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The Contents of Journal of International Arbitration, Volume 36, Issue 3, 2018

Sun, 2019-05-26 17:15

Maxi Scherer

We are happy to inform you that the latest issue of the journal is now available and includes the following contributions:

 

ARTICLES

Klaus Peter Berger: Common Law v. Civil Law in International Arbitration – The Beginning or the End?

The presentation of the Prague Rules on the Efficient Conduct of Proceedings in International Arbitration on 14 December 2018 has revived the age-old debate about the existence of a common law-civil law divide in international arbitration. This article examines the impact of the Prague Rules on the transnational paradigm of international arbitral procedure, clarifies their nature as an alternative repository of state-of-the-art techniques to save time and costs in the conduct of international arbitrations, and suggests to give up the traditional distinctions, which are rooted in domestic legal systems.

 

Milo Molfa, Adam Grant, Paul Kleist & Amy Wen Wei: Challenges in the Taking of Evidence in Arbitrations Seated in Mainland China

Arbitration is often hampered by obstacles to the taking of evidence, either because one party fails to produce relevant documents when requested or the documents are held by a third party outside the tribunal’s powers. Parties engaged in arbitration seated in Mainland China are constrained by the Chinese state court’s limited powers to assist in evidence taking. This article considers the wider scope of options for the taking of evidence in arbitrations seated in Mainland China. The first port of call may be to seek an order from the arbitral tribunal to impose sanctions within the arbitration, such as adverse inferences or adverse cost orders. If the arbitral tribunal cannot compel the recalcitrant party or a third party to produce documents or other evidence, the party may seek assistance from the court at the arbitral seat or a foreign court connected to the arbitration. This article compares the options for state court assistance in evidence taking available in the state courts of Mainland China, England and Wales, Hong Kong, and the United States. Practitioners should be aware that the powers of state courts to assist in evidence taking in international arbitration varies widely between these jurisdictions, from allowing only orders for preservation of key evidence in Mainland China to wide-ranging discovery from third parties by way of Section 1782 applications in the United States.

 

Christopher Adams & Giles Harvey: No Man Is an Island – Compelling Witness Evidence in Support of Arbitration Proceedings Seated in London

Parties to arbitration proceedings seated in London may wish to compel evidence from witnesses located outside the English jurisdiction by applying to the English and/or foreign courts for assistance. This article provides an overview of the available methods and discusses some of the practicalities thereof, together with likely developments in this area as a result of the United Kingdom’s imminent withdrawal from the European Union.

 

Alex Ye: The Good Faith Principle in the Context of the Enforcement of New York Convention Awards – An Analysis of Hong Kong’s Position in Light of the Apparently Conflicting Court Decisions

In the recent landmark case Astro v. Lippo, the Hong Kong Court of Appeal adopted an approach of applying the good faith principle in the context of the enforcement of New York Convention awards that departed from the previous approach adopted by the Hong Kong Court of Final Appeal in the Hebei case. This article aims to ascertain Hong Kong’s position on the good faith principle in the situation that led to the apparently conflicting approaches. This is concerned with the situation where an award-debtor could have raised, but failed to raise, objections to challenge the award before the supervisory courts of the seat of arbitration, but applies to resist enforcement of the award before the enforcing court. This article argues that the apparently conflicting approaches should be reconciled by differentiating the grounds of resisting enforcement between jurisdictional and non-jurisdictional grounds. In the author’s view, the good faith principle is not applicable if the ground for objection relates to jurisdiction. The award-debtor can still seek resisting enforcement on jurisdictional grounds before the enforcing court. If the ground does not relate to jurisdiction, a breach of good faith would be established. The award-debtor would then be precluded from raising the relevant points (i.e., factual foundation) relating to the grounds of resisting enforcement that it could have, but did not raise at the supervisory courts of the seat before the enforcing court.

 

NOTES

Sam Luttrell: Observations on the Proposed New ICSID Regime for Security for Costs

International Centre for Settlement of Investment Disputes (ICSID) is currently engaged in a review of its rules and regulations. This article considers the new rule on security for costs that ICSID is proposing to introduce as part of this review process. After outlining the existing regime for security for costs in ICSID arbitration, the author analyses the text of the proposed new rule (Draft Rule 51) and explains how it lacks balance and will work in favour of respondent States if it is adopted as currently drafted. The writer concludes by proposing certain amendments to Draft Rule 51, the intention of which is to ensure that the new rule strikes a proper balance between the interests of investors and States as users of the ICSID system.

 

James Morrison: Recent Developments in International Arbitration in Australia 2017/2018

This article summarizes recent developments in international arbitration in Australia over 2017 and 2018. After briefly canvassing the major international arbitration-related conferences held in Australia and statistics from Australian and international arbitral institutions, the author explains the new amendments to the International Arbitration Act (IAA) 1974 (Cth) and the entry into force of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, then provides case notes on recent cases before the Australian courts dealing with (1) an application to remove an arbitrator and set aside his awards for breach of natural justice and prejudgment; (2) an ambiguous dispute resolution clause providing for mediation under institutional arbitration rules; and (3) an anti-arbitration injunction and the basis of the power of the Federal Court of Australia to issue it.

 

BOOK REVIEW

Stephan W. Schill, Christian J. Tams, & Rainer Hofmann (eds), International Investment Law and History (Edward Elgar Publishing Ltd., 2018), reviewed by Remy Gerbay & Darby Hobbs

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Expedited Enforcement of Foreign Awards: A New Favourable Regime for the Enforcement of Foreign Awards in the UAE?

Sat, 2019-05-25 17:52

Soraya Corm-Bakhos

Introduction

On 9 December 2018, the UAE adopted Cabinet Resolution No. 57 of 2018, which entered into force on 16 February 2019 (the “Cabinet Resolution“). The Cabinet Resolution introduces significant amendments to the UAE Civil Procedure Code (Federal Law No. 11 of 1992), which considerably enhance a wide array of procedures before the UAE onshore Courts.

The enforcement of awards, whether domestic or foreign, has become an increasingly hot topic in the UAE over the past decade (see our previous discussion here). The entry into force of the Cabinet Resolution brings clarity to the regime applicable to the enforcement of foreign awards.

Competing Legal Regimes Applicable to Enforcement of Foreign Arbitral Awards

This blog post considers the options for enforcement under the former regime and identifies the benefits of the Cabinet Resolution, including in relation to the enforcement of foreign judgments and awards.

As reported in a previous blog, in June 2018, the long awaited UAE Federal Arbitration Law (Law No. 6 of 2018) (the “Federal Arbitration Law“), largely based on the UNCITRAL Model Law, entered into force repealing the arbitration specific provisions, i.e. Articles 203 to 218, contained in the UAE Civil Procedure Code (“UAE CPC“). The Federal Arbitration Law intended to provide a modern legislative framework for arbitration in the UAE but did not repeal Articles 235 to 238 of the UAE CPC applicable to the enforcement of foreign judgments and awards.

1. UAE Civil Procedure Code

Prior to the entry into force of the Federal Arbitration Law, the so-called ratification process under the UAE CPC involved the filing of a standard full claim before the Court of First Instance at substantial cost to the filing party, with an automatic right of appeal available to either party of that decision to the Court of Appeal, followed by the possibility of a further appeal before the Court of Cassation. Only then, i.e., after spending a considerable amount of time and cost embroiled in litigation before the onshore Courts, was an award (either domestic or foreign) capable of enforcement by an execution judge.

2. Federal Arbitration Law

The Federal Arbitration Law, amongst other novelties (such as e.g. the provisions on joinder of third parties or the recognition of partial and interim awards), introduced a streamlined process under Article 55 for the enforcement of domestic awards before the UAE onshore courts.

(a) Enforcement of Domestic Awards

In essence, a party seeking to enforce a domestic award is now able to submit, at a nominal cost, an application directly before the Chief Justice of the Court of Appeal who is required to issue an order for ratification and enforcement of the award within 60 days from filing of the application unless the Court finds a reason to set aside the award upon any of the limited grounds listed under Article 53(1). A party may challenge the decision of the Chief Justice by filing a grievance before the Court of Appeal within 30 days. The Federal Arbitration Law is silent on whether a decision by the competent Court of Appeal is final or if the aggrieved party may file a further appeal before the Court of Cassation. The majority view is that the Court of Appeal’s decision on the grievance is very likely to be considered final. Otherwise, this would result in delays in the enforcement process, which defeats a main objective of the Federal Arbitration Law, namely to achieve an efficient and expedited enforcement regime.

(b) Enforcement of Foreign Awards

As indicated above, the Federal Arbitration Law did not expressly repeal Articles 235 to 238 of the UAE CPC, which are applicable to the enforcement of foreign judgments and awards. This caused debate amongst the local arbitration community as to whether the streamlined provision provided under Article 55 of the Federal Arbitration Law were applicable to foreign arbitral awards, or whether Article 55 only applied to the enforcement of domestic arbitral awards. There were uncertainties as to the proper regime applicable to the enforcement of foreign awards, including on the basis of the New York Convention (Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958). Some argued that Article 55 only applied to the enforcement of domestic arbitral awards, and that Articles 235 to 238 of the UAE CPC remained applicable to the enforcement of foreign arbitral awards.

3. Impact of the New Cabinet Resolution

The new Cabinet Resolution has clarified the position regarding enforcement of foreign awards, as it contains new provisions in Chapter IV at Articles 85 to 88 on the “Enforcement of foreign judgments, orders and instruments“, which are intended to replace Articles 235 to 238 of the UAE CPC. Articles 85 to 88 of the Cabinet Resolution essentially provide that the relevant provisions of the Cabinet Resolution concerning the enforcement of foreign judgments and orders shall also apply to foreign arbitration awards provided that (i) the subject-matter of the award is arbitrable under UAE law and (ii) the award is enforceable in the country of origin. Importantly, Article 85.2 provides that an application for enforcement of a foreign judgment or arbitration award in the UAE should be brought directly before the competent Enforcement (or Execution) Judge who is required to issue its order within three days from the date of filing. Even though the Execution Judge’s order remains subject to the usual channels of appeal, i.e., before the Court of Appeal and the Court of Cassation, the regime put in place by the Cabinet Resolution represents a welcome improvement to the enforcement process, and provides clarity as to the enforcement regime applicable to foreign awards. It remains to be seen how the new provisions will be applied by the UAE courts and whether the intended efficiency through shortened procedures and stringent time-limits will be achieved in practice.

