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UNCITRAL Working Group III: One Step Closer to a Multilateral Investment Court?

Tue, 2020-03-24 02:00

During its last resumed 38th session which took place in Vienna from 20–24 January 2020 the UNCITRAL Working Group III discussed in parallel three reform alternatives, based on the notes prepared by the Secretariat. These alternatives suggested the creation of: (i) a stand-alone review or appellate mechanism; (ii) a standing multilateral investment court (MIC); and/or (iii) changes to the procedures relevant to the selection and appointment of arbitrators and adjudicators. UNCITRAL Working Group III undertook a preliminary consideration of several issues with the goal of clarifying, defining and elaborating these three options (Report, §15). Its demarche continued the desired little more action commenced at its previous session of October 2019. However, instead of asking the delegations to side with a particular reform option, as one might have expected, a more pragmatic approach was undertaken. The agenda was essentially split in three core issues which were holistically addressed: (i) enforcement of the decisions, (ii) financing, and (iii) selection and appointment of adjudicators. No decision on whether to adopt a particular solution was embraced at this stage.

 

The Idea of a Multilateral Investment Court

For the European Union (EU), an important and active player in the reform process, a MIC is the only course of action that can effectively address all the concerns identified in the second stage of work conducted by UNCITRAL Working Group III. In an attempt to materialise its view, in January 2019 the EU formally advanced the idea of a “standing mechanism”. It would have two levels of adjudication, with appeal open only for errors of law (including serious procedural shortcomings) or manifest errors in the appreciation of the facts. Appeal was thus envisaged to exclude the possibility for a de novo review of the facts. The EU proposal also suggested that the standing mechanism have full-time adjudicators who would not conduct any outside activities. These adjudicators would also be subject to qualification requirements comparable to those of other international courts, and would be selected through a non-renewable term of office combined with a transparent appointment process which would ensure independence, impartiality and observances of strict ethical requirements. Transparency of procedures, including access by interested third parties, were also flagged as reform goals. According to the proposal, enforcement of the awards of the standing mechanism would be carried out under a self-contained enforcement regime excluding domestic court review, or, alternatively, under Article 1(2) (“permanent arbitral bodies”) of the New York Convention. Financing would be made through contributions of the contracting States and would be managed through a trust fund. The EU proposal envisaged that the mechanism would be structured as an “opt-in” system, i.e. each State would be free to decide whether to accept the jurisdiction of the MIC, and if so, to which investment treaties it would be applicable. The mechanism would also be used for State-to-State dispute settlement.

As a side note, the EU’s submission is part of its broader agenda to reform the ISDS system, which began in 2015 and gained momentum in March 2018 when the Council published the negotiating directives for the MIC. On the basis of this mandate, the European Commission (EC) is playing on two fronts: (1) it is advocating for the creation of a MIC as part of the discussions initiated in UNCITRAL Working Group III, and (2) it is advancing its Investment Court System (ICS) in the investment agreements it is concluding. This second front exceeds the scope of this post. Nevertheless, it is worth noting the EU’s courageous start in implementing provisions relating to the fundaments of ICSs in several investment and free trade agreements concluded or pending conclusion by the EU with Canada (CETA), Singapore (EUSFTA), Vietnam (EVFTA) and Mexico, which is also on the table in all on-going investment negotiations. As shown in a previous post, the Court of Justice of the European Union (CJEU) confirmed in its Opinion 1/17 of 30 April 2019 the compatibility of an ICS like the one included in CETA with EU’s primary law.1)Consequently, in October 2019, the EC submitted to the Council a proposal for the ICS in CETA which is pending adoption. jQuery("#footnote_plugin_tooltip_6502_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6502_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Apart from greenlighting the implementation of ICSs, the establishment “in the longer term [of a] multilateral investment Tribunal” (§108) was also touched upon by the CJEU, arguably as the ultimate goal.

 

Multilateral Investment Court in 3D: Enforcement of Decisions, Financing and Composition

The MIC was formally on the agenda of UNCITRAL Working Group III for the first time since its inception. It was proposed both as a standalone option and as part of the matters common to an appellate mechanism, with both envisaged as permanent institutions. Mirroring the structure of the agenda of the session, the creation of a MIC was subject to a three-pronged analysis.

First, the topic of enforcement of the decisions rendered by a MIC was addressed from two perspectives. For enforcement in participating States, the Working Group discussed the possibility of creating an internal mechanism in the founding convention (potentially modelled on Article 54 of the ICSID Convention), with further consideration to be given to potential conflicts with existing enforcement regimes and issues of State immunity (Report, §§64-66). Some States also advocated for an enforcement based on the New York convention model (Report, §§67-68).

Issues associated with enforcement in non-participating States appeared more vexing. Article 1(2) of the New York Convention (which refers to awards “made by permanent arbitral bodies”) was advanced as a possibility (Report, §70). Several ideas were put forth in order to mitigate the risk of inconsistent application of this provision by domestic courts, such as relevant wording in the founding convention or the issuance of a specific recommendation on the interpretation of Article 1(2) (Report, §§71-73). Certain States also noted that the risk of non-enforceability could be mitigated by allowing non-participating States to opt into the enforcement mechanism later down the line (Report, §§74-77).

A number of additional questions were left open for the time being. This included the impact of the law applicable at the seat of the permanent body to issues of enforcement; the possibility for participating States to waive the right of review under Article V of the New York Convention; and the role of domestic courts in relation to awards contrary to mandatory rules of law and essential public policies (Report, §80). In light of the numerous outstanding questions, the Secretariat was requested to conduct additional preparatory work and to provide an in-depth analysis of the questions raised during the deliberations, as well as information on provisions in existing international instruments and the potential adaption of such provisions in the context of a permanent body (Report, §81).

Second, in relation to the financing of a MIC, preliminary discussions revolved around matters such as remuneration of the adjudicators, costs related to the administration of the case and administrative support staff, and the overhead costs associated with maintaining the permanent body (Report, §82). The source and allocation of funding was of particular interest, given the need to safeguard the independence of the permanent body and to ensure that there would be no discrimination based on contributions provided by States (Report, §§86-88). The brainstormed solutions included financing by the participating States based on different criteria (e.g., level of economic development, number of claims, voluntary contributions), the implementation of a user-pays system, or a hybrid financing mechanism combining the former two. A number of important questions were also flagged for further consideration, such as: long-term sustainability, transitional financing measures, contingency plans in case of lack of funds, and flexibility in the budget structure to reflect the caseload (Report, §93). Consequently, the Secretariat was requested to continue to analyse this topic, with a focus on hybrid models for financing, assessed contribution schemes for participating States, and potential budgets for a permanent body based on comparable international judicial bodies (Report, §94).

Third, with respect to the selection and appointment of the adjudicators in a MIC, key characteristics were considered to be qualified knowledge (although subject to the risk of reducing the pool of eligible individuals), independence and impartiality, accountability and integrity (Report, §§96-100 and §123). Geographical, gender and linguistic diversity as well as equitable representation of different legal systems and cultures were flagged as essential but only as long as such requirements would not jeopardize the ultimate goal of a fair and efficient resolution of the dispute (Report, §101). The representation of the participating States and the nomination of candidates (by participating States, by an independent entity or by interested individuals) were debated as fundamental points in relation to this topic. Some delegations also argued that the election process (through vote by/consensus of the participating States or selection by a committee) could potentially involve preliminary states, such as (i) a screening stage by neutral independent bodies or (ii) a consultation stage whereby certain stakeholders (e.g., representatives of investors, professional associations in the field of international law and civil society) could take part in (Report, §§114-122). Other tackled aspects were the duration of the terms and possibility of renewal, the allocation of the cases (e.g., by the president or on a random basis) and the criteria to be considered for such allocation (e.g., specificities of the case, diversity, balance of work) (Report, §§123-129). These issues will be considered in more detail in a subsequent post in this series. The Secretariat was requested to prepare options covering the different aspects identified during the deliberations and to suggest ways in which pertinent qualifications and requirements could be incorporated into investment treaties or any other relevant instrument. Thus, it was expressly acknowledged that the “specific features would largely depend on the broader design of how ISDS would be conducted, including whether the ad hoc nature would be preserved or whether a permanent structure would be sought” (Report, §§132-133).

Finally, further exploratory work was deemed necessary for matters such as the location of the MIC, hosting within an existing organisation (possibly within the United Nations) or as a separate body, and its prerogative to handle State-to-State disputes (Report, §130).

 

Conclusion

The latest work of UNCITRAL Working Group III illustrates a change in strategy towards better understanding the benefits and downsides of implementing a MIC, alongside other reform options. What initially looked like delegations anchored in rigid positions now resembles a common engineering exercise in search for a solution that could fly. Albeit a large number of topics remain partially or completely unaddressed at this stage,2)The next session initially planned to take place between 30 March – 3 April 2020 in New York was rescheduled due to the coronavirus outbreak. Its agenda does not include the topic of a MIC per se but that of a potential multilateral instrument on ISDS reform. jQuery("#footnote_plugin_tooltip_6502_2").tooltip({ tip: "#footnote_plugin_tooltip_text_6502_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); these will be subject to further analysis by the Secretariat and the delegations, and the discussions seem to be more structured and solution-oriented than they were previously. The process is slow and one cannot predict when an implementable conclusion will be reached. Nevertheless, it is moving, and the directions of the ultimate reform – be it in favour of a MIC or not – will arguably organically emerge throughout the process embarked on by the UNCITRAL Working Group III.

 

To see our full series of posts on the UNCITRAL WG III reform process, click here.

References   [ + ]

1. ↑ Consequently, in October 2019, the EC submitted to the Council a proposal for the ICS in CETA which is pending adoption. 2. ↑ The next session initially planned to take place between 30 March – 3 April 2020 in New York was rescheduled due to the coronavirus outbreak. Its agenda does not include the topic of a MIC per se but that of a potential multilateral instrument on ISDS reform. 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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UNCITRAL Working Group III: An Introduction and Update

Mon, 2020-03-23 02:00

Next week was due to be the 39th session of the United Nations Commission on International Trade Law’s (UNCITRAL) Working Group III, and its sixth session considering the issue of reform to investor-State dispute settlement (‘ISDS’). The session has since been postponed indefinitely, in light of the current global COVID-19 pandemic. In lieu of Working Group III’s meeting in New York, we are running a series of posts this week to discuss some of the key reforms that the Working Group (‘WG’) has under consideration. These are all topics to which the WG will return when its meetings resume. This post provides an introduction to the series. It sets out some background related to the WG process to date, and then introduces the posts you will see throughout this week as part of our series.

 

Working Group III: The Process So Far

In July 2017, the Commission turned the issue of ISDS reform over to WG III. This WG comprises member States, observer States, and observer international and non-governmental organisations. As previously explained, the WG has divided its task into three phrases, as follows: (a) first, identify and consider concerns regarding investor-State dispute settlement; (b) second, consider whether reform was desirable in light of any identified concerns; and (c) third, if the WG were to conclude that reform was desirable, develop any relevant solutions to be recommended to the Commission. The first and second stages have now been completed, with the WG having determined that reform is desirable. Such reform is considered necessary to respond to a range of issues that have been identified and discussed during the WG’s meetings. These include issues associated with the duration and cost of investor-State arbitration proceedings, and related issues such as security for costs; issues of predictability and consistency between arbitral decisions; concerns related to processes for the appointment of arbitrators, including issues associated with their independence, diversity, and qualifications; and problems raised by third-party funding arrangements.

At its sessions in October 2019 and January 2020, the WG discussed a range of possible reform options, including the establishment of an advisory centre, creation of a code of conduct, development of an appellate and/or standing court mechanism, and reforms to address issues of third-party funding. It also agreed on a schedule for the discussion of these – and additional – reform options, agreeing to dedicate its 39th session in 2020 (now postponed) to considering the following areas of reform:

  • dispute prevention and mitigation as well as other means of alternative dispute resolution;
  • treaty interpretation by States parties;
  • security for costs;
  • means to address frivolous claims;
  • multiple proceedings including counterclaims; and
  • reflective loss and shareholder claims (together with the Organisation for Economic Cooperation and Development).

As noted above, this session was due to take place in New York from 30 March to 3 April 2020, but has been indefinitely postponed due to the unfolding COVID-19 situation.

 

A Preview into Our WG III Series

We have invited a group of contributors to explore different aspects of the WG III process over the course of this week. We hope that this series will provide a useful forum – particularly now that the WG’s session is not proceeding as scheduled – for our contributors and readers to engage with the WG reform process, and to debate its merits, scope, and limits.

Our first three posts consider institutional reforms, examining the WG’s development of reforms focussed on the establishment of standing and appellate review mechanisms.

On Tuesday, we will have a post by Andreea Nica that introduces the WG’s discussions concerning the possible establishment of a multilateral investment court. The post examines the background to this proposal, and analyses some of the key issues associated with its implementation including issues of enforcement, financing, and the selection and appointment of adjudicators.

This will be followed on Wednesday by a post by Associate Professor Fernando Dias Simões (The Chinese University of Hong Kong), which examines how institutional modifications interact with issues associated with adjudicator selection and appointment. That post examines the relationship between institutional reforms and concerns about the politicisation of ISDS, and identifies a number of mechanisms that could be incorporated as part of broader institutional reforms to ensure that adjudicators can be chosen due to their professional skills and merit, not their political leanings.

In Thursday’s post, Marike Paulsson (Albright StoneBridge Group) explores whether the creation of an appellate mechanism would respond to concerns about ISDS procedures, or rather create more difficulties. She highlights a number of issues potentially associated with the creation of an appellate mechanism, including issues of cost, duration, and uncertainty.

Our next two posts in the series examine key procedural reforms under development by WG III.

In Friday’s post, Johan Sidklev and Bruno Gustafsson (Roschier Attorneys Ltd) explore the WG’s discussions of security for costs and frivolous claims. The WG intended as part of its 39th session to consider security for costs as a mechanism for averting frivolous claims in ISDS. Friday’s post examines how any reform of the standards for ordering security for costs might address the conflict between the interest of adequate costs recovery for States, and policy considerations relating to, among other things, an investor’s access to justice.

