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UAE investor in Libya brings claim under Islamic treaty

A UAE investor in a joint venture that operated Libya’s largest oil refinery has requested UNCITRAL arbitration against the state under the investment agreement of the Organisation of Islamic Cooperation...

PRC Court Upholds ICDR Award Relating to International Franchise Agreement

Kluwer Arbitration Blog - Wed, 2019-01-09 21:00

Pan Huiwen

On 12 June 2018, the Xiamen Intermediate People’s Court of PRC (“Court”), in Subway International B.V. v Xiamen Woguan Enterprise Management Co., Ltd, upheld an ICDR award made by sole arbitrator Charles J. Moxley Jr., Esq.1)The author would like to thank Judge Chen Yanzhong of Xiamen Maritime Court for his comments on the earlier drafts of the piece. jQuery("#footnote_plugin_tooltip_2071_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2071_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This case raised some important questions in the recognition and enforcement of arbitral awards in China, which have been previously covered on the Blog: determination of arbitration agreement’s foreign applicable law; application of international conventions and arbitration rules of foreign arbitration institutions; and above all, the arbitrability of contractual parties’ tax disputes.

Case Summary

On behalf of Subway International B.V. (“Subway”), two authorized directors Patrica Demarals and David Worroll from Subway signed two separate franchise agreements (“Agreements”) with Xiamen Woguan Enterprise Management Co., Ltd (“Woguan”) in October 2010. According to the Agreements, Woguan was obliged to pay royalty, advertisement fees and other fees to Subway. However, Woguan failed to pay and Subway applied for arbitration in accordance with the arbitration clause in the Agreements. The sole arbitrator found Woguan to have breached the Agreements. It granted RMB 76,823 in liquidated damages to Subway and ordered Woguan to pay arbitration fees and arbitrator’s fees in the amount of USD 23,615.

Since Woguan failed to comply with the ICDR award, Subway applied to the Court for recognition and enforcement of the award.

In its pleadings, Woguan sought to have the arbitral award’s recognition and enforcement be refused on various grounds: (ⅰ) Invalid arbitration clause; (ⅱ) Breach of due process by the arbitral tribunal; and/or (ⅲ) Breach of arbitrability principle by the arbitral tribunal in dealing with the issue of the taxes payable.

As regards the validity of the arbitral agreement, Woguan argued that Patrica Demarals and David Worroll were not authorized to sign the Agreements on behalf of Subway. Furthermore, although the Agreement provided for the intention to arbitration and arbitration rules, it did not mention the specific arbitral tribunal, so the arbitral agreement was invalid. The Court rejected Woguan’s argument. It found that, according to commercial register from the Netherlands’ Chamber of Commerce, Patrica Demarals and David Worroll are both Subway’s directors with independent authority to sign the Agreement. A Director’s authority is a matter of legal fact, the existence of which is not affected by whether authority certificate was shown to Woguan or not. Moreover, by initiating the ICDR arbitration, Subway has confirmed its attitude towards the Agreements. Article 10 of the Agreement provides that contractual disputes should be referred to ICDR for arbitration and UNCITRAL Arbitration Rules should apply. The seat of arbitration should be New York. Thereby, the Court concluded that Woguan’s argument was baseless both in fact and law, the arbitration agreement was valid indeed.

As regards breach of due process by the arbitral tribunal, Woguan argued that relevant persons did not have the authority from Subway to apply and submit materials to the tribunal. However, the Court found that Subway raised no objections as to this point. Woguan further argued that it was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case. The Court held that Woguan’s argument was contrary to the Agreements it signed with Subway. According to article 10 of the Agreements, both parties agree to complete the arbitration proceeding as soon as possible. Unless one party wishes an oral hearing, at the request of the parties or with their consent, the arbitrator may hear and decide the case on the basis of documents only. Meanwhile, the procedural history section of the arbitral award found that when applying for arbitration, Subway requested for the case to be heard on the basis of documents only and Woguan raised no objections. The tribunal provided opportunity for both parties to request for an oral hearing. However, both parties waived the right. Furthermore, both parties had submitted a large amount of materials to support their respective positions and claims. During the arbitral hearing, Woguan even filed a counter-claim. In conclusion, the Court held that Woguan’s breach of due process allegation is without factual basis. Woguan had received proper notices of the arbitration proceeding and presented his case accordingly.

As regards arbitrability relating to the tribunal’s dealing of taxes payable, Woguan asserted that taxes payable in the Agreements was not arbitrable. The Court did not agree with Woguan in this point, holding that it was contractual parties’ agreement as to the burden of taxes payable which did not involve or impact the exercise of administrative right by China’s tax authority. The Court ruled that the tribunal’s founding was consistent with the principle of arbitrability. As to the burden of arbitration fees and arbitrator’s fees, according the Agreements and UNCITRAL Arbitration Rules, the Court ruled that it was within the scope of the tribunal’s authority to determine on this point. Woguan’s argument was rejected accordingly.

Analysis

The ruling once again shows PRC court’s approach of minimal intervention in judicial review of foreign arbitral award. It gives effect to party autonomy and that of arbitral tribunals empowered by the will of the parties. International commercial and arbitration community may make positive reference from the ruling when assessing Chinese court’s attitude towards judicial review of foreign arbitral award.

The ruling by the Xiamen Intermediate People’s Court of PRC touches on one contentious issue in international arbitration: the degree of judicial review over tax burden agreed by parties in commercial contract. Arguments do exist to suggest that tax issues should remain beyond the reach of private adjudicators. However, arbitration of tax-related disputes proves very much a reality despite the doctrinal objections. Arbitrators routinely address problems of taxation in the context of ordinary commercial contracts. The arbitrability of tax disputes remains highly fact-intensive.2)William W. Park, Part II Substantive Rules on Arbitrability, Chapter 10 – Arbitrability and Tax in Loukas A. Mistelis and Stavros L. Brekoulakis (eds), Arbitrability: International and Comparative Perspectives, (Kluwer Law International 2009) pp. 179. jQuery("#footnote_plugin_tooltip_2071_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2071_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Although no hard-and-fast rule prohibits all tax arbitration per se, the Court ‘s ruling clarifies that if contractual parties’ agreement as to tax burden does involve or impact the exercise of administrative right by China’s tax authority, relevant disputes will not be arbitrable. Through prudent review, the limit between exercise of administrative right in public law and freedom of contract in private law was drawn, excessive judicial review of foreign arbitral award was avoided and substantial rights of both parties were legally protected under New York Convention (“Convention”).

It is worth mentioning that Subway’s application to the Court was to have the award recognized and enforced. According to the Notice concerning Relevant Issues of Centralized Handle over Cases of Judicial Review of Arbitration issued by the Supreme People’s Court (“SPC Notice”) in 2017, division specialized in the trial of foreign-related lawsuits is responsible for handling cases of judicial review of arbitration in China, including the judicial review of application for recognition and enforcement of foreign arbitration award. In judicial practice, according to research on court judgments published on http://wenshu.court.gov.cn/, most courts do comply with the SPC Notice recognizing and enforcing foreign arbitration award by the same division and in one proceeding and ruling. However, the Court opined that Subway should file the enforcement application with other competent authority (i.e. the Court’s enforcement division). The Court confined its finding to the conditions upon which recognition was satisfied or not. Not only would such practice result in conflicting rulings by different court divisions when handling recognition and enforcement separately, but also lead to unnecessary delay in the enforcement of arbitration award which may discourage business people from choosing Xiamen as the seat of enforcement.

National courts are required under Article III of the Convention to recognize and enforce foreign awards in accordance with the rules of procedure of the territory where the application for recognition and enforcement is made and in accordance with the conditions set out in the Convention. However, the competent court/court division to be seized with the enforcement application is not regulated by the Convention and thus regulated by national law. Hopefully, with the further implementation of the SPC Notice, court practice of judicial review of arbitration award in China will be more efficient and harmonized to further strengthen the pro-arbitration position of Chinese courts.

References   [ + ]

1. ↑ The author would like to thank Judge Chen Yanzhong of Xiamen Maritime Court for his comments on the earlier drafts of the piece. 2. ↑ William W. Park, Part II Substantive Rules on Arbitrability, Chapter 10 – Arbitrability and Tax in Loukas A. Mistelis and Stavros L. Brekoulakis (eds), Arbitrability: International and Comparative Perspectives, (Kluwer Law International 2009) pp. 179. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Give Me the Facts and I’ll Give You the Law: What Are the Limits of the Iura Novit Arbiter Principle in International Arbitration?