Concluding Remarks

During the period of uncertainty (between the enactment of the Federal Arbitration Law and the Cabinet Resolution), in my view, the preferred approach within the community was that foreign arbitral awards which fell under the New York Convention should benefit from the streamlined process introduced by the Federal Arbitration Law. This view is supported by the non-discrimination clause under Article III of the Convention, which requires contracting states to ensure non-discrimination between foreign and domestic awards, such that these awards are recognized and generally capable of enforcement in the same way as domestic awards. Some commentators actually reported decisions by the Chief Justice of the Dubai Court of Appeal granting enforcement of a number of foreign awards on the basis of the expedited process introduced by the Federal Arbitration Law.

However, the position has now been clarified with the entry into force of the Cabinet Resolution. As such, two separate sets of rules now apply to the recognition and enforcement of awards in the UAE: Article 55 of the Federal Arbitration Law provides for enforcement of domestic arbitral awards, whereas the Cabinet Resolution (together with the New York Convention) provides for enforcement of foreign arbitral awards. Time will tell whether the expedited enforcement regime of foreign awards introduced by the Cabinet Resolution will reveal itself as more favourable than the regime applicable to domestic awards under the Federal Arbitration Law.

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ICC Tribunal Recognizes Guaidó’s Intervention and Stays Proceedings in PDVSA v. PETROPAR

Fri, 2019-05-24 17:05

Raul Pereira de Souza Fleury

On March 19, 2019, an ICC tribunal seated in Paris and comprised of Claus von Wobeser (chairman), Francesca Mazza, and Horacio Grigera Naón, issued a procedural order staying the arbitration proceedings between Petróleos de Venezuela S.A. (“PDVSA” for its acronym in Spanish, the Venezuelan state-owned oil company) and Petróleos Paraguayos (“PETROPAR” for its acronym in Spanish, the Paraguayan state-owned oil company), following, first, a request from PETROPAR to stay the proceedings considering that Guaidó’s government should have the opportunity to submit its position in the arbitration, and second, an intervention from Mr. José Ignacio Hernandez, Guaidó’s Special Attorney General, stating its agreement with the stay of proceedings.

Through the stay, the tribunal decided to cancel the hearings on the merits that were scheduled to take place from June 10 to 14, in Paris. PETROPAR also asked the tribunal to strike out PDVSA’s reply on the merits filed on February 12, 2019, arguing that it represented the views of the Maduro government. The tribunal decided that it would rule on this issue until after the stay is lifted.

While the stay is a new and interesting development for the cases in which Venezuela (or an instrumentality of it) is involved, it is not the only approach taken in light of the political turmoil the country is experiencing. Recently, the ICSID annulment committee in the Favianca case (ARB/12/21) rejected arguments by Mr. José Ignacio Hernandez that Nicolas Maduro’s government attorneys have no longer authority to represent Venezuela. The committee observed that Venezuela “as such” is the respondent and that it is being represented by attorneys from the Attorney General’s Office “as required by [its] domestic law”, and therefore, there is no basis to change the status quo.

 

The Dispute

In short, the dispute arose in July 2016, from the Energy Cooperation Agreement of Caracas (the “Cooperation Agreement”), signed between Paraguay and Venezuela in 2004. The Cooperation Agreement provided that Venezuela would provide Paraguay a certain volume of crude oil, refined products, and gas liquid processing, under a special financing regime and at a fixed interest rate. Between 2006 and 2008, PETROPAR experienced a risk of oil shortage because of tight supply in the region and a strong demand, and as such, PETROPAR failed to make timely payments on its debt to PDVSA. This situation led to a September 2009 agreement between PETROPAR and PDVSA on the renegotiation of the outstanding debt that amounted to USD 269 million.

PDVSA initiated ICC arbitration in June 2016, based on the 2009 refinancing agreement, claiming that after several attempts of settlement “the futility of trying to reach a friendly solution is obvious.” PETROPAR, while not disputing the debt, argued that such debt was not payable until 2023 and, in addition, argued that the arbitral tribunal had no jurisdiction to hear the case, since the Cooperation Agreement provided for “friendly negotiations” between Paraguay and Venezuela for the settlement of disputes. However, further agreements signed between PDVSA and PETROPAR did contain arbitration clauses providing for ICC as the administering institution. On June 2018, the tribunal declared itself competent to hear the dispute. 1)CIAR Global, Arbitraje Pdvsa vs. Petropar: Tribunal de la CCI se declara competente, June 7, 2018; ABC Color, Tribunal resolverá disputa, June 6, 2018 jQuery("#footnote_plugin_tooltip_6785_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6785_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

A Politically Charged Conflict

From the date the Cooperation Agreement came to force until 2012, the relationship between both countries was positive. This was mainly due to the affinity between both Hugo Chávez and then Paraguayan president, Fernando Lugo. In June 2012, President Lugo was impeached, and in 2013, a new president was elected, Horacio Cartes, who from the start demonstrated its opposition to the Chávez/Maduro regime.

These facts suggested a political motivation behind the arbitration initiated by PDVSA. Moreover, for some time now, Venezuela has been going through a rough and extreme economic crisis, with hyperinflation rates up to 1.300.000% To this, we must add that its production of crude oil, which is one of the country’s top – if not the main – source of income, reached new long-term lows, due to U.S. sanctions and constant blackouts that the country is experiencing.

In addition, the country has been experiencing a political turmoil which increased even more in the past six months, after Guaidó invoked a constitutional mechanism to declare himself Venezuela´s acting president on January 23, 2019. Moreover, the crisis has now worsened with the military-civil uprising of April 30, 2019.

Yet, the contractual context of the conflict is unclear. Under the Cooperation Agreement, Venezuela agreed to grant two financing schemes for Paraguay to pay for the oil supply: (a) short term, up to 90 days, with a 2% flat interest rate; and (b) long term, up to 15 years, with an annual interest rate of 2%. However, it is uncertain whether the parties reached, at any point in time, an agreement to establish option (a) or (b). It is also uncertain if the further agreements signed between PDVSA and PETROPAR provided for a short or a long-term refinancing.

 

A Chance to Settle

Having cleared the jurisdictional hurdle, the issues that are now before the tribunal to decide include: to what extend is the debt enforceable, its amount, and any applicable interest. Guaidó’s team is being cautious. In its intervention before the tribunal, Guaidó’s team indicated that, while agreeing with the stay of the proceedings, they did not agree with the striking out of PDVSA’s reply on the merits. This means there is, at least, an interest on Guaidó’s side, to somehow collect on PETROPAR’s debt.

Being one of the many countries that have recognized Guaidó as Venezuela’s rightful President, the stay of proceedings issued by the tribunal poses a unique opportunity to the Paraguayan government to reach an agreement with Guaidó’s government, in the expectation that Maduro’s government be ousted in the near future.

In this context, it is worth noting that approximately half of ICC arbitrations are withdrawn before a final award is rendered on the merits of the dispute. 2)J. Fry, S. Greenberg and F. Mazza, The Secretariat’s Guide to ICC Arbitration, ICC Publication No. 729 E, Paris, 2012, p. 323 jQuery("#footnote_plugin_tooltip_6785_2").tooltip({ tip: "#footnote_plugin_tooltip_text_6785_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); However, a potential settlement with Guaidó’s government will need to meet a high standard before it is recorded in a consent award, pursuant to Article 33 of the 2017 ICC Arbitration Rules.

Article 33 empowers a tribunal with discretion to render a consent award, by indicating that “the settlement shall be recorded in the form of an award made by consent of the parties, if so requested by the parties and if the arbitral tribunal agrees to do so.” This wording has been interpreted as giving the tribunal the choice not to render a consent award “if it considers the contents thereof to be legally unacceptable or even unlawful.” 3)Herman Verbist, Erik Schafer, et al., ICC Arbitration in Practice (2nd edition, Kluwer Law International 2015), p. 180 jQuery("#footnote_plugin_tooltip_6785_3").tooltip({ tip: "#footnote_plugin_tooltip_text_6785_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The legal validity of this eventual settlement will probably depend on the powers of Guaidó’s team – or even Guaidó’s powers – to represent PDVSA in moments like this, an issue that will later play a crucial role in enforcement and annulment proceedings. While Paris, France, the seat of this arbitration, is amongst the countries that recognized Guaidó’s interim presidency, Guaidó’s powers will certainly be under a different type of scrutiny before the French courts, should the consent award be subject to annulment proceedings. Issues such as the respect for international public order might come to play in these circumstances.

In this context, recent case law in France provides for a high threshold to find a violation of international public policy, which must be done in a “clear and concrete manner.” 4)Gulf Leaders, CA Paris, March 4, 2014; SA Planor Afrique v. Etisalat, CA Paris, January 17, 2012 jQuery("#footnote_plugin_tooltip_6785_4").tooltip({ tip: "#footnote_plugin_tooltip_text_6785_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Yet, there is nothing ordinary in the situation Venezuela is going through in the present days.

 

Conclusion

The little information available about the case makes it difficult to fully understand the underlying issues that gave rise to the arbitration, and it is even harder to predict possible outcomes. However, the political background of the dispute seems evident and right now, either party would not benefit from this kind of dispute, especially Venezuela, which is currently undergoing a major political crisis since Hugo Chávez’s death back in 2013.

While the stay runs counter other approaches (like in Favianca), taking the opportunity to reach a settlement agreement will certainly benefit both parties, especially considering the Paraguayan government’s willingness to honor its debt. However, such a settlement needs to be carefully crafted and guided by the tribunal, so that it can survive any chance of annulment, or enforcement denial.

 

References   [ + ]

1. ↑ CIAR Global, Arbitraje Pdvsa vs. Petropar: Tribunal de la CCI se declara competente, June 7, 2018; ABC Color, Tribunal resolverá disputa, June 6, 2018 2. ↑ J. Fry, S. Greenberg and F. Mazza, The Secretariat’s Guide to ICC Arbitration, ICC Publication No. 729 E, Paris, 2012, p. 323 3. ↑ Herman Verbist, Erik Schafer, et al., ICC Arbitration in Practice (2nd edition, Kluwer Law International 2015), p. 180 4. ↑ Gulf Leaders, CA Paris, March 4, 2014; SA Planor Afrique v. Etisalat, CA Paris, January 17, 2012 function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Confidentiality of Already Disclosed Documents: Admissibility of Improperly Obtained “Privileged” Evidence

Fri, 2019-05-24 03:16

Vivek Krishnani

Arbitral tribunals have, in various instances, allowed parties to rely on documents obtained illegally as evidence. Practically, however, such documents are of a privileged character, e.g. emails exchanged between attorneys and clients, any information related to a set of confidential proceedings or communications between a psychotherapist and a patient. Privileged documents deserve higher legal protection and they cannot be admitted as evidence in arbitration proceedings. The main reason for this protection is that the confidentiality of these documents encourages the concerned parties to speak freely. Without the confidentiality protection, they might be reluctant to disclose certain information potentially useful for settlement discussions on the basis that they risk it being used against them in later proceedings.