This will be followed by a post on Saturday by Dr. Anna De Luca (Bocconi University) examining the WG’s proposals concerning counterclaims. Her post highlights the implications of this reform option, including for asymmetry in investment arbitration and the UNCITRAL WG III’s analysis of procedural versus substantive reform options.

Our contributors this week offer a diverse set of perspectives on a number of important and emerging issues under consideration by the WG. We hope you enjoy the series!

 

To see our full series of posts on the UNCITRAL WG III reform process, click here.

More from our authors: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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The 2020 Vis Moot: Facing Emerging Challenges, While Continuing to Hone Best Practices in Procedure and Ethics

Sun, 2020-03-22 02:03

For decades, like clockwork, the Willem C. Vis International Commercial Arbitration Moot (‘Vis Moot’) and its sister competition, Vis East Moot, have brought together students, academics, practitioners, and arbitrators to consider emerging and important substantive topics in international arbitration and international sales law. Many of us honed our passion for these fields as student participants in the Vis Moot. We enthusiastically return to the Vis Moot each spring, as an opportunity to step back from the rigors of real-world practice and catch up with old friends and colleagues, while supporting students and considering emerging topics through the lens of the current problem.

 

Emerging Challenges

In the Fall, the Vis East Moot saw the decision by many student teams to withdraw in light of ongoing protests stemming from local concern over Hong Kong’s autonomy from mainland China. In addition, recent months of preparation for oral hearings have been overshadowed by the global public health crisis associated with COVID-19. This led to the reluctant, but appropriate and necessary, decision by Vis Moot organizers to first postpone in-person oral hearings in Hong Kong (to an unannounced date), followed by the recent decision to cancel oral hearings in Vienna.

The Vis Moot continues to execute its mission in unexpected ways. Student teams now have an opportunity to engage, in real-time, with the realities of arbitral practice. Most practitioners and arbitrators, after months of preparation, have seen hearings cancelled, either due to settlement or other circumstances requiring their delay. We also are now on the eve of the first Virtual Vis Moot: the organizers of each competition are separately providing students the opportunity to present their oral arguments from “home.” During the current public health crisis, nothing else could feel more modern. Globally, social distancing and remote working are emerging as a new reality. Practitioners face the pressurized challenge to rely on technology to transition their work and collaboration to a virtual setting, including the conduct of court and arbitration hearings. Consistent with the spirit of Lucy Greenwood’s Campaign for Greener Arbitration, there may be a silver lining to this momentary disruption. We have an opportunity to re-evaluate our individual carbon footprints and implement environmentally-friendly best practices. Indeed, each of these challenges and reactions highlights the true resilience and strength of both the Vis Moot community and the global arbitration community.

 

The 2020 Problem

Substantively, the Vis Moot problem always includes important questions – perhaps ones that have been percolating under the radar for some time – concerning arbitral procedure and contractual interpretation. It calls upon students, coaches, practitioners, and academics to consider these questions in detail and over a long period of time to glean collective insights and solutions. Already, in 2020, these goals have been achieved. While we may not all meet in person this year in Danubia (the Vis Moot’s fictional “seat”), the experience of coaching, researching, preparing memoranda, scoring memoranda, and preparing for oral hearings are each exercises that facilitate the Vis Moot’s goals.

With respect to arbitration, this year’s Problem involves two main questions.

First, the validity and enforceability of a unilateral option arbitration clause. This question was thoroughly considered on the Blog in a recent post by Kevin Cheung.

Second, the regulation of party representatives and the appropriate standards to guide whether their conduct is ethical and fair. Specifically, the Problem involves a scenario where one party has engaged an expert witness, one of the world’s few English-speaking experts on the subject. The other party contends that this expert’s selection is merely a tactic to create a conflict of interest with its party-appointed arbitrator and will lead to a (yet to be filed) improper arbitrator challenge and create delay in the resolution of the dispute. Under these circumstances, does the tribunal have the power to exclude the expert witness? The remainder of this post draws upon the Blog’s archives for insights to guide this analysis.

 

The Case for Tribunal Regulation of Counsel Conduct 

In recent years, the tribunal’s power to regulate the conduct of party representatives has attracted significant attention.

Prof. Margaret Moses has previously explained the arbitration community’s concern: arbitration is increasingly global and no longer controlled by an elite and exclusive “club” of parties, counsel, and arbitrators who implicitly understand the appropriate standard of conduct. Thus, with increasing use and diversity among its players, it is important to create explicit (rather than implicit) minimum and equalized standards for conduct. Indeed, Blog contributors have commented that national rules regulating counsel behavior rarely envisage the unique circumstances that counsel are confronted with in international arbitrations. Moreover, the reliance on national frameworks to regulate counsel conduct would probably lead to a fragmented response to transnational problems.

While there is agreement that a basic conceptual framework is needed and codes of conduct would be instructive, there is not agreement on what these codes of conduct should provide. This consensus stems from the understanding that self-regulation alone is not effective. The risk of guerilla tactics is pervasive. However, the existence of this risk does not automatically mean that the tribunal is the appropriate body to promulgate such standards (nor does it necessarily have the “power” to do so).  If the tribunal exercises powers it has not been granted, could its award be vacated on the ground that it exceeded the scope of its power? In this year’s Problem, this is precisely the risk. The International Law Association’s Committee on Commercial Arbitration has considered the issue and offered some useful recommendations by identifying two buckets of powers held by the tribunal: inherent and implied. Exercise of both types of powers can fall within their mandate to adjudicate a dispute.

As noted by Prof. Maxi Scherer, the goal should be to level the playing field among counsel and their clients. Because national rules cannot be relied upon to exclusively regulate counsel behavior in international arbitration, arbitral institutions are uniquely positioned to lead this debate by formulating common standards and rules regulating counsel conduct. Indeed, the London Court of Arbitration (‘LCIA’) was the first arbitral institution to offer guidelines on the conduct of counsel in international arbitrations (for the similar ICC initiative, see here). This year’s Problem specifically invokes the LCIA Rules (2014) as the lens for analysis.

The LCIA Rules (2014) include General Guidelines for the Parties’ Legal Representatives (‘LCIA Guidelines’) as part of its rules (for a general overview on the 2014 LCIA Rules, see here). Interestingly, the LCIA Guidelines are binding upon its users by virtue of Article 18.5, which provides that the participation of legal representatives before LCIA arbitral tribunals is conditioned to the compliance with the LCIA Guidelines. Accordingly, counsel give their consent to the LCIA Guidelines by agreeing to appear by name before the arbitral tribunal.

With respect to the Problem, the LCIA Guidelines provide that:

  • the LCIA Guidelines should not be interpreted so as to undermine a legal representative’s obligation to present the party’s case effectively to the tribunal (Paragraph 1); and
  • legal representatives should not engage in activities intended unfairly to obstruct the arbitration or to jeopardize the finality of any award (Paragraph 2).

As one Blog commentator mentioned, these recommendations are fairly general and high-level. As the application of these guidelines is not straightforward, tribunals should be particularly careful when interpreting Paragraph 2 of the LCIA Guidelines, which refers to obstruction strategies – the so-called guerrilla tactics. Indeed, certain procedural steps might be necessary to represent effectively a party in an arbitration, such as the appointment of a party expert whose linguistic capabilities and expertise make her unique to represent a party’s case in the arbitration – such as that of Respondent in the 2020 Problem. Accordingly, tribunals should strike a fine balance between discouraging and sanctioning those that engage in guerilla tactics, while at the same time not undermining a party’s right to present its case effectively.

In regard to the scope of the tribunal’s power to analyze claims connected to party representatives’ conduct, Article 18.6 grants tribunals significant discretion to decide, upon complaint of one of the parties or upon its own initiative, on whether legal representatives have violated the LCIA Guidelines. Moreover, the provision sets forth sanctions to be applied by tribunals, which include written reprimands or cautions in regard to future conduct in the proceedings, as well as the catch-all remedy of applying “any other measure necessary” for the tribunal to fulfil its general duties. One Blog contributor challenged whether a party-appointed arbitrator would be prepared to impose sanctions on the counsel that appointed her, knowing that such an approach would potentially undermine future appointments – indeed, given the economics, would party-appointed arbitrators be prepared to bite the hand that feeds them?

While analyzing the design of the LCIA Guidelines, a Blog commentator affirmed that the preference for broadly drafted recommendations is somewhat inherent to any attempt to formulate universally acceptable principles for the conduct of the parties’ legal representatives. The same can also be said about non-binding codes of ethical conduct that are relevant to the Problem, such as the 2013 IBA Guidelines on Party Representation in International Arbitration (for other examples of non-binding codes of ethics, see comments on the Prague Rules here and on the Spanish Arbitration Club’s Code of Best Practices in Arbitration here).

 

Discretionary Rules: The 2013 IBA Guidelines on Party Representation in International Arbitration

The 2013 IBA Guidelines on Party Representation in International Arbitration (‘2013 IBA Guidelines’) cover similar aspects to those covered by the LCIA Guidelines and reflect another institutional approach, although not binding upon parties unless expressly agreed by them either before or during the arbitration proceedings (for a general overview of the 2013 IBA Rules, see here).

According to its Preamble, the 2013 IBA Guidelines were not designed with the intention of replacing mandatory rules or agreed-upon arbitral rules, nor of vesting arbitral tribunals with powers reserved to regulatory professional bodies, as a contributor said. Rather, the 2013 IBA Rules consists of a valid initiative to consolidate best practices in international arbitration, which may level the playing the field between legal practitioners coming from different legal traditions, as well as between less and more experienced lawyers.

However, critics affirm that the 2013 IBA Guidelines will likely not offer optimal efficacy in shaping the conduct of party representatives, even if they are to become binding rules through the acceptance, in whole or in part, by the parties. This is so for a number of reasons.

First, the IBA 2013 Guidelines do not provide guidance on all aspects of party representative conduct, leaving out important aspects. Second, as raised by one contributor, the 2013 IBA Rules is concerned with counsel conduct, and not with conduct of the parties themselves, who are those that could consent to the application of the regulation.1)On this point, see Comments to Guidelines 1-3 (“A Party Representative, acting within the authority granted to it, acts on behalf of the Party whom he or she represents. It follows therefore that an obligation or duty bearing on a Party Representative is an obligation or duty of the represented Party, who may ultimately bear the consequences of the misconduct of its Representative.”). jQuery("#footnote_plugin_tooltip_2165_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2165_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In this sense, there is an inconsistency between those that are subject to the regulation and those who could agree to its application, which may deprive counsel from the incentives to act in accordance with the guidelines.Third, and as a consequence, the sanctions provided by the 2013 IBA Rules inherently penalize the end user of the arbitration, not their legal representative, as one contributor suggests. This is the case of adverse costs orders (for an analysis of this matter, see here).2)2013 IBA Rules, Guideline 26(b) and (c). jQuery("#footnote_plugin_tooltip_2165_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2165_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

***

All in all, this year’s Vis Moot participants will have a rich experience – both substantively and procedurally – and we are looking forward to seeing advancement of the debate, and the success of the participants, during the upcoming online pleadings!

References   [ + ]

1. ↑ On this point, see Comments to Guidelines 1-3 (“A Party Representative, acting within the authority granted to it, acts on behalf of the Party whom he or she represents. It follows therefore that an obligation or duty bearing on a Party Representative is an obligation or duty of the represented Party, who may ultimately bear the consequences of the misconduct of its Representative.”). 2. ↑ 2013 IBA Rules, Guideline 26(b) and (c). 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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Young Female Practitioners Breaking into the World of International Arbitration

Fri, 2020-03-20 23:21

Late last year, Herbert Smith Freehills Seoul and Kim & Chang held a “Women in Arbitration” Networking-Dinner and panel discussion as part of the Seoul ADR Festival 2019. The dinner aimed to provide an opportunity for female professionals in the Korean arbitration community to network with their industry peers and work to advance their position in arbitration. This post provides the perspectives of the authors based on the panel discussions.

 

A young practitioner’s perspective

Latin America

Increasing legitimacy in international arbitration, as explained by Van Leeuwen in a KluwerBlog in 2019, requires that arbitral decisions are made by a diverse pool of arbitrators, composed not only by gender equality, but also from geographical diversity. The reality is, however, that the field is not yet fully diversified, thus being a young woman from Mexico may present challenges to breaking into the international arbitration community. ArbitralWomen’s data show that, compared to other developed countries such as the United Kingdom, Mexico has few registered female arbitrators. Thus, accessible mentoring programs are not a feasible option for my jurisdiction. As a young Latina woman, the path is still long and tough; both Mexico and South Korea are jurisdictions known for being patriarchal societies. For instance, in the platform ArbitralWomen, there are no South Korean female arbitrators registered. The lack of female role models working in international arbitration from diversified jurisdictions reduces the number of young women willing to work in international arbitration and inhibits the opportunities for women to engage in constructive, supportive networking. Thus, encouraging societal awareness of potential unequal gender treatment at work becomes critical to being able to move forward and progress. For instance, by promoting its highly credentialed female members, ArbitralWomen seeks to equip clients, counsel and other stakeholders in the international arbitration community with access to women for any role needed. Another method discussed by the panel to enhance diversity is to establish targets and quotas. Ms Paula Hodges (Herbert Smith Freehills) explained that Herbert Smith Freehills used to have 20% female partners thereafter aiming for a clear target to achieve 35% female partners by May 2023. A male from the audience asked why the target was 35% and not 50%. Ms Hodges answered that the aim is to set realistic targets in order to advance more effectively. According to the authors, the responsibility to set effective targets has a direct impact on young practitioners and gender perception for future generations. Mr Eun Young Park (Kim & Chang), the male voice on the panel, explained that targets have a more positive response by male colleagues whereas quotas spike criticism and more discussions about the results. Ultimately, it is important to recognize the problem of opportunity and recognition when compared with our male peers from relatively privileged jurisdictions. Thus, we need to reset the balance in the pursuit of legitimacy for international arbitration.

