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ICSID and UNCITRAL Draft Code of Conduct: Potential Ban on Multiple Roles Could Negatively Impact Gender and Regional Diversity, as well as Generational Renewal

Sat, 2020-06-20 03:00

On 1 May 2020, ICSID and UNCITRAL released the long-awaited Draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement (ISDS) (“Draft Code”) as previously reported and discussed. Article 1.1 of the Draft Code provides that it applies to “all persons serving as adjudicators in ISDS proceedings”, defined broadly to include arbitrators, ad hoc committee members and judges of standing bodies or mechanisms. This post addresses the potential ban on “double‑hatting” in Article 6, and its impact on gender and regional diversity, as well as the potential barrier to entry of the second generation of arbitrators. The specific draft provision is detailed below.

Article 6. Limit on Multiple Roles

Adjudicators shall [refrain from acting]/[disclose that they act] as counsel, expert witness, judge, agent or in any other relevant role at the same time as they are [within X years of] acting on matters that involve the same parties, [the same facts] [and/ or] [the same treaty].

Comment 66 of the Code of Conduct defines double-hatting as “the practice by which one individual acts simultaneously as an international arbitrator and as a counsel in separate ISDS proceedings.” The comment further states that for some, any concurrent representation creates a conflict of interest and therefore should be prohibited. For others, double-hatting is “problematic only in circumstances, where the facts or parties are related.” Moreover, Comment 67 states that “[a]n outright ban is easier to implement, by simply prohibiting any participation by an individual falling within the scope of prohibition.”

At a glance, it may appear that the potential ban applies to specific scenarios, namely “same facts” and/or “same treaty”. Upon closer examination, however, the provision could potentially be broadly construed to significantly reduce the pool of arbitrators from ISDS cases. For example, “same facts” could be potentially interpreted to cover pandemics such as COVID-19, global financial crises, or natural disasters that impact more than one country. The provision does not specify the year and also includes “agent or any relevant role”. This means that an arbitrator could be excluded for minor advisory work, such as corporate advice on structuring investment and the scope of protection under certain treaty that is unrelated to the dispute.

 

The Potential Ban on Multiple Roles Could Reinforce the Dominance of the “Male, Pale and Stale” Club

Thoughtful observers are concerned that appointments to ISDS predominantly go to a small club of elite “Grand Old Men”. Indeed, the question “Who are the arbitrators?” was discussed at the 2014 ICCA Miami Conference. Attendees were told that the answer was that they were “male, pale, and stale” – implying that most international arbitrators were senior white men.

It is well acknowledged that diversity is essential to better decision-making as diverse perspectives, knowledge, background and experiences brought by individual talents, male and female, from different regions provide benefits to all. Diversity in ISDS is particularly important because investor-State disputes usually involve significant issues of public policy and public interest. The makeup of decision makers, both in terms of gender and demography, therefore, should reflect the makeup of those who will be affected by such decisions.

Therefore, any sort of blanket ban on double-hatting would have the unwelcome effect of reinforcing the existing dominance of a relative handful of established male arbitrators mostly from Western Europe and North America in the field of ISDS.

 

  1. Impact on Gender Diversity

In a prior study of 249 known investment treaty cases up to May 2010, only 6.5% of the arbitrators were women. A survey by the author of 353 registered ICSID cases from 2012-2019 reveals that out of 1,055 appointments, only 152 appointments were of women – just 14.4 %.  More striking, of all individuals appointed across all cases, only 35 were female and only two female arbitrators together comprise 45.3% of all appointments of women. Thus, the underrepresentation of women in investment arbitration remains a dire problem.

In investment arbitration, however, individual arbitrators would be drawn primarily from the ranks of counsel who must continue to practice unless and until they receive sufficient appointments to make full-time service as arbitrators economically feasible. Indeed, out of the 427 appointed arbitrators listed by ICSID, 46 are women. Out of these 46 women, 32 have an available curriculum vitae on the ICSID website which reveals that 21 women (or at least 45.6%) currently serve as counsel or as partner in law firms. According to the 2019 ICSID Annual Report, 31% of female appointments were first-time appointees, most likely individuals still serving as counsel. As many female ICSID arbitrators are practicing full-time as counsel, prohibiting double hatting would undoubtedly reduce the already small number of female arbitrators in the ISDS field.

 

  1. Impact on Regional Diversity

While the total arbitrators appointed represent eighty-eight different nationalities, nearly half of these appointments come from seven nations: New Zealand, Australia, Canada, Switzerland, France, the United Kingdom and the United States. For appointments made in 2018, the percentage of ICSID arbitrators from Western Europe and North America totaled 75.4% while the percentage reached 79% when including Australia and New Zealand.

Due to the lack of geographic diversity, parties are limited when it comes to selecting arbitrators from similar backgrounds. The proposed ban therefore unwittingly serves as a restriction on party autonomy when it comes to appointing arbitrators who understand the parties’ legal, cultural, and socio-political background, adversely affecting the goal of reaching decisions that take those understanding and context into account. The arbitration community should make efforts to broaden regional diversity with the goal of ultimately increasing the fairness and quality of the award, and the legitimacy of ISDS.

  

 

  1. Barrier to Entry for Second Generation of Arbitrators

Generation renewal in arbitration is significant to the arbitration community given that senior arbitrators will inevitably retire. The next generation of arbitrators tend to be practicing counsel and would not be able to give up their counsel professional duties unless and until they receive enough appointments to allow them to serve as full-time arbitrators. Thus, the ban would exclude a greater number of candidates than necessary and pose a barrier to entry by preventing the renewal of the arbitrator pool. This is echoed by Comment 68 to the Code, which states: “A ban on double-hatting also constrains new entrants to the field, as few counsels are financially able to leave their counsel work upon receiving their first adjudicator nomination.”  Allowing newcomers to sit alongside more senior arbitrators would enable them to gain more experience and benefit the transition of the next generation of arbitrators.

 

Equating Arbitrators with International Judges?

The Code should also exercise caution when equating arbitrators with permanent judges for the purposes of double hatting, as the two roles substantially differ. Permanent judges, such as those in the Comprehensive Economic and Trade Agreement (CETA) International Investment Court (ICS) or the proposed multilateral investment court (MIC), hold tenured office with two-tiered permanent courts, and are assigned to cases on a random and rotational basis without the parties’ input. And they are remunerated on a regular basis. On the other hand, ad hoc arbitrators are appointed by the parties for a specific case and are remunerated on a case-by-case basis, each subject to its own conflict of interest determination. Such distinctive elements are usually what differentiate between international judicial settlement and arbitral settlement.1) See C. Ranjan Amerasinghe, Jurisdiction of International Tribunals, The Hague, Kluwer Law International 2003, pp. 19-20 (Noting that the existence of a permanent structure with tenured pre-selected judges hearing cases on a rotation basis – as opposed to party appointed ad hoc arbitrators – with an institution and secretariat are usually considered as elements that differentiate judicial settlement from arbitral settlement of international disputes.). jQuery("#footnote_plugin_tooltip_4672_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4672_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); To illustrate the difference, the EU describes the MIC as bringing features of “domestic and international courts” with selection of judges similar to the International Court of Justice and remuneration comparable to judges in international courts.2)European Commission, ‘Impact Assessment Multilateral Reform of Investment Dispute Resolution’, SWD (2017) 302 final, 13 September 2019, p. 40. jQuery("#footnote_plugin_tooltip_4672_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4672_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The CETA and the International Court of Justice prohibit multiple roles given that the judges serve on a permanent basis and perform roles more akin to judicial public functions.3)See Article 17, Statute of the International Court of Justice, 1945. jQuery("#footnote_plugin_tooltip_4672_3").tooltip({ tip: "#footnote_plugin_tooltip_text_4672_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); On the other hand, arbitrators perform more private functions and their conflicts of interest are assessed on a case-by-case basis. Indeed, Todd Weiler has argued that “individuals acting as arbitrators are professionals offering a private service – not officials performing a public service – and that there should be no bright-line prohibition against individuals practicing as arbitrators and counsel contemporaneously.”4) The same query on treating arbitrators as permanent judges should also be scrutinized with respect to the proposed limit on the number of ISDS cases in the controversial Article 8.2 as to how such restrictions could be applied to permanent judges. The number of judges is slated to be fixed and a standing court cannot predict ex ante how many cases will be on the court docket at a given time. jQuery("#footnote_plugin_tooltip_4672_4").tooltip({ tip: "#footnote_plugin_tooltip_text_4672_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Moreover, there has been no allegation, that the existing rules and institutions are unable to manage conflict issues,5)See Republic of Ghana v. Telekom Malaysia Berhad, District Court of The Hague, Challenge No. 13/2004, 18 October 2004; Vito G. Gallo v. Canada, NAFTA/UNCITRAL, Decision on the Challenge to Mr. J. Christopher Thomas, QC, 14 October 2009. jQuery("#footnote_plugin_tooltip_4672_5").tooltip({ tip: "#footnote_plugin_tooltip_text_4672_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); nor is there sufficient justification for such radical departure from a time-honored practice when less drastic measures are available to mitigate any conflict issues.

 

Conclusion

Barring individuals who serve as counsel in ISDS proceedings from serving as arbitrators in investment disputes would reduce the overall pool of potential arbitrators, notably women and those from other regions, and deprive the parties of the ability to select the arbitrators of their choice. Moreover, if the arbitrator pool is not sufficiently appealing, it may attract less-qualified candidates, as the best talents may opt for the more lucrative role as counsel. Therefore, any outright ban of multiple roles simply because it is “easier to implement” should be discouraged.  Indeed, Comment 68 should be highlighted, which identifies the barrier to entry as “especially relevant for younger arbitrators (new entrants) and arbitrators who bring gender and regional diversity.” Thus, great care is needed to ensure that the cost of prohibiting double-hatting does not outweigh the impact on diversity. Proposals for a grace period or a “time phased” approach for new arbitrators have been made. However, it would be difficult to implement in practice. Narrowly tailored disclosures, similar to the International Bar Association Guidelines on Conflict of Interest or disclosures,6)It should be noted that Article 5.2(c) of the Code already contains disclosure rules on any role, including that of counsel: “All ISDS [and other [international] arbitration] cases in which the candidate or adjudicator has been or is currently involved as counsel, arbitrator, annulment committee member, expert, [conciliator and mediator]”. See also disclosure in ICSID, ‘Proposals for the Amendment of the ICSID Rules,’ Working Paper #4, Volume 1 Schedule, p. 241.  Indeed, the failure to disclose an arbitrator’s relationship to one of the parties’ expert during his previous role as counsel in unrelated cases has recently resulted in the annulment of an award.  See Eiser Infrastructure Ltd v Kingdom of Spain, ICSID Case No. ARB/13/36, Decision on the Kingdom of Spain’s Application for Annulment, 11 June 2020. jQuery("#footnote_plugin_tooltip_4672_6").tooltip({ tip: "#footnote_plugin_tooltip_text_4672_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); would be more suitable and in line with international practice.

 

Caution should be exercised when considering measures that would reduce the pool of arbitrators, significantly impact gender and regional diversity, and pose as a barrier to entry for the second generation of arbitrators. It is with full disclosure, that the parties can assess if there is indeed a conflict of interest in a particular case and whether the two parties would accept the individual with knowledge of the potential multiple roles.

 

 

Note: The author would like to thank Mr Loic Topalian and Ms Teodora Kovacevic for their assistance in compiling the ICSID statistics on gender and demographic diversity.

References   [ + ]

1. ↑ See C. Ranjan Amerasinghe, Jurisdiction of International Tribunals, The Hague, Kluwer Law International 2003, pp. 19-20 (Noting that the existence of a permanent structure with tenured pre-selected judges hearing cases on a rotation basis – as opposed to party appointed ad hoc arbitrators – with an institution and secretariat are usually considered as elements that differentiate judicial settlement from arbitral settlement of international disputes.). 2. ↑ European Commission, ‘Impact Assessment Multilateral Reform of Investment Dispute Resolution’, SWD (2017) 302 final, 13 September 2019, p. 40. 3. ↑ See Article 17, Statute of the International Court of Justice, 1945. 4. ↑ The same query on treating arbitrators as permanent judges should also be scrutinized with respect to the proposed limit on the number of ISDS cases in the controversial Article 8.2 as to how such restrictions could be applied to permanent judges. The number of judges is slated to be fixed and a standing court cannot predict ex ante how many cases will be on the court docket at a given time. 5. ↑ See Republic of Ghana v. Telekom Malaysia Berhad, District Court of The Hague, Challenge No. 13/2004, 18 October 2004; Vito G. Gallo v. Canada, NAFTA/UNCITRAL, Decision on the Challenge to Mr. J. Christopher Thomas, QC, 14 October 2009. 6. ↑ It should be noted that Article 5.2(c) of the Code already contains disclosure rules on any role, including that of counsel: “All ISDS [and other [international] arbitration] cases in which the candidate or adjudicator has been or is currently involved as counsel, arbitrator, annulment committee member, expert, [conciliator and mediator]”. See also disclosure in ICSID, ‘Proposals for the Amendment of the ICSID Rules,’ Working Paper #4, Volume 1 Schedule, p. 241.  Indeed, the failure to disclose an arbitrator’s relationship to one of the parties’ expert during his previous role as counsel in unrelated cases has recently resulted in the annulment of an award.  See Eiser Infrastructure Ltd v Kingdom of Spain, ICSID Case No. ARB/13/36, Decision on the Kingdom of Spain’s Application for Annulment, 11 June 2020. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Do Virtual Hearings Without Parties’ Agreement Contravene Due Process? The View from Singapore

Sat, 2020-06-20 02:00

Introduction

The use of virtual hearings is not new in international arbitration. However, the COVID-19 pandemic has necessitated, and accelerated, a shift from in-person hearings to virtual hearings. With travel bans in place and no visibility of when countries will open their borders again, in-person hearings will likely be the exception rather than the norm for the next 12 to 18 months.

One important issue is how parties and arbitrators can ensure that virtual hearings, especially of the main evidential hearing or an application that may be dispositive of the entire case, comply with due process. This will be crucial to avoid a subsequent successful setting aside application, especially by parties who may be strategically resisting meaningful participation in virtual hearings.

 

Protocols and Guidance Notes on Virtual Hearings

Various protocols and guidance notes, which parties may elect to apply, have been issued to assist parties. These include:

However, while helpful, these guides are not without their shortcomings. Importantly, they do not address the situation where one or both parties object to a virtual hearing.

 

Delay versus Due Process

Even if one or more parties object to a virtual hearing, a tribunal may nonetheless direct a virtual hearing against the wishes of the objecting parties. The tribunal, in deciding this, should consider factors such as delay and due process.

A tribunal may hold off convening a virtual hearing in the hope that an in-person hearing may be possible soon. However, an indefinite adjournment of the hearing, or even multiple adjournments in the face of an evolving pandemic, may contravene a tribunal’s duty to conduct the arbitration efficiently and with reasonable expedition.1)For example: (i) Article 14.4 of the LCIA Rules (2014) provides that the Arbitral Tribunal has a duty to adopt procedures suitable to the circumstances of the arbitration, avoiding unnecessary delay and expense; (ii) Rule 19.3 of the SIAC Rules (2016) provides that the Tribunal shall discuss the procedures that will be most appropriate and efficient for the case; and (iii) Article 22 of the ICC Rules (2017) states that the arbitral tribunal and parties shall make every effort to conduct the arbitration in an expeditious and cost-effective manner. jQuery("#footnote_plugin_tooltip_3875_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3875_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Delay in arbitration may also give rise to due process arguments by a party, where expedient resolution of the matter is contractually provided for or if the delay prejudices a party. The tribunal’s alternatives would be to persuade parties to agree to a virtual hearing or direct a virtual hearing against the wishes of the objecting parties.

 

Risk of Setting Aside?

The risk, of course, is that the party who had objected to a virtual hearing may later apply to set aside the award.

As a preliminary step, parties should ensure that the arbitration agreement does not specifically rule out virtual hearings. Once the tribunal is constituted, it will have a broad discretion in the procedure of the arbitration, so long as parties have not agreed to the contrary.2)Born, 2014, International Commercial Arbitration (2nd Edition), at [15.03], pp. 2144-2148. jQuery("#footnote_plugin_tooltip_3875_2").tooltip({ tip: "#footnote_plugin_tooltip_text_3875_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In the absence of specific language precluding a virtual hearing, it may be difficult to argue that the meaning of “hearing” in an arbitration agreement or the institutional rules refers strictly to an in-person hearing.

In Singapore, a party may set aside an award on the grounds listed in Article 34(2) of the Model Law (incorporated into Singapore law under the International Arbitration Act (Cap. 143A) (“IAA“)). Article 34(2)(a)(ii) may be relevant, as it applies where a party against whom the award was made was “unable to present his case“.

Additionally, section 24(b) of the IAA provides that an award may be set aside if “a breach of the rules of natural justice occurred in connection with the making of the award by which the rights of any party have been prejudiced“. This ground requires the applicant to establish:

  • which rule of natural justice was breached;
  • how it was breached;
  • in what way the breach was connected to the making of the award; and
  • how the breach did or could prejudice its rights.3)Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2007] 3 SLR(R) 86 (“Soh Beng Tee”) at [29]; L W Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd and another appeal [2013] 1 SLR 125 (“L W Infrastructure”). jQuery("#footnote_plugin_tooltip_3875_3").tooltip({ tip: "#footnote_plugin_tooltip_text_3875_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

A party’s right to present its case and respond to the case against it has been held to be a fundamental rule of natural justice.4)Soh Beng Tee at [42]. jQuery("#footnote_plugin_tooltip_3875_4").tooltip({ tip: "#footnote_plugin_tooltip_text_3875_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In this regard, a party’s right to be heard stems from that party’s right to be treated with equality and be given a full opportunity to present its case.5)Article 18 of the Model Law. jQuery("#footnote_plugin_tooltip_3875_5").tooltip({ tip: "#footnote_plugin_tooltip_text_3875_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

A party made to participate in a virtual hearing despite its objections may argue that it had not been afforded a full opportunity to present its case for a myriad of different reasons, from disadvantages of arbitrating across different time zones to the lack of a stable internet connection.

 

The Singapore Position

As a starting point, the general judicial position in Singapore dictates that the court should not “without good reason” interfere with the arbitral process.6)Soh Beng Tee at [59]. jQuery("#footnote_plugin_tooltip_3875_6").tooltip({ tip: "#footnote_plugin_tooltip_text_3875_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The arbitrator is the “master of his own procedure and has a wide discretionary power to conduct the arbitration proceedings in a way he sees fit“, unless the procedure has otherwise been agreed between parties, and so long as what the arbitrator is doing is not manifestly unfair or contrary to natural justice.7)Anwar Siraj v Ting Kang Chung [2003] 2 SLR(R) 287 at [41]-[42]; Soh Beng Tee at [60]. jQuery("#footnote_plugin_tooltip_3875_7").tooltip({ tip: "#footnote_plugin_tooltip_text_3875_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The parameters to the right to a full opportunity to present one’s case were recently clarified by the Singapore Court of Appeal (“SGCA”) in China Machine New Energy Corp v Jaguar Energy Guatemala LLC and another [2020] SGCA 12 (“Jaguar Energy“).8)The principles in Jaguar Energy have since been applied in two further cases before the Singapore Courts, Bloomberry Resorts and Hotels Inc and another v Global Gaming Philippines LLC and another [2020] SGHC 113 and BBA and others v BAZ and another appeal [2020] SGCA 53. jQuery("#footnote_plugin_tooltip_3875_8").tooltip({ tip: "#footnote_plugin_tooltip_text_3875_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In Jaguar Energy, the appellant sought to set aside an arbitral award on the basis that there had been a breach of its due process rights, resulting from the cumulative effect of certain orders made during the arbitration that allegedly caused the appellant to lose preparation time and the ability to meaningfully interrogate the evidence so as to file key documents in time.9)At [81]-[82]. jQuery("#footnote_plugin_tooltip_3875_9").tooltip({ tip: "#footnote_plugin_tooltip_text_3875_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The SGCA found that the right to a full opportunity to present one’s case, under Article 18 of the Model Law, is not an unlimited one. The parties’ right to be heard is impliedly limited by considerations of reasonableness and fairness, especially in cases where the complaint is that the failure to grant some sort of “procedural accommodation” to a party has adversely impacted that party’s due process rights.10)Jaguar Energy at [96]-[97]. See also Triulzi Cesare SRL v Xinyi Group (Glass) Co Ltd [2015] 1 SLR 114 at [151]. jQuery("#footnote_plugin_tooltip_3875_10").tooltip({ tip: "#footnote_plugin_tooltip_text_3875_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The overarching inquiry is whether the proceedings were conducted in a manner which was fair. The court will examine whether the tribunal’s conduct, in balancing both parties’ competing interests, falls within the range of what a “reasonable and fair-minded” tribunal in those circumstances might have done.11)Jaguar Energy at [104], [111] and [112]. jQuery("#footnote_plugin_tooltip_3875_11").tooltip({ tip: "#footnote_plugin_tooltip_text_3875_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The tribunal’s conduct and decisions should be assessed with reference to what the tribunal knew at the material time, and the alleged unfairness which the complaining party relies upon must have therefore been brought to the attention of the tribunal.12)Jaguar Energy at [102] and [167]. jQuery("#footnote_plugin_tooltip_3875_12").tooltip({ tip: "#footnote_plugin_tooltip_text_3875_12", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Further, an aggrieved party cannot complain after the fact that its hopes for a fair trial were dashed if its conduct had evinced that it was content to proceed with the arbitration notwithstanding the alleged unfairness. The complaining party should at the very least seek to suspend proceedings until the breach has been satisfactorily remedied (if it is capable of remedy). It cannot simply “reserve” its position until after the award.13)Jaguar Energy at [168] and [170]. jQuery("#footnote_plugin_tooltip_3875_13").tooltip({ tip: "#footnote_plugin_tooltip_text_3875_13", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The SGCA further observed that the court should accord “substantial deference” to the tribunal in the exercise of its wide procedural discretion in the conduct of the arbitration.14)Jaguar Energy at [103]. jQuery("#footnote_plugin_tooltip_3875_14").tooltip({ tip: "#footnote_plugin_tooltip_text_3875_14", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); There is a high threshold for judicial intervention, which will only be crossed where the tribunal has conducted the arbitral process “irrationally or capriciously” or “so far removed from what could reasonably be expected of the arbitral process.”15)Jaguar Energy at [103]. jQuery("#footnote_plugin_tooltip_3875_15").tooltip({ tip: "#footnote_plugin_tooltip_text_3875_15", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This reflects the Singapore courts’ general reluctance to interfere with arbitral awards, especially where the challenge is unmeritorious and made under the guise of an alleged breach of natural justice to achieve a rehearing on the merits.16)TMM Division Maritama SA de CV v Pacific Richfield Marine Pte Ltd [2013] 4 SLR 972 at [2]. jQuery("#footnote_plugin_tooltip_3875_16").tooltip({ tip: "#footnote_plugin_tooltip_text_3875_16", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Therefore, it may be reasonable for a tribunal to direct a virtual hearing against the wishes of a party if, for example, it considers that the objecting party has adequate equipment and preparation time. Moreover, a failure to raise potential difficulties with participating in a virtual hearing at the material time may prevent that party from subsequently relying on such difficulties in a setting-aside application.