A gripping question now is should illegally obtained confidential documents still be protected from being used as evidence in arbitration when they have already been disclosed?

This question leads us to a more nuanced discussion around the admissibility of illegally obtained “privileged” documents. Two important considerations shape the answer. First, the admissibility of improperly obtained evidence must be assessed in conjunction with its privileged character. Second, the privileged character of the documents must be viewed in light of the fact that they have now been disclosed and made public. Recent arbitration practice sheds some light on how these considerations interplay in practice.

Illegally Obtained Documents and Illegally Obtained “Privileged” Documents

The final award in Caratube illustrates a difference between illegally obtained “privileged” documents and illegally obtained documents. There, the claimants sought to produce certain documents that were part of around 60,000 documents obtained through a hack of the Respondent’s computer systems. These documents were later leaked on a publicly available website known as “KazakhLeaks”. The respondent objected to the admission of such “leaked documents”.

While the Tribunal admitted certain documents, it did not admit client-attorney communications due to their “privileged” nature. It was not the illicit means of obtaining the documents, but their privileged nature that barred them from being admitted as evidence. Such an outcome is even more interesting considering that the privileged documents had also been leaked and published on the website. This brings us to the second consideration.

The Public Domain Paradox

In the Spycatcher case, the book “Spycatcher”, authored by a former member of the British Security Service (BSS), contained an account of alleged unlawful activities carried out by other members of the BSS. By reason of the terms of the contract of service with the Crown and the provisions of the Official Secrets Act 1911, there was no possibility of the book’s publication in the United Kingdom. Consequently, the author got it published elsewhere. Later, when two notable English newspapers were about to publish this information in the United Kingdom, injunctions were sought against the same.

The court held that once information is freely available to the general public, it is nonsensical to talk about preventing its “disclosure”. It further held that, as a general rule, the principle of confidentiality can have no application to information that has entered into the “public domain”.

This rule was put to question in the HT SRL case. There, the emails in question contained information which was, prior to their uploading onto the Internet, undoubtedly privileged and confidential. The appellant argued in favor of admissibility of the emails. Its main argument was that, after the uploading, the emails had entered the “public domain” and confidential character of the documents should practically cease to exist. To a great extent, this argument was based on the finding in the Spycatcher case.

Accordingly, the question in the HT SRL case was whether the availability of the evidence in the public domain should have any impact on the scope of the duty to maintain confidentiality. The Singapore Court of Appeal, while acknowledging that accessibility does have a role to play, reasoned that it is not the only relevant factor. Rather, the court proposed an important test: the extent to which the general public has, in fact, accessed the confidential documents and not the extent to which such documents were accessible. The court reasoned that, while much of the information on the Internet is accessible, the general public does not access it.

The appellant, in the case, also argued that a party who has not, itself, caused the leak should be permitted to rely on the emails as evidence. In other words, the clean hands doctrine should allow them to rely on the evidence. Interestingly, the court, relying on numerous English precedents, held that there is still a point in enforcing the obligation of confidence as the party, despite having clean hands, was a third party. The confidential character of the evidence remains intact even after the general accessibility of the documents.

This finding is in line with the idea of discouraging improper obtaining of confidential information and valuing the intention of the parties who, at the time of drafting the emails/documents, chose to keep them confidential. However, the disadvantaged position of the party seeking admission of the evidence must not be completely overlooked. Acknowledgment that confidentiality is a lot more than mere secrecy of documents (but is based on the confidence of the parties) should not undermine the rights of the party seeking admission of the documents. Rather, the rights of the parties need to be balanced in every given case.

Factors to Consider for Balancing Interests of the Parties

A party’s legitimate expectations regarding confidentiality come in direct competition with the right of the other to present its case. For balancing these interests, the following four factors, when cumulatively met, offer some guidance in ensuring the necessary balance.

First, the documents need to be reliable. Generally, illegally obtained documents are not authentic and as a result, they lack reliability. The party seeking to place reliance on them must establish that they are authentic in the first place, failing which the documents must be excluded for obvious reasons.

Second, the party, whose information has been leaked, needs to undertake adequate measures to preserve such information. In cases where the parties are negligent in securing their information, they should be considered to waive the protection that could have been afforded to the information.

Third, the level of involvement on the side of the party seeking admission of evidence. The clean hands doctrine should have a role to play, but it should not be decisive. The second and third factors would simply ascertain the conduct of the parties which is relevant for determining whose interests should prevail after applying the fourth factor.

The fourth and decisive factor is the extent to which the admission or the exclusion of these documents encourages the parties to arbitrate their dispute. Admission of relevant documents might discourage the party, whose confidential documents were leaked, from arbitrating their dispute. In that context, even the clean hands doctrine should not outweigh the need for the exclusion of documents. On the contrary, where documents have become freely accessible due to the negligence of the party itself, excluding already disclosed relevant documents for confidentiality would only discourage the party who is denied such admission. In such a case, this party’s choice to settle the dispute, instead of litigating it, will not be duly regarded.

Conclusion

Arbitral tribunals can decide to admit or exclude evidence on the basis of their privileged nature when such documents have also been illegally obtained. Because arbitral tribunals possess a wide margin of discretion with respect to weighing and assessing such evidence, each decision made on the admissibility of evidence is inevitably fact-driven. As a result, it is highly likely that different tribunals will reach strikingly different results on seemingly similar questions.

In the absence of clear rules on the admissibility of illegally obtained privileged evidence, a common standard on the admission and weighing of such evidence has to be drawn from the existing case law. Here, it needs to be understood that the number of published international commercial arbitration awards in which this issue has been discussed is very few. Further, these awards are rarely accessible and even if certain commentaries provide brief information about these awards, the reasoning underlying the decision of the tribunal is missing.

Accordingly, the detailed discussions and reasoned decisions provided by ICSID tribunals and judicial courts, which are easily accessible, form a good basis for analyzing the issue at hand. Such analysis highlights the importance of the aforementioned four factors which could assist arbitral tribunals in rendering a reasoned award when faced with the issue of admissibility of such evidence.

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Amendments to New Zealand’s Arbitration Law: Trust Disputes Are Out (For Now)

Wed, 2019-05-22 17:39

Lauren Lindsay

Introduction

On 8 May 2019, the Arbitration Amendment Act 2019 (the Amendment Act) came into force.  It amends the Arbitration Act 1996 and is a much watered-down version of the original proposal.  The Amendment Act makes three changes: (i) the insertion of a new waiver sub-clause in Article 16 of Schedule 1 of the Arbitration Act (which mirrors Article 16 of the UNCITRAL Model Law); (ii) the narrowing of the grounds for setting aside an arbitral award; and (iii) the removal of the so-called  “quick-draw” mechanism.  These technical changes have been examined in a separate post and will not be re-examined here (see Arbitration Law Reform in New Zealand: A Lesson in Competing Values).

The Arbitration Amendment Bill initially contained two substantive proposals.  The first sought to enable the arbitration of “internal” trust disputes.  The second sought to further entrench the privacy of arbitration by reversing the presumption of open hearings in related court proceedings.  Neither of these proposals made it into the enacted legislation.  This post focuses on the potential arbitration of trust disputes in New Zealand.  The rationale for seeking to amend the Arbitration Act’s confidentiality regime (primarily to follow the approach in Singapore and Hong Kong) and the reasons for its rejection is not discussed here (see for example, Tidying up the Arbitration Act).

Arbitrating trust disputes: the perceived problem

In New Zealand, a country with a population of approximately 5 million people, the Law Commission estimates that there are somewhere between 300,000 to 500,000 trusts in existence.  Trust disputes are not only inevitable, they present a potentially significant source of business for arbitration lawyers.  The ability to arbitrate “internal” trust disputes, namely disputes arising under the four corners of the trust deed (between, for example, settlors, appointers, trustees and beneficiaries), has been debated in a number of jurisdictions.  The ICC has recently updated its Model Clause for Trust Disputes.  The debate continues here in New Zealand.

Many consider the arbitration of trust disputes to be contrary to public policy.  Two sticking points are frequently cited.

First, a trust deed is, by definition, not a contract but a “unilateral act of disposition” (see Explanatory Note to ICC Model Clause).  An arbitration agreement in a trust deed would usually be agreed between the original parties to the trust, the settlor and trustees (and in some circumstances, unilaterally by the settlor only).  However, beneficiaries of the trust are not parties to that agreement.  The lack of consent by those non-parties to the deed affects the arbitration agreement’s validity.

Second, all persons potentially affected by an award, such as unborn, unascertained or legally incompetent beneficiaries, may not be able to take part in the arbitration.  An award cannot be enforced against them unless they are adequately represented.  This problem stems from the nature of the underlying dispute and arises regardless of the particular dispute resolution method adopted.  Procedural rules applicable to court proceedings have long provided for a court’s ability to protect such persons through the appointment of an independent legal representative.

Possible solutions

In light of these identified sticking points, the proper arbitration of trust disputes requires statutory reform in two areas.  First, statute needs to provide that the arbitration agreement is valid and binding on non-parties to the trust deed.  Secondly, specific mechanisms must be put in place to allow for the legal representation of those unable to take part in the arbitration (which for trust disputes will usually be unborn, unascertained or legally incompetent beneficiaries).

The arbitration of internal trust disputes has already been considered in a number of jurisdictions.  By way of example:

  • Since 2007, an agreement to arbitrate a dispute under a will or a trust, save for a dispute concerning the validity of that will or trust, is enforceable in Florida (Florida Probate Code: General Provisions ).
  • In 2011, amendments to The Bahamas Trustee Act (i) deemed an arbitration clause in a trust deed to be a valid arbitration agreement between all parties (including beneficiaries of the trust) under the Arbitration Act 2009 (The Bahamas Arbitration Act); and (ii) granted an arbitral tribunal the power to appoint an independent person to represent unborn or legally incompetent beneficiaries.
  • England has considered the merits of and mechanism for, arbitrating trust disputes. The Trust Law Committee, having examined legislative changes made in Florida, Guernsey and elsewhere, concluded that arbitration was both suitable and attractive for disputes arising under wills, settlements and charitable trusts.  Their 2011 report recommended that the Arbitration Act 1996 (UK) be amended to allow the arbitration of internal trust disputes.  Those recommendations are yet to be adopted.