Kluwer Arbitration Blog - Wed, 2019-01-09 20:00

Christian Collantes

The discussion about whether and how the arbitral tribunals can apply the iura novit arbiter (INA) principle has been widely debated in different studies of international arbitration. INA allows the arbitrator to amend and to replace wrongly invoked law or the law not invoked by the parties. However, the arbitrator cannot go beyond the request, base its decision on facts other than those claimed by the parties, or exceed the mission entrusted in the arbitration agreement as to the applicable law, under penalty of putting the future award at risk of possible cancellation for contravening the principles of congruence, contradiction, and due process.

Determining what law governs in international arbitration is a complex task that has been the subject of several studies,1) KAUFMANN-KOHLER, Gabrielle. The Arbitrator and the Law: Does He/She Know It? Apply It? How? And a Few More Questions. Arbitration International, Volume 21, Issue 4, December 2005, p. 631-638. jQuery("#footnote_plugin_tooltip_7523_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7523_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); as arbitrators normally deal with different rules that could be simultaneously applicable: the substantive law or lex causae, the law applicable to the agreement of arbitration, the lex arbitri and the regulation of the arbitration institution. Many times these refer to different national rights and even different legal systems.

To contextualize the above, according to ICC statistics,2) ICC Dispute Resolution Bulletin, Issue 2, 2018, ICC Practice and Procedure, p. 61. jQuery("#footnote_plugin_tooltip_7523_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7523_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); in 2017, the laws of 104 different nations was applied. In 99% of the cases, the arbitrators chose the applicable national law while only 1% of the contracts opted for soft law, e.g. UN Convention on the International Sale of Goods (5), EU legislation (5), the UNIDROIT Principles of International Commercial Contracts (1), Lex Mercatoria (1), “International Customary Law” (1), UNCITRAL Law (1) and the ICC Incoterms (1).

On the other hand, there are precedents from ICSID annulment committees that have accepted that INA is a “power” that arbitrators must apply. Likewise, the application of INA has been accepted in non-ICSID investment treaty arbitrations, e.g., in Bogdanov v. Moldova, Case SCC 93/2004.

 

Who is in a better position to know the law?

Arbitral tribunals are in a better position to know the law. A decision-making process that eliminates the discretion of arbitrators in applying the law is not consistent with the purpose of the mission entrusted to them by the parties through the arbitration agreement.

“Knowledge of law” must be understood in a manner related to the specific case. The arbitrator is not obliged to know all the laws, but his mission is to use the legal tools (within the rules of the game) to settle the dispute in accordance with justice. Is it not precisely for this reason that they were appointed by the parties? It would be absurd to say that a tribunal exercises its powers to settle the dispute only on the basis of what has been said by the parties.

If within their analysis of the laws the arbitrators identify some rule or principle that has been ignored by the parties (involuntarily or intentionally) and that could be crucial for the decision of the case, should the tribunal simply ignore said rule or principle because the parties did not mention it? The task of the tribunal to submit an award strictly according to law is not bound by what has been said by the parties.

This has been understood, e.g., in Duke Energy International Peru Investments No. 1 v. Republic of Peru, ICSID Case No. ARB / 03/28, annulment (March 1, 2011), paragraph 96:

The concept of the ‘powers’ of a tribunal goes further than its jurisdiction, and refers to the scope of the task which the parties have charged the tribunal to perform in discharge of its mandate, and the manner in which the parties have agreed that task is to be performed.

Also, that the arbitral tribunals do not pronounce on a question that the parties have submitted constitutes a breach as well of the mandate that the parties have granted them in the agreement.3) Vivendi c. Argentina, Decision on Annulment, paragraph Nº 86. jQuery("#footnote_plugin_tooltip_7523_3").tooltip({ tip: "#footnote_plugin_tooltip_text_7523_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Faculty or duty?

INA is not a faculty of the tribunal, because the institutionality of arbitration would be jeopardized if the arbitrators had the freedom to decide, at their discretion, to apply the laws. Likewise, and by definition, a faculty does not contain any obligation or burdensome consequences for its owner due to its non-observance.

Instead, INA constitutes an imperative and it is the responsibility of the arbitrator to redirect the legal foundations of the parties when they are insufficient (whether involuntarily or intentionally) to resolve the dispute with justice. Therefore, it would not be an arbitrary act that the arbitrators can apply the appropriate rules to the facts exposed by the parties.

Our position is the application of the INA is a duty that must be exercised by the arbitrator but under certain limits, mainly based on the need to protect the future award of the arbitral tribunal, since accepting the contrary would violate the right to due process.

 

Possibility or reality?

The INA principle is widely accepted in judicial litigation, particularly in Civil Law jurisdictions such as Germany, Switzerland, Sweden and Finland. In the Common Law jurisdictions where the adversarial system prevails and it is the parties who contribute the integrally to the debate, this principle is not even known.4) Lew, Julian; Mistelis, Loukas; Kroell, Stefan. Comparative lnternational Commercial Arbitration, La Haya: Kluwer Law International, 2003, pp. 725-726. jQuery("#footnote_plugin_tooltip_7523_4").tooltip({ tip: "#footnote_plugin_tooltip_text_7523_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

However, the applicability of INA is not linked to a division between Civil Law and the Common Law jurisdictions. Rather, the central axis of the problem is the evaluation by the courts of the extent to which the arbitral tribunals have taken the parties by surprise when applying the INA.

In this regard, it is worth bearing in mind the criteria raised from Article 34(1) and (2)(g) the English Arbitration Act 1996,5) “(1) It shall be for the tribunal to decide all procedural and evidential matters, subject to the right of the parties to agree any matter. (2) Procedural and evidential matters include (…) g) whether and to what extent the tribunal should itself take the initiative in ascertaining the facts and the law“. jQuery("#footnote_plugin_tooltip_7523_5").tooltip({ tip: "#footnote_plugin_tooltip_text_7523_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); or to follow the International Law Association Recommendations on Ascertaining the Contents of the Applicable Law in International Commercial Arbitration (Resolution Number 6/2008), whose points 10 and 11 indicate that “If arbitrators intend to rely on sources not invoked by the parties, they should bring those sources to the attention of the parties and invite their comments, at least if those sources go meaningfully beyond the sources the parties have already invoked and might significantly affect the outcome of the case. Arbitrators may rely on such additional sources without further notice to the parties if those sources merely corroborate or reinforce other sources already addressed by the parties […]”.

Along the same lines, Fouchard, Gaillard and Goldman argue that the use of INA is inadequate in arbitration; however, they suggest a practical solution: arbitrators should offer the parties the opportunity to discuss the laws that they intend to apply. The exception to this rule would be if the rule invoked is of such a general nature that it was understood to be included implicitly in the allegations.6) FOUCHARD, GAILLARD & GOLDMAN. International Commercial Arbitration. Boston: Kluwer Law International, 1999, p. 692. jQuery("#footnote_plugin_tooltip_7523_6").tooltip({ tip: "#footnote_plugin_tooltip_text_7523_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The pathological scenario in the application of INA in international arbitration arises when any of the parties is not allowed to adequate defense on the arguments presented by the arbitral tribunals. Since the arbitration does not have a second instance to review the merits of the dispute, the position of arbitrators regarding the application of the principle is somewhat skeptical, careful and reserved.

 

Recommendations

In order to allow courts to fulfill their duty and legally shield their decisions, we make the following recommendations:

  • Parties should be guaranteed sufficient opportunity to present their cases.
  • The petitum and the factual grounds of the causa petendi are not a matter of discussion in the application of INA.
  • The general rule is that the tribunal cannot find a ratio decidendi in an element other than the causa petendi invoked (principle of congruence).
  • If the arbitral tribunal omitted the application of rules of public order, this would jeopardize the validity of the arbitral award, its subsequent recognition and enforcement.
  • For its application, it is not enough for the arbitral tribunal to conclude that the application of the jura novit curia principle is acceptable at the seat of arbitration.
  • The application of INA should be analyzed in the context of the provisions of lex arbitri regarding the annulment of arbitral awards, since they constitute the external limits of the tribunal’s authority to determine the content of the lex causae.
  • The court should also examine the context of the denial of execution rules in the different jurisdictions in which it is necessary to apply the award.

In conclusion, in international arbitration, it is an inherent duty of the arbitrator arising from the agreement of the parties that, in case they have legitimate doubts about specific points of the law, arbitrators can investigate on their own to clarify these doubts and take into account such inquiry at the moment of forming their criteria for the resolution of dispute, under the limits indicated here.