In the final analysis, a section 24(b) IAA application also requires that the alleged breach of natural justice caused actual or real prejudice to the applicant, which requires some causal connection between the breach of natural justice and the making of the award.17)L W Infrastructure at [50]. jQuery("#footnote_plugin_tooltip_3875_17").tooltip({ tip: "#footnote_plugin_tooltip_text_3875_17", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });. It “does not embrace technical or procedural irregularities that have caused no harm in the final analysis“.18)Soh Beng Tee at [91]. jQuery("#footnote_plugin_tooltip_3875_18").tooltip({ tip: "#footnote_plugin_tooltip_text_3875_18", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); A party must therefore go one step further to show how the conduct of a virtual hearing denied the arbitrator of the benefit of arguments or evidence that had a real chance of making a difference to his deliberations, i.e. actually impacting the decision in some meaningful way.19)Soh Beng Tee at [91]; L W Infrastructure at [54]. jQuery("#footnote_plugin_tooltip_3875_19").tooltip({ tip: "#footnote_plugin_tooltip_text_3875_19", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Balanced against the tribunal’s duty to conduct hearings efficiently and expediently, proceeding with a virtual hearing will not necessarily constitute a breach of due process so long as parties are provided equal opportunities to present their cases. This may include ensuring that parties have reasonable access to the necessary technology, have had adequate time to prepare for the virtual hearing, and face similar restrictions in their and/or their counsel’s respective jurisdictions. Parties may also consider having a neutral third-party in the same room as a witness or the use of a camera with a 360-degree view, to mitigate against possible allegations of witness-coaching during a virtual cross-examination.

 

Conclusion

Virtual hearings are not without their difficulties and are unlikely to replicate an in-person hearing. However, the world as we know it continues to evolve in the face of COVID-19, and so must the way hearings are conducted. Electing not to participate in virtual hearings in the hopes of challenging an award is unlikely to be a good strategy, at least in Singapore, especially if the parties have been given every opportunity to participate.

References   [ + ]

1. ↑ For example: (i) Article 14.4 of the LCIA Rules (2014) provides that the Arbitral Tribunal has a duty to adopt procedures suitable to the circumstances of the arbitration, avoiding unnecessary delay and expense; (ii) Rule 19.3 of the SIAC Rules (2016) provides that the Tribunal shall discuss the procedures that will be most appropriate and efficient for the case; and (iii) Article 22 of the ICC Rules (2017) states that the arbitral tribunal and parties shall make every effort to conduct the arbitration in an expeditious and cost-effective manner. 2. ↑ Born, 2014, International Commercial Arbitration (2nd Edition), at [15.03], pp. 2144-2148. 3. ↑ Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2007] 3 SLR(R) 86 (“Soh Beng Tee”) at [29]; L W Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd and another appeal [2013] 1 SLR 125 (“L W Infrastructure”). 4. ↑ Soh Beng Tee at [42]. 5. ↑ Article 18 of the Model Law. 6. ↑ Soh Beng Tee at [59]. 7. ↑ Anwar Siraj v Ting Kang Chung [2003] 2 SLR(R) 287 at [41]-[42]; Soh Beng Tee at [60]. 8. ↑ The principles in Jaguar Energy have since been applied in two further cases before the Singapore Courts, Bloomberry Resorts and Hotels Inc and another v Global Gaming Philippines LLC and another [2020] SGHC 113 and BBA and others v BAZ and another appeal [2020] SGCA 53. 9. ↑ At [81]-[82]. 10. ↑ Jaguar Energy at [96]-[97]. See also Triulzi Cesare SRL v Xinyi Group (Glass) Co Ltd [2015] 1 SLR 114 at [151]. 11. ↑ Jaguar Energy at [104], [111] and [112]. 12. ↑ Jaguar Energy at [102] and [167]. 13. ↑ Jaguar Energy at [168] and [170]. 14, 15. ↑ Jaguar Energy at [103]. 16. ↑ TMM Division Maritama SA de CV v Pacific Richfield Marine Pte Ltd [2013] 4 SLR 972 at [2]. 17. ↑ L W Infrastructure at [50]. 18. ↑ Soh Beng Tee at [91]. 19. ↑ Soh Beng Tee at [91]; L W Infrastructure at [54]. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Document Production in Chinese Arbitration: Current Status and New Horizons

Fri, 2020-06-19 04:00

The practice of adverse document production or disclosure is largely foreign in civil law jurisdictions like mainland China. Despite resistance, the growth of judicial practice on document production prompted the Supreme People’s Court of China (“SPC”) to make the new Rules of Evidence on Civil Procedure (“Rules of Evidence”) on December 25, 2019, effective as from May 1, 2020 in which the SPC implemented a Chinese-style document production which was not found in its 2002 version. This post sketches the current status of this new evidentiary procedure in mainland China and its implication. An earlier post discussed the counsel’s perspective on these rules.

 

Evolution of the Legal Framework on Document Production

Adverse document production has a very short history in Chinese civil litigation practice. On the legislative level, the Chinese legal system is not as familiar with document production as many other continental jurisdictions as evidenced by the fact that in China, none of the past amendments on the Civil Procedural Code (“CPC”) of the People’s Republic of China introduced adverse document production. Nevertheless, the need for adverse document production as derived from judicial practice compelled the SPC to suggest its introduction during the amendment procedure for CPC in 2012. However, this was not taken on by the legislative organs.

In 2015, the SPC published its own Judicial Interpretation on the CPC, which introduced adverse document production for the first time. Article 112 of the Judicial Interpretation on the CPC provides that:

[i]f certain documents are under the control of the counterparty, the party with the burden of proof may, before the time limit expires, request the court to order the counterparty to produce such documents. If the court finds the request to be substantiated, it should order the counterparty to submit the requested documents while the requesting party should bear the fees incurred for the purpose of the document production. If the counterparty refuses to produce the requested document without legitimate cause, then the court may assume and find that the requesting party’s allegation on the content of the requested yet undisclosed documents to be true.

This Article is largely procedural and lacks the basic standards of review the courts may adopt. However, a number of Chinese courts including the SPC have developed on this Article through court judgments rendered between 2017 and 2019 after the promulgation of the above-mentioned judicial interpretation. For example, in Sichuan Shuniu Real Estate Development Co. v. Ping An Bank Corporation Chengdu Branch, the SPC held that the materiality of the request for document production on the relief sought must be weighed by the court before making the document production order. Further, in a judgment rendered by the Luohe Intermediate People’s Court in 2019, the court interpreted that one of the preconditions for document production is that the requested document is indeed in the possession of the requested party. In another judgment rendered by the Zhoushan Intermediate People’s Court in 2019, the court found that the requesting party must provide prima facie evidence to prove that the requested document itself exists.

As mentioned at the beginning, the Rules of Evidence provide a detailed procedure for document production under Articles 45 to 48 as a complement to Article 112 of the SPC’s Judicial Interpretation on CPC in 2015. These four articles lay out the following basic explanation on document production in Chinese litigation practice:

(i) The elements of a proper request for document production should at least include the following: (a) the name or description of the content of the requested document; (b) the facts alleged and established by the requested document and its weight to the outcome of the pending case; and (c) the basis upon which the requested document is believed to be in the possession of the requested party. If the request for document production fails to meet the foregoing three elements, the courts usually would not grant the request.

(ii) By way of example, the scope of document production may include: (a) documents that have already been referred to in the proceedings; (b) documents serving the interests of the requested party; (c) documents accessible by the requested party; and (d) accounting records.

(iii) When considering the request for document production, the court should give the requested party an opportunity to present its opinion on the request; or if the case requires, the courts could order both parties to submit evidence to support or reject the request, or to debate on it.

(iv) If the court orders production of documents but the requested party does not comply with the order without showing any plausible cause, or if the requested party destroys or obstructs the requesting party from obtaining the requested document, the court may draw adverse inference against the requested party.

 

Document Production in Chinese Commercial Arbitration 

The evidentiary procedure of commercial arbitration in China with regard to document production largely resembles that of Chinese civil litigation practice. Traditionally, there are three ways of producing documents in the course of fact-finding in Chinese commercial arbitration:

(i) Voluntary production by the parties pursuant to Article 43 of the Chinese Arbitration Law which codifies a principle similar to the rules of civil litigation in China that the party should produce the evidence on which it intends to rely.

(ii) Preservation of evidence under both Articles 46 and 48 of the Chinese Arbitration Law which provide that a party may apply for court-assisted evidence preservation if the subject evidence is under the danger of being destroyed or being unable to be obtained afterwards by submitting such application to the relevant arbitration institution to be transferred to the competent court by the institution.

(iii) Evidence collected by the tribunal under Article 43 of the Chinese Arbitration Law which provides that the arbitral tribunal may, upon the parties application or on its own initiative, collect evidence when necessary.

Besides these means of producing documents, there is no evidentiary procedure for adverse document production in Chinese arbitration, nor is there any procedure akin to the requirements of the Rules of Evidence. However, the need for adverse document production in arbitration practice is more prevalent than in the context of litigation. One reason is the need for foreign-related arbitration and international arbitration conducted in China to adhere to international practice including its evidentiary procedure. For example, in a foreign-related arbitration administered by Shanghai International Arbitration Center (“SHIAC”) involving the allegation of reverse engineering, the holder of the proprietary information requested the respondent user to disclose documents for the purpose of the claimant holder’s case. In its procedural order, the tribunal drew reference to the universal legal principle of evidentiary procedure that the party making the allegation or claim should provide evidence supporting it, and accordingly denied the claimant’s request for document production and further rejected the request raised by the claimant for the tribunal to draw adverse inference against the respondent in the final award.

Echoing the needs of arbitration practice in China, arbitral institutions have introduced innovation to their procedural rules for evidence. For example, Article 7 of the 2015 version of the CIETAC Guidance on Evidence provides for Request to Disclosure where a party may request the tribunal to order the other party to produce a specific document or a narrow and specific category of documents.

Another illustration is that in a SHIAC-administered arbitration concerning contractual dispute arising out of a private equity transaction, the tribunal ordered pursuant to the investor’s request that the fund custodian bank assist with the evidentiary procedure where the fund manager did not participate. In particular, the custodian bank was ordered to disclose documents relating to the operation of the disputed fund during the time of the custody of the bank.

The introduction of new procedural rules together with Chinese commercial arbitration practice demonstrate the current widely adopted approach that tribunal may order one party to produce documents either pursuant to the other party’s request or on the tribunal’s own initiative after consulting both parties. Another approach is that only document production issues that cannot be resolved through negotiation between the parties will be referred to the tribunal for a decision. If the tribunal grants or issues an order for document production but the ordered party fails to comply without any legitimate cause, the tribunal may draw adverse inference against the non-complying party. With this being said, adverse inference which was provided for in the 2002 version of the Rules of Evidence, has rarely been used by tribunals in reality. This lack of usage of drawing adverse inference is in the line with the basic principle of evidentiary procedure that the party making the allegation or claim should provide evidence to substantiate it.

 

Implication of the New Rules to Chinese Arbitration

The relevant provisions for document production in the Rules of Evidence resemble in many aspects, the document disclosure mechanism prescribed in Article 27 of the UNCITRAL Arbitration Rules and Article 3 of the IBA Rules on the Taking of Evidence in International Arbitration (“IBA Rules on Taking Evidence”).

Similar to litigation, document production may be a critical juncture of the evidentiary procedure in arbitrations such as those arising out of the sales of goods, construction, finance, corporate investment and intellectual property rights where document production may well be needed to assist with the tribunal’s fact-finding tasks where the tribunal may make reference to the Rules of Evidence as well as the CPC.

Whilst document production procedure is not mandatory for the arbitral procedure itself in China, a party may challenge an award on the ground of concealment of evidence. In 2018, the SPC issued Several Provisions regarding the enforcement of arbitral awards according to which concealment of evidence is stipulated as a ground for non-enforcement.

At first glance, the refusal to order production of document and the concealment of evidence may be seen as two sides of the same coin. However, that was never the intention of the SPC when making the judicial provisions.

Looking at the text alone, the ground of concealment of evidence is limited to the following situations: (i) that the disputed evidence was the material evidence for establishing the basic facts of the arbitration; (ii) that the disputed evidence was in the possession of the other party and not produced in the arbitral proceeding; and (iii) that the disputed evidence was requested by the party and ordered by the arbitral tribunal to be produced in the arbitral proceeding but the requested party failed to comply with the order without any good cause.

The narrow scope of what may constitute concealment of evidence as a ground for non-enforcement requires the balancing between the Chinese courts’ pro-arbitration approach and their duty of judicial review. In practice, the balance has been kept well. In a judgment rendered by the Beijing No.4 Intermediate People’s Court in April 2020, the court reasoned that firstly, the principle that the party should produce the evidence on which it intends to rely should be the starting point of judicial review on the allegation of concealment of evidence, as that principle has been laid down in the applicable arbitration rules; secondly, the tribunal is entitled to rely on its discretion to decide on the party’s application for document production and the tribunal’s ignorance of such application does not violate the principle of due process.

 

Concluding Remarks 

The number of commercial disputes resolved by the Chinese courts appears to be far greater than those resolved through arbitration. It is therefore a reasonable assumption that if the document production mechanism continues to develop through court litigation, it may lead to a higher degree of familiarity among judges, legal practitioners and arbitrators. Further, the respect shown by Chinese judicial practice towards the tribunal’s discretion to decide on document production stands in line with the prevailing practice in international arbitration under the UNCITRAL Model Law regimes. We believe the gap between Chinese arbitration and international arbitration with regard to evidentiary procedure would eventually be filled.

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The Battle for Survival Among Arbitral Institutions

Fri, 2020-06-19 03:00

“Success in life is not for those who run fast, but for those, who keep running and are always on the move.”

Bangambiki Habyarimana, Pearls Of Eternity

 

This expression may work in both, personal and professional situations. Indeed, there seems to exist a consensus that “arbitration has become a big legal business” and a “field of intense competition”.1)P. Lalive, Towards a Decline of International Arbitration?, Journal of the Chartered Institute of Arbitrators, Blackstone, Vol. 65, N° 4, 1999, p. 251. jQuery("#footnote_plugin_tooltip_7483_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7483_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The growing use and evolution of arbitration has led to a burgeoning number of global and regional arbitral institutions. Every institution is thus competing to secure, keep or expand its own share of the arbitration world. This article reflects on implications of such competition and on predominant criteria for choosing an arbitral institution.

 

Choosing an institution

Given the rising competition among arbitral institutions, it is important to understand the elements that drive parties’ decisions in choosing an institution for their dispute. Nassib Ziadé has stressed that efficiency and legitimacy are the two factors that will determine any future role for arbitration institutions.2)Ziadé, N.B. (2009), Reflections on the role of institutional arbitration between the present and the future, Arbitration International, p. 427. jQuery("#footnote_plugin_tooltip_7483_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7483_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); While the issue of efficiency has been subject of many works, legitimacy has also gained its own spot, and is now being considered as a current key factor for the success of any arbitral institution, working as a thermometer for its trust and acceptance.

Accordingly, when negotiating the so-called “midnight clause” – assuming that parties have opted for an administered arbitration – the following factors should be taken into account: (a) whether a potential case related to this transaction calls for an international or local institution; (b) the desired level of interference by the institution; and (c) other key features, such as reputation, costs, culture, expertise and level of transparency.

Firstly, it is of paramount importance that parties evaluate whether they need the seal of a globally recognised arbitral institution, or those of regional presence can satisfy their needs. Taking the example of Africa, the SOAS University of London, together with the International Council for Commercial Arbitration, published a table consolidating the main arbitral centres in that region. Many of them enjoy a growing reputation for administering cross-border disputes and have an increasing caseload. Regional institutions are thus on the rise, attracting users from established international ones.

Secondly, when choosing a body that will administer their disputes, parties should take into account that each institution has its own level of intervention, to use the expression of Rémy Gerbay.3)Gerbay, ‘The Functions of Arbitral Institutions, International Arbitration Law Library’, Volume 38, KLI 2016. jQuery("#footnote_plugin_tooltip_7483_3").tooltip({ tip: "#footnote_plugin_tooltip_text_7483_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Arbitral institutions perform both casework and non-casework activities. Examples of casework activities include decisions on seat, consolidation, constitution of the tribunal, challenges etc. Mr Gerbay observed that ICDR is regarded as a centre with “medium intervention”, while HKIAC and SIAC can be described as institutions with “limited intervention”. Mr Gerbay considered LCIA and ICC to be of stronger intervention.

Thirdly, several other key features are usually considered in a decision on an institution. According to a 2015 study, interviewees assigned most importance to “high level of administration”, being related to the pro-activeness and responsiveness of the institution’s staff. “Neutrality/internationalism” and “global presence/ability to administer arbitrations worldwide” with a proven track record of international practice were ranked second and third respectively.

These top three features are all fairly generic performance indicators rather than objectively distinguishable institutional features. Nevertheless, as stated by Guy Pendell, it is inevitable that most practitioners will “probably have their favourites, likely to be based on prior experience, familiarity with their rules and procedures and, quite probably, geographic convenience to their office.”

 

The never-ending race among arbitral institutions

The rise of new institutions vs. recent revisions of existing institutional rules

As explained above, new arbitral institutions have been set up in places such as Central Asia and Africa.

In November 2018, the Tashkent International Arbitration Centre (TIAC) was established in Uzbekistan. TIAC aims to be a viable alternative to arbitrating at Paris or London based institutions. TIAC’s paradigms of success are cost, efficiency, compliance with international best practices and top-class arbitrators. TIAC arbitration rules adopt the latest thinking in arbitration. For instance, the rules enhance transparency and legitimacy by giving additional powers to arbitrators (e.g. Articles 10 and 20 of the TIAC Rules).

In Africa, the African Court of Mediation and Arbitration (CAMAR) was established in April 2019. The Court, aiming to open new perspectives and a better-organized legal framework, handles disputes involving states, African companies and multinationals operating in the continent. Such disputes have thus far been resolved before institutions in the Hague, Paris or London. As rightly observed by Gregory Travaini, CAMAR “could well be a contributing step towards the “Africanization” of arbitration”.

The ever-expanding list of new institutions all over the globe, illustrated by examples above, has provoked strong competition among the existing and new institutions. Internationally accredited and well-known institutions, notably in Europe and Asia, have responded with significant efforts in revising their respective arbitral rules (e.g. ICC Rules 2018 or Hong Kong International Arbitration Centre (HKIAC) Rules 2018).

 

Positive and negative implications of competition

This competition has various implications.

As Prof. Catherine Rogers has correctly observed, such competition between institutions could be a paradigm of “a race to the top or a race to the bottom”. Global competition could be considered as a healthy way to, first, ensure that these institutions provide a higher level of service quality and, second, to stay abreast with the international community’s developing dispute resolution needs. Similarly, while arguing that diversity is generally a good thing, Mr. Pendell notes that increasing the number of institutions should increase “innovation and a general advancement of standards”. The use of technology could be an innovative service, by striving towards efficiency and low cost.

However, the surplus of arbitral institutions has some negative effects. Among others, the perceived efforts to attract users by offering an increased number of services and tailor it to their own needs may have a direct impact on the efficiency of the proceedings, which is one of the key features of arbitration, by leading thus to unnecessary or even unwelcome delays and costs. A risk of greater concern is that “sham” institutions or even institutions that have no expertise or resources to administer arbitrations properly will, in a spill over effect, also harm the profile of established institutions and international arbitration in general. A recent example is the 18 billion Egyptian pound award administered by the Cairo-based International Arbitration Centre (IAC), where the Egyptian criminal court sentenced to prison both, the executive director of the IAC, under whose auspices the award was rendered, and the administrative secretary to the IAC of the arbitral institution in Cairo, for aiding and abetting the fraud. The question, yet to be answered, is whether this recent case will have any impact on the caseload of the IAC in the future.

 

From Competition to Cooperation?

On 19 December 2017, the Singapore International Arbitration Centre (SIAC) launched its Proposal on Cross-Institution Cooperation for Consolidation of International Arbitral Proceedings (Proposal). By way of inspiration, AFSA and the Shanghai International Arbitration Center have created the China-Africa Joint Arbitration Centre (CAJAC) in Johannesburg and Shanghai. Other innovative efforts for cooperation include the Memorandum of Understanding (“MoU’s”) signed by the ICC aiming to facilitate knowledge sharing and best-in-class services on this field. More recently, Saudi Arabia’s Center for Commercial Arbitration (SCCA) and Dubai International Financial Center (DIFC) Courts have also signed a MoU. These “mutual assistance” agreements mark a milestone in the cooperation and operation of arbitral institutions all over the globe, as they strive towards harmonization and consistency among arbitral rules. Therefore, as rightly stressed by Mr. Travaini, it seems that “cooperation would be more fruitful than dry competition”.

This need for cooperation has become more than ever a matter at stake. Recent events arising from the COVID-19 crisis have reinforced the demand for effective and seamless cross-border conferencing facilities to ensure that critical services, including dispute resolution services, are able to continue without prolonged disruptions, as stated by J. Hong and JH Hwang. The importance of inter-institution cooperation providing for distance video-conferencing for virtual hearings have thus, come to the forefront.

Some of the innovative solutions have already been in place or being implemented by arbitral institutions. Indeed, the ICC conducts virtual hearings and meetings with the assistance of the Secretariat and the tribunal (Article 24.4 and Appendix IV of the ICC Arbitration Rules). The HKIAC has likewise an online platform to conduct e-hearings and online filing system for the submission of documents. In developing these new approaches, a number of existing soft law instruments assist including IBA soft law rules, which provide for audio and videoconferencing services, as well as the Chartered Institute of Arbitrators Guidelines for Witness Conferencing in International Arbitration, promulgated in 2019 or the current drafting of the Seoul Protocol on Video Conferencing in International Arbitration, which could represent an inspiration for other arbitral institutions to adopt similar international standards for video conferencing into their arbitral rules.

With their genius for innovation and flexibility, arbitral institutions must work together to further advance the technologies at their disposal and develop protocols needed to meet the challenged ahead.

 

Conclusion and a view to the future

Legitimacy and the aforementioned key features, shaped mostly by the users’ needs, importantly contribute to the success of an arbitral institution, avoiding a race to the bottom. Nevertheless, a successful institution does not prevent others’ success: many institutions (if not all) record a growth in caseload, demonstrating that recourse to institutional arbitration is being preferred. This means that one institution’s gain (success) is not necessarily another’s loss. A healthy competition is necessary for continuous improvement, but it could also be wise to cooperate in some circumstances. A combination of both may develop the best conditions for international institutional arbitration to excel as a legitimate means for dispute resolution.

References   [ + ]

1. ↑ P. Lalive, Towards a Decline of International Arbitration?, Journal of the Chartered Institute of Arbitrators, Blackstone, Vol. 65, N° 4, 1999, p. 251. 2. ↑ Ziadé, N.B. (2009), Reflections on the role of institutional arbitration between the present and the future, Arbitration International, p. 427. 3. ↑ Gerbay, ‘The Functions of Arbitral Institutions, International Arbitration Law Library’, Volume 38, KLI 2016. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Is An Arbitral Tribunal’s Draft Award Susceptible to Judicial Review?