The New Zealand approach     

The proposed amendment to the Arbitration Act

The Arbitration Amendment Bill contained a clause entitled “Validity of Arbitration Clauses in Trust Deeds”.  The bill sought to deem arbitration agreements in trust deeds as valid and binding on all trustees, guardians and any beneficiaries for the purposes of the Arbitration Act.  It also gave a tribunal the same powers as the High Court to appoint representatives for minors, unborn or unascertained beneficiaries.  Any award issued would then be subject to the same curial safeguards provided for in the Arbitration Act, such as the ability to apply to set aside the award.

These proposals generated criticism.  For example, the Arbitration Amendment Bill was perceived as undermining the High Court’s supervisory jurisdiction over trusts.  It was suggested that adequate safeguards would be needed for unascertained and legally incompetent beneficiaries, including that the court “scrutinise any award before making an order recognising or enforcing it” (2018 Supplementary Report).

The amendments were being debated in tandem with a major overhaul to New Zealand’s trust laws.  Ultimately, the Ministry of Justice recommended removing the trust arbitration proposals from the Arbitration Amendment Bill given the parallel debate on the Trusts Bill.  This was a decision based on expediency not policy.  That decision has been, in this author’s view, rightly criticised for assuming incorrectly that the Trusts Bill contains the same proposals that were removed from the Arbitration Amendment Bill (see below and also Arbitration Amendment Bill: Is Trust Arbitration on its Way).  Although it is not unreasonable for the relevant changes to form part of a new Trusts Act, those changes must nevertheless be “fit for purpose”.  In their current form, the proposed amendments potentially complicate rather than facilitate the arbitration of trust disputes.

The Trusts Bill

The Trusts Bill was first tabled on 1 August 2017.  The Justice Committee issued its Final Report on the bill in October 2018 and on 9 May 2019 the bill passed its second reading.  It is expected to pass into law sometime this year.  The bill seeks to enable greater use of alternative dispute resolution methods (including arbitration and mediation) for trust disputes, save for disputes regarding the trust’s validity.

As presently drafted, the Trusts Bill is inadequate for a number of reasons (see also The Arbitration of Trust Disputes: are we there yet?).  For example:

  • The bill does not expressly deem an arbitration agreement in a trust deed to be valid. Rather, it focuses on deeming an award issued in a trust dispute an “arbitral award” under the Arbitration Act (see clauses 137 and 142 of the bill).  This does not address the absence of agreement which renders the enforcement of the award vulnerable to challenge.
  • Although a party can now apparently commence arbitral proceedings without permission (that was not the case in the original draft), clause 140(1) of the Trusts Bill provides that a court “may at the request of a trustee or a beneficiary or on its own motion” enforce an arbitration agreement. It is unclear when or on what basis a court may “on its own motion” decide (or refuse) to enforce an arbitration agreement.
  • The High Court retains the power to appoint representatives for unascertained or incapacitated beneficiaries, to the exclusion of the arbitrator. The retention of court involvement potentially dilutes the benefits of a standalone arbitral process and may result in the under-utilisation of arbitration because of the potential cost of requiring a court order to appoint a representative.

Contrary to the recommendations made with respect to the Arbitration Amendment Bill, there is no provision for court approval (or scrutiny) of an arbitral award.  That proposal may deserve further consideration.

Conclusion

In its current form, the Trusts Bill falls short of facilitating the effective arbitration of trust disputes.  It is hoped that the issues identified above (and elsewhere) are fixed before the bill’s third reading later this year.  The potential arbitration of trust disputes remains a live issue in New Zealand.  Should the arbitration of trust disputes be permitted (even if subject to some judicial oversight), it could pave the way for the arbitration of other disputes that have traditionally been considered non-arbitrable, such as insolvency disputes.

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Environmental Considerations in Investment Arbitration: A Report of a ‘Topical Issues in ISDS’ Seminar

Wed, 2019-05-22 03:00

Maria Fanou

The CERSA (CNRS, University Paris II Panthéon-Assas) organized its fourth event in a series of seminars on selected topics in international investment law and ISDS. On 28 March 2019, a distinguished panel of practitioners and academics gathered in Paris to exchange views on ‘Environmental Considerations in Investment Arbitration’. The discussion was moderated by Catharine Titi (CERSA) and brought together as panelists Attila M. Tanzi (University of Bologna, 3VB Chambers), Aniruddha Rajput (ILC), Gloria Alvarez (University of Aberdeen), Raymundo Tullio Treves (IMPRS-SDR) and Amelia Keene (Three Crowns). This note offers a brief account of the main topics discussed.

General Introduction

The discussion kicked off with an introduction by Attila Tanzi who painted a broad-brush picture of the background pertaining to environmental concerns in ISDS. Environmental concerns bear directly on the current debate over the balancing between the protection of investors’ rights and the regulatory power of host States, as well as on investment in different respects, including energy-related investment. The latter appears more susceptible to encroach on environmental protection and on the so-called greened human rights (e.g. right of access to food/water). For the identification of the contents of such environment-related human rights, a reference to sources of law that previously one would not think of (e.g. ESCR Committee’s General Comments, the landmark IACHR Advisory Opinion on the Environment and Human Rights) may be necessary.

Tanzi further provided a summary overview of three inter-related developments: jurisprudential, normative and institutional (e.g. the admissibility of amici curiae briefs and counterclaims). With regard to jurisprudential developments, he discussed whether environmental protection as a justification for State measures differs from other public purposes. He noted that FET and FPS are key in addressing environmental concerns in ISDS. A significant number of awards find for the State on expropriation and for the applicant on FET and/or FPS seemingly in a balancing attempt. Although an investor might invoke State negligence in protecting the environment (e.g. Allard v. Barbados), typically, an investor claims that the host State has breached a number of treaty obligations and the State, in its defense, justifies the measures it took as a means to accommodate environmental concerns. In that context, the dismissive approach adopted in Santa Elena v. Costa Rica and the emphatic attention to environmental concerns in Aven v. Costa Rica were juxtaposed. Although the Aven tribunal applied a treaty (DR-CAFTA) expressly attentive to regulatory powers for environmental protection, the juxtaposition reveals the formidable developments that have taken place in international investment arbitration. Considering that the different approaches by tribunals also result from the differences in the applicable investment treaty, Tanzi pondered on how environmental considerations can be integrated into older treaties silent on the matter. In response, he referred to Art. 31 VCLT as a legal technique.

Lessons from the Indian Model BIT

Aniruddha Rajput discussed lessons from the Indian Model BIT (2015), which is a representative example of the shift of treaty practice. As compared to other model BITs which contained no reference to the environment, the latter is now expressly included and needs to be taken into account when deciding investment disputes. Rajput highlighted that the Indian Model BIT is only a model, we do not know what will come out when it is taken out to be negotiated with India’s trade partners. However, he anticipated that India is unlikely to completely depart from it, since it represents a solid policy consideration. The new Indian Model BIT includes for the first time a reference to “sustainable” development. An effort to protect the State’s regulatory power is also clear. Indicatively, there is no reference to FET but there is a definition of expropriation (Art. 5.3) followed by a clarification that a non-discriminatory regulation cannot be deemed as expropriation (Art. 5.5). These provisions allow extensive regulatory space for India to undertake regulations for environment protection. Since domestic law is one of the applicable laws in investment arbitration, the domestic legal framework on environment protection is relevant. There is a large body of jurisprudence developed by the Indian courts and particularly the Supreme Court. The recently created Green Tribunal is dedicated to decide environmental matters and is quite active. Although the decisions rendered by these judicial bodies may become the subject matter of challenges, they are contributing towards the applicable law, since India has a common law legal system. India has already concluded a BIT with Cambodia on the basis of the Model BIT and is using it as a basis for its negotiations with the EU.

Is Investment Arbitration a Place for Energy Justice? The Latin American Experience

Gloria Alvarez expressed her concerns about climate change, a topic that becomes more and more recurring in the context of investment arbitration. She highlighted the evidentiary challenges that the issue presents and argued that we are facing an energy revolution with technological, economic, and industrial challenges to overcome. This energy revolution is differently manifested; while Latin America is liberalizing their energy markets by welcoming more FDI, it is also creating more clarity on environmental protection. In contrast, Europe has already passed this liberalization process (e.g. AES Summit v Hungary) and more recently has witnessed dramatic changes in the financial schemes supporting various renewable energy sources. This energy revolution also comprises an energy transition which requires long-term structural changes in current energy systems. An emerging problem in international investment law (IIL) is the absence of normative inclusion of obligations relating to the protection of third-party rights (including environmental rights) and quantitative obligations concerning greenhouse emissions. More concretely, Alvarez advocated that IIL needs to integrate the climate change regime into current economic models in a clearer way. There is, of course, no easy or quick way to achieve such integration. In this respect, some initiatives were discussed, such as the IBA Presidential Task Force on Climate Change Justice and Human Rights, as the first awakening point, as well as UN Guiding Principles on Business and Human Rights.

Lessons Learnt from Selected Case-Law

 Raymundo Tullio Treves drew lessons from recent case law. As stressed at the outset, investment protection is what the name says; protection of investment. Hence, enforcement of environmental laws was not part of the original purposes. However, States are taking measures to enforce environmental obligations. Inevitably, such actions impact investments, and investors see environmental measures as triggering BIT claims. In parallel, environmental considerations are also being increasingly used by States as defenses. Depending on the applicable BIT, non-compliance with environmental regulations may deprive the investment of protection. In other cases, there might be a general exception for environmental regulation similar to the one found in CAFTA. Treves raised several points on the complex issue of counterclaims. Allowing counterclaims entails a balancing exercise, whereby the tribunal has to take into consideration the efficiency of the proceeding and judicial economy. ‘Old-generation’ BITs do not explicitly address counterclaims. However, both UNCITRAL Rules (Art. 21) and the ICSID Convention (Art. 46) explicitly refer to counterclaims. Two requirements arise therefrom: first, the tribunal must have jurisdiction on the counterclaim; and second, the counterclaim should be closely connected to the claim.

The “close connection” has been viewed not only as a factual connection but also as a requirement for the claim and the counterclaim to arise from the same legal framework. This complicates the possibility of a counterclaim. With regard to jurisdiction, various tribunals have moved from a textual analysis of the treaty. An example is the decision by the majority of the tribunal in Roussalis v. Romania, interpreting the Greece-Romania BIT (Art. 9). The tribunal found no jurisdiction over counterclaims on the basis of the BIT, which referred exclusively to disputes regarding obligations of the host-state. Professor Reisman issued a declaration in that case drawing consequences from the choice of ICSID in the arbitration clause: the fact that the parties agreed to use ICSID means that they also agreed to bringing counterclaims. Another example discussed was the Spain-Argentina BIT (Art. 10(1)). The tribunal in Urbaser v Argentina interpreted this provision “in good faith” to conclude that it covers all disputes concerning the investment, including State counterclaims and investors’ obligations towards the State. Such obligations are to be found in international law, including human rights law. Aven v. Costa Rica was also discussed.