 

Europe

The disparities in the progress towards more gender-equal societies are clearly visible when comparing Sweden, my country of origin, and South Korea, where I currently live. As raised by Ms Sue Hyun Lim (KCAB INTERNATIONAL) during the panel discussion, South Korea has experienced a rapid economic and societal shift in the last few decades, which is reflected in the distinct generational gap. The authors note that in a society where respect for elders is essential, it is important to balance the need to impress the older generation and the desire to have a more progressive working culture and environment. In this regard, the Economist’s glass-ceiling index measures gender equality in the labour market and lists South Korea as the worst environment for women to work in within the OECD, having the largest gender pay gap amongst OECD countries. Given the increased number of highly educated women in law, it is important to secure equal opportunities for male and female practitioners alike. Moreover, the topic of networking was also addressed by the panel, where the general consensus is that women can be excluded from social groups, mainly because men have more time to network and socialize. The same Economist’s glass-ceiling index displays that in 2017 South Korea and Sweden were at opposite sides of the spectrum when it comes to gender equality in the labour market. This is not to say that there isn’t room for improvement in Sweden; parity has not been reached, but there is institutional support which is not yet present in other countries. In some places there is a more urgent need for support groups, where experience sharing, and mentoring can encourage the next generation of women to disrupt the status-quo and confidently reach for their goals. At the event in Seoul, panelist Ms Hodges urged law firms and institutions to encourage diversity, without leaving the burden of fighting unconscious and conscious bias entirely on women. Ms Kim Rooney (International arbitrator) agreed networking events hosted by arbitral institutions are important and people must recognize that gender equality has not been achieved yet. The authors agree that the situation is not improving fast enough, and it is up to the individuals to make a positive impact. In addition to the institutions promoting diversity, there are other initiatives available: for instance, the Equal Representation in Arbitration Pledge (ERA Pledge) launched in 2015, aims to improve the representation of women in arbitration. We cannot content ourselves with hiding behind the optimistic statement of having come a long way, when women are still not given the same opportunities for advancement, face gender discrimination from the seniors in their fields and are expected to fulfil rigid gender roles even after attaining the same education and/or professional experience as their male colleagues. As stated by Noor Kahdim on 26 September 2016 in a KluwerBlog, we should be striving towards a true meritocracy in international arbitration. While there is much work to be done, in the last ten years we have seen remarkable progress and an optimism that diversity can be achieved. Ideally, the same advice should be given to young men and young women entering the field of arbitration, but the reality is that young women still need further guidance to tackle the bias that plagues professional fields. The obstacles are more pronounced in certain cultures compared to others, but women in Europe, Latin America, East Asia and beyond should focus their training, intelligence, character, and values to assert themselves in their professional fields leading by example for the generations of professional men and women to come.

 

Concluding Remarks

As young female practitioners entering the world of arbitration, we are still expected to be pioneers to pave the way for the international arbitration community of the future. The world is changing, and so is the world of arbitration: initiatives such as the event in Seoul and the work that other organizations are doing are crucial in creating a more diverse arbitration community that can attract promising practitioners, female and male alike. As young practitioners, we should enter the world of arbitration determined to make our mark, by supporting each other, seeking out role models and mentors and distinguishing ourselves through hard work and vision. The future of international arbitration lies in the new generation of practitioners: both men and women should look forward to creating a more diverse international arbitration environment.

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India, Brazil Ink Novel Investment Treaty: Is Dispute Prevention the Way Forward?

Fri, 2020-03-20 21:31

On 25 January 2020, India and Brazil signed an Investment Cooperation and Facilitation Treaty, in the presence of the Brazilian president Jair Messias Bolsonaro. Arguably the most prominent of the 3 BITs that India has signed since adopting the model BIT in December 2015. The new treaty articulates several provisions (briefly discussed below) in departure from the model version. The two nations also committed to step-up cooperation in the field of oil and natural gas, cybersecurity, science and technology, health and traditional medicine, etc. This comes in the backdrop of India opening up its market to allow 100% FDI in Coal and Lignite mining as well as in some digital media sectors. India also offered for a 100% acquisition its debt-ridden national carrier Air India at the World Economic Forum at Davos earlier this January.

The treaty incidentally also comes at a time when Venezuela – which holds the maximum oil reserves in the world (roughly 18%) – faces sanctions from the United States thereby hindering commercial dealings by other nations and businesses with the oil dependent Latin American country.

As a backgrounder, for Brazil, this is the 27th BIT it has signed, yet there is only one which has seen light of the day. Surprisingly though, both Brazil and India are not signatories to the ICSID Convention. While Brazil has remained firm in its views that investor-state arbitration limits a state’s rights to regulate benefits to foreign investors, it may perhaps have been on the same footing as India – which has revoked 58 of its BITs in the recent past. India currently has only 14 BITs in force, with 5 in the post-signing incubation phase, including the most recent with Brazil.

 

A departure from the Model BIT

The new Investment Treaty, in terms of disputes and resolution, has departed considerably from the Model BIT of 2015. Her largely protective Model BIT provides for a new Investor State Dispute Settlement mechanism that requires foreign investors to exhaust local remedies for 5 years before going for international arbitration. Perhaps learning its lessons from the White Industries crises where the investor may not have anticipated that enforcing the award would take substantially longer time than procuring one from a tribunal. For the largest democracy in the world – with the fastest growing population – which has its higher judiciary clogged with close to half a million pending cases; it would make sense to prevent being accused for breach of the Fair & Equitable Treatment Standard owing to delayed adjudication. However, the instant treaty between India and Brazil completely shifts the focus from dispute resolution to dispute prevention, with no provision for investor-state arbitration, lest through their country.

 

Here’s a brief look at some of the key provisions

Investment has been defined narrowly to include shares, stocks, licenses, authorizations, loans to enterprises, intellectual property, and movable and immovable property. There is a categorical exclusion of several items like debt securities, portfolio investments, claims to monies arising out of commercial transactions, goodwill.

 Article 4 – Treatment of Investments

The standards of protection are provided for in Article 4, depart from the traditional Fair & Equitable Standard, preclude either nation from taking measures that constitute denial of justice, breach of due process, discrimination and abusive treatment against investments. Though in consonance with the model BIT’s Article 3, there is no most-favored nation (MFN) clause in the treaty.

 Article 10 – Investment Measures and Combating Corruption and Illegality

The Article casts a duty upon both nations to adopt measures and make efforts to prevent and fight corruption, money laundering and terrorism financing with regard to covered matters. Moreover, the treaty takes a step further in precluding any protection to investments made with capital or assets from ‘illicit’ sources. This provision rather cements the debate, at least for the purpose of this treaty, on whether corrupt investments are entitled to protection. The investment, to be recognized as such, has to be in accordance with the provisions of the treaty and in compliance with the laws of the host state, with an onus on the investors to share any information that the host state may desire, including those of corporate history and practices of the investor.

Article 13 – Joint Committee for the Administration of the Treaty

A Joint Committee envisaged under this provision would administer the treaty. The functions and responsibilities include supervising the implementation and execution of the treaty, and also consulting with investors and stakeholders on issues related to the work of the committee. But going beyond, the largely autonomous committee would, inter alia, be empowered to mediate for amicable disputes concerning investments and also, supplement rules for arbitral dispute settlement between the parties.

Article 14 – Ombudsman

Both nations shall designate an ombudsman who shall be responsible to support investors from the other party in its territory, and amongst other responsibilities, shall be tasked to address differences in investment matters with a view to help in prevention of disputes.

Article 18 – Dispute Prevention Procedure

The most striking feature of the treaty translates not to dispute resolution but dispute prevention. Grievance regarding a specific measure adopted by either nation can only be raised by the other nation, not by investors, before the Joint Committee. An investor, though, may raise objections through its representative nation, unless already raised before another dispute settlement forum (not envisaged in the treaty).

Article 19 – Dispute resolution between Parties

The dispute resolution clause does not envisage resolving disputes between investors and parties, but only between parties, i.e., the nations. The choice between an ad hoc Arbitral Tribunal or a permanent arbitration institution rests with the parties, however, there are 2 important conditions:

i. The purpose of the arbitration is to decide on interpretation of this treaty or the observance by a Party of the terms of this Treaty. The Arbitral Tribunal, however, shall be precluded from awarding compensation.

ii. The Tribunal shall be empowered to examine matters related to the following:

a. the objective, definitions, scope and general provisions.

b. treatment of investments, expropriation, compensation for losses attributable to war or other armed conflict, revolution, state of emergency, civil strife, etc., and transfer of funds.

c. treatment of protected information.

d. parties’ right to take prudential measures in relation to protection of investors, maintenance of financial institutions and financial systems.

e. amendments to the treaty, relationship with other treaties, and issues relating to the duration of the instant treaty.

iii. The parties would bear their own costs, although the tribunal may in its discretion direct any party to bear all or a substantial portion of the costs.

The treaty further lays down the criteria for the appointment of arbitrators as well as a code of conduct to be followed by the arbitrators. As it appears, an aggrieved party may ultimately seek refuge under its government to raise issues of treaty violation in arbitration, and vicariously seek enforcement of any arbitral directions regarding observance of treaty provisions.

 

Dispute Prevention

The treaty envisages cooperation, in pursuit of which are incorporated binding general and security exceptions; while giving due regard to each other’s sovereign prerogatives and regulatory powers. The minimization of the potential areas of disputes certainly exhibits promise in avoidance of conflicts that may escalate to the level of formal disputes. The level of governmental intervention in crystallizing those disputes may effectively mean resolution through diplomatic discussions, rather than invoking the provisions of this treaty. The promise to offer ombuds services, to act as a focal point for the other party’s investors, appears ideal. In theory, dispute prevention provisions can promote transparency, better informed investments, cooperation between investors and states, reduce blindsiding measures, save costs, prevent hostilities and eventually promote the objectives of the treaty.

Reportedly, India has been taken to investment arbitration on 24 occasions, and suffice it to say, India is wizening-up with its approach towards investments. India is currently defending 11 investment disputes, unlike its Brazilian counterpart, which has no reported ones. Indian investors on the other hand have notably resorted to Investment Arbitration on only 7 instances, of which just 3 remain pending. Though one of the largest developing economies, and one of the fastest growing, too, India still ranks 63rd on the Ease of doing business index and a startling 163 in resolving contracts. India’s new-found approach, under which any of the 3 new treaties are yet to come in force, is yet to manifest results vis-à-vis dispute resolution. How the new dispute prevention mechanism fares is a question for tomorrow, but it surely would highlight the impact of not resorting to traditional investor-state dispute resolution in an age when investment arbitration is often being questioned.

 

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The Green Pledge: No Talk, More Action

Fri, 2020-03-20 03:00

In an industry which thrives on lofty ideals of amicable dispute resolution and open debate, it is startling to observe that the environmental impact involved in the conduct of international arbitrations has received little attention.  This is not to suggest that the international arbitration community has completely ignored the issue, but the focus has been on policy-based issues relating to climate change, for example, the International Bar Association’s Report on Climate Change Justice and Human Rights, or the ICC’s publication entitled Dispute Resolution and Climate Change:  The Paris Agreement and Beyond.  These are all positive developments and must be welcomed, however, the stark reality is that there has been an absence of discussions about efforts that must be made at a personal level to address the carbon footprint as we engage in international arbitration proceedings.

 

The Campaign for Greener Arbitrations

The Campaign for Greener Arbitrations (“Campaign”) is an initiative to address the carbon footprint of international arbitrations and mediations.  The Campaign began life as a “Green Pledge” initiated by International Arbitrator, Lucy Greenwood, last summer after she noted the significant carbon footprint of the arbitral community and the reality that we are all collectively far behind the curve.

The Green Pledge was premised on a personal commitment by clients, counsel, and arbitrators to ensure to minimise the impact on the environment of every arbitration and mediation an individual is involved in.  Nine micro-level changes have been identified in the Pledge:

i) to “consider and question the need to fly” at all times during the arbitration;

ii) to “correspond [only] through electronic means” unless the circumstances expressly require otherwise;

iii)  to “request that electronic rather than hard copies of documents” be provided;

iv) to “discourage the use of hard copy bundles in hearing rooms”;

v) to suggest that “witnesses give evidence through video-conference” rather than attending oral hearings in person, when appropriate (for arbitrators and mediators);

vi) to “be mindful that email has a carbon footprint”;

vii) to “avoid traveling unnecessarily to deliberate with [] co-arbitrators/mediators and use screen sharing/video technology instead” (for arbitrators and mediators);

viii)  to “avoid traveling unnecessarily to conduct fact finding or other interviews with witnesses and use screen sharing/video technology instead when appropriate” (for counsel); and

ix) finally, an obligation on everyone to “offset the carbon emissions of any flights” taken for an arbitration or mediation.

The Green Pledge, therefore, required all of the participants to thoughtfully engage with their commitments to dispute resolution against the potential carbon impact it may have.  The Green Pledge provided a series of factors that can be considered and even the application of some of these criteria will overall result in a better impact for the environment.  Indeed, the Green Pledge has been nominated for the GAR “Best Development” Award 2020 for drawing the international arbitration community’s attention to its own carbon footprint.  The Campaign is now expanding the Green Pledge to be global and more inclusive.  While the Green Pledge began life as one arbitrator’s attempt to encourage others to make small changes in their behaviour, now the Campaign for Greener Arbitrations is growing in momentum.  It will include more diverse stakeholders within its ambit, such as arbitral institutions, law firms, hearing centres, and e-providers of arbitration services.

 

World on Fire: The Campaign is the need of the hour

The significance of the Campaign cannot be overstated in light of recent environmental catastrophes.  For instance, when Australia was struck by devastating bushfires recently, scientists confirmed that human-caused climate change increased the risk of such bushfires by as much as 30%.  Similarly, the European Commission confirmed that “more countries than ever [were] hit by forest fires in 2018.”  In 2019, it was reported that forest fires in the EU were three times the average number of fires over the previous decade.  In February, Antarctica logged its hottest ever recorded temperature, raising concerns over the accelerated retreat of the continent’s glaciers and rising sea levels.  The international arbitration community can no longer ignore the severity of environmental damage caused by human actions, especially when the carbon footprint of international arbitrations is immense, as demonstrated below.

