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2020 in Review: Institutional Reform Efforts and Developments in Investment Arbitration

Kluwer Arbitration Blog - Sun, 2021-01-10 00:00

Introduction

In spite of delays and shifting priorities owing to the pandemic, institutional efforts to reform the investor-state dispute settlement (ISDS) regime have continued throughout 2020.

In this post, we look back at our coverage of the work of UNCITRAL Working Group III (“WGIII”) on investor-State arbitration reform, especially in light of the 2021 reform agenda. Recognizing a paradigm shift, we also reflect on the rise of investor-State mediation as a precursor or alternative to arbitration.

 

The 39th session of the UNCITRAL Working Group III

The 39th session of the UNCITRAL Working Group III (”WGIII”) was scheduled to take place in New York from 30 March to 3 April 2020 but was postponed due to the unfolding COVID-19 situation. The session later convened from 5 to 9 October 2020 in Vienna (WG report here), focusing on the following areas of reform:

  • dispute prevention and mitigation as well as other means of ADR;
  • 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 OECD).

Throughout 2020, our Blog contributors reflected on reform proposals to address these issues – with the most popular lens being to examine whether, in practice, the proposals are fit to achieve the overarching goals driving the reform process.

 

Discussions on the Multilateral Investment Court and Appellate Mechanism

In a post dated March 2020, Marike R. P. Paulsson observed that in addressing the criticism of the current system of ISDS, WGIII has established two pathways: one is the (total or partial) replacement of the system; and the second is incremental reforms within the system. The first pathway proposes two alternatives. One is the Multilateral Investment Court (“MIC”) that replaces the system in total and the other is the Appellate Mechanism (“AM”) that replaces crucial parts of the system such as annulment mechanisms, enforcement, and finality of awards. Both are premised on the idea of abandonment of party autonomy; and with that the right of disputing parties to appoint an arbitrator.

Assessing the AM proposal’s ability to achieve overarching reform goals, Paulsson noted that while an AM could improve consistency in substantive norms application (and therefore contribute to confidence in ISDS), much of the motivation for reform has been driven at the backdrop of duration and costs. Conversely, the introduction of an AM would incidentally increase both, requiring further consideration about its fitness for purpose.

Similarly, assessing the MIC proposal, Fernando Dias Simões queried whether the creation of a MIC without the traditional party-appointed arbitrator regime, could by and of itself, really succeed in its goal of de-politicizing ISDS “by break[ing] the link between disputing parties and adjudicators”. Simões argued that a political element will inevitably be associated with any dispute that involves public policy, with no irrefutable evidence that international judges are more independent and impartial than arbitrators. To that end, Simões advocated for certain procedural tools to mitigate the risk of politicization.

Even though the negotiation process on the MIC has been slow and “one cannot predict when an implementable conclusion will be reached,” Andreea Nica observed that there had been a strategic shift in the WG’s engagement on the MIC proposal, with “what initially looked like delegations anchored in rigid positions now resembles a common engineering exercise in search for solutions.”

It remains to be seen whether Nica’s optimism is borne out at the 40th session, scheduled to take place in February 2021, where the Working Group is expected to continue its consideration of the following reform options: (i) selection and appointment of ISDS tribunal members (ii) appellate mechanism and enforcement issues; and (iii) the draft Code of Conduct (discussed below).

 

Discussions on incremental reform

Turning to efforts for incremental reform within the existing ISDS system, our Blog contributors, similar to above, have applied a fitness-for-purpose lens to discussions with respect to security for costs and counterclaims.

Leading up to the 39th session, the General Assembly Secretariat had issued a note on issues to be considered on the topic of security for costs and frivolous claims. Examining the proposed reforms to the security for costs regime against its intended purpose of reducing frivolous claims, Johan Sidklev and Bruno Gustafsson argued that while a loosening of the strict standards for granting security for costs may be warranted, it is ultimately of limited utility for averting frivolous claims in ISDS.

In separate posts here and here, Anna De Luca, and Nicholas Diamond and Kabir Duggal, discussed the role of counterclaims in ISDS, particularly as a possible avenue for holding investors accountable for alleged human rights violations.

Luca observed WGIII’s silence on the issue of counterclaims due to its standing as “inextricably intertwined with substantive aspects”, thereby falling outside the scope of procedural ISDS reform. However, noting that the WGIII has not foreclosed such consideration, Diamond and Duggal find that counterclaims could play a role in advancing certain civil and political rights, such as the right to a fair trial.

Discussions relating to ISDS and both security for costs and counterclaims have previously been covered in the Blog – see here and here.

 

Code of conduct for arbitrators

An important development in 2020 was WGIII’s publication of a draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement. This document was prepared jointly by the ICSID and UNCITRAL Secretariats, partly in response to concern over arbitrators’ independence and impartiality. Its text provides policymakers with a range of options on issues including disclosure obligations, repeat appointments, issue conflicts, and more.

Our contributors reported on this development here and here. The WGIII will further consider the draft Code of Conduct in its 40th session.

 

All reforms don’t lead to arbitration: the rise of investor-State mediation

This year we have seen a stronger push towards expanding the ISDS reform agenda to explore alternative mechanisms for settling investor-State disputes – in particular, investor-State mediation.

In a series of posts, contributors to the Blog marked the entry into force of the Singapore Convention on Mediation (“Singapore Convention”), by reflecting on mediation as an alternative to arbitration.

Contributor Rachel Tan welcomed the revamped mediation regime established by the Singapore Convention, highlighting the fact that the Convention introduces to mediation a characteristic that has long contributed to arbitration’s popularity: enforceability. The Singapore Convention –“in substance the mediation equivalent to the New York Convention” – now enables settlement agreements between parties to be directly enforced across national borders. Teamed with what she considers to be the inherent benefits of mediation (i.e., the possibility of a more holistic outcome and of a settlement by consensus), Tan purported that the process established by the Singapore Convention “compels a deeper look at dispute resolution design for investor-State disputes”, encouraging a tipping of balance in favour of mediation.

While the Singapore Convention’s entry into force has amplified the focus on investor-State mediation, an increasing appetite for this mechanism has been demonstrable in recent years, making its way to even WGIII discussions.

Reflecting on WGIII discussions on mediation, Charalampos Giannakopoulos argued for the importance of institutionalising mediation to “introduce a degree of internal monitoring and transparency in a process that is often conducted under complete confidentiality”.

In support of this hypothesis, Mr Giannakopoulos cited a 2018 survey indicating that States were generally reluctant to mediate due to, among other reasons, an unwillingness to assume responsibility for voluntary settlements, and the fear by government officials of being subjected to allegations for corruption or prosecution.

Further examining the broad acceptance of confidentiality in investor-State mediation, Esmé Shirlow situated this practice against increasing calls to reform the perceived lack of transparency in investor-State arbitration. Cautioning against reforming one mechanism without considering the unintended consequences for others, Dr Shirlow highlighted the need for a holistic and integrated approach to ISDS reforms.

 

Conclusion

Dr Shirlow’s word of caution fits well within what has emerged as a strong theme among our contributors covering ISDS reform in 2020: a call to carefully balance interests, and to ensure that the different reform proposals, in attempting to fix specific problems, do not end up undermining the overarching goals at the very heart of the reform process.

Going into 2021, we will continue to monitor the development of these highly-debated issues – both in institutional reform processes – and through their manifestation at the regional and bilateral level, as was evident from our coverage of the new dispute settlement paradigms established by the USMCA and ECT modernization process.

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Investment Protection in the EU-UK Trade and Cooperation Agreement

Kluwer Arbitration Blog - Fri, 2021-01-08 23:13

The EU-UK Trade and Cooperation Agreement (“TCA”), concluded on 24 December 2020 and provisionally applicable since the end of the transition period on 31 December 2020, regulates the relationship of the EU and the UK after Brexit. It forms a basis for an evolving relationship between the Parties and may further change, depending on scrutiny by the European Parliament or upon review by the Parties (Articles SERVIN.1.4 and FINPROV.3 of the TCA). It contains limited substantive protections for the Parties’ investors and no investor-state enforcement mechanism. The TCA cannot be directly invoked before domestic courts, and its dispute resolution mechanism is limited to a “WTO-like” state-to-state arbitration.

This is a striking move away from recent treaties concluded by the EU with third states, such as CETA with Canada or the recently agreed in principle Comprehensive Agreement on Investment (“CAI”) with China. These provide for or envisage further negotiations on investor-state dispute resolution (“ISDS”) mechanisms in the form of investment court systems, that the EU aims to replace by a single Multilateral Investment Court. It also remains to be seen what position the UK will adopt with respect to ISDS in its future trade agreements.

The fate of the bilateral investment treaties (“BITs”) concluded by the UK with certain EU member states before their accession to the EU remains uncertain. The same is true for the recognition and enforcement of intra-EU BIT awards in the UK.

 

The scope of investment protection included in the TCA

The crux of the matter is set out in Part Two (Trade, Transport, Fisheries and Other Arrangements), Heading One, Title II of the TCA (Services and Investment).

The TCA includes a strict definition of protected investors. Namely, an “investor of a Party” is defined as a natural or a legal person of a Party that seeks to establish, is establishing or has established an enterprise with a view to creating or maintaining lasting economic links in the territory of the other Party. Mere shell companies are excluded, as legal persons must be engaged in “substantive business operations” in their home state (Article SERVIN.1.2(h), (j) and (k)).

Also, the investment protection standard of the TCA does not apply to air services or related services (with some exceptions), to audio-visual services, to national maritime cabotage and inland waterways transport, or to measures regarding public procurement and subsidies (Article SERVIN.1.1(5)-(7)).

 

Substantive standards of protection under the TCA

The standards of protection under the TCA are similar to those under the WTO, but differ from the protection available under the CETA. These substantive standards of protection include:

  • market access, which is limited to the prohibition of a number of enumerated limitations such as those concerning the number of enterprises that may carry out a specific economic activity, the participation of foreign capital or the types of legal entity through which an investor may perform an economic activity (Articles SERVIN.2.2/3.2);
  • national treatment (Articles SERVIN.2.3/3.4);
  • most favoured nation treatment (“MFN”) with respect to investors of a third country and their enterprises (Articles SERVIN.2.4/3.5). Under the MFN provision, investors will not be able to import ISDS procedures provided for in other international agreements (Article SERVIN.2.4(4)). This means that investors will not be able to invoke the TCA before an independent arbitration tribunal (see also Article SERVIN.2.4(5) regarding additional limitations to the MFN clause); and
  • provisions preventing the introduction of: nationality restrictions for senior personnel (Article SERVIN.2.5); enumerated performance requirements based on trade, such as to export a given level or percentage of goods or services or to purchase, use or accord a preference to goods produced or services provided in its territory (Article SERVIN.2.6); requirements that a service supplier has a local presence as a condition for the cross-border supply of a service (Article SERVIN.3.3).

These standards of protection do not apply to non-conforming measures and exceptions which are listed, respectively, by the EU and the UK (Article SERVIN.2.7/3.6). As an example, the obligation to grant national treatment does not require the EU to extend to UK investors the treatment granted in an EU member state to natural persons or residents of another EU member state pursuant to the Treaty on the Functioning of the European Union (“TFEU”). The TCA also includes a denial of benefits clause (Article SERVIN.1.3).

The TCA does not include a Fair and Equitable Treatment (“FET”) provision nor a clause protecting against expropriation. However, the TCA does not affect the application of the European Convention on Human Rights (“ECHR”) (see also Article LAW.GEN.3), which protects, amongst others, the right to property (Article 1 of Protocol No. 1 to the ECHR).

 

Absence of ISDS mechanism but “WTO-like” state-to-state arbitration

Disputes arising under most of Part Two of the TCA are subject to a state-to-state arbitration mechanism (cf. Part Six of the TCA (Dispute Settlement and Horizontal Provisions)). This is an exclusive mechanism, meaning that the EU and UK courts will have no jurisdiction for the resolution of disputes under the TCA (Article INST.29(4A)). This answers the UK’s demand to end the jurisdiction of the Court of Justice of the European Union (“CJEU”) under the TCA (and so differs to the dispute resolution provisions of the earlier concluded Withdrawal Agreement, which provided for jurisdiction of the CJEU; see more here). Also, any interpretation of the TCA given by the courts of either the EU or the UK shall not be binding on the courts of the other Party (Article COMPROV.13(3)).

The TCA includes additional explicit limitations to the role of the arbitration tribunal in state-to state-arbitration under the agreement. Its decisions cannot add to or diminish the rights and obligations of the Parties under the TCA (Article INST.29(3)). In addition, the arbitration tribunal shall have no jurisdiction to determine the legality of a measure alleged to constitute a breach of the TCA under the domestic law of a Party. Also, no finding made by the arbitration tribunal shall bind the domestic courts or tribunals of either Party as to the meaning to be given to the domestic law of that Party (Article INST.29(4)).

As mentioned above, the TCA does not contain an ISDS mechanism, and it expressly provides that it cannot be construed as conferring rights or imposing obligations on investors or be invoked in the domestic legal systems of the Parties (Article COMPROV.16). Investors facing state measures contrary to the TCA will thus have to convince the UK or the EU to take on their case before the arbitration tribunal in state-to-state arbitration. Investors will have the possibility to file amicus curiae submissions once an arbitration is instituted (Article INST.26(3)). The arbitration tribunal shall consider such amicus curiae submissions (Article INST.26(3)), but shall not be obliged to address, in its report, the arguments made therein (Annex INST: Rules of Procedure for Dispute Settlement, para. 41).

The state-to-state arbitration mechanism provides for ad-hoc arbitration (potentially with the assistance of a registry in the future, see Annex INST: Rules of Procedure for Dispute Settlement, para. 9a), but the applicable procedural rules are set out in the TCA (Part Six and Annex INST). These rules can be further amended by the Partnership Council (Article INST.34A(2)). In a way, reminiscent of the WTO dispute settlement process (although without an Appellate Body and with shorter timelines), the proceedings start by “good faith” consultations between the EU and the UK, which may last 30 days. The Parties can decide to prolong these consultations or refer the matter to an arbitration tribunal consisting of three independent arbitrators.

 

Procedures for state-to-state arbitration under the TCA

Unless the Parties agree on the composition of the arbitration tribunal within an allotted timeframe (Article INST.15(2)), each Party shall appoint an arbitrator from the sub-list for that Party established pursuant to Article INST.27 (such list is yet to be compiled, but a similar list has recently been compiled for the Withdrawal Agreement). If a Party fails to appoint an arbitrator from its sub-list or if the Parties do not agree on the (non-EU/UK national) chairperson of the arbitration tribunal, the co-chair of the Partnership Council from the complaining Party shall select the relevant arbitrator by lot from the respective sub-list.

The arbitration tribunal may make use of assistants, who may be permitted to be present (but not take part) in the deliberations (Annex INST 14). Also, the drafting of any decision and report shall remain the exclusive responsibility of the arbitration tribunal and shall not be delegated (Annex INST 15). These provisions may be a reply to the Russian Federation’s setting aside arguments regarding the role of the assistant to the tribunal in the Yukos arbitration.

According to Article INST.29(1), the arbitration tribunal can decide by majority vote. In no case shall separate opinions of arbitrators be disclosed.

The arbitration tribunal has up to 160 days to render a ruling on the basis of an interim report (and address eventual comments by the Parties) (Article INST.20). The rules to be used for the interpretation of the TCA are customary rules of interpretation under public international law (Article COMPROV.13). It is not clear whether rulings of the arbitration tribunal under the TCA, the definition of which also refers to the interim report (Article INST.20(6)), may be considered arbitral awards for the purposes of the New York Convention.