Overall, it is doubtful whether counterclaims are viable options for States to obtain damages for environmental harm. There are three possible ways forward: 1) obtaining the agreement of the investors/claimants (e.g. Perenco v. Ecuador, Burlington Resources v. Ecuador); 2) finding a norm of international environmental law which is directly actionable against the investor; or 3) having language in the BIT which directly imposes such an obligation on investors.

Time for a (Climate) Change in Investment Arbitration?

Amelia Keene observed that it is extremely rare to find any reference to climate change in investment awards. This observation motivated Keene to ponder on why this is the case and whether we should expect more references. She found it striking that despite the number of cases we see in the renewable energy sector, no award makes reference to State obligations under the Paris Agreement or other climate change obligations as a part of its reasoning. Keene then discussed national treatment. One factor to be taken into account under national treatment is the legal and regulatory regime. She suggested that the relevant international law regime might also need to be taken into account in determining whether or not there is a comparator. In a different context, in the UPS v Canada, UPS (a Korean company) argued that Canada Post is a comparator in like circumstances, because both provide post services, but Canada Posts were given more favourable treatment. The tribunal rejected this argument and, interestingly, referred to the ‘international postal regime’ which makes a distinction between domestic postal services and courier companies. Such reasoning could be transposed into environmental cases, and arguably lead to taking cognizance of a State’s international climate change obligations.

Concluding Remarks

Overall, the insightful presentations made it an animated and highly informative seminar. As a takeaway, it is nowadays clear that an investment dispute touches upon interests beyond those of the parties involved. Hence, environmental considerations, along with human rights, once viewed as extraneous factors, have recently become increasingly relevant in investment arbitration cases, being invoked by both States and investors.

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Compatibility, Novelty, Practical Corollary? A Collective Analysis of the Prague Rules

Tue, 2019-05-21 22:43

Vladimir Khvalei, Maria Teder, Andreea Nica, Laurence Ponty and Juan Pablo Valdivia Pizarro

The following article is the result of a collective project, carried out by one of the groups of the Young ICCA Mentoring Programme, comprised of Juan Pablo Valdivia Pizarro, Andreea I. Nica and Maria Teder, as Mentees, Vladimir Khvalei, as Mentor, and Laurence Ponty, as Buddy.

With the benefit of Vladimir Khvalei being one of the drafters of the Prague Rules (or the “Rules”), the group chose to address this hot topic to contribute to the lively (and sometimes passionate) debates, which the Rules have triggered even way before their launch in December 2018. Further, given the concentration of the discussion on the legal background underlying the Rules (the civil law and more inquisitorial approach) and the potential tensions with the common law culture approach, the analysis of the Prague Rules by a group representing a large variety of nationalities and jurisdictions,1) As well as various generations of practitioners! jQuery("#footnote_plugin_tooltip_3580_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3580_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); sounded particularly relevant.

As the Prague Rules are a new tool available to users, aiming at enhancing efficiency in the conduct of international arbitration proceedings, the group endeavoured to approach the topic essentially from a pragmatical angle. For this purpose, it identified three main issues, which were respectively dealt with by each of the Mentees under the supervision of the Mentor and the Buddy, namely:

  1. Whether the Prague Rules are compatible with the major international arbitration rules (this section was dealt with by Juan Pablo Valdivia Pizarro);
  2. To which extent the Rules innovate or duplicate existing rules and guidelines, such as the IBA Rules on the Taking of Evidence in International Arbitration (the “IBA Rules”) (this section was dealt with by Andreea I. Nica and Maria Teder, the latter specifically analysing, with a focus on Estonian law, the Iura Novit Curia principle introduced by the Rules); and
  3. What the potential consequences of the Rules on the conduct of the proceedings from the arbitrator’s perspective are (this section was dealt with by Maria Teder).

The article can be accessed here.

References   [ + ]

1. ↑ As well as various generations of practitioners! function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Arbitration Law Reform in New Zealand: A Lesson in Competing Values

Mon, 2019-05-20 21:43

Jack Wass

Introduction: the Arbitration Amendment Act 2019

Arbitration law reform is often portrayed in terms of relentless progress towards enlightenment: towards greater party autonomy, increased efficiency, reduced judicial interference, and more certain enforcement. In important areas of arbitral law and practice, that is an accurate narrative: the acceptance of the principles of Kompetenz-Kompetenz and separability, for example, or the adoption of the New York Convention and the resulting robust obligation to recognise and enforce foreign arbitral awards, have done much to contribute to the vitality and effectiveness of arbitration as a method for dispute resolution.

But relentless attempts to bolster and entrench the role of arbitration can conceal competing values and perspectives, particularly when law reform is conceived and pursued from the viewpoint of arbitration practice. New Zealand’s latest attempt in the Arbitration Amendment Act 2019, which came into force on 8 May 2019, demonstrates both the potential and the limitations of arbitral law reform.

The Proposed Reforms in the Arbitration Amendment Bill

The Amendment Act was introduced as a Member’s Bill in 2017 to amend four aspects of arbitration law in New Zealand: (1) to give effect to arbitration clauses in trust deeds, (2) to extend the confidentiality that applies in arbitral proceedings to a rebuttable presumption that any court proceedings arising out of the arbitration will also be confidential, (3) to correct what was seen as a troublesome precedent from the New Zealand Supreme Court on the setting-aside provisions of the Act, and (4) to require that challenges to a tribunal’s decision on jurisdiction must be brought immediately (and not at the end of the proceedings), to forestall the adoption in New Zealand of the Singapore Court of Appeal decision in PT First Media TBK v Astro Nusantara International BV [2013] SGCA 57.

A stated purpose of the reforms was to make New Zealand a more attractive venue for international arbitration.

Majority of the Bill Rejected

The Amendment Act had a rocky journey through the House. Despite a number of submissions in support of the Bill, the Ministry of Justice Report to the Select Committee was overwhelmingly negative and recommended that the Select Committee reject all of the proposed amendments.

After taking the unusual step of seeking further submissions on the Departmental Report, and seeking specialist advice from a former High Court Judge, the Select Committee agreed with the Ministry of Justice on major elements of the Bill. It found that provision for arbitration of trust disputes should be left out of the Bill (to be addressed in the Trusts Bill currently before Parliament) and that the current presumption in favour of open justice in cases arising out of arbitration should remain.

What was left were more modest reforms to the setting-aside rules and the waiver provision.

The Challenges of Law Reform

The confidentiality issue is a classic example of a contest in policy values. The explanatory note to the Bill, as introduced, recorded that other jurisdictions had struck the balance between confidentiality and open justice by requiring confidentiality by default; the Bill intended that by following this approach New Zealand would become a more attractive venue for international arbitration.

The Select Committee noted1)At page 2 of its report. jQuery("#footnote_plugin_tooltip_4298_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4298_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); that open justice was a ‘fundamental part of New Zealand’s justice system as it facilitates public scrutiny of the courts and acts as a safeguard for the proper administration of justice.’ Although the Select Committee considered a more modest compromise, it was not satisfied that abrogating this principle could be justified in the hope of attracting more parties to arbitrate in New Zealand.

This proposed amendment demonstrates the challenges and tensions produced by regulatory competition between countries that wish to develop a reputation as a place to host international arbitrations. It is assumed – with some justification – that any attempt to challenge the pre-eminence of Singapore and Hong Kong in this part of the world must include giving the users what they want, and what they want is said to include confidentiality.

While concerns about provision for investor-state dispute resolution provisions in the (now) Comprehensive and Progressive Agreement for Trans-Pacific Partnership did not prevent its adoption, there remains anxiety in many quarters about the relationship between international arbitration and democratic values which is likely to have weighed on the Select Committee in considering how to balance the policy considerations raised by the Bill.

Postscript – the Process for Appointing Arbitrators

The reform process did allow Parliament to reform one particularly unfortunate provision of New Zealand’s former arbitration law.

As enacted, the Arbitration Act 1996 supplemented Article 11 of the UNCITRAL Model Law with a special procedure for appointing arbitrators in cases where the parties could not agree. (This provision applied on an opt-out basis for domestic arbitrations and an opt-in basis for international arbitrations).

This clause provided that where one party was in default (for example, by refusing to nominate an arbitrator) the other party could give a notice to remedy the default within 7 days failing which the arbitrator nominated by the notifying party would be appointed by default. That procedure was adopted from the Australian Uniform Commercial Arbitration Acts.

However the New Zealand Parliament extended the application of that procedure beyond cases of true default to cases where the parties simply could not agree. This meant that a party who was discussing a choice of arbitrator in good faith could be gazumped by the other party. This ‘quick draw’ process was universally condemned and described by one judge as ‘bordering on repugnant’.2)Body Corporate 200012 v Naylor Love Construction Ltd, unreported, 26 April 2017. jQuery("#footnote_plugin_tooltip_4298_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4298_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Although the Bill as introduced did not address this issue, the Select Committee was convinced by submissions that it needed to be confronted and a new clause was introduced late in the Parliamentary process to repeal it. The position is now that where the parties cannot agree on the appointment of an arbitrator, either can request that an independent body choose the arbitrator according to published criteria.

References   [ + ]

1. ↑ At page 2 of its report. 2. ↑ Body Corporate 200012 v Naylor Love Construction Ltd, unreported, 26 April 2017. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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The Mareva Injunction and its Story of Expanding Horizons

Sun, 2019-05-19 22:41

Mahasweta Muthusubbarayan

A Mareva injunction or a freezing injunction is a form of ad personam interim relief, which is usually sought during the pendency of court or arbitration proceedings or once the proceedings are completed and a verdict is rendered, but before the judgement/award is enforced and executed. This form of injunction is essentially sought by a claimant or judgement/award creditor against a respondent or judgement/award debtor, to prevent the latter from dispersing his assets otherwise than in the ordinary course of business, so as to ensure that the enforcement of a judgement or arbitral award is not defeated. Unlike a regular injunction, a freezing injunction covers even those assets which are not necessarily a part of the subject-matter in dispute or those in which the claimant does not claim any direct right.