Thu, 2020-06-18 04:00

Background

In a recent blog post, Luis Capiel and Alicia Larrazabal of Herbert Smith Freehills commented on the Venezuelan Supreme Court of Justice’s decision to stay institutional arbitration proceedings initiated by Modexel Consultores e Servicios S.A. (MODEXEL) against Alimentos Polar Comercial C.A. (POLAR) under the Business Center for Conciliation and Arbitration (CEDCA) arbitration rules.

In essence, that decision arises out of POLAR’s application for judicial review of an arbitral tribunal’s draft final award. If successful, it would enable Venezuela’s most senior court to determine the merits of the parties’ underlying dispute.

This blog post deals with the basics of the review of draft awards and provides guidance on the question of whether national courts are empowered to review these types of awards, particularly, in the context of such a decision.

 

Out-of-Court Review of Draft Awards: The Basics

An arbitral tribunal’s draft award may be described, in simple terms, as a work-in-progress version of the tribunal’s ruling on a given matter. At any rate, a draft award is not, technically speaking, an interim or a provisional award.

In a three-member arbitral tribunal, for instance, draft awards will usually form the basis for the tribunal’s discussions (or deliberations) as to the content of an award that upon publication — and always subject to the exercise of any other right that the parties may have in connection with it, whether under the lex arbitri or the applicable arbitration rules — will eventually acquire res iudicata effect as between the parties to the arbitral proceedings.

Consequently, it is safe to say that the review of draft awards is, more often than not, carried out by the members of the arbitral tribunal themselves. It is plain that, prior to their publication, such drafts are of no legal effect whatsoever. This is so regardless of how perfectly drafted (or how similar to the final version) they might be.

Draft awards may also be reviewed (or scrutinised) by an arbitral institution (see, for example, Article 34 of the ICC Arbitration Rules 2017 and Rule 32.3 of SIAC Rules 2016) and also, but less frequently, by the parties to the arbitral proceedings, who may be perfectly invited to identify any errors of fact or law that the draft may have, whether real or perceived.

 

Statutory Challenge of Arbitral Awards under Venezuelan Arbitration Law

As far as Venezuelan arbitration law is concerned, a party to arbitral proceedings may apply to the national courts challenging an award on very limited grounds (see, in particular, Article 44 Ley de Arbitraje Comercial de 1988 (LAC 1988)). They almost mirror the language of Article 34 of the UNCITRAL Model Law 1985, as amended.

In principle, an application to challenge an arbitral tribunal’s award under Article 44 of the LAC 1998 does not operate as a stay of enforcement proceedings of the relevant award.

Nonetheless, the court may order a stay of enforcement proceedings subject to an undertaking by the applicant to provide security should the application to challenge the award ultimately fail (as per Article 43 LAC 1988).

Suffice it to say that Articles 43 and 44 of the 1988 legislation are not intended to apply to arbitral tribunals’ draft awards.

 

Inadmissibility of POLAR’s Application for Judicial Review

Article 106 of the Ley Orgánica del Tribunal Supremo de Justicia de 2010 (LOTSJ 2010) empowers the Supreme Court (in any of its divisions), whether upon a party’s motion or sua sponte, to exert jurisdiction over any matter handled by national courts, i.e., to engage in avocamiento proceedings.

Avocamiento proceedings are only permissible in exceptional cases. They aim to protect: (1) the image of the Venezuelan judiciary, (2) public peace, and (3) the institution of democracy, (as per Article 107 LOTSJ 2010).

When exercising such power, the Supreme Court has two options to choose from: (1) it may itself hear the matter and make a judgment on the merits of the case in question or, instead, (2) it may remit the matter to a court other than that in which court proceedings were originally commenced.

Whilst Article 106 LOTSJ 2010 makes use of the expressions ‘any tribunal’ (cualquier tribunal) when regulating avocamiento proceedings, a closer examination of the language employed by the Venezuelan legislator demonstrates conclusively that ‘arbitral tribunals’ do not fall within the scope of application of the 2010 legislation.

Article 25(16) in conjunction with Article 108 LOTSJ 2010 clearly stipulate that avocamiento proceedings would only be allowed in relation to a matter litigated in the Venezuelan Republic’s national courts (tribunales de la República).

Although it can be argued that arbitral tribunals and national courts perform a somewhat analogous function, it is evident that arbitral tribunals seated in Caracas (or any other Venezuelan city) do not, by implication, become a distinctive part of the Venezuelan judiciary.

Thus, an application for avocamiento can only be lawfully made in respect of court — and not arbitral — proceedings that are (or are likely to be) surrounded by procedural irregularities or where a scandalous violation of the juridical system is at stake.

In other words, judicial review by means of avocamiento proceedings has been specifically designed to prevent an act of injustice associated with an impending ‘judgment’, and not in respect of an arbitral tribunal’s draft or future ‘award’.

Hence, for purely procedural reasons, POLAR’s application should have been declared inadmissible in limine litis.

 

The Supreme Court’s Judgment

The Venezuelan Supreme Court’s decision in POLAR v MODEXEL (albeit interlocutory) has, quite rightly, caused great concern among the arbitration community.

Its decision is tantamount to an anti-arbitration injunction that results from one of the parties’ dissatisfaction with a ‘draft award’.

It is far from certain what the principle behind such a decision actually is. What is clear, however, is that the Supreme Court appears to have interpreted the concept of ‘tribunal’ far beyond the legislator’s intention.

No doubt such an interpretation would lead to a perilous precedent for the development of Venezuelan arbitration law.

But not all hope is lost. The Supreme Court may very well re-examine the admissibility of the application (inadmisibilidad sobrevenida) and decide that POLAR’s application is not admissible for the reasons set out above.

The Supreme Court may also take this opportunity to clarify: (1) that a draft award cannot be challenged before the national courts and, at the same time, (2) that there is only one way to challenge an arbitral tribunal’s award within the meaning of Article 43 of the LAC 1988.

 

Conclusions

I am not aware of any legal system that allows national courts to review arbitral tribunals’ draft awards. As a matter of Venezuelan arbitration law, it is clear that POLAR has applied for a remedy that, de lege lata, does not exist.

Although, in practice, draft awards may be — and indeed sometimes are — relied upon in the national courts, especially, in the context of a statutory challenge, it is also clear that a draft award in itself provides no right to bring a claim for judicial review.

But otherwise it is submitted that draft awards are not susceptible to review by any national court, not least because they are not binding on the parties concerned, as a result of which the dissatisfied party has no legal standing to seek its review.

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How to Recognize and Enforce a Foreign Arbitral Award in the Kingdom of eSwatini?

Thu, 2020-06-18 03:00

The answer to the question of how to recognize and enforce foreign arbitral awards in currently at least 164 jurisdictions worldwide usually starts with a reference to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). Not so in the Kingdom of eSwatini, one of the few jurisdictions who still do not apply the New York Convention.

Before turning to the question in the headline of this post, there is another burning question that needs to be answered first: Where is the Kingdom of eSwatini? The comparatively small country in Southern Africa formerly known as Swaziland officially changed its name a bit more than two years ago, on 19 April 2018. That was also the fiftieth birthday of Mswati III., King and Ingwenyama of eSwatini, who was born in 1968, the same year when Swaziland gained its independence from the United Kingdom. (Fun fact: The title “Ingwenyama” in the language siSwati translates to both “lion” and “king” – those who now think of “The Lion King” are not far off, as the isiZulu word “Ingonyama” has the same two meanings and appears in the movies’ theme.) There were two reasons for the name change: First, Mswati III. wanted to use the country’s original name again. Second, he wanted to put an end to the apparent confusion caused by the proximity of the name “Swaziland” to “Switzerland”, a confusion that, as Swiss television reports, had caused letters intended to be sent to Switzerland to end up in Swaziland.

Now turning to the question in the headline, the answer is relatively easy in only two cases: If the award is an ICSID arbitral award or if the Reciprocal Enforcement of Judgments Act, 1922 applies.

The ICSID Convention has been in force in eSwatini since 14 July 1971. In addition, the Arbitration (International Investment Disputes) Act 1966, which came into force on 20 January 1967, declared the United Kingdom’s Act of the same name applicable to eSwatini, with certain modifications. However, it seems like there has not been a single ICSID case against the Kingdom of eSwatini so far – only a publicly available Notice of Investment Dispute.

The Reciprocal Enforcement of Judgments Act, 1922 came into force on 27 January 1922 and provides that judgments from certain courts in certain jurisdictions may be registered, and thus enforced, in eSwatini. According to Section 2 of this Act, “judgment” also “…includes any award in proceedings on an arbitration if such award has, in pursuance of the law in force in the place where it was made, become enforceable in the same manner as a judgment given by a court in such place”. The Act originally applied to certain courts in England, Ireland, and Scotland, and – by virtue of the Schedule to the Reciprocal Enforcement of Judgments Rules, in force since 16 June 1923 – today extends to certain courts from Lesotho, Botswana, Zimbabwe, Zambia, Zanzibar, Malawi, Kenya, New Zealand, Western Australia, the rest of Tanzania (in addition to Zanzibar), Uganda, New South Wales, Victoria, the Territory of North Australia, and the Territory of Central Australia.

But what if the arbitral award is not an ICSID award and not an award falling under the Reciprocal Enforcement of Judgments Act, 1922?

The Arbitration Act, 1904 came into force on 28 July 1904 and, in its Section 17, contained in Part II on “References by consent out of Court” and titled “Award; how to be enforced”, provides that “[a]n award which has been made an order of Court may be enforced in the same manner as a judgment or order to the same effect.” Part III on “References under order of Court” contains a similar provision in its Section 22. However, the Act does not state the conditions for making an award an order of court. It also does not clarify whether these provisions apply only to domestic or also to foreign arbitral awards.

Three court decisions on the recognition and enforcement of foreign court decisions provide some guidance.

In the case of Economa Proprietary Limited v Leornard Charles Hudson (Case No. 1594/93), Economa had requested the recognition and enforcement of a South African court decision in Swaziland, and the High Court of Swaziland made a decision on 17 June 1994. In doing so, the court set an important precedent by holding that where the Reciprocal Enforcement of Judgments Act, 1922 does not apply (such as in relation to South Africa), a foreign court decision could be recognized and enforced under the Roman Dutch Common Law.

In the case of Tsabile Mamba v Bhadala Mamba (Case No. 1451/09), the High Court of Swaziland, in its decision of 13 January 2011, reversed its decision in Economa v Hudson, although without explicitly mentioning it. One of the parties had requested the recognition and enforcement of a court judgment from the United States of America. As the Reciprocal Enforcement of Judgments Act, 1922 did not apply, the court – at least according to Economa v Hudson – would have had to apply Roman Dutch Common Law. Yet the court did not do so. Instead, it relied on Article 252(1) of the 2005 Constitution of the Kingdom of Swaziland, which as far as relevant here states that “…Roman Dutch Common Law … shall be applied and enforced as the common law of Swaziland except where and to the extent that those principles or rules are inconsistent with this Constitution or a statute.” The reasoning of the High Court of Swaziland was that the Reciprocal Enforcement of Judgments Act, 1922 was a statute with which the Roman Dutch Common Law rules on the recognition and enforcement of foreign court decisions were inconsistent.

On 21 February 2020, the High Court of eSwatini – in the case of Improchem (Pty) Limited v USA Distillers (Pty) Limited (Civil Case No. 1130/17) explicitly overruled the decision in Mamba v Mamba and reinstated the rule established in Economa v Hudson. It is now once again good law in eSwatini that foreign court decisions can be recognized and enforced by application of Roman Dutch Common Law if they do not fall under the Reciprocal Enforcement of Judgments Act, 1922.

Moreover, the Improchem decision is directly relevant to the recognition and enforcement of foreign arbitral awards. The parties had arbitrated in 2012 and 2013, and an arbitrator then made an award on 31 January 2014. Afterwards, an arbitral tribunal heard an appeal against the award and handed down a modified award on 17 September 2014. Improchem moved an application in the Gauteng Local Division of the High Court of South Africa, seeking to have the appeal award made an order of court, and the court did so on 31 August 2016. This South African decision is not publicly available, according to footnote 8 in another South African decision. Improchem’s request in eSwatini was for the recognition and enforcement of that South African court judgment.

The following findings in the decision may help to assess how the courts of eSwatini will treat similar requests in the future:

Relying on the South African leading case in Jones v Krok, the court held that “…the argument on public policy would ordinarily refer to orders or judgments that have been obtained through fraudulent means or where the order that was obtained in the foreign jurisdiction is illegal in the jurisdiction where it is sought to be recognized and enforced.”

With regard to the scope of review, the court explained that “[t]here is no doubt in my mind that there is no basis in law upon which I can enquire into the merits of the appeal award.”

Finally, on the question of whether the South African arbitral award could have been recognized and enforced in eSwatini directly, without first making it an order of court in South Africa, Mlangeni J provided the following answer:

“It appears to me that for purposes of enforcing the award in this country there was no need to first make it in order of court in South Africa. The application could, in my view, have been made in this jurisdiction where the Respondent is believed to have assets. On the other hand nothing has been lost by making it an order of court in South Africa – except, of course, the escalating litigation costs. The route to recognise and enforce the award in this country would have been shorter and cheaper.”

For those willing to recognize or enforce a foreign arbitral award in eSwatini, the decision in Improchem v USA Distillers thus has the following consequences:

  1. Foreign arbitral awards can be recognized and enforced either directly in eSwatini or after having been recognized and declared enforceable in their country of origin.
  2. There will be no review on the merits of the foreign arbitral award.
  3. There will only be a limited review for violations of public policy.

At the same time, the Improchem decision does not answer the question of whether the legal basis for a recognition and enforcement of foreign arbitral awards is the Arbitration Act, 1904 or Roman Dutch Common Law (or a combination of both), and it does not list the requirements that need to be fulfilled for a successful application.

To sum up, the High Court of eSwatini’s recent decision in Improchem v USA Distillers receives praise as it provides several positive clarifications.

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ISDS Reform and Advancing All “Generations” of Human Rights

Wed, 2020-06-17 06:00

Reforms Are Afoot

Calls for investor-State dispute settlement (“ISDS”) reform have catalyzed efforts to evolve the regime. Concurrently, the ISDS system continues to wrestle with tensions between an investment regime primarily oriented towards protecting investor rights, and the human rights normative architecture for protection of individual rights and associated State obligations for protection of such rights. ISDS reform efforts have specifically endeavored to address procedural barriers that in practical terms have prevented assuaging persistent tensions. Such efforts further present an opportune moment to address so-called first, second, and third “generations” of human rights in toto. States can likewise support such efforts with adoption of investment agreements and policies that further both the procedural and substantive dimensions of human rights across all generations.

 

Three “Generations” of Human Rights

Human rights are often conceptualised as falling into three interdependent  “generations of rights”:

  • First-generation rights relate to civil and political liberties (e.g., right to a fair trial or freedom of speech)
  • Second-generation rights relate to social, economic, and cultural rights (e.g., right to housing or right to education)
  • Third-generation rights, or ‘rights of solidarity’, relate to collective rights (e.g., right to a healthy environment)

The ISDS regime has tended to recognize certain civil and political rights including, inter alia, the rights to property, access justice, and due process. However, these rights are often made available only to a very narrow set of entities (i.e., foreign investors), without also focusing on second- and third-generation human rights (either of those investors, or other stakeholders). For ISDS, the challenge becomes balancing which rights apply to which entity (i.e., investor or State), as well as acknowledging that ISDS qua system impacts all generations of rights.

 

Ongoing ISDS Reform Efforts

There have been three notable ISDS reform efforts:

  • Discussions at the UNCITRAL Working Group III (Investor-State Dispute Settlement Reform) (the “Working Group III”) (see recent blog coverage here)
  • The European proposal of a Multilateral Investment Court (the “MIC”) (see recent blog coverage here)
  • The current Proposal for Amendment to the ICSID Rules (the “Proposed Amendment to ICSID Rules”) (see recent blog coverage here)

These institutional reforms focus largely on procedural rights including, inter alia, fostering transparency, reducing arbitration costs, and encouraging amici participation. Therefore, they primarily focus on certain critical civil and political rights (e.g., public and community participation, rule of law) over second- and third-generation rights (e.g., right to water, right to a healthy environment). Altogether, they seek to address how the dispute itself should be resolved, rather than directly addressing substantive human rights concerns, perhaps because they can be negotiated separately between States.

 

Working Group III

At the 48th session of the UNCITRAL, the Commission took note of “concerns” with the current ISDS model, as well as proposed reforms. While the proposals do not engage with substantive human rights issues, they do envision a greater role for certain human rights considerations (e.g., right to trial, right to a due process, access to justice). However, others that have often featured in investment disputes are not mentioned (e.g.,  the rights to health and water).

 

The Multilateral Investment Court

The EU has proposed the creation of a permanent multilateral investment court in lieu of the current ISDS system. In principle, reforms on transparency and third-party participation provide increased opportunity to raise human rights considerations relating to access to justice and enhanced public participation. Limiting frivolous claims and providing stronger rules on security reduces the financial burden placed on public funds and the prospect of regulatory chill.

 

Proposed Amendment to the ICSID Rules

In February 2020, the ICSID Secretariat published its fourth working paper on proposals for rule amendments. These procedurally-driven proposals largely impact first-generation human rights (e.g., access to justice, due process) and remain silent on second- or third-generation rights. For example, they aim to increase transparency, even admitting observers to hearings, as well as allowing ICSID to publish hearing recordings and hearing transcripts.

 

The Three Proposals and Human Rights: The Whole Is Greater Than the Sum of Its Parts

Although we recognize that the reform process does not explicitly seek to address second- and third-generation rights, we weigh the proposals against several interrelated human rights considerations.

 

Reconciling Investment Treaties with the Sustainable Development Goals (“SDGs”)

Critics argue that investment treaties often impose significant costs that negatively affect the sustainable development objectives of States. The SDGs focus largely on second-generation rights, such as the right to food or a healthy environment, while all three ISDS reform proposals focus on procedural reforms and, therefore, are primarily oriented towards certain civil and political rights. However, all three proposals conform with Goal 16 of the SDGs, which seeks to promote the rule of law through, inter alia, access to justice and transparency. Each is a focal point of the reforms envisaged by Working Group III, the MIC and Proposed Amendment to the ICSID Rules. Goal 16 supports the broader goal of a consistent legal system, which procedurally will help ensure the success of human rights claims. The reform process, therefore, helps promote a narrow and specific SDG (i.e., Goal 16), but is silent on and indirectly may hamper other SDGs.

 

Preventing Regulatory Chill Due to Threat of Investment Claims

A common criticism of ISDS is that it creates an investor-friendly environment that can result in regulatory chill, due to the threat of investment claims. Given the procedural focus of all three proposals, they do not directly address the substantive human rights dimension of regulatory chill. However, they clearly seek to streamline the process to remove cases that are not meritorious on an expedited basis (thereby reducing costs) and/or provide a capacity to seek security for costs. For example, Working Group III in its 39th session aimed to address frivolous claims and reduce the possibility of repeatedly filing cases. The MIC proposal similarly includes provisions against frivolous claims (Article 17), as well as provisions providing for security for costs (Article 21). The Proposed Amendment to the ICSID Rules allows parties to object to claims that are manifestly without legal merit (Rule 51). Moreover, the Tribunal may determine costs based on several factors (Rule 63), including party conduct, which would in principle allow for greater costs to be imposed on obviously frivolous claims.

 

Permitting Counterclaims to Turn the Tables

Counterclaims offer another avenue for holding investors accountable for alleged human rights violations. The Working Group III underscored that its efforts would not foreclose the possibility of States bringing claims against investors, assuming an appropriate legal basis, and aimed to increase the admissibility of counterclaims, thereby improving the first-generation right to fair trial. It also discussed the possibility of increasing investor obligations, including regarding human rights, the environment, and corporate social responsibility, marking a notable diversion into second-generation rights for reform proposals largely focused on certain first-generation rights.

The MIC proposal has not explicitly considered counterclaims, but it was noted that there was the possibility of the MIC being able to hear counterclaims. The MIC does not envision increasing investor obligations, leaving that to the investment treaties to determine. However, the MIC would theoretically increase consistency on admissibility of counterclaims because of its permanent nature.

The Proposed Amendment to the ICSID Rules allows for counterclaims—termed “ancillary claim”— arising directly out of the subject-matter of the dispute, provided that they are within the scope of party consent and Centre jurisdiction. The amended section now creates an implied consent for counterclaims, requiring explicit party agreement against admissibility. In effect, this counters the prior system, which rejected counterclaims that lacked investor consent, and increases the likelihood of raising human rights considerations.

 

Increasing Third Party Participation

Calls for ISDS reform frequently raise the issue of third-party participation, given that the rights of third parties are often affected by international investment projects, without providing them the avenue of ISDS for relief. While some tribunals have accepted third party submissions (e.g., amicus briefs), this is subject to tribunal discretion and has not been universal. Moreover, given the confidentiality of ISDS, the third parties who are affected often are unaware of the investment disputes that directly impact their rights.

The Working Group III briefly considered allowing non-party submissions in relation to the appellate process, but did not discuss it substantively. The MIC proposal provides, in Article 23, for third parties to participate, allowing “any natural or legal person which can establish a direct and present interest in the result of the dispute (the intervener) to intervene as a third party.” The right to intervene is without prejudice to amicus briefs, and extends to the Appeal Tribunal. The Proposed Amendment to the ICSID Rules includes measures taken to allow for greater public participation (Rules 62 and 63) to increase publication of awards and decisions, and observe (Rule 65). However, these rules require party consent and, for Rule 65 in particular, are at the discretion of the tribunal. While such efforts are procedural in nature, increasing third party participation can help raise second- and third- generation rights in disputes.

 

Comparing the Proposals and the Future for Human Rights Considerations

In summary, the proposals tend to be procedural in nature and, therefore, they promote certain first-generation human rights. However, as seen in the table below, there is a nascent support for the alignment with SDGs, which may touch upon second- and third-generation human rights, although the references are often ambiguous or aspirational.

Reform Agenda Alignment with SDGs Transparency Regulatory Chill Third party participation Working Group III Indirectly addressed in a fairly limited manner Directly addressed Outside scope Not substantively addressed MIC Indirectly addressed in a fairly limited manner Directly addressed Not substantively addressed Directly addressed ICSID Amendment Indirectly addressed in a fairly limited manner Directly addressed Not addressed Directly addressed

Looking ahead, the future for second- and third-generation rights in ISDS reform efforts remains uncertain. The procedurally-driven reforms provide a sound foundation for subsequent development of substantive rights beyond the civil and political rights that have historically predominated ISDS. Yet without attention afforded to second- and third-generation rights in reform efforts, resultant pressure is placed on other avenues for raising such considerations including, inter alia, modification of investment treaties. States play a critical role in this process and can support alignment between procedurally-driven reform efforts and substantive provisions in investment agreements and policies. If the ISDS system is to evolve to better recognize human rights considerations, then reform efforts must provide for a foundation that envisions all generation of rights.

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Opportunities and Challenges in View of the Singapore Convention on Mediation: Inaugural YSIAC-Young ICSID Joint Webinar

Wed, 2020-06-17 05:00

Co-organised by YSIAC’s Ms Kirsten Teo and Young ICSID’s Ms Celeste Salinas Quero, this YSIAC-Young ICSID webinar on the impact of the Singapore Convention on Mediation (“Convention”) on international investment disputes brought together five visionary speakers across four time-zones and attracted hundreds of attendees from 50 countries worldwide.