In case of a finding of a breach of the TCA by the arbitration tribunal, the respondent Party must take the necessary measures to comply immediately with the arbitration tribunal’s ruling or notify the complaining Party of the length of the reasonable period of time required for compliance or agree to provide temporary compensation. In certain cases, a Party can even engage in cross-sector proportionate retaliation, including the suspension of parts of the TCA (Articles INST.21 to INST.25).

Mirroring the absence of standing for investors before the arbitration tribunal, the rulings of the tribunal are only binding on the EU (leaving it unclear whether this includes the EU member states as such) and the UK; they cannot create rights or obligations with respect to investors (Article INST.29(2)).

Article INST.2(2)(e) of the TCA also provides the Trade Partnership Committee with powers to explore the most appropriate way to prevent or solve any difficulty that may arise in relation to the interpretation and application of the TCA. The Partnership Council may even adopt decisions which shall be binding on the Parties and on the arbitration tribunal (Article INST.4).

Other topics covered by the TCA (relating to the level playing field on, inter alia, labour and social standards as well as environmental protection) are subject to a procedure before a Panel of Experts.

 

Recent trends in the EU and UK treaty landscapes

Perhaps surprisingly, although in line with its “WTO plus” context, the TCA departs from recent treaties concluded or currently negotiated by the EU – including with Mexico, Canada, Vietnam, and Singapore – which provide for ISDS mechanisms in the form of investment court systems (that the EU aims to replace by a single Multilateral Investment Court; see more here). As further discussed here, in its Opinion 1/17 of 30 April 2019, the CJEU distinguished such investment court systems from the conclusions it reached in Achmea with respect to arbitral tribunals established under intra-EU BITs, and ruled that CETA’s investment court system is compatible with EU law.

The absence of an ISDS mechanism in the TCA is even more striking in light of the announcement made by the EU and China in the context of the conclusion in principle of the CAI on 30 December 2020, that their common objective is “to work towards modernised investment protection standards and a dispute settlement that takes into account the work undertaken in the context of UNCITRAL on a Multilateral Investment Court”. According to the European Commission’s summary of the CAI, whose legal text is not yet published, the CAI includes a commitment by both sides to pursue negotiations on investment protection and investment dispute settlement within two years of its signature and provides for a state-to-state dispute resolution mechanism similar to the one contained in the TCA.

It remains to be seen what the UK’s policy will be with respect to the inclusion of ISDS mechanisms in trade agreements with third states. While the UK was historically in favour of the inclusion of such mechanisms, the International Trade Committee of the House of Commons requested to carefully consider and fully evaluate specific alternatives to conventional ISDS provisions in a July 2019 report on UK investment policy.

Before the TCA, the UK concluded another trade agreement, the Comprehensive Economic Partnership Agreement (“CEPA“), with Japan. Akin to the EU-Japan Economic Partnership Agreement (“EPA“), the CEPA does not contain provisions on investment protection and ISDS. However, if either Party concludes an agreement containing such provisions with a third party (negotiations on this subject are ongoing between Japan and the EU), the CEPA allows the other Party to request a review of the investment provisions in the CEPA with a view to the possible inclusion of such provisions.

 

The BITs concluded by the UK with EU member states and the enforcement of intra-EU BIT awards in the UK

The TCA leaves unresolved the fate of the BITs concluded between the UK and 12 EU member states (namely Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland (unilaterally denounced by Poland on 22 November 2019, but the agreement contains a 15 year-sunset clause), Romania, Slovakia and Slovenia) prior to their accession to the EU. As the UK did not sign the 5 May 2020 agreement for the termination of BITs between EU member states (see more here) – and although the European Commission issued a reasoned opinion to the UK on this issue – these BITs have remained intact.

Finally, it also remains to be seen whether the UK will attract more interest when it comes to enforcement of intra-EU BIT/ECT awards now that it left the EU (on the new developments with respect to the intra-EU application of the (revamped) ECT, see more here). As a nod in this direction, the UK Supreme Court ruled in early 2020 in the Micula case, i.e. with respect to an ICSID award rendered by a tribunal constituted under the 2002 Sweden-Romania BIT, that the UK’s enforcement obligations under the ICSID Convention could not be affected by the EU duty of sincere co-operation, as the UK’s ratification of the ICSID Convention preceded its accession to the EU (see more here).

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Dealing with Public Policy Concerns and Due Process: The Rising Arbitrators Initiative Tackles a Thorny Issue

Kluwer Arbitration Blog - Fri, 2021-01-08 20:10

On 1 October 2021, the Rising Arbitrators Initiative brought together an esteemed group of arbitration practitioners for the organization’s inaugural event, which tackled due process concerns.

The event, which was divided into two sessions to allow participants to join from Asia, Australia, Europe, Africa, and the Americas, addressed substantive and procedural due process.

 

Substantive Due Process

The first session, which was kicked off with a keynote speech by Yves Derains, addressed substantive due process. In his keynote, Yves Derains started by distinguishing between three national concepts of public policy: (i) public policy within the applicable law (rules that the parties cannot contract out from); (ii) public policy as defined in private international law; and (iii) national mandatory rules defining their own scope of application.  Parallel to the national concepts of public policy, Mr. Derains highlighted truly (transnational) international public policy rules, such as the prohibition of corruption, forced labour, etc.  He then moved to the concept of applicable law in arbitration, which is more difficult because the arbitrator has no forum and thus no lex fori.  Mr. Derains distinguished between situations where the parties have chosen the applicable law and those where, in the absence of choice by the parties, the arbitrator is free to determine the applicable law. According to Mr. Derains, the principle of iura novit curia is somewhat an “artificial concept” because it is not possible to say that a judge knows the law; rather, a judge has general knowledge of the law.  Pursuant to this principle, when the parties do not prove the law, a judge can make his or her own inquiries about the law applying to the merits of the case. But an arbitrator is not in the same position as a national judge; hence, according to Mr. Derains, the principle of iura novit curia (iura novit arbiter) does not apply in arbitration in the same way it applies in national State court proceedings.

As a matter of principle, an arbitrator cannot refer to public policy rules not raised by the parties without submitting them first for comment by the parties, in light of the principle of due process.  Where the parties have specified the applicable law but have contracted out of a certain public policy rule, arbitrators should think twice before raising this rule.  This is because in arbitration the parties are free to designate any law, including one that does not include this public policy rule.  If the parties have not chosen the applicable law, Mr. Derains suggested that an arbitrator should not choose to apply a rule of public policy that would effectively nullify the parties’ contract.  Further, an arbitrator should only consider raising public policy rules other than those belonging to the applicable law, if the former could render the award unenforceable.  Mr. Derains concluded that if an arbitrator wants to raise public policy rules sua sponte, he should seek comments from the parties on the same for due process reasons, bearing in mind that he is not the guardian of any legal system.  According to him, arbitrators should raise public policy rules if there is a risk of non-enforcement of the award and if truly international public policy is at stake.

Paul Tan moderated a panel comprised of Dr Crina Baltag, Isabelle Michou, and Sara Koleilat-Aranjo. Dr Crina Baltag touched upon “due process paranoia”.  She cautioned against abuse of the rules of due process by a party to the detriment of the efficiency of proceedings, noting a decision of the Hong Kong Court of Appeal in Pacific China Holdings Ltd (In Liquidation) v Grand Pacific Holdings Ltd [2012] 4 HKLRD, which found that the requirement that a party be granted a full opportunity to be heard does not mean that the party is entitled to present its case at any point in time for any length of time. Sara Koleilat-Aranjo explained that “due process paranoia” may also have regional considerations.  She explained that, according to the UAE’s Federal Supreme Court, notification of procedural correspondence and submissions is a matter of public policy (unlike in other jurisdictions).  A defect in notification, which may be particularly relevant where one party seeks to avoid notification or refuses to participate, may lead to annulment of an award. Isabelle Michou addressed new emanations of “due process paranoia” created by the COVID-19 crisis, invoking the recent decision of an UNCITRAL tribunal in The Estate of Julio Miguel Orlandini-Agreda and another v Bolivia (PCA Case No. 2018-39) to refuse a request for suspension of proceedings due to the COVID-19 crisis while granting the parties extensions for further steps in the arbitration.  She also noted that the issue of virtual hearings can give rise to disputes between the parties – with one party urging for suspension until an in-person hearing is possible and another urging a virtual hearing.

 

Procedural Due Process

The second session, which tackled procedural aspects of due process, began with a keynote by Carolyn Lamm.  Noting that due process rests at the heart of the integrity of any arbitral proceeding (and the confidence that parties have in the process), she addressed a number of areas in which procedural due process issues may arise, for example:

  • Waiver of due process challenges: While most all systems provide for an automatic waiver if due process issues are not properly raised, Ms. Lamm argued that, even if such a waiver occurs, an arbitrator or tribunal should consider whether its conduct is sufficiently balanced to avoid any challenge of the award.
  • Bad Faith Tactics: Lamm also warned against bad faith tactics, which, she said, have become more prevalent in international arbitration.  She urged arbitrators to be up front with the parties when they perceive bad faith tactics.  She noted that arbitrators can use their powers (for example, interim cost awards or adverse inferences) where such tactics go unchecked (for example, where one party obstructs access to documents).
  • Transparency: Lamm also urged arbitrators to be up front where they believe that there is a central issue that the parties have not addressed.

The panel that followed Ms. Lamm’s keynote was moderated by Andrea Carlevaris. Flavia Mange argued that arbitrators should agree to consider transnational principles and other soft laws subject to the agreement of the parties.  She noted that the principle of iura novit curia is such a procedural law principle, although, like Professor Derains, she cautioned that it is advisable to consult the parties before applying any such principles. Montserrat Manzano echoed the comments of the keynote speaker, noting that arbitrators should make the parties aware, for example, of how it expects evidence to be adduced.  She explained, however, that arbitrators’ discretion – even to ascertain the contents of the applicable law – is not absolute and must obey three limitations: (i) the confines of the mission granted by the parties (ultra petita), (ii) foreseeability (i.e. the idea that a party should not be taken by surprise with respect to issues that may influence decision-making, and (iii) due process. While all panellists agreed that parties should be given a fair chance to address the applicable law, Tai-Heng Cheng looked at “What is a fair chance?” and “How should that chance be given?”  He explained that these questions should be resolved by the arbitrators as a matter of consensus from a position of knowledge.  He added that, following the hearing, the arbitrators should assess whether any further points of law should require elaboration.  He stressed that, even where such a point should arise in deliberation, it is important to canvas that issue with the parties.

*          *          *

The Rising Arbitrators Initiative is a new organization founded by Rocío Digón (Legal Consultant, White & Case), Ana Gerdau de Borja (Senior Associate, Derains & Gharavi), and Alexander G. Leventhal (Of Counsel, Quinn Emanuel), which seeks to support arbitration practitioners under 45 who either have already received their first appointment as an arbitrator or have at least seven years of professional experience in the practice of international arbitration by inter alia creating a support network and encouraging best practices. Its Advisory Council, which is presided by Yves Derains (Derains & Gharavi) and Carolyn Lamm (White & Case), also includes Andrea Carlevaris (BonelliErede), Chiann Bao (Arbitration Chambers), Essam Al Tamimi (Al Tamimi & Company), Gabriela Alvarez-Avila (Curtis, Mallet-Prevost, Colt & Mosle), Isabelle Michou (Quinn Emanuel), Mohamed Abdel Wahab (Zulficar & Partners), Renato Grion (Pinheiro Neto), and Tai-Heng Cheng (Sidley Austin). The Executive Committee is comprised of Dr Crina Baltag (Stockholm University), Flavia Mange (Mange Gabbay), Joanne Lau (Allen & Overy), Kabir Duggal (Arnold & Porter), Montserrat Manzano (Von Wobeser y Sierra), Paul Tan (Clifford Chance Asia), Sara Koleilat-Aranjo (Al Tamimi & Company), and Shirin Gurdova.

The Rising Arbitrators Initiative is currently organizing its next series of events on the promises and perils of first appointments, with events in North America, South America, Europe, Asia, and Africa. On 21 January 2021, the Rising Arbitrators Initiative’s founders will interview incoming ICC Court of Arbitration President Claudia Salomon. To learn more, click here.

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Feelings of Political Violence

ADR Prof Blog - Fri, 2021-01-08 14:16
My Oregon Law colleague shared this alarming graph today (you have to click the title of this post to see the chart): Our political positions and partisan affinities resonate as a matter of emotions and values, and the powerlessness that so many feel must be fueling the responses people had to this survey. H/T Ofer … Continue reading Feelings of Political Violence →

The Conflicting Lore of Applicable Law: How Australian and Chinese Courts Determine the Governing Law of Arbitration Agreements

Kluwer Arbitration Blog - Thu, 2021-01-07 23:18

The doctrine of separability of arbitration agreements recognises that an arbitration clause contained in a broader agreement is separate and valid despite the invalidity of the rest of the agreement. The doctrine also raises a fundamental question: what is the governing law of the separable arbitration agreement as compared to the remainder of the contract in which it is found?

This question has vexed commentators and practitioners alike for a number of years because there is a myriad of different views.  The Supreme Court of the United Kingdom gave some much needed guidance in its recent decision of Enka v Chubb (see summary here). The Court determined that the parties’ explicit choice of law in respect of the overall contract also applies to the arbitration agreement.  However, the Court stated that in the absence of an explicit choice, there is a presumption in favour of the law of the seat of the arbitration, being the law that has the “closest connection” to the arbitration agreement. This approach has not been adopted by courts in other jurisdictions, such as in Singapore (see here).

The diversity of approaches to the governing law of the arbitration agreement may, depending on the enforcing court, lead to inconsistent outcomes around the world. This could also result in an outcome that is contrary to the parties’ intention when selecting the governing law of their overall contract.

While the doctrine of separability and the question of the applicable law governing the arbitration agreement may seem more theoretical than practical, determining with precision the proper governing law of the arbitration agreement is important. This is not only to ensure the proper interpretation of arbitration agreements, but also to assess the substantive validity of arbitration agreements and the recognition of arbitral agreements.

Article II(1) of the New York Convention obliges national courts to:

“… recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration”.

Article II(3) of the New York Convention obliges national courts to refer the parties to arbitration, upon request of one of the parties,  “unless it finds that the said agreement is null and void, inoperative or incapable of being performed.”  Unlike Articles V(1)(a) and V(2)(a) of the New York Convention, Article II provides no guidance as to what law governs the question of the validity of the arbitration agreement or the arbitrability of disputes referred to arbitration under it.

Because of this lacuna, national courts have taken inconsistent and sometimes idiosyncratic approaches to assessing the validity of arbitration agreements and arbitrability of disputes.  In some cases, national courts determine these questions by reference to the law governing the arbitration agreement chosen by the parties, and in other cases, national courts ignore the parties’ choice of law and determine these questions by reference to the law of the enforcing court. In this post, we will examine three decisions of the Australian and Chinese courts where these issues have arisen.