References   [ + ]

1. ↑ KAUFMANN-KOHLER, Gabrielle. The Arbitrator and the Law: Does He/She Know It? Apply It? How? And a Few More Questions. Arbitration International, Volume 21, Issue 4, December 2005, p. 631-638. 2. ↑ ICC Dispute Resolution Bulletin, Issue 2, 2018, ICC Practice and Procedure, p. 61. 3. ↑ Vivendi c. Argentina, Decision on Annulment, paragraph Nº 86. 4. ↑ Lew, Julian; Mistelis, Loukas; Kroell, Stefan. Comparative lnternational Commercial Arbitration, La Haya: Kluwer Law International, 2003, pp. 725-726. 5. ↑ “(1) It shall be for the tribunal to decide all procedural and evidential matters, subject to the right of the parties to agree any matter. (2) Procedural and evidential matters include (…) g) whether and to what extent the tribunal should itself take the initiative in ascertaining the facts and the law“. 6. ↑ FOUCHARD, GAILLARD & GOLDMAN. International Commercial Arbitration. Boston: Kluwer Law International, 1999, p. 692. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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India seeks to ground chopper case during bribe probe

A court in Delhi will hear a request by the Indian government that it halt an ad hoc arbitration over a €560 million contract for the supply of helicopters to state officials, pending the outcome of a...

What is the ISDS Landscape under the “New NAFTA”?

Kluwer Arbitration Blog - Tue, 2019-01-08 23:24

Calliope Sudborough

On Friday December 7th, a distinguished panel of government negotiators, experienced investment arbitrators and senior legal advisors gathered in Paris at the law faculty of the University Paris II Panthéon-Assas (Paris II) to discuss the US-Mexico-Canada Trade Agreement (USMCA) also called the “New NAFTA” signed on November 30th.

The panel was held as part of a seminar series on Topical Issues in international investment law and investor-state dispute settlement organized by the CERSA, Research Centre of the French National Centre for Scientific Research (CNRS) and the University Paris II Panthéon-Assas. The seminar was moderated by Catharine Titi (CNRS-CERSA, University Paris II Panthéon-Assas) and brought together as panelists

Héctor Anaya Mondragón (Creel, García-Cuellar, Aiza y Enriquez), José Manuel García Represa  (Dechert LLP), David Gaukrodger (OECD, in a personal capacity), Barton Legum (Dentons), Rodney Neufeld (Government of Canada, in a personal capacity) and Noah Rubins (Freshfields Bruckhaus Deringer). Over the course of three hours, the panelists discussed the new investment law landscape following the signature of the USMCA.

Main Differences Between the Old and the New NAFTA

USMCA developments have been previously discussed in the blog in relation to Latin America, the EU, in relation to fork in the road provisions and more generally in here. 

To kick-off the discussion, the moderator asked the panel to describe the key differences in the ISDS provisions between the USMCA and NAFTA. The first panel described the most striking change as the phasing out of ISDS for investors between the US and Canada and the significant restriction of ISDS between the US and Mexico. Nevertheless, panelists pointed out that even after the USMCA is ratified, the old NAFTA ISDS mechanism will still live on for another three years for what has been termed “legacy investments” made during the NAFTA period from January 1st 1994 to the date of NAFTA’s termination. As noted by the panel, “legacy investments” claims initiated during the three year period will be decided under the old NAFTA Chapter 11 rules and the tribunal proceedings will continue until finished and any arbitral awards will be fully enforceable, even beyond the three-year phase-out period. As such, the panel noted that there will likely be a flurry of new claims by investors before their arbitration rights expire.

Legacy Investments

The panel then spent a lengthy time debating various questions raised by the legacy investments provisions without producing straightforward answers.  These questions included: Is it intentional that pre-1994 investments are not included and if so why? Do the legacy investments provisions still kick-in if one of the parties does not ratify the USMCA? What does “termination” of NAFTA actually mean? Will arbitrators be allowed to interpret new claims filed under the legacy provisions in light of modifications made in the “New NAFTA”?

USMCA Innovations

The speakers also noted more specific innovations to the old NAFTA contained in the USMCA including, the expansion on the definition of expropriation in Annex 14-B, the use of specific examples given for interpretation of the minimum standards of treatment provided in the new Article 14.6 (previously article 1105) and the implication that a state’s actions which fulfill “public welfare objectives” will be considered  in the new Articles 14.4 on National Treatment and 14.5 on the Most Favored Nation standard in determining whether treatment was accorded in “like circumstances”.

Negotiation Process and Government Concerns

The conversation then turned to the negotiation process. The 15-month long negotiations of the USMCA were described as “very strange” and unlike any other high level treaty negotiations previously experienced by those involved, including some very “big surprises” along the way. By way of explanation, the panelists highlighted the political shift that has taken place since the old NAFTA agreement was put into place.

In particular, panelists observed that more recently, high-level government representatives have made sharp public criticisms of investment treaties which could explain some of the new approaches in the treaty. For example, David Gaukrodger noted that, in testimony before the US Congress, US Trade Representative Robert Lighthizer expressed concerns about preferential treatment of foreign investors over US investors due to access to ISDS, ISDS incentivizing companies to outsource jobs, and the dissuasive impact of investment treaties on regulation in the public interest (popularly coined as “regulatory chill”) as governments fear that they expose themselves to liability.  It was noted that, unlike recent EU rejection of the operation of investor-state arbitration, this criticism was broader and goes to the overall effects of investment treaties.

Death of ISDS?

Interestingly, Noah Rubinson and Barton Legum noted how twenty years ago, these statements used to be reserved to the NGOs and the left and right “fringes” but have now moved to the mainstream. This in turn sparked an exchange around the oft-debated question is this “The Death of ISDS”?

At first speakers debated philosophically if it would matter if it really were the end of ISDS and whether the underlying issue was really more an emotional attachment than a crisis in the world order. Ultimately, the panelists seemed to agree that the USMCA marks a decline although perhaps not the fatal end of ISDS. Moreover, José Manuel García Represa remarked that he previously represented a couple of the first Latin American countries to renounce the ICSID Convention and that now this exodus seems to be spreading to capital-exporting countries while, ironically, countries like Ecuador are reversing course and returning to ISDS.

State to State Disputes

Catharine Titi concluded the panel discussion by questioning the likelihood that under the New NAFTA, there will be a return to State to State disputes and asked the panelists to indicate how well they think that the US, Mexico and Canada are prepared for this. Barton Legum noted that the US is well situated to handle such claims because the State Department office dealing with large claims before the US-Iran Claims Tribunal contains a large staff with a great amount of expertise that will become available when the current hearings in that tribunal conclude. Rodney Neufeld pointed to Canada’s extensive WTO practice as providing good preparation for such claims. On the other hand, Héctor Anaya Mondragón expressed some concern as to Mexico’s preparedness in light of the newly-elected government’s purge of experienced staff and the push to cut the budget and therefore avoid the use of external counsel.

Unanswered by the panel was the deeper question posed by the moderator, Does this return to State to State disputes mean a return to diplomatic protection and the Calvo Doctrine?

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Expert witness survives challenge in Panama case

An ICSID tribunal hearing a case between US subsidiaries of Japanese tyre maker Bridgestone and Panama has refused to remove an expert witness hired by the state to give evidence on Panamanian law, where...

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Josh Stulberg to Receive Outstanding Scholarly Work Award from Section on Dispute Resolution

ADR Prof Blog - Tue, 2019-01-08 14:23
In wonderful news, announced today, my colleague, Josh Stulberg, will receive the ABA Section of Dispute Resolution Award for Outstanding Scholarly Work. Congratulations, Josh! The announcement is below: Joseph B. “Josh” Stulberg selected as 2019 Recipient of Award for Outstanding Scholarly Work Professor Joseph B. “Josh” Stulberg, the Michael E. Moritz Chair in Alternative Dispute … Continue reading Josh Stulberg to Receive Outstanding Scholarly Work Award from Section on Dispute Resolution →

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Communication and Conflict Blog - Tue, 2019-01-08 13:43
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New Year’s Quiz Answers, Winners, and Selected Arbitration Jokes to Get You Through 2019

Kluwer Arbitration Blog - Tue, 2019-01-08 04:35

Michael McIlwrath, Crina Baltag (Acting Editor) and Kiran N. Gore (Assistant Editor to the Acting Editor)

The Kluwer Arbitration Blog thanks everyone who responded to the New Year Arbitration Quiz, and have decided that all those who responded will receive free subscriptions to this blog for 12 months.1) It is true that the Kluwer blog is already free. In keeping with the theme of arbitration, however, we felt our award should have at least one component that leaves the winner scratching their head. jQuery("#footnote_plugin_tooltip_8937_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8937_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The winner is Chris Campbell of the United States, but we had two very close runners up, Abhinav Bhushan of Singapore and Ana Coimbra Trigo of Portugal. We have decided that all three should be entitled to dinner in Florence (exclusive of travel costs) with a guest of their choice and/or the author of the quiz.

