Convention on Human Rights. This option would also be open to enforcement in certain non-EU countries, such as Switzerland or more recently the United Kingdom, that have ratified the ECHR. It would be arguable whether this option would be available in case of opposition by EU Member States to enforcement of ICSID awards in third States that have not ratified the ECHR.

 

Conclusion

These thoughts may be idle talk if the CJEU finally supports the validity of submission to arbitration of intra-EU disputes under article 26.4 of ECT, if ICSID ad hoc committees take a contrary view or if relevant States, such as the United States, Switzerland, the United Kingdom or Australia, recognise and enforce intra-EU ECT arbitration awards. Otherwise, a complaint before the ECtHR under article 1 of Protocol 1 of the ECHR could serve as a last bullet to attempt enforcement of intra-EU ECT awards within the EU. In any case, it seems important that the EU learns that the assumption of international powers over international trade, including investment arbitration, although desirable, comes with the inherent burden of international obligations and liability.

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On Corruption in Investor-State Arbitration: the Case of Odebrecht Against the Peruvian State

Wed, 2020-04-01 23:00

On February 4, 2020, ICSID registered a request for arbitration submitted by the company Odebrecth Latinvest Sarl, a Luxembourg-based subsidiary of the Brazilian company Odebrecht SA, against the Republic of Peru (ICSID Case No. ARB/20/04). This post analyzes the background to this dispute, as well as the possible strategies that the parties could use during the arbitration process to raise and respond to the issues of corruption that have been put into issue by Peru.

 

Background to the Dispute

Odebrecht states – through a letter addressed to the special team of prosecutors – that it demands compensation of more than US $ 1200 million from Peru, arguing that Peru violated its obligations under the Agreement between the Government of the Republic of Peru and the Belgian-Luxembourg Economic Union for the Reciprocal Promotion and Protection of Investments (BIT), in relation to the Concession Contract for the Project ‘Improvement of the Country`s Energy Security and Development of the South Peruvian Pipeline’ (Concession Contract). It also states that it was obliged to submit this request for arbitration since the BIT establishes in article 11(4) a limitation period of three years to file a request for arbitration, which expired in January 2020.

Odebrecht argues, amongst other things, that on January 24, 2017, the state arbitrarily canceled the Concession Contract and adopted other measures related to the project that violate the rights of the Odebrecht subsidiary, such as the enforcement of the corresponding bond letter. It alleges that this occurred without the State indemnifying the company for the investments made, which would amount to more than US$ 1 billion. It also states that its admitted acts of corruption do not relate to the Concession Contract.

Peru has indicated through a press release that the contract was terminated because the consortium failed to obtain the financing and certify the financial closure within the terms established in the Concession Contract, even after two extensions were granted. Likewise, the Lava Jato Case Special Prosecution Group, in its response letter to Odebrecht, has stated that Odebrecht, under the effective collaboration agreement, has accepted that it committed acts of corruption regarding the Concession Contract (as occurred in the cases of the Costa Verde Highway Construction Project, Callao Section; and Lima-Callao Electric Mass Transportation System Project, Line 1, Sections 1 and 2), therefore the arbitration request should not have been filed.

It should be noted that this arbitration is linked to a previous arbitration also related to the Concession Contract and currently in process, raised by the Spanish companies Enagas S.A. and Enagas Internacional S.L.U. against the Peruvian State (ICSID Case No. ARB/18/26), in which compensation of US$ 1980 million is being claimed.

 

Next Steps in the Proceedings and Key Sticking Points

Under Rule 1 of the ICSID Arbitration Rules, the next step is to proceed with the constitution of the Arbitral Tribunal. However, it is likely that the Peruvian State will use the “clean hands doctrine” to allege a lack of jurisdiction (as happened in the case of African Holding Company of America, Inc. and Société Africaine de Construction au Congo SARL v. Democratic Republic of Congo), or the inadmissibility of the claim (as occurred in the case of Azpetrol International Holdings BV, Azpetrol Group BV and Azpetrol Oil Services Group BV v. Republic of Azerbaijan). If this occurs, the Arbitral Tribunal will need to decide whether to consider the jurisdictional/admissibility issues together with the merits, or choose to bifurcate, that is, to consider the jurisdictional issues and the merits separately.

Should Peru make such a submission, it will have to prove that the acts of corruption that it alleges actually took place, which in turn will depend on the standard of proof used by the Arbitral Tribunal. The ICSID Convention and the Arbitration Rules are silent on this matter, on which there is no consensus in Investor-State jurisprudence. Although the standard of proof is commonly high, an Arbitral Tribunal (in Spentex Netherlands, B.V. with the Republic of Uzbekistan) has already adopted a more flexible and holistic approach, coupled with the use of the “connecting the dots” method (as indicated in the case Methanex Corporation with the United States of America):

“Connecting the dots is hardly a unique methodology; but when it is applied, it is critical, first, that all the relevant dots be assembled; and, second, that each be examined, in its own context, for its own significance, before a possible pattern is essayed. Plainly, a self-serving selection of events and a self-serving interpretation of each of those selected, may produce an account approximating verisimilitude, but it will not reflect what actually happened.”