 

The conflicting Australian case law

Article II of the New York Convention is incorporated into Australian law under section 7 of the International Arbitration Act 1974 (Cth) (Arbitration Act). According to section 7, Australian courts are obliged to enforce arbitration agreements and stay court proceedings in favour of the parties’ choice to submit their dispute to arbitration.  That obligation is, however, subject to the following exceptions: a court is not obliged to enforce the arbitration agreement if “the arbitration agreement is null and void, inoperative or incapable of being performed” or if “the proceedings [are not] capable of settlement by arbitration.”  Like the New York Convention, the Arbitration Act is silent as to the law to be applied by the court in determining whether the arbitration agreement is “null and void, inoperative or incapable of being performed” or whether the dispute is not “capable of settlement by arbitration.”  This lack of clarity has given rise to two competing and conflicting lines of authority.

In Recyclers of Australia Pty Ltd v Hettinga Equipment Inc (2000) 100 FCR 420, the Federal Court of Australia considered an agreement governed by Iowa law. The Court determined that:

[t]he question arising under s 7(2) [of the IAA] is whether the proceeding involves the determination of a “matter” that, under the arbitration clause, is capable of settlement by arbitration.  As the arbitration clause and the sale agreement are to be governed, construed and interpreted “under the law of the State of Iowa’”, the issue of whether any of the matters involved in the proceeding are arbitrable under the clause is to be determined in accordance with the law of Iowa” (at para 10).

The reasoning in Recyclers v Hettinga was cited by the Federal Court subsequently in Casaceli v Natuzzi SpA (2012) 292 ALR 143 regarding a contract and arbitration agreement governed by Italian law.  In that case, the Court rejected the Applicant’s argument that the question of arbitrability ought to be determined by reference to Australian, not Italian, law (at para 38).

However, in a more recent decision of the Federal Court of Australia in WDR Delaware Corp v Hydrox Holdings Pty Ltd [2016] FCA 1164, the Court stated: “the question of whether a dispute is arbitrable is to be determined by the application of the nation[al court’s] domestic law alone” (at para 125).  While the Joint Venture Agreement in issue was governed by New South Wales law, the Court opined that:

[t]he issue of arbitrability goes beyond the scope of an arbitration agreement.  It involves a consideration of the inherent power of a national legal system to determine what issues are capable of being resolved through arbitration.  The issue goes beyond the will or the agreement of the parties.  The parties cannot agree to submit to arbitration disputes that are not arbitrable” (at para 124).

Given that the three decisions cited above were all made by the same court, there is no clear precedent as a matter of Australian law as to what law a national court should apply in determining the validity of an arbitration agreement and the arbitrability of disputes referred to arbitration under it.

 

Approach of the Chinese courts

Australian courts have entertained the notion that the questions of validity of the arbitration agreement and arbitrability of disputes are matters to be settled by reference to the governing law of the arbitration agreement. Chinese courts on the other hand have applied PRC law when asked to refuse enforcement of arbitral awards on the basis that the underlying arbitration agreement is invalid (see Article V(1)(a) of the New York Convention).

For example, in the 2014 case of Application for the Recognition and Enforcement of Foreign Arbitral Awards between Beijing Chaolaixinsheng Sports and Leisure Co Ltd and Beijing Suowangzhixin Investment Consulting Co Ltd, the Supreme People’s Court refused enforcement of an award rendered by a tribunal operating under the auspices of the Korean Commercial Arbitration Board (KCAB). It did so because the reference to foreign arbitration under the arbitration agreement was invalid as a matter of PRC law.  In that case, a dispute arose between two Chinese entities, one of which was a wholly foreign-owned enterprise (WFOE) registered in Beijing and owned by a Korean national, in respect of a contract for the operation of a golf course in Beijing.  The key issue in the case was whether the status of one of the parties as a WFOE was sufficient to make the agreement ‘foreign-related’ and the reference to foreign arbitration valid as a matter of PRC law.  Despite the parties’ choice for KCAB arbitration in the contract, the Supreme People’s Court refused enforcement of the resulting award on the basis that a purely domestic dispute could not be referred to foreign arbitration. The Court concluded that “the applicable law of the underlying contract and its arbitration clause, whether explicitly or [implicitly] agreed by the parties, shall be deemed as PRC law”, and so the question of the validity of the arbitration agreement was to be determined by reference to PRC law (see more detailed summary of the case here).

 

Conclusion

The lack of clarity in Article II of the New York Convention has certainly given rise to some confusion among national courts.  This has led to inconsistent case law regarding the law applicable to determining the validity of the arbitration agreement and the arbitrability of disputes referred to arbitration under it.

As discussed above, there are cases in both Australia and China where the courts have applied local law in determining the validity and arbitrability of disputes arising under contracts and arbitration agreements that, following a choice of law analysis, would not be governed by that local law.  It is questionable whether the application of the local law of a recognising or enforcing court to determine the validity of an arbitration agreement is the preferred approach.  This may lead to inconsistent outcomes across enforcing courts around the world, potentially undercutting the objectives of the New York Convention to achieve consistency and uniformity in recognising and enforcing arbitral agreements and awards.

Moreover, application of the local law of the enforcing court is likely inconsistent with the intention of the parties to the arbitration agreement. This is because parties would most likely only turn their minds to whether the arbitration agreement is valid according to the law they chose to govern their overall contract, rather than to the various national laws of the innumerable jurisdictions where recognition of the arbitration agreement or enforcement of the award may be sought.

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The Contents of the ASA Bulletin, Volume 38, Issue 4 (December 2020)

Kluwer Arbitration Blog - Thu, 2021-01-07 22:02

We are happy to report that the latest issue of the ASA Bulletin is now available and includes the following articles and cases:

 

ARTICLES

Felix DASSER, The Revised Swiss Lex Arbitri: A Story of Two Dozen Jewels

In his message, ASA President Felix DASSER commends the light touch revision of the Swiss lex arbitri which entered into force on 1 January 2021.

Hamish LAL, Brendan CASEY, Josephine KAIDING, Léa DEFRANCHI, Multi-Tiered Dispute Resolution Clauses in International Arbitration – The Need for Coherence

Hamish LAL, Brendan CASEY, Josephine KAIDING and Léa DEFRANCHI submit that more coherence is needed in the treatment of multi-tiered dispute resolution clauses in international arbitration.

Reto Andrea TETTAMANTI, Intertemporales Schiedsrecht. Die für die Revision des 12. Kapitels IPRG relevanten Übergangsbestimmungen

Reto Andrea TETTAMANTI examines the transitional law provisions applicable to the revision of Chapter 12 of the Swiss Private International Law Act (PILA), Switzerland’s lex arbitri.

Simon BACHMANN, The Impact §of Third-Party Funding on Security for Costs Requests in International Arbitration Proceedings in Switzerland. Why and how third-party funding should be considered under the Swiss lex arbitri

Simon BACHMANN assesses the impact of third-party funding on requests for security for costs in international arbitration proceedings seated in Switzerland.

Giulio PALERMO, Panagiotis KYRIAKOU, Leveraging the Standard of Ex Aequo et Bono to Increase Diversity, Flexibility and Efficiency: Insights from the Basketball Arbitral Tribunal

Giulio PALERMO and Panagiotis KYRIAKOU advocate in favour of the ex æquo et bono standard in international arbitration in light of the case law of the Basketball Arbitral Tribunal.

Andreea NICA, Case Note on the Decision of the Swiss Federal Tribunal in Clorox v. Venezuela

Andreea NICA presents the recent decision of the Swiss Federal Supreme Court rendered on 25 March 2020 in Clorox v. Venezuela (4A_306/2019), which is the first time an award in an investment treaty arbitration seated in Switzerland is set aside.

Samantha NATAF, Jurisdiction over Non-signatories, the Irreconcilable Approaches of French and English Courts. Case Note on: (i) English Court of Appeal Decision of 20 January 2020 and (ii) Paris Court of Appeal Decision of 23 June 2020

Samantha NATAF reports on two recent decisions of the English and French Courts relating to the enforcement of the same award which highlight the divergent approaches of the two jurisdictions regarding the law applicable to international arbitration agreements.

Mahmoud Anis BETTAIEB, Le juge tunisien et la promotion de l’arbitrage

Mahmoud Anis BETTAIEB discusses the important role played by the Tunisian judiciary in promoting arbitration as a private dispute resolution mode.

Nadia SMAHI, Due Process Under the Swiss Rules of International Arbitration

Nadia SMAHI analyses due process under the Swiss Rules of International Arbitration and provides an overview of all decisions rendered by the Swiss Federal Supreme Court in relation to Swiss Rules arbitrations seated in Switzerland since June 2012.

 

DECISIONS OF THE SWISS FEDERAL SUPREME COURT

 

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The Chilean Supreme Court’s Heart Is In The Right Place, But Its Arguments Are Not

Kluwer Arbitration Blog - Wed, 2021-01-06 23:17

The Chilean Supreme Court recently issued a decision that, on its face, respects party autonomy in international arbitration. But, it could do more harm than good.

On September 14, 2020, the Chilean Supreme Court (the “Court”) entered a final judgement in the case CCF SUDAMERICA SPA, Rol Nº 19568-2020 (“CCF Sudamericana” or the “Decision”). The Court’s judgement decided a complaint appeal (recurso de queja) brought by Sudamérica SpA and CCF Sudamérica SpA (“Sudamérica”) against the Appellate Court of Santiago’s rejection of an appeal lodged by Sudamérica against a final award issued by an arbitral tribunal constituted under the rules of the Mediation and Arbitration Centre of the Santiago Chamber of Commerce (the “CAM Santiago”) on February 12, 2020.

Under Chilean Law, international arbitration is regulated by Law 19.971 (the “Ley de Arbitraje Comercial Internacional” or “LACI”). The LACI is inspired in the 1985 UNCITRAL Model Law on International Commercial Arbitration. In particular, articles 1.3 and 1.4 of the LACI that determines when an arbitration is international are exact copies of articles 1.3 and 1.4 of the 1985 UNCITRAL Model Law.

 

Facts of the case

The parties entered into a Share Purchase Agreement (“SPA”) of several companies known in Chile as Farmacias Cruz Verde. The law applicable to the contract was Chilean law and at least one party to the contract set domicile in Mexico. The arbitration clause contained in the SPA submitted all controversies relating to the contract to arbitration in accordance with the International Arbitration Rules of the CAM Santiago, seated in Santiago, Chile. According to the Decision, the terms of reference of the arbitration provided that the final award could be challenged through appeal and certiorari (casación).1)Decision, ¶ 3. (“Todas las disputas que surjan de o que guarden relación con el presente Contrato o la ejecución de los actos aquí pactados o respecto de cualquier motivo relacionado con el presente Contrato, se resolverá mediante arbitraje, de acuerdo con el Reglamento de Arbitraje Comercial Internacional del Centro de Arbitraje y Mediación de la Cámara de Comercio de Santiago, vigente al momento de su inicio”). jQuery("#footnote_plugin_tooltip_8282_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8282_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

During the course of the proceedings, the parties established the rules applicable to the procedure, expressly agreeing that (i) an appeal and certiorari would be admissible against the final award; and (ii) the Civil Procedure Code and the Court Organization Code (Código Orgánico de Tribunales) applied in a subsidiary fashion.

 

The appeal 

After the arbitration tribunal issued its award, Sudamérica filed an appeal against it. Under Chilean Law, the appeal is first submitted to the arbitral tribunal directly, and only then the appeal is brought to the attention of the judicial appellate body. In this case, the arbitral tribunal sent the appeal to the Appellate Court of Santiago.

The Appellate Court of Santiago dismissed the appeal, correctly noting that the appeal was inadmissible, since international arbitration in Chile is regulated under Law No. 19.971 (inspired in the 1985 UNCITRAL Model Law on International Commercial Arbitration), which provides in Article 34 that final awards can only be challenged through annulment.

The appellant then filed a complaint appeal against the Appellate Court of Santiago’s judgement. The Supreme Court proceeded to reject the complaint appeal but invalidated the Appellate Court of Santiago’s judgement. The Court reasoned as follows. First, that the intent of the parties is quintessential in arbitration. Second, that the parties agreed that the applicable remedies against the final award in both the arbitration clause as well as the procedural rules of the case, would be appeal and certiorari. Third, that regardless of the international or domestic nature of the arbitration, the courts must take into consideration the intent of the parties. Fourth, it would be against the parties’ prior acts to disregard the fact that the parties did not mention Law No. 19.971 while drafting the procedural rules applicable to their arbitration. Fifth, in other disputes relating to the same contract, the parties eliminated the reference to the appeal in order to adequate their terms to Law 19.971. Therefore, the Court concluded that both parties considered that the appeal was a valid remedy against the award.

 

The decision and comment 

The best intentions pave the way to hell. As most things in life, the Decision has a bright side, and a dark side.

On the one hand, the Decision defends the basic premise in arbitration that consent is its cornerstone. In this case, the parties (adequately represented by counsel) expressly agreed that, even though one of the parties was domiciled outside Chile (thus fulfilling the internationality requirement of Law 19.971), that (i) appeal and certiorari would be admissible against the final award, and (ii) the Civil Procedural Code (and the Court Organization Code) applied in a subsidiary fashion, without reference to Law 19.971.

On the other hand, the decision ignores basic principles of international arbitration. The fact that annulment is the sole remedy against an international arbitration award is one of the mainstays of international arbitration practice. More so, the fact that this is specifically mentioned in Law 19.971, should be hard to argue that parties could, in this case, contract away from such provision. Having said this, the Decision does not go into whether article 34 of the LACI can be contracted away from, as discussed in other jurisdictions.2)See for instance, Popack v. Lipszyc, 2015 CarswellOnt 8001, 2015 ONSC 3460 discussed here. jQuery("#footnote_plugin_tooltip_8282_2").tooltip({ tip: "#footnote_plugin_tooltip_text_8282_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Between a rock and a hard place. It appears that the Court found itself between the will of the parties, and the text of Law 19.971. The decision will hopefully be treated as a highly fact specific case and will not be treated as an authority in future cases.3)Under Chilean Law, prior court decisions do not constitute precedent. jQuery("#footnote_plugin_tooltip_8282_3").tooltip({ tip: "#footnote_plugin_tooltip_text_8282_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

References   [ + ]

1. ↑ Decision, ¶ 3. (“Todas las disputas que surjan de o que guarden relación con el presente Contrato o la ejecución de los actos aquí pactados o respecto de cualquier motivo relacionado con el presente Contrato, se resolverá mediante arbitraje, de acuerdo con el Reglamento de Arbitraje Comercial Internacional del Centro de Arbitraje y Mediación de la Cámara de Comercio de Santiago, vigente al momento de su inicio”). 2. ↑ See for instance, Popack v. Lipszyc, 2015 CarswellOnt 8001, 2015 ONSC 3460 discussed here. 3. ↑ Under Chilean Law, prior court decisions do not constitute precedent. 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: International Arbitration and the COVID-19 Revolution
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The CCJA’s Ruling in the Case Republic of Benin v SGS Société General de Surveillance SA: A Step Backwards?

Kluwer Arbitration Blog - Tue, 2021-01-05 23:11

Since its creation, the Common Court of Justice and Arbitration (CCJA) has been at the forefront of promoting international arbitration in Africa, particularly with respect to creating a favourable setting for international and regional arbitration under the Uniform Act on Arbitration adopted by the seventeen OHADA Member States. This momentum continued with the recent adoption of the new Act which entered into force on 15 March 2018 (Uniform Act on Arbitration dated 23 November 2017).1)For a commentary of this new Act, see N. Aka, A. Fénéon and J.-M. Tchakoua, Le nouveau droit de l’arbitrage et de la médiation en Afrique (Ohada), LGDJ, 2018. jQuery("#footnote_plugin_tooltip_6855_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6855_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Yet, these reforms are not always followed and implemented by the courts. A recent example is a judgment rendered by the CCJA on 27 February 2020 (Judgment n° 068/2020, Republic of Benin v. SGS Société Générale de Surveillance SA). Regrettably, the CCJA’s review of the arbitral award is not only inconsistent with its own case law, but also represents a step back in the development of arbitration in the OHADA jurisdiction, by failing to enforce key principles in support of arbitration, such as kompetenz-kompetenz.