Though originally conceived as an aid to commercial litigation, English Courts have been quite liberal in granting freezing orders to aid enforcement of arbitral awards, especially arbitral awards arising out of international commercial arbitration. Since ease of enforcing awards and effectiveness of interim reliefs lend strength to the arbitral award and also play a crucial role in influencing the decision of parties when choosing a seat, it is important to understand the entire legal framework governing the grant of freezing injunctions in England, should a party opt for England as the seat. The purpose of this article is to provide the reader with an overview of the applicable legal provisions, the criteria expounded by the judiciary for the grant of such injunctions; explain the effect, if any, of the choice of seat by the parties on the power of the English Courts to grant freezing orders and the scope of such orders; and examine whether freezing injunctions can be granted against a non-party to the arbitration agreement and proceedings.

Section 44 of the 1996 English Arbitration Act prescribes the ambit of the interim reliefs which can be granted by the Courts to preserve assets. Certain conditions have been prescribed which must be taken into consideration by the Courts in deciding whether a particular case, with its unique facts and circumstances, merits the grant of freezing orders. The primary diktat of Section 44 is that the Court can grant the requisite interim relief only when the Arbitral Tribunal is unable to do so effectively. Thus, the Court’s power to grant freezing injunctions may be affected in certain cases by the agreement of the parties concerning the powers of the Arbitral Tribunal or the provisions of the relevant institutional rules. This is in keeping with the principle of judicial non-intervention in arbitral proceedings unless absolutely necessary.

An Arbitral Tribunal by itself can grant freezing injunctions, if empowered to do so by the agreement of the parties. In such cases, the Tribunal would be the primary forum from which the injunction is to be sought. However, there is a bit of a controversy on the scope of the powers of the Tribunal, whether its powers are equivalent to that of the Court and whether it can grant such a remedy without the prior agreement of the parties. While an argument can be advanced that an Arbitral Tribunal should ideally be empowered to grant a freezing injunction just like the Courts and without the prior agreement of the parties; it is to be noted that a freezing injunction is a remedy which would require, at times, extra-territorial enforcement or adjudication of rights of third parties. Therefore, at least in international arbitrations, the Court would be a better forum to grant such remedy than the Tribunal, as both adjudication and enforcement would be easier.

The Judiciary has formulated three tests which are to be applied in deciding whether a Mareva injunction should be granted- the ‘good arguable case’ test, the ‘real risk of dissipation’ test and the ‘just and convenient’ test. Of these, the requirements of good arguable case and real risk of dissipation are subject to the ‘just and convenient’ test, so as to ensure that the legitimate business interests of the losing party are not compromised. The choice of seat as England or otherwise does not affect the grant of freezing injunctions by the English Courts, provided that there is a ‘sufficient connection’ of the assets or either party to England, thereby enabling the English Courts to exercise jurisdiction. English Courts can also exercise concurrent and simultaneous jurisdiction with the Courts of foreign countries, when granting freezing orders to enforce awards of arbitrations seated in England and Wales or Northern Ireland. World-wide freezing orders can also be granted. Guidelines have been issued for the enforcement abroad of a world-wide freezing order granted by an English Court. Prior approval of the English Court is necessary in such cases.

Freezing of assets of third parties who are non-parties to the arbitration agreement and proceedings, is generally not permissible, in line with the principle of ‘privity of contract’. An exception has been carved out for cases where the respondent or the award debtor is de facto beneficial owner of the assets held by the third party or has some other sufficient interest or control over the third-party assets. This sort of relief constitutes a special category termed as “Chabra relief”. However, the recent case of Cruz City Mauritius Holdings v. Unitech Ltd. et al. ([2014] E.W.H.C. 3704 (Comm.)) has held that for Chabra jurisdiction to be exercised, the primary dispute should also be adjudicated before the Court, thereby creating uncertainty whether Chabra relief can in fact be granted in support of arbitration proceedings, since the primary adjudication in such cases is done by the Arbitral Tribunal. A mere application for interim relief before the Courts does not entail any substantive adjudication.

Considering the evolution of the Mareva injunction as an interim remedy over the years, it can be seen that most of the evolution has happened at the hands of the judiciary. This is a prime example of going beyond what is provided in the black and white letter of the legislation and evolving remedies which are better suited to provide justice, as per the exigencies of the situation. The way in which the scope of the remedy has been interpreted and expanded shows tremendous application of judicial mind and attention to detail. An exhaustive study of the jurisprudence relating to the freezing injunction would make it obvious that while the English Courts have always tried to adapt the remedy to suit the circumstances, they have never deviated from the general, internationally-accepted principles in relation to interim injunctions and arbitration. For example, the tests of ‘good arguable case’, ‘real risk of dissipation’ and ‘just and convenient’ are all adaptations of the principles applicable to regular interim injunctions i.e. a prima facie case, balance of convenience and risk of irreparable loss or injury. Similarly, general principles of arbitration dictate that any interim or final relief granted should not affect the rights of third parties who are unrelated to the arbitration and cannot appear before the Tribunal or the Court. Hence, some criteria have been laid down which are required to be fulfilled before assets of third parties can be frozen. Thus, when in doubt, parties simply have to go back to the basics to understand and build their case.

Mareva injunction can thus be considered an excellent outcome of the judicial creative process and is a very potent weapon in disputes where there are huge monetary stakes or questions of fraud involved. The Courts, in expanding and refining the Mareva injunction, have recognized the truly commercial nature of majority of the disputes which are arbitrated. Yet, because of the largely liberal scope of this interim relief and the draconian effect which it has on the rights of the party against whom it is imposed, the grant of the injunction is also to be strictly regulated. English jurisprudence has furnished a rich body of cases which have dealt with, explained and expanded the ambit of freezing injunctions, while at the same time prescribing copious safeguards and limitations. England is a very mature jurisdiction in relation to freezing injunctions in the sense that it has furnished jurisprudence dealing with almost every question of law which could come up in proceedings involving this injunction, and exhaustive guidelines have been provided on every aspect and facet of the remedy, thereby providing abundant guidance to parties. England is also the country which gave birth to the Mareva injunction and the common law jurisprudence with regard to the same makes for an excellent study on the art of balancing commercial interests, jurisdictional limitations and practical considerations. A prudent, progressive remedy is all that any commercial litigant can ask for, and the Mareva injunction of the common law system certainly fits the bill.

 

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The Revised Swedish Arbitration Act: Some Noteworthy Developments

Sun, 2019-05-19 00:52

Aren Goldsmith and Harry Nettlau

Introduction

Nearly 20 years after the enactment of the Swedish Arbitration Act of 1999, a revised version of the Swedish Arbitration Act entered into force on March 1st, 2019.1) See also here (reporting on the background and process of revising the Swedish Arbitration Act). jQuery("#footnote_plugin_tooltip_3409_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3409_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); As addressed below, this update enacts improvements to Sweden’s former arbitration law, which contained certain features that were less than ideal. The revised Act makes a positive contribution to the attractiveness of one of Europe’s leading jurisdictions for international arbitration.

1. The Previous Swedish Arbitration Act 1999

The previous Swedish Arbitration Act of 1999 (“SAA 1999”) entered into force on April 1, 1999, as the result of Sweden’s endeavor to modernize its arbitration law taking inspiration from the UNCITRAL Model Law on International Commercial Arbitration of 1985.2) See Nilsson/Andersson in: Franke/Magnusson/Ragnwaldh/Wallin, International Arbitration in Sweden, 2013, chapter 1, paras. 20-21, 39. jQuery("#footnote_plugin_tooltip_3409_2").tooltip({ tip: "#footnote_plugin_tooltip_text_3409_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The SAA 1999 remains applicable to arbitration proceedings that were commenced before the revised Swedish Arbitration Act of 2019 (“SAA 2019”) entered in force. An unofficial English translation of the SAA 2019, which was prepared on behalf of the Arbitration Institute of the Stockholm Chamber of Commerce, is available here.

2. Application of the Revised Swedish Arbitration Act 2019

The SAA 2019 applies to arbitration proceedings that were commenced after the SAA 2019 entered into force on March 1, 2019 and that have a seat in Sweden. As an exception, a limited number of provisions of the SAA 2019 apply to certain types of court proceedings commenced after the SAA 2019 entered into force, irrespective of whether the underlying arbitration commenced prior to the entry into force of the SAA 2019. The relevant provisions are:

  • Section 41 SAA 2019, regarding court actions relating to the award of compensation to arbitrators;
  • Section 43 para. 2 SAA 2019, regarding the requirement to secure leave to appeal certain decisions related to arbitral awards; and
  • Section 45a SAA 2019, regarding the possibility of presenting oral evidence in the English language in certain court proceedings related to arbitration.

It is important to note that the provisions of the SAA 2019 apply to the extent that the parties have not derogated from them, for example, by agreeing to the application of specific institutional procedural rules. Thus, the SAA 2019 will generally be applicable in connection with ad hoc arbitration proceedings with a seat in Sweden.

3.  Noteworthy Changes in the Revised Swedish Arbitration Act 2019

Through the SAA 2019, the Swedish legislator intended to adapt the Swedish Arbitration Act to recent developments in international arbitration, to fill certain gaps in the existing statutory regime, and to provide certain clarifications to that regime. Noteworthy changes and additions found in the SAA 2019 are the following:

        a) Multiple Parties or Multiple Arbitrations

Section 14 para. 3 SAA 2019 addresses arbitrator appointments in multi-party proceedings: If multiple respondents cannot agree on a joint arbitrator appointment, a respondent party may request that the district court appoint arbitrators on behalf of all parties. This may result in the excusal of any arbitrator who has already been appointed.

Furthermore, the new Section 23a SAA 2019 features a mechanism that permits the consolidation of multiple arbitrations where:

(i)The parties agree to consolidation;

(ii)The consolidation will benefit the administration of the arbitration; and

(iii)The same arbitrators have been appointed in both cases.

           (b) Replacement of Arbitrators

If an arbitrator resigns or is released due to circumstances which were known at the time of the appointment, the district court appoints the new arbitrator upon request of a party. Section 16 para. 1 SAA 2019 now requires the district court to follow the suggestion for a new arbitrator from the party that originally appointed the arbitrator who needs to be replaced, unless there are circumstances speaking against such an approach.