 

An Environmental Impact Assessment of International Arbitrations

An Environmental Impact Assessment is the first step to address questions of climate change at a personal level in international arbitration. It comprised a study into the key environmental effects of a proposed action and was undertaken by the Campaign’s Steering Committee (“Steering Committee”), supported by a team from Dechert LLP, for international arbitrations.

The Steering Committee conducted a case study of a medium-sized (valued at US$30-50 million) international arbitration to determine its individual carbon footprint.  Naturally, several assumptions had to be made, which were deliberately conservative and made in consultation with an NGO to ensure accuracy.  For example, in calculating the number of printed sheets generated in the case study, the Steering Committee only included an estimate of the printed pages submitted to the tribunal and disregarded all internal printing and the generation of drafts.

The total carbon impact in kg CO2e of the arbitration used as the case study was 418,531.02.  This would require planting more than 20,000 trees to offset its emissions!  Global Arbitration Review notes that this is a “number equivalent to four times the number of trees in Hyde Park or all the trees in Central Park.”

 

Towards ‘Green Arbitrations’

More than 93% of the identified emissions related to travel, particularly air travel by business class, which, depending on size and area of the seat, is usually two or three times as energy intensive as traveling in economy class.  Reducing one long distance flight for every arbitration would result in significant carbon savings, as would eliminating hard copy submissions.

The Committee looked at a “Green Arbitration.”  This involved changing the assumptions as follows: (i) eliminating paper bundles, (ii) reducing the amount of travel and (iii) eliminating motorbike couriers due to the alternative use of e-bundles and video conferencing.  These changes resulted in conserving 51,704 kg CO2e per arbitration, which is ten times as much as the carbon footprint of every individual in the UK.

There are two key actions arising from the environmental impact assessment: (i) fly less; and (ii) stop using hard copy bundles.

Simply reducing the number of flights by one at each stage of every arbitration would reduce costs by half and emissions by a quarter.  Travel objectives could be met by using video more frequently to interview and prepare witnesses and taking the self-evident step of flying the witness to the team rather than the team to the witnesses.  Arbitrators should also be more receptive to discussing whether it is appropriate to take the testimony of certain witnesses by video.  Similarly, shifting from hard copy bundles is desirable because paper production is very resource heavy – requiring not just trees, but also water and fossil fuels.  The Campaign plans to expand its research to consider email use and energy consumption, as well as other aspects of an international arbitration practice beyond those analysed in the initial impact assessment.

 

COVID-19: Proving that technology is the way forward

The COVID-19 pandemic has had a serious impact on virtually every aspect of our lives and the consequences of this pandemic are not fully known yet.  On one hand, quarantining people, closing businesses, and having employees work from home has led to reduced congestion, and therefore reduced emissions, on the streets.  In China, public transport in Wuhan was shutdown following the outbreak.  It is predicted that global CO2 emissions could fall because of the pandemic.  On the other hand, the COVID-19 pandemic has also exposed human wastefulness and its adverse effect on the environment.  Private airlines continue to operate ‘ghost flights’ with few or no passengers for fear of losing airport slots allotted to them. However, the COVID-19 pandemic is forcing all participants to use technology in a more thoughtful and considered manner.  Indeed, it has forced the international arbitration community to consider the Green Arbitration alternatives by reliance on technology in place of in-person hearings.  But it is not just arbitrations that are considering alternatives but even moot court competitions.  This is best illustrated by the Vis Moot, the hearings of which are being organised online because both the Hong Kong and Vienna editions are cancelled.  Some arbitral institutions are also considering paperless alternatives to hard copy submissions, for instance, ICSID recently announced that Electronic Filing would be its default procedure.

 

What can you do?

You can do your bit signing the Green Pledge and actively reducing the carbon footprint of international arbitrations.  Adopt the nine guidelines in both existing and future arbitrations/ mediations and strive to raise the bar in every subsequent proceeding.

The Campaign will launch formally on Earth Day (22 April 2020).  Please contact [email protected] if you are interested in getting involved.

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India-Brazil Bilateral Investment Treaty – A New Template for India?

Thu, 2020-03-19 02:00

During the recent visit of Brazilian President, Jair Bolsonaro, to India, Brazil and India inked the investment cooperation and facilitation treaty (hereinafter bilateral investment treaty – BIT).

From Brazil’s point of view, this BIT is an extension of a novel approach to foreign investment in international law based on investment facilitation and cooperation, not investment protection – something that a typical BIT entails. Brazil embraced this approach in 2015 when it launched its Model BIT. Since 2015, Brazil has signed more than 10 such treaties focusing on investment facilitation and cooperation – the one signed with India being the latest one.

From India’s point of view, this is the fourth BIT signed after adopting a new Model BIT in 2016. The previous three have been signed with Belarus, Taiwan and Kyrgyz Republic (the text is not in public domain). India’s BIT with Brazil is based on the Brazilian, not Indian model BIT, though a careful reading of the text shows that both sides have compromised to strike this deal.

The purpose of this piece is to demonstrate how the India-Brazil BIT deviates from the Indian Model BIT. I discuss deviations on the following issues: definition of investment, expropriation, and investor-State dispute settlement (ISDS).

 

Definition of Investment

The India-Brazil BIT, like the Indian Model BIT, adopts an enterprise-based definition of investment where an enterprise is taken together with its assets. The Indian Model BIT further requires that the enterprise must satisfy certain characteristics of investment such as commitment of capital and other resources, duration, the expectation of gain or profit, and the assumption of risk and significance for the development of the country where the investment is made. Article 2.4 of the India-Brazil BIT also provides for these characteristics of investment except for ‘significance for the development’ of the host State. The requirement that investment should be significant for the development of the host State is a subjective requirement and proving that this requirement has been met could be a challenge for foreign investors.

 

Expropriation

A very important feature of the India-Brazil BIT is that it only protects against direct expropriation. Article 6.3 of the BIT states: “For greater certainty, this treaty only covers direct expropriation, which occurs when an investment is nationalised or otherwise directly expropriated through a formal transfer of title or outright seizure”. Thus, indirect expropriation is outside the scope of the BIT. This provision is consistent with Brazil’s Model BIT. Brazilian lawmakers have been critical of provisions in BITs that allow foreign investors to challenge indirect expropriation claims. Brazil believes that rules on indirect expropriation open the gates for abusive claims by foreign investors that limit a State’s capacity to adopt regulatory measures to pursue public interests such as the protection of public health and environment.

The absence of rules on indirect expropriation in the India-Brazil BIT is a complete departure from Article 5 of the Indian Model BIT and also India’s BITs with Belarus and Taiwan that provide protection to foreign investment from both direct and indirect expropriation. In fact, the Indian Model BIT not only provides protection from indirect expropriation but also provides how to determine that an investment has been expropriated indirectly.

In today’s world, direct expropriations of foreign investment have become rare. Foreign investment faces challenges from regulatory conduct of a host State that may have an effect equivalent to direct expropriation without expropriating investment directly. While the possibility of foreign investors abusing the system can never be ruled out, the possibility for host States to abuse their public power to the detriment of foreign investors or impose disproportionate costs on foreign investors for pursuing public interests can also not be ruled out. Thus, leaving indirect expropriation outside the scope of the BIT creates a yawning gap in the protection of foreign investment.

 

Dispute Settlement    

The most important aspect of the India-Brazil BIT, inspired from Brazil’s Model BIT and other Brazilian BITs, is that it adopts a very different approach to the settlement of investment disputes. It is well known that Brazil has been a vocal opponent of the ISDS system. Thus, Brazil has developed a novel approach to settlement of investment disputes based on prevention. For this purpose, Article 13 of the India-Brazil BIT provides for the creation of a joint committee comprising officials of both the countries. This joint committee shall, inter alia, supervise the implementation and execution of the treaty and resolve disputes concerning investments of investors in an amicable manner.

Article 14 establishes the creation of national focal points or ombudsman in both the countries that would, inter alia, endeavour to follow the recommendations of the joint committee, and address differences in investment matters. Article 18 of the India-Brazil BIT provides for a dispute prevention procedure. As per this procedure, any measure of a country that the other country considers amounts to a breach of the BIT, shall be referred to the joint committee for dispute prevention. In case the joint committee is unable to prevent the dispute, then the dispute shall be referred to State to State arbitration pursuant to the procedure in Article 19.

Article 19 of the India-Brazil BIT provides for State-to-State dispute settlement (SSDS). Article 19.2 states that the purpose of SSDS arbitration is to decide on the interpretation of the treaty or observance by a country of the terms of the treaty. It further clarifies that the SSDS arbitration tribunal shall not award compensation. There is no mention of ISDS in the India-Brazil BIT. The absence of ISDS in the BIT is a clear reflection of the Brazilian stand on this issue. Brazil has been sceptical of ISDS for several reasons, including it being discriminatory against domestic investors.

The dispute settlement provisions in the India-Brazil BIT are not consistent with the dispute settlement provisions of the Indian Model BIT. The Indian Model BIT provides for both SSDS and ISDS. The investor’s access to international arbitration in the Indian Model BIT is subject to several restrictions such as exhausting local remedies for a period of five years and following a very strict time period requirements. However, not allowing ISDS means that foreign investors shall be completely dependent on the home State. If for any reason the home State does not wish to espouse the cause of the foreign investor, there will be no redress available for the foreign investor under international law. While Brazil’s concerns about ISDS are legitimate, the solution to addressing these concerns is not to do away with the system completely. Instead, it would be better to ensure that the systemic concerns that plague the ISDS model such as lack of transparency, bias in the appointment and functioning of arbitrators, etc., are addressed by undertaking the necessary reforms.

 

Similarities with the Indian Model BIT     

Some provisions in the India-Brazil BIT are common to the Indian Model BIT. For instance, like the Indian Model BIT, there is no most favoured nation (MFN) provision in the India-Brazil BIT, although the Brazilian Model BIT provides for a MFN provision.

Like the Indian Model BIT, Article 20.3 of the India-Brazil BIT puts taxation related regulatory measures outside the purview of the BIT. However, there is one subtle difference. Article 2.4(ii) of the Indian Model BIT states that the host state’s decision that the impugned regulatory measure is taxation-related shall be final and non-justiciable. The Article 20 language in the India-Brail BIT that gives immunity for taxation related measures does not use the language of non-justiciability. Articles 23 and 24 of the India-Brazil BIT provides for general and security exceptions respectively and resemble the general and security exceptions in the Indian Model BIT.

 

Conclusion

The India-Brazil BIT reflects a compromise between the Indian and Brazilian approaches to investment treaties. However, the BIT is certainly more titled towards the Brazilian approach. It does not contain ISDS and rules on indirect expropriation, which creates a gaping hole in the protection of foreign investment. The focus of the BIT is more on dispute prevention. While this is admirable, the fact that also needs to be appreciated is that host States may abuse their public power and thus BITs need to reflect a careful balance between a host State’s right to regulate and investment protection. As I have argued in my book, subsequent to being sued by several foreign investors, India adopted a Model BIT that gives precedence to the host State’s right to regulate over investment protection. The India-Brazil BIT tilts even more towards a host State’s right to regulate, thus marking a departure from India’s Model BIT. It will be interesting to see whether India, in its future BIT negotiations, would come back to its Model BIT template or be more comfortable with the Brazilian template.

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Enforceability of Emergency Arbitrator Orders in Turkey and Take-Aways from the 15th ICC Turkey Arbitration Day 2020

Wed, 2020-03-18 01:06

The 15th ICC Turkey Arbitration Day was held on 24 January 2020 in Istanbul. The aims of the conference were to contribute to the development of commercial and investment arbitration in Turkey, to promote Istanbul as a place for arbitration and alternative dispute resolution as well as the work of Turkish arbitration practitioners both on domestic and international levels.

 

Discussions at the Conference

The day started with introductory remarks from M. Rifat Hisarcıklıoğlu, President of the Union of Chambers and Commodity Exchanges of Turkey and Chair of the Board of the ICC Turkey National Committee, Alexander G. Fessas, Secretary General of the ICC International Court of Arbitration, Prof. Dr. Metin Feyzioğlu, President of the Union of Turkish Bar Associations and Zekeriya Birkan, Deputy Minister of the Turkish State Department of Justice. They highlighted the valuable contribution of arbitration to judicial systems and its crucial importance in meeting the needs of business life as well as Turkey’s desire and ambition to become one of the top arbitration centres in the world. Five sessions were held to discuss various hot topics of international arbitration. In four of these sessions, local and foreign practitioners and academics (i) provided a general overview on the 2019 Report of the ICC Commission on the Arbitration and ADR Task Force on emergency arbitrator proceedings, (ii) presented the Report of the ICC Commission on Arbitration and ADR on construction arbitrations and its particularities, (iii) discussed the local and European banks’ approach to arbitration as a means to settle finance industry disputes, and (iv) finally referred to the importance of securing an enforceable award.

One of the sessions focused particularly on arbitration practice in Turkey. During this session academics and judges addressed the enforceability of interim reliefs and emergency measures in international arbitrations seated in Turkey and the courts’ approach. This post aims to give a summary of the discussions held in this session.

 

Enforceability of interim reliefs and emergency measures under the applicable rules

Prof. Dr. Ali Yeşilırmak opened the session by presenting the regulatory framework of the available options and avenues to seek interim relief under Turkish arbitration law and the arbitral tribunals’ powers to grant interim measures. He highlighted the differences between the regulations of the Turkish International Arbitration Law No. 4686 (“TIAL”) and the Turkish Code of Civil Procedure No. 6100 (“CCP”). Under Article 414 of the CCP, which is more recent compared to the TIAL, the law explicitly prohibits the courts to decide on interim measures when the dispute is to be resolved by domestic arbitration unless the arbitrators allow the parties to seek for court assistance. This article also explicitly mentions the court’s duty to enforce interim reliefs granted by the arbitrators. To the contrary, under Article 6 of the TIAL the parties are always free to ask for court assistance before or during the arbitration, and the arbitral tribunal is not entitled to grant interim measures or interim attachments that are required to be enforced through execution offices or to be executed through other official authorities or that bind third parties. Prof. Yeşilırmak criticised the incompatibilities between these two legislations and recommended to amend the TIAL in order to reflect the arbitration friendly approach of the CCP.