 

The Facts

The dispute arose out of a contract between the Republic of Benin and SGS Société General de Surveillance SA (SGS), whereby SGS was to provide training and consultation services in relation to a program for the certification of customs value (referred to as PCV). Issues arose with payment for the services and with the alleged conflict with another contract, for a similar program (referred to as PVI). This ultimately led to two parallel legal proceedings: one before the Cotonou Court of First Instance and one before an arbitral tribunal constituted under the ICC rules. As such, despite the arbitration agreement contained in the contract, the Republic of Benin hurried to initiate proceedings in December 2016 before its own administrative courts. In response, SGS brought an ICC arbitration claim a few weeks later, as provided by the arbitration agreement.

In a rather hasty judgment rendered on 13 February 2017, without both parties even having the opportunity to be heard, the Cotonou Court of First Instance annulled the contract between the Republic of Benin and SGS based on what the Court considered to be a conflict with the PVI contract entered into with a third party, as mentioned above. It was revealed that the President of Benin had a stake in this other entity.

Undeterred and unconvinced by the decision of the Beninese court and other procedural claims brought by the Republic of Benin, the arbitral tribunal rendered an award on 6 April 2018, finding that it had jurisdiction.

The seat of arbitration being Ouagadougou, Burkina Faso, the Republic of Benin attempted to set aside this award before the Court of Appeals of Ouagadougou. On 21 September 2018, the Court of Appeals dismissed the challenge, finding notably that the arbitration agreement was valid and that SGS had not waived its right to resort to arbitration. The Court of Appeals also ruled that the award did not contradict the decision of the Beninese judges, as the Cotonou Court of First Instance and the arbitral tribunal had ruled on different issues, the first having considered the validity of the contract and the latter having examined its performance and interpretation. Therefore, according to the Court of Appeals of Ouagadougou, there was no conflict with a decision having the effect of res judicata and no violation of international public policy.

The Republic of Benin appealed to the CCJA, which rendered a surprising decision in finding that the award was in contradiction with the Cotonou judgment.

 

The CCJA’s disregard of principles of international arbitration and CCJA precedent

In its decision of 27 February 2020, the CCJA decided only on the issue of an alleged violation of international public policy. This issue was framed, before the Supreme Court, in the same terms as before the Court of Appeals of Ouagadougou. The CCJA first recalled that the principle of res judicata – which precludes arbitrators from considering the same claims or issues, opposing the same parties and having the same subject matter – formed part of OHADA international public policy. On that basis and without the nuance of the decision of the Court of Appeals of Ouagadougou, the CCJA held that the award contradicted the Cotonou judgment, as both ruled on an issue arising between the same parties and with respect to the same contract.

By doing so, the CCJA ignored the fact that the first instance decision was under appeal. This highly questionable decision therefore also contradicts CCJA precedent. Indeed, in a landmark decision of 31 January 2011, the CCJA found, having considered the effect of res judicata, that there is a violation of public policy only where an award contradicts a decision that has been finally settled by a state court. This decision implies that all remedies must be exhausted before there can be a violation of public policy, which did not reflect the case between the Republic of Benin and SGS.

In addition, by deciding only on the issue of a purported violation of public policy, the CCJA overlooked critical elements of the case and the positions of the parties.

First, it failed to address the violation of the kompetenz-kompetenz principle. This principle is established by Article 23 of the OHADA Treaty and by Articles 11 and 13 of the OHADA Uniform Act on Arbitration; it had also been reaffirmed in another decision handed down the same day (CCJA, 27 February 2020, judgment n° 064/2020). By failing to address this issue, the CCJA indirectly disregarded the fact that this principle had been violated by the Cotonou Court of First Instance. Though the Cotonou court had not denied the existence of the arbitration agreement, it still decided to retain jurisdiction in spite of it.

Second, and equally unexpectedly, the CCJA refused to address the issue of the alleged waiver by SGS of the arbitration agreement. According to CCJA case law, the waiver of an arbitration agreement must be unequivocal (see CCJA, 23 July 2015, judgment n° 097/2015), though such waiver may also be tacit. A party may tacitly waive an arbitration agreement by failing to object, based on the existence of a valid arbitration agreement, to the jurisdiction of a state court. Invoking this precedent, the Republic of Benin had argued that the failure by SGS to object to the jurisdiction of the Cotonou Court of First Instance amounted to such a waiver. This failure, however, resulted from the fact that SGS was denied the opportunity to argue its case before the Cotonou court. This was expressly noted by the Court of Appeals of Ouagadougou, which stated that SGS was “not placed, in the procedural circumstances described by it and confirmed by the exhibits, in a position to properly develop its own means“. In addition, SGS immediately claimed the benefit of the arbitration agreement by introducing arbitration proceedings in response to the Republic of Benin’s claim, even before the hearing was held before the court in Cotonou.

The CCJA missed a clear opportunity to build upon persuasive and consistent case law on key issues relating to arbitration. Unfortunately, its decision of 27 February 2020 could have the effect of impairing efforts to construct a quality arbitration ecosystem. The hope is that this decision will not undermine the development of arbitration in the region.

References   [ + ]

1. ↑ For a commentary of this new Act, see N. Aka, A. Fénéon and J.-M. Tchakoua, Le nouveau droit de l’arbitrage et de la médiation en Afrique (Ohada), LGDJ, 2018. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Third-Party Funding Finds its Place in the New ICC Rules

Kluwer Arbitration Blog - Mon, 2021-01-04 23:01

Third-party funding (TPF) has come a long way from its humble beginnings at the fringes of various jurisdictions, where it was historically a tort and even a crime. Today, the doctrines of champerty and maintenance have been decriminalized and in most jurisdictions no longer fall foul of public policy considerations. TPF is now perceived as one of the key instruments to provide access to justice: In 2013, former President of the UK Supreme Court Lord Neuberger observed that funding is “the life-blood of the justice system” which “helps maintain our society as an inclusive one”.

We are currently seeing the emergence of an ever-growing body of domestic legislation and regulation, e.g. in Hong Kong and Singapore, as well as rules of arbitral institutions, e.g. CAM-CCBC, CIETAC, HKIAC, ICSID (draft Rules), Milan Chamber of Arbitration and SIAC that acknowledge the existence of and the requirement for transparency regarding TPF. The presumption has now shifted – there remain only a few leading institutional rules that do not explicitly address TPF.

Provisions on TPF can also be found in recently-concluded international agreements such as the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union, and soft law, e.g. 2014 IBA Guidelines on Conflicts of Interest in International Arbitration.

Consistent with this trend, the 2021 ICC Arbitration Rules expressly focus on TPF, thereby incorporating into the Rules what was earlier addressed in the ICC’s various iterations of its Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration under the ICC Rules of Arbitration.

 

TPF Is Here to Stay

As the English Court of Appeal observed in the opening sentence of its seminal decision in Excalibur v Texas Keystone: “Third party funding is a feature of modern litigation.” The incorporation of TPF into the 2021 ICC Rules – arguably the gold standard of arbitral institutional rules1)ICC tops most preferred arbitral institute chart (ICC News, 15 October 2015): “Conducted by the Queen Mary University of London, the 2015 survey, Improvements and Innovations in International Arbitration, shows ICC topping the chart of preferred institutions by a significant margin and highlights ICC’s enduring footing as a leader in the field of arbitration for over 10 years.”) (emphasis added). jQuery("#footnote_plugin_tooltip_7944_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7944_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); – further elevates and confirms TPF as an integral part in the development of international dispute resolution. Eduardo Silva Romero, Co-Chair of Dechert’s International Arbitration Global Practice, supports this development: “The inclusion of provisions concerning TPF into the new ICC Rules recognizes funding’s place in the international arbitration landscape.

 

Nothing Worthwhile Ever Comes Easy…

Funders can add significant value, whether they agree ultimately to fund a case or not. An established funder’s decision-making is guided by a myriad of criteria including a case’s prospects of success, the legal budget balanced against a likely awarded quantum and the expertise of counsel. In addition – when they are members of such funding associations – established funders need to uphold ethical and financial standards, for example, those prescribed by the 2018 Code of Conduct for Litigation Funders of the Association of Litigation Funders of England and Wales, and the Best Practice Principles of the International Legal Finance Association.

This often results in funders accepting only a minority of funding applications – some 10% according to the 2018 ICCA-Queen Mary Task Force Report (consistent with the authors’ experience). There is, therefore, a high threshold to overcome when seeking funding. Nonetheless, even if a funding application is declined, a funder’s assessment can be more than worthwhile for lawyers and clients to obtain an independent assessment of a case.

In determining what cases to fund, funders often play the devil’s advocate by stress-testing and subjecting a case to intense scrutiny. The purpose is to ensure it not only has reasonable to strong prospects of success, but that the proceeds can be recovered. Integral to this process is ensuring the lawyers have considered, as far as possible and practicable, the various contingencies and strategies that may arise throughout the life of a case. This in no way interferes with, however, the relationship and decision-making between clients and their lawyers, which remains firmly within their respective control.

This rigorous process is in stark contrast to the misperception that funders may incentivize and finance frivolous claims. On the contrary, established funders act as gatekeepers filtering out unfounded claims, thereby ensuring quality control of exclusively meritorious cases. This incidentally complements the ICC’s renowned award scrutiny, albeit whereas a funder’s assessment is done before agreeing to fund, the ICC reviews an award before it is notified to the parties. This book-ended process ensures, as far as possible, that successful claims are complemented by an enforceable award.

 

Funders Welcome Transparency

In line with the trend towards transparency in international arbitration, Art. 11(7) of the 2021 ICC Rules requires that parties “must” disclose the existence and identity of “any non-party which has entered into an arrangement for the funding of claims or defences and under which it has an economic interest in the outcome of the arbitration.

Disclosure and transparency seek to avoid conflicts of interest between an arbitral tribunal and the parties (or any related parties, including funders), thereby ensuring the enforceability of an award. As concerns funders, this may extend to circumstances where e.g. an arbitrator is a shareholder of a funder, sits on its investment committee or otherwise has advised a funder during its due diligence in a case that is, or may in the eyes of a party may be, related to the arbitration which she/he has been asked to determine.

The obligation to disclose is consistent with a funder’s interest to protect its investment: avoiding conflicts of interest further assures a funder of a return on its investment via an enforceable award (if/when required to be enforced). Investing into an arbitration therefore incentivizes a funder to do all things necessary from the outset to comply with rules and best practices. The 2021 ICC Rules are another step towards allowing funders and parties to work together in a transparent manner, which builds further confidence into the arbitration framework.

 

Scope of Disclosure

At a time where TPF finds itself in the regulatory spotlight for both commercial arbitration and Investor-State Dispute Settlement (ISDS) (e.g. ICSID Rules reform), some stakeholders (notably states) are calling for more comprehensive disclosure obligations, including disclosure of the terms of a litigation funding agreement (LFA) (see e.g. discussions before UNCITRAL Working Group III on TPF in ISDS). This raises a multitude of issues.

Disclosure of the terms of an LFA may give an unfair advantage to an opposing party by revealing, for example, strategic and commercial considerations including the strengths and weaknesses of a case (from a funder’s view). Unless specifically justified in the context of a particular case, there appears little to no good reason why such broad disclosure is required, let alone should become common practice in international dispute resolution. Even if required, protective measures such as the creation of a confidentiality club can serve to protect the parties’ respective interests.

In this context, the 2021 ICC Rules – which require disclosure only of the existence and identity of the funder – strike a sound balance between the interests of transparency on the one hand, and confidentiality on the other.

 

Transparency Can Be a Two-Way Street

Art. 11(7) of the 2021 ICC Rules places the onus to disclose whether a party is funded, on that party. This process may be assisted by having other stakeholders, in particular arbitrators, disclose from the outset and as a matter of practice their interest in any funder(s), whether or not at the time of such disclosure the existence and identity of a funder has been made known in the arbitration. The overarching purpose of such a proposed practice is, again, to avoid conflicts of interest throughout the life of an arbitration, to ensure no arbitrator risks any such conflict if e.g. a funder begins funding at a later stage in the proceedings, and to ensure the enforceability of an award.

 

Conclusion

Funders applaud the ICC for its measured and reasonable approach towards TPF in its 2021 Rules. This bodes well to strengthening TPF’s place in the arbitration community, and overall to the evolution of arbitration as a reliable and robust dispute resolution system.

References   [ + ]

1. ↑ ICC tops most preferred arbitral institute chart (ICC News, 15 October 2015): “Conducted by the Queen Mary University of London, the 2015 survey, Improvements and Innovations in International Arbitration, shows ICC topping the chart of preferred institutions by a significant margin and highlights ICC’s enduring footing as a leader in the field of arbitration for over 10 years.”) (emphasis added). 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: International Arbitration and the COVID-19 Revolution
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The 2021 ICC Arbitration Rules: Changes to the Arbitral Tribunal’s Powers

Kluwer Arbitration Blog - Sun, 2021-01-03 23:00

The 2021 ICC Arbitration Rules introduce new procedures, update key provisions, and formalize the existing practices of the ICC Secretariat and the Court in order to allow for greater flexibility, efficiency and transparency in the administration of ICC arbitration cases. We will focus in this post on the changes made under the new Rules to the Arbitral Tribunal’s powers. In particular, we will address the following five key provisions: new Articles 12(9), 13(6), 17(1)-(2), 26, and Appendix IV paragraphs (h)(i).

In proposing modifications to the 2017 Rules, the ICC conducted a thorough revision process by consulting with the relevant stakeholders. The ICC first revealed the proposed modifications to the Commission on Arbitration and ADR at its fall meeting in Seoul on 21 September 2019 and solicited comments from the various National Committees and Commission members. New draft proposals were discussed at the Commission’s meeting in July 2020. In total, the ICC received hundreds of written comments from various National Committees and individual Commission Members. Flowing from this consultation process, on 6 October 2020, the ICC Executive Board approved the revised ICC Rules of Arbitration as proposed by the International Court of Arbitration. On the same day, the ICC released the 2021 ICC Rules in draft form to the public. The new Rules came into force on 1 January 2021 and replaced the existing 2017 ICC Rules.  The ICC Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration under the ICC Rules of Arbitration has also been updated to reflect these changes.

With this in mind, we will shed light on some of the notable changes to the Arbitral Tribunal’s powers in the 2021 Rules.

 

Constitution of the Arbitral Tribunal

New Article 12(9): “Notwithstanding any agreement by the parties on the method of constitution of the arbitral tribunal, in exceptional circumstances the Court may appoint each member of the arbitral tribunal to avoid a significant risk of unequal treatment and unfairness that may affect the validity of the award.

This first and the most controversial change relates to the constitution of the arbitral tribunal itself. The amendment to Article 12(9) endeavours to give the ICC Court the power to appoint all members of the arbitral tribunal when there is an innate inequality or unfairness in the parties’ arbitration agreement. This change addresses exceptional situations where following the parties’ arbitration agreement would result in an unequal treatment of the parties and thus put at risk the enforceability of any award subsequently rendered.  For example, the designation of a co-arbitrator as sole arbitrator in the event of the failure to nominate the other co-arbitrator.