We would be remiss not to mention that the winners, and only one other contestant, Ishana Tripathi of India, correctly guessed all the hobbies/past careers of the arbitrators in question 4. They must be formidable resources when appointing a tribunal. (Look out, Arbitrator Intelligence!)

The Kluwer editors and the author of the quiz reviewed many amusing submissions for a joke starting “an arbitrator, law firm partner, and in-house counsel walked into a bar together…”  We enjoyed them all, and ultimately chose the following as our favorite.

 An arbitrator, a law firm partner, and an in-house counsel walk into a bar together… The bartender asks, “what are y’all in town for?” They respond together: “New York Convention?” Christopher Campbell

Other worthy submissions, plus one that made us all groan, follow the answers to the quiz.

1. (b). Before becoming Prime Minister of Italy, Giuseppe Conte was a professor of law who was active in domestic and international arbitration and mediation, and twice hosted ICC summer workshops at his university. In fact, my September 2011 Kluwer blog post, It’s Not Hard to Mediate During Arbitration, discussed a simple but effective arb-med-arb procedure proposed by the chairman of an arbitral tribunal. Prof. Conte was that unidentified chair (the arbitration and settlement were still fresh). The mechanism he proposed back then is identical to the one in the new DIS Arbitration Rules, which has also been included in the Prague Rules for facilitating settlement, Art. 9.2-3.  Conte resigned from pending arbitral appointments upon being named Prime Minister.

2. (b). The United States of America submitted a proposal for the enforcement of mediated settlements at the end of the UNCITRAL Working Group II’s 62nd Session in New York, in July 2014. (Ecuador was the first country to endorse the USA’s proposal when it was subsequently introduced for discussion in Vienna.) At the UNCITRAL working group session in June 2018, 27 countries spoke in favor of Singapore hosting the signing ceremony and naming the convention after the country. The UN General Assembly passed a resolution to this effect on 20 December 2018. The broad support for this name may also have been influenced by the successful chairing of the working group sessions conducted by Singaporean Natalie Yu-Lin Morris-Sharma.  The official signing of the Convention is scheduled for 7 August 2019 in Singapore.

3. (a). The rules of arbitration of the Milan Chamber of Arbitration (CAM) include a Code of Ethics regulating the conduct of all arbitrators appointed under the CAM Rules. Art. 12 of the Code provides that, “The arbitrator who does not comply with this Code of Ethics shall be replaced by the Chamber of Arbitration, which may also refuse to confirm him in subsequent proceedings because of this violation.”  The Code also applies to tribunal-appointed experts.

4. Know your arbitrator. As eclectic as international arbitration is, it should be no surprise it attracts people with eclectic interests, hobbies, and backgrounds.  What did surprise us, however, was how much the responses to the quiz varied. So we apologize to those named for thousands of odd emails inquiring about former careers as professional footballers, except Seok Hui Lim. Almost all respondents correctly pegged her as the past squash champion, showing either a definitive correlation between knowledge of international arbitration and international squash or, possibly, adeptness at using Google as a research tool. The correct answers are below.

a. Gary Born

Born on International Arbitration iii. Gary has immense experience scuba diving the world’s seas.  Based on anecdotal information, the author of this quiz (also a diver) suspects scuba diving is disproportionately popular among arbitration professionals.

  b. Lim Seok Hui

CEO, SIAC & Director, SIMC

  i. As the Singapore press reported with disappointment at the time, Lim Seok retired from her career as a squash player to attend law school, but as former Singapore and East Asia Squash champion remains one of the country’s most famous squash players.

  c. Roman Zykov

Secretary General, RAA

  v. Before embarking on a career in law and then arbitration, Roman worked as a life guard.

  d. Sophie Nappert

Arbitrator, London

  ii. Sophie is an active participant in “rocket yoga,” a form of yoga given this name by Bob Weir of the Grateful Dead because, he said, “it gets you there faster.”

  e. Eduardo Silva Romero

Arbitrator, Paris (Colombia) iv. Eduardo played semi-professional football (soccer) in his native Colombia.

 

5. (e).Standardized data about arbitration cases?” There is no such thing. Indeed, arbitration institutions have not even adopted a common definition of “international arbitration”.  For example, the ICC defines an international arbitration as one between parties from different countries, while the AAA/ICDR defines one as having an international dimension, even if the parties are from the same country.

6. (b). In Rethinking Choice of Law in Cross Border Sales (International Commerce and Arbitration) (Eleven Publishing Int’l 2018), Gustavo Moser leverages the available empirical data to demonstrate that parties fail to exploit strategic advantages that contract choice of law provisions may offer. The data reviewed by Moser suggests that most parties who exclude the application of the UN Convention on Contracts for the International Sale of Goods (CISG) from their contract choice of law provisions do so because they lack familiarity with the CISG, often ignoring any advantages it may offer.

7. (c). The available guidance is scarce as to when tribunals should grant requests for security for costs generally, and the ICCA/Queen Mary report on Third Party Funding in International Arbitration (2018) does not seek to introduce a substantive rule. Rather, the report addresses when a funding agreement should be disclosed in applications for security for costs. It suggests tribunals should order disclosure only to determine whether the funder has agreed to pay an adverse costs award (possibly obviating the need for security), not to determine whether the funded party is impecunious.

8. Everyone who responded received credit for their answer.  The final report of the Global Pound Conference, to be issued in 2019, will have more on this interesting data, so watch this space. The only GPC participants who viewed In-house lawyers as being the most influential were in-house counsel and parties/users of dispute resolution services themselves. All other stakeholder groups (i.e., advisors, providers, and influencers) viewed in-house lawyers as being equally low in influence (in fourth place). Advisors (external counsel or experts) and Adjudicative Providers (arbitrators and judges) voted for themselves as being the most influential, and Non-Adjudicative Providers (conciliators and mediators) and Influencers (academics and civil servants) voted for Governments/Ministries of justice in first place. The groups that were ranked the least influential were the Parties’ non-legal personnel (business owners, directors and officers) in 5th place and Non-Adjudicative Providers (conciliators and mediators) in 6th place.  The data raises questions for further investigation as to whether those who suffer the consequences of disputes and bear the associated costs are truly being listened to by those who are responsible for providing services to resolve them, and whether parties and in-house counsel should take a more visible leadership role.  Only Parties (legal and non-legal) voted in fact for “In-house lawyers” as being the most influential, and nobody else agreed with them.  The correct answer was thus any one of options (a)-(d) in the answers, but since the data was so surprising (and the author is also an in-house lawyer), credit was also given for (e).

9. (c). The hosts of The Arbitration Station podcast, now in its third season, conclude each episode with a segment they call “Happy Fun Time,” sharing a virtual beer while conversing on whimsical topics such as ways of addressing the members of the tribunal (should you say, “Madam Arbitrator?”) or traveling with colleagues to an arbitration hearing (should you reserve seats together on the flight, and who doesn’t have a packed suitcase and amenities kit always ready to go?).

10. (d). In 2018, the pornographic actress Stormy Daniels sought to avoid an agreement to arbitrate disputes in a contract with President Donald Trump. The musician Jay-Z momentarily enjoined the AAA from appointing arbitrators based on an alleged lack of representative diversity of the AAA’s construction panel. This sparked considerable discussion in the arbitration community about diversity beyond gender in arbitration.  By contrast, Brad Pitt was spared any embarrassing arbitration news, and is reportedly back together with Jennifer Aniston.

11. (e). The ICDR offers an ODR (online dispute resolution) for manufacturing disputes designed for both a mediation and arbitration phrase to be completed within 60 days. The low-cost service is focused on disputed technical issues and is conducted on-line based on submitted documents only, without the need for a hearing.

12. Noteworthy submissions for a joke starting, “An arbitrator, a law firm partner, and in-house counsel walk into a bar….”