Prof. Yeşilırmak also noted that even though the TIAL and CCP allow the arbitrators to grant interim relief, he is of the opinion that emergency arbitrators are not able to enjoy such prerogative since they should not be considered as arbitrators for the purposes of settling the main dispute in arbitration.

 

Courts’ approach

After these remarks, Judge Nevzat Boztaş, the Chair of the 14th Civil Chamber of Istanbul Regional Court of Appeal, and Judge Dr. Adem Aslan, Member of the 11th Civil Chamber of the Court of Cassation took the floor to discuss the courts’ approach to the enforceability of interim reliefs granted by the arbitrators and the scope of the judicial review of such reliefs when they are brought before the court.

Judge Boztaş discussed the scope of the court’s examination of the emergency arbitrator orders when the parties ask for court assistance to enforce these interim reliefs under Article 6 of the TIAL and Article 414 of the CCP. The discussion mainly evolved around the question of whether the court should respect the emergency arbitrator’s order as it is and solely decide on the validity of the arbitration agreement without getting into the merits or whether the court should conduct a separate and independent evaluation based on lex fori and general principles such as, inter alia, urgency of the relief sought, mandatory rules of law, public order and fundamental rights. Judge Boztaş stated that his approach leans towards the latter, meaning that the court should conduct its own test for granting interim relief even though the dispute is to be resolved by arbitration. According to his view, the emergency arbitrator’s order would only weight as evidence during this judicial process. Judge Boztaş defended his position by highlighting the principle of the courts’ independent decision-making. He suggested that the legislator had consciously chosen those words that explain how the courts ought to enforce the arbitrator’s interim reliefs under the CCP and highlighted the lack of explicit wording under the TIAL concerning international arbitrations.

We would like to note that, Article 6(1) and 6(4) of the TIAL reserves the parties’ right to apply to courts for emergency measures under the CCP before or during arbitration albeit the existence of an arbitration agreement. Article 6(3) also allows the parties to seek for court assistance in case the emergency measure was sought in arbitration, but one of the parties does not comply with the arbitrator’s interim relief. This leads us to the question of whether the legislator intended for the courts to conduct a different prima facie review when dealing with an interim order granted by an arbitrator as opposed to considering the arbitrator’s order as only an evidence in their judicial review. This question will probably be answered by future practice of the courts.

Judge Aslan closed the session by discussing another aspect of court assistance and focused on the debate as to whether an interim order is final under national laws and within the meaning of the New York Convention (“Convention”), and thus, whether the Convention may be applicable to the enforcement of emergency arbitrator orders. Judge Aslan informed the attendees about a recent Court of Cassation decision (11th Chamber, E. 2017/3469, K. 2019/4259, 11.6.2019) which reversed the Court of Appeal’s position on enforcing interim reliefs granted by arbitrators which remains to be a controversial issue. In the said decision, the Court of Appeal was reluctant to enforce interim orders on the grounds that: (i) interim orders are not final or binding neither under national laws nor under the Convention which renders them unenforceable, and (ii) the parties do not hold any legal interest in enforcing interim orders that deal with the arbitral tribunal’s competence due to the fact that such determinations are merely declaratory.

The Court of Cassation, however, concluded that the Court of Appeal erred in its above reasoning and held that interim orders are enforceable on the following grounds:

  • Since partial awards are set forth under Article 14/A(2) of the TIAL and may be subject to enforcement under Article 15/B, by the same token, so should the interim orders granted by the arbitrators.
  • The Convention does not mention the finality of an award as a prerequisite for enforcement but rather refers to awards that have a binding effect on the parties. Partial or interim awards in fact bind the parties on the date the order is granted and also final for the purposes of the subject of the relief sought.

This particular interpretation of the Court of Cassation is of great importance since it may also pave the way for enforceability of the emergency arbitrator orders which are final in terms of the subject of the interim relief sought and binding for the parties on the date the order is granted.

Judge Aslan concluded his presentation by discussing more decisions of the Court of Cassation relevant to understand the courts’ position on granting interim reliefs where the main dispute is to be or is already resolved by arbitration. These note-worthy holdings may be summarized as follows:

  • It is possible to seek interim reliefs from a national court even if the final arbitration award has not been enforced yet. The lack of such an enforcement decision alone does not constitute a legal barrier to make an application for an interim measure before national courts. (19th Chamber, E. 2004/9775, K. 2004/13391, 30.12.2004)
  • It is a material procedural violation and against public order when the arbitral tribunal decides on interim relief without having an explicit request raised by the party during the arbitration considering that there is no available avenues for judicial review of such reliefs falsely granted by arbitrators. (11th Chamber, E. 2019/781, K. 2019/2161, 25.03.2019)

The overall conclusion of this session was that the nature of interim reliefs granted by arbitrators, and the smooth enforcement of such orders by national courts remain a controversial issue. It seems like the courts still have a tendency to thoroughly review the interim orders granted by the arbitrators and conduct their own legal tests if they believe the arbitrator’s order does not respect certain national principles and laws.

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Combating Climate Change: The Role Of Investor-State Arbitration In Africa

Tue, 2020-03-17 01:07

UN Secretary-General António Guterres opened the COP25 climate change conference on 2 December 2019 saying that:

“…At current trends, we are looking at global heating of between 3.4 and 3.9 degrees Celsius by the end of the century. The impact on all life on the planet – including ours – will be catastrophic. The only solution is rapid, ambitious, transformative action by all – governments, regions, cities, businesses and civil society […] all the main emitters must do more”.

António Guterres was disappointed with the outcome of the COP25 climate change conference. According to the UNEP Emissions Gap Report 2019 a global emissions reduction of 7.6% per year over the next ten years is required to limit global warming to 1.5 degrees Celsius. Even the most ambitious national climate action plans fall short, however, and every fraction of additional warming will bring worse impacts, threatening “lives, livelihoods and economies.

In this blog post we will analyse the role of investor-state arbitration in the transition to a sustainable economy.

 

The risks of ISDS

Traditionally Investor-State Dispute Settlement (ISDS) was seen as a valuable tool in facilitating inward direct investment to developing countries in Africa and elsewhere. Bilateral Investment Treaties (BITs) incorporated ISDS to provide comfort to investors in cross-border transactions that disputes could be resolved outside of the uncertainties of local legal systems.

More recently ISDS has been the subject of criticism, including a perception that ISDS is skewed in favour of investors, at the expense of state parties’ ability to make legitimate policy decisions.1)UNCTAD’s Reform Package for the International Investment Regime discusses amendments in this regard, from page 38. jQuery("#footnote_plugin_tooltip_9330_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9330_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Many BITs include provisions to avoid inequitable (discriminatory) interference with foreign investors’ rights, but State action to combat climate change could give rise to such inequity (and therefore claims) regardless of the broader environmental legitimacy of state action.

Some commentators are concerned that fear of costly claims for breach of investment treaties may curb states’ appetite for pro-climate legislation and policies. There is a wide range of precedents for investors bringing action against states for losses suffered due to policy changes. Spain, for example, has faced a large number of claims under the Energy Charter Treaty after revising incentives under its (renewable) energy schemes. Whilst Spain might be well placed to absorb the costs of such ISDS cases, the risk of high-cost arbitration may slow the adoption of ambitious climate policies in emerging markets.

The impact of similar claims could be significant in nations dependent upon extractive industries and Foreign Direct Investment (FDI). High levels of FDI increase the range and scale of cross-border investments (and necessarily, the risk of investor-state disputes), and extractive industries are in danger of being “stranded” or devalued by environmental policy changes. Although the UNCTAD World Investment Report 2019 shows that FDI into Africa has diversified across sectors including finance and manufacturing, oil and gas still dominate and the threat of ISDS could have a significant impact upon legislators’ willingness and ability to enact climate change law and policy.

 

ISDS as a force for change

Although concerns about ISDS could potentially stall concerted action against climate change, ISDS could also be a force for change. ISDS is not inherently flawed: it provides parties with a neutral and private mechanism for dispute resolution which, under the New York Convention, leads to awards which are recognised in the majority of States. Without ISDS many investments would not proceed, and as a supra-national means of holding states to account, it is an important tool in promoting free, fair, and rules-based international trade and commerce.

Furthermore, present concerns regarding ISDS and climate law or policy seem to arise from perceived inadequacies in international agreements, rather than from ISDS itself. Many BITs are seen to lack reciprocity, imposing obligations on states and granting rights to investors. Some common treaty provisions are also broad in scope. The Fair and Equitable Treatment (FET) standard has a ‘legitimate expectation’ component which leaves it open to investors to claim losses arising not only from changes to regulatory regimes, but also the implementation and enforcement of existing laws.

Many BITs were drafted fifty years ago when the investment landscape and nuances of international law were very different. Could amendments allow states to utilise ISDS in transitioning to a sustainable economy?

 

Amendments to BITs

In June 2017, the Stockholm Treaty Lab launched a competition inviting entrants to draft a model treaty which encouraged and protected cross-border investments in climate change adaptation and mitigation. The entries raise interesting ideas which could be incorporated into current BITs to manage and foster the transition to sustainable economies. Suggestions from “The Creative Disrupters”2)Nathalie Bernasconi-Osterwalder, Martin Dietrich Brauch, et al (2019) Journal of International Arbitration, 36(1), pp. 7-36. jQuery("#footnote_plugin_tooltip_9330_2").tooltip({ tip: "#footnote_plugin_tooltip_text_9330_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); include a two-tier categorisation of “sustainable” and “unsustainable” investments with different rights and obligations, and the ability to deny certain benefits and remedies to unsustainable investments. The team suggests a more restrictive alternative to the FET standard as well as an explicit right to regulate for legitimate social and economic policy objectives. They also require the conduct of environmental impact assessments prior to the establishment of investments, with a set of minimum national standards.

There are some similar provisions in existing international agreements. The Pan-African Investment Code (PAIC) is a template treaty of the African Union (AU), which seeks to balance the promotion and protection of investments with each state’s ability to advance sustainable development. Adopted in 2016, the PAIC obliges investors to comply with environmental law, omits the FET standard, and allows states to submit counterclaims in arbitration proceedings. Notably the PAIC retains the right to resolve disputes by ISDS, but requires an African dispute resolution centre. Although the PAIC is non-binding, it will be interesting to see whether AU member states adopt its provisions in future BITs. Its interaction with the African Continental Free Trade Agreement, which recently came into force, will also be of interest.

The Morocco-Nigeria BIT, although not yet in force, is notable in that it contains binding provisions which promote climate change action. Both states will impose duties upon investors to comply with local and/or home environmental legislation, and the performance of the treaty will be monitored by a joint committee, enabling states to scrutinise investors’ compliance with this legislation. Similar provisions could be adopted in other BITs to help further climate change goals.

Provisions promoting the transition to a sustainable economy are present in few existing BITs. However this has not always prevented tribunals from taking environmental considerations into account. In Cortec Mining Kenya Limited and others v Republic of Kenya (ICSID Case No. ARB/15/29), discussed here on the blog, the tribunal found that the claimants did not have a protected investment under the UK-Kenya BIT because they had not acquired an environmental impact assessment licence, and thereby failed to comply with local environmental legislation. The definition of “investment” in the UK-Kenya BIT did not require compliance with Kenyan law, but the tribunal held that explicit language to that effect was not necessary. Whether other tribunals would be willing to adopt a similar approach is uncertain, and the claimants are attempting to have the award, rendered in favour of Kenya, annulled.

With amendments to BITs and local legislation promoting environmental and climate-resilient factors, ISDS could have an important role in combating climate change. Tribunals could hold investors to account for breaches of environmental legislation, prevent them from claiming in respect of states’ legitimate policy changes, and enforce protective measures in favour of sustainable investments. To combat the global problem of climate change most effectively, however, it is not sufficient to enforce action at a national level alone.

 

Is there a role for state-state arbitration?

The main supra-national legislation in respect of climate change adaptation and mitigation is the Paris Agreement. Unlike the majority of BITs, the Paris Agreement does not contain compulsory provisions for arbitration, but instead adopts Article 14 of the 1992 United Nations Framework Convention on Climate Change (UNFCCC). This provides for settlement of disputes by “negotiation or any other peaceful means”, with the option to opt-in to compulsory arbitration by written declaration. The UN website only lists two declarations accepting compulsory arbitration under the UNFCCC, from the Netherlands and the Solomon Islands, and the “annex on arbitration” detailing the appropriate procedure has yet to be drafted.

There is little incentive for state signatories, particularly those responsible for the most greenhouse gas emissions, to opt-in to arbitration. They risk exposure to large claims for the loss and damage some states are experiencing because of climate change, resulting from sea level rise, desertification, and the exacerbation of extreme weather events, for example. Whilst many African (and other) states suffering such loss and damage might wish to hold other countries to account for their contributions to climate change, they are, for the moment, unlikely to be able to do so.

The immensity of the challenge ahead requires co-ordinated action at a global scale. A recent United Nations Development Programme report suggests:

“[i]t’s clear that business as usual simply isn’t good enough anymore. We must do more – much more – in areas related to mitigation, adaptation, and the finance to support all of this work. And we must do it quickly.”

In light of the difficulties of enforcement between nations, it would seem prudent for states to consider the role of ISDS (and existing and future BITs) in meeting their international obligations in respect of climate change. Investors too should seek to understand how their existing and future investments and ISDS may be shaped by the growing raft of environmental regulation and climate policies.

References   [ + ]

1. ↑ UNCTAD’s Reform Package for the International Investment Regime discusses amendments in this regard, from page 38. 2. ↑ Nathalie Bernasconi-Osterwalder, Martin Dietrich Brauch, et al (2019) Journal of International Arbitration, 36(1), pp. 7-36. 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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Quo Vadis Supreme Court of Ukraine?