In this way, proof by the Peruvian State of the acts of corruption carried out by Odebrecht in relation to the Concession Contract will be crucial. Proving corruption may therefore not be as easy as the Special Prosecution Group appears to assume it will be, especially as it appears that in the effective collaboration agreement, Odebrecht did not recognize any payment of bribes to public officials regarding said Concession Contract. For this reason, everything will depend upon the standard of proof that the Arbitral Tribunal uses. If it uses a high standard of proof, the proof of alleged corruption in the Concession Contract will be complicated; but if it adopts a more flexible and holistic standard, together with the “connecting the dots” method, it will be easier for Peru to prove the alleged corruption regarding the Concession Contract.

To my knowledge, this will be the first ICSID arbitration in which a State is prosecuting public officials involved in acts of corruption at the same time as the arbitration proceedings in which corruption is alleged. It could also provide an opportunity for the Arbitral Tribunal to address the issue of the responsibility of the Peruvian State for such acts (as happened in the case Spentex Netherlands, B.V. with the Republic of Uzbekistan.1)See Betz, Kathrin “Proving Bribery, Fraud and Money Laundering in International Arbitration. On Applicable Criminal Law and Evidence”, Cambridge University Press, United Kingdom, 2017, pp. 128-136. jQuery("#footnote_plugin_tooltip_2517_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2517_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Therefore, even if Peru is successful in resisting the claim on the grounds of corruption, it may face the consequences of its public officials having also participated in those acts. In that event, the Arbitral Tribunal may condemn Peru to bear its own legal expenses, as well as half of the arbitration costs (as happened in the case Metal-Tech Ltd. case with the Republic of Uzbekistan). Further, in the event that it files a counterclaim against Odebrecht, the Arbitral Tribunal may also dismiss that counterclaim for lack of jurisdiction.

This case is therefore worth watching as it develops, to see what path it takes according to the various scenarios. It provides an opportune moment for an Arbitral Tribunal to rule on these issues that are frequently connected to allegations of corruption in investor-state arbitration.

References   [ + ]

1. ↑ See Betz, Kathrin “Proving Bribery, Fraud and Money Laundering in International Arbitration. On Applicable Criminal Law and Evidence”, Cambridge University Press, United Kingdom, 2017, pp. 128-136. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Hidden Impediments Await Foreign Parties Seeking to Enforce Arbitral Awards in Kazakhstan

Wed, 2020-04-01 03:30

The overwhelming weight of opinion among legal practitioners is that enforcement of foreign arbitral awards in Kazakhstan is theoretically possible under the New York Convention (“NY Convention”), albeit problematic in practice due to ambiguity in the Kazakh legislations. Many problems associated with the recognition and enforcement of foreign arbitral awards in Kazakhstan and the application of the NY Convention have already been discussed by Kazakh legal scholars. However, existing research works on such topics are often dated.

This post aims to familiarise foreign parties with up-to-date laws and procedures of the enforcement of arbitral awards in Kazakhstan, and thus identify the most prevalent impediments which await foreign parties seeking enforcement of arbitral awards in Kazakhstan. Three major issues in this regard are discussed: 1) status of the NY Convention in Kazakhstan; 2) inconsistences with the NY Convention; and 3) public policy as a ground to refuse enforcement.

 

Status of the NY Convention in Kazakhstan

Kazakhstan joined the NY Convention by Presidential Decree-No-2485 dated 4 October 1995. In accordance with Article 4(3) of the Kazakh Constitution, international agreements ratified by Kazakhstan should take priority over its domestic laws and should be implemented directly.

Kazakhstan has acceded to but has not ratified the NY Convention. In this regard, there are divergent opinions between Kazakh lawyers about the application of the NY Convention within Kazakhstan’s legislative framework. One school of thought is that the NY Convention only has the status of non-ratified treaties under the Kazakh Constitution and has no priority over municipal law. Due to the lack of ratification, Kazakhstan should execute foreign arbitral awards only on the basis of reciprocity.

The other school of thought is that the Convention arguably still applies through direct implementation as its status is equal to that of the enacting decree. According to Article 1(7) of the ‘On-Legal-Acts’ law, the definition of ‘legislation’ includes all normative legal acts adopted regarding established procedure. Thus, the decree and the NY Convention form a part of the national legislations, which in turn permit the recognition and enforcement of foreign arbitral awards in accordance with Article 501 of the Kazakh Civil Procedure Code (“CPC”).

From an international legal perspective, Kazakhstan is bound to observe its obligations under the NY Convention and cannot plead a conflict with domestic laws to escape from such obligations. The practical effect is that, where an arbitral award has been lawfully rendered in a third country and is thereafter brought in Kazakhstan for enforcement, Kazakh courts cannot refuse enforcement on the basis that the NY Convention contravene domestic laws, for this may entail breach of state as well as contractual responsibility by Kazakhstan. There appear to be no previous cases of refusal to issue a writ of execution in Kazakh courts on the ground of lack of ratification of the NY Convention. Therefore, it can be understood that the Kazakh courts consider the NY Convention to be valid and binding in Kazakhstan.