An arbitrator, an in-house counsel and a law firm partner walk into a bar. The barman asks “What can I get you?”, whereupon the law firm partner looks at the in-house counsel, says “I guess you’re paying” and orders a large 25 year-old Macallan single malt whisky. The in-house counsel, cost conscious as always, objects and suggests the law firm partner and he have a Coors Light. The law firm partner says that the in-house counsel, as always, is putting cost before quality and an argument ensues. The barman asks the arbitrator if he can resolve the dispute and the arbitrator says “Of course! And I can give them each what they want.” He asks for a 25 year-old Macallan, a Coors Light and two glasses, mixes the two drinks together in the glasses, turns to the disputants and says “Here you are. You asked for this, so this is what I am going to give you in resolution of your dispute … but neither of you are going to like it.” Peter Rees of the United Kingdom

 

 An arbitrator, a law firm partner, and an in-house counsel walk into a bar together. The law firm partner asks for additional time before deciding what to drink, the arbitrator orders, and the in-house counsel picks up the tab. Barbara Reeves of the United States

 

An arbitrator, a law firm partner, and an in-house counsel walk into a bar together, … no idea what happens next due to a Confidentiality Clause. Ana Coimbra Trigo of Portugal

 

 An arbitrator, a law firm partner, and an in-house counsel walk into a bar together … Red, Orange or Green? Gary Benton of the United States

 

An arbitrator, a law firm partner, and an in-house counsel walk into a bar together … with an agreed costs cap. Riina Luha of the United Kingdom

 

An arbitrator, a law firm partner, and an in-house counsel walk into a bar together …  Whatever happens next, it will end up costing the in-house counsel money. Amanda Lee of the United Kingdom

 

An arbitrator, a law firm partner and an in-house counsel walk into a bar together. They all sit down and order drinks. The arbitrator orders a shaken vodka martini and tells the story about how her mentor, an old famous arbitrator, ordered the drink routinely when deliberating. The law firm partner orders a Moscow mule and tells the story of ordering the same drink after a hearing in Moscow at the surprise of local counsel (since the drink is not common in Moscow). The in-house sits and takes this all in but does not order anything. The law partner turns and asks the in- house counsel ‘you are not drinking?’ The in-house counsel takes a pause then says ‘no, I am fine. I only budgeted for three beers.’ Cornel Marian of Sweden

 

An arbitrator, a law firm partner, and an in-house counsel walk into a bar together … the bartender says to the arbitrator “for the last time, its way past closing (submissions)”. The Arbitrator looks over his shoulder at the Law Firm Partner engrossed in his large, bulky phone and In-house Counsel frantically searching for his credit card. He responds to the bartender, “Hey, it’s alright, we’ll get the usual.” Vivek Kapoor of the United Kingdom

 

An arbitrator, a law firm partner, and an in-house counsel walk into a bar together, and they then appoint a mediator to help them work out how to split the tab. Jeremy Lack of Switzerland

 

And the one that made us smile through our groaning (or groan through our smiling):

An arbitrator, a law firm partner, and an in-house counsel walk into a bar together. The bartender says “You again? I told you before, you’re all disbarred!” Joel Dahlquist of Denmark

 

If you still haven’t had enough, you are welcome to peruse our archives and test your skills and knowledge through past quizzes.

References   [ + ]

1. ↑ It is true that the Kluwer blog is already free. In keeping with the theme of arbitration, however, we felt our award should have at least one component that leaves the winner scratching their head. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Application of Law of Limitation in Computing Time Period Under Section 34(3) of the Arbitration & Conciliation Act, 1996

Kluwer Arbitration Blog - Tue, 2019-01-08 01:34

Devansh Mohta

INTRODUCTION

It is fairly known that the Indian Limitation Act, 1963 (the Limitation Act) constitutes “general law” for Time Periods and its computation. Section 29(2) of the said Act contains the fundamental rule that provisions of Limitation Act would apply for computation of time period prescribed by any special law only to the extent it is not expressly excluded.

The relevance of time period

An application to challenge arbitral award is made under section 34 of the Indian Arbitration and Conciliation Act, 1996 (the Arbitration Act) within the “time period” prescribed in sub-section (3) of section 34, i.e., within three months from the receipt of the award after the expiry of which the Court can permit a party to make the application within 30 days “but not thereafter”. A “time period” has been regarded as necessary for certainty and to ensure expeditious and effective resolution of disputes between the parties.

Express Exclusion Test

Should a rule of computation of time periods contained in the Limitation Act apply to section 34(3) of the Arbitration Act, 1996? To answer this question the Supreme Court has generally resorted to the test of “express exclusion”. The article briefly sets out the legal position about the computation of time limits and analyzes the manner which the Court has applied the express exclusion test.

 

LEGAL POSITION

Starting Point (the first day)

The time period for challenging an award commences only upon its proper receipt. An award would be regarded as properly received only if it is delivered in the manner prescribed by section 31 (5). This means when a “signed copy” has been delivered to the party. The delivery of an award constitutes an important stage in the arbitral proceedings. The Supreme Court has held that “delivery of an arbitral award” is not a matter of formality but of substance; as it confers certain rights on the party. (see: Union of India v. Tecco Trichy (2005) 4 SCC 239)

“Within three months from……”

There is an ordinary rule that where statutes, while prescribing time period, uses the expression “from”, it is an indication that while computing the period so prescribed the rule would be “to exclude the first and include the last day”. (see: section 9 of the General Clauses Act). 

In the case of State of Himachal v. Himachal Techno (2010) 12 SCC 210, the Supreme Court extended this principle to section 34(3). Thus, the time period for filing an application under section 34 would commence “a day after the receipt of the award by the party.

The time in between

Once the time has begun to run, no subsequent disability or inability to institute a suit or make an application would “stop it”. This is a fundamental rule. (see: section 9 of the Limitation Act)

So after proper receipt of award, the time period for a challenge “begins to run”. Apart from the exception of section 33, it cannot be stopped. [section 34(3)]

The last day

The time period under section 34(3) expires after “three months”. The rule of construction of this period would be to not treat this period as 90 days, but actual period of calendar month. Thus, the period would expire in the third month on the date corresponding to the date upon which the period starts. In days it may mean “90 days or 91 days or 92 days or 89 days”. (State v. Himachal Techno (2010)12 SCC 210)

A rule for computation is that in case the last day of the time period expired on a day when the court is closed the proceedings will be instituted “on the day when the court reopens” (see: section 4 of the Limitation Act, 1963)

However, the Supreme Court has held that the benefit of this rule cannot be taken to prefer an application under section 34 after the expiry of the time period. (see: Assam Urban Water v. Subhash Projects & Marketing (2012)2 SCC 628)

The proviso to section 34(3): Additional 30 days

Section 34(3) proviso enables the party to make an application after the expiry of three months upon demonstrating that the applicant was “prevented by sufficient cause” from doing so. In such cases,  the statute has conferred upon the court discretion to entertain the application within a period of 30 days “but not thereafter”.

To “prevent” means to thwart; to hinder or to stop. Thus, while ‘time period’ would never stop under any circumstances but certain circumstances may stop an applicant from making the application. If the court found those circumstances constituted “sufficient cause” it would permit the party to make the application.

It is beyond cavil that the discretion of the court to permit an application beyond the original period cannot extend beyond 30 days being the statutory outer limit for exercise of discretion. (see: Union of India v. Popular Construction (2001)8 SCC 470)

The distinction between “extension of time” and “computation of time”

While time does not stop running, it can be excluded from the computation. The rule of computation  of time period recognizes the concept of “exclusion of time” under certain circumstances: and so far the Supreme Court has permitted parties, to take recourse to section 14 of the Limitation Act, 1963 and exclude from computation the time spent in bonafide litigious activity in other words “mistaken remedy” or “selection of a wrong forum”. (see:  Consolidated Engineers v. Principal Secretary (2008) 7 SCC 169)

However, when a party sought exclusion of time by taking recourse to the plea of fraudulent inducement available under section 17 of the Limitation Act, 1963. The Supreme Court held that once the party has properly received the award the right to challenge comes within their knowledge and no fraudulent act of another party can be made an excuse for excluding the time from computation.

Where fraud has been practised at the time of delivery the award would not be considered as having “properly received”. (see: P. Radhabai & v. P. Ashok Kumar (2018)13 SCALE 60)

 

THE PRINCIPLE OF “EXPRESS EXCLUSION”

The Supreme Court has applied the principle of express exclusion the following manner:

By reference to language of section 34(3) of the Arbitration Act

In Popular Construction (supra) the Supreme Court held that the expression “but not thereafter” found in proviso section 34(3) expressly excluded the applicability of section 5 of the Limitation Act.

In P. Radhabai (supra) the Supreme Court while emphasizing on the expression “had received the arbitral award” found that applicability of section 17 was “expressly excluded”. It also held that extending the benefit of section 17 of the Limitation Act would “do violence” to the provision of section 34 (3).

Interestingly in Himachal Techno (supra) the Supreme Court emphasized on the expression “from the date” found in section 34(3) applied the presumptive rule of interpretation found in section 9 of the General Clauses Act. It therefore held that that the Arbitration Act did not exclude the application of section 12 of the Limitation Act, 1963 which is similar to section 9 of the General Clauses Act. However, the Supreme Court failed to notice the expression “period of limitation” found in that section, which necessarily restricts the applicability of section to those periods which are prescribed by schedule to the Limitation Act, 1963.