           (c) Judicial Review of the Arbitral Tribunal’s Jurisdiction

The SAA 2019 adopts a significant change in relation to objections to the arbitral tribunal’s jurisdiction. The SAA 1999 allowed for a declaratory decision by a district court on the arbitral tribunal’s jurisdiction over the dispute, which could be sought at any time before or during the arbitration.3) See Öhlström in: Franke/Magnusson/Ragnwaldh/Wallin, International Arbitration in Sweden, 2013, chapter 4, paras. 29‑34. jQuery("#footnote_plugin_tooltip_3409_3").tooltip({ tip: "#footnote_plugin_tooltip_text_3409_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); By contrast, the SAA 2019 limits court review of the arbitral tribunal’s jurisdiction:

First, when the arbitration proceedings are pending, a party may no longer, over another party’s objection, seek court review of the arbitral tribunal’s jurisdiction.4) See Sections 2 and 4a para. 1 SAA 2019. jQuery("#footnote_plugin_tooltip_3409_4").tooltip({ tip: "#footnote_plugin_tooltip_text_3409_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Second, if the arbitral tribunal renders an interim decision affirming its jurisdiction, a party’s request for review has to be filed with a court of appeals within a 30-day period pursuant to Section 2 para. 2 SAA 2019. The same court of appeals will also be competent to review the arbitral tribunal’s jurisdiction in the context of set-aside proceedings pursuant to Section 43 para. 1 SAA 2019.

Moreover, Section 2 para. 2 SAA 2019 provides that while judicial review of jurisdiction is pending, the arbitral tribunal may continue the arbitration and may render an award.

             (d) Determination of the Applicable Substantive Law by the Arbitral Tribunal

Section 27a SAA 2019 introduces a mechanism for determining the substantive law to be applied to the dispute. The arbitral tribunal shall apply the parties’ chosen substantive law (without regard to conflict-of-law rules). Absent such a choice, the arbitral tribunal is tasked with determining the applicable substantive law, without further guidance under the SAA 2019. The arbitral tribunal may also decide ex aequo et bono, which however requires – as is common – the consent of all parties.

            (e) Termination of Arbitration Proceedings

Whereas Section 27 para. 1 SAA 1999 stipulated that an arbitration proceeding can only be terminated by rendering an award, Section 27 paras. 1 and 3 SAA 2019 permits the arbitral tribunal to dismiss the arbitration by means of a “decision” (as opposed to an award). This revision accommodates scenarios such as a withdrawal of claim or a settlement without an accompanying request for confirmation of the settlement in the form of an award.

            (f) Setting-Aside of Arbitral Awards

Two revisions in the SAA 2019 concerning set-aside proceedings for arbitral awards rendered in Sweden should be noted in particular:

First, the ground for setting aside an arbitral award on the basis that the arbitrators exceeded their mandate is now subject to a causality requirement. In order to set aside an award, Section 34 para. 1 no. 3 SAA 2019 requires not just that the arbitrators exceeded their mandate, but also that they did so “in a manner that probably influenced the outcome” of the case.

Second, the time limit for a party to bring a set-aside action, after receipt of the award, has been reduced from three months to two months in Section 34 para. 4 SAA 2019.

In addition, oral evidence in set-aside proceedings before a Swedish court of appeals may now be taken in the English language pursuant to the new Section 45a para. 1 SAA 2019. This option is now available for all set-aside proceedings that are filed after March 1, 2019, i.e., also with regard to arbitration proceedings that were commenced before March 1, 2019. This accommodation may be helpful to foreign parties.

Conclusion

While the SAA 1999 will maintain its relevance for pending arbitrations, practitioners should be aware of the new features found in the SAA 2019 for future arbitration proceedings with a seat in Sweden. Overall, the revised provisions increase the efficiency of the arbitration framework created under the SAA 1999. The former regime, which permitted parallel litigation before the Swedish courts and an arbitral tribunal over arbitral jurisdiction, created a risk of duplicative proceedings resulting in increases in costs and uncertainty for disputing parties. The elimination of that regime represents a positive step for Sweden’s arbitration law. Likewise, the adoption of a clear mechanism to break impasses in connection with multi-party appointments is helpful. Finally, the possibility of taking oral evidence in court in English will be appealing to many international parties.

Sweden has long maintained a reputation as a leading seat for international arbitrations in Europe, with a particular appeal to parties from Eastern Europe. Sweden is also noteworthy for what appears to be a liberal approach to arbitrations involving disputes under EU competition law.5) See A. Goldsmith, “Arbitration and EU Antitrust Follow-on Damages Actions,” ASA Bulletin, Vol 34-1 (2016), p. 23 (discussing Swedish case law and related commentary); see also here (discussing case law in EU member state courts related to arbitration and follow-on damages actions). jQuery("#footnote_plugin_tooltip_3409_5").tooltip({ tip: "#footnote_plugin_tooltip_text_3409_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Indeed, Section 1 para. 3 SAA 2019 provides: “Arbitrators may rule on the civil law effects of competition law as between the parties.

The recent revisions to the Sweden’s arbitration regime will help to preserve Sweden’s position among Europe’s leading seats for international arbitration.

 

The views expressed herein are those of the authors only and should not be construed otherwise.

References   [ + ]

1. ↑ See also here (reporting on the background and process of revising the Swedish Arbitration Act). 2. ↑ See Nilsson/Andersson in: Franke/Magnusson/Ragnwaldh/Wallin, International Arbitration in Sweden, 2013, chapter 1, paras. 20-21, 39. 3. ↑ See Öhlström in: Franke/Magnusson/Ragnwaldh/Wallin, International Arbitration in Sweden, 2013, chapter 4, paras. 29‑34. 4. ↑ See Sections 2 and 4a para. 1 SAA 2019. 5. ↑ See A. Goldsmith, “Arbitration and EU Antitrust Follow-on Damages Actions,” ASA Bulletin, Vol 34-1 (2016), p. 23 (discussing Swedish case law and related commentary); see also here (discussing case law in EU member state courts related to arbitration and follow-on damages actions). function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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LIDW 2019: Energy Disputes in a Disrupted World: Leveraging Our Expertise for What Lies Ahead, 9 May 2019

Fri, 2019-05-17 23:00

Samuel Pape and Duncan Graves

The session on Energy Disputes of the LIDW 2019, hosted by Latham & Watkins and chaired by Sophie Lamb QC and Philip Clifford QC, took place on 9 May 2019 at Painters’ Hall.  The session was divided into two panels.

The first panel, titled ‘A commercial landscape in transition – lessons from the past as we prepare for the future’ was moderated by Philip Clifford QC and featured Sean Wilken QC (39 Essex Chambers), Veronique Buehrlen QC (Keating Chambers), John Judge (39 Essex Chambers), John McCaughran QC (One Essex Court), Barbara Benzoni (Eni S.p.A.), David Streatfeild-James QC (Atkin Chambers), Jostein Kristensen (Oxera Consulting LLP), Kieron O’Callaghan (Hogan Lovells), and Colin Johnson (Charles River Associates).

Philip Clifford opened the panel by observing that significant global trends, including the effect of climate change and campaigns for decarbonisation, in the face of increased demand for energy, were having a turbulent effect on the market, increasing the likelihood of disputes.  The panel addressed subject matters from across the energy industry, setting out key developments and how the legal market is reacting to meet these changes.

Sean Wilken addressed border issues, investment loss and sanctions as the main geo-political risks affecting the oil and gas industry, and also as key drivers of disputes.  In particular, he stressed the need for commercial parties to take potential disputes arising out geo-political risks into account when drafting their Joint Operating Agreements, to ensure that, for instance, their force majeure clause is sufficiently flexible to protect against licensing areas being held to fall outside the sovereign territory of the granting state.

Veronique Buehrlen focused on the Court of Appeal’s recent decision in Spirit Energy Resources v Marathon Oil, highlighting how it provides important guidance on the key principles underpinning Joint Operating Agreements and the interpretation of its terms, in particular the obligations between the operator and non-operators.  Further, she stressed that although the impending decommissioning of production areas in the North Sea had not yet been felt in the disputes market, this was a likely growth area in the coming decade.

John Judge summarised developments in LG pricing clauses and disputes arising from them.  He noted that clauses often gave wide discretion to tribunals and therefore there was often broad scope for parties to introduce large volumes of external evidence; one option being used to address this and encourage cost-efficient settlement is the best last offer, where each party makes an offer on pricing and the arbitrator is required to select one of them.  Barbara Benzoni, giving an important commercial perspective, noted both that the correct pricing method was often dependent on the relevant geographical market, and that although other mechanisms were increasingly being considered, she still approached them conservatively, with arbitration remaining the ‘least worst’ option for dispute resolution.  Barbara also observed that in her experience institutional arbitration was preferable as it gave clearer structure to a dispute.

John McCaughran applied the developing notion of good faith in English law to contracts central to the oil and gas industry.  Although there have been some judicial attempts to introduce a wider notion of good faith, it remains limited to relational contracts and contracts where a discretion is conferred upon one party to make a decision on behalf of another.  While it was unlikely that a duty of good faith would be found in long term gas supply contracts, it was far more likely in Joint Operating Agreements. Importantly, even where a duty of good faith was found, it should not be used a platform to imply additional specific positive obligations, but instead set a standard for the obligations identified explicitly within the contract.

Jostein Kristensen and David Streatfeild-James provided insight into the economic, legal, and geo-political trends affecting the renewables market. A key area of focus was subsidies and regulations, with both speakers encouraging authorities to consider not only competition between renewables and existing fuels, but also the effect of subsidies on future innovation and energy sources.  The panel stressed that it was important to have well-research and long-term policy which matched renewables’ long asset life in order to reduce risk and therefore increase capital expenditure.  Further, with innovations in technology, careful legal drafting was required and reliance on precedents may create significant risk.

The panel closed with a discussion on damages presented by Keiron O’Callaghan and Colin Johnson. They highlighted the need for experts, counsel, and tribunals to work harder to understand valuation methods and quantum from the outset of disputes in order to understand the core issues and focus resources accordingly.  In particular, it was important that experts presented the assumptions underpinning their calculations to tribunals and where a dashboard system was in use, educate the tribunal on how to understand and operate the model. When used effectively, this method could improve the quality of decision-making on quantum, but without such guidance there was a risk that it only contributed further to a lack of transparency in how the final value for a damages award was reached.

The second panel, titled ‘The environment and society – activism, pollution / remediation and disputes concerning climate change’, was moderated by Sophie Lamb QC and featured Mr Justice Fraser (Judge in Charge of the Technology and Construction Court), Serena Cheng QC (Atkin Chambers), Rachel Lidgate (Herbert Smith Freehills), Alice Garton (Client Earth) and Julianne Hughes-Jennett (Hogan Lovells).

Mr Justice Fraser opened the discussion with a spotlight on London as the premier venue in the world for resolving disputes.  He highlighted the international nature of the High Court’s caseload and noted the depth and breadth of the TCC’s specialisms, spanning all types of energy work including in specialist areas such as windfarm, FPSO, pipeline and environmental disputes.  He noted that the TCC is also one of only two courts empowered to hear arbitration claims under the Arbitration Act, and its judges are all Queen’s Bench Division (QBD) Judges, meaning that they also sit in criminal cases including, in some cases, terrorism trials.  He explained that the major difference between the TCC and arbitration is party autonomy: TCC judges must manage cases in accordance with the CPR’s overriding objectives, which means always trying to find the answer as cost effectively and expeditiously as possible notwithstanding that the parties’ may have other views on the appropriate procedure.