 

Inconsistencies with the NY Convention

As Kazakhstan is a signatory of the NY Convention, provisions of the CPC and the Law on Arbitration should align with the NY Convention. In this regard, the grounds for refusal of recognition and enforcement of arbitral awards provided in Article V of the NY Convention are listed in Article 255 of the CPC and Article 57 of the Law on Arbitration.

However, there is a difference between the wording in Article V of the NY Convention and Article 255 of the CPC, and that in Article 57 of the Law on Arbitration. This creates ambiguity on the scope of judicial discretion. Under the NY Convention, the enforcing court is not obliged to refuse enforcement even if it is satisfied that the recognition or enforcement of the award would be contrary to the national public policy. This is reflected by the employment of permissive wording of “may” in Article V of the NY Convention. Therefore, national courts have discretion to enforce the award even if a ground for refusal is established. However, provisions of Kazakh law are mandatory and Article 52(2) of the Law on Arbitration obliges the court to reject an application for enforcement in the event of conflict with Kazakh public policy. As such, it is arguable that the grounds for refusal of recognition and enforcement of arbitral awards under national laws are inconsistent with the grounds under the NY Convention.

Further Article 51 of the Law on Arbitration provides an additional ground to revise an arbitral award based on the discovery of new facts. Under Article 51(1), a party is entitled to apply for an award to be reviewed if the Kazakh Constitutional Council finds that the legislation applied by the arbitral tribunal in writing its award is unconstitutional. Article 51(2) provides that an application for revision of an arbitral award under Article 51(1) shall be filed and considered by the arbitral tribunal that rendered the award, within three months from the date of the establishment of facts constituting a ground for revising the award, unless another timeline is established by the rules or agreement of the parties. This provision is problematic because the Kazakh courts appear to have substantial discretion to revise arbitral awards, thereby giving rise to doubts as to whether an arbitral award is indeed final and binding on the parties.

 

Public Policy as a Ground to Refuse Enforcement

The broad and inconsistent interpretation of public policy adopted by the Kazakh courts has caused many problems in practice since the enactment of the Law on Arbitration in 2016.

The principles of public order are accounted for in the general provisions and Section II on ‘Person-and-Citizen’ of the Kazakh Constitution. Further, Article 2(1) of Law on Arbitration defines public policy as the fundamentals of law and order which are enshrined in the legislative acts of Kazakhstan, while Article 1090(2) of Kazakh Civil Code and the Law on Arbitration shed light on the principles of ‘public policy’.

Although the general definition of public policy is provided by Kazakh law, its precise application remains unclear and judges are granted discretion when assessing this ground. In this respect, two observations may be made:

  1. If other grounds for refusal have failed, the party resisting enforcement often misuses the public policy ground; and
  2. Some courts have annulled arbitral awards on public policy ground on the basis of contradiction of the ‘rule of law’, which might not be accurate as reflected in the 2017 ruling of the Supreme Court of Kazakhstan discussed below.

Until the Supreme Court resolved it with its ruling in 2017, the lower courts of Kazakhstan often applied a broad and inconsistent interpretation of public policy.

In one case, a Chinese company entered into a preliminary agreement with a Panamanian company in which Kazakh businessmen were involved, for the purchase of subsoil use rights for two gold mines. In such case, the Specialized Inter-District Economic Court of Almaty city (“SIDEC”) referred to Article 52 of the Law on Arbitration in its decision and found the award violated public order.

On 10 August 2016, the Civil Division of Astana City Court (“Appeal Court”) upheld the decision issued by SIDEC. The Appeal Court considered public policy as the basis of the rule of law embodied in the legislation of Kazakhstan and that the fundamental principle of the entire legal system of Kazakhstan is based on the principle of legality. As such, the Appeal Court appears to have applied the repealed principle of legality under the former arbitration law “On Arbitration Courts” which is arguably incorrect.

However, on 16 May 2017 the Supreme Court of Kazakhstan reversed the lower courts’ rulings because it concluded that the lower courts were guided by an inaccurate interpretation of public policy. The Supreme Court gave the following recommendation to lower courts in the Recommendations of the Round Table on Application of the Law on Arbitration:

“It should be noted that the application of the ground of public policy is possible only in exceptional cases where the enforcement of an arbitral award offends the basis of the public policy of the RoK. In connection with the foregoing, the courts when annulling arbitral awards on such ground, should explain which specific public policy is violated and how.”1)Translation provided by the author. jQuery("#footnote_plugin_tooltip_7293_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7293_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Recommendations

To resolve the legal ambiguities discussed above, it is recommended that: 1) the status of the NY Convention within the Kazakh legal system be clarified; 2) the inconsistences between the NY Convention and Articles 255 and 57 of the CPC and the Law on Arbitration be regularised; 3) legal practices of enforcement and recognition of foreign arbitral awards be standardised; and 4) explanatory notes concerning the public policy ground are formulated for judges.

References   [ + ]

1. ↑ Translation provided by the author. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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