With Mr Diogo Pereira (Partner, De Almeida Pereira PLLC, Washington DC) as moderator, the panel was comprised of the following esteemed speakers: Mr Gary Born (President, SIAC Court of Arbitration; Chair, International Arbitration Practice Group, Wilmer Cutler Pickering Hale and Dorr LLP); Mr George Lim, Senior Counsel (Chairman, Singapore International Mediation Centre); Ms Natalie Y. Morris-Sharma (Deputy Senior State Counsel, Attorney-General’s Chambers; Chair, UNCITRAL Working Group II); Ms Frauke Nitschke (Senior Legal Counsel, ICSID); and Dr Judith Knieper (Legal Officer, UNCITRAL).

Ms Morris-Sharma gave an overview of the negotiating milestones, compromises reached among the different delegations, and the drafting process of the Convention, during which time she was the Chair of the UNCITRAL Working Group II on Dispute Settlement. She explained that the Convention (a) applies to mediated settlement agreements and not agreements to mediate, (b) applies to investment disputes, (c) offers certainty to the enforcement of mediated settlement outcomes, and (d) broadens the dispute resolution options in combination with litigation and arbitration. To date, there are 52 signatories to the Convention which has been ratified by 4 countries, and the Convention is expected to enter into force on 12 September 2020.

Dr Judith Knieper presented on the structure and history of UNCITRAL, as well as the mediation framework offered by UNCITRAL, which includes the 1980 UNCITRAL Conciliation Rules and the 2002 UNCITRAL Model Law on International Commercial Conciliation. She referred to on-going plans to update these documents, and current negotiations on the draft UNCITRAL Mediation Model Law which is anticipated to be finalised in 2020. In addition, Dr Knieper shared her perspective on the negotiations of the Convention and summarized the work in progress of the UNCITRAL Working Group III on promoting the use of mediation in investor-state dispute settlement.

Thereafter, Ms Nitschke set out a detailed presentation on the new proposed ICSID Mediation Rules (see also previous post here). She commented that participation in the ICSID mediation framework would be entirely voluntary – “ongoing consent” would be needed, and parties would be able to unilaterally withdraw at any time. She also noted the growing interest in mediation globally, as reflected by an increasing number of references to mediation in treaties, and the 2016 Guide on Investment Mediation adopted by the Energy Charter Treaty. Ms Nitschke sees the Convention as a way to address this growing interest – she referred to a survey conducted by the International Mediation Institute (with the New Jersey City University Institute for Dispute Resolution) which indicated that 84% of the respondents were more likely to consider mediation as a means to resolve disputes, if there was a global enforcement mechanism for mediated settlement agreements.

Mr George Lim, SC, spoke about how the Convention has promoted mediation as a dispute resolution tool in various countries, and provided the example of India which is in the process of drafting a domestic legislative framework on mediation after it signed up to the Convention in August 2019. He also shared about the hybrid arb-med-arb protocol implemented by the Singapore International Mediation Centre (“SIMC”) in conjunction with the Singapore International Arbitration Centre (“SIAC”). He also gave young practitioners tips on being a successful mediator, summing them up with his 3 ‘P’s – people skills; (mediation) process skills; and problem-solving skills.

Mr Gary Born rounded up the panel discussion with an emphasis on the importance of fair and legitimate dispute resolution mechanisms such as the Convention, to promote global trade and commerce. He commented that the Convention is off to a good start given the sizeable number of signatories to date, in view of the number of initial signatories to the 1958 New York Convention (for further reference, please see here). Further, Mr Born discussed the interconnectedness of mediation and arbitration, by sharing his perspectives on the role of arbitrators in encouraging mediation and echoing the close collaboration between SIAC and SIMC pertaining to the arb-med-arb protocol (for more on what the Convention means for arbitration and the future of dispute resolution, also see here). He also provided valuable insights on multi-tiered dispute resolution clauses – such clauses, though put in place with good intentions, could throw up jurisdictional/admissibility issues in arbitration, and must be drafted with care.

The panel’s comments were useful in confirming that the Convention is intended to, and does apply, to investor-state dispute settlement. It was also heartening to see key players like UNCITRAL and ICSID actively engaged in further developing a comprehensive framework for mediation to be used as a dispute resolution tool. The panel’s insights also drove home the point that international arbitration and mediation are complementary mechanisms of resolving disputes. Depending on the circumstances, a combination of processes could be effective – for example, mediation can be used to narrow down the key disputed issues to be decided in arbitration, which could save time and costs overall.

A common thread throughout this panel discussion was the recognition that the global community has a strong growing interest in using mediation, to resolve not only commercial disputes but also investor-state disputes. The Convention is a testament to this reality. Only time will tell how this landscape will continue to evolve – but for now, the future for international mediation is bright.

 

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Judicial Support against Due Process Paranoia in International Arbitration

Tue, 2020-06-16 04:00

Due process is an essential aspect of international arbitration or, indeed, any contentious proceeding. Due process rules act as a shield for parties against unfairness. They ensure that the exercise of a tribunal’s jurisdiction is constrained, such that all parties are given a reasonable opportunity to present their cases.

There has been a notable increase in the number of parties who have sought to invoke due process as a sword.1)See, L Reed, Ab(use) of due process: sword vs shield, Arbitration International, Volume 33, Issue 3, September 2017, Pages 361–377. jQuery("#footnote_plugin_tooltip_5456_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5456_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); It has become increasingly commonplace for parties to abuse their due process rights or seek to abuse the concept of due process by engaging in dilatory or guerilla tactics, such as by advancing numerous or late procedural applications or raising due process objections, while threatening the tribunal with annulment of their award in the event of non-compliance.2)Ibid. See also K P Berger, J O Jensen, Due process paranoia and the procedural judgment rule: a safe harbour for procedural management decisions by international arbitrators, Arbitration International, Volume 32, Issue 3, September 2016, Pages 415–435. See also Singapore Court of Appeal Decision in China Machine New Energy Corp v Jaguar Energy Guatemala [2020] SGCA. jQuery("#footnote_plugin_tooltip_5456_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5456_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Due Process Paranoia

The abuse of due process has led to the phenomena of due process paranoia, defined in the 2015 Queen Mary International Arbitration Survey as “a perceived reluctance by tribunals to act decisively in certain situations for fear of the arbitral award being challenged on the basis of a party not having had the chance to present its case fully.”

It has been described as having three observable elements (see earlier Kluwer blog post by Remy Gerbay): (i) a tribunal making case management decisions that are overly deferential to due process considerations, protecting one party’s interests over the other (usually the respondent’s), (ii) the tribunal’s belief that a cautious stance is necessary to guard against the risk that the award may otherwise be set aside and/or refused enforcement, and (iii) the erroneous character of the tribunal’s inflated perception that this level of caution is warranted.

One view expressed by Berger and Jensen3)K P Berger, J O Jensen, Due process paranoia and the procedural judgment rule: a safe harbour for procedural management decisions by international arbitrators, Arbitration International, Volume 32, Issue 3, September 2016, Pages 415–435. jQuery("#footnote_plugin_tooltip_5456_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5456_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); is that due process paranoia “not only originates from the arbitrators’ interest that their awards will not be set aside or denied enforcement – an unwelcome smudge on their track-record – but is sometimes also induced by the applicable rules,” and would “lead the arbitrator to grant unreasonable procedural requests, thus prolonging the proceedings unnecessarily.” As such, arbitrators face a very real stake in ensuring that their awards are annulment-proof – otherwise, they risk the creation of a record that they have violated a party’s due process rights. Pursuant to several institutional rules,4)Article 42 of the ICC Rules 2017, Article 32.2 of the LCIA Rules 2014 and Article 41.2 of the SIAC Rules 2016. jQuery("#footnote_plugin_tooltip_5456_4").tooltip({ tip: "#footnote_plugin_tooltip_text_5456_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); draft awards are subject to either formal or informal scrutiny. Tribunals are under the duty to (or are expected to) make every reasonable effort to ensure the enforceability of the award.

Tribunals are empowered to balance due process rights against the expedient conduct of the arbitration. Due process paranoia affects their ability to identify and resolve genuine due process issues, and leads to the following consequences. First, abusive procedural demands often cause delays and increase the costs of the arbitration as tribunals labour to accommodate the party’s demands. Second, this causes further wasted time and costs in set aside applications and advancing spurious arguments in resisting enforcement of the arbitral award. This drains the resources of not only the parties and the tribunal, but national courts as well. Lastly, and more broadly, such due process paranoia adversely affects the integrity of arbitral proceedings and the system of international arbitration as a whole: such inefficiency undercuts the efficiency, fairness and enforceability which are the key underpinnings of the arbitral system.

 

Judicial Attitudes

The threat posed to arbitration by such due process paranoia has been recently noted, both by the Malaysian High Court in Allianz General Insurance Company Malaysia Berhad v Virginia Surety Company Labuan Branch Originating Summons No. WA-24NCC(ARB)-13-03/2018 (see earlier Kluwer Blog post by Tse Wei Lim), as well as by the Singapore Court of Appeal in China Machine New Energy Corp v Jaguar Energy Guatemala [2020] SGCA.

In Allianz, the Malaysian High Court dismissed a due process challenge against an arbitral award, and also emphasized that “[n]atural justice does not demand that a party is entitled to receive responses to all submissions and arguments presented for only the right to be heard is fundamental.”

In China Machine, the Singapore Court of Appeal dismissed China Machine New Energy Corp’s (“CMNC”) appeal against an earlier High Court decision (see earlier Kluwer Blog post by Maximilian Clasmeier) declining to set aside an arbitral award on the basis of breach of natural justice. CMNC alleged that the tribunal’s case management decisions (a) allowing the respondent’s rolling production of documents, (b) not granting CMNC a further extension of time to file a responsive expert report (the “Report”) or admitting the Report, (c) not admitting CMNC’s supplementary expert report, and (d) allowing the respondent’s disclosure of documents in a disorganized manner were in breach of natural justice.

The Court of Appeal noted that (a) the tribunal was entitled to assume that CMNC’s pleaded case considered the rolling production as fair in exchange for an extension of the filing of the Report, (b) there was no prejudice against CMNC as the tribunal undertook a careful analysis of the findings in the Report in its award, (c) it was not unfair or unreasonable for the tribunal to exclude the supplementary expert report (given that CMNC sought to admit it two weeks before the evidentiary hearing), and (d) CMNC did not seek relief from the tribunal on the basis of the respondent’s disorganized production – the tribunal could not have acted unfairly viz. a complaint it was not aware of. CMNC therefore had failed to discharge its burden of demonstrating that the tribunal’s conduct of the proceedings fell outside the realm of what a reasonable and fair minded tribunal might have done.

The Court of Appeal’s judgment is notable for its strong language in expressing its dissatisfaction with CMNC’s conduct (as above) as well as with due process arguments generally. The Court noted that such challenges were often used as grounds to “improperly attack the award”, and that this “undermines and cheapens the real importance of due process”, which could “erode the legitimacy of arbitration as a whole and its critical role as a mode of binding dispute resolution.”

Importantly, alongside its restatement of the applicable standards to such challenges, the Court also set out the expected conduct from the party bringing any such due process challenges. In view of the grave nature of the allegation of a breach of natural justice, the Court set out that there can be “no room for equivocality in such matters”. A party is not entitled to complain that its hopes for a fair trial had been irretrievably damaged by the tribunal, “reserve” its position, and then only challenge the award if such award is made against it. Instead, a party intending to challenge any award by the tribunal would need to inform the tribunal “at the appropriate time”. A party failing to do so would do so “at its own peril”. This is an important stance for the Court to have taken, as part of the strategy of such abusive actions are to hold the threat of due process challenges over the tribunal, hedging that: (i) the tribunal would cave to that party’s demands; or (ii) the party would be able to use these objections to attempt to challenge any adverse award. The Singapore Court of Appeal has laid down that such equivocation is unacceptable in these circumstances and has empowered tribunals to have more confidence in their dealings with such tactics.

These court decisions should reassure tribunals in both Singapore and Malaysia-seated arbitrations. They can take heart at the high bar required to challenge awards on the grounds of due process violations before the courts. Of course, this should not be any surprise given that case law has repeatedly borne out the difficulty in successfully challenging an award on due process grounds. (See, e.g. the non-exhaustive list in the earlier Kluwer blog post by Remy Gerbay.) However, given the prominence of Singapore court awards in the realm of arbitration law,5)See, e.g. the cases of: (i) J (Lebanon) v K (Kuwait) [2019] EWHC 899 (Comm), considering the position on choice of law of arbitration agreements in BCY v BCZ (High Court of Singapore) [2016] 2 Lloyd’s Law Rep 583; and (ii) Autoridad del Canal de Panama v Sacyr SA et al [2017] 2 Lloyd’s Rep 351, which adopted the Singapore Court of Appeal’s approach in Tomolugen Holdings Ltd v Silica Investors Ltd [2015] SGCA 57 to interpretation of arbitration agreements. jQuery("#footnote_plugin_tooltip_5456_5").tooltip({ tip: "#footnote_plugin_tooltip_text_5456_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); it is likely that this judgment will be at the very least considered in conjunction with other case law, if not explicitly followed by courts in other jurisdictions.

 

Conclusion

The emerging judicial support of tribunals in the face of challenges to awards is a beacon of hope to tribunals and practitioners alike. It should embolden tribunals and remind practitioners to avoid the temptation to wield due process challenges as an appeal by another name.

Tribunals are empowered with the discretion to manage the conduct of arbitrations under both national arbitration statutes and institutional rules. These often give tribunals broad case management and procedural discretion. This guidance from the courts in Singapore and Malaysia should embolden tribunals in resisting abusive procedural demands from parties.

Practitioners, on the other hand, would do well to keep in mind the courts’ growing intolerance to such challenges. The Singapore Court of Appeal held that frivolous natural justice claims risked damaging arbitration’s reputation as a valid and efficient dispute resolution mechanism. Further, the strong words of the Singaporean and Malaysian courts suggest that any such claims are unlikely to succeed, generate unnecessary costs for clients, as well as potentially lead to adverse costs orders. Practitioners should therefore be increasingly wary of considering such due process complaints as a weapon in their arsenal. Further, counsel who do find a valid reason for a due process complaint should ensure that they raise such concerns at the valid point – at the time that the reason for such complaints arises.

On the whole, judicial support of tribunals against such due process arguments is to be welcomed. This maintains the reputation of arbitration as an efficient dispute resolution mechanism, and prevents wasted costs and time by tribunals, counsel and clients.

References   [ + ]

1. ↑ See, L Reed, Ab(use) of due process: sword vs shield, Arbitration International, Volume 33, Issue 3, September 2017, Pages 361–377. 2. ↑ Ibid. See also K P Berger, J O Jensen, Due process paranoia and the procedural judgment rule: a safe harbour for procedural management decisions by international arbitrators, Arbitration International, Volume 32, Issue 3, September 2016, Pages 415–435. See also Singapore Court of Appeal Decision in China Machine New Energy Corp v Jaguar Energy Guatemala [2020] SGCA. 3. ↑ K P Berger, J O Jensen, Due process paranoia and the procedural judgment rule: a safe harbour for procedural management decisions by international arbitrators, Arbitration International, Volume 32, Issue 3, September 2016, Pages 415–435. 4. ↑ Article 42 of the ICC Rules 2017, Article 32.2 of the LCIA Rules 2014 and Article 41.2 of the SIAC Rules 2016. 5. ↑ See, e.g. the cases of: (i) J (Lebanon) v K (Kuwait) [2019] EWHC 899 (Comm), considering the position on choice of law of arbitration agreements in BCY v BCZ (High Court of Singapore) [2016] 2 Lloyd’s Law Rep 583; and (ii) Autoridad del Canal de Panama v Sacyr SA et al [2017] 2 Lloyd’s Rep 351, which adopted the Singapore Court of Appeal’s approach in Tomolugen Holdings Ltd v Silica Investors Ltd [2015] SGCA 57 to interpretation of arbitration agreements. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Simpler: Building a Robot and How to Think of ADR Tech

Tue, 2020-06-16 03:00

Not all technology is born equal. In 1739, the French inventor and artist Jacques de Vaucanson unveiled a head-scratching automaton that fascinated contemporaries for more than a century. It was a ‘digesting duck’, which had the apparent ability to eat kernels and actually digest them. The invention was a trick, of course, and it was ultimately debunked, but what is interesting is that the first time anyone was curious enough to take a screw-driver to it and have a look inside was in 1844, a century later.

Vaucanson’s duck is epitome of something that technology does to us often, even to this day: it kindles the imagination and human hope of mastering matter. It taps into the myth of making the universe ‘light’, as semiologist Roland Barthes would say in the 1950s by way of the sinuous design of the Citroen DS. This fascination is often independent of any apparent practical benefit. For instance, you can easily get perfectly good biological ducks to do the same trick as Vaucanson’s contraption, consistently, robustly and relatively cheaply.

Technology, in other words, can take a life of its own in human imagination and can take over our more immediate human goals. This can happen with legal and dispute resolution technology. But it need not to, and the alternative is not glorifying the ball-point pen, but, instead, building tech from a human perspective: tech that is ‘legal-by-design’.

Technology is becoming a second ‘discipline’, alongside law, animating arbitration proceedings. This is not new or COVID-19-related, but, certainly, not being able to meet in person for months had removed much of the resistance to technology in ADR proceedings.

What is perhaps less attended to is that arbitration, unlike litigation, requires prior agreement to even get off the ground. Adopting an arbitration clause can be difficult enough during complex commercial negotiations and the dispute resolution clause is often among the last to be tabled. Adopting an arbitration jurisdiction can be especially challenging for already concluded contracts that do not contain an arbitration clause but would otherwise benefit from one. Take, for instance, Brexit and its uncertain effects over the enforcement regime across the UK-EU border looming no later than the end of 2020. National court jurisdiction may raise concerns with legal risk management that the New York Convention 1958 does not. But there are other situations where switching to arbitration might make sense, for instance where the current dispute clause is entirely silent on jurisdiction or the choice is no longer adequate out of concerns with political instability or corruption.

Switching to arbitration in case of existing contracts is challenging because it requires persuading counterparties to change status-quo, perhaps mid-performance under the underlying contract. This can be disruptive and, possibly, costly. It may be resisted even out of inertia or risk-avoidance. Crucially, receiving a request to amend a disputes clause in an active contract may ring alarm bells of distrust, pre-empting a cost-benefit analysis which would otherwise counsel in favour of agreement.

Can technology be employed to help with these challenges? How would one proceed to develop it? I will share here some recent experience with building such technology and what we learned about legal, and especially ADR, tech, in the process. The project is called sArb (for ‘Simplified Arbitration Reference Facility’). Its firs incarnation lives here: https://s-arb.org/ and it was a pro-bono collaboration with BIAC, an Arbitration Institution, and UiPath, a robotic process automation company.

The first insight was therefore this: Concluding an arbitration agreement for an existing contract requires removing distrust so that the parties may be free to consider their best interests. This is something we learned from mediation. In mediation, often the job of the mediator is half done by changing the ‘architecture’ of the exchange from a two-player escalation game to a three-party discussion.

The second insight was that there is one way to reach agreement but a thousand ways to derail it. This is an insight that we took from the ‘nudging’ literature. In the words of Nobel Prize behavioural economist Richard Thaler: “If you want people to do something, make it easy.” Removing all unnecessary barriers to agreement is not just desirable, but key and each practical hurdle can act as a bottleneck to agreement or as an excuse for each party to fall back on the status-quo.

The third insight is again from psychology, namely that: in dispute resolution, what makes the process legitimate is the fairness of the process and the respect and voice given to the participants. There is long-standing empirical research on this, especially in crime prevention and criminal adjudication, but it is also common sense: if people only cared about winning, half of all litigants would invariably abhor the legal system. This is not what we see. If we conceive our challenge to facilitate arbitration agreements covering existing contracts as one of mediation, then this insight should also apply to it.

With those insights in mind, to overcome the challenges of switching to arbitration in case of existing contracts the idea behind sArb was to build an online facility that helps parties safely propose and conclude arbitration agreements. Following on the first insight from mediation, this is done with the insertion of an Arbitral Institution into the exchange in order to disable unnecessary friction and distrust between parties. The proposal goes to the Arbitral Institution and is then channelled in the name of the institution to the counterparty. The Arbitral Institution acts as a focal point of trust.

The second insight required a focus on facilitation. To make it easy and scalable, the process deploys state-of-the-art robotic process automation (RPA), document assembly and electronic signature collection, from end-to-end. The robot assembles the agreement, provides information in the name of the facilitating institution and collects signatures electronically. This simplifies the hassle and bustle of traditional contracting by orders of magnitude.

The third insight requires that we ensure that the parties’ freedom and control are preserved throughout the process. Freedom and control must trump the logic of automation. The proposer must be free to safely and painlessly withdraw their submission up until signing the Agreement but can rest assured that their signature will not prejudice them if the agreement is not completed. The counterparty’s choices are also clear from the outset: it can ignore the proposal completely or it can act on it knowing that while the document is available for signature, it has not been withdrawn.

In sum, the process assembles the document and correspondence, sends out information to parties and ‘talks’ to the electronic signature provider in a seamless flux that makes it easy to agree and painless to disengage unless all parties are on board. The cost savings of using automation allows making the process available for free. The hope is that it will ‘nudge’ businesses to their own benefit, while maintaining them in full control throughout.

Finally, building this process has forced us to think hard about legal tech, especially in ADR. It taught us in particular that it needs to be less about tech, and more about humans. Start from humans, their sensitivity for autonomy, fairness and transparency, which permeates much of the practice of law and adjudication.

If I had to boil it down to a checklist, I would say that a valid ADR tech proposal must tick at least the following boxes:

  • Take human psychology seriously;
  • Facilitate rather than complicate; and
  • Preserve the parties’ freedom.

How much of the future of technology in ADR will be about leveraging human institutions and intuitions and how much about ‘digesting ducks’ will depend as much on technology providers’ familiarity of the legal world, as on the ADR community itself.

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Insolvency and International Arbitration: An Alternate Perspective

Mon, 2020-06-15 03:00

The COVID-19 pandemic and the ensuing lockdowns have the legal community debating and exploring force majeure. That, however, does not rule out the imminent likelihood of international arbitration locking horns with domestic insolvency law. Arbitration agreements and subsequent awards may possibly be left redundant and award-holders remediless where insolvency proceedings are commenced in respect of a party. This post argues that the legitimacy of an arbitration agreement or an award-holder’s right to seek enforcement of such an award should remain unaffected despite any pending domestic insolvency proceedings.

 

Introduction

Whether or not non-performance of a contract triggers its force majeure clause is for the fact finder to decide. However, for purposes of this post, it is possible that the party claiming impairment may also be tackling insolvency.

Insolvency legislations are designed with domestic economic objectives, aiming to support a state’s economic, social and political goals. Whether insolvency results in reorganization of the debtor or liquidation of his assets, all claims and enforcements against the debtor are extinguished. In case of liquidation, the debtor ceases to have a corporate existence and in the alternative, reorganization cannot take place until all pending claim proceedings against the debtor are buried. In any event, insolvency law is centralized and formalistic. Arbitration, on the other hand, is decentralized, contractual and party autonomy based. The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (the ‘Convention’) lays down the crucial tests for the success of arbitration, and supports the idea of arbitration.