The ICC has already been confronted with such arbitration clauses and has remedied them by referring to the “spirit of the Rules” found in Article 42 of the Rules.  Moreover, it is to be expected that the ICC Court will only exercise the power in this new Article 12(9) in exceptional circumstances and that an arm’s length party agreement on the method of constitution of the arbitral tribunal will not be disregarded.

Nonetheless, there is opposition to the new Article 12(9).  In particular, there are concerns that the ICC has granted itself the authority to disregard an arbitration agreement in the event that it perceives an unfairness.  Those opposing this change consider that the ICC should leave the parties’ arbitration agreement in place and that such issues are better resolved in the course of the arbitral proceedings or at the enforcement stage.  The debate over new Article 12(9) will surely continue and it will be interesting to observe whether other arbitral institutions will follow the ICC in the adoption of this provision.

 

Nationality of arbitrators in treaty-based investment disputes

New Article 13(6):Whenever the arbitration agreement upon which the arbitration is based arises from a treaty, and unless the parties agree otherwise, no arbitrator shall have the same nationality of any party to the arbitration.

The use of the ICC Rules in treaty-based investment disputes has grown substantially in recent years. Therefore, the ICC Rules must be appropriately adapted to reflect the sensitive nature of these investment disputes. More specifically, there is a particular need in investor-State disputes to secure the complete neutrality of the arbitral tribunal by ensuring that no arbitrator holds the same nationality as any of the parties to the dispute. Such a rule is important in treaty-based investment disputes where the arbitral tribunal is likely tasked with assessing the legitimacy of a state’s laws, policies, and public interests. The introduction of Article 13(6) now aligns the ICC Rules with other investment arbitration rules such as Rule 1(3) of the ICSID Arbitration Rules.

 

Party representation  

New Articles 17(1)-(2): “(1) Each party must promptly inform the Secretariat, the arbitral tribunal and the other parties of any changes in its representation. (2) The arbitral tribunal may, once constituted and after it has afforded an opportunity to the parties to comment in writing within a suitable period of time, take any measure necessary to avoid a conflict of interest of an arbitrator arising from a change in party representation, including the exclusion of new party representatives from participating in whole or in part in the arbitral proceedings.

The changes to Article 17 flow from an existing practice in international arbitration where arbitral tribunals commonly insert a similar provision in the Terms of Reference or Procedural Order No. 1.  These provisions require the parties to notify promptly changes of counsel and also allowing the tribunal to act upon changes which may create a conflict of interest. The purpose of the provision is to address upfront any issues related to the change of counsel that may give rise to conflicts of interest or otherwise lead to challenges against the arbitrators. Similar provisions are contained in article 18.4 of the LCIA Rules.

As will be familiar to most readers, this issue was raised in Hrvatska Elektroprivreda d.d. (HEP) v. Republic of Slovenia where it was revealed ten days before the hearing that respondent had chosen a barrister from the same chambers as the president of the tribunal. The tribunal disqualified the barrister on the basis of the overriding principle of “the immutability of properly-constituted tribunals”.1)Hrvatska Elektroprivreda d.d. v. The Republic of Slovenia, ICSID Case No. ARB/05/24, Tribunal’s Decision on the participation of counsel, 6 May 2008, at para. 25. jQuery("#footnote_plugin_tooltip_9131_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9131_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This power is now enshrined in Article 17 and need no longer be expressly included in the Terms of Reference or the Procedural Order No. 1.

However, new Article 17 gives rise to a potential issue.  There is an inherent tension created by making the arbitral tribunal a judge in its own case on matters of representation.  The arbitral tribunal’s interest (i.e., to avoid a conflict of interest and thus having to resign) may be directly at odds with the inherent right of each party to choose its representatives.

 

Remote hearings

New Article 26: “A hearing shall be held if any of the parties so requests or, failing such a request, if the arbitral tribunal on its own motion decides to hear the parties. When a hearing is to be held, the arbitral tribunal, giving reasonable notice, shall summon the parties to appear before it on the day and at the place fixed by it. The arbitral tribunal may decide, after consulting the parties, and on the basis of the relevant facts and circumstances of the case, that any hearing will be conducted by physical attendance or remotely by videoconference, telephone or other appropriate means of communication.

The Covid-19 pandemic affected all walks of life and international arbitration was not spared. As the pandemic spread, working through Zoom, Teams, Skype, and other videoconferencing platforms became our new normal. With in-person hearings precluded for large portions of 2020, parties requested, and tribunals considered, ‘virtual’ hearings. However, the 2017 ICC Rules did not state expressly that the hearing could be held virtually, instead Article 25(2) of the Rules provided that the tribunal “shall hear the parties together in person if any of them so requests”. Indeed, the ICC was quick to act. On 9 April 2020, the ICC issued its Guidance Note on Possible Measures Aimed at Mitigating the Effects of the Covid-19 Pandemic, which clarified in paragraph 23 that hearings may be held virtually under the ICC Rules and now this practice has been formalized in new Article 26.

New Article 26 contains some other interesting elements. Notably, while discretion is given to the arbitral tribunal, it must first consult with the parties before deciding on the format of the hearing. When taking such a decision, the tribunal must consider the relevant facts and circumstances along with the fairness of the proceedings and equal treatment of the parties. Moreover, a careful reading of Article 26 reveals that the arbitral tribunal’s options are not limited to videoconferencing, but also include telephone and “other appropriate means of communication”. These technological options endeavor to avoid prejudicing parties who do not have access to more expensive videoconferencing technologies or adequate internet speeds to support such platforms.  Moreover, these options encourage the parties to use the most suitable mean of communication for their hearing. Finally, Article 26 does not presume that the hearing will be held in person. Indeed, it will be interesting to observe in a post-pandemic world whether international arbitration users will continue to use virtual hearings as a way to reduce the costs of arbitration despite not being constrained to use them.

 

Settlement of disputes  

New Appendix IV paragraph (h)(i): “encouraging the parties to consider settlement of all or part of the dispute either by negotiation or through any form of amicable dispute resolution methods such as, for example, mediation under the ICC Mediation Rules

The changes to Appendix IV are subtle, but significant. The language of paragraph (h)(i) has been strengthened from “informing the parties that they are free to settle” to “encouraging the parties to consider settlement”. The revised provision now vests the arbitral tribunal with more power to guide the parties towards an amicable settlement either by negotiation or through any form of amicable dispute resolution methods, such as, for example, mediation under the ICC Mediation Rules. The question is how the tribunal can extend such an encouragement so that it has an impact on the parties’ behavior, but without the arbitrators feeling that they have exceeded their mandate.

Overall, the 2021 ICC Rules are a welcome revision. The changes to the arbitral tribunal’s powers are precise, reflect the evolution of the ICC Court and the Secretariat’s practices and are consistent with the techniques and procedures that have become the norm in ICC arbitrations.

 

The views expressed in this article reflect those of the authors and not necessarily those of Mayer Brown, Quinn Emanuel Urquhart & Sullivan, or any of their clients.

References   [ + ]

1. ↑ Hrvatska Elektroprivreda d.d. v. The Republic of Slovenia, ICSID Case No. ARB/05/24, Tribunal’s Decision on the participation of counsel, 6 May 2008, at para. 25. 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: International Arbitration and the COVID-19 Revolution
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Joinder and Consolidation Provisions under 2021 ICC Arbitration Rules: Enhancing Efficiency and Flexibility for Resolving Complex Disputes

Kluwer Arbitration Blog - Sat, 2021-01-02 23:37

Multi-party and multi-contract complex disputes are now ubiquitous in international arbitration practice. This is unsurprising given the increasingly complex nature of international trade and commerce. Institutional statistics show substantial growth in the number of disputes involving multiple parties and multiple contracts. The 2019 International Chamber of Commerce (“ICC”) Dispute Resolution Statistics reveal that out of the 2,498 parties involved in cases filed in 2019, approximately a third of the cases involved multiple parties (31%), of which the majority (59%) involved several respondents, 24% several claimants, and 17% several claimants and respondents. Although most multi-party cases involved three to five parties (87% of multi-party cases), cases involving six to ten parties represented 11% of multi-party cases. Three cases involved 10 to 30 parties while in two cases, the number of parties exceeded 100.

In order to meet the challenge of administering complex and sophisticated international disputes, the world’s leading arbitral institutions have adopted new rules or introduced amendments in recent years. Joinder and consolidation are two key procedural mechanisms that have been incorporated in leading institutional arbitration rules in order to save time and costs and avoid parallel proceedings and inconsistent decisions.

On 1 December 2020, the ICC officially launched its 2021 Arbitration Rules, which entered into force on 1 January 2021. The new rules make important changes to the 2017 ICC Arbitration Rules including enhancements to the joinder and consolidation provisions, which will be the focus of this blog post. The changes to the rules advance the ICC’s mission of delivering efficient and flexible arbitration services.

 

Article 7: Joinder of Additional Parties

The ICC in its 2012 Arbitration Rules introduced wide-ranging changes in relation to both joinder and consolidation, which were fully maintained in its 2017 Arbitration Rules. In the 2021 version, there is a significant amendment to the joinder provision.

An application to join additional parties after the constitution of the arbitral tribunal is not infrequent in arbitrations. In the 2017 Arbitration Rules, no additional party could be joined after the confirmation or appointment of any arbitrator, unless the consent of all parties, including the additional party, was obtained. This limitation has, to some extent, been relaxed under the 2021 Arbitration Rules by adding a new exception, namely Article 7(5) which states that

Any Request for Joinder made after the confirmation or appointment of any arbitrator shall be decided by the arbitral tribunal once constituted and shall be subject to the additional party having accepted the constitution of the arbitral tribunal and agreeing to the Terms of Reference, where applicable.

In this regard, even if a party at the commencement of the arbitration objects to the joinder of an additional party, the arbitral tribunal now has the power and discretion to permit the joinder where the conditions are met. The possibility of such joinder may arise as the case progresses, particularly where procedural efficiency and the relevance of the final award is bolstered by the joinder of the consenting additional party. The additional party may have evidence central to the dispute or a vested interest in the outcome of the dispute. Such joinder of a relevant party can facilitate the expansion of the scope of the award to cover that additional party’s own prayers for relief. It can also ensure the efficacy of the award by ensuring that the proceedings take into account the effect of the award on other parties. This reduces the need for satellite or parallel proceedings in national courts that dilute the utility and impede the enforcement of the final award.

The requirement that the joined party accept the composition of the arbitral tribunal and the Terms of Reference, where applicable, avoids unnecessary delay, ensures the equality of treatment for all parties in the selection and appointment of the tribunal by way of the joined party’s consent, and eliminates the risk of non-enforcement or setting aside of the award. This also assists to respond to the issues that arose in the case of Siemens AG/BKMI Industrienlagen GmBH v Dutco Construction Company. In this case, the French Cour de Cassation set aside an award, holding that the principle of equality in the appointment of arbitrators was violated. It further held that, as a matter of public policy, the party’s right to nominate an arbitrator by way of agreement to arbitration rules can only be waived after the dispute has arisen.

The new Article 7(5) also sets out a non-exhaustive list of relevant circumstances which should be considered by the arbitral tribunal, including “whether the arbitral tribunal has prima facie jurisdiction over the additional party, the timing of the Request for Joinder, possible conflicts of interests and the impact of the joinder on the arbitral procedure.

Prima facie jurisdiction over the additional party is a paramount condition. Article 7 should be read with Article 6(4), which similarly specifies the requirement that the ICC Court is prima facie satisfied that an arbitration agreement may exist. The new Article 7(5) clarifies that “any decision to join an additional party is without prejudice to the arbitral tribunal’s decision as to its jurisdiction with respect to that party.” The introduction of other relevant factors provides the tribunal with clear guidance and adequate flexibility to make decisions.

 

Article 10: Consolidation of Arbitrations

The amendments on consolidation of arbitrations under Article 10 of the 2021 ICC Arbitration Rules are less substantial and focus more on sharpening and clarifying the rule.

According to consolidation provisions under Article 10(b) of the 2017 ICC Arbitration Rules, consolidation is possible where all the claims in the arbitration were made under “the same arbitration agreement”, namely the same contract. In addition, the original Article 10(c) only permitted consolidation of arbitrations under “more than one arbitration agreement” when the arbitrations involved the same parties, the disputes in the arbitrations arose in connection with the same legal relationship, and the ICC Court found the arbitration agreements to be compatible.

The new Article 10 of the 2021 ICC Arbitration Rules maintains the substance of its prior iteration but broadens the scope to include the circumstance of “same arbitration agreements”. In this regard, the ICC Court may consolidate arbitrations when all the parties to the arbitration have signed the same arbitration agreement or arbitration agreements. Such consolidation does not have to be done between multiple parties to the same and single arbitration agreement. The new Article 10(c) clarifies that consolidation may be available even if the claims are “not made under the same arbitration agreement or agreements”.

This proposed amendment aims at achieving a balance between the necessary flexibility in complex arbitrations and the need to maintain the required predictability by avoiding giving the ICC Court excessive discretion. As a consequence, consolidation will be possible when:

  1. All parties agree – Article 10 (a);
  2. The parties in the arbitrations are not the same but have all signed the same arbitration agreement or arbitration agreements – Article 10 (b);
  3. The parties in the arbitrations are the same, the disputes in the arbitrations arise from the same legal relationship and the ICC Court finds the multiple arbitration agreements under which the claims are made to be compatible – Article 10 (c).

In practice, this revision will be instrumental for managing complex disputes in the construction and energy sector where multiple parties, such as the employer, designer, engineer, main contractor and various subcontractors, are involved and multiple agreements are entered into among these multiple parties, as well as mergers and acquisitions disputes which usually involve a series of transaction documents, and multiple buyers and sellers, or shareholders.

An example of a situation captured by the new Article 10(b) is as follows. Parties A, B, C and D have signed both a Share Purchase Agreement and a Shareholders Agreement. Parties A and B are parties to the first arbitration based on the Share Purchase Agreement and parties A, C and D are parties to a second arbitration based on the Shareholders Agreement. In this scenario, if the Share Purchase Agreement and a Shareholders Agreement contain the same arbitration agreements, consolidation of arbitrations can occur, despite the parties in both arbitrations not being the same.

As to “compatible” arbitration agreements under Article 10(c), the lack of definition of what makes agreements “compatible” provides much needed flexibility and will assist to ensure that the Rules continue to be relevant as commercial disputes evolve. The typical circumstances of incompatible arbitration agreements have thus far included agreements with different mechanisms for the selection and appointment of arbitrators, seat of arbitration, language of arbitration and number of arbitrators. It demonstrates the importance of drafting arbitration agreements in multi-contract situations in identical terms as far as possible.

 

Conclusion 

The 2021 ICC Arbitration Rules reinforce the ICC’s position as a premier global arbitral institution that is nimble and responsive to a rapidly changing economic landscape. By enhancing the efficiency and flexibility of its arbitration rules with carefully considered and well framed amendments, users continue to have their commercial disputes administered with integrity, certainty and transparency.

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2020 in Review: Proper Law of Arbitration Agreement

Kluwer Arbitration Blog - Fri, 2021-01-01 00:00

2020 saw important case law developments concerning the proper law of arbitration agreements, where the seat of the arbitration is in a different jurisdiction from the governing law of the main contract, particularly in the UK. However, various jurisdictions have adopted different approaches to this issue. It remains to be seen which jurisdictions will follow the latest UK jurisprudence. This year, we covered on our Blog some of these approaches in a few select common law and civil law systems. We summarise below our coverage as well as include further comments from our Europe and Australia editorial teams.