Serena Cheng and Rachel Lidgate focused on the international element of the TCC’s environmental caseload, noting that the Supreme Court’s recent decision in Lungowe v Vedanta opened the door to claims concerning foreign environmental damage by upholding Coulson J’s decision in the TCC finding jurisdiction over claims relating to environmental pollution in Zambia.  In that case, the Supreme Court held that environmental harm can properly be tried in England regardless of where the environmental damage occurs, provided the relevant jurisdictional gateway is satisfied.  The decision arguably creates a tension between applying group-wide policies and training schemes that could give rise to a duty of care for the actions of overseas subsidiaries, and the duties of listed multinationals to have global systems of controls and risk management.

Alice Garton presented on ClientEarth’s approach to fighting climate change through engagement with corporate actors, referrals to regulators and strategic litigation.  ClientEarth is Europe’s only public interest law firm, whose aim is to use the law as a strategic tool for the benefit of the environment.   Its model came out of the US Civil Rights Movement, and it is currently working to ensure that climate change is integrated into decision-making and for capital expenditure and capital application to align with the Paris Goals.  ClientEarth does so by targeting companies on both the supply and demand side as well as financial institutions and their professional advisors, and leveraging corporate and financial laws to ensure that climate change is addressed appropriately.

Julianne Hughes-Jennett discussed the challenges and opportunities of arbitration as a mechanism for resolving climate change and business and human rights related disputes.  Arbitration is a consensual process, which renders its use by certain categories of litigants (such as groups of victims alleging violations against a company) limited to instances in which all parties agree to arbitrate on an ad hoc basis.  The applicable laws in such disputes are also an issue, as the UNGPs are soft laws and, traditionally, hard laws in this area apply only as against states.  These types of disputes also inevitably give rise to issues concerning transparency, time sensitivity, funding, safeguards to protect the procedural rights of vulnerable individuals, and the need to guard against spurious claims.

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A Critique of EU’s Double Standards on Dispute Resolution Mechanisms in Bilateral Investment Treaties and Double Taxation Treaties

Fri, 2019-05-17 22:15

Danilo Ruggero Di Bella

This post aims at highlighting an inconsistency in the law of the European Union (“EU”) in regards to the comparison of the treatment of Bilateral Investment Treaties (“BITs”) and Double Taxation Treaties (“DTTs”) concluded between EU Member States. The inconsistency lies in the diametrically different approaches adopted by EU law and its institutions (“EU Institutions”) towards the dispute resolution mechanisms contained in these international instruments.

Relationship Between BITs and DTTs

BITs and DTTs supplement each other towards the common goal of promotion of cross-border investments. Just as it would be unthinkable to invest in a foreign country at the risk of being taxed twice on the same by both the Residence State as well as the Source State, it is equally undesirable to invest in a foreign country at the risk of bearing any political risk inherent to such operation.

The two forms of arbitration provided under the BITs and DTTs differ formally in that BITs provide for Investor-State arbitrations as well as State-to-State arbitration, whereas DTTs enable arbitration prompted by the taxpayer between the two tax authorities of the Contracting Parties laying a claim to tax the same source of profit. However, BITs and DTTs share similar traits and numbers (with approximately three thousand DTTs around the world and as many BITs). Both represent a limitation on state sovereignty and make such limitation effective by including an arbitration agreement. Traditional state regulatory rights concerning the levy of taxes and what treatment to accord to aliens and their possessions are constrained by these instruments for the greater good of fostering foreign investment and improving global economy.

While the efficacy of the impact of these instruments on increase of cross-border investments per se may be disputed, what seems settled is that without DTTs there would be more tax evasion (presumably, justified by the perception of being unfairly taxed twice) and without BITs there would be more diplomatic protection cases revamping national protectionism all over the world (by way of comparison, it suffices to look at how international trade disputes are often ineffectively handled sometime with long-term consequences on global growth). It is also uncontested that both instruments have been playing a major role in harmonizing and strengthening the rule of law by weaving a sort of international administrative law.

BITs are the products of bilateral negotiations where the Model BIT of each Party may blend with the other Party’s Model, hence, each BIT may present unique provisions. DTTs are, instead, more standardized since their starting point is always the Model provided by the Organisation for Economic Co-operation and Development (“OECD”).

The interaction between BITs and DTTs may vary considerably depending on the phrasing of their single provisions. Their reciprocal interplay may range from having an overlapping scope to a mutually exclusive area of application. In the former case, the BIT will typically be silent on any tax-measures or will not refer specifically to any parallel DTT in force between the Parties. In the latter instance, the BIT will not cover taxation either by virtue of an explicit hierarchy of sources placing the DTT higher than the BIT itself or by means of an express taxation carve-out provision.

That being said, in both instances, investment arbitration tribunals have found that where tax-measures have expropriatory effects, the provisions of the BIT can still find application, regardless of whether the relevant BIT and DTT were simultaneously applicable or not.

Relationship Between BITs and EU law

Even though externally, the EU is entering into international investment agreements with Non-Member States, after having gained this competence under the Treaty of Lisbon, 2007; internally, the EU is a firm opponent of BITs concluded between its Member States (intra-EU BITs), and especially of its dispute resolution mechanism, viz. arbitration. As manifested by the Court of Justice of the European Union (CJEU) in its preliminary ruling on Achmea on 6 March 2018, intra-EU investment arbitrations may undermine the full effectiveness of the autonomy of EU law, guaranteed by Articles 267 and 344 of the TFEU. Thus, the arbitration agreements contained in intra-EU BITs are now to be considered inapplicable. The threat of a non-uniform application of EU law stems from the fact that an arbitral tribunal constituted pursuant to an intra-EU BIT is not integrated within the judicial system of the EU. Accordingly, such a tribunal cannot refer the case to the CJEU by way of a preliminary ruling to ask for an interpretation of any EU law provision, should the dispute relate to EU law.

On 15 January 2019, several EU Member States have echoed the CJEU’s stance in a joint declaration, affirming the primacy of EU law over intra-EU BITs, the invalidity of the underlying arbitration agreements contained in those instruments, and the lack of jurisdiction of any tribunal established pursuant to those agreements.

Relationship Between DTTs and EU law

To maintain that the EU Institutions are doing everything in their power to prevent intra-EU BITs and related investment arbitrations would be as correct as affirming that EU Institutions are doing everything in their power to promote intra-EU DTTs (each EU Member State has a bilateral DTT with each EU Member State) and the related tax arbitrations.

Since 1976, the Commission of the European Communities (‘the Commission’) has been advocating for the introduction of an effective procedure to resolve double taxation disputes on transfer-pricing. Such disputes arise out of an incorrect upward recalculation by the tax-authority of one EU Member State of the profits stemming from the transaction between associated companies established in different Member States. If the tax-authority of the Member State where the other associated company is registered does not allow for the corresponding downward adjustment of the profits, then international double taxation occurs.

The Commission’s effort resulted into the adoption in 1990 of the “European Arbitration Convention on the elimination of double taxation in connection with the adjustment of profits of associated enterprises”, which entered into force in 1995 and is automatically renewed every five years. The effective procedure the Commission came up with was that of a mandatory arbitration between tax-authorities upon the request of the company affected by the upward misadjustment of the transfer price. In this arbitration the affected double-taxed company can challenge the tax-measure by invoking  arbitration between the tax-authorities of the two different Member States that were unable to reach an agreement on the elimination of international double taxation.

Interestingly, the European Arbitration Convention was adopted as a multilateral Convention (and not as an EU instrument), despite the Commission’s initial intentions to propose the text as a Council Directive. Reportedly, the Member States preferred the form of an inter-governmental convention because of their collective hesitation to yield part of their fiscal sovereignty. Being a multilateral convention, the CJEU is not competent to interpret the European Arbitration Convention, nor supervise its procedure, and the Commission cannot commence infringement procedures before the CJEU against any Member State not applying the arbitration procedure or not complying with the decisions rendered thereunder.

On 10 October 2017, the EU Council adopted the Directive (EU) 2017/1852 on tax dispute resolution mechanisms in the European Union to improve the procedural framework of the European Arbitration Convention and expand its scope. By issuing a directive instead of amending the original text of the European Arbitration Convention, this “cunning” move has allowed the EU Commission to bring tax treaty disputes (today around 900 cases with a total value amounting to €10.5 billion) under the EU hat and competence. The dispute mechanism of choice still remains arbitration. The improved arbitration procedure will have clear and enforceable time-limits, cover all tax disputes (not just transfer-pricing) deriving from intra-EU DTTs, and count on the supporting role of Member State courts to supervise and unblock the arbitration (should a tax authority not comply with it).

Surprisingly (or not), the rationale used to justify (and praise) this dispute resolution mechanism (which will become operative as of 1 July 2019) are the same as of any treaty-based arbitration. It intends to ensure that nationals and companies may resolve disputes related to the interpretation of an international treaty (in this case a DTT) more swiftly and effectively in order to be accorded a fair tax treatment and avoid legal uncertainty.

EU’s Inconsistent Take on Arbitration Agreements in Intra-EU BITs in Light of Intra-EU DTTs

Arbitrations under intra-EU BITs as well as intra-EU DTTs may equally relate to the interpretation of the underlying bilateral treaty and of EU law. Indeed, every single Member State legislation on taxation is pervaded by EU tax law (one need only think of the VAT Regulation).

Both arbitral tribunals constituted under intra-EU BITs and intra-EU DTTs are not part of the judicial system of the respective member states of the EU, hence, incapable of referring the case to the CJEU for a uniform interpretation of the EU law. So, why should intra-EU BIT-based arbitration agreements be considered incompatible with EU law, while intra-EU DTT-based arbitration agreements are not only enforceable, but also encouraged by the EU Commission? The rationale expounded in the Achmea judgment is applicable to intra-EU DTT-based arbitration agreements as well; hence, aren’t both type of arbitrations capable of undermining the supremacy of EU law?

Taking into account the similar objectives of intra-EU BITs and intra-EU DTTs, i.e. the promotion of cross-border investments, their similar dispute resolution mechanism (viz. arbitration), and the potentially similar effects of this mechanism on the full effectiveness of EU law, the opposite stance in regards to the compatibility of arbitration agreements with EU law taken by the EU Institutions under those two types of treaties is difficult to understand and justify.

 

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