By reference to the Limitation Act

In Assam Urban Water Supply (supra) the Supreme Court refused to extend that benefit of section 4 of the Limitation Act on the ground that the section was meant only for the time period prescribed by the Limitation Act and time period under section 34(3) stood outside its purview. To arrive at this conclusion the Supreme Court resorted to the definition “period of limitation” found in section 2(j) of the limitation act.

It is noteworthy that the above decision was delivered two years after the judgment in Himachal Techno (supra).

Principles of equity

It is pertinent to note that in Consolidated Engineers (supra) the Supreme Court laid on two factors: first was the distinction between extension of time and exclusion of time, as explained above and secondly on the principle of equity. On these scores the Supreme Court held that section 34(3) did not excluded applicability of section 14 of the Limitation Act, 1963.

 

CONCLUSION

It is clear that where the Supreme Court has applied the express exclusion principle with reference to the language of section 34(3) and Limitation Act the answer about applicability has been in the negative. On two occasion- while applying section 12 and section 14- the Supreme Court has answered the question affirmatively. It would be in consonance with the object of arbitration law- efficient and expeditious adjudication of disputes- to avoid calling in aid the principle “underlying the provisions” of the Limitation Act and read into fixed time periods of section 34(3); benefits of principle of computation found in the Limitation Act.

After all the Supreme Court in Yeshwant Deora v. Walchand AIR 1951 SC 16 had held that “rules of equity have no application where there are definite statutory provisions specifying the grounds on the basis of which alone suspension or stoppage of running of time can arise. While courts are necessarily astute in checkmating or fighting fraud, it should equally borne in mind that statutes of limitation are statues of repose”.

This is a noteworthy principle.

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Tesla rival settles dispute with Chinese investor

US-based start-up Faraday Future, which has ambitions to overtake Tesla in the market for intelligent electric cars, has settled an HKIAC arbitration with a Chinese investor after it generated two emergency...

Tesla rival settles HKIAC dispute with Chinese investor

US-based start-up Faraday Future, which has ambitions to overtake Tesla in the market for intelligent electric cars, has settled an HKIAC arbitration it initiated with its Chinese investor after it generated...

IFFCO v. Bhadra Products: Increasing Confusion or Clarifying on Matters of Jurisdiction?

Kluwer Arbitration Blog - Sun, 2019-01-06 17:43

Pragya Chandak and Harsh Salgia

Section 16 (1) of the Arbitration and Conciliation Act, 1996 [“the Indian Act”] confers power upon the arbitral tribunal to decide on matters relating to its jurisdiction. Under section 16 (5), a decision accepting the plea of lack of jurisdiction shall be an appealable order; while decision rejecting the same plea can be challenged only with the final award. Though the term jurisdiction has not been defined, the courts in India have interpreted it to include inter alia scope of the arbitration agreement and arbitrability of disputes.

Recently, the Indian Supreme Court [“the Court”] in M/s Indian Farmers Fertilizers Co-operative Limited v. M/s Bhadra Products (Civil Appeal No. 824 of 2018) [“Bhadra Products”] restricted the scope of section 16 (1), declaring that issue of limitation is not covered under the primitive sense of the term ‘jurisdiction’. It is important to distinguish matters of jurisdiction from that of the merits of claims, as the former goes to the root of the dispute and absence of the same can render the ultimate decision null and infructuous. While relying heavily on English jurisprudence, the Court in Bhadra Products gave a very narrow interpretation to the term ‘jurisdiction’. It was held by the Court that similar to the Arbitration Act, 1996 [“the English Act”] matters of only substantive jurisdiction such as the validity of arbitration agreement and/ or of arbitral tribunal and arbitrability of disputes shall be considered within the scope of section 16(1) of the Indian Act. However, the reasoning is inaccurate on various fronts:

At first, the term jurisdiction derives its meaning from the context in which it is used. The Indian Act provides the tribunal with the power to pass a ruling on any issue that is related to its jurisdiction. In the case of National Thermal Power Corporation v Siemens Atkeingesellschaft 1) (2007) 4 SCC 451 jQuery("#footnote_plugin_tooltip_2475_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2475_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, it was reasoned that any refusal to go into the merits of the claim lies within the realm of jurisdiction. Like any other issue of jurisdiction, the issue of limitation is decided without going into the merits of the particular claim. In other words, while determining the issue of limitation, the tribunal enquires only into the fundamental facts such as when the claim arose and the time period which has lapsed and nothing more.

Secondly, section 16 (1) of the Indian Act is wide enough to permit the tribunal to decide any matter, including any issue relating to jurisdiction which goes to the root of the matter.  In Pandurang Dhoni Chougule v. Maruti Hari Jadhav2) AIR 1966 SC 153 jQuery("#footnote_plugin_tooltip_2475_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2475_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, the Court held that plea of limitation is an issue that goes to the root of the matter and affects the jurisdiction of the tribunal conducting the proceedings. Applying the rationale in a case, the Bombay High Court determined that while ruling on the issue of limitation, the tribunal shall be ruling on its jurisdiction.

Thirdly, the English Act restricts the principle of Kompetenz-Kompetenz by using the term ‘substantive’ jurisdiction. However, the Indian Act has no such restriction and provides for wider amplitude as it reflects tribunal’s power to determine any issue relating to its ‘own’ jurisdiction. Further, it has been held in the case of Union of India v. East Coast Builders 3) 1998 (47) DRJ 333 jQuery("#footnote_plugin_tooltip_2475_3").tooltip({ tip: "#footnote_plugin_tooltip_text_2475_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); that guidance should not be taken from the English Act when the Indian Act expressly deviates from it. Therefore, issue of limitation must be construed as an issue of jurisdiction as provided under section 16(1) of the Indian Act.

 

Decision on limitation: Order or Interim award?

Section 31(6) of the Indian Act lays down that an interim award can be passed on any matter on which a final award can be passed. In Bhadra Products, the Court held that as issue of limitation is one of the matters raised by parties at dispute, a decision on the same would be an interim award. The Court arrived at this conclusion by wrongly interpreting the term ‘interim award’, as issue of limitation is not a matter on which a final award can be passed. Though the term interim award has not been defined in the Indian Act, the courts have consistently ruled that for a decision to be an interim award, it must finally settle one or few of the claims or issues of liability raised by the parties. For instance, a decision on breach of the contract can be an interim award on which a final award clearly specifying the amount of damages can be passed subsequently. However, adjudication on an issue of jurisdiction does not settle any claim or issue of liability and is a necessary step to be undertaken before determining the substantial relief sought by parties. It is for this reason that under the Indian Act, a ruling on jurisdiction has been classified as an order.

 

Anomaly based on a different decision on the issue of jurisdiction

A lot of confusion hovers around the tribunal’s decision with respect to its jurisdiction, that is, whether it is an award or an order. This arises primarily because the Indian Act is silent on this aspect. In other words, when an objection regarding tribunal’s lack of jurisdiction is accepted, it has been termed as an appealable order under section 37 of the Indian Act. However, the Indian Act does not expressly categorize the decision of the tribunal accepting its jurisdiction as an order. It is for this reason it had been argued various times that such decision shall be an interim award so that the court can be approached to set aside the same. However, such contention should be rejected for the basic reason that the order under section 16 cannot change its nature based on different outcome that is become an interim award if the tribunal rejects plea of no jurisdiction and is only appealable if plea of no jurisdiction is allowed.

 

Removing the discrepancy

Section 37 of the Indian Act does not provide a right to appeal against the order if the tribunal accepts its jurisdiction and it can be challenged only later with the ultimate final award. It is believed that such a distinction was created to reduce the role of the courts in the proceedings. But this can result in a waste of time and money in arbitral proceedings in case the court determines that tribunal did not have jurisdiction in the first place. To fill this gap, it is suggested that preferably an amendment should be introduced in section 37 wherein (i) any order whether accepting plea of lack of jurisdiction or rejecting the same shall be appealable and (ii) that the court should decide the matter expeditiously.

However, this might lead to a dilemma of whether the arbitral proceedings should continue or come to a standstill. In such a situation, the arbitral tribunal should have the prerogative to decide whether to continue with the proceedings or not. In this way, a balance can be attained between parties having right to appeal against the order and having an efficient arbitral proceeding.

References   [ + ]

1. ↑ (2007) 4 SCC 451 2. ↑ AIR 1966 SC 153 3. ↑ 1998 (47) DRJ 333 function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Is Brazil an Arbitration-Friendly Jurisdiction?