Mon, 2020-03-16 01:30

On 9 October 2019 the Supreme Court of Ukraine 1)This article refers to the Supreme Court created in the course of the judicial reform of 2016 in Ukraine. jQuery("#footnote_plugin_tooltip_8030_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8030_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); (Supreme Court) rendered a decision in a case on setting aside an arbitral award that goes completely against Article 3 of the UNCITRAL Model Law on International Commercial Arbitration.

 

Background

All began when a US company, Altum Air Inc. (Altum Air), initiated proceedings against a Ukrainian company, Windrose Aviation Company (WINDROSE), with the International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and Industry (ICAC) in accordance with the arbitration agreement contained in the contract between the two companies. The ICAC ruled in favor of Altum Air. WINDROSE did not appear in the arbitration proceedings, though they were notified according to the ICAC Rules and the Law of Ukraine on International Commercial Arbitration (Law on ICA) that in its totality reiterates the respective provisions of the UNCITRAL Model Law on International Commercial Arbitration (UNCITRAL Model Law), although it’s worth to remark that Ukraine did not adopt the 2006 revised version.

 

Expect the Unexpected: Local Court Sets Aside the Award

WINDROSE applied to a local court for setting aside of the ICAC award, claiming they did not receive any single ICAC notification of the arbitration proceedings and that the company found out about arbitration proceedings only after receipt of the ICAC award (case No 761/17236/17).

WINDROSE alleged that all the ICAC communications, except the very last one, the ICAC’s award, were not delivered in a due manner. WINDROSE claimed the ICAC communications were received by an employee who was unauthorised to collect mail. As a result, WINDROSE was not duly notified.

The WINDROSE employee authorised to receive the mail claimed he never saw any ICAC written communications. Meanwhile, WINDROSE denied that a first ICAC notification containing the statement of claim, the ICAC Rules and the recommendatory list of arbitrators had been serviced to their CEO’s secretary by a DHL courier.

In turn, Altum Air referred to Article 3 of the Law on ICA stating that “any written communication is deemed to have been received if it is delivered to the addressee personally or if it is delivered at his place of business, habitual residence or mailing address”, and it is completely irrelevant what employee of the addressee physically accepts the communications.

The local court took into consideration the handwriting examination of the authorised employee of WINDROSE, subpoenas (although the secretary of WINDROSE’s CEO did not appear before the court), cross-examination, etc. A year and a half after the process was initiated, the local court finally decided in favour of WINDROSE and set aside the ICAC award on the basis of Article 34(2)(1)(ii) of the Law on ICA.

 

Turn of Events: Court of Appeal Upholds the Award

Altum Air appealed whereas WINDROSE submitted its secretary’s affidavit stating the secretary had never received any ICAC notices.

The appellate court upheld the ICAC award because “WINDROSE’s local acts regarding persons authorised to receive communications cannot be decisive in resolving the issue of whether a party has been duly notified of the arbitration proceedings”. Furthermore, the appellate court found that,

[a]s a proper notification the ICAC Rules and the Law on ICA do not provide for international commercial arbitration or any of the parties to submit any evidence that a written notice has been served on a party in accordance with its internal procedures, as any attempt to follow such procedures would inevitably result in impossibility of giving any written notice of the arbitration proceedings to a party that does not actually wish to participate in the arbitration proceedings. Thus, no matter which exact WINDROSE employee received a communication, the fact of delivery of a written communication to the company’s place of business is a proper notification of the party, and that party shall be deemed to be duly notified of the arbitration proceedings.

 

Nobody Saw It Coming: The Supreme Court Sets Aside the Award

WINDROSE appealed to the Supreme Court which, in turn, decided in favour of WINDROSE for no good reason.

The Supreme Court reached two conclusions. Firstly, a delivery to an address other than the address where a company’s CEO is seated, even if that address is not the official (registered) place of the company’s business, does not constitute a due notification of that company. Secondly, a company shall be deemed to be duly notified if a communication is received by a person who is duly authorised by that company to receive the mail.

The Supreme Court completely ignored Article 3 of the Law on ICA that makes no reference to any authorised employee of a company or verification of seat of that company.

Moreover, the Supreme Court heeded some evidence that WINDROSE presented. This included, namely, a printout from the DHL website with a tracking code dated January 2019 matching a tracking code of the first written communication to WINDROSE sent by the ICAC, dated October 2016. It is generally known that DHL updates its database every 90 days, so one should assume that tracking codes once used are reused in course of time. But it is really striking that the Supreme Court based its ruling on the printout showing a communication with a matching tracking code that was purely national, i.e. it circulated only within the borders of Mexico, from Los Mochis to Uruapan, so that communication was not even sent from the territory of Ukraine. Despite these manifest discrepancies, the Supreme Court agreed with WINDROSE’s assertion that the ICAC had sent its first written communication to Mexico.

 

In Search of Lost Reason

It is hardly understandable why the Supreme Court decided to examine some facts of the case. According to Article 400(1) of the Civil Procedure Code of Ukraine, the Supreme Court cannot establish facts or consider facts as proven if such facts were not examined by lower courts. If necessary, the case must be referred to lower courts for reconsideration.

The Court of Appeal took an approach recommended in UNCITRAL Secretariat Guide on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards and, literally, for the first time ever in Ukrainian judicial practice explained clearly why a requirement of an authorised employee cannot be applied in consideration of issue of service of notice. In contrast, the Supreme Court reiterated a relatively new and bogus concept of due notification of a party in arbitration proceedings reflected in some judicial decisions. And in the present case, the Supreme Court not only imposed the formal requirements for service of notice, but established even more rigorous requirements than those for service of process in civil procedure in state courts.

Previous similar cases decided by the Supreme Court do not offer a satisfactory explanation for why the Ukraine’s apex court took a rather inadequate approach. In case No 761/20762/15-ц on recognition and enforcement of arbitral award, the circumstances of the case were quite similar. State Enterprise Scientific Research Institute Orion against whom the award was invoked claimed that security personnel authorised to receive the mail had never received any of the arbitration communications. Although the Supreme Court confirmed in its decision of 21 August 2019 that the issues of service of notice shall be governed by the rules of arbitration chosen by the parties and finally rejected to refuse recognition and enforcement of the arbitral award, the Court, nevertheless, based its decision mainly on affidavit of some employees of Orion asserting the issue of arbitration proceedings against Orion was repeatedly discussed during staff meetings, and CEO of Orion was aware of the arbitration proceedings.

In its decision of 19 June 2019 in case No 761/31470/17, the Supreme Court upheld the
lower courts’ position that a debtor was duly informed of the arbitration proceedings as
all notifications were received by the debtor’s authorised employee (the exact name of
the employee figured in the case) and refused to set aside the arbitral award.

Generally speaking, judicial practice indicates that courts pay no attention to the personality of a company’s employee receiving notifications from arbitrations and usually consider that the delivery to a company’s place of business is in itself a due notification of that company (cases No 761/5894/17, No 796/109/2018). Unlike the viewpoint taken by the Supreme Court, the general approach of the judiciary is to refuse to carry out handwriting examination or interrogation of witnesses as not necessary for such type of cases that imply a summary procedure.

Another reason for the dramatic decision of the Supreme Court could be a peculiarity that the Supreme Court’s position sometimes differs depending on the judges comprising the panel. And it happens occasionally that the Supreme Court changes its approach and renders a different decision in a similar case, this being not only a peculiarity for cases on international commercial arbitration.

 

Conclusion

In sum, the Supreme Court, contrary to Ukrainian and as well as international law, potentially created a legal environment for unwanted situations to occur where any debtor who does not wish to participate in arbitration proceedings simply will not receive notifications delivered to its place of business. Such debtor will always be able to say that the notification was received by an unauthorised employee. And as a result, the arbitral award should be set aside, or, if it is a foreign arbitral award, recognition and enforcement of that arbitral award should be refused due to a failure to give proper notice of the appointment of an arbitrator or of the arbitral proceedings to such debtor.

References   [ + ]

1. ↑ This article refers to the Supreme Court created in the course of the judicial reform of 2016 in Ukraine. 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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After 48 Years at ICSID (1972-2020): An Overview of the Status of Egypt in ICSID Arbitrations

Sat, 2020-03-14 19:00

The motive for writing this blog post was conceived during my work as a member of the Technical Secretariat for the Ministerial Committee for Settlement of Investment Contracts Disputes, when I realized the need of both academics and practitioners for access to a reliable database of empirical analyses to support their work. This post is a contribution to that vast database of empirical research, which I hope can help statesmen and stateswomen, law firms, institutions, arbitrators and mediators involved in the field of investment dispute settlement achieve insightful views and determinations.

In what follows, I have tried to gather all relevant information from publicly accessible and available sources regarding most of the issues that can be analyzed empirically in relevance to all the ICSID cases involving Egypt. The results of this empirical analysis show interesting trends and I provide my personal insights on this empirical information.

This empirical analysis comes at a critical time for Egypt. In the last ten years, Egypt has encountered a steep increase in the number of disputes submitted to the ICSID. Since the 2011 Egyptian revolution, 22 ICSID arbitrations were filed against Egypt, amounting to 65% of the total cases filed against Egypt since joining the ICSID Convention.

 

1. Basis of Consent for ICSID Jurisdiction and Its Impact

Egypt has concluded 98 Bilateral Investment Treaties (BITs), 63 of which (i.e. 65 %) refer to the ICSID Convention. As stated by UNCTAD, Egypt is considered among the top 10 signatories of BITs. According to the ICSID cases database, BITs concluded by Egypt are the most relied on basis for consent to establish ICSID jurisdiction. Interestingly, the Egyptian Investment Law was invoked in two ICSID cases based on Egyptian Investment Law which previously offered unilateral consent to ICSID jurisdiction (i.e. Manufacturers Hanover Trust Company v. Arab Republic of Egypt & General Authority for Investment and Free zones; and Southern Pacific Properties “Middle East” Limited v. Arab Republic of Egypt).

The number of the BITs referring to the ICSID Convention might justify why Egypt is, to date, ranked the fourth-most-frequent respondent state following Argentina (56 cases), Venezuela (49 cases) and Spain (39 cases). According to the ICSID cases database, up to March 2020, 34 cases were filed against Egypt (i.e. 4.6% of the total registered cases at ICSID), out of which, 26 cases were concluded by ICSID tribunals, with 15 awards rendered by ICSID tribunals.

However, the analysis identified that 32% of the cases filed were only invoking first-generation BITs, particularly, the Egypt/UK (1975) and Egypt/US (1982) BITs. The statistical analysis findings in the case of Egypt do not support the common perception that there is a correlation between the number of BITs concluded by a state and the number of investment claims it receives.

Since Egypt joined the ICSID Convention, the most frequent BIT invoked was Egypt/US BIT with 6 cases, followed by the Egypt/UK BIT with 5 cases. The majority of investment disputes filed against Egypt, 17 cases (i.e. 50%), involved Western European countries. Meanwhile, 9 cases (i.e. 27%) involved parties from the Middle East, and 7 cases (i.e. 21%) involved parties from North America, including one case invoking the Egyptian Investment Law by an American investor.

Interestingly, Egypt was successfully granted 10 requests for bifurcation of jurisdictional issues by ICSID tribunals; however, it only prevailed in 3 claims for lack of jurisdiction and 2 claims were dismissed partially for lack of jurisdiction. Compared to Algeria, the most analogous example to the case of Egypt at the ICSID in the MENA region, we find that Algeria prevailed in all the awards rendered in its ICSID disputes for lack of jurisdiction (i.e. 3 cases were dismissed for lack of jurisdiction, 2 cases were settled and 3 cases are pending).

The impact of invoking BITs against Egypt 22 times in the aftermath of the Egyptian revolution could have tempted Egyptian policymakers to follow the example of Bolivia, Ecuador and Venezuela in disengaging from the whole ISDS system by withdrawing from the ICSID Convention or the BITs. Despite the high probability of paying large-sums to claimant investors after the flotation of the Egyptian pound in 2011, however, Egypt was committed to respect its treaty obligations. It is noteworthy to consider the IMF loan agreement concluded by Egypt in 2016 as an important factor for compelling Egypt to continue in the ISDS system, as Egypt was avoiding any potential implications jeopardizing the loan agreement such as a large investment arbitration award or an indication that Egypt is denouncing its treaty obligations.

It is evident now that BITs were negotiated without any knowledge for its future consequences and implications. At the time of concluding this large number of BITs, Egypt’s motive was to attract more investments and it was unlikely to assume that these terms and measures would be interpreted in such a way allowing investors to bring this high number of claims before the ICSID. As a consequence, Egyptian policymakers became more cautious when negotiating new BITs to avoid potential arbitrations. This was evident in the latest BIT concluded by Egypt in 2014 (Egypt/Mauritius BIT), which required referring disputes to domestic administrative procedures before resorting to investment arbitration.

It is important to emphasize that only 13, out of 22 cases filed after 2011, were directly or indirectly involved with the ramifications of the Egyptian revolution. The remaining 9 cases were related to disputes accumulated from a decade. As noted in an earlier Kluwer Arbitration Blog post, the timing of the so called Arab Spring was tempting for some investors to the exploitation of such events by bringing meritless claims as a tactical mechanism for obtaining amicable settlements.

As of March 2020, there are 9 pending cases filed against Egypt. It is difficult to foresee whether there will be an increase in ICSID cases in the future.

 

2. The Breadth of Claims, Outcome of Cases and Their Impact

A. Breadth of Claims

i. Measures Challenged

In most of the disputes decided by arbitral tribunals, investors have most frequently brought claims challenging the following measures allegedly taken by Egypt:

Direct/indirect expropriation 78%,
Fair and equitable treatment 71%,
Full protection and security 64%,
Denial of justice 50%,
Most favored nation treatment 28%,
Discriminatory measures 21%,
Minimum standard of treatment 14%,
Breach of contracts 7%,
National treatment 7%, and
Umbrella clauses 7%.