 

The Intersection

In case of a conflict, most international arbitration award holders would not find enforcing awards against an insolvent debtor worth their candle. It takes years of efforts and resources to conclude an arbitration, which is a result of parties’ consent and investment of mind by both parties and the tribunal constituted pursuant to their consent. The conflict of laws approach mostly focusses on the issues of procedural and substantive laws applicable to an arbitration. The concept of arbitrability is wider in the international context than in a national context.

There are conflicting views and decisions. Some courts have refused the continuation of arbitration proceedings during the pendency of insolvency proceedings in respect of the insolvent party. Whether it be the institution or continuation of arbitral proceedings, or the enforcement of arbitral awards, the probable conflicts could only be seen in light of the Convention, either owing to the capacity of the insolvent party or the public policy of the state which would hinder the arbitral process.

The aspect of incapacity of an insolvent party to an arbitration proceeding can be fairly understood from the Swiss perspective as emanated in the Elektrim/Vivendi decision followed by the Swiss Supreme Court’s revisit of the decision. The Court held that the capacity of the party in an arbitration is to be determined on the preliminary substantive question of legal capacity and held that the same is to be determined by the law of the state where such party is registered as an entity. The Court went on to conclude that since insolvent entities still have rights and duties during the subsistence of insolvency proceedings, they have the legal capacity to be parties to arbitration in Switzerland. The incapacity must, therefore, exist at the time of entering into the agreement and not during arbitration proceedings and /or enforcement of the award.

No party can make any headway without the assistance of national courts. Arbitral tribunals may be delocalized, but national courts are bound by the laws which create them. ‘Public policy’ is a wide term. Article V(2)(b) of the Convention empowers national courts to refuse enforcement of foreign awards in case of contravention or conflicts with the public policy of that state. Insolvency law is seen as one of the backbones of states’ economic and legal framework, creating certainty in the market and promoting economic stability and growth (see UNCITRAL Guide on Insolvency Law, p. 10). Insolvency law may, therefore, be held to be a part of a nation’s public policy. They are clear in as much as they prohibit continuation of all proceedings against the insolvent entity and its estate, and violation of the automatic stay may entail severe punishment as it may be deemed to be against the public policy of that nation. Enforcement proceedings are essentially domestic proceedings where courts are likely to refuse enforcement of arbitral awards against an insolvent party.

An Indian court in Cruz City 1 Mauritius Holdings v. Unitech in 2017 held that enforcement of a foreign award can be only refused if such an enforcement is found to be contrary to the fundamental policy of Indian law, interest of India and justice or morality and that ‘Fundamental Policy of Indian Law’ does not mean provisions of the statute but substratal principles on which Indian law is founded. The US Supreme Court in Scherk v. Alberto-Culver Co., while discussing the refusal to enforce international arbitration agreements, held that it “would surely damage the fabric of international commerce and trade, and imperil the willingness and ability of businessmen to enter into international agreements…To refuse to enforce an arbitration clause in the context of an international transaction ‘would reflect a parochial concept that all disputes must be resolved under our laws and in our courts… We cannot have trade and commerce in world markets … exclusively on our terms, governed by our laws, and resolved in our courts”.

Be that as it may, there exists a conflict between arbitration and insolvency in the international context. National public policy exists for the national subjects, but international public policy holds constitutional validity in national laws in as much as treaties and conventions bind the domestic structures, then should primacy be given to statutes that govern domestic structures and parties?

 

What Prevails?

The principle of insolvency is to give back to the creditors who exist in a domestic realm where, constitutionally speaking, citizens have a say in the evolution of the law; are aware of it, structure themselves according to it, and are bound by it, but are aliens bound the same way?

Yes, arbitration is regulated, and it should be, but why frustrate an agreement – and everything that led to the agreement and its performance – on the actions of someone completely unrelated to it. If one has to choose between the international arbitration and domestic insolvency, there has to be a definitive clarity which trumps any ambiguity. The journey would fail if the destination is compromised. If delocalization of arbitration is conceptually recognized, it ought to be treated holistically and uniformly. Arbitration came about out of respect for party autonomy, and freedom of trade, and there is no reason to not uphold the principle of pacta sunt servanda.

The domestic creditors should take the entity as they found it, with a bundle of rights and obligations that include the duty to arbitrate.1)The Idea of Arbitration – Jan Paulsson, at p. 118. jQuery("#footnote_plugin_tooltip_4316_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4316_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); To denounce continuation or enforcement on grounds of public policy becomes a domestic matter. Another US Court in Parsons & Whittemore held that “public policy is not the same as governmental policy; the latter cannot stand in the way of the duty to observe international treaty obligations. The award was enforced. The judgment included what may be the most-often quoted expression of the relevant standard: ‘enforcement must violate the forum state’s most basic notion of morality and fairness.’”

Recommendation 3(a) of the International Law Association’s Committee on International Commercial Arbitration’s Final Report (2002) on Public Policy as a Bar to Enforcement of International Arbitral Awards says, “An award’s violation of a mere ‘mandatory rule’ (i.e. a rule that is mandatory but does not form part of the State’s international public policy so as to compel its application in the case under consideration) should not bar its recognition or enforcement, even when said rule forms part of the law of the forum, the law governing the contract, the law of the place of performance of the contract or the law of the seat of the arbitration.”

Unless the substantive validity of an arbitration agreement is in question, it is both illogical and unlawful to stall arbitration proceedings against an insolvent entity. Rules of procedure under substantive insolvency ought to be kept separate from the rules of procedure facilitating enforcement of judgements; only the latter facilitating enforcement of foreign awards.

The Convention in the present form did not address insolvency; which ought to be construed as not being a hurdle. Therefore, the very idea of brushing under the carpet a valid arbitration agreement or an otherwise valid award in the face of domestic insolvency is an in-principle disregard of Articles II and III of the Convention, which casts a duty on all contracting states to recognize and enforce “agreement in writing” and “arbitral awards”. These articles are a fine mixture of respecting party autonomy and sovereignty, the same sovereignty with which the contracting states assented to the Convention while mutually respecting the concept party autonomy worldwide. This autonomy goes deep; deep enough to render the judgement of a party appointed sole arbitrator to have greater international force than nine unanimous justices of the U.S. Supreme Court (ICSID Review – Foreign Investment Law Journal, Volume 25, Issue 2, Fall 2010, Page 340).

 

Conclusion

Insolvency laws at best form part of governmental policies, but not international public policy. In the case of a party going insolvent before or during international arbitration proceedings, courts in reliance of domestic insolvency laws should not prevent the institution or continuation of such proceedings. Moreover, it curtails the growth of international arbitration or enforcement of an award passed against an insolvent, at least for the signatories to the Convention, for the signatory states have by definition adhered to a policy of enforcement of foreign awards. Refusing to recognize and enforcing agreements and awards on grounds of insolvency is fundamentally denigrative of the Convention. Invoking public policy to reject a foreign arbitral award is to be done only after much hesitation lest the system of the Convention be undermined (The Idea of Arbitration – Jan Paulsson).

References   [ + ]

1. ↑ The Idea of Arbitration – Jan Paulsson, at p. 118. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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How Do Tribunals in Investment Arbitrations Treat Parallel Domestic Investigations and Proceedings?

Sun, 2020-06-14 04:00

Recent years have seen an uptick in the expansion and enforcement of anti-corruption laws worldwide. In 2017, China amended its Anti-Unfair Competition Law, broadening the scope of bribe recipients covered by the law, and increasing penalties. In 2019, Italy widened its anti-bribery law, No. 3/2019, increasing penalties for both individuals and companies found guilty of bribery. Also, the past few years have been some of the most active for U.S. Foreign Corrupt Practices Act (“FCPA”) litigation. In 2019, the Department of Justice (“DOJ”) and Securities and Exchange Commission (“SEC”) reported more than fifty actions under the Foreign Corrupt Practices Act (“FCPA”), and collected more than US$2.5 billion in total penalties, fines, and disgorgement in FCPA settlements. In the UK, the powers and funding of the Serious Fraud Office (“SFO”) have been gradually increasing, and the appointment of a new Director in 2018 has given new impetus to the SFO’s investigation of bribery and corruption offenses.

Given these global developments, it is unsurprising that corruption defenses have become more common in international investment arbitration, and often these corruption investigations occur in parallel with related arbitration proceedings. Yet, while much has been written about the burden of proof for parties invoking corruption defenses within the context of an arbitration, little has been written about how tribunals treat domestic or international criminal investigations or court rulings regarding the same allegations of a corrupt act at issue in an arbitration. Specifically: How do tribunals adjudicating a corruption defense consider parallel criminal investigations into that alleged act of corruption, a conviction, or even the absence of an investigation entirely? This post addresses these issues in the limited context of international investment arbitration.

Background on Corruption Defenses in International Investment Arbitration

Corruption defenses generally arise in two scenarios: (1) where a State counterclaims that an investor obtained the investment in dispute via corruption; and (2) where an investor alleges they were forced to pay a bribe to ensure continued performance and/or fair treatment by the host State during the life of the investment.

The seminal arbitration award squarely addressing a corruption defense is World Duty Free v. Kenya in 2006. In World Duty Free, an airport concessionaire accused Kenya of breaching a 1989 contract by expropriating its investment. Notably, World Duty filed documents in which its CEO admitted to making covert payments to the former president of Kenya. The tribunal held that World Duty’s expropriation claim based on “contracts obtained by corruption” could not be upheld by the tribunal because such bribery contravened international public policy (paras. 157, 188). World Duty Free established that investors may be entirely precluded from pursuing claims where the investment at issue was obtained via corruption, even where state officers had engaged in the corruption—recognizing that anti-corruption public policy aimed to protect “not the litigating parties but the public” (para. 181) (emphasis added).

Since World Duty Free, corruption defenses have become more common. Indeed, corruption defenses are commonly asserted by States to argue a claim is inadmissible or that a tribunal lacks the jurisdiction to hear a claim due to an investment being tainted by corruption.

In practice, most corruption defenses are dismissed because the tribunals find there to be insufficient evidence for corruption (See, e.g., Croatia v. MOL Hungarian Oil and Gas PLC; see also  Glencore International A.G. and C.I. Prodeco S.A. v. Colombia). Indeed, to date, only a few arbitral claims have been dismissed on the basis of corruption (See World Duty Free; see also Spentex Netherlands, B.V. v. Uzbekistan; Metal-Tech Ltd. v. Uzbekistan).

Logically, domestic corruption findings may affect enforcement of awards or promote settlements, albeit information on such issues is scant. One example is Siemens A.G. v. Argentine Republic, in which an ICSID tribunal concluded that Argentina violated the Argentina-Germany bilateral investment treaty (“BIT”) and ordered Argentina to pay Siemens approximately $208 million, among other payments (Award, para. 403). Later, however, it was revealed in a German judicial proceeding that Siemens had obtained the contract at issue in the arbitration through bribery. Argentina requested the award be revised based on this new evidence. In response to this request for revision and following settlement talks, Siemens withdrew its claim to the award.

Corruption is difficult to prove given the innately covert nature of the crime and often the limited actors involved. Moreover, corruption defenses demand a high level of proof due to the gravity of the allegation and its consequences. As a result of this proof requirement and the limited powers of arbitral tribunals to investigate corruption—contrasted with domestic criminal authorities’ investigatory resources and powers—tribunals often look to domestic findings regarding an alleged corrupt act in assessing corruption defenses.

 

The Intersection of Investment Arbitration Corruption Defenses and Parallel Criminal Investigations and/or Proceedings

Parties invoking corruption defenses bear the burden of proof and may furnish as proof of corruption a conviction or investigatory findings from domestic authorities (See, e.g., Vladislav Kim and others v. Uzbekistan, paras. 417, 557, 614;  EDF (Services) Limited v. Romania, paras. 221, 232, 237, 291).1)Another important consideration in navigating parallel domestic findings in arbitrations is confidentiality, particularly ensuring arbitrators do not risk breaching confidentiality and that counsel cannot access confidential attorney communications in domestic criminal investigations. See Glencore v. Republic of Colombia, ICSID Case No. ARB/16/6, Award, para. 86. jQuery("#footnote_plugin_tooltip_9027_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9027_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); A review of arbitrations addressing domestic criminal investigations serves to demonstrate how tribunals have approached domestic findings in adjudicating corruption defenses.

 

Domestic Findings of Corruption Are Not Controlling Case law in Arbitrations

From a procedural perspective, a review of arbitral decisions suggests that a party should seek to furnish more than proof of domestic findings or conviction of corruption to substantiate a corruption defense since a number of investment arbitration tribunals have confirmed that domestic corruption findings or convictions are not binding on arbitral tribunals (See Karkey Karadeniz Elektrik Uretim A.S. v. Pakistan, para. 544; see also Croatia v. MOL Hungarian Oil and Gas PLC). In Glencore International A.G. v. Colombia, Colombia cited pending domestic criminal corruption proceedings for its corruption defense. Although the tribunal recognized that domestic criminal findings “must be considered” when evaluating evidence of corruption, it noted that such findings do not bar tribunals from reaching a contrary conclusion as to corruption because domestic proceedings and arbitrations function in “different legal spheres” and are subject to “diverging standards of proof” (paras. 673–74). Likewise, in Inceysa v. El Salvador, the tribunal rejected the proposition that a domestic court’s denial of a corruption claim was binding and “constitute[ed] res judicata” (paras. 67, 212, 214, 217).

Domestic findings of corruption alone thus appear to be insufficient to prompt a tribunal to find inadmissibility, lack of jurisdiction, or a merits-based finding of corruption. Tribunals will consider the issues themselves and reach an independent decision: Domestic findings are therefore one of multiple factors in their corruption analyses.

 

However, Tribunals Generally Treat Domestic Corruption Findings, Especially Convictions, as Probative Evidence of Corruption

Yet, tribunals generally treat positive findings of corruption by domestic courts, especially convictions, as persuasive evidence, considering such findings in their proof analyses. In Metal-Tech Ltd. v. Uzbekistan, where the tribunal concluded it lacked jurisdiction due to the investment being tainted by corruption, the tribunal considered a domestic criminal investigation and ongoing proceedings as one of multiple factors in its corruption analysis. Along with these domestic actions, the tribunal considered the circumstances surrounding the alleged bribery such as: the amount of the payment, the lack of services rendered for the payment, the claimant’s affiliates’ connections with public officials in charge of the investment, and the claimant’s lack of a plausible reason for the payments made to the government official. Indeed, the tribunal considered the “entire evidentiary record” to find that Uzbekistan established corruption, of which the domestic investigations and proceedings were part (Award, para. 325).

Moreover, in Niko Resources, the tribunal at the jurisdictional stage recognized that Bangladesh established corruption, in part, because a Canadian court convicted the claimant for the corruption following its guilty plea—though it ultimately dismissed respondents’ corruption objection because there was “no link of causation between the established acts of corruption and the conclusion of the agreements and it [was] not alleged that there [was] such a link” (paras. 455, 464). According to the tribunal, the claimant had “committed the acts of corruption which were sanctioned in the Canadian conviction” (para. 423). The Niko Resources tribunal took the understandable position that the conviction of a corruption offence supported a finding of corruption in the arbitration, and may have denied jurisdiction if the respondents had established a sufficient nexus between the established corruption and the conclusion of the agreements. Notably, in a later proceeding where the Respondents requested the tribunal reconsider its determination of its corruption claim, the tribunal rejected the corruption allegations as “unfounded,” and not “instrumental in the procurement of the Agreements.” (paras. 2005–08).

Unsurprisingly, therefore, while positive domestic findings of corruption bolster a corruption defense, negative domestic findings may undermine corruption defenses. In EDF v. Romania, EDF alleged that state officials tried to solicit a bribe, and that when EDF refused, the state unlawfully retaliated. While this arbitration did not concern a corruption defense, it is instructive as to how tribunals may treat negative domestic findings regarding corruption allegations generally. The EDF tribunal considered that the Romanian National Anticorruption Directorate (“DNA”) investigated the claimant’s bribery claim “and twice rejected it,” and that criminal courts “affirmed the DNA’s conclusions that the claimant’s bribery allegations [were] groundless” (para. 228). Given these negative findings and that the claimant’s witness testimony as to the corruption was found to be “of doubtful value,” the tribunal found that the claimant failed to establish its bribery allegation (paras. 231, 237).

 

When Faced with Pending Investigations, Tribunals May Conduct an Independent Analysis of the Corruption Allegations, Notwithstanding the Fact that Investigations Have Not Concluded

Sometimes, a domestic investigation is still pending at the time of an arbitration. Although there are not many publicly available examples of tribunals grappling with this situation, it is clear that such pending investigations bear evaluation by tribunals. Those decisions that are available suggest that the pending status of national investigations does not preclude tribunals from making independent determinations as to whether a party has adduced sufficient proof of corruption. Indeed, this appears to be the favored approach. In some instances, even if no evidence of a finding of corruption is submitted, tribunals have considered public factors such as the length of an investigation or the existence (or lack) of public proceedings as factors relevant to adjudicating an allegation of corruption. Moreover, while tribunals may consider information in pending investigations as such investigations develop, if appropriate, they are unlikely to postpone rendering an award based solely on the existence of a pending investigation.

For example, the Niko Resources tribunal rejected certain corruption allegations where investigations had “not led to any trial, let alone conviction” for corruption or where “other regulatory investigations appear[ed] to remain outstanding” (Decision on Jurisdiction, paras. 391 426–29). Despite the ongoing status of these investigations, the tribunal considered the length of the investigations and absence of a consequent trial or conviction to weigh against a finding of corruption.

In TSA Spectrum de Argentina S.A. v. Argentina, the tribunal acknowledged ongoing criminal investigations into the alleged bribery. By the time of the award, the investigation had been ongoing for seven years, and public officials and persons affiliated with TSA had been charged. Despite the ongoing nature of these investigations and there being no final judgment, the tribunal found that it was “not unable to determine the TSA’s investment was not made in accordance with Argentine law” (para. 167). Conducting an independent analysis of the record, the tribunal concluded that Argentina failed to adduce proof to substantiate its bribery defense. Notably, the tribunal dismissed the underlying claim of the arbitration on another jurisdictional ground, thus the corruption issue was not outcome determinative. The tribunal acknowledged that had there been no other jurisdictional bar, it may very well have joined the corruption defense to the merits of the arbitration.

There exists the possibility that a tribunal may postpone decisions based on the status of a national investigation, and decide on jurisdiction or liability once it deems the record sufficient. If national proceedings are sufficiently far advanced, this may appear to be an attractive approach for a tribunal to take. However, a tribunal may be unwilling to postpone decisions in an international arbitration indefinitely based on the pendency of national proceeding or investigations. In Fraport AG v. the Republic of the Philippines, the Philippines requested the tribunal postpone its decision, as criminal investigations in Germany, Hong Kong, and the United States were ongoing. The Philippines argued the pending status of these investigations “impeded its ability to fully present its case” (para. 27). Yet the tribunal—which had already postponed proceedings before due to these ongoing investigations—found the record to be sufficient to make a determination as to jurisdiction and liability and denied the postponement request. Notably, the tribunal previously ordered the parties to update it on ongoing developments in the pending Hong Kong and German investigations, supporting the conclusion that a tribunal may consider evidence in pending investigations as it develops (paras. 57, 59, 61).

 

The Absence of Domestic Findings of or Action Against an Alleged Corrupt Act Undermines a Party’s Corruption Allegations

The absence of a domestic investigation, charge, or conviction decreases the likelihood of an arbitral corruption finding. In Lao Holdings, the tribunal held that Laos failed to establish its corruption defense to an expropriation claim. In doing so, the tribunal found it “disturbing” that no prosecutions were ever initiated against “any persons alleged to have accepted bribes,” nor was there any evidence of a “serious criminal investigation of anyone other than the principals of the Claimant” (paras. 111–12) (emphasis in original). The tribunal described such “omissions” as “relevant to the credibility of the Government’s allegations” (para. 112).

Similar to the Lao Holdings tribunal, the Glencore tribunal considered the lack of any investigation or indictment by the state regarding the corrupt act at issue in the arbitration to undermine the State’s corruption defense. Although the absence of an investigation or indictment did not “preclude a hypothetical finding by [the] Tribunal that corruption has occurred,” such omissions by domestic authorities, “which have a much higher capacity of investigation than [the] Arbitral Tribunal, is one of various elements that must be considered when evaluating the available evidence” (Award, paras. 673–74). Thus, just as domestic positive findings of corruption are probative evidence, so too are absences of domestic action targeting the corrupt act.

Also potentially pertinent to tribunals’ analyses of domestic corruption action (or lack thereof) are the perceived motivations behind the domestic action. For example, in Getma International v. Guinea (II), the tribunal emphasized repeatedly that Guinea did not launch an investigation into the alleged corruption until long after a complaint regarding the corruption was filed. The tribunal found that the initiation of the investigation was likely motivated by a desire to prevail on its corruption defense in the arbitration. The tribunal concluded that Respondent’s “flagrant absence of any follow-up whatsoever given to the complaint,” along with its failure to produce evidence from the investigation, evinced that the respondent “gave priority to the grounds of the defense which corruption constitutes, rather than to the prosecution of the corrupted parties” (para. 221). This holding supports that tribunals may consider not just the findings of domestic investigations, but motivations and circumstances surrounding the launching of such investigations.

 

Conclusion

Arbitral corruption defenses are still largely uncharted terrain since there are very few awards dealing head on with such issues. As a result, how such defenses operate in tandem with parallel domestic investigations and proceedings is still a developing area of the law. The same is likely true in the context of international commercial arbitration – while corruption issues are frequently raised in commercial arbitrations and there are often issues with parallel domestic investigations, this is largely left obscured from the public domain (unlike investment arbitration awards, many of which are published).2)For example, in Concesionaria Ruta Del Sol S.A.S. v. Agencia Nacional de Infraestructura of Colombia (p. 491), the tribunal cited multiple other proceedings against Concesionaria, from U.S. criminal cases to Colombian criminal decisions. The tribunal found these domestic findings to be probative evidence of corruption and went so far as to expressly accord these findings full “probative value.” Considering the increase in the publication of international commercial arbitration awards in recent years (as part of the greater trend towards transparency in international commercial arbitration), more commercial awards dealing with corruption allegations may become known. The existing jurisprudence on corruption in investment arbitration set forth in this note will likely, in turn, inform party submissions in commercial arbitrations. jQuery("#footnote_plugin_tooltip_9027_2").tooltip({ tip: "#footnote_plugin_tooltip_text_9027_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); These issues are therefore ones to watch, as parties more commonly invoke corruption defenses and countries begin more aggressively to enact and enforce anti-corruption laws and policies.

Notwithstanding the developing nature of this area of the law, it is clear that international arbitration tribunals do consider parallel domestic corruption findings—or the absence thereof—in adjudicating whether a party established a corruption defense. Accordingly, parties on both sides (invoking and defending) of corruption defenses should be proactive in tracking parallel domestic investigations into and proceedings regarding alleged corruption.