Kluwer Arbitration Blog - Sat, 2019-01-05 16:02

Andre Luis Monteiro, José Antonio Fichtner and Sergio Nelson Mannheimer

Recently, the 2018 White & Case International Arbitration Survey confirmed London, Paris, Singapore, Hong Kong, Geneva, New York and Stockholm as the most in-demand places for arbitration in the world.

Brazil is well represented by São Paulo – the economic hub of the country – which occupied eighth place in the overall ranking. This result gives rise to the following question among those not familiar with the country: is Brazil an arbitration-friendly jurisdiction?

In previous Kluwer posts, it has been discussed Brazilian arbitration developments in franchising, extension of arbitration agreements, and facilitation and cooperation investment agreements (here and here),This post aims to answer that question, providing a concise but comprehensive overview of the Brazilian legal framework for arbitration.

 

Legal Framework

In Brazil, arbitration is governed by Law 9.307, which came into force in 1996. The Brazilian Arbitration Act (hereafter BAA) is partially based on the UNCITRAL Model Law and the 1988 Spanish Arbitration Act.

The BAA adopts the monism regime, which means that its provisions apply equally to international arbitration and domestic arbitration. However, the Act is considered modern, particularly because it leaves plenty of space for party autonomy.

Brazil has not signed the Washington Convention (ICSID Convention) and, therefore, all arbitrations follow commercial standards, even when the State is one of the parties.

Nevertheless, a few mandatory provisions apply to arbitrations involving “State entities”. This term encompasses the Union, states, municipalities, government agencies, government foundations, wholly-owned state companies and state-controlled companies, although not all entities are subject to the same mandatory provisions (explained below).

 

Arbitrability 

The scope of arbitrability in Brazil is wide. Article 1 of the BAA declares that “those who are capable of entering into contracts may use arbitration to resolve conflicts related to negotiable and pecuniary matters”. Article 1(1) establishes that “State entities may use arbitration to resolve conflicts related to negotiable and pecuniary matters”. In short, any civil or commercial matter in Brazil can be resolved through arbitration, even when the case involves “State entities”.

Most arbitral proceedings in Brazil arise from construction contracts, corporate conflicts (company v. shareholders, controlling shareholder v. minority shareholder, parties to shareholders’ agreements etc.), energy and insurance contracts and contractual disputes in general.

 

Choice of Law

According to Article 2 of the BAA, in arbitrations seated in Brazil, parties are unrestrained in the choice of law applicable to the merits, to the arbitral process (lex arbitri) and to the arbitration agreement. This rule applies not only to arbitrations involving foreign parties but also to purely domestic arbitrations. There are a few exceptions: in some cases, if the arbitration involves “State entities”, the application of Brazilian Law is mandatory.

 

Arbitrators

Parties have complete autonomy in selecting the arbitrators who shall rule upon the claims submitted in arbitration. There are no limits regarding nationality, age, gender, religion or language proficiency. As set forth in Article 13 of the BAA, “any individual with legal capacity, who is trusted by the parties, may serve as arbitrator”. This rule also encompasses arbitrations involving “State entities”, where parties in general can even nominate foreign arbitrators.

 

Arbitral Institutions

Parties are entirely free to choose the arbitral institution, whether international arbitral institutions like the ICC (which has an office in São Paulo) and the LCIA, or one of the renowned Brazilian arbitral institutions: CAM-CCBC (whose rules of arbitration were adopted for the 2017 Vienna Vis Moot), CAMARB, Ciesp/Fiesp, CBMA, Amcham and others.

 

Language

Finally, parties have total autonomy in choosing the language of the arbitration. Again, there are a few exceptions: in some cases, where the arbitration involves “State entities”, Portuguese is compulsory. However, this does not prevent parties from adopting a bilingual arbitration (Portuguese and English, for example).

 

Kompetenz-Kompetenz

Brazilian Arbitration Law recognises both positive and negative effects of Kompetenz-Kompetenz.

According to Article 8(1) of the BAA, “the arbitrator has jurisdiction to decide ex officio or at the parties’ request, any issues concerning the existence, validity and effectiveness of the arbitration agreement, as well as the contract containing the arbitration agreement”. Article 20 of the same Act complements this provision. In turn, the second part of Article 485(VII) of the Brazilian Code of Civil Procedure states that “a judge shall not rule on the merits when (…) the arbitral tribunal confirms its jurisdiction” (i.e., the judge has to dismiss the case).

Legal scholars interpret this latter provision as guaranteeing the chronological priority rule in favour of the arbitral tribunal deciding on its own jurisdiction. Among other cases, the Superior Court of Justice declared in SPPATRIM v. BNE that “as a consequence of the Kompetenz-Kompetenz principle, set forth in Articles 8 and 20 of Law n. 9.307/96, the Brazilian legislation on arbitration establishes a chronological priority rule in arbitral proceedings, allowing access to the courts only after the delivery of the arbitral award”.

 

Interim Measures

As Article 22-B(1) of the BAA states, “if arbitration proceedings have already commenced, the request for the interim measure will be directly addressed to the arbitrators”. In short, pursuant to that provision, arbitrators have the power to grant interim measures. Before the appointment of the arbitrators, parties can seek an interim measure before Brazilian courts. Whether granted or denied by the courts, the arbitrators have the power to confirm, modify or reverse any such judicial decision following their appointment (Article 22-A(1)). If the party against whom the interim measure was granted does not voluntarily comply with the arbitral decision, the interim measure can be enforced before the courts.

 

Awards

The BAA provides in Article 31 that “the arbitral award shall have the same effect on the parties and their successors as a judgement rendered by the courts and, if it includes an obligation for payment, it shall constitute an enforceable instrument thereof”. This means that the arbitral award has the same effect as decisions issued by Brazilian courts, which shall encompass the res judicata effect.

 

Appellate Proceedings

The BAA does not give the losing party the right to appeal against arbitral awards (neither awards on jurisdiction nor awards on the merits). There are no appellate proceedings in arbitrations seated in Brazil. As described below, parties can apply for annulment of the arbitral award.

 

Enforcement of Arbitral Awards

Arbitral awards issued in Brazil can be directly enforced before Brazilian courts (Article 32 of the BAA and Article 515(VII) of the Brazilian Code of Civil Procedure). There is no need for exequatur or any kind of judicial authorisation to give effect to arbitral decisions. Arbitral awards are enforced as judicial decisions, following the same legal proceedings, which means that the winning party can seize the losing party’s bank accounts and other assets.

There is only one exception: when the losing party is the Union, a state, a municipality, a government agency or a government foundation, a “certificate of judgment debt” (the so-called precatório) shall be issued in favour of the winning party. Hence, it is legally impossible to seize their bank accounts or other assets. Payment in these cases occur only after inclusion of the debt in the State entity’s budget, in average two years after the decision becomes enforceable. However, investors in Brazil can be reassured that in most cases the State uses state-controlled companies to carry out its largest projects. These companies are subject to normal foreclosure proceedings, what means that their assets can be seized and the precatório regime does not apply to them.

 

Annulment of Arbitral Awards

Arbitral awards can be set aside before Brazilian courts should the losing party apply for such within 90 days of receiving the award (Article 33(1) of the BAA), either partial or final. Article 32 of the BAA states that there are seven limited grounds upon which annulment can be sought. In a few words, the grounds are related to formal requirements, validity of the arbitration agreement, due process, impartiality of the arbitrator, excess of power, arbitrability and public policy. In Brazil, courts are not allowed to control arbitral awards on the merits.

 

Recognition of Foreign Arbitral Awards

Brazil ratified the 1958 New York Convention in 2002, and the country thus adopts international standards for the recognition of foreign arbitral awards (i.e., awards made in another State). The court with jurisdiction to recognise foreign awards is the Superior Court of Justice. This court is the second highest court in Brazil (only below the Supreme Federal Court), which means there are no avenues for endless appellate proceedings. In addition, case law has largely been in favour of the recognition of arbitral awards.

 

Courts

In assessing whether a jurisdiction is arbitration-friendly, one must naturally judge the quality of decisions rendered by courts of the seat in connection with arbitral proceedings. In Brazil, the Supreme Court demonstrated its pro-arbitration approach by declaring the constitutionality of the BAA in 2001. In its turn, the Superior Court of Justice is also undoubtedly pro-arbitration. To cite one example, the Court said in SERPAL v. Continental do Brasil that “arbitration, as an alternative dispute resolution method, fulfils precisely the fundamental right of access to justice, provided by Article 5(XXXV) of the Brazilian Constitution”. It is the current understanding that Brazilian courts support arbitration when faced with any challenge concerning that procedure.