 

Common law approach

English courts

Discussions on the law governing the arbitration agreement may and do arise when jurisdiction of the arbitral tribunal is contested (e.g. whether a party has agreed to submit a dispute to arbitration, as in Svenska Petroleum Exploration AB v Lithuania [2005] EWHC 2437 (Comm), Arsanovia Ltd & Ors v Cruz City 1 Mauritius Holdings [2012] EWHC 3702 (Comm), Kabab-Ji SAL (Lebanon) v Kout Food Group (Kuwait) ([2020] EWCA Civ 6), or whether there is a valid arbitration agreement, as in Abuja International Hotels Ltd v Meridien SAS [2012] EWHC 87 (Comm)), or when anti-suit injunctions are sought (e.g. XL Insurance Limited v Owens Corning [2001], C v D, [2007] EWCA Civ 1282, Sulamerica CIA Nacional De Seguros SA v Enesa Engenharia SA [2012] EWCA Civ 638, Enka Insaat Ve Sanayi AS v OOO “Insurance Company Chubb” & Ors [2020] EWCA Civ 574), at the set aside or at the enforcement stage.

This year saw important developments in the English courts on this issue. In English courts, the applicable law to the arbitration agreement is determined by applying the three-stage test required by English common law conflicts of law rules for determining the law governing contractual obligations (as the Rome I Regulation does not apply to arbitration agreements), namely (i) is there an express choice of law? (ii) if not, is there an implied choice of law? (iii) if not, with what system of law does the arbitration agreement have its closest and most real connection?

First, as reported by our contributor, we experienced at the beginning of the year an emerging focus on the express choice, as the England and Wales Court of Appeal (EWCA) determined in Kabab-Ji that the question can be answered at the first stage not only if exceptionally there is an express choice of the law of the arbitration agreement, but also in other cases. As such, the express choice of law in the main contract may amount to an express choice of law of the arbitration agreement, if the construction of the contract so mandates (essentially “This Agreement” clauses, which means that the law agreed for the main contract covers all clauses, including the arbitration clause). Both the EWCA (para. 90) and the Supreme Court (paras. 43, 52, 60) endorsed this ruling in Enka.

With respect to the second stage of the inquiry, as we have reported on the Blog, we saw the EWCA departing from Sulamerica in its decision handed down in April, as it held the seat of arbitration as an implied choice of law of the arbitration agreement, subject to any countervailing factors in the relationship between the parties or the circumstances of the case (e.g. if the arbitration agreement would be invalid under the law of the seat).

The Supreme Court disagreed and ruled in October this year, as explained on the Blog, that at the second stage of the inquiry, prevalence should be given to the parties’ intention when agreeing on the law of the main contract; where the parties have (expressly or impliedly) chosen the law applicable to the main agreement, it would normally govern the arbitration agreement as an implied choice.

At the third stage, the Supreme Court held in Enka that the arbitration agreement is most closely connected with the law of the seat if the parties had chosen one, as, inter alia, this is the most used connecting factor and it is also consistent with international law and legislative policy, such as the New York Convention.

In practical terms, it means that under English law, as it currently stands, the law of the seat would govern the arbitration agreement in those (presumably limited) cases where parties do not agree (expressly or impliedly) on the law applicable to the main contract. In Enka the majority found there is no express or implied choice for the main contract and, moving to the third stage of the inquiry, determined that the applicable law of the arbitration agreement is English law, as the seat was London.

Also, the UK Supreme Court expressly confirmed the existence of the validation principle under English law to realign UK jurisprudence with the transnational approach to the proper law of the arbitration agreement, as another contributor explained at length.

 

Singapore courts

This year has seen continued discussion (see here, here and here) of the late 2019 decision of the Singapore Court of Appeal in BNA v BNB and another [2019] SGCA 84 (“BNA”). The Court of Appeal overturned the earlier High Court ruling and provided authoritative guidance on the applicable principles in determining the proper law of an arbitration agreement. By applying the three-stage analysis, the Court of Appeal expressly endorsed the approach taken in Sulamérica that in the absence of an express choice of the proper law of the arbitration agreement, the implied choice of law should presumptively be the proper law of the underlying contract.

However, unlike the UK Supreme Court, the Singapore Court of Appeal did not decide on the applicability of the validation principle. Whilst the validation principle was rejected by the High Court, this issue was not considered by the Court of Appeal and arguably it remains unsettled law. Singapore courts may also have to deal with the apparent conflict between Singapore contract law principles and the choice of law principles in the New York Convention.

 

Australia

Australian courts have yet to consider a test to determine the applicable law governing an arbitration agreement in the absence of an express choice of law. Time will tell whether Australian courts will be persuaded by the majority opinions in the UK Supreme Court’s Enka decision, the approach of the Singapore Court of Appeal in BNA, or if a different approach is adopted altogether.

 

Pacific Islands

Whilst the courts in the Pacific Islands have also not had the opportunity to rule on this topic, the Pacific Islands region saw more fundamental developments in arbitration this year. 2020 was the year that saw the Kingdom of Tonga and Palau accede to the New York Convention. They now join other Pacific states to have done the same, such as Fiji, Papua New Guinea, the Marshall Islands and the Cook Islands. With more and more countries acceding to the New York Convention each year, there is an obvious benefit in Pacific Islands’ jurisdictions seeking to streamline their domestic approaches to the position adopted under the New York Convention, for consistency with other jurisdictions.

 

Civil law approach

French courts

We mentioned above the findings of the English courts on the law applicable to the arbitration agreement in Kabab-Ji. The effect was that both the High Court of England and Wales and the EWCA refused to enforce the award on the basis that it was rendered against a non-party to the arbitration agreement. However, as explained in detail by our contributors, on the other side of the channel, the Paris Court of Appeal dismissed the application for the same award to be set-aside, confirming the arbitral tribunal’s findings upholding jurisdiction over a third party to the arbitration agreement. The different solution was triggered by the application of a different law to the arbitration agreement: the English courts applied English law, while the Paris Court of Appeal applied the French law and extended the arbitration agreement to a non-signatory. Our contributors explain that the solution is in line with the French case law allowing such extension if the non-signatory was involved in the performance of the contract.

When determining the law applicable to the arbitration agreement, the Paris Court of Appeal gave prevalence to the law of the seat, on the ground that the parties’ choice in the governing law of the main contract (in this case English law) could not override their ulterior choice in favour of Paris as the seat of arbitration, and French law as (i) the law applicable at the seat of arbitration; and (ii) thus, to the arbitration agreement.

 

Swedish courts

Earlier this year, our Blog revisited a judgment of the Svea Court of Appeal handed down in late 2019. The court considered whether an arbitral award rendered by a tribunal some years earlier should be set aside on the grounds it lacked jurisdiction to decide the dispute.

The court applied a statutory provision in the Swedish Arbitration Act. That provision, in effect, requires that if parties have not agreed on the choice of law for an arbitration agreement, then the law of the forum country applies. In resolving the case, the court arguably applied a strict approach to interpreting whether the parties have agreed on the choice of law for an arbitration agreement, seemingly recognising only explicit statements to that effect within the contract itself.

As the parties had not explicitly agreed on a choice of law for the arbitration agreement (only for the ‘main agreement’), the court found that Swedish law applied as the law of the forum country. From there, the court used customary principles of contract interpretation under Swedish law to find that a valid arbitration agreement existed between the parties. On that basis, there was no reason for the court to set aside the arbitral award on the ground that the tribunal lacked jurisdiction to decide the dispute.

On its face, the statutory provision applied by the court broadly mirrors the approach advocated by Articles V(1)(a) and II(3) of the New York Convention in recognising that, absent the parties agreement as to the governing law of an arbitration agreement, the law of the forum country applies. However, by recognising only explicit agreement as to a choice of law (rather than also implicit agreement), the position in Sweden now arguably departs from the position under New York Convention (see Enka at 129 and 130 and a recent Blog post here). Time will tell whether subsequent decisions in Sweden will interpret the statutory provision in such a way as to better align it with the broader interpretation of Articles V(1)(a) and II(3) of the New York Convention, now supported by the UK Supreme Court in Enka.

 

Conclusion

The common and civil law approaches seem to converge in that where there is no agreement of the parties on the law applicable to the arbitration agreement, the law of the seat would govern it (either by statutory grounds, or by applying the closet connections test). However, as the law currently stands, what differs is a more lenient approach in common law courts – at least the English courts – on what amounts to parties’ agreement (either as an express choice by way of construction, e.g. Kabab-Ji, or by implied choice, e.g. Enka), leaving less cases to be governed by the law of the seat compared to the civil law approach.

The UK courts’ judgments this year provided welcome clarity on how UK courts will seek to determine the governing law of an arbitration agreement where the parties have not made an express choice. However, whether or not the reasoning of the majority is persuasive in developing or clarifying this area of law in other (at least common law) jurisdictions around the world remains to be seen. We look forward to continuing our Blog’s global coverage on this topic in 2021.

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Open Positions: Assistant Editors of Kluwer Arbitration Blog

Kluwer Arbitration Blog - Wed, 2020-12-30 22:49

The Editorial Board of Kluwer Arbitration Blog announces the opening of three positions with Kluwer Arbitration Blog: Assistant Editor for Europe, Assistant Editor for Middle East North Africa (MENA), and Assistant Editor for Investment Arbitration.

For each respective position, the Assistant Editor reports directly to the coordinating Associate Editor and is expected to (1) collect, edit and review guest submissions from the designated region or issue area for posting on the Blog, while actively being involved in the coverage of the assigned region or issue area; and (2) write blog posts as contributor. The position provides an opportunity to work with a dynamic and dedicated team and liaise with the arbitration community and various stakeholders.

The Assistant Editor will work remotely. Please note that this is a non-remunerated position. If you are interested, please submit a resume and cover letter by email, before 10 January 2021, to [email protected], with cc to Dr Crina Baltag, [email protected]. We will only reach out to shortlisted candidates for an interview.

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Merging Mediation Models – And Other Lessons

ADR Prof Blog - Wed, 2020-12-30 13:14
Imagine that you just stared into the neuralyzer in Men in Black.  It wiped out all your memory of the traditional bundled of models of mediation and negotiation.  You know – facilitative and evaluative mediation, interest-based and positional negotiation, etc. etc.  The neuralyzer also vaporized all references to them in texts and teaching materials. You’re … Continue reading Merging Mediation Models – And Other Lessons →

2020 in Review: Reflections on the Sea-Change in Arbitration in Southeast Asia

Kluwer Arbitration Blog - Wed, 2020-12-30 00:00

Today is the last day of 2020. For most of us, 2020 has been a particularly unusual year due to the COVID-19 pandemic.

Prompted by necessity, arbitration in Southeast Asia adapted to the sea-change by: (i) using technology for virtual hearings, events and to build on existing diversity initiatives, (ii) developing domestic arbitration case law and legislation, and (iii) propelling international economic treaties forward.

Our Southeast Asia editorial team looks back on how the region has subtly shifted towards private commercial dispute resolution this year, and considers whether these developments are likely to stay with us.

 

Using technology to connect the arbitration community in Southeast Asia

Amidst the travel and other restrictions on gatherings arising from the COVID-19 pandemic, arbitration hearings and conferences took to virtual platforms. Arbitral institutions in Southeast Asia were no exception.

Our Blog provided same-day coverage of the Singapore International Arbitration Centre (“SIAC”)’s first virtual congress, in particular on the congress’ plenary session on “International Arbitration: the Challenges and Changing Landscapes” and its debate with the highly apposite motion “This House believes that Virtual Hearings are just as effective as In-Person Hearings”. We also specially conducted an interview with a member of the SIAC Court of Arbitration, Ms. Ariel Ye, as part of our Blog’s Interviews with our Editors series.

Given the significant increase in the use of technology in business this year, one of our Blog’s Permanent Contributors, the Asian International Arbitration Centre (“AIAC”), also covered the potential use of standard form contracts in the tech industry.

By using far-reaching and popular webinar platforms, the international arbitration community in Southeast Asia re-doubled its commitment to wide-ranging diversity initiatives. Most notably, arbitral institutions placed themselves at the forefront of championing diversity. Several arbitral institutions which have significant presences in Southeast Asia, including the Hong Kong International Arbitration Centre and the International Chamber of Commerce, were part of the Cross-Institutional Task Force on Gender Diversity in Arbitral Appointments (the “Task Force”). The Task Force published a report on 28 July 2020, which analysed recent statistics on the appointment of female arbitrators and identified opportunities and best practices to promote gender diversity in international arbitration.

Additionally, the AIAC launched its inaugural Diversity in Arbitration Week as part of its ADR Online: An AIAC Webinar Series, during which it engaged with gender, age, professional, race, and ethnic diversity. Young SIAC (“YSIAC”) – another Permanent Contributor of our Blog – also held a webinar on gender diversity in arbitral appointments and proceedings which discussed and supported the Task Force’s findings in its report.

 

Developments in national arbitration laws and cases

Significant amendments were made to the Singapore’s International Arbitration Act in September 2020. Our Blog covered the key features of the amendments, including a default mechanism for appointment of arbitrators in a multi-party arbitration and an express recognition that both the arbitral tribunal and the High Court have the powers to enforce confidentiality obligations when parties have agreed to such obligations in writing.

Our contributors also opined on potential amendments to Indonesia’s Law Number 30 Year 1999 on Arbitration and Alternative Dispute Resolution, to commemorate the 21st anniversary of the legislation on 12 August 2020.

Some potential uncertainty was noted in the enforcement of awards in Vietnam this year. On 20 February 2020, the Vietnam’s Supreme People’s Procuracy issued Notice No. 97/TB-VKSTC (Notice 97) drawing the attention of Vietnamese courts to Decision No. 253/2017/KDTM-PT dated 13 September 2017 (Decision 253), which is an appellate court decision upholding the People’s Court of Hanoi’s refusal to recognise an arbitral award.

In August 2020, Timor Leste amicably concluded an arbitration with an international oil and gas consortium regarding production sharing in the joint petroleum development area in the Timor Sea, by entering into a deed of settlement.

 

Treaty developments and economic recovery

In 2020, Southeast Asia persisted in leading the conclusion and promotion of international economic treaties.

Most notably, the Regional Comprehensive Economic Partnership (“RCEP”) was signed on 15 November 2020 by the Association of South-East Asian Nations, Australia, China, Japan, Korea, and New Zealand, creating one of the world’s largest international trading blocs. Investor-state arbitration was conspicuously left out of the RCEP; however, the treaty contains a work programme that requires the States Parties to enter into discussions on the settlement of investor-State disputes within the next two years after entry into force of the RCEP.

The Singapore Mediation Convention (the “Singapore Convention”) entered into force on 12 September 2020, prompting contributors to further consider its potential impacts, particularly on the role of mediation as a dispute resolution tool in investor-state disputes vis-à-vis arbitration: see here and here. Apart from Singapore, however, the other Southeast Asian States have yet to ratify the Singapore Convention. Further discussion of the Singapore Convention can be found at Kluwer Mediation Blog.