 

References   [ + ]

1. ↑ Another important consideration in navigating parallel domestic findings in arbitrations is confidentiality, particularly ensuring arbitrators do not risk breaching confidentiality and that counsel cannot access confidential attorney communications in domestic criminal investigations. See Glencore v. Republic of Colombia, ICSID Case No. ARB/16/6, Award, para. 86. 2. ↑ For example, in Concesionaria Ruta Del Sol S.A.S. v. Agencia Nacional de Infraestructura of Colombia (p. 491), the tribunal cited multiple other proceedings against Concesionaria, from U.S. criminal cases to Colombian criminal decisions. The tribunal found these domestic findings to be probative evidence of corruption and went so far as to expressly accord these findings full “probative value.” Considering the increase in the publication of international commercial arbitration awards in recent years (as part of the greater trend towards transparency in international commercial arbitration), more commercial awards dealing with corruption allegations may become known. The existing jurisprudence on corruption in investment arbitration set forth in this note will likely, in turn, inform party submissions in commercial arbitrations. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Investor Obligations: Africa Leads the Way

Sun, 2020-06-14 03:00

Africa is in the vanguard of investor obligations in international investment law. As it prepares to seek a continental investment code for the second time, it finds itself at a crossroads. In tracing the emergence and trajectory of investment instruments toward the historic juncture to which Africa presently arrives, one glimpses the promise of a new economic equilibrium in investor-State dispute settlement. This post examines the development of investor obligations in African investment instruments. It first notes that investment arbitration was, at its time of genesis, undeniably reciprocal in orientation. Second, the post demonstrates that African instruments to date offer a groundbreaking path with respect to regulation of investor conduct. Third, the post suggests that Africa is, in consequence, eminently suited to achieve reciprocity of obligations in the forthcoming investment protocol of its Continental Free Trade Area.

 

Reciprocal Origins of Investor-State Dispute Settlement

The beginning of the tale is well known. Following an unraveling of world trade owing to the ravages of two World Wars punctuated by the dramatic contractions of a global pandemic and Great Depression, courageous merchants and investors embarked upon renewed global ventures. As an era of decolonization dawned, northern interests sought to elaborate a newly emergent international economic law, and their efforts to universalize legal standards safeguarding foreign capital culminated in the Abs-Shawcross Draft Convention on Investments Abroad of 1959. While that initiative would fail, what is hailed as the first investment treaty was concluded in that year between then-West Germany and Pakistan, ushering in a paradigm of bilateral instruments that largely endures to this day.

In the 1960s, States furthered the enterprise by establishing in the ICSID Convention a procedural framework for the hearing of investment claims, accompanied by a dedicated administering institution at the World Bank. The chosen mixed-claims model, earlier forged in the interwar period at the Permanent Court of Arbitration, sought to de-politicize investment disputes by supplanting the aggrieved investor’s pursuit of espousal in diplomatic protection. Instead, the investor would be granted a direct right of action before a neutral international tribunal, an innovation deemed better suited to escape denial of justice or use of armed force.

Less often recalled is the intrinsically reciprocal vision of the Convention’s framers. In their own words, the Convention “permits the institution of proceedings by host States as well as by investors,” with its provisions being “equally adapted to the requirements of both cases.” This truth is evident on the face of the Convention itself, and African States were early and eager actors in its signing and ratification. In the very first treaty instrument to confer jurisdiction upon the Centre, the Netherlands and Indonesia in 1968 provided that “[t]he Contracting Party in the territory of which a national of the other Contracting Party makes or intends to make an investment, shall assent to any demand on the part of such national and any such national shall comply with any request of the former Contracting Party, to submit, for conciliation or arbitration, to [ICSID] any dispute that may arise in connection with the investment.”  Yet, “[t]he language referring to the national’s compliance with a host state demand for arbitration quickly disappeared”1)Kenneth Vandevelde, Bilateral Investment Treaties: History, Policy and Interpretation 458 (2010). jQuery("#footnote_plugin_tooltip_3813_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3813_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); from similar provisions in successive generations of investment treaties.

Meanwhile, the Institut de Droit International has recorded by its latest resolution that “[b]oth the State and the investor are equally entitled to submit a claim in relation to an investment to a tribunal, subject to the terms of the instrument of consent, interpreted in accordance with the principle of the equality of the parties,” this latter being “a fundamental element of the rule of law that ensures a fair system of adjudication” and, as such, “a general principle of law applicable to the procedure of international courts and tribunals.”

 

Investor Obligations in African Treaties

African instruments offer a pioneering path to reclaim lost territory. Early traces of investor obligations may be found in the 1980 Unified Agreement for the Investment of Arab Capital in the Arab States and the 1981 Agreement on Promotion, Protection and Guarantee of Investments Among Member States of the Organization of the Islamic Conference, to which some half of the States party are African. Stepping into the twenty-first century, the 2006 Southern African Development Community Protocol on Finance and Investment requires investors to abide by the laws, regulations, administrative guidelines and policies of the host State. The 2007 Investment Agreement for the Common Market for Eastern and Southern Africa similarly requires investors to comply with all applicable domestic measures while expressly allowing for counterclaims by the host State, though it has never entered into force. A 2008 Supplementary Act of the Economic Community of West African States introduces elements including investors’ obligations to conduct environmental and social impact assessments and to observe labor, human rights and corporate governance standards while expressly allowing the host State to raise a counterclaim or to initiate a unilateral claim opposable to the investor.

More recently, the 2016 Morocco-Nigeria bilateral investment treaty has garnered much attention in reaching beyond prior instruments to expressly include investors’ post-establishment obligations such as maintenance of an environmental management system. The treaty has not yet entered into force. Lastly, the Pan African Investment Code (PAIC) (also of 2016) features numerous investor obligations, while also omitting guarantees of fair and equitable treatment or full protection and security. The text of the PAIC does not itself confer consent to arbitration and it is further declared non-binding, thus effectively assuming the role of a framework for further treaty-making.

 

The Investment Protocol of the African Continental Free Trade Area

Last year, the Agreement Establishing the African Continental Free Trade Area entered into force, claiming its place amongst the most ambitious economic treaty projects of all time. Drafters and negotiators now turn their pens toward its anticipated investment protocol, which is envisioned to ultimately displace all intra-African instruments. In a recent joint report of the UN Economic Commission for Africa, the African Union, the African Development Bank and UNCTAD, this quartet of institutions has endorsed the adoption of investor obligations as one of four pillars of the protocol:

“The international investment regime historically imposed obligations only on host States, not on private investors (Paulsson, 1995). However, as underscored by the PAIC, [international investment agreements] may serve as vehicles for investor rights and also for their obligations, which could rebalance the regime. Investor obligations can be a source for claims against transgressing investors and for counterclaims by defending States. The right to initiate proceeding may be bestowed upon the [host] State, its nationals or both (Amado, Kern and Rodriguez, 2017).”2)The referenced works are Jan Paulsson, “Arbitration without Privity,” ICSID Review: Foreign Investment Law Journal 10 (2) (1995) 232–257 and Jose Daniel Amado, Jackson Shaw Kern & Martin Doe Rodriguez, Arbitrating the Conduct of International Investors (2018). jQuery("#footnote_plugin_tooltip_3813_2").tooltip({ tip: "#footnote_plugin_tooltip_text_3813_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In similar vein, the UNCITRAL Secretariat has recorded in a recent note that its Working Group III for Investor-State Dispute Settlement Reform “may wish to consider formulating provisions on investor obligations which would form the basis for a State’s counterclaims,” that such obligations “may relate to the protection of human rights and the environment, compliance with domestic law, measures against corruption and the promotion of sustainable development,” and further that “[t]he Working Group may wish to consider whether the framework for counterclaims by respondent States could be expanded to allow for claims by third parties against investors.”

It is ironic that the African States declined in the PAIC to mutually afford to each others’ investors the privileges of protection and arbitral avenue so willingly opened to northern capital in generations prior. This phenomenon recalls the demise of the Abs-Shawcross and other multilateral initiatives. It is also a consequence of decline of the historical dichotomy between capital-exporting and capital-importing States, with sophisticated economies now doing both in uneven and varying degrees across the continent. The States thus face a dilemma of wishing to secure fundamental protections for their own investors abroad while also wishing to guard themselves against extravagant claims by foreign investors within their own territory, both being economically rational desires. Resultant tensions amongst States and between these two competing elements within States cause a sound solution to seem elusive, compounding the present confusion. The answer may lie precisely in crafting a calculated balance of investor rights and obligations, for only thus might one seek to square the circle of competing economic interests across and within the States, in greater accord with fundamental justice.

 

Conclusion

The optimal point of equilibrium (and the exit path from prevailing doctrinal confusion) might be found in allowing robust (but defined and delimited) investor protections while equally imposing countervailing investor obligations in international investment law. Africa offers a history that is made for this moment. It is uniquely situated to introduce such a model at a time when the world exigently seeks one, thereby heralding a return to the reciprocity that is arbitration’s essence and propelling the progressive innovation of the mixed-claims model forward into a next generation.

Will Africa be the savior of investor-State dispute settlement?

References   [ + ]

1. ↑ Kenneth Vandevelde, Bilateral Investment Treaties: History, Policy and Interpretation 458 (2010). 2. ↑ The referenced works are Jan Paulsson, “Arbitration without Privity,” ICSID Review: Foreign Investment Law Journal 10 (2) (1995) 232–257 and Jose Daniel Amado, Jackson Shaw Kern & Martin Doe Rodriguez, Arbitrating the Conduct of International Investors (2018). function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Interviews with Our Editors: Nordic Innovations for Arbitration with Annette Magnusson

Sat, 2020-06-13 03:00

 

 

Welcome to the Kluwer Arbitration Blog, Ms. Magnusson! We are grateful for this opportunity to learn more about the Arbitration Institute of the Stockholm Chamber of Commerce (SCC) and your experience with international arbitration in the region.

 

  1. To start, could you briefly introduce yourself and explain your role at SCC?

Thank you. In my capacity as Secretary General I lead the work and set the general direction for future initiatives at the SCC. It involves a lot of outreach and co-operation with other organizations, in Sweden and internationally. It includes both operational issues and policy topics such as international arbitration in general, arbitration and climate change, discussions with policy makers on issues of international arbitration in Sweden and in international fora including UNCITRAL. To my help I have two co-pilots, Deputy Secretary General Kristin Campbell-Wilson and Head of Business Development Lise Alm, and a dedicated team of lawyers, case administrators and communications specialists.

 

  1. What have been the main developments at the SCC over the past few years and how has the SCC sought to distinguish itself from other arbitral institutions?

2017 was an important year for us as we introduced new and modernized Arbitration Rules and Rules for Expedited Arbitration. Another important development took place in 2019 when we introduced the SCC Platform, to enable digital management of all cases under the SCC Rules for parties and tribunals. The digitalization of our operations began already in 2013, and it is a constant journey where we are continuously working to upgrade our methods and instruments in support of an efficient arbitral procedure.

This year (2020) the very first article-by-article commentary to the SCC Rules was published, authored by SCC vice-chairperson Jakob Ragnwaldh and Fredrik Andersson, together with former SCC legal counsel Celeste Salinas-Quero (now working as legal counsel with ICISD).

On the policy side we have focused a lot on arbitration and climate change, and in 2017 we launched The Stockholm Treaty Lab – an innovation contest to create international policy in support of the Paris Agreement targets.

The SCC celebrated 100 years in 2017 and we used this opportunity to showcase the importance of international arbitration for trade, economic development and peace, for example through the documentary film “The Quiet Triumph” and the book “Arbitrating for Peace” (published on Kluwer).

 

  1. Can you tell us more about the SCC’s users and their disputes? What kinds of parties do you usually serve, and are there particular industries or types of disputes prevalent among them? What is the ratio between global and regional users in SCC disputes?

The SCC sees parties from 40+ different jurisdictions on an annual basis, and we still receive many disputes with an East-West element. Last year, the most frequent international nationality in SCC cases was Russian, followed by German and American. The disputes are quite diverse, but with a slight emphasis on energy.

The SCC also administers a fairly large number of investment disputes. Since the very first investor-state dispute in 1993 between a French investor and a CIS state, the SCC has seen 112 investor-state cases (as of 31 December 2019). The cases have been filed primarily under Bilateral Investment Treaties and the Energy Charter Treaty.

 

  1. From September 2019, all new SCC arbitrations are administered on the so-called SCC Platform. Could you briefly explain how this works and what the feedback from users has been so far? What is the role of the new “ExhibitManager”?

The SCC Platform provides participants in SCC cases with a secure way of communicating and filing all case materials in the arbitration (e.g. procedural orders, submissions, exhibits, orders and awards). It is also the forum through which the SCC team communicates with the parties, counsel and arbitrators throughout the proceedings.

The Platform contains a calendar for relevant dates and deadlines and a notice board for the tribunal to communicate practical information to the parties, and it provides the tribunal with an archiving service after the arbitration has been terminated.

When the SCC receives a request for arbitration, a designated “site” is created for the case on the SCC Platform which is exclusive for the participants in the arbitration at hand.

The feedback from the users has been very good, and almost all tribunals have decided to use the Platform for the management of their case when offered to do so.

As a response to the COVID-19 outbreak, the SCC in collaboration with Thomson Reuters will be offering the Platform-service also to parties and tribunals in ad hoc cases, starting in May 2020.

ExhibitManager is an intelligent software for litigators and arbitration practitioners. It is intended to simplify writing and organising large submissions with numerous exhibits. This is an external service which the SCC has partnered with to enable the use of eBriefs on the SCC Platform and the Ad Hoc Platform. In practice this means that it is now possible to up- and download eBriefs from ExhibitManager on the SCC Platform.

 

  1. What are the most appreciated features of the SCC platform?

The Platform is used by nearly all tribunals and parties to whom it has been introduced, which tells us something about the user friendliness and that it is truly adding value for the purpose of efficiency in managing the cases under the SCC Rules. I would therefore say we see an overall appreciation of the SCC Platform. This has been even more emphasized during the COVID-19 outbreak.

 

  1. Cybersecurity is a current concern in international arbitration. How is the security of file sharing via the SCC Platform maintained?

Cybersecurity vulnerabilities is a multifaceted issue. When we began looking at cybersecurity at the SCC and especially for the SCC Platform, it was important to assess from several angles: the technical aspects of the system (including software, hardware and facilities), legal aspects, and the human factor. Each of these areas was thoroughly assessed when choosing a supplier, during implementation and continuously after launch.

The technical assessment was a strong driver when choosing a supplier. In addition, we also collaborate with external security consultants to carry out so-called penetration tests regularly. Our website provides more information about the technical security standard that the system meets.

On the legal side, we are continuously working with internal and external counsel to ensure that the different legal issues are covered. This includes the legal relationship with the supplier, with the user, and with the overall compliance regulations, including data protection.

Maybe the most important element when it comes to cybersecurity is the human factor. For this purpose, user-friendliness is key. If our system is too hard to use, users are likely to revert back to less secure systems used earlier. If the system is too difficult to navigate, users might make mistakes when uploading information. And if the system is too rigid, it might not suit all cases, or if it is too flexible, it might not safeguard the principles of the process. Therefore, the core of our efforts has been to make the system simple and foolproof while maintaining the right balance between flexibility and rigor.

 

  1. How is the SCC collaborating with arbitrators appointed under its rules to ensure that arbitrators are well versed proficient users of the SCC platform?

Our team at the SCC Secretariat is available to answer questions relating to the use of the platform, both from arbitrators and parties, and if needed guide users to the different features of the platform on a case-by-case basis. It has worked very well. Since we migrated cases dynamically and not all at once, team members have been able to spend as much time as needed with every individual who has reached out for guidance. And to be honest, there have not been that many questions yet. The Platform is very user-friendly.

 

  1. In October 2019, the SCC revised its Arbitrator’s Guidelines. Could you please highlight some of the key changes and reasons which compelled the changes? How, do you think, will it help to achieve greater efficiency and diversity in international arbitration? What has the feedback on the new Arbitrator’s Guidelines focused on in the last 4 months?

The Arbitrator’s Guidelines provide practical information regarding the administration of SCC proceedings on aspects which arbitrators frequently have questions. The updated version released in October 2019 aimed to increase readability and included a section on the then newly introduced SCC Platform.

 

  1. The new Arbitrator’s Guidelines explicitly recognize the reimbursement of the “standard costs of climate compensating for flights”. What is the intention behind the inclusion of this as part of arbitrator’s costs?

This is our way of communication that we think climate change mitigation efforts in all shapes or forms matter. The SCC has been quite engaged in climate change issues in recent years, this is but one example. Another example is the Stockholm Treaty Lab, or webinars targeting Arbitration and Climate Change as part of the SCC Online Seminar Menu.

 

  1. The health crisis due to the COVID-19 outbreak is currently affecting all areas of life and business on a global scale. Can you already assess the impact it has on the SCC activities? We read that the SCC has, as part of its measures, introduced a so-called Online Seminar Menu. Could you tell us more about it?

In the short term, we have had to re-organize our daily work into remote mode. All in all, it has worked extremely well. The same goes for our events, where we have been able to reach out to very large groups thanks to the online format, including many people whom we otherwise probably would not have had an opportunity to meet at in person conferences. This has been very inspiring.

It is too early to draw any conclusions on the long-term effects on the number of cases filed at the SCC. Our case load so far has been quite steady throughout this crisis.

 

  1. What do think will be the key challenges for arbitral institutions in the next few years? What will be the main objective that the SCC pursues in the next few years?

As an arbitral institution we must constantly work on the services we offer to stay relevant for the business community we are here to serve. Expectations on efficiency and value for money in a dispute resolution context will continue to be discussed going forward. As more and more general counsel typically take a seat in the management board of their corporations, the business perspective of any dispute is likely to continue gaining traction. This in turn will impact how much resource the company is willing to spend on having their disputes decided, and in the end how disputes are finally resolved.

Our policy initiatives will continue to focus on arbitration and climate change, but we also expect to continue to be active in digitalization and arbitration. And of course, always stay tuned to the world around us and be ready to change with it. An agile mind firmly rooted in core values will hold the keys to success for any organization in the next few years.

 

Thank you for this opportunity. We wish continued success to both you and the SCC!

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

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The Effect of Bankruptcy on Arbitrations Seated in Iran: Practical Insights from a Recent TRAC Case

Fri, 2020-06-12 03:00

Introduction

For the purpose of this article, there are some words and principles that shall be defined before raising the main issue.

Article 412 of the Commercial Code of Iran (CCI) defines the bankruptcy of an entity (natural or legal person) as the result of its cessation in payment of its debt. In this situation, the ceased entity, its creditor(s) or the prosecuting attorney can request the competent court to declare the bankruptcy of the company. Under Iranian law, it is particularly important to determine the exact date of cessation of the debtor in payment of its debts, because of the consequences and effects of such date. That is why, Article 416 of the CCI requires the court to determine the time of cessation, failing which, the date of the award will be deemed to be the date of the cessation.

The importance of the date of cessation is due to the fact that some major restrictions on the debtor will be triggered as of such date. Accordingly, Article 423 of the CCI introduces such transactions which are all common in one element: they could have damaging effects on the creditors’ credits. For all other restrictions, the date of the bankruptcy award is the indicating date.

Iran’s legal system differentiates between bankruptcy and other disputes that a bankrupt entity might have. Put differently, even if bankruptcy itself is not an arbitrable subject matter, the disputes that a debtor might have (including the disputes resulting from its bankruptcy) should be capable of being referred to arbitration.

 

The Arbitration Agreement and Bankruptcy

The crucial question is whether an entity whose bankruptcy is declared by the competent court is allowed to conclude any contract, including an arbitration agreement, with others or not. According to general provisions of the CCI, a bankrupt entity is prohibited from any action with regards to its properties, but the liquidator should act as its successor. Although the scope of such legal incapacity is not clearly defined in the CCI, both practice and scholarship suggest that legal incapacity encompasses any action which might affect the rights of the creditors.

Although the CCI has no direct indication as to the arbitration agreement, considering the nature of bankruptcy and Iran’s legal approach to centralize the process of liquidation (to the extent possible), one can gather that the bankrupt entity is not permitted to conclude an arbitration agreement. In addition, according to Article 454 of the Iran Civil Procedure Code (CPC), all persons who have the right to litigate should be able to refer their disputes to arbitration. However, this provision should be read in light of Article 84(3) of the CPC, which excludes those who are not capable of filing an action, among which a bankrupt entity is named. In conclusion, since the bankrupt entity is not able to litigate, according to the provisions of Article 454, it is not able to arbitrate either. Therefore, it is fair to suggest that such person is also banned from concluding an arbitration agreement.

According to Article 418 of the CCI, the liquidator is the successor of a bankrupt entity and has the required authority to act on its behalf, namely concluding any sort of contract, i.e. arbitration agreement.

 

The Effect of Bankruptcy on Arbitration Proceedings

Although the aim of an insolvency proceeding is to centralize the process of liquidation, there is always the possibility that an arbitration agreement was correctly concluded before such date, or the arbitration proceeding was initiated before the bankruptcy. In such situations and in regards to the legal capacity of the bankrupt entity for commencing or continuing the arbitration, two options might be envisaged. First, nullification of the arbitration agreement or termination of the arbitration proceedings and second, suspension of the proceedings until the succession of the liquidator.

Bearing in mind that Iran’s legal system differentiates between the bankruptcy dispute and other disputes related to a bankrupt entity, termination of arbitration would not be an option. This approach is also supported by the fact that permission to terminate a proceeding (litigation or arbitration) due to the bankruptcy of a party does not exist in the written law.

Some practitioners and scholars, however, by invoking Article 481 of the CPC (which provides that the arbitration will be terminated as a result of the death or incapacity of one of the parties), suggest that bankruptcy should also be considered as a ground for termination.

This opinion, however, does not seem to be well-founded, because according to the CPC, bankruptcy is not considered a form of incapacity.

On the contrary, the provision of Article 419 of the CCI supports the second option, that is the suspension of the proceeding until succession of the liquidator:

“From the date of the bankruptcy award, any person who has any disputes, including movable or immovable disputes, against the bankrupt entity, it shall either file it or continue it against the liquidator. All the executive actions are included in this order.”

This provision has a general wording and is not limited to pending litigations against the bankrupt entity. Therefore, the same would apply in a pending arbitration or in an arbitration which has not yet been initiated.

All in all, while the bankrupt entity is not allowed to take any action affecting the rights of the creditors, the liquidator, as its successor, is permitted to conclude arbitration agreement on its behalf or initiate or continue arbitration.

 

A Review of a Recent Case under TRAC Rules

In a recent arbitration case under the Rules of Tehran Regional Arbitration Centre (TRAC), some issues of bankruptcy arose which are helpful to better understand the above-mentioned arguments.

 

Background

In an arbitration case under the TRAC Rules of Arbitration (2018), one year after the initiation of the proceeding (including the exchange of statements and holding two hearing sections) on the 8th September, 2019, the Tribunal declared the closure of the proceeding and further started their deliberation. While the deliberations were ongoing, the Tribunal, through press reports, became aware of rumors regarding the Respondent’s bankruptcy. A few days later, the Respondent informed the Tribunal that it went bankrupt. The Tribunal requested the Claimant to comment on the Respondent’s submission. The respondent, in response, attached the judgment of the court of first instance, and stated that the award is not final yet, but it is under the appeal proceeding.