 

Anti-arbitration Injunctions 

Brazilian courts have in few cases granted anti-arbitration injunctions that prevented parties from commencing arbitral proceedings. There are two decisions that became notorious among international arbitration practitioners: (i) a 2003 decision by a first-instance judge in Paraná in the case Copel v. UEG; and (ii) a 2012 ruling by the São Paulo Court of Appeals in the case Sulamérica v. ENESA (also known as the “Jirau case”). It is well established in Brazil that these decisions represent exceptions.

 

Conclusion

In conclusion, based on all the above mentioned reasons, we can affirm with confidence that Brazil is currently an arbitration-friendly jurisdiction.

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Ode to Librarians

ADR Prof Blog - Sat, 2019-01-05 12:03
Librarians are the nicest, most helpful people I have ever met. I don’t remember meeting any librarian who wasn’t. They are particularly helpful for students, teachers, and scholars – like most of the readers of this blog. Although librarians sometimes get acknowledgment, often they are unsung heros who bail us out when we have desperate … Continue reading Ode to Librarians →

Can Article 25 Arbitration Serve as a Temporary Alternative to WTO Dispute Settlement Process?

Kluwer Arbitration Blog - Fri, 2019-01-04 21:45

Bashar H. Malkawi

The World Trade Organization (WTO) was born on January 1, 1995 and its Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) provides a binding means for WTO members to resolve disputes arising under WTO agreements.  This post summarizes WTO DSU dispute settlement and considers, whether in light of recent developments, article 25 of the WTO DSU, which provides for binding arbitration, can provide a temporary alternative.

When the WTO was first formed, DSU dispute settlement effectively replaced the weaker dispute settlement process that had existed before under the General Agreement on Tariffs and Trade (GATT) 1947, which until then had served as the principal multilateral agreement whereby contracting parties negotiated liberalizing trade by reducing tariffs.

Under the GATT, the Tokyo Round (which lasted from 1973 to 1979, with 102 countries participating) established separate dispute resolution procedures in some of the separate codes negotiated during that period, such as the code on subsidy and anti-dumping. In effect, the GATT consisted of independent agreements with their own dispute settlement mechanism. Moreover, under GATT, dispute panels handed down findings that had to be accepted by both sides and other GATT Contracting Parties before they were adopted. Refusal by one Contracting Party, such as the losing party, meant that a panel report was simply set aside. Thus, under the GATT dispute settlement mechanism, the losing party in a dispute could block the adoption of a panel ruling.

WTO DSU dispute settlement created a more potent dispute settlement process than had existed previously and was part of the global gradual shift from a diplomatic and power-based approach in the settlement of international disputes to a more legalistic, law-based approach for dispute resolution.

To summarize, the WTO DSU dispute settlement is administered by a Dispute Settlement Body (DSB) which consists of the WTO’s General Council. Among its powers, the DSB has the authority to establish panels, adopt panel and Appellate Body reports, maintain surveillance of implementation of rulings and recommendations, and authorize suspension of concessions and other obligations under WTO agreements.

The WTO DSU provides a dispute resolution forum and its rules establish firm deadlines to file initial submissions, appeals, and enforce rulings (Understanding on Rules and Procedures Governing the Settlement of Disputes, arts. 4.4, 4.7). Also, the DSU rules govern notice, consultations, discovery, panel establishment and proceedings, and report circulation. Furthermore, the DSU set up a permanent Appellate Body to review appeals of panel decisions. Throughout its existence, the DSU has proved its efficiency in settling disputes between WTO members covering many WTO agreements.

WTO DSU dispute settlement has now been in effect for nearly twenty-three years and has been described as the “crown jewel” of the WTO legal system. Over the span of its existence, the WTO has decided 350 cases through its dispute settlement process. As a result, the WTO has succeeded in serving as a forum for negotiating international trade agreements and the monitoring and regulating body for enforcing these agreements among member nations.

Yet, today, the WTO dispute settlement process is in a critical stage as the U.S. is preventing filling vacancies in the seven-member Appellate Body. Of the seven-member Appellate Body, right now there are  only three seats filled.  Two of these vacancies were created at the end of 2018 when the incumbents’ terms expired.  The U.S. blockade further affects the Appellate Body’s ability to function even as disputes continue to pile up. The lack of full panels put huge pressure on other Appellate Body members who would have to decide many cases and within tight schedules. Under these circumstances, it is worth considering whether article 25 in the WTO DSU, which provides for binding arbitration, can serve as a “temporary alternative”? Theoretically, the answer is in the affirmative.

Article 25.1 of the WTO DSU allows “for expeditious arbitration within the WTO as an alternative means of dispute settlement which can facilitate the solution of certain disputes that concern issues that are clearly defined by both parties”. Recourse to arbitration under the DSU is permitted only as an alternative. Types of disputes that can be resolved under the article 25 mechanism are wide open. However, these types of disputes must concern issues that are defined by the concerned parties to the dispute at hand.

As a procedural matter, all WTO members should be notified of agreements to resort to arbitration sufficiently in advance of the actual commencement of the arbitration process (art. 25.2). The purpose of this language is to ensure transparency and that multilateralism is maintained by informing all members. Parties to article 25 arbitration can agree on the procedures to follow (art. 25.2). In other words, parties to a dispute have the freedom to choose their own procedures in the arbitration process. There are no limitations on procedures for selecting arbitrators, evidence submitted, hearings, and other relevant matters.

Once rendered, the arbitral award is binding on the concerned parties (art. 25.3) and there is no ability to object to or appeal enforcement of an award. WTO members can only raise certain points regarding the award such as the evidence presented or interpretation of the panel. Therefore, the arbitral award under article 25 is final. The award also should be notified to the DSB and other WTO members who can raise any point regarding the award.

Although the use of article 25 arbitration seems attractive especially in the current environment, as a practical matter, article 25 would not serve as a “viable or permanent solution” to the ordinary WTO dispute settlement process. Over the past decades, WTO members have developed a wealth of expertise and knowledge regarding WTO DSU, which they cannot simply forgo. Reports of WTO Appellate Body and panels helped define and shape many treaty provisions. It is hard to envisage that WTO members would put aside such experience and enter into article 25 arbitration, which is essentially uncharted territory.

Throughout the history of the WTO, article 25 has been used only one time, in U.S-Section 110(5) of the U.S. Copyright Act- Recourse to Arbitration under Article 25 of the DSU, WT/DS160/ARB25/1, Nov. 9, 2001 (Award). That arbitration concerned a narrow issue of whether it was reasonable for the European Community (EC) to calculate losses for all potentially realizable income.  The arbitrators in US – Section 110(5) Copyright Act observed that recourse to article 25 arbitration is not subject to multilateral control and that, accordingly, “it is incumbent on the Arbitrators themselves to ensure that it is applied in accordance with the rules and principles governing the WTO system” (Award, para. 2.1). The arbitrators in the case also ruled that international tribunal may consider the issue of its own jurisdiction on its own initiative. The arbitrators decided that the U.S., the defendant in the original panel proceedings, had to provide a prima facie proof that the methodology and estimates proposed by the EC did not accurately reflect the EC benefits being nullified or impaired (Award, para. 4.4). To maintain confidentiality, the arbitrators decided that two versions of the award would be prepared. One, for the parties, which would contain all the information used in support of the determinations of the arbitrators. The other, which would be circulated to all WTO members, would be edited so as not to include sensitive information (Award, para. 1.24). In general, arbitrators in US – Section 110(5) Copyright Act determined important issues regarding jurisdiction and procedures so that future article 25 arbitrators can follow suit.

Add to all of this, that article 25 arbitration does not provide any appeal mechanism. As discussed above, arbitral awards under article 25 arbitration are final and there is no appeal process. Nor is there any need for article 25 arbitration award to be adopted by the DSB. This is in contrast with the WTO ordinary dispute settlement mechanism, where appeals are available regarding issues of law covered in the panel report and legal interpretations adopted by the panel (DSU, art. 17.6). The panel’s findings on factual issues thus escape from appellate review. The appellate review process is limited to upholding, modifying or reversing the panel’s legal findings and conclusions. Under WTO ordinary procedures, panel decisions are adopted unless all WTO members present at the meeting of the DSB decide by consensus not to adopt panel decisions (known as inverted consensus).

Conclusion

While theoretically article 25 arbitration seems to be a viable alternative past practice and wealth of experience and knowledge developed under WTO ordinary dispute settlement mechanism would prevent utilization of such an alternative. However, WTO members should not shy away from utilizing article 25 arbitration. The dispute settlement mechanism as a whole – including article 25 arbitration – is not only about disputes; it is an evolving body of international trade law principles.

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Morocco and Mexico face ICSID claims

A German scrap recycler and US construction materials company have had their claims against Morocco and Mexico registered by ICSID, while an almost decade-old dispute at the centre between a US investor...

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