On a separate note, the Indonesia – Australia Comprehensive Economic Partnership Agreement (the “IA-CEPA”) entered into force on 5th July 2020. This was preceded by the termination of the Australia – Indonesia Bilateral Investment Treaty (the “BIT”) together with the survival clause therein. The IA-CEPA is one of the most highly anticipated international economic agreements that has been gaining traction in recent years. Observations on the effect of termination of the BIT and its survival clause, and how it unfolds vis-à-vis investor-state dispute settlement under the IA-CEPA is certainly one for the book!

 

Looking forward to 2021

As 2020 ends on a hopeful note, with reports of imminent vaccines promising to curb the COVID-19 pandemic, our Southeast Asia editorial team hopes that 2021 will bring positive developments to the arbitration scene. Chiefly, we anticipate more diversity initiatives and events and greater gender diversity in arbitral appointments.

It seems that along with the retreat into our homes this year, we may see a shift away from the traditional and adversarial arbitration model, and towards more private and amicable dispute resolution methods such as mediation. If such a shift manifests, it would not necessarily mean a decrease in arbitration, as these are complementary forms of dispute resolution. It would, however, require arbitration lawyers to adapt their skills and approaches to disputes.

As restrictions lift and Southeast Asia recovers economically in the wake of the pandemic, it will also be interesting to observe whether the shift to virtual hearings and the embracement of technology in 2020 sustains. As travel corridors are proposed in this region, we may see a contrast between events involving regional parties that will be increasingly held in person, and larger and more international events that will continue to take place virtually.

We thank our readers and all our contributors this year for engaging with us. We look forward to an equally fruitful discussion of arbitration developments and thoughts on our Blog in 2021!

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Is Empathy Possible in Today’s Polarized Political Environment?

ADR Prof Blog - Tue, 2020-12-29 11:35
Four social scientists who study empathy and political division think so. Take a look at their piece in the Washington Post, Our Divided Times Are an Opportunity for Empathy. Really. To access the article, click on the title of this post.

Mediation Confidentiality in Federal Court

Business Conflict Blog - Tue, 2020-12-29 11:13

As a consequence of the absence of uniform adoption of the Uniform Mediation Act, the confidentiality of mediation communications in various jurisdictions often cannot be assured. Thanks to Alan Waxman, President and CEO of the International Institute for Conflict Prevention and Resolution (CPR), for bringing to our attention the most recent contributions to this confusion.

In Accent Delight International Ltd v Sotheby’s, 18-cv-9011 (S.D.N.Y. Dec 8, 2020), Judge Jesse Furman ruled on a motion seeking discovery of materials relating to a private (as opposed to court-ordered) confidential mediation that took place in an effort to settle a separate dispute between Sotheby’s and certain sellers of an artwork. In that prior mediation, Sotheby’s and the sellers entered into an agreement with the mediator that the mediation “was a settlement negotiation deemed private and confidential.” Plaintiff Accent Delight sought production in this action of the confidential settlement agreement reached in the prior litigation, as well as approximately 250 other documents related thereto, including communications between Sotheby’s counsel and the sellers’ counsel, and communications with the mediator.

The problem in the Second Circuit is the holding in In re Teligent, 640 F.3d 53 (2d Cir. 2011). There, the court affirmed the denial of a motion to compel disclosure of documents relating to a mediation, holding that a party seeking such disclosure “must demonstrate (1) a special need for the confidential material, (2) resulting unfairness from a lack of discovery, and (3) that the need for the evidence outweighs the interest in maintaining confidentiality.” One might have hoped for a more categorial assurance that confidential means confidential, but it was a welcome holding nonetheless.

The problem was that the mediation at issue in Teligent was court-ordered. One would assume that such a fact mattered as much as whether it was held on a Tuesday, but unfortunately no. In 2019, the Southern District held in Rocky Aspen Mgmt. 204 LLC v. Hanford Holdings LLC that the heightened showing required in Teligent applied only with respect to mediations that — like the one in Teligent itself — were conducted pursuant to court order. The court there reasoned that the promise of confidentiality had been extended by a government agency — the court — and not by private parties engaged in private discussions. Rather, the mere “good cause” standard of FRCP 26(c) applies to the discovery of information exchanged during mediation where there is no promise of confidentiality by a court.

In Accent Delight, by contrast, Judge Furman held that the heightened standard articulated in Teligent applied to mediation communications irrespective of whether they are court-ordered. The rationale of the confidentiality of settlement discussions — that they lead to resolution of disputes — applies equally whether the discussions take place voluntarily or by order. Making such a distinction would act as a disincentive to parties considering entering into private mediation. And such a ruling conforms to the conclusion of courts outside the Second Circuit. Some of those other rulings expressly link a “heightened standard” to FRE 408, which shields statements made during settlement negotiation for precisely the same reasons.

Things remain, as noted, un-uniform. In the Southern District a court has compelled mediator testimony to establish whether the mediator gave permission to a party and counsel to be excused from in-person attendance at a court-ordered mediation. Usherson v Bandshell Artist Management (S.D.N.Y. Dec. 9, 2019). On the other hand, the Fifth Circuit recently held that allegedly threatening statements made during mediation were inadmissible in an action to set aside a mediated settlement on the ground that the plaintiff had been coerced. Areizaga v. ADW Corp., 796 Fed. Appx. 205 (5th Cir. 2020).

Where does this leave the practicing mediator? We include in our agreements a promise of confidentiality. The parties agree that statements and other communications will be held both confidential and inadmissible. We require that they agree not to subpoena documents or testimony from the mediator, and to indemnify the mediator for any costs related to such an effort. Then, I suppose, having done all we can, we let the participants do as they deem fit.

They will anyway….

The post Mediation Confidentiality in Federal Court first appeared on Business Conflict Blog.

The Arab Investment Court and Intra-Arab BITs: a Potential New Frontier?

Kluwer Arbitration Blog - Mon, 2020-12-28 22:34

The past decade has witnessed a surge in popularity of the Organisation of Islamic Cooperation’s Agreement for the Promotion and Protection of Investment, which is a multilateral treaty that binds twenty-seven states and allows for the resolution of investor-state disputes by ad hoc arbitration. There has been much scholarly discussion about this treaty as cases under its aegis continue to be filed every year. Another somewhat similar regional treaty has however kept a low profile, namely, the “Unified Agreement for the Investment of Arab Capital in the Arab States” (the “Arab Investment Agreement”), which is a treaty concluded by the members of the Arab League. This latter treaty appears to have garnered less interest and excitement.

Notwithstanding, this overlooked treaty possesses quite a unique feature; that is, it was the first investment agreement ever to establish a permanent forum for the settlement of investor-state disputes. The Arab Investment Court was established in 1983 and has been operational since 2003. Critics of Investor-State Arbitration who have called for the creation of a permanent investment court, have often neglected the fact that such a jurisdiction has existed for quite some time.

In light of this, one may wonder why this avant-garde treaty has been neglected and underutilised? The answer is perhaps that the proceedings of the Arab Investment Court are conducted entirely in Arabic, which might render international law firms advising on investment disputes less keen to recommend this option to their clients where others exist. Another possible answer is that investors and their counsel feel more comfortable resorting to arbitration where they know they will be able to have a say in the identity of their adjudicators. But ultimately, the main reason for the Arab Investment Court’s lacklustre popularity is the narrow definition of “investors” contained in the Arab Investment Treaty.

Indeed, in its original iteration, the Arab Investment Treaty, under Article 1, defined an Arab Investor as a “natural or juridical person who is a national of a contracting state, provided that no part of the juridical person is owned, directly or indirectly, by any person that is not an Arab national […].” A revised version of the treaty, adopted in 2013, somewhat relaxed this requirement by now only requiring a 51% ownership by Arab nationals for a juridical person to qualify for protection under the Treaty. The amendment has now entered into force between a handful of member States but the old language prevails where either or both of the host or home state have not yet ratified the revision. Whichever definition applies, however, a clear hurdle exists for the numerous multinational investors operating throughout the region through locally incorporated entities.

However, there may well be a way to bypass this onerous requirement which has so far been overlooked. Article 30 of the Arab Investment Treaty (Article 25 in the amended version) provides that “If it is stated in an Arab-international agreement establishing an Arab investment or in any agreement regarding investment within the scope of the Arab League or between its members that an issue or a dispute shall be referred to international arbitration or to international courts, the parties involved may agree to deem said issue or dispute falling within the jurisdiction of the Court.”

What this effectively means is that investors may be able to access the Arab Investment Court through one of the many Intra-Arab BITs rather than relying upon the Arab Investment Treaty. Indeed, this possibility has been acknowledged in the Amended Statute of the Arab Investment Court under Article 21, which underlines the Court’s competence to consider cases arising out of Intra-Arab Investment Agreements.

A survey of Intra-Arab Investment Treaties reveals that no less than thirty-four of these agreements have pre-emptively provided the states’ consent for disputes under these agreements to be resolved by the Arab Investment Court. It is worth noting that another three treaties grant the investor prior consent of the State to resort to the Arab Investment Treaty’s optional arbitration provisions without however explicitly allowing recourse to the Arab Investment Court.1)Bahrain-Morocco BIT; Jordan-Oman BIT; Mauritania-Morocco BIT. jQuery("#footnote_plugin_tooltip_5226_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5226_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

These Intra-Arab Investment Treaties invariably define “investors” less restrictively than the Arab Investment Treaty. The question, however, remains as to whether the Court, in ruling on its ratione personae competence, would ultimately rely on the definition in the BIT, by virtue of the lex specialis or lex posterior rule, or that of the Arab Investment Treaty which may be deemed to have been incorporated by reference. None of the twenty judgements rendered by the Court to date offers an answer. Attention must therefore be given to the particular wording of the provisions in the different BITs that redirect the investor towards the Arab Investment Court and/or the Arab Investment Treaty.

Three BITs make a direct reference to the Arab Investment Court as a means of resolving investor-disputes, with no further mention of the Arab Investment Treaty.2)Algeria-Yemen BIT; Oman-Yemen BIT; Syria-Tunisia BIT. jQuery("#footnote_plugin_tooltip_5226_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5226_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); If a dispute is brought under any of these agreements, it is therefore likely that the definition of investor within them would prevail over any language contained in the multilateral treaty and the Court should have no problem considering cases brought by foreign-owned locally incorporated corporations.

Twelve BITs give investors the option to resolve disputes through the Arab Investment Court “in accordance with Chapter 6 of the [Arab Investment Treaty].3)Algeria-Oman BIT; Algeria-Libya BIT; Algeria-Syria BIT; Bahrain-Sudan BIT; Bahrain-Syria BIT; Egypt-Syria BIT; Jordan-Syria BIT; Kuwait-Syria BIT; Morocco-Sudan BIT; Morocco-Syria BIT; Sudan-Tunisia BIT; Sudan-UAE BIT. jQuery("#footnote_plugin_tooltip_5226_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5226_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); A further two treaties use very similar language but refer to the “dispute resolution provisions” rather than to Chapter 6 specifically.4)Jordan-Qatar BIT; Libya-Morocco BIT. jQuery("#footnote_plugin_tooltip_5226_4").tooltip({ tip: "#footnote_plugin_tooltip_text_5226_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Fourteen treaties make no express mention of the Arab Investment Court but refer the investor to the Arab Investment Treaty’s dispute resolution provisions/chapter.5)Algeria-Kuwait BIT; Algeria-UAE BIT; Bahrain-Jordan BIT; Bahrain-Lebanon BIT; Jordan-Kuwait BIT; Jordan-Lebanon BIT; Kuwait-Egypt BIT; Kuwait-Lebanon BIT; Kuwait-Morocco BIT; Kuwait-Sudan BIT; Kuwait-Tunisia BIT; Lebanon-Morocco BIT; Lebanon-Sudan BIT; Lebanon-Yemen BIT. jQuery("#footnote_plugin_tooltip_5226_5").tooltip({ tip: "#footnote_plugin_tooltip_text_5226_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In each of these instances, the wording is restricted to only a specific part of the Arab Investment Treaty, the Court will therefore likely prioritise the language in the BIT over any part of the Arab Investment Treaty that falls outside of the dispute resolution provisions. In such cases, the distinction between the original and revised versions of the Arab Investment Agreement regains relevance. Article 29 of the original treaty, which falls under the abovementioned Chapter 6, refers back to the restrictive definition of investor under Article 1, which means that the Court would have to grapple with the question of what definition overrides the other. The amended version of the Arab Investment Treaty however contains no such reference to Article 1 in its dispute resolution chapter which means that the definition of investor under the BIT is likely to prevail.

Finally, Three BITs redirect investors to the “authorities in charge of the resolution of disputes under the [Arab Investment Treaty] of 1980”. This wide and unspecific reference to the Arab Investment Treaty means that the definition of investor under Article 1 may apply in the Court’s view and override the definition in the BIT.6)Jordan-Palestine BIT; Lebanon-Oman BIT; Lebanon-Syria BIT. jQuery("#footnote_plugin_tooltip_5226_6").tooltip({ tip: "#footnote_plugin_tooltip_text_5226_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Further ratifications of the 2013 amendment to the Arab Investment Agreement and an ever-growing awareness of investor-state dispute resolution in the region may lead to an uptick in popularity of the Arab Investment Court in the future. We will have to wait and see whether some adventurous investor might explore the road uncovered in this article, and if so, how the Court will rule on this conflict of treaties.

References   [ + ]

1. ↑ Bahrain-Morocco BIT; Jordan-Oman BIT; Mauritania-Morocco BIT. 2. ↑ Algeria-Yemen BIT; Oman-Yemen BIT; Syria-Tunisia BIT. 3. ↑ Algeria-Oman BIT; Algeria-Libya BIT; Algeria-Syria BIT; Bahrain-Sudan BIT; Bahrain-Syria BIT; Egypt-Syria BIT; Jordan-Syria BIT; Kuwait-Syria BIT; Morocco-Sudan BIT; Morocco-Syria BIT; Sudan-Tunisia BIT; Sudan-UAE BIT. 4. ↑ Jordan-Qatar BIT; Libya-Morocco BIT. 5. ↑ Algeria-Kuwait BIT; Algeria-UAE BIT; Bahrain-Jordan BIT; Bahrain-Lebanon BIT; Jordan-Kuwait BIT; Jordan-Lebanon BIT; Kuwait-Egypt BIT; Kuwait-Lebanon BIT; Kuwait-Morocco BIT; Kuwait-Sudan BIT; Kuwait-Tunisia BIT; Lebanon-Morocco BIT; Lebanon-Sudan BIT; Lebanon-Yemen BIT. 6. ↑ Jordan-Palestine BIT; Lebanon-Oman BIT; Lebanon-Syria BIT. 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: International Arbitration and the COVID-19 Revolution
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The New Brazilian Data Protection Law Permits the Use of Personal Data in International Arbitration, Subject to Appropriate Measures by the Parties and/or Tribunal

Kluwer Arbitration Blog - Sun, 2020-12-27 22:17

Brazil’s new data protection law, the Lei Geral de Proteção de Dados (LGPD) (September 18, 2020), has important implications for international arbitration users and practitioners.1)On August 2018, the law was approved with an effective date of February 2020. Because of the COVID-19 pandemic, the effective date was postponed and the law came into force in September 18th, 2020. jQuery("#footnote_plugin_tooltip_7288_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7288_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The impact of the emerging data protection regulation in international arbitration is triggering new rules and guidelines that aim to accommodate compliance with data protection obligations. The International Chamber of Commerce (ICC), for example, recognizing the “importance of effective and meaningful personal data protections”, addressed protection of personal data in its Note to Parties and Arbitral Tribunals on the Conduct of Arbitration under the ICC Rules (Note). In another example, the London Court of International Arbitration (LCIA) released its 2020 LCIA Rules, which came into effect on October 1st, 2020, providing a new Article 30A addressing “applicable data protection legislation”.