 

The Tribunal’s Evaluation of the Facts

Although the judgment of the court of first instance was not final, as soon as the Tribunal received it, it decided to derogate from its decision on the closure of the proceeding, and reopen it. Such decision was based mainly on the date of issuance of the court’s judgment which was before the closure of the arbitration proceeding. Immediately after such decision, the Tribunal requested the Centre to communicate a letter, notifying the Insolvency Bureau of Tehran (‘Insolvency Bureau’) about the present arbitration, and organize a hearing session with the presence of their representative. The Respondent, after several weeks, provided the Tribunal with a copy of the appeal court judgment overruling the decision of the court of first instance. After such final judgment was submitted, the Tribunal once again declared the closure of the proceeding and proceeded to render its final award.

 

Analysis of the Tribunal’s Decision

In the case at hand, the Tribunal correctly decided that the date of bankruptcy (and not the date of cassation) is critical for any action. Additionally, the Tribunal decided that the provision of Article 481 of the CPC should not apply, mainly for the reasons stated above. In addition, if the Tribunal was of the opinion that Article 481 of the CPC could apply, they would have been unable to derogate from their decision on the closure of the proceeding and accordingly, reopen it because the arbitration was simply terminated and they did not have the required mandate. That is, the Tribunal’s derogation could only (and correctly) be construed in line with Article 419 of the CCI, which allows for the continuation of the proceeding with the presence of the liquidator.

From the documents provided by the Claimant (which seemed insufficient), the Tribunal was not able to find out the exact date of the “final and binding” award of bankruptcy. Therefore, two scenarios could have been assumed:

First, if the final award was issued before the date of closure of proceeding, the Tribunal, by virtue of Article 419 of the CCI ought to have suspended the proceeding and invited the liquidator. In the case at hand, the tribunal correctly contacted the Insolvency Bureau because the liquidator was not yet determined or he was unknown to the Tribunal.

Second, if the final award of bankruptcy was issued after the declaration of closure of the proceeding (in accordance with Article 32 of the TRAC Rules), there was no obligation to suspend the proceeding and invite the liquidator.

By virtue of this provision, when the closure of the proceeding is declared, the Tribunal should assure that the parties have had sufficient opportunity to present their positions, proof and documents. After such declaration, the Tribunal will start its deliberation and the parties would not have further inference in the proceeding. Therefore, no party, including the liquidator, as the successor of the bankrupt entity, are required to be present.

In the case at hand, although the final award of bankruptcy was not issued before the closure date, the Tribunal (perhaps for the sake of utmost caution), decided to reopen the proceeding by virtue of the power allocated in Article 32(2) of the TRAC Rules, and invited the liquidator to participate.

 

Conclusion

The bankruptcy of parties is not recognized as a ground for termination of an arbitration proceeding under Iranian law. Article 419 of the CCI specifies that after the date of issuance of the bankruptcy award, all legal actions shall be filed and all pending lawsuits shall continue against the liquidator. Although this provision is dealing with court proceedings, by analogy, the same provision can be applied to arbitration. Therefore, arbitrators coming across a bankrupt entity, shall invite the liquidator to participate in the proceeding.

In the recent case under TRAC Rules, the tribunal suspended the proceeding (thus changing its previous decision to closure of the proceeding), and further invited the liquidator to the hearing session. The reason for such actions was the date of issuance of the bankruptcy award and the date of the hearing. Since the court’s decision (of which the Tribunal was not aware) was issued before the closure of the proceeding, the Tribunal decided cautiously to reopen the proceeding and invite the liquidator.

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New Evidence Rules Allow Document Production in China

Thu, 2020-06-11 23:13

Document production in China – getting to maybe

Document production (also known as “discovery”) is still a very foreign concept in China’s civil law court system. The traditional notion of “who claims, proves” (“谁主张,谁举证“) in China’s Civil Procedural Law has ingrained in people’s mind that one has to prove its case by its own evidence. While the courts were given certain discretion to investigate the facts in dispute and collect evidence (including ordering provision of evidence by a party) under the Civil Procedure Law, before 2015, there was no legal basis for a Chinese court to grant an application by one party for the production of evidence by another.

An important step was taken in January 2015 when the Supreme People’s Court (SPC) adopted the “Interpretation of the Supreme People’s Court on the Application of the Civil Procedure Law of the People’s Republic of China” (CPL Interpretation). Under article 112 of the CPL Interpretation, a party has the right to apply to the court for an order requiring the opposing party to produce documentary evidence “under the opposing party’s control.” The CPL Interpretation, however, did not provide any guidelines on the criteria for the application and execution of such order. Consequently, document production applications remain rare in Chinese litigation.

On 5 February 2015, the China International Economic and Trade Arbitration Commission (CIETAC) published Guidelines on Evidence. The Guidelines introduced a set of rules akin to those in the IBA Rules on the Taking of Evidence in International Arbitration. These guidelines, however, are binding only if the parties expressly agree to adopt these rules, which rarely happened in practice.

The Judicial Committee of the Supreme Court of the People’s Republic of China enacted the Amendments to Several Provisions of the Supreme People’s Court on Evidence for Civil Litigation at its 1777th session on 14 October 2019 (the New Rules of Evidence). These were formally promulgated on 25 December 2019 (Fa Shi [2019] No. 19). The New Rules of Evidence signal another step towards the PRC legal system’s adoption of international practices and is a welcome step towards creating an environment conducive to the most-commonly accepted international arbitration practices. In this article, we examine the key guidelines for document production and the likely impact on arbitration practice in mainland China.

 

Adoption of detailed guidelines for document production

For the first time, the New Rules of Evidence provide user-friendly, detailed guidelines for the courts and parties, thus paving the way for document production to become more prevalent in PRC litigation.

Under 45 of the New Rules of Evidence, an application for document production shall include the following:

  • the name of the documentary evidence requested or a description of its content;
  • the fact to be proven by such documentary evidence and the materiality of such fact;
  • the reason why such documentary evidence is believed to be under the requested party’s control; and
  • the reason why such documentary evidence should be produced.

Under Article 46, the court may deny an application if:

  • the request lacks specificity;
  • the requested documentary evidence is not necessary to prove the relevant fact;
  • the facts proposed to be proven by the documentary evidence requested are “not material to the court’s judgment”;
  • the requested documentary evidence is not within the requested party’s control; or
  • the requested documentary evidence does not fall within the scope of Article 47 (as discussed below).

Article 47 sets out the types of documents that can be subject to a request for production. Such documents include:

  • evidence to which a party has referred in court proceedings as being in its control;
  • evidence created for the benefit the other party (i.e. the applicant);
  • evidence that the applicant is legally entitled to access or obtain;
  • account books and original vouchers for book-keeping; and
  • other documentary evidence which the court considers should be produced in appropriate circumstances.

Article 47 also provides that where state secrets, trade secrets, personal privacy of the parties, or documents that should be kept confidential under provisions of the law are produced, “examination of the document shall not be conducted openly.” This shows that privacy, confidentiality, and state or commercial secrecy are not always sufficient grounds in themselves for objecting to a document production request under the New Rules of Evidence.

Article 48 of the New Evidence Rules reaffirms the CPL Interpretation rule that the court has discretion to draw adverse inferences if a party fails to produce documentary evidence ordered by the court without good reason.

Article 99 of the New Evidence Rules clarifies that the provisions applicable to “documentary evidence” also apply to “audio and video materials” and “electronic data.” This allows a party to request the other party’s production of evidence in such forms, using the mechanism set out in the New Evidence Rules for requesting and producing documentary evidence.

 

Impact on conduct of arbitration proceedings in China

Under the previous PRC rules of evidence, the concept of having an opposing party produce evidence in support of another’s claim was entirely alien and counterintuitive. With the New Rules of Evidence, parties in China court proceedings will soon realise the power of such a tool and the impact it could have on the outcome of their cases. With rules of document production now officially recognised as part of the PRC courts’ procedural rules, we would expect a resulting impact on arbitration practice in China.

As document production gradually becomes more common in Chinese court proceedings, Chinese parties may become more cooperative regarding document production in domestic and international arbitration. It is not uncommon for a country’s arbitration practice to be influenced by its litigation practice. With parties becoming more and more familiar with the concept and procedure of document production, counsel in domestic and international arbitrations involving Chinese parties should find it easier to work with their clients when it comes to document production.

The New Rules of Evidence indicate that documentary evidence involving state and commercial secrets can be produced in court proceedings, subject to a requirement that the examination of such documents be conducted in private. Given that the confidentiality of international arbitration can certainly afford similar protection, we anticipate that arbitral tribunals will also be more willing to order production even where the requested party objects on grounds of commercial or state secrecy.

Finally, court-ordered evidence production in support of commercial arbitrations in China may become available. We have seen some US courts allowing discovery and depositions in aid of private commercial arbitration in China under 28 USC. § 1782.1)See, for example, HRC-Hainan Holding Co., LLC v. Yihan Hu No. 19-mc-80277-TSH, 2020 US Dist. LEXIS 32125, at *2 (N.D. Cal. Feb. 25, 2020). jQuery("#footnote_plugin_tooltip_1401_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1401_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); While it remains to be seen, with the green light given by China’s State Council to allow the Lin-gang Free Trade Zones the right to apply and enforce measures in support of arbitrations involving Chinese and foreign parties, Chinese courts (particularly those located in Free Trade Zones) might allow similar measures given the tools available under the New Rules of Evidence. This may be another step forward in China’s drive to open its doors to international arbitration institutions in China.

References   [ + ]

1. ↑ See, for example, HRC-Hainan Holding Co., LLC v. Yihan Hu No. 19-mc-80277-TSH, 2020 US Dist. LEXIS 32125, at *2 (N.D. Cal. Feb. 25, 2020). function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Huawei and ISDS: 5G Infrastructure and Investment Claims

Thu, 2020-06-11 03:00

Chinese involvement in 5G infrastructure development has been an issue of concern for policy makers globally. This post addresses the question of whether the Chinese multinational Huawei would have an investment claim against the German government were they to prohibit its participation in 5G deployment. Germany is selected as a case study due to the significant presence of Huawei in the country’s telecoms networks, its central position in the European economy and due to the legal framework established by the China-Germany BIT, which offers unique opportunities for ISDS actions in this context.

 

What would happen if Germany took the US approach to regulating Huawei?

Huawei is the world’s biggest telecommunications network equipment supplier. It has operations in more than 170 countries, with global revenues reported in 2018 at the level of $107 billion. Huawei’s investments in research and development in Germany, specifically, grew from an initial 31 million euros in 2013 up to 112 million euros in 2017, amounting in this period alone to more than 450 million euros. According to a study conducted by a consulting firm, the German Institute for Economic Research (DIW), the Chinese telecommunications group is a major and growing investor in the German telecommunications market. In 2018, Huawei’s German operations generated 2.3 billion euro’s worth of business employing directly and indirectly 28,000 people.

Addressing concerns about the security implications of the company’s investments in early 2020, Germany decided to allow Huawei to continue to be involved in mobile technology development. Angela Merkel’s Christian Democratic Union backed a strategy paper in February 2020 that could potentially curtail Huawei’s involvement in Germany’s 5G rollout by barring untrustworthy companies deemed to be subject to state influence from the process, but these recommendations stopped short of banning Huawei technology outright.

In the UK, Huawei will be banned from supplying equipment to the sensitive parts of the network (known as the core). The ‘core’ is where voice and other data is routed to ensure it gets to where it needs to be. In addition, Huawei will only be allowed to supply up to one third of equipment in allowing this core functionality of telecom networks and it will be excluded from areas near military bases and nuclear sites. The US on the other hand, in 2012 prohibited companies from using Huawei networking equipment and the company was added to the US Department of Commerce’s Bureau of Industry and Security Entity List in May 2019, following an executive order from President Donald Trump (and legislation) effectively banning Huawei from US communications networks (even though at the time of writing and a year after announced, the ban has not actually come into force).

Germany’s position is closer to the UK approach, rather than the US one, allowing continued Huawei investment in 5G deployment, but limiting the depth of its entanglement in key infrastructure. What would Huawei’s options be in investor state dispute settlement (ISDS) if Germany adopted the US approach and tried to shut the company completely out of technology development in its jurisdiction? The China-Germany bilateral investment treaty (BIT) of 2003 offers a contemporary take on ISDS. The treaty provides that if a dispute cannot be settled within six months of the date when it has been raised by one of the parties, it shall, at the request of the investor, be submitted for arbitration to ICSID. The treaty (as other contemporary treaties) provides that investments shall benefit from national and most favoured nation (MFN) treatment. A Protocol to the treaty provides information on the interpretation of exceptions to protection on the basis of public policy and security interests.

 

A German ban would open the way to an investment tribunal

Huawei has made its intentions of using ISDS clear, in case bans (for example in the Czech Republic, Canada or Germany) violate its expectations as a foreign investor. The first hurdle to be overcome by any investor wishing to access ISDS is establishing the jurisdiction of the tribunal. This is commonly achieved by showing that the investor (or the investment) comes within the protection of a BIT, establishing prima facie that a violation of the terms of the treaty has occurred, and that this violation is the result of a state act. Huawei certainly meets the definition of investor and investment under the China-Germany BIT.

As to the offending measure, an investment dispute requires a legally significant connection between the measure and a specific investment. Note however that it is not necessary that the state measure in question is directed specifically at a particular investment, only that it has an effect on it; and general measures that affect an investment can form the basis of a claim. In this part, our discussion is speculative as Germany has not yet moved to ban Huawei. Were it to go down the American route and instigate a legislative measure banning the company from continued involvement in R&D, investment and product deployment in the German telecommunications market, this would constitute a state act impacting on an investment with the potential to violate treaty commitments. This, in association with the status of Huawei as a protected investor would allow for a successful outcome to any determination of jurisdiction by an investment tribunal. Conversely, an ISDS avenue is not available for Huawei in the US, as there is no comparable investment treaty between these two countries, nor would the determination be reached with ease in the case of the UK, due to differences in the wording of the China-UK BIT.

 

Does a ´security risk´ excuse discrimination?

National security considerations will entail discriminating against foreign investors and will in most instances clash with undertakings in BITs or multilateral instruments to offer MFN and national treatment, which aim specifically at preventing discriminatory measures adopted by the host state against investors of other contracting parties. Many international investment agreements explicitly include national security exceptions, acknowledging that countries can legitimately be wary of any investments that may jeopardize their national safety. However, the challenge in applying such exceptions is how states can achieve balance between national security and national treatment and MFN obligations.

Due to the obvious conflicts between security considerations and investor protections, most BITs provide carefully for general exceptions, making it difficult to avoid standard international law obligations. Nonetheless, especially in case of non-discrimination, there is recognition among tribunals that public interests may necessitate differentiating between investors (Lemire v Ukraine). The logic of excusing discrimination is founded on an argument based on necessity. A necessity doctrine in general terms can contain two distinct defences. The first derives from non-precluded measures (NPM) clauses, found in some BITs, and the second springs from the customary international law defence of necessity as embodied in Article 25 of the Articles on the Responsibility of States for Internationally Wrongful Acts (CMS v Argentina). Treaty standards come with some limited option for derogation depending on context. A series of exceptions based on those provided in the WTO/GATT system provides the basis under which many BITs allow contracting parties to deviate from normal trading rules in the interests of life, health and resource conservation (Article XX), including security (Article XXI). These deviations are extended to allow exceptions to MFN and national treatment on grounds of security but have rarely been invoked in practice.

Jurisprudence focuses not only on the presence of discrimination per se, but also on the reasons for it, with discrimination on the basis of state legitimate interests being accepted in some cases even in the absence of specific treaty exceptions to national of MFN treatment (see Total v Argentina, Paushok, SD Myers). A traditional ‘security interest’ exception in international agreements (on a surface reading of its application) vests states with the power to nullify an international obligation based upon the right to defend their essential security interests. The defence is in fact well recognized under customary international law (International Law Commission’s Draft Articles on State Responsibility, Gabcikovo-Nagymaros). The threat to the national interest must be ‘extremely serious, representing a present danger’. Nevertheless, the scope for the state’s measures is narrowly limited and any actions must constitute the only recourse to defend the essential security interest identified. Crucially, as in Deutsche Telekom v India, tribunals will not accept that a determination of what constitutes essential security interests is at the discretion of the host state.

As a result, any national security or public policy-based derogation from treaty standards remains a nebulous and uncertain basis on which to excuse what would otherwise be seen as discriminatory treatment. Would a Huawei ban based on an assessment of the company as a ‘security risk’ due to links with the Chinese government come under the umbrella of public security and order, precluding it from being designated as less favourable treatment? The tribunal would need to balance the very real investment of Huawei in Germany against a perception of threat by German authorities and decide whether overt discrimination is in this case capable of being excused. I address these issues in further detail in my forthcoming chapter in the Handbook of International Investment Law and Policy.

 

The price tag on the exercise of sovereign discretion

Assuming one believes Chinese investment to be a danger, if Huawei is successful in using ISDS to counter bans built on national security concerns, does this prove that investment arbitration is a threat to national wellbeing? The answer depends on whether one is in favour of unfettered policy discretion. Curtailment of such discretion is not an unusual objective for investment treaties, the novelty comes from the target of potential actions (in this case a developed western state). When parties are unpredictable or considered a political risk, external constraints on their policy-making help stabilize the investment environment, providing an additional layer of protection for businesses. ISDS does not make democracy irrelevant. What it does instead is place a price tag on the exercise of sovereign discretion. The problem is that in Huawei’s case, the price may be high indeed.

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The Market for Arbitrators and The Market for Lemons

Wed, 2020-06-10 02:00

Long before the now-popular phrase “pale, male, and stale,” leading arbitrators were instead often referred to as a “club,” a “cartel,” or even a “monopoly.” Those references were meant metaphorically, even jokingly. The irony is that they turn out to hold important truths that are promiscuously intertwined with the pale-male-stale moniker.

To understand both, we must first examine the Market for Arbitrators, and later the Market for Lemons.

 

The Market for Arbitrators

The market for international arbitrators is shaped by two defining features. The first is high barriers to entry: it is really hard to become an international arbitrator. The second is profound information asymmetries: it is really difficult to obtain information about arbitrators and not all participants have equal access to that information. Because most arbitration is confidential, parties must resort to person-to-person research about arbitrators’ track records. That process  is most effectively—but not necessarily most efficiently—conducted by big, repeat players.

Rapid growth in an industry usually triggers increased competition among various players who vie for a larger share of the expanding market. International arbitration is a case in point: exponential growth in the number of international arbitrations intensely amplified competition among law firms, institutions, hearing sites, legal seats, universities, academics, and arbitration-related organizations.

International arbitrators, however, have been largely exempted from similar competitive pressures. Instead, we continue to see reappointment of a relatively small group of leading arbitrators who are already well-known. The reasons are barriers to entry and information asymmetries.

On the one hand, arbitrators face less competition from new market entrants. It is incredibly difficult for new and more diverse arbitrators to get their first appointments and even more difficult to establish professional reputations after that first appointment. Like established arbitrators, newer arbitrators’ performance in their first arbitrations is unlikely to be discernable beyond the few participants in those arbitrations. Thus, even highly talented newcomers may remain obscure to the larger market and cannot provide meaningful competition for established arbitrators.

The need to grow the market for arbitrators, particularly by identifying talented newcomers, is particularly acute now as a wave of lower- and mid-value cases come out of the COVID crisis.

On the other hand, leading arbitrators with strong reputations are not necessarily incentivized1)This reference is not questioning the fact of arbitrators’ professional integrity. It is instead a theoretical observation about their structural incentives. jQuery("#footnote_plugin_tooltip_9738_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9738_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); to perform at their best. Even mediocre performance by an established arbitrator is unlikely to be discernable by other than those few participants in a particular arbitration.

And that brings us to the second part of this essay’s title.

 

The Market for Lemons

The term “market for lemons” was first coined in 1970 by US economist George Akerlof in his Nobel-prize-winning article by the same name. In American slang, a “lemon” is a car that is found to be defective only after purchase. Akerlof’s model demonstrates that asymmetries between buyers and sellers about the quality of goods can cause deterioration in the market to the detriment of everyone.

Specifically, when sellers generally know of cars’ defects, but buyers do not, the price buyers are willing to pay sellers will be reduced by the risk that they might be buying a lemon. Meanwhile, sellers will be willing to sell at the reduced price only if they are actually selling lemons because otherwise they will be selling perfectly good cars at a discount.

The result, Akerlof’s theory predicts, is that sellers of quality cars will exit the market, eventually leaving only sellers of lemons, precipitating a downward price spiral, and potentially resulting in market collapse.

Now, to be clear, I am not accusing international arbitrators of being intentional monopolists or suggesting the kind of market collapse that Akerlof’s model predicts. Having spent my career studying and working with international arbitrators, I know the vast majority of them have reputations that are hard-fought, well-earned, and highly deserved.

I am saying, however, that lack of diversity among arbitrators is at least partially the result of lack of information in the market and a resulting lack of meaningful competition for arbitrator services.

I am also hypothesizing that the cost of the few “bad apple” arbitrators (to mix my metaphoric fruits) is not limited to disappointment in a specific case. Yes, parties in a particular case may be disappointed by unwarranted delays, ill-preparedness, or insufficiently reasoned awards. But, consistent with Akerlof’s model, an inability to identify in advance which arbitrators might raise such concerns may reduce confidence in all arbitrators. Information asymmetries about arbitrators, in other words, might at least partially explain the recent rise in publicly aired concerns about arbitrators and the related flurry of recent efforts to regulate arbitrators.

If I am correct that lack of diversity and some concerns about arbitrator conduct are at least partially a market problem, then what we need is a market solution.

That is what Arbitrator Intelligence provides.

 

Arbitrator Intelligence Reports

To understand how our Reports will affect the market, let’s consider one of our first Reports on Roque Caivano.

You may not have heard of Caivano, but Chambers describes him as “one of the most important commercial arbitrators in Argentina by far [and]…an excellent person, lawyer [and] very qualified and experienced in this area.” This tidbit may pique your interest in Caivano, but can you find colleagues who can provide details about his track record?

Our Report on Caivano provides feedback from 9 participants about 4 different arbitrations in which Caivano sat as an arbitrator, but which are not publicly available. It contains both factual information about these arbitrations, as well as evaluations from the participants. For example, one responder, when commenting on the efficiency of the proceedings, indicated “It was a fast-track arbitration. It only lasted 6 months. Very well organized.”

 

Meanwhile, we also have a Report on Fernando Cantuarias, who is currently sitting on two ICSID annulment panels in Teinver v. Argentina and is often described as one of the leading arbitrators in Peru.

In our Report on Cantuarias, we have feedback from 25 participants regarding 19 non-public arbitrations. With more data, we can provide in Cantuarias’ Report all sorts of fascinating insights that simply could never be assembled based on ad hoc individual research.

For example, of those arbitrations in which Cantuarias sat, Claimants had no recovery in 24% and recovered less than half of the amount sought in 47% of arbitrations. These numbers may help explain why the vast majority Respondent-affiliated participants reported that the award was more favorable than expected, while only 7% of Claimant-affiliated participants reported an award more favorable than expected.