The statistical analysis identified that direct and indirect expropriation was the most frequent treaty standard mentioned in Egypt’s BITs (i.e. in 94 BITs) which correlates with the number of expropriation claims brought against Egypt. Additionally, the other treaty standards related to expropriation such as FET and full protection and security correlate with the number of expropriation claims brought against Egypt.

 

ii. Economic Sectors

Egypt was a respondent in various economic sectors, with the most frequent cases (i.e. 7 cases, 20%) filed in the oil, gas and mining sector, among which is the largest sum awarded against Egypt to date. The tourism sector closely follows, with 6 cases (i.e. 17%).

Noteworthy is that cases in the oil, gas and mining sector steeply increased over the past ten years with 6 cases (i.e. 86% of cases in this sector) filed since 2011. Notwithstanding that the oil, gas and mining sector was the most affected by investment and commercial arbitrations following the 2011 revolution. Egypt in a quite short period showed clear signs of turning into a new direction by settling some of the major energy disputes and introducing major reforms in the energy sector, thus gaining confidence of foreign investors. These steps were indispensable following the major natural gas discovery of Zohr field in the Mediterranean in 2015, paving the way for promoting Egypt as an energy hub in the Mediterranean area.

 

iii. Claims Amounts

The total amount of claims registered against Egypt amounted to approximately $ 22.760 billion. Interestingly, the total amount of claims registered against Egypt after 2011 amounted to $ 21.638 Billion. This total is high because one of the registered disputes amounts to $ 15 billion.

 

B. Outcome of Cases and Their Impact

The awards in the majority of cases have been rendered in favor of Egypt, with 7 cases dismissed on merits, 3 claims dismissed for lack of jurisdiction and 5 cases upheld in favor of the investors. The total amount of awards upheld in favor of the investors amounts to approximately $ 2.125 billions (i.e. 9.3% of the total amount of claims). It is noteworthy that Egypt has only lost cases from Western European countries.

To avoid significant potential financial awards, Egypt successfully concluded 14 settlements during the period 1992–2020 (i.e. 56% of the total concluded cases). It is worth noting that Egypt concluded 11 of the settlements (i.e. 78%) during the period 2014–2020, following the establishment of the Committee for the Settlement of Investment Contracts Disputes as an alternative out-of-court forum to amicably settle investment disputes. Interestingly, 9 of the cases (i.e. 69%) were discontinued according to article 43(1) ICSID Arbitration Rules, based on the request of both parties.

These findings might differ from pro-state critiques that argue that arbitral tribunals are deferential to respondent states, resulting in bias against developing states and the ISDS system. On the other hand, this outcome demonstrates that there is no relationship between a respondent state’s development status and the outcome in investment arbitration. However, if we count the number of cases upheld and the settlements concluded as a win in favor of foreign investors, we will conclude that claimant-investors are the frequent winners in investment arbitrations.

 

3. Tribunals

A. Appointment of Presidents

There is no clear relationship between the diversity of nationalities among the members of tribunals and the quality of their decision making. After analyzing the appointments made by Egypt and its counterparties, we can establish a certain pattern of appointing Western European arbitrators.

The parties and co-arbitrators appointed 17 presiding arbitrators, while the rest of the 14 appointments were made by the ICSID Administrative Council. There is a tendency within parties and co-arbitrators to appoint Western European arbitrators for the most part (19 president appointments). On the contrary, appointments made by the ICSID Administrative Council tend to be more diverse, as it is best placed to ensure greater diversity in nationalities across tribunals.

Interestingly, the analysis identified that in the 7 cases awarded in favor of Egypt on the merits the presiding arbitrator and the arbitrator appointed by Egypt were from the same jurisdictional system. This shows the importance of jurisprudential homogeneity as a key element when considering the choice of arbitrators by the parties and co-arbitrators.

 

B. Appointment of Arbitrators

Arbitrator selection is undoubtedly one of the most important stages in an arbitration. It is hard to define a certain pattern for choosing arbitrators. However, the most frequent factors might be the ideology of the arbitrator, the legal convictions and stances, his/her previous decisions and experience in given economic sectors. Unsurprisingly, when focusing on the appointments made by claimants, I found a modest statistical correlation with pro-investor arbitrators.

 

C. Appointment by Region

Most appointments came from Western Europe (16 appointments), North America (6 appointments), South America (2 appointments), South-East Asia (2 appointments) and Middle East (2 appointments). Surprisingly, there were no appointments from Africa or Eastern Europe. These findings assert the lack of diversity in the appointments made by parties and co-arbitrators, and proves the existence of a pattern in appointing Western European and North American arbitrators.

 

D. Nationality of Arbitrators

Twenty-nine different nationalities have been represented in cases involving Egypt. Arbitrators appointed by Egypt have most frequently come from France (11 times), the United States (4 times) and Great Britain (4 times). In contrast, most of the appointments made by the claimants came from the United States (9 appointments). From the statistical data, we can infer that Egypt tends to choose French arbitrators due to their civil law background. Interestingly, claimants did the opposite by choosing most of the arbitrators from a common law background. Surprisingly, in the case of Egypt, British arbitrators didn’t prevail. Interestingly, Egypt once appointed an Egyptian arbitrator.

The analysis of the appointments made by claimants also shows interesting insights into the common players in the pool of international arbitrators, which is still dominated by pro-investor arbitrators. On closer inspection, it is evident that a certain list of arbitrators are frequently chosen to arbitrate in most of the cases involving Egypt.

 

Conclusion

This post focused on the status of Egypt in ICSID based on an analysis of the available data in an attempt to encourage national practitioners to do the same regarding their countries and to make this information publicly available. It is highly recommended that the ICSID website and other relevant websites publish more detailed information based on statistical data for each country.

 

The views expressed herein are those of the author alone and should not be regarded as representative of, or binding upon the author’s department at the Ministry of Justice or any other institution to which the author is affiliated. The statistical data in this article were provided from the publicly available sources such as the ICSID and UNCTAD websites.

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The ICSID Reforms and Working Paper 4: Push or Pull?

Sat, 2020-03-14 02:00

Last month, ICSID published a further Working Paper (WP4) linked to its ongoing reform process, by which it is considering a series of amendments to the ICSID and ICSID Additional Facility Rules. The Working Paper is the fourth in a series of working papers, preceded by Working Papers 1 (August 2018), 2 (March 2019), and 3 (August 2019). The reform process has also encompassed a series of consultations conducted by ICSID with States and other stakeholders about proposed and possible amendments. Naturally, the consultation process has yielded numerous proposals and even more debate. ICSID has released a helpful backgrounder setting out key reforms proposed in the process, and IAReporter has synthesised some of the main modifications made in WP4. This post will therefore not provide an exhaustive account of WP4, but will instead highlight three particularly interesting developments incorporated into WP4. The post offers an overview of these key developments in order to raise the question for readers as to whether this (potentially final) working paper pushes reforms forward in a progressive direction, or instead pulls back the proposals towards more moderate amendments.

 

Mandatory Disclosure of Third-Party Funding Arrangements

The ICSID amendment process is likely to result in significant changes concerning when parties to ICSID arbitrations must disclose third-party funding arrangements. This was a reform option canvassed very early in the reform process, and framed as a response to the increasing conflict of interest issues that third-party funding arrangements have raised for arbitrators. ICSID noted in WP3 that stakeholder consultations had given rise to ‘two categories of comment’ on third-party funding arrangements, with one group of stakeholders proposing the prohibition of third-party funding entirely, and another proposing greater disclosure of information about third-party funding in individual cases. The ICSID reform process has opted for the latter type of reform. Rather than prohibiting third-party funding arrangements outright, ICSID has instead proposed rules to provide for the mandatory disclosure of third-party funding arrangements.

Such amendments follow rising concern – raised by stakeholders as well as parties in ICSID cases – about the impact of third-party funding arrangements on arbitral proceedings. This includes concerns about the risk that any non-disclosure of such arrangements might mask potential conflicts of interest for arbitrators or others involved in an arbitral proceeding, as well as more practical issues related to the potential inability of a funded claimant to satisfy costs awards should it prove unsuccessful in the proceedings. The amendments appear to balance such concerns against the potentially desirable role of third-party funding in investment arbitration. The non-prohibition of third-party funding might, for example, open greater space for ICSID arbitration claims to be filed by small investors, or for claimants to make claims concerning human rights, environmental, or other public interest issues, which may otherwise not be feasible without third-party funding.

WP4 retains the definition of third-party funding developed in previous iterations of the proposed rules. For the purposes of the rules, third-party funding is defined as situations in which a party ‘has received funds for the pursuit or defense of the proceeding through a donation or grant, or in return for remuneration dependent on the outcome of the proceeding’. WP4 modifies the matters that must be disclosed and clarifies the circumstances in which disclosures must be made, by changing Proposed Arbitration Rule 14 to oblige parties to disclose:

  • the address (not just the name) of any third-party funder;
  • funding received by a party either directly or indirectly (rather than in circumstances where funding is received by the ‘party, its affiliate or its representative’); and
  • third-party funding received for the ‘proceedings’ rather than for ‘the dispute’.

The first and second changes broaden the disclosure obligation, by requiring parties in receipt of third-party funding to disclose more details about their funder and to make such disclosures in a broader range of circumstances. The third change narrows the obligation, by separating funding received to pursue ICSID proceedings from that received to pursue non-ICSID proceedings related to the parties’ dispute.

The proposed amendments also address the importance of third-party funding arrangements to decisions on security for costs. Originally, the revised rules on security for costs recognised the capacity for ICSID tribunals to make such orders, directing them to consider the relevant party’s capacity to comply with an adverse decision on costs, alongside ‘any other relevant circumstances’. Proposed Arbitration Rule 53 has been amended in WP4 to encourage tribunals to consider, as part of these circumstances, any third-party funding arrangement. The revised rule notes, nonetheless, that such third-party funding ‘is not by itself sufficient to justify an order for security for costs’. Whilst the language of the rule on security for costs has been changed in WP4, its overall function remains the same. The slight change in emphasis indicates that the tribunal now ‘shall’ consider all evidence as opposed to having some discretion to do so (‘may consider’, in WP3). In practice, this may mean that a tribunal cannot exclude evidence of third-party funding as irrelevant to its decision on security for costs, but the wording of the provision nonetheless retains arbitral discretion to weigh exactly what influence such arrangements will have to these decisions.

 

Disclosures of Corporate Structures

The ICSID reform process also introduces amendments to the process, and requirements, governing the submission by claimants of their request for arbitration. In WP3, the ICSID Secretariat noted that some States had requested that the rules governing requests for arbitration be amended to require ‘disclosure of the financial status of a requesting party and the corporate structure of a requesting party that is a legal entity’. The ICSID Secretariat adopted the view that such information – to the extent it was relevant – could be provided as part of the claimant’s provision of information under Institution Rule 2 (requiring the request for arbitration to provide ‘a description of the investment, a summary of the relevant facts and claims, the request for relief, including an estimate of the amount of any damages sought, and an indication that there is a legal dispute between the parties arising directly out of the investment’). States appear to have pursued their requests for such disclosures to be specifically required under Institution Rule 2, with the ICSID Secretariat noting in WP4 that ‘IR 2 is not revised to require these disclosures, because they have no bearing on the registration decision’. Nevertheless, Institution Rule 3 has been amended in WP4 to provide a recommendation that the request for arbitration ‘include the names of the persons and entities that own or control a requesting party which is a juridical person’. Juridical claimants initiating ICSID proceedings are thus now encouraged to make disclosures regarding their corporate structure. The ICSID Secretariat notes that this amendment is designed to ‘assist the parties and any appointing authorities in, inter alia, identifying Tribunal or Commission candidates who are free from conflicts of interest’.

 

Transparency of Arbitral Documents, Hearings, and Deliberations

Working Paper 4 also incorporates additional proposed reforms to ICSID’s transparency regime. Reforms to enhance transparency were canvassed by the ICSID Secretariat at the start of the reform process. The capacity for the amendments to introduce broad changes to the transparency regime applicable in ICSID arbitrations is somewhat constrained, given that the ICSID Convention (which is not being amended) requires both disputing parties to consent to the publication of awards. ICSID has attempted to introduce a work-around this limitation by using a “deemed consent” clause to provide that awards will be published if neither party objects to such publication within 60 days of the award having been rendered. Should a party object to such publication, the amendments will retain the present status quo, according to which excerpts of the award will be published by the ICSID Secretariat. These proposed amendments are retained in WP4 (as Proposed Arbitration Rule 63).

WP4 also amends the proposed rule regulating the publication of documents filed in the proceeding. In WP3, this rule had provided that ‘[u]pon request of either party, the Centre shall publish any document filed in the proceeding’, save that, where a party disagreed with such request, it could ‘refer any dispute regarding the publication or redaction of [such] a document…to the Tribunal for determination’. WP4 amends the rule governing such publication to clarify the process for making – and granting – requests for publication of such documents. This revised rule now requires both parties to consent to publication or, absent such consent, allows the tribunal to determine whether publication is permitted. WP4 also specifies that this process will not apply to permit publication of ‘supporting documents’.

WP4 also considerably alters the transparency framework applicable to hearings. Proposed rules in WP3 provided the tribunal with power to ‘determine whether to allow persons in addition to the parties, their representatives, witnesses and experts during their testimony, and persons assisting the Tribunal, to observe hearings, after consulting with the parties’. WP4 extends the scope for open hearings in ICSID arbitrations, creating an opt-out regime by providing that: ‘The Tribunal shall allow persons in addition to the parties, their representatives, witnesses and experts during their testimony, and persons assisting the Tribunal, to observe hearings, unless either party objects.’

WP4 also clarifies who may attend the tribunal’s deliberations. WP4 opens scope for the Tribunal to admit non-members into its deliberations, providing that it may be assisted ‘by the Secretary of the Tribunal at its deliberations’. The attendance of other persons is also contemplated in WP4, but made subject to notification of the parties (‘[n]o other person shall assist the Tribunal at its deliberations, unless the Tribunal decides otherwise and notifies the parties’).