Brazil’s new law requires participants to take steps to safeguard the personal information of any Brazilian participant and the personal information of any Brazilian third parties that might form part of the evidence of the case, as well as the personal information of any data processed2)Processing has a broad definition within the LGPD. It involves any operation carried out with personal data such as collecting, producing, using, accessing, transferring, modifying, storing and deleting data (Article 5). jQuery("#footnote_plugin_tooltip_7288_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7288_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); in Brazil regardless of that person’s nationality.

The LGPD was inspired by the European General Data Protection Law (GDPR), and it is largely aligned with the GDPR’s principles. Like the GDPR, the LGPD imposes obligations on the processing of personal data, including before, during and after the arbitral proceeding. However, the particular provisions of each regulation may end up affecting international arbitration proceedings differently.

 

Personal data may be used in international arbitration

Under the LGPD, processing personal data is permitted when doing so complies with one of the lawful bases enumerated in the regulation. Articles 7, VI, and 11, II(d) allow the processing of personal data for the regular exercise of rights, including arbitration. Such provisions strengthen the use of arbitration and they are in harmony with the regular exercise of rights under the Brazilian Arbitration Law. The LGPD’s specific reference to arbitration adds a degree of certainty over the GDPR, which only provides four general bases for the potential use of personal data in an international arbitration (i.e., to satisfy a contract to which the data subject is a party; to comply with a legal obligation; to perform a task in the public interest or to carry out some official function; and when there is a legitimate interest to process someone’s personal data) (Article 6; GDPR).

 

Personal data may be transferred to another country for use in international arbitration

The LGPD allows cross-border data transfers whenever it is necessary to comply with the regular exercise of rights, including arbitration proceedings (Article 33, IX). This provision is an express exception for international arbitration to the general rule by which the LGPD permits the international transfer of personal data only to other countries with a similar level of protection (Article 33).

The GDPR likewise permits the international transfer of personal data when it “is necessary for the establishment, exercise or defence of legal claims” (Article 49(e)). Although the provision does not mention expressly arbitration, the GDPR’s broad definition would seem to apply to international arbitration.

 

Material and territorial scope of the LGPD

The LGPD protects any data that relates to an identified or identifiable Brazilian individual, such as name, identification number, location and genetic or biometric data (Articles 5 and 11). The LGPD is triggered whenever personal data is processed. Moreover, the regulation adopts an extra-jurisdictional approach, reaching businesses overseas where (Article 3):

  1. the data processing operation is carried out in Brazil;
  2. the processing activity aims to offer or supply goods or services to persons located in Brazil, even when data processing is carried out outside Brazil;
  3. the data being processed belongs to individuals located in Brazil at the time of its collection; or
  4. the data has been collected in Brazil.

The GDPR and the LGPD have a fairly consistent approach in terms of material and territorial scope of the law.3)Articles 3 and 4; GDPR. jQuery("#footnote_plugin_tooltip_7288_3").tooltip({ tip: "#footnote_plugin_tooltip_text_7288_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Nevertheless, given the particularities of each regime, arbitrators may reach different outcomes depending on which regulation is being under review. For example, in Tennant Energy vs. Canada, an international arbitration under NAFTA, the investor addressed the subject of GDPR because one of the tribunal members was based in the United Kingdom which, at that time, was a member of the European Union (here). However, without further explanation, the tribunal held that an arbitration under NAFTA does not “come within the material scope of the GDPR” because “neither the European Union nor its Member States are party” to the treaty invoked in the arbitration.

The decision in Tennant raised several issues about the application of the GDPR in international arbitration, particularly with respect its Article 2(2)(a) which provides that the GDPR does not extend to the processing of personal data “in the course of an activity which falls outside the scope of the Union law”. One wonders whether the tribunal in Tennant would have reached a different outcome if the applicable regulation did not have a provision that limited its scope to European Union Law.

Given that the GDPR is inspiring emerging data protection norms worldwide, such as the LGPD, the issues involving the scope and application of the GDPR may also arise under these other regimes. The potential complexity that data protection regimes impose on arbitration participants highlights the need for a framework to address data protection regulation compliance in arbitrations.

 

Accommodating emerging data-protection laws

Because of the relevance of data protection in cross-border disputes, arbitral institutions and organizations have been working to standardize compliance practices in the protection of personal data in arbitration. For example, Brazil’s Câmara do Mercado (CAM), has responded to the rise of data protection norms by offering a digital platform for communication, file sharing, and control of costs (here).

The ICC provided new rules addressing Protection of Personal Data determining that (i) parties shall ensure that applicable data protection regulations are complied with, (ii) arbitrators shall ensure that only necessary and accurate data are processed, and (iii) any breach of the security and confidentiality of personal data must be reported (Section VI, D).

The LCIA reserved an entire article in its 2020 Rules to accommodate compliance with data protection legislation. Article 30A establishes that the arbitral tribunal shall, with consultation with the parties and/or the LCIA, consider (i) security measures to protect information shared in the arbitration, and (ii) means to process personal data in light of the applicable data protection law. The 2020 Rules coupled with its General Privacy Notice aim to protect and respect personal information.

The International Council for Commercial Arbitration (ICCA) and the International Bar Association (IBA) launched a task force to specifically discuss data protection in international arbitration. In 2020, this task force released a consultation draft of ICCA-IBA Roadmap to Data Protection for public comment. The ICCA-IBA Roadmap was open to public comment until June 2020 and its final form should be available in 2021.

Based on the ICCA-IBA Roadmap, and given that data protection regulation is on the rise in many other jurisdictions,4)For example, the California Consumer Privacy Act, the India Information Technology (Reasonable Security Practices & Procedures and Sensitive Personal Data or Information) Rules, 2011, and the Law of the People’s Republic of China on the Protection of Personal Information (draft released on October 21, 2020). jQuery("#footnote_plugin_tooltip_7288_4").tooltip({ tip: "#footnote_plugin_tooltip_text_7288_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); we expect to see a continued proliferation of internal checklists and guidelines to ensure compliance with these new norms.

 

Minimizing risks

Breaches of the data protection obligations may result in fines of up to R$50 million reais (US$ 9.6 million) for each infraction and the blockage or exclusion of the personal data to which the infraction refers (Article 52; LGPD). In order to minimize such risks, each individual dispute requires a tailormade approach which can be an appropriate subject for the tribunal and the parties to address at the initial procedural conference of an arbitration and for the tribunal to establish finally in any terms of reference or first procedural order concerning the conduct of the proceedings.

The parties can also consider (i) data mapping to determine where the data to be processed during the arbitration is located and where it will be transferred and processed;5) See https://iapp.org/news/a/top-10-operational-responses-to-the-gdpr-data-inventory-and-mapping/ jQuery("#footnote_plugin_tooltip_7288_5").tooltip({ tip: "#footnote_plugin_tooltip_text_7288_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); (ii) data processing agreements when personal data is being transferred to a third-party for the purpose of the arbitration (e.g. experts, translators etc.);6)See Article 39; LGPD and Article 28; GDPR. jQuery("#footnote_plugin_tooltip_7288_6").tooltip({ tip: "#footnote_plugin_tooltip_text_7288_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and (iii) data protection protocols to address mechanisms to allocate the risks of non-compliance and to provide data breach notification obligations. The ICC, for example, encourages the arbitral tribunal to include in the terms of reference a data protection protocol to remind the arbitration participants that data protection regulation “applies to the arbitration and that by accepting to participate in the proceedings, their personal data may be collected, transferred, published and archived” (here).

In summary, the rise of personal data protection norms is challenging and is likely to be more present in the context of arbitral proceedings, now including those with a connection to Brazil. The issues regarding personal data protection in international arbitration require a close look by international arbitration users and practitioners in each case. Early consultation and advice from experienced counsel is essential to ensure compliance with applicable laws throughout the arbitration.

References   [ + ]

1. ↑ On August 2018, the law was approved with an effective date of February 2020. Because of the COVID-19 pandemic, the effective date was postponed and the law came into force in September 18th, 2020. 2. ↑ Processing has a broad definition within the LGPD. It involves any operation carried out with personal data such as collecting, producing, using, accessing, transferring, modifying, storing and deleting data (Article 5). 3. ↑ Articles 3 and 4; GDPR. 4. ↑ For example, the California Consumer Privacy Act, the India Information Technology (Reasonable Security Practices & Procedures and Sensitive Personal Data or Information) Rules, 2011, and the Law of the People’s Republic of China on the Protection of Personal Information (draft released on October 21, 2020). 5. ↑ See https://iapp.org/news/a/top-10-operational-responses-to-the-gdpr-data-inventory-and-mapping/ 6. ↑ See Article 39; LGPD and Article 28; GDPR. 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: International Arbitration and the COVID-19 Revolution
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2020 in Review: Institutional Trends in Investor-State Dispute Settlement

Kluwer Arbitration Blog - Sun, 2020-12-27 00:00

In 2019, we were wondering whether winter had come to Investor-State Dispute Settlement (ISDS), bringing with it a decline in the negotiation and conclusion of bilateral investment treaties. Looking back on 2020, we are left asking ourselves a similar question. This post will examine the year’s major institutional developments and their effects on ISDS both in 2020 and beyond.

 

COVID-19: ISDS’ Cosy Winter?

Despite the growing news fatigue, it would be remiss to write a 2020 review without briefly mentioning COVID-19. Its “unprecedented impact on individuals, entities, businesses, and states” has, naturally, greatly impacted the world of ISDS. In July, UNCTAD’s Investment Dispute Settlement Navigator reported that only 31 known ISDS arbitrations were initiated in the first half of 2020 (a 47% decrease from 2019). At the time, ICSID’s 2020 Financial Year Annual Report stating that only 23 cases had been registered under the ICSID Convention (a 41% decrease from those registered in the 2019 financial year). However, ICSID’s recently released ‘Year in Review’ newsletter reports a record 58 new cases were registered in 2020 under the ICSID Convention and Additional Facility, providing some optimism for those concerned about the effect COVID may have had on the demand for ICSID’s services.

In addition to these quantitative changes, the year has also seen several qualitative changes to ISDS as a result of COVID-19. The recently released ‘International Arbitration and the COVID-19 Revolution’ explores the innovative effect that COVID-19 has had on ISDS; particularly, the ways the ISDS community has adapted to the new, harsher, conditions. Leading the way, arbitral institutions jointly declared their intention of ensuring that “pending cases may continue and that parties may have their cases heard without undue delay.” Primarily, this response saw arbitral institutions embrace remote technologies and strive to implement secure online communication.

Yet, as Secretary-General of the ICC Mr Alexander Fessas has noted, “this really is not that new”. Many of these ‘adaptations’ existed well before the pandemic: ICSID announced that 60% of ICSID hearings were occurring remotely in 2019; several institutions were in the process of updating their electronic filing rules; and all institutions provide a wide discretion for the parties and the arbitrators to frame the procedure for a given case. This pre-existing framework for remote hearings should not be surprising: ISDS tribunals have always needed to facilitate arbitrators, counsel, and witnesses appearing from across the world; COVID-19 has simply increased the demand. Moreover, flexibility goes to the core of arbitration’s raison d’être – it is meant to adjust swiftly to uncertainty. Accordingly, while the rest of the world was adapting to the chilling effect of COVID-19, ISDS institutions were already relatively well-prepared for the weather.

 

Diversity in Investment Arbitration

In 2018, Gary Benton summed up the problem of diversity in international arbitration by stating: “we widely recognize there is something wrong but we haven’t effected a solution.” In 2020, a solution appeared further away than ever. The ICSID Fiscal Year 2020 Caseload Statistics reported that only 14% of appointed arbitrators, conciliators and ad hoc committee members were women – a steep drop from the 24% of appointed arbitrators reported in 2019 and 2018. While this “step back” is a blow for gender diversity in ISDS, the general trend remains positive. Over the 2020 financial year, individuals of 44 nationalities were represented amongst arbitrator, conciliator and ad hoc committee member appointments—”the highest number in a single year at ICSID”. Equally, in their 2020 report, the Cross-Institutional Task Force on Gender Diversity in Arbitral Appointments and Proceedings ­­– 17 leading international arbitration institutions, law firms and gender diversity initiatives – reported that the proportion of female arbitrators has almost doubled over the past four years. However, the report also recognised that the most frequent source of information about arbitrator candidates is through word of mouth ­­– something which entrenches existing standards and presents a barrier to new and diverse arbitrators.

 

Forging Ahead with ISDS?

The year saw a number of important bilateral and multilateral developments as States and institutions attempt to address the issues associated with ISDS.

In 2020, India and Brazil attracted attention from the ISDS community by signing the investment cooperation and facilitation treaty (‘India-Brazil BIT’). Although seeking to encourage the ‘cooperation and facilitation’ of foreign investors, the India-Brazil BIT provides little in the way of investment protection: it does not contain ISDS or rules on indirect expropriation. Instead, the India-Brazil BIT rather adopts the Brazilian approach to BITs which “brings dispute prevention to the center stage with the adversarial form of dispute resolution being a secondary consideration.” Such model-BITs tend to favour the host State’s right to regulate but also undermine the value of any substantive rights as foreign investors find themselves without a means of enforcing them. In this sense, they may be seen as a return to a pre-ISDS era, thereby representing a significant shift away from the “decades-old practice of investor-state arbitration”.

The India-Brazil BIT is by no means an isolated development: the trend internationally has been one of review and reform, with UNCITRAL’s Working Group III (‘WG III’) and ICSID’s working papers being prominent examples. During these reviews, States and arbitration institutions have been “exploring the potential for investor-State mediation to work alongside arbitration, or even to replace it altogether for some disputes.” Utilising mediation as part of a reform to ISDS has become a common theme throughout the UNCITRAL Working Group III discussions. Similar to the India-Brazil BIT, institutionalising mediation in a reformed ISDS regime is said to facilitate settlements before arbitration is necessary.

However, while the advantages of these institutional reform efforts can be debated, a fundamental issue remains how to implement them. At the 39th session, WG III outlined a few approaches to incorporating substantive changes into a multilateral instrument. For example, a “suite” approach was suggested, according to which States could choose to incorporate one or more of the proposed reform options based on their political and policy concerns and interest. Alternatively, a minimum standard approach was offered, whereby certain core elements would be included in a multilateral instrument that would need to be adopted by all participating States.

In a lecture on the topic, Professor Zachary Douglas QC highlighted the complications that multilateral institutions can bring to this process; namely, a highly political and convoluted negotiation process. As an alternative, Professor Douglas recommended a bilateral approach designed to address the issues that have arisen from a State’s own BITs and ISDS experience. This, it was reasoned, would speed up the negotiation process and allow for targeted solutions to the particular concerns of the State conducting the review of their BITs.

As we move into 2021 and States continue to review their BITs, we are likely to see new alterations and alternatives to the traditional ISDS model. However, there is no panacea to the issues surrounding foreign investment. As Dr Esmé Shirlow notes, reforms “to one procedure may produce unintended consequences for others.” Accordingly, while arbitral institutions continue to discuss their role in facilitating international investment agreements, there will still be a need for a comprehensive approach that leverages “the strengths of different dispute settlement techniques whilst minimising their weaknesses”.

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