Cantuarias’ Report also reveals that the most frequent standard used to order document production by Cantuarias tribunals was narrow categories of documents (9/19 or 44% of cases) or individually identified documents (10%). Because it is difficult to evaluate these rates in the abstract, we provide baseline comparisons to other tribunals in Latin America-seated arbitrations that we have in our database. Thus, for example, in contrast to document production based on narrow categories of documents being ordered by 44% of Cantuarias tribunals, other Latin American-seated tribunals issued orders based on narrow categories in 20% of cases and based on individual documents in 25% of cases. Meanwhile, tribunals on which Cantuarias sat never ordered document production based on broad categories, whereas 10% of other Latin American tribunals did.

 

That brings me to our Report on Mirjana Radović, an arbitrator from Serbia.

This Report is based on feedback from one participant in one Stockholm Chamber of Commerce construction case in which Radović sat as a Claimant-appointed arbitrator. Although much narrower in scope, the value of a 1-arbitration Report is roughly equivalent to one phone call.

Even if based on only one arbitration, the feedback in this Report suggests that Radović came to hearings prepared, as illustrated by the feedback that she asked questions that reflected good knowledge of the case and helped clarify legal and factual issues in the case. Feedback also described the procedural rulings by Radović’s tribunal as promoting fairness and efficiency. Finally the award in that arbitration was rendered in 480 days from commencement of the arbitration and 99 days from the close of party submissions. These times are faster (and sometimes significantly faster) than other similar cases in our database.

The importance of smaller Reports like Radović’s is that we do not need to wait until we have multiple sources of feedback before we can produce a Report. We can produce a Report as soon as we have feedback from one arbitration. That means that key information about newer arbitrators can now be more readily available to parties and those newer arbitrators do not need to endure potentially long delays for feedback about their skills to be more broadly known.

 

The Market-Based Benefits of Change

Michael McIlwrath and I have long debated whether Arbitrator Intelligence Reports represent a natural evolution from existing trends or whether it is a disruptive innovation that will reshape the market. Although it is always fun to debate Michael, the truth is that we are both right.

Recent years have seen many different reform efforts to aid parties and counsel in arbitrator selection. These reforms include publishing arbitrator names on institutional websites, collecting publicly available awards, and planning for systematic publication of redacted awards.

Although our Reports are part of this natural evolution, our unique platform to collect information through our specialized Arbitrator Intelligence Questionnaire or AIQ represents a dramatic advance in transparency and reduction in information asymmetries. These advances inure to the benefit of us all.

 

Benefits for Parties

Parties and in-house counsel are of course the biggest winners of this innovation. They benefit generally from the efficiencies noted above. But they also benefit by having an external source of objective information that enables them to engage in meaningful discussions about arbitrator selection with outside counsel, instead of relying blindly on recommendations.

Another potential benefit from our Reports is increased efficiency and efficacy in the process for selecting chairpersons, which also suffers from information asymmetries. Now, arbitrators proposed by an opposing party are often rejected immediately for no reason other than that their reputations are not known or easily knowable to the other parties. Parties are more likely to agree on proposed chairs—and thus avoid an institutionally appointed chair—if they start with a shared baseline of information about potential candidates.

 

Benefits for Law Firms

While some major law firms have fretted that our Reports may reduce their perceived value to clients, the reality is instead that our Reports will make their research and client advice more precise and efficient.

Consider, for example, how new issues such as rates of recovery, comparative evaluation of standards for document production, and approaches to awards of costs and fees can now be considered in arbitrator selection. Assessment of these considerations has until now been unthinkable because research is limited to a handful of anecdotal exemplars.

Imagine also if some of the proposed reforms are enacted to significantly limit reappointments by the same law firm, party, or third-party funder, or to limit or effectively preclude arbitrator interviews. Firms’  institutional memories about arbitrators will be more limited and they will be less able to supplement those memories with direct interviews. Our Reports can fill potential gaps and may make it less necessary to ask arbitrators directly in interviews.

And, of course, law firms will always add value by supplementing and introducing a nuanced interpretation of the data and analytics in our Reports.

 

Benefits for Institutions

Institutions also benefit from our Reports. We offer our Reports for free to cooperating institutions that encourage their participants to provide us feedback at the end of their arbitrations. Information in our Reports can complement the information institutions have internally and supplement that information with data from arbitrators’ performances in arbitrations administered by other institutions. This latter category of information is particularly valuable to newer, smaller, and regional institutions.

 

Benefits for All

By making information about arbitrators more readily available to all, Arbitrator Intelligence promises to help fix the broken market for international arbitrators and create more vibrant competition among arbitrators.

This forecast may seem ambitious, but we have concrete indications that suggest positive market changes are already happening.

SIAC, one of our cooperating institutions, provides notice in its Statement of Independence that it will be inviting counsel and parties to provide feedback at the end of the arbitration. Several arbitrators have told us that this notice about potential feedback was enough to keep them extra alert in conducting the arbitral proceedings and extra efficient in writing the award.

We all benefit when arbitrators are inspired to put in their best, including arbitrators themselves. The flurry of codes and other forms of regulation aim to improve arbitrator conduct, and even those sources concede that enforcement presents a tremendous challenge. Those who believe market-based solutions are superior to direct regulation should welcome our Reports as a market-based incentive for arbitrators to perform at their best. Moreover, by reducing information asymmetries, our Reports can create a more efficient Market for Arbitrators or avoid the pitfalls of a Market for Lemons.

 

References   [ + ]

1. ↑ This reference is not questioning the fact of arbitrators’ professional integrity. It is instead a theoretical observation about their structural incentives. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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The Negative Affect of Negative Effect of Kompetenz-Kompetenz on International Arbitration: Notes from the Devas v. Antrix Saga

Tue, 2020-06-09 06:00

The Prolonged saga of enforcement of the ICC commercial arbitration award of 2015 in Devas v. Antrix (ICC Case No. 18051/ CYK of 2011) has not only raised several interesting questions in respect of pathological arbitration agreements but has also highlighted the ineffectiveness of the “Negative Effect” of the doctrine of Kompetenz-Kompetenz, given the possible annulment of the arbitral award based on a jurisdictional challenge that could have been resolved at the very outset by the national courts. This post highlights the drawbacks of the said doctrine and proposes an alternative approach of positive Kompetenz-Kompetenz based on concurrent jurisdiction between arbitral tribunal and national courts.

 

Background 

The arbitration clause provided that the disputes are first to be referred to the senior management of both parties for resolution within three weeks, failing which they were to be heard by an arbitral tribunal seated in New Delhi, under ICC or UNCITRAL rules.

Devas instead of referring the matter to the senior management for resolution or notifying Antrix, unilaterally approached the ICC with a request to initiate arbitration. Consequently, ICC wrote to Antrix inviting it to appoint its arbitrator. However, instead of responding to ICC’s letter, Antrix wrote to Devas insisting that the matter be resolved through a senior management meeting. The senior management meeting remained inconclusive and subsequently, Antrix initiated arbitration under the UNICITRAL rules, asking Devas to nominate its arbitrator. At this juncture, ICC sent another letter to Antrix informing that:

“…Should the Court decide that this arbitration shall proceed pursuant to Article 6(2) of the Rules, any decision as to the jurisdiction of the Arbitral Tribunal shall be taken by the Arbitral Tribunal itself.”

ICC also informed Antrix that the arbitration clause substantially departed from the ICC rules and that the institution would conduct the arbitration following its rules unless the parties objected. However, Antrix responded by filing an application under Section 11 of the Arbitration and Conciliation Act, 1996 to the Supreme Court of India (SC) inter alia seeking to adjudicate the question that whether Chief Justice can constitute a Tribunal in supersession of the Tribunal already in the stage of constitution under the ICC Rules, notwithstanding the fact that one of the parties had proceeded unilaterally in the matter (Supreme Court of India, Arbitration Petition No. 20 of 2011).

The SC relying upon the negative effect of Kompetenz-Kompetenz refused to intervene in the issue by holding that since the ICC arbitration proceeding had already commenced, it did not have the power under Section 11 of the Act to appoint an arbitrator in a second arbitration and to determine the validity of the ICC proceedings.

Subsequently, with the SC refusing to interfere in the matter, Antrix pursued its dispute regarding the jurisdiction of the tribunal on the ground of a pathological arbitration clause, before the ICC tribunal. The tribunal in its final award held that the clause was not pathological, and therefore it had the jurisdiction to adjudicate the dispute between the parties. Subsequently, Devas obtained an ex parte confirmation of the award from the Paris Court of Appeal, which was subsequently challenged by Antrix on the ground that the arbitration agreement provided for ad hoc arbitration and hence the arbitral tribunal was irregularly composed. This was initially granted by the Paris Court of Appeal, however, the French Cour de Cassation has recently set aside the judgement and remanded it back to the Paris Court of Appeal. The case is now pending before the Paris Court of Appeal.

 

Moving towards Positive Kompetenz-Kompetenz based on Concurrent Jurisdiction

The doctrine of Kompetenz-Kompetenz grants power to arbitrators to decide upon their own jurisdiction. However, the negative effect of Kompetenz-Kompetenz allows the courts to consider a jurisdictional challenge only on a prima facie basis while allowing for a complete review only by an arbitral tribunal. While Article II of the New York Convention merely allows for the positive effect of Kompetenz-Kompetenz, domestic arbitral legislations and case laws in many jurisdictions are increasingly opting for the negative effect.

Prof. Stavros Brekoulakis while rejecting the negative effect, has suggested a distinction in treatment between disputes relating to existence and validity of an arbitration agreement and other disputes against the jurisdiction of a tribunal, including disputes on the scope of an arbitration agreement or arbitrability. According to him, concurrent jurisdiction should be accorded to national courts and arbitral tribunals in the former, while arbitral tribunals may have exclusive jurisdiction to determine the latter. This is because the issues in the latter are closely intertwined with the merits of the case.

Any risk of conflicting determinations by national courts and arbitral tribunal on the validity of the same arbitration agreement would then be avoided by the res judicata effect of a national decision or arbitral award, which would preclude a second determination on the same matter.

This post argues for a positive Kompetenz-Kompetenz with concurrent jurisdiction between national courts and the arbitral tribunal (with a condition of issuing a partial award on jurisdiction before considering issues of merits). If the national court is first to arrive at a decision then, its decision would be final against that of an arbitral tribunal and any other national court. On the other hand, if a partial award is first rendered, the court would determine its validity within the limited scope of grounds for setting aside of arbitral awards. It is important to allow the courts to determine the validity of the partial arbitral award so rendered within the grounds for setting aside of arbitral award which are confined only to the procedural fairness and do not question the decision of the tribunal itself.

Furthermore, it should be considered to grant parties the autonomy to mutually opt-out of the principle of concurrent jurisdiction, either at the stage of entering into the arbitration agreement, or at the stage of determination of the issue by either the court or the arbitral tribunal, and choose the determination of such disputes by either court or arbitral tribunal exclusively. This would ensure that the parties not only choose the forum for resolving their disputes but also choose the pitfalls that come with each approach.

 

Applying the Principle of Concurrent Jurisdiction to the case

The SC in the instant case did not exercise its jurisdiction to adjudicate the question of the legality or otherwise of the continuation of the arbitral proceedings before ICC, even though there was a case set up in the pleadings by Antix to address the larger issue of the validity of the ICC arbitration itself. The SC instead chose to tread the narrow path of going by the strict construction of the wording of Section 11(6) of the Arbitration Act, whilst leaving the parties to dispute the jurisdiction before the ICC tribunal. The SC instead could have seized this opportunity to clarify the validity of ICC arbitration in consonance with Indian law, given that SC had superintendence over the arbitration since India was the seat of arbitration. While the SC, obviously would have been very chary to issue an anti-arbitration injunction, it nevertheless could have opted to apply the principle of concurrent jurisdiction, given that the instant case fell within the field of validity and operability of arbitration clauses, as the case involved the interpretation of an alleged pathological arbitration clause which created confusion as to the forum of arbitration.

Following the positive effect of Kompetenz-Kompetenz, the SC should have concurrently determined the operability of the arbitration agreement with the ICC tribunal. If SC was first to decide the issue, then the judgement of the court would had operated as res judicata over the tribunal. On the other hand, if the tribunal was first to issue a partial award, then the courts could have merely considered the issue within the limited grounds of New York Convention and consequently either grant recognition or set aside the partial award and direct the parties to start new arbitration proceedings.

This would have resulted in an earlier resolution of the dispute between the parties, conferred greater legitimacy on the subsequent arbitral proceedings by removing uncertainty, and helped save additional costs of setting aside and enforcement proceedings after arguing the whole dispute. Furthermore, it would have also allowed Antrix to exercise its procedural rights of appointing its arbitrator in the arbitral proceedings before ICC. This approach is even more beneficial in cases where the arbitral tribunal has not yet been constituted, as it would ensure the swift and timely determination of issues affecting operability and validity of arbitration agreement.

 

Pitfalls in the Applicability of the Suggested Approach

Even the principle of concurrent jurisdiction does not come without pitfalls. It might result in increasing the burden on already overburdened national courts in large jurisdictions such as India. It might also lead to replication of arguments before two forums and resultant additional costs. More importantly, it might result in an enquiry into merits of the disputes by national courts, if the jurisdictional issues are intertwined with issues on merits. However, in cases like Devas, where the issues of jurisdiction are not intertwined with issues of merits or in cases where the arbitral tribunal has not yet been constituted, the advantages in favour of concurrent jurisdiction outweigh the pitfalls for the courts to assume concurrent jurisdiction. Furthermore, if the parties are granted the autonomy to choose between either of the approaches, then the risk of these pitfalls would already be expected by the parties and this would ensure greater certainty in dispute resolution.

Therefore, as is succinctly put by Professor Brekoulakis, the verdict for the negative effect of Komptenz-Kompetenz has to be negative, based on the principle of concurrent jurisdiction and party autonomy.

 

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“To the Centre”: Itisaluna v. Iraq and ICSID’s Entry into the OIC Debate

Mon, 2020-06-08 06:00

The recent case of Itisaluna Iraq LLC and Others v. Republic of Iraq represents the first time that an ICSID tribunal had been constituted under the Agreement on Promotion and Protection and Guarantee of Investments among Member States of the Organization of Islamic Cooperation (the “OIC Agreement”). The tribunal affirmed that the OIC Agreement contains a general consent to arbitration on the part of the States Parties, but a majority found that that general consent did not extend to ICSID arbitration in particular, nor could the MFN clause operate to establish consent to ICSID arbitration through the invocation of a related BIT. As a consequence, the majority found that the respondent Iraq had not consented to submit the dispute “to the Centre,” as required by Article 25(1) of ICSID Convention. Although this decision seemingly forecloses future access to ICSID under the OIC Agreement, the award nevertheless will have important ramifications for other arbitrations arising under the treaty.

 

Background to the Dispute

The facts of the case, as asserted by the claimants and recounted by the tribunal, are straightforward. The claimants in June 2006 entered into an agreement with the Iraq national Communications & Media Center (“CMC”) whereby the claimants would receive a license to install, construct, and operate a public network of telecommunications services in Iraq, including the associated international gateway services. After paying a fee to secure the license, the claimants apparently invested hundreds of millions of dollars to fulfill the terms of the license.

According to the claimants, the CMC prohibited the claimants from exercising their right to operate the international gateways. This, in turn, deprived the claimants of an essential element of their investment in Iraq. The license subsequently expired and the CMC apparently continued to pressure the claimants into accepting a renewal of the expired license, albeit without any of its key terms, resulting in severe losses to the claimants.

In light of these alleged losses, the claimants invoked the OIC Agreement, as well as the Japan-Iraq BIT by operation of the OIC Agreement’s MFN clause, claiming unlawful direct and indirect expropriation, and violations of the minimum standard of treatment, national treatment, and fair and equitable treatment.

 

The OIC Agreement and the MFN Debate

Concluded in Baghdad in 1981, the OIC Agreement was predicted under the auspices of the 57-member Organisation of Islamic Cooperation, a multipurpose international organisation. The Agreement entered into force in 1988 for those Member States which had ratified it; it is presently in force for 29 OIC Member States, including Iraq, Jordan, and the UAE. Its coverage links a number of States which do not have BITs between them.

The Agreement’s jurisdictional and procedural aspects, rather than its substantive protections,  have attracted the most attention in commentary so far. Most prominently, Article 17 discusses the possibility and conditions of “conciliation or arbitration” under the Agreement. The Article 17 dispute resolution mechanism, however effectuated, is meant to function until such time that “an Organ for the settlement of disputes arising under the Agreement is established” (quoting the chapeau). No such organ has been created. Article 17 further provides that, in the event that the two disputants cannot agree on a presiding arbitrator, the OIC Secretary General shall appoint the president. In practice, the OIC Secretary General has declined to exercise this authority, thus thwarting the establishment of tribunals. Claimants have turned instead to the Permanent Court of Arbitration (PCA) through the operation of the Agreement’s MFN clause and the UNCITRAL Rules, thereby bypassing the recalcitrant OIC Secretary General.

The OIC Agreement lay seemingly forgotten for years until it was successfully invoked by a successful claimant in the case of Al-Warraq v. Indonesia, applying the UNCITRAL Rules. Notably, the tribunal in Al-Warraq permitted the Saudi claimant to invoke the OIC Agreement, Article 8’s MFN clause to import the FET clause from the UK-Indonesia BIT. The tribunal found an FET violation, but awarded no damages in light of the investor’s unclean hands.

A robust debate has arisen concerning the Agreement’s advance consent to ISDS, as well as the propriety of using the MFN clause to establish tribunals. This debate has not prevented at least a dozen known proceedings from arising under the Agreement.

 

The Tribunal’s Analysis

The Itisaluna proceeding began much like its predecessors under the treaty, but this time with an added wrinkle. Whereas other claimants used the OIC Agreement’s MFN clause to import dispute resolution mechanisms (in particular, the UNCITRAL Rules naming the PCA as appointing authority), the Itisaluna claimants invoked the Japan-Iraq BIT in an attempt to import Iraq’s consent to ICSID arbitration in particular. Per Article 25(1) of the ICSID Convention, “the jurisdiction of the Centre shall extend to any legal dispute […] which the parties to the dispute consent in writing to submit to the Centre” (emphasis added). In other words, it would not suffice for the claimants to establish that Article 17 of the OIC Agreement provides consent to arbitration in general without providing additional evidence of consent to ICSID arbitration in particular. The tribunal, consisting of Sir Daniel Bethlehem, Q.C., Dr. Wolfgang Peter, and Professor Brigitte Stern, therefore very quickly identified this as “the critical question that requires decision by the Tribunal[.]” (Award, ¶ 80 (emphasis in original).)

A majority of the tribunal found that the claimants were precluded from using the MFN clause to import from a tangential BIT the respondent State’s consent to ICSID arbitration. To reach this conclusion, the tribunal made three important findings.

First, all three members of the tribunal confirmed that Article 17 provides general advance consent to ISDS in general. Iraq advanced the argument that unlike Article 16 (which offered aggrieved investors a choice between litigation in national courts and international arbitration), Article 17 governed inter-State disputes only. However, although Article 17(2)(a) spoke only of “parties,” the reference to “the investor” in Article 17(2)(d) in the context of binding awards made clear that the article as a whole was meant to apply to ISDS, not simply inter-State disputes. The treaty when viewed as a whole clearly intended “to establish a bespoke mechanism for the settlement of disputes arising under the Agreement.” (Award, ¶ 167.)

Second, notwithstanding this general consent to ISDS, the majority consisting of the President and Professor Stern, interpreted Article 17 to require conciliation as a condition precedent to arbitration. Recall that the Article 17 chapeau provides that “disputes that may arise shall be entitled [i.e., resolved] through conciliation or arbitration” (emphasis added). In the majority’s view, the conditional language of Article 17(2)(a) meant that the treaty would not permit a disputant to proceed directly to arbitration without first attempting conciliation. Dr. Peter, in dissent, would have followed the Al-Warraq precedent, which rejected this approach and instead read the provision to offer a claimant the choice between conciliation or arbitration. (See Award, ¶¶ 226-242.)

Finally, notwithstanding the general consent to ISDS in Article 17, the majority decided that the claimants could not use the Article 8 MFN clause to import Iraq’s consent to ICSID arbitration in particular from the Japan-Iraq BIT. The majority affirmed that “there is a sufficiently settled body of consistent investment treaty law in favour of the proposition that MFN clauses are capable of applying, as a matter of principle, to dispute settlement resolutions.” (Award, ¶ 195.) Nevertheless, MFN clauses, as treaty law, must be interpreted carefully and are capable of express or implicit limitation. In the instant case, textual considerations in both the OIC Agreement and the Japan-Iraq BIT, and the interest of balance and “variable geometry” of overlapping treaties, counseled for limiting the effect of the Article 8 MFN clause. Moreover,  the majority considered the import of the foundational Maffezini v. Spain case. Although Maffezini stands for the general proposition that an MFN clause can be used to import dispute resolution provisions from other BITs, the Maffezini opinion set forth four situations in which it would be inappropriate to do so. The Itisaluna majority observed that at least three of those factors applied in the instant case, not least of which was the limitation stating “if the agreement provides for a particular arbitration forum, such as ICSID, for example, this option […] cannot be changed by invoking the [MFN] clause, in order to refer the dispute to a different system of arbitration.” (Award, ¶ 211 (quoting Maffezini, ¶ 63).) Maffezini’s approach to an MFN clause, a sword for other claimants, here was a shield for the respondent.

 

Conclusions

The tribunal’s award will play an important role in the continuing debate over the OIC Agreement.

First, the majority found that the general consent to investor-State arbitration established by Article 17 did not extend to ICSID arbitration in particular, nor could the claimants use the MFN clause to establish the respondent’s consent to ICSID jurisdiction. Although future tribunals might take a different view, they will likely have to address this decision, as it seems to foreclose access to ICSID under the OIC Agreement unless the parties specially consent to it.

Second—and paradoxically—the award might expand the use of the OIC Agreement for ad hoc investor-State disputes. Even though the majority found no consent to ICSID arbitration, all three members of the tribunal agreed that Article 17 establishes a general consent by States Parties to arbitrate investor-State disputes.

Third, the tribunal affirmed the availability of the OIC Agreement’s MFN clause to dispute resolution mechanisms and procedural issues, albeit in a circumscribed manner. This will facilitate the constitution of tribunals using the UNCITRAL Rules (and the Rules’ use of the PCA as an appointment authority) contained in BITs to which the respondent States are parties.

Fourth, and on the other hand, the majority supported the view of respondent States which have insisted on conciliation under Article 17 as a precondition to arbitration. This, in addition to the time delays occasioned by appealing to the PCA to act as an appointing authority, will compound the difficulties claimants face in constituting arbitral tribunals under the OIC Agreement.

Finally, the opinion will underscore the OIC’s recent reform efforts. It has been reported that the OIC is drafting a protocol to the Agreement which would limit the type of substantive claims and would allow the OIC and its Member States to exercise more control over the adjudicatory process through the use of an inter-State negotiation stage and a standing dispute resolution body with appellate mechanism. Although the respondent Iraq defeated the Itisaluna ICSID claim, the award will remind the OIC Secretariat that similar claims will continue until its reform efforts are completed and adopted. In any event, the Itisaluna Iraq LLC and Others v. Republic of Iraq award represents an important contribution to jurisprudence under the OIC Agreement and ISDS more broadly.

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