 

Concluding Remarks

Working Paper 4 is potentially the last in the series of working papers produced by the ICSID Secretariat to guide the rules amendment process. The ICSID Secretariat has now asked Member States for their views as to whether a further consultation on the proposed amendments is required, or whether the rules are ready to be put to a vote. Either way, the ICSID Secretariat has noted that its goal is to put the amended rules to vote in the second half of 2020, for implementation in early 2021. The ICSID working papers span a variety of issues, including about transparency and conflicts of interest in investor-State arbitration, which are often subject to political concerns and diverging policy objectives. In navigating this push and pull, the ICSID Secretariat’s WP4 attempts to strike a balance and to propose amendments to enhance the fundamental elements of arbitration without undercutting the overall legitimacy and workability of this form of dispute settlement. The ICSID Secretariat has managed a potentially contentious process transparently and efficiently, placing it in a position to now propose a vote by Member States on the proposed amendments. It is likely that in the coming months the proposed amendments will continue to firm up and form a focal point for ongoing debate in both the ICSID and broader ISDS reform contexts.

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How Will the Coronavirus Impact International Arbitration?

Thu, 2020-03-12 19:00

Background – The Pandemic is Confirmed

As cases of COVID-19, the pathogen associated with the coronavirus outbreak, are reported in rising numbers in countries around the world, the likelihood of a worsening global impact looms. This past Wednesday, the World Health Organization officially declared the outbreak a global pandemic.

In the course of just a couple weeks, the virus has evolved from a challenge largely affecting Central China to a crisis that has the world’s full attention. In the past three weeks, the number of affected countries has jumped from approximately 25 to 114, with the number of confirmed cases rising sharply. COVID-19 has infected over 125,000 people, resulting in thousands of deaths, and many more cases and deaths may be unreported.

The virus has already destabilized global commerce, hit company earnings worldwide and prompted significant drops in global stock markets. Cities, regions and, now, countries are being locked down. Daily work and travel plans are being altered for nearly all of us.

The virus has spread substantially in and beyond China, and there are significant outbreaks most notably in Italy, Iran, and South Korea, with a growing number of reported outbreaks in many other countries in Europe, Asia and the US.

The issue now is time. Health officials say there are no proven therapies for the virus and most say it will take at least a year to develop a safe vaccine. Accordingly, we can expect the virus to be with us for an extended period.

It is easy to panic, but is doing so warranted? To date, most cases are mild, medical resources are largely available for more severe cases and outbreaks are being contained. There is good cause for hope that public health strategies will be successful. At this point, the goal is to slow the spread of the virus so that healthcare systems can be properly prepared and not overwhelmed.

 

Impact to Date

Anticipating how the virus will impact international arbitration is a difficult and somewhat dystopian task. The future is uncertain. Still there is no question that the virus has already impacted the field and will have greater impacts if it is not readily contained.

It is certain that the virus is already affecting the way business is done. International supply chains have been severely affected. Many law firms are advising their clients regarding suspending contractual performance and force majeure provisions. Contract drafters are rethinking contractual terms including provisions as to arbitral seats, choice of law, institutions and procedures.

The virus has caused disruption to international arbitration practice in China, South Korea, Japan, Singapore, elsewhere in Asia and, now, increasingly in Europe, the US and the rest of the world. Apart from quarantines, travel to and from parts of Asia and Italy has been banned or curtailed by governments. This past Wednesday, the US imposed major restrictions on travel from continental Europe.

The virus is increasingly affecting international arbitration in regions that had limited exposure to the contagion before. In a period of two weeks, a small outbreak in Italy has escalated to a growing concern throughout Europe. In the past months, tribunals in the US and Canada have been struggling to manage hearings without witnesses from China. Now the US is dealing with its own outbreaks, particularly in Washington State, California, and New York.

Arbitration hearings have been delayed or relocated and most practitioners are giving thought to whether it is safe to conduct hearings in certain locales. A growing number of companies and law firms are requiring employees to work from home or are imposing their own travel bans. There is a risk seemingly healthy travelers may be unknowing carriers. Those who disregard public health advisories discouraging unnecessary travel put themselves at risk and may cause drastic harm to others, particularly seniors and others who are at a high risk.

Even without travel bans, many arbitration practitioners are leery of travel and hosting delegations from affected areas. Likewise, practitioners from affected regions are hesitant to impose on others. There is also the risk that healthy travelers will be confronted with an unexpected travel ban or quarantine upon arrival or departure. As a result, international arbitration will be curtailed not only where the virus is present but where it may be spread. Essentially, everywhere.

Nearly all major arbitration institutions have adopted precautionary measures, including encouraging protective healthcare measures in their offices, suggesting postponement of hearings and advising parties to refrain from attending hearings in person. Some parties, counsel and tribunals will respect these advisories; others will not. There is also concern some parties will take advantage of developments to needlessly delay arbitrations.

The virus is likely to lead not just to the delay or relocation of hearings but to the cancellation of meetings and conferences in various parts of the world. Legal conferences in Hong Kong, Singapore, elsewhere in Asia, and more recently, in Europe and in the US, have already been cancelled. Planners and potential attendees of major upcoming international arbitration conferences in largely unaffected locales are watching the developing situation closely.

 

Changes to the Way We Do Arbitration

Expect fewer handshakes and more elbow bumps and bows. As the stock markets teeter, the market for videoconferencing technology is booming. Undoubtedly, more evidentiary hearings will be conducted online or at least with some of the participants participating remotely. This sea change in the way international arbitrations are conducted may be the turning point in finally bringing online dispute resolution (ODR) to the world of international arbitration.

The virus will also affect the way evidence is created, gathered and transmitted. Reliance on paper contracts and documents sent through the mail or by courier is likely to be curtailed as the world relies more heavily on digital signatures and document transmissions to avoid spreading contagions. In turn, parties are more likely to conduct document searches, reviews and production digitally. As well, tribunals will prefer digital memorials and document submissions. The hard-copy evidentiary bundle is likely to go by the wayside as arbitrators who insist on paper submissions give way to those willing and able to operate digitally. Adoption of digital solutions may lead to increased implementation of artificial intelligence and other new technologies.

Sadly, we must expect there will be illness, if not deaths, among those participating in arbitrations. A serious pandemic could be devastating for many. The threat requires all of us to proceed in a cautious, thoughtful and civil manner. For now the best guidance is to follow the health and travel advisories of public health authorities including the World Health Organization, national health protection agencies, such as the Centers for Disease Control and Prevention (CDC) in the US, and local public health officials.

Without mitigation efforts, even localized outbreaks of the virus may have lasting impacts, causing loss of lives and weakening economies. Major, rapid outbreaks may mark the end of certain arbitral seats or the rise of others as states struggle to recover from economic, political or even military turmoil.

 

Potential Beyond the Virus

As long as some measure of global commerce continues, we can expect there will be a demand for international arbitration in the world. We may see more arbitrations as parties seek to avoid public forums.

If (let’s be positive, when) we move beyond the virus, we may see much more international arbitration. Undoubtedly the virus will shake supply and pricing expectations in nearly every global market from commodities to industrial products. Many major energy and construction projects have come to a halt.

Many new claims will be initiated involving commercial delays or cancellations due to disruptions in construction, manufacturing of goods and provision of services. Likewise, there will be claims relating to international transit, from shipping to rail to air and sea, including claims involving delays or cancellation of shipment of components for a wide array of consumer and industrial products. There will be claims relating to biotech, pharma and healthcare efforts to fight the outbreaks. Data privacy claims will be on the rise. Undoubtedly, we will see a significance increase in insurance claims in all sectors.

 

Conclusions

The coronavirus is a threat that can only be contained through the leadership of the global health sector and support from each of us as global citizens. We all have the obligation to be proactive about public safety. That requires taking recommended precautions with respect to healthcare and travel. As to arbitration, that includes organizing arbitral proceedings as efficiently as possible and relying on videoconferencing and other technologies to limit transmission risks.

With proper precautions, and a bit of luck, the coronavirus will be a short-lived problem. No matter what the outcome, it will change the world of international arbitration as we know it.

 

Gary Benton is the Chairman of the Silicon Valley Arbitration and Mediation Center (SVAMC) in Palo Alto, California. This article represents the views of the author and not necessarily those of SVAMC.

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Austrian Supreme Court on the Lack of Impartiality and Independence of Arbitrators Discovered Ex Post

Thu, 2020-03-12 00:32

Like virtually all arbitration laws, the Austrian Arbitration Act is silent on whether the lack of impartiality and independence of an arbitrator may be invoked for the first time in setting aside proceedings in cases where a party becomes aware of the relevant circumstances only after the award was rendered. The Austrian Supreme Court has, however, permitted such challenges provided that a party can prove that it was prevented from challenging an arbitrator during the arbitration (because it was unaware of the arbitrator’s alleged lack of impartiality or independence).

In a decision rendered on 1 October 2019 (No 18 OCg 5/19p), the Austrian Supreme Court abandoned its long-standing position that, in such cases, only “blatant”, i.e., gross partiality of an arbitrator, warranted the setting aside of an arbitral award. It has now been established that any lack of impartiality and independence of an arbitrator constitutes a ground for setting aside if a party was unaware of such lack of impartiality or independence during the proceedings.

 

Background

The underlying arbitration was initiated against an Austrian cooperative by a former member who sought annulment of the management’s resolution to exclude him from membership. The five-member arbitral tribunal, which was appointed in accordance with the cooperative’s articles of association, dismissed the claim.

The claimant moved to set aside the award, inter alia, on the basis of the improper composition of the arbitral tribunal under section 611 para. 2, line 4 of the Austrian Arbitration Act. He argued that that the arbitral tribunal was improperly composed because one arbitrator (that he himself had appointed) was a state court judge, despite the fact that Austrian state court judges are prohibited from acting as arbitrators. The claimant asserted that he had not been aware of this prohibition and had therefore been unable to challenge the arbitrator during the arbitration. In addition, he argued that two arbitrators were not impartial due to their close relationship with the management of the respondent (i.e. the cooperative).

 

Decision

The Supreme Court dismissed the challenge and upheld the arbitral award holding, in respect of the alleged improper composition of the tribunal, that:

  • the violation of the official duty of judges (such as accepting to act as arbitrators) does not lead to a deficiency in the arbitral process and therefore does not constitute a ground for setting aside the award;
  • the claimant did not argue that he had been prevented from challenging the two arbitrators whom he considered biased and “apart from that, there [wa]s in any case no doubt that the claimant as a long-standing official knew of the close relationship between both arbitrators characterized as partial and the respondent”.

Even though the challenge was dismissed, two aspects of the Court’s reasoning merit special attention.

First, the Court seized the opportunity to correct what it considered to be a wrong standard set by its previous case law. According to two decisions from 2013, the setting aside of an award for an arbitrator’s lack of impartiality was justified only “in blatant cases”, i.e., if the degree of partiality discovered ex post was extreme (decisions No 2 Ob 112/12b dated 17 June 2013 and No 2 Ob 155/13b dated 27 November 2013). The Court held (at the time) that, in a situation when the award had already been rendered, the limitation to “blatant cases” was justified by the principles of legal peace and legal certainty.

In the decision at hand, the Court expressly joined the opinions of the authors who criticised its previous stance and found that any lack of impartiality of arbitrators – whether “blatant” or not – renders the composition of the tribunal improper.

Second, the Court highlighted that doing away with the limitation to “blatant cases” would not impair legal certainty because a challenge is only admissible if brought within the prescribed three-month time limit (save in cases of criminal offences, which, however, need to be proven by way of a final court decision).

 

Comment

The Supreme Court’s decision marks an important and most welcomed turnaround in relation to setting aside an award on the grounds of an arbitrator’s lack of impartiality discovered ex post.

At the same time, the Court seems to suggest that it would not allow exceptions even if a party was able to show that it discovered an arbitrator’s lack of impartiality only after the time limit for a set-aside action. It is, however, quite conceivable that circumstances giving rise to doubts as to an arbitrator’s impartiality are revealed many months after the award was rendered. Let us consider, for instance, the scandal in the arbitration between Slovenia and Croatia that shook the arbitration community in 2015 and imagine that the transcripts of the ex parte conversations were revealed much later, after the time limit for annulment expired. It would certainly be frustrating and far from legal certainty if there could be no remedy against such an award.

In addition, no time limit exists under the New York Convention (NYC) for invoking the grounds for refusal to enforce awards. The Austrian Supreme Court has still not had the chance to address a case where a party opposed enforcement based on an arbitrator’s partiality discovered ex post, but it did rule in 2005 that a party is not precluded from invoking a ground for refusing recognition and enforcement even if it did not challenge the award in the place of arbitration or if any such challenge was not successful (decision No 3 Ob 221/04 b dated 26 January 2005).

There seems to be no justification or logic, in the author’s view, that the reliance on a lack of impartiality discovered ex post is subject to a preclusive time limit for challenging an award, when no such time limit exists for invoking the same ground in enforcement proceedings under the NYC.

A possibility to extend the (relatively short) time limit for challenge would seem appropriate and necessary, at least in exceptional cases, when a party shows that it was not and could not have become aware of an arbitrator’s lack of impartiality before the expiry of the time limit. The revision of arbitral awards that has been admitted in exceptional cases as an extraordinary remedy by the Swiss Federal Court is a good solution. The current draft amendment to the Swiss Private International Law Act even explicitly provides that a revision can be sought within 90 days of the discovery of new circumstances giving rise to doubts as to an arbitrator’s independence or impartiality.

Arbitrators’ impartiality and independence is a matter of public policy and is at the heart of the integrity of the arbitral process. If this integrity is compromised by an arbitrator’s bias that was not disclosed by the respective arbitrator (and most likely also by one party), would legal certainty not mandate that the resulting award could be challenged even after the expiry of the time limit for (ordinary) challenge? In the author’s view, the answer is a clear “yes”.

It remains to be seen whether this concern will also motivate the Austrian legislator to intervene by providing for an appropriate legal remedy in